(1)
|
to
update the status of our offering of common shares of beneficial
interest
in Hartman Commercial Properties REIT;
|
(2)
|
to
disclose certain recent events affecting Hartman Commercial Properties
REIT; and
|
(3)
|
to
provide you with a copy of our Quarterly Report on Form 10-Q for
the three
months ended March 31, 2006, as filed with the Securities and Exchange
Commission on May 12, 2006 (excluding the exhibits thereto), which
amends
and supplements certain information contained in the prospectus,
as
further described herein.
|
Description
of Use of Offering Proceeds
|
Amount
of Proceeds
so
Utilized
|
|||
Selling
Commissions paid to broker/ dealers not affiliated with
D.H. Hill Securities , LLP
|
$
|
1,265,955
|
||
Selling
Discounts
|
61,193
|
|||
Dealer
Manager Fee paid to D.H. Hill Securities , LLP
|
629,280
|
|||
Offering
expense reimbursements paid to the Management Company
|
632,240
|
|||
Acquisition
Fees paid to the Management Company
|
505,792
|
|||
Total
Offering Expenses
|
3,094,460
|
|||
Net
Offering Proceeds
|
22,911,193
|
|||
Repayment
of Lines of Credit
|
14,300,000
|
|||
Used
for Working Capital
|
8,611,193
|
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
Maryland
|
76-0594970
|
(State
or other jurisdiction of
|
(IRS
Employer
|
incorporation
or organization)
|
Identification
No.)
|
Yes
x
|
No
o
|
Large
Accelerated Filer o
|
Accelerated
Filer o
|
Non-Accelerated
Filer ý
|
Yes
o
|
No
x
|
Page
|
||
1
|
||
1
|
||
3
|
||
4
|
||
5
|
||
6
|
||
20
|
||
31
|
||
31
|
||
32
|
||
32
|
||
32
|
||
32
|
||
33
|
||
33
|
||
33
|
||
March
31, 2006
|
December
31, 2005
|
||||||
(Unaudited)
|
|||||||
Assets
|
|||||||
Real
estate
|
|||||||
Land
|
$
|
32,770,566
|
$
|
32,770,566
|
|||
Buildings
and improvements
|
141,344,762
|
141,018,810
|
|||||
174,115,328
|
173,789,376
|
||||||
Less
accumulated depreciation
|
(21,182,002
|
)
|
(19,824,386
|
)
|
|||
Real
estate, net
|
152,933,326
|
153,964,990
|
|||||
Cash
and cash equivalents
|
1,715,364
|
848,998
|
|||||
Escrows
and acquisition deposits
|
4,525,647
|
5,307,663
|
|||||
Note
receivable
|
622,135
|
628,936
|
|||||
Receivables
|
|||||||
Accounts
receivable, net of allowance for doubtful accounts
of $463,585 and $472,875 as of March 31, 2006 and
December 31, 2005, respectively
|
1,259,745
|
1,248,985
|
|||||
Accrued
rent receivable
|
2,691,821
|
2,593,060
|
|||||
Due
from affiliates
|
3,240,968
|
3,180,663
|
|||||
Receivables,
net
|
7,192,534
|
7,022,708
|
|||||
Deferred
costs, net
|
3,189,336
|
3,004,218
|
|||||
Prepaid
expenses and other assets
|
1,194,604
|
684,536
|
|||||
Total
assets
|
$
|
171,372,946
|
$
|
171,462,049
|
March
31, 2006
|
December
31, 2005
|
||||||
(Unaudited)
|
|||||||
Liabilities
and Shareholders’ Equity
|
|||||||
Liabilities
|
|||||||
Notes
payable
|
$
|
73,316,704
|
$
|
73,025,535
|
|||
Accounts
payable and accrued expenses
|
1,425,780
|
4,063,126
|
|||||
Due
to affiliates
|
308,669
|
350,865
|
|||||
Tenants’
security deposits
|
1,467,069
|
1,440,864
|
|||||
Prepaid
rent
|
428,160
|
470,248
|
|||||
Offering
proceeds escrowed
|
1,303,480
|
1,559,439
|
|||||
Dividends
payable
|
1,631,724
|
1,525,460
|
|||||
Other
liabilities
|
1,026,914
|
1,026,914
|
|||||
Total
liabilities
|
80,908,500
|
83,462,451
|
|||||
|
|||||||
|
|||||||
Minority
interests of unit holders in Operating Partnership; 5,808,337
units at March 31, 2006 and
December 31, 2005
|
33,744,495
|
34,272,074
|
|||||
Commitments
and contingencies
|
-
|
-
|
|||||
Shareholders’
equity
|
|||||||
Preferred
shares, $0.001 par value per share; 50,000,000 shares
authorized; none issued and outstanding at
March 31, 2006 and December 31, 2005
|
-
|
-
|
|||||
Common
shares, $0.001 par value per share; 400,000,000 shares
authorized; 9,346,440 and 8,913,654 issued and outstanding
at March 31, 2006 and December 31, 2005,
respectively
|
9,346
|
8,914
|
|||||
Additional
paid-in capital
|
66,420,123
|
62,560,077
|
|||||
Accumulated
deficit
|
(9,709,518
|
)
|
(8,841,467
|
)
|
|||
Total
shareholders’ equity
|
56,719,951
|
53,727,524
|
|||||
Total
liabilities and shareholders’ equity
|
$
|
171,372,946
|
$
|
171,462,049
|
Three
Months Ended March 31,
|
|||||||
2006
|
2005
|
||||||
Revenues
|
|||||||
Rental
income
|
$
|
5,976,726
|
$
|
4,777,193
|
|||
Tenants’
reimbursements
|
1,380,329
|
1,359,938
|
|||||
Interest
and other income
|
153,316
|
175,509
|
|||||
Total
revenues
|
7,510,371
|
6,312,640
|
|||||
Expenses
|
|||||||
Operation
and maintenance
|
1,017,455
|
756,465
|
|||||
Interest
expense
|
1,307,569
|
770,060
|
|||||
Real
estate taxes
|
865,455
|
729,032
|
|||||
Insurance
|
133,758
|
104,759
|
|||||
Electricity,
water and gas utilities
|
