Summary of Significant Accounting Policies |
9 Months Ended | ||||
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Sep. 30, 2016 | |||||
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| Significant Accounting Policies [Text Block] |
Note 2 Summary of Significant Accounting Policies Basis of presentation The accompanying financial statements are unaudited and include the accounts of the Company and its subsidiaries. The accompanying financial statements have been prepared in accordance with GAAP and the rules and regulations of the SEC. Certain information and footnote disclosures required for annual financial statements have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, the accompanying financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the audited financial statements and notes thereto for the fiscal year ended December 31, 2015. In the opinion of management, all adjustments of a normal and recurring nature necessary for a fair presentation of the financial statements for the interim periods have been made.
Consolidation Policy
Restricted Cash The restricted cash balance of $805,776 as of September 30, 2016, consisted of $367,587 of cash required by a third party lender to be held by the Company as a reserve for debt service, $319,500 in a security deposit received from the Plano facility tenant at the inception of its lease, and $118,689 in funds held by the Company from certain of its tenants that the Company collected to pay specific tenant expenses, such as real estate taxes and in some cases insurance, on the tenant’s behalf. The restricted cash balance as of September 30, 2016 increased $358,149 from the balance as of December 31, 2015 of $447,627. The December 31, 2015 balance consisted solely of funds required to be held by the Company as a reserve for debt service.
Tenant Receivables The tenant receivables balance of $177,369 as of September 30, 2016, consisted of $17,965 in funds owned from the Company’s tenants for rent that the Company has earned but not received as well $159,404 in funds owed by certain of the Company’s tenants for amounts the Company collects to pay specific tenant expenses, such as real estate taxes and in some cases insurance, on the tenants’ behalf. The tenant receivables balance was zero as of December 31, 2015.
Escrow Deposits Escrow deposits include funds held in escrow to be used for the acquisition of future properties and for the payment of taxes, insurance, and other amounts as stipulated by the Company’s third party loan agreements. The escrow balance as of September 30, 2016 and December 31, 2015 was $903,636 and $454,310, respectively, an increase of $449,326. This increase resulted from deposits that were required to be held in escrow in the amount of $843,636 related to the Cantor Loan, as hereinafter defined, partially offset by $394,310 in escrow funds that were expended to acquire facilities during the nine months ended September 30, 2016. Refer to Note 3 “Property Portfolio” and Note 4 “Notes Payable Related to Acquisitions,” respectively, for information regarding the facilities acquired and details regarding the Cantor Loan.
Deferred Assets The deferred assets balance of $245,619 as of September 30, 2016, represented the Company’s deferred rent receivable balance resulting from the straight lining of revenue recognized for applicable tenant leases. During the nine months ended September 30, 2016, the Company deferred and paid $1,610,908 in specific incremental costs directly attributable to the offering of its equity securities bringing the total deferred incremental costs incurred balance to $1,681,259. Deferral of these incremental costs is in accordance with the provisions of Accounting Standards Codification (“ASC”) Topic 340, “Other Assets and Deferred Costs.” Also in accordance with the provisions of ASC Topic 340, upon the completion of the Company’s initial public offering on July 1, 2016, the $1,681,259 total deferred incremental cost balance was reclassified as a reduction of the Company’s additional paid-in capital balance in the Company’s accompanying Consolidated Balance Sheets. The deferred asset balance as of December 31, 2015 was $93,646, consisting of a deferred rent receivable balance of $23,295 and $70,351 in deferred costs incurred directly attributable to the Company’s offering of its equity securities.
Security Deposits Liability The security deposits liability balance of $597,593 as of September 30, 2016 represented $319,500 in funds deposited by the Plano facility tenant at the inception of its lease and $278,093 in tenant funds the Company will use to pay for certain of its tenants’ expenses, such as real estate taxes and in some cases insurance, on the tenants’ behalf. See Note 3 “Property Portfolio” for additional information regarding the Plano facility acquisition. The security liability balance was zero as of December 31, 2015.
Stock-Based Compensation As disclosed in Note 7 “2016 Equity Incentive Plan,” the Company grants LTIP unit awards to employees of its advisor and its affiliates, and to the Company’s independent directors. The Company expenses the fair value of unit awards in accordance with the fair value recognition requirements of ASC Topic 718, “Compensation-Stock Compensation” and ASC Topic 505, “Equity.” These ASC topics require companies to measure the cost of the recipient services received in exchange for an award of an equity instrument based on the grant-date fair value of the award. Under ASC Topic 718, the Company’s independent directors are deemed to be employees and therefore compensation expense for these units is recognized based on the price of $10.00 per unit, the closing share price for the Company’s common stock at the closing date of the initial public offering on July 1, 2016, ratably over the 12-month service period, using the straight line method. Under ASC Topic 505, the employees of the Advisor and its affiliates are deemed to be non-employees of the Company and therefore compensation expense for these units is recognized using the share price of the Company’s common stock at the end of the reporting period, ratably over the 42-month or 54-month service period, respectively, depending on the grant terms, using the straight line method. Total compensation expense of $830,827 related to all of the Company’s LTIP units was recorded for the three and nine months ended September 30, 2016 and was classified as “General and Administrative” expense in the Company’s accompanying Consolidated Statements of Operations.
Net Loss Per Common Share Basic net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted net loss per common share is computed by dividing net loss attributable to common stockholders by the sum of the weighted average number of common shares outstanding plus any potential dilutive shares for the period. The effect of the conversion of vested LTIP units into OP Units and the conversion of OP Units into common stock is not reflected in the computation of basic and diluted earnings per share, as all units are exchangeable for common stock on a one-for-one basis and are anti-dilutive to the Company’s net loss for the three and nine months ended September 30, 2016. The Company considered the requirements of the two-class method when computing earnings per share. Earnings per share would not be affected by using the two-class method because the Company incurred a net loss for the three and nine months ended September 30, 2016.
Segment Reporting
In accordance with the provisions of ASC Topic 280, “Segment Reporting,” the Company has determined that it has one reportable segment consisting of its activities related to the acquisition of healthcare facilities and the leasing of these facilities to leading clinical operators.
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