512,103
|
219,610
|
|||||
Property
management and asset management
fees to an affiliate
|
412,249
|
359,003
|
|||||
General
and administrative
|
449,526
|
317,439
|
|||||
Depreciation
|
1,357,616
|
1,028,878
|
|||||
Amortization
|
201,220
|
337,728
|
|||||
Bad
debt expense (recoveries)
|
(9,290
|
)
|
167,985
|
||||
Total
expenses
|
6,247,661
|
4,790,959
|
|||||
Income
before minority interests
|
1,262,710
|
1,521,681
|
|||||
Minority
interests in Operating Partnership
|
(499,335
|
)
|
(697,237
|
)
|
|||
Net
income
|
$
|
763,375
|
$
|
824,444
|
|||
Net
income per common share
|
$
|
0.083
|
$
|
0.114
|
|||
Weighted-average
shares outstanding
|
9,211,711
|
7,247,162
|
|||||
Common
Stock
|
Additional
|
Accumulated
|
||||||||||||||
Shares
|
Amount
|
Paid-in
Capital
|
Deficit
|
Total
|
||||||||||||
Balance,
December 31, 2004
|
7,010,146
|
$
|
7,010
|
$
|
45,527,152
|
$
|
(5,705,170
|
)
|
$
|
39,828,992
|
||||||
|
||||||||||||||||
Issuance
of common stock for cash,
net of offering costs
|
1,865,557
|
1,866
|
16,672,428
|
-
|
16,674,294
|
|||||||||||
|
||||||||||||||||
Issuance
of shares under dividend reinvestment
plan at $9.50 per share
|
37,951
|
38
|
360,497
|
-
|
360,535
|
|||||||||||
Net
income
|
-
|
-
|
-
|
2,448,182
|
2,448,182
|
|||||||||||
|
||||||||||||||||
Dividends
|
-
|
-
|
-
|
(5,584,479
|
)
|
(5,584,479
|
)
|
|||||||||
|
||||||||||||||||
Balance,
December 31, 2005
|
8,913,654
|
8,914
|
62,560,077
|
(8,841,467
|
)
|
53,727,524
|
||||||||||
|
||||||||||||||||
Issuance
of common stock for cash,
net of offering costs
|
412,133
|
412
|
3,663,862
|
-
|
3,664,274
|
|||||||||||
|
||||||||||||||||
Issuance
of shares under dividend reinvestment
plan at $9.50 per share
|
20,653
|
20
|
196,184
|
-
|
196,204
|
|||||||||||
|
||||||||||||||||
Net
income
|
-
|
-
|
-
|
763,375
|
763,375
|
|||||||||||
|
||||||||||||||||
Dividends
|
-
|
-
|
-
|
(1,631,426
|
)
|
(1,631,426
|
)
|
|||||||||
Balance,
March 31, 2006
|
9,346,440
|
$
|
9,346
|
$
|
66,420,123
|
$
|
(9,709,518
|
)
|
$
|
56,719,951
|
||||||
Three
Months Ended March 31,
|
|||||||
2006
|
2005
|
||||||
Cash
flows from operating activities:
|
|||||||
Net
income
|
$
|
763,375
|
$
|
824,444
|
|||
Adjustments
to reconcile net income to net
cash provided by (used in) operating
activities:
|
|||||||
Depreciation
|
1,357,616
|
1,028,878
|
|||||
Amortization
|
201,220
|
337,728
|
|||||
Minority
interests in Operating Partnership
|
499,335
|
697,237
|
|||||
Equity
in income of real estate partnership
|
-
|
(12,038
|
)
|
||||
Bad
debt expense (recoveries)
|
(9,290
|
)
|
167,985
|
||||
Changes
in operating assets and liabilities:
|
|||||||
Escrows
and acquisition deposits
|
782,016
|
2,658,203
|
|||||
Receivables
|
(100,231
|
)
|
(272,506
|
)
|
|||
Due
to/from affiliates
|
(102,501
|
)
|
(277,974
|
)
|
|||
Deferred
costs
|
(386,338
|
)
|
(266,588
|
)
|
|||
Prepaid
expenses and other assets
|
(510,068
|
)
|
(187,488
|
)
|
|||
Accounts
payable and accrued expenses
|
(2,637,346
|
)
|
(1,985,568
|
)
|
|||
Tenants’
security deposits
|
26,205
|
34,972
|
|||||
Prepaid
rent
|
(42,088
|
)
|
47,839
|
||||
|
|||||||
Net
cash provided by (used in) operating activities
|
(158,095
|
)
|
2,795,124
|
||||
|
|||||||
Cash
flows used in investing activities:
|
|||||||
Additions
to real estate
|
(325,952
|
)
|
(5,797,994
|
)
|
|||
Distributions
received from real estate partnership
|
-
|
9,743
|
|||||
Repayment
of note receivable
|
6,801
|
3,005
|
|||||
Net
cash used in investing activities
|
(319,151
|
)
|
(5,785,246
|
)
|
|||
Cash
flows from financing activities:
|
|||||||
Dividends
paid
|
(1,525,162
|
)
|
(1,230,281
|
)
|
|||
Distributions
paid to OP unit holders
|
(1,026,914
|
)
|
(1,019,363
|
)
|
|||
Proceeds
from issuance of common shares
|
3,860,478
|
3,804,786
|
|||||
Proceeds
from stock offering escrowed
|
(255,959
|
)
|
(334,006
|
)
|
|||
Proceeds
from notes payable
|
530,406
|
4,200,000
|
|||||
Repayments
of notes payable
|
(239,237
|
)
|
(1,665,237
|
)
|
|||
|
|||||||
Net
cash provided by financing activities
|
1,343,612
|
3,755,899
|
|||||
|
|||||||
Net
increase in cash and cash equivalents
|
866,366
|
765,777
|
|||||
|
|||||||
Cash
and cash equivalents at beginning of period
|
848,998
|
631,978
|
|||||
|
|||||||
Cash
and cash equivalents at end of period
|
$
|
1,715,364
|
$
|
1,397,755
|
|||
Note
1 -
|
Summary
of
Significant Accounting Policies
|
HCP
was formed as a real estate investment trust, pursuant to the Texas
Real
Estate Investment Trust Act on August 20, 1998 to consolidate and
expand
the real estate investment strategy of Allen R. Hartman (“Hartman”) in
acquiring and managing retail, office/warehouse and office properties.
In
July 2004, HCP changed its state of organization from Texas to
Maryland
pursuant to a merger of HCP directly with and into a Maryland real
estate
investment trust formed for the sole purpose of the reorganization
and the
conversion of each outstanding common share of beneficial interest
of the
Texas entity into 1.42857 common shares of beneficial interest
of the
Maryland entity (see Note 8). Hartman,
HCP’s Chairman of the Board of Trustees, has been engaged in the
ownership, acquisition, and management of commercial properties
in the
Houston, Texas, metropolitan area for over 20 years. HCP serves
as the
general partner of Hartman REIT Operating Partnership, L.P. (the
“Operating Partnership” or “HROP” or “OP”), which was formed on December
31, 1998 as a Delaware limited partnership. HCP and the Operating
Partnership are collectively referred to herein as the “Company.” HCP
currently conducts substantially all of its operations and activities
through the Operating Partnership. As the general partner of the
Operating
Partnership, HCP has the exclusive power to manage and conduct
the
business of the Operating Partnership, subject to certain customary
exceptions. Hartman Management, L.P. (the “Management Company”), a company
wholly-owned by Hartman, provides a full range of real estate services
for
the Company, including leasing and property management, accounting,
asset
management and investor relations. As
of March 31, 2006 and December 31, 2005, the Company owned and
operated 37
retail, office/warehouse
and office properties in and around Houston, Dallas and San Antonio,
Texas.
|
Basis
of consolidation
|
Note 1 - |
Summary
of Significant Accounting Policies
(continued)
|
Basis
of accounting
|
The
financial records of the Company are maintained on the accrual
basis of
accounting whereby revenues are recognized when earned and expenses
are
recorded when incurred.
|
Cash
and cash equivalents
|
The
Company considers all highly liquid debt instruments purchased
with an
original maturity of three months or less to be cash equivalents.
Cash and
cash equivalents at March 31, 2006 and December 31, 2005 consist
of demand
deposits at commercial banks and money market
funds.
|
Due
from affiliates
|
Due
from affiliates include amounts owed to the Company from Hartman-operated
limited partnerships and other
entities.
|
Escrows
and acquisition deposits
|
Escrow
deposits include escrows established pursuant to certain mortgage
financing arrangements for real estate taxes, insurance, maintenance
and
capital expenditures and escrow of proceeds of the Public Offering
described in Note 8 prior to shares being issued for those proceeds.
Acquisition deposits include earnest money deposits on future
acquisitions.
|
Real
estate
|
Real
estate properties are recorded at cost, net of accumulated depreciation.
Improvements, major renovations and certain costs directly related
to the
acquisition, improvement and leasing of real estate are capitalized.
Expenditures for repairs and maintenance are charged to operations
as
incurred. Depreciation is computed using the straight-line method
over the
estimated useful lives of 5 to 39 years for the buildings and
improvements. Tenant improvements are depreciated using the straight-line
method over the life of the lease.
|
Note 1 - |
Summary
of Significant Accounting Policies
(continued)
|
Offering
costs include selling commissions, issuance costs, investor relations
fees
and unit purchase discounts. These costs were incurred in the raising
of
capital through the sale of common shares and are treated as a
reduction
of shareholders’ equity.
|
Revenue
recognition
|
All
leases on properties held by the Company are classified as operating
leases, and the related rental income is recognized on a straight-line
basis over the terms of the related leases. Differences between
rental
income earned and amounts due per the respective lease agreements
are
capitalized or charged, as applicable, to accrued rent receivable.
Percentage rents are recognized as rental income when the thresholds
upon
which they are based have been met. Recoveries from tenants for
taxes,
insurance, and other operating expenses are recognized as revenues
in the
period the corresponding costs are incurred. The Company provides
an
allowance for doubtful accounts against the portion of tenant accounts
receivable which is estimated to be uncollectible.
|
Federal
income taxes
|
The
preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates
and
assumptions that affect the reported amounts of assets and liabilities
and
disclosure of contingent assets and liabilities at the date of
the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Significant estimates used by the
Company
include the estimated useful lives for depreciable and amortizable
assets
and costs, and the estimated allowance for doubtful accounts receivable.
Actual results could differ from those
estimates.
|
Derivative
Instruments
|
The
Company has initiated a program designed to manage exposure to
interest
rate fluctuations by entering into financial derivative instruments.
The
primary objective of this program is to comply with debt covenants
on a
credit facility. The Company entered into an interest rate swap
agreement
with respect to amounts borrowed under certain of our credit facilities,
which effectively exchanges existing obligations to pay interest
based on
floating rates for obligations to pay interest based on fixed LIBOR
rates.
|
Changes
in the market value of the derivative instruments and in the market
value
of the hedged items are recorded in earnings each reporting period.
For
items that are appropriately classified as cash flow hedges in
accordance
with Statement of Financial Accounting Standards No. 133, “Accounting for
Derivative Instruments and Hedging Activities,” changes in the market
value of the instrument and in the market value of the hedged item
are
recorded as other comprehensive income with the exception of the
portion
of the hedged items that are considered ineffective. The derivative
instruments are reported at fair value as other assets or other
liabilities as applicable.
|
Note 1 - |
Summary
of Significant Accounting Policies
(continued)
|
Fair
value of financial instruments
|
Note 1 - |
Summary
of Significant Accounting Policies
(continued)
|
In
May 2005, the FASB issued Statement of Financial Accounting Standards
No.
154 (“SFAS 154”), “Accounting
Changes and Error Corrections - A Replacement of APB Opinion No.
2 and
FASB Statement No. 3.”
This statement changes the requirements for the accounting for
and
reporting of a change in accounting principle. This statement
applies to all voluntary changes in accounting principle. It also
applies to changes required by an accounting pronouncement in the
unusual
instance that the pronouncement does not include specific transition
provisions. When a pronouncement includes specific transition
provisions, those provisions should be followed. This statement
is
effective for fiscal
years beginning after December 15, 2005 and is not expected to
have a
material impact on the Company’s consolidated financial
statements.
|
Concentration
of risk
|
Substantially
all of the Company’s revenues are obtained from retail, office/warehouse
and office locations in the Houston, Dallas and San Antonio, Texas
metropolitan areas.
|
The
Company maintains cash accounts in major financial institutions
in the
United States. The terms of these deposits are on demand to minimize
risk.
The balances of these accounts regularly exceed the federally insured
limits, although no losses have been incurred in connection with
such cash
balances.
|
Comprehensive
income
|
The
Company follows Statement of Financial Accounting Standards (“SFAS”) No.
130, “Reporting
Comprehensive Income,”
which establishes standards for reporting and display for comprehensive
income and its components. For the periods presented, the Company
did not
have significant amounts of other comprehensive
income.
|
Note
2 -
|
Real
Estate
|
Note
2 -
|
Real
Estate (continued)
|
Note
2 -
|
Real
Estate (continued)
|
Note
3 -
|
Interest
Rate Swap
|
Effective
March 16, 2006, the Company executed an interest rate swap used to
mitigate the risks associated with adverse movements in interest
rates
which might affect expenditures. The Company has not designated this
derivative contract as a hedge, and as such, the change in the
fair value
of the derivative is recognized currently in earnings. This
derivative instrument has a total notional amount of $30,000,000,
and
matures monthly through March, 2008. As of March 31, 2006, the fair
value of this instrument is $-0- and as such, is not reflected
in the
consolidated balance sheet.
|
Note
4 -
|
Debt
|
Mortgages
and other notes payable consist of the
following:
|
March
31, 2006
|
December
31, 2005
|
||||||
Mortgages
and other notes payable
|
$
|
39,925,217
|
$
|
40,050,441
|
|||
Revolving
loan secured by properties
|
32,975,094
|
32,975,094
|
|||||
Insurance
premium finance note
|
416,393
|
-
|
|||||
Total
|
$
|
73,316,704
|
$
|
73,025,535
|
Note
4 -
|
Debt
(continued)
|
Total
Leverage Ratio
|
LIBOR
Margin
|
Alternative
Base
Rate Margin
|
||
Less
than 60% but greater than or equal to 50%
|
2.40%
|
1.15%
|
||
Less
than 50% but greater than or equal to 45%
|
2.15%
|
1.025%
|
||
Less
than 45%
|
1.90%
|
1.00%
|
Note
4 -
|
Debt
(continued)
|
Year
Ended
March 31,
|
||||
2007
|
$
|
5,901,610
|
||
2008
|
67,415,094
|
|||
$
|
73,316,704
|
Supplemental
Cash Flow Information
|
Note
5 -
|
Earnings
Per Share
|
Basic
earnings per share is computed using net income available to common
shareholders and the weighted average number of common shares outstanding.
Diluted earnings per share reflects common shares issuable from
the
assumed conversion of OP Units convertible into common shares.
Only those
items that have a dilutive impact on basic earnings per share are
included
in the diluted earnings per share. Accordingly, excluded from the
earnings
per share calculation for each of the three months ended March
31, 2006
and 2005 are 5,808,337 OP Units as their inclusion would be
anti-dilutive.
|
Three
Months Ended March 31,
|
|||||||
2006
|
2005
|
||||||
Basic
and diluted earnings per share
|
|||||||
|
|||||||
Weighted
average common shares
outstanding
|
9,211,711
|
7,247,162
|
|||||
Basic
and diluted earnings per share
|
$
|
0.083
|
$
|
0.114
|
|||
Net
income
|
$
|
763,375
|
$
|
824,444
|
Note
6 -
|
Federal
Income Taxes
|
Federal
income taxes are not provided because the Company intends to and
believes
it qualifies as a REIT under the provisions of the Internal Revenue
Code.
Shareholders of the Company include their proportionate taxable
income in
their individual tax returns. As a REIT, the Company must distribute
at
least 90% of its ordinary taxable income to its shareholders and
meet
certain income sources and investment restriction requirements.
In
addition, REITs are subject to a number of organizational and operational
requirements. If the Company fails to qualify as a REIT in any
taxable
year, the Company will be subject to federal income tax (including
any
applicable alternative minimum tax) on its taxable income at regular
corporate tax rates.
|
Taxable
income differs from net income for financial reporting purposes
principally due to differences in the timing of recognition of
interest,
real estate taxes, depreciation and rental
revenue.
|
Note
6 -
|
Federal
Income Taxes (continued)
|
2005
|
||
Ordinary
income (unaudited)
|
62.6%
|
|
Return
of capital (unaudited)
|
37.4%
|
|
Capital
gain distributions (unaudited)
|
0.0%
|
|
Total
|
100.0%
|
Note
7 -
|
Related-Party
Transactions
|
Note
7 -
|
Related-Party
Transactions (continued)
|
Note 8 - |
Shareholders’
Equity
|
Note
8 -
|
Shareholders’
Equity (continued)
|
Dividends
and distributions
|
HCP
Shareholders
|
||||
Dividend
per
Common Share
|
Date
Dividend
Payable
|
Total
Amount
Payable
|
||
$0.0589
|
4/15/05
|
$412,931
|
||
0.0589
|
5/15/05
|
429,416
|
||
0.0590
|
6/15/05
|
439,453
|
||
0.0589
|
7/15/05
|
445,621
|
||
0.0589
|
8/15/05
|
452,396
|
||
0.0590
|
9/15/05
|
460,581
|
||
0.0589
|
10/15/05
|
467,260
|
||
0.0589
|
11/15/05
|
470,627
|
||
0.0590
|
12/15/05
|
480,737
|
||
0.0589
|
1/15/06
|
489,019
|
||
0.0589
|
2/15/06
|
509,475
|
||
0.0590
|
3/15/06
|
526,966
|
||
0.0589
|
4/15/06
|
535,420
|
||
0.0589
|
5/15/06
|
543,576
|
||
0.0590
|
6/15/06
|
552,430
|
OP
Unit Holders Including Minority Unit Holders
|
||||
Distribution
per
OP Unit
|
Date
Distribution
Payable
|
Total
Amount
Payable
|
||
$0.0589
|
4/15/05
|
$733,748
|
||
0.0589
|
5/15/05
|
748,498
|
||
0.0590
|
6/15/05
|
758,154
|
||
0.0589
|
7/15/05
|
762,996
|
||
0.0589
|
8/15/05
|
768,976
|
||
0.0590
|
9/15/05
|
776,345
|
||
0.0589
|
10/15/05
|
782,136
|
||
0.0589
|
11/15/05
|
785,388
|
||
0.0590
|
12/15/05
|
802,101
|
||
0.0589
|
1/15/06
|
809,838
|
||
0.0589
|
2/15/06
|
830,294
|
||
0.0590
|
3/15/06
|
848,033
|
||
0.0589
|
4/15/06
|
856,239
|
||
0.0589
|
5/15/06
|
864,395
|
||
0.0590
|
6/15/06
|
873,793
|
Note
9 -
|
Commitments
and Contingencies
|
Note
10 -
|
Segment
Information
|
Item 2. |
Management’s
Discussion
and Analysis of Financial Condition
and Results of
Operation
|
§ |
property
management fees in an amount not to exceed the fees customarily
charged in
arm’s length transactions by others rendering similar services in the
same
geographic area for similar properties as determined by a survey
of
brokers and agents in such area. Generally, we expect these fees
to be
between approximately two and four percent (2.0%-4.0%) of gross
revenues
for the management of commercial office buildings and approximately
five
percent (5.0%) of gross revenues for the management of retail and
industrial properties.
|
§ |
for
the leasing of the properties, a separate fee for the leases of
new
tenants and renewals of leases with existing tenants in an amount
not to
exceed the fee customarily charged in arm’s length transactions by others
rendering similar services in the same geographic area for similar
properties as determined by a survey of brokers and agents in such
area
(with such fees, at present, being equal to 6% of the effective
gross
revenues from leases originated by the Management Company and 4%
of the
effective gross revenues from expansions or renewals of existing
leases).
|
§ |
except
as otherwise specifically provided, all costs and expenses incurred
by the
Management Company in fulfilling its duties for the account of
and on
behalf of us. Such costs and expenses shall include the wages and
salaries
and other employee-related expenses of all on-site and off-site
employees
of the Management Company who are engaged in the operation, management,
maintenance or access control of our properties, including taxes,
insurance and benefits relating to such employees, and legal, travel
and
other out-of-pocket expenses that are directly related to the management
of specific properties.
|
· |
acquire
additional material assets;
|
· |
merge
or consolidate with any other
entity;
|
· |
engage
in any other business or activity other than the ownership, operation
and
maintenance of the properties securing the
note;
|
· |
make
certain investments;
|
· |
incur,
assume or guarantee additional
indebtedness;
|
· |
grant
certain liens; and
|
· |
loan
money to others.
|
Total
Leverage Ratio
|
LIBOR
Margin
|
Alternative
Base
Rate Margin
|
Less
than 60% but greater than or equal to 50%
|
2.40%
|
1.150%
|
Less
than 50% but greater than or equal to 45%
|
2.15%
|
1.025%
|
Less
than 45%
|
1.90%
|
1.000%
|
· |
The
Company will provide a negative pledge on the borrowing base pool
and may
not provide a negative pledge of the borrowing base pool to any
other
lender.
|
· |
The
properties must be free of all liens, unless otherwise
permitted.
|
· |
All
eligible properties must be retail, office-warehouse, or office
properties, must be free and clear of material environmental concerns
and
must be in good repair.
|
· |
The
aggregate physical occupancy of the borrowing base pool must remain
above
80% at all times.
|
· |
No
property may comprise more than 15% of the value of the borrowing
base
pool with the exception of Corporate Park Northwest, which is allowed
into
the borrowing base pool.
|
· |
The
borrowing base pool must at all times be comprised of at least
10
properties.
|
· |
The
borrowing base pool properties may not contain development or
redevelopment projects.
|
· |
The
Company will not permit any liens on the properties in the borrowing
base
pool unless otherwise permitted.
|
· |
The
ratio of aggregate net operating income from the borrowing base
pool to
debt service shall at all times exceed 1.5 to 1.0. For any quarter,
debt
service shall be equal to the average loan balance for the past
quarter
times an interest rate which is the greater of (a) the then current
annual
yield on 10 year United States Treasury notes over 25 years plus
2%; (b) a
6.5% constant; or (c) the actual interest rate for the
facility.
|
· |
The
ratio of the value of the borrowing base pool to total funded loan
balance
must always exceed 1.67 to 1.00. The value of the borrowing base
pool is
defined as aggregate net operating income for the preceding four
quarters,
less a $0.15 per square foot per annum capital expenditure reserve,
divided by a 9.25% capitalization
rate.
|
· |
The
Company will not permit its total indebtedness to exceed 60% of
the fair
market value of its real estate assets at the end of any quarter.
Total
indebtedness is defined as all liabilities of the Company, including
this
facility and all other secured and unsecured debt of the Company,
including letters of credit and guarantees. Fair market value of
real
estate assets is defined as aggregate net operating income for
the
preceding four quarters, less a $0.15 per square foot per annum
capital
expenditure reserve, divided by a 9.25% capitalization
rate.
|
· |
The
ratio of consolidated rolling four-quarter earnings before interest,
income tax, deprecation and amortization expenses for such quarter
to
total interest expense, including capitalized interest, shall not
be less
than 2.0 to 1.0.
|
· |
The
ratio of consolidated earnings before interest, income tax, deprecation
and amortization expenses for such quarter to total interest, including
capitalized interest, principal amortization, capital expenditures
and
preferred stock dividends shall not be less than 1.5 to 1.0. Capital
expenditures shall be deemed to be $0.15 per square foot per
annum.
|
· |
The
ratio of secured debt to fair market value of real estate assets
shall not
be greater than 40%.
|
· |
The
ratio of declared dividends to funds from operations shall not
be greater
than 95%.
|
· |
The
ratio of development assets to fair market value of real estate
assets
shall not be greater than 20%.
|
· |
The
Company must maintain its status as a real estate investment trust
for
income tax purposes.
|
· |
Total
other investments shall not exceed 30% of total asset value. Other
investments shall include investments in joint ventures, unimproved
land,
marketable securities and mortgage notes receivable. Additionally,
the
preceding investment categories shall not comprise greater than
30%, 15%,
10% and 20%, respectively, of total other
investments.
|
|
|
|
|
Payment
due by period
|
|
||||||||||||
Contractual
Obligations
|
|
Total
|
|
Less
than
One
Year
|
|
One
to
Three
Years
|
|
Three
to
Five
Years
|
|
More
than
Five
Years
|
|||||||
Long-Term
Debt Obligations
|
$
|
73,316,704
|
$
|
5,901,610
|
$
|
67,415,094
|
—
|
—
|
|||||||||
Capital
Lease Obligations
|
—
|
—
|
—
|
—
|
—
|
||||||||||||
Operating
Lease Obligations
|
—
|
—
|
—
|
—
|
—
|
||||||||||||
Purchase
Obligations
|
—
|
—
|
—
|
—
|
—
|
||||||||||||
Other
Long-Term Liabilities Reflected on the Registrant’s Balance Sheet under
GAAP
|
—
|
—
|
—
|
—
|
—
|
||||||||||||
Total
|
$
|
73,316,704
|
$
|
5,901,610
|
$
|
67,415,094
|
—
|
—
|
Month
Paid or Payable
|
Total
Amount of
Dividends
Paid or Payable
|
Dividends
Per
Share
|
||
April
2005
|
$412,931
|
$0.0589
|
||
May
2005
|
429,416
|
0.0589
|
||
June
2005
|
439,453
|
0.0590
|
||
July
2005
|
445,621
|
0.0589
|
||
August
2005
|
452,396
|
0.0589
|
||
September
2005
|
460,581
|
0.0590
|
||
October
2005
|
467,260
|
0.0589
|
||
November
2005
|
470,627
|
0.0589
|
||
December
2005
|
480,737
|
0.0590
|
||
January
2006
|
489,019
|
0.0589
|
||
February
2006
|
509,475
|
0.0589
|
||
March
2006
|
526,966
|
0.0590
|
||
April
2006
|
535,420
|
0.0589
|
||
May
2006
|
543,576
|
0.0589
|
||
June
2006
|
552,430
|
0.0590
|
||
Average
Per Quarter
|
|
$0.1768
|
Month
Paid or Payable
|
|
Total
Amount of
Distributions
Paid or Payable
|
|
Distributions
Per
Unit
|
|
April
2005
|
|
$733,748
|
|
$0.0589
|
|
May
2005
|
|
748,498
|
|
0.0589
|
|
June
2005
|
|
758,154
|
|
0.0590
|
|
July
2005
|
|
762,996
|
|
0.0589
|
|
August
2005
|
|
768,976
|
|
0.0589
|
|
September
2005
|
|
776,345
|
|
0.0590
|
|
October
2005
|
|
782,136
|
|
0.0589
|
|
November
2005
|
|
785,388
|
|
0.0589
|
|
December
2005
|
|
802,101
|
|
0.0590
|
|
January
2006
|
|
809,838
|
|
0.0589
|
|
February
2006
|
|
830,294
|
|
0.0589
|
|
March
2006
|
|
848,033
|
|
0.0590
|
|
April
2006
|
|
856,239
|
|
0.0589
|
|
May
2006
|
|
864,395
|
|
0.0589
|
|
June
2006
|
|
873,793
|
|
0.0590
|
|
|
|
|
|
|
|
Average
Per Quarter
|
|
|
|
$0.1768
|
March
31, 2005
|
March
31, 2006
|
||
Number
of properties owned and operated
|
35
|
37
|
|
Aggregate
gross leasable area (sq. ft.)
|
2,741,232
|
3,121,037
|
|
Occupancy
rate
|
86%
|
83%
|
|
Total
revenues
|
$6,312,640
|
$7,510,371
|
|
Total
expenses
|
4,790,959
|
6,247,661
|
|
Income
before minority interests
|
1,521,681
|
1,262,710
|
|
Minority
interests in the Operating Partnership
|
(697,237)
|
(499,335)
|
|
Net
income
|
824,444
|
763,375
|
Item 3. |
Quantitative
and
Qualitative Disclosures About
Market Risk
|
Item 4. |
Controls
and
Procedures
|
Item 1. |
Legal
Proceedings
|
Item 1A. |
Risk
Factors
|
Item 2. |
Unregistered
Sales
of Equity Securities and Use of
Proceeds
|
Description
of Use of Offering Proceeds
|
Amount
of Proceeds so Utilized
|
||||
Selling
Commissions paid to broker/ dealers not affiliated with D.H. Hill
Securities , LLP
|
$
|
1,265,955
|
|||
Selling
Discounts
|
56,344
|
||||
Dealer
Manager Fee paid to D.H. Hill Securities , LLP
|
566,463
|
||||
Offering
expense reimbursements paid to the Management Company
|
569,423
|
||||
Acquisition
Fees paid to the Management Company
|
455,536
|
||||
Total
Offering Expenses
|
2,913,721
|
||||
Net
Offering Proceeds
|
20,419,917
|
||||
Repayment
of Lines of Credit
|
11,800,000
|
||||
Used
for Working Capital
|
8,619,917
|
Item 3. |
Defaults
Upon
Senior
Securities
|
Item 5. |
Other
Information
|
Item 6. |
Exhibit
No.
|
Description
|
3.1
|
Declaration
of Trust of Hartman Commercial Properties REIT, a Maryland real
estate
investment trust (previously filed as and incorporated by reference
to
Exhibit 3.1 to the Registrant’s Registration Statement on Form S-11/A,
Commission File No. 333-111674, filed on May 24, 2004)
|
3.2
|
Articles
of Amendment and Restatement of Declaration of Trust of Hartman
Commercial
Properties REIT (previously filed as and incorporated by reference
to
Exhibit 3.2 to the Registrant’s Registration Statement on Form S-11/A,
Commission File No. 333-111674, filed on July 29, 2004)
|
3.3
|
Bylaws
(previously filed as and incorporated by reference to Exhibit 3.2
to the
Registrant’s Registration Statement on Form S-11, Commission File No.
333-111674, filed on December 31, 2003)
|
4.1
|
Specimen
certificate for common shares of beneficial interest, par value
$.001
(previously filed as and incorporated by reference to Exhibit 4.2
to the
Registrant’s Registration Statement on Form S-11, Commission File No.
333-111674, filed on December 31, 2003)
|
10.1
|
Agreement
of Limited Partnership of Hartman REIT Operating Partnership, L.P.
(previously filed as and incorporated by reference to Exhibit 10.1
to the
Registrant’s General Form for Registration of Securities on Form 10, filed
on April 30, 2003)
|
10.2
|
Amended
and Restated Property Management Agreement (previously filed and
incorporated by reference to Exhibit 10.2 to the Registrant’s Form 10-K
Annual Report for the year ended December 31, 2004, filed on March
31,
2005)
|
10.3
|
Advisory
Agreement (previously filed and incorporated by reference to Exhibit
10.3
to the Registrant’s Annual Report on Form 10-K for the year ended December
31, 2004, filed on March 31, 2005)
|
10.4
|
Certificate
of Formation of Hartman REIT Operating Partnership II GP, LLC (previously
filed as and incorporated by reference to Exhibit 10.3 to the Registrant’s
General Form for Registration of Securities on Form 10, filed on
April 30,
2003)
|
10.5
|
Limited
Liability Company Agreement of Hartman REIT Operating Partnership
II GP,
LLC (previously filed as and incorporated by reference to Exhibit
10.4 to
the Registrant’s General Form for Registration of Securities on Form 10,
filed on April 30, 2003)
|
10.6
|
Agreement
of Limited Partnership of Hartman REIT Operating Partnership II,
L.P.
(previously filed as and incorporated by reference to Exhibit 10.6
to the
Registrant’s General Form for Registration of Securities on Form 10, filed
on April 30, 2003)
|
10.7
|
Promissory
Note, dated December 20, 2002, between Hartman REIT Operating Partnership
II, L.P. and GMAC Commercial Mortgage Corporation (previously filed
as and
incorporated by reference to Exhibit 10.7 to the Registrant’s General Form
for Registration of Securities on Form 10, filed on April 30,
2003)
|
10.8
|
Deed
of Trust and Security Agreement, dated December 20, 2002, between
Hartman
REIT Operating Partnership II, L.P. and GMAC Commercial Mortgage
Corporation (previously filed as and incorporated by reference
to Exhibit
10.8 to the Registrant’s General Form for Registration of Securities on
Form 10, filed on April 30, 2003)
|
Exhibit
No.
|
Description
|
10.9 |
Loan
Agreement between Hartman REIT Operating Partnership, L.P. and
Union
Planter’s Bank, N.A. (previously filed as and incorporated by reference
to
Exhibit 10.10 to Amendment No. 2 to the Registrant’s General Form for
Registration of Securities on Form 10, filed on August 6,
2003)
|
10.10
|
Employee
and Trust Manager Incentive Plan (previously filed and incorporated
by
reference to Exhibit 10.9 to the Registrant’s General Form for
Registration of Securities on Form 10, filed on April 30,
2003)
|
10.11
|
Summary
Description of Hartman Commercial Properties REIT Trustee Compensation
Arrangements (previously filed and incorporated by reference to
Exhibit
10.11 of the Registrant’s Annual Report on Form 10-K for the year ended
December 31, 2004, filed on March 31, 2005)
|
10.12
|
Form
of Agreement and Plan of Merger and Reorganization (previously
filed as
and incorporated by reference to the Registrant’s Proxy Statement, filed
on April 29, 2004)
|
10.13
|
Dealer
Manager Agreement (previously filed and as incorporated by reference
to
Exhibit 10.13 to the Registrant’s Annual Report on Form 10-K for the year
ended December 31, 2004, Commission File No. 000-50256, Central
Index Key
No. 0001175535, filed on March 31, 2005)
|
10.14
|
Escrow
Agreement (previously filed as and incorporated by reference to
Exhibit
10.14 to the Registrant’s Annual Report on Form 10-K for the year ended
December 31, 2004, filed on March 31, 2005)
|
10.15
|
Form
of Amendment to the Agreement of Limited Partnership of Hartman
REIT
Operating Partnership, L.P. (previously filed in and incorporated
by
reference to the Registrant’s Registration Statement on Form S-11,
Commission File No. 333-111674, filed on December 31,
2003)
|
10.16
|
Revolving
Credit Agreement among Hartman REIT Operating Partnership, L.P.,
Hartman
REIT Operating Partnership III LP, and KeyBank National Association
(together with other participating lenders), dated June 2, 2005
(previously filed as and incorporated by reference to Exhibit 10.13
to
Post-Effective Amendment No. 1 to the Registrant’s Registration Statement
on Form S-11, Commission File No. 333-111674, filed on June 17,
2005)
|
10.17
|
Form
of Revolving Credit Note under Revolving Credit Agreement among
Hartman
REIT Operating Partnership, L.P., Hartman REIT Operating Partnership
III
LP, and KeyBank National Association (together with other participating
lenders) (previously filed as and incorporated by reference to
Exhibit
10.14 to Post-Effective Amendment No. 1 to the Registrant’s Registration
Statement on Form S-11, Commission File No. 333-111674, filed on
June 17,
2005)
|
10.18
|
Guaranty
under Revolving Credit Agreement among Hartman REIT Operating Partnership,
L.P., Hartman REIT Operating Partnership III LP, and KeyBank National
Association (together with other participating lenders) (previously
filed
as and incorporated by reference to Exhibit 10.15 to Post-Effective
Amendment No. 1 to the Registrant’s Registration Statement on Form S-11,
Commission File No. 333-111674, filed on June 17, 2005)
|
10.19
|
Form
of Negative Pledge Agreement under Revolving Credit Agreement among
Hartman REIT Operating Partnership, L.P., Hartman REIT Operating
Partnership III LP, and KeyBank National Association (together
with other
participating lenders) (previously filed as and incorporated by
reference
to Exhibit 10.16 to Post-Effective Amendment No. 1 to the Registrant’s
Registration Statement on Form S-11, Commission File No. 333-111674,
filed
on June 17, 2005)
|
10.20
|
Form
of Collateral Assignment of Partnership Interests under Revolving
Credit
Agreement among Hartman REIT Operating Partnership, L.P., Hartman
REIT
Operating Partnership III LP, and KeyBank National Association
(together
with other participating lenders) (previously filed as and incorporated
by
reference to Exhibit 10.17 to Post-Effective Amendment No. 1 to
the
Registrant’s Registration Statement on Form S-11, Commission File No.
333-111674, filed on June 17, 2005)
|
10.21
|
Modification
Agreement, dated as of February 28, 2006, between Hartman REIT
Operating
Partnership II, L.P. and GMAC Commercial Mortgage Corporation (previously
filed and incorporated by reference to Exhibit 10.1 to the Registrant’s
Current Report on Form 8-K, filed March 3, 2006)
|
10.22
|
Interest
Rate Swap Agreement dated as of March 16, 2006, between Hartman
REIT
Operating Partnership, L.P., Hartman REIT Operating Partnership
III LP,
and KeyBank National Association (previously filed and incorporated
by
reference to Exhibit 10.22 to the Registrant’s Annual Report on Form 10-K,
filed March 31, 2006)
|
10.23*
|
Waiver
and Amendment No. 1, dated May 8, 2006, between Hartman REIT Operating
Partnership, L.P., Hartman REIT Operating Partnership III, L.P.,
and
KeyBank National Association, as agent for the consortium of
lenders
|
31.1*
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
31.2*
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
32.1*
|
Certification
of Chief Executive Officer Pursuant to 18 U.S.C., Section 1350,
as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
32.2*
|
Certification
of Chief Financial Officer Pursuant to 18 U.S.C., Section 1350,
as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
Hartman
Commercial Properties REIT
|
|
(Registrant)
|
|
Date:
May 12, 2006
|
By:
|
/s/
Terry L. Henderson
|
|
Terry
L. Henderson
|
|
Chief
Financial Officer (Authorized
officer of the registrant and principal financial
officer)
|