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MarketScreener Homepage  >  Equities  >  OTC Bulletin Board - Other OTC  >  Pillarstone Capital REIT    PRLE

PILLARSTONE CAPITAL REIT

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PILLARSTONE CAPITAL REIT : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (form 10-Q)

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08/14/2020 | 06:08am EDT

Unless the context otherwise requires, all references in this report to the "Company," "we," "us" or "our" are to Pillarstone Capital REIT and its consolidated subsidiaries.

                           Forward-Looking Statements

The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and the notes thereto in this Quarterly Report on Form 10-Q.


This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of the federal securities laws, including discussion and analysis of
our financial condition, anticipated capital expenditures required to complete
projects, amounts of anticipated cash distributions to our shareholders in the
future and other matters. These forward-looking statements are not historical
facts but are the intent, belief or current expectations of our management based
on its knowledge and understanding of our business and industry. Forward-looking
statements are typically identified by the use of terms such as "may," "will,"
"should," "potential," "predicts," "anticipates," "expects," "intends," "plans,"
"believes," "seeks," "estimates" or the negative of such terms and variations of
these words and similar expressions, although not all forward-looking statements
include these words. These statements are not guarantees of future performance
and are subject to risks, uncertainties and other factors, some of which are
beyond our control, are difficult to predict and could cause actual results to
differ materially from those expressed or forecasted in the forward-looking
statements.

Forward-looking statements that were true at the time made may ultimately prove
to be incorrect or false. You are cautioned not to place undue reliance on
forward-looking statements, which reflect our management's view only as of the
date of this Quarterly Report on Form 10-Q. We undertake no obligation to update
or revise forward-looking statements to reflect changed assumptions, the
occurrence of unanticipated events or changes to future operating results.

Factors that could cause actual results to differ materially from any forward-looking statements made in this Report include:


•uncertainties related to the COVID-19 pandemic, including the unknown duration
and economic, operational and financial impacts of the COVID-19 pandemic and the
actions taken or contemplated by U.S. and local governmental authorities or
others in response to the pandemic on our business, employees and tenants,
including, among others, (a) changes in tenant demand for our properties; (b)
financial challenges confronting tenants, including as a result of decreased
customers' willingness to visit our tenants' businesses, and mandated shelter in
place orders that have prevented customers from visiting some of our tenants'
businesses and the impact of these issues on our ability to collect rent from
our tenants; (c) operational changes implemented by us, including remote working
arrangements, which may put increased strain on our technology systems and
create increased vulnerability to cybersecurity incidents; (d) reduction in our
liquidity due to the limited ability to access the capital markets and other
sources of financing on attractive terms or at all, and (e) prolonged measures
to contain the spread of COVID-19 or the premature easing of government-imposed
restrictions implemented to contain the spread of COVID-19;
•uncertainties related to the national economy, the real estate industry in
general and in our specific markets;
•legislative or regulatory changes;
•adverse economic conditions in Texas;
•adverse changes in governmental rules and fiscal policies;
•increases in interest rates and operating costs;
•availability and terms of capital and financing, both to fund our operations
and to refinance our indebtedness as it matures, in each case, on terms
favorable to the Company;
•decreases in rental rates or increases in vacancy rates;
•litigation risks;
•lease-up risks, including leasing risks arising from exclusivity and consent
provisions in leases with significant tenants;

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•the impact of public health crises and pandemics, such as the COVID-19
outbreak;
•cybersecurity attacks, loss of confidential information and other business
disruptions;
•our inability to renew tenants or obtain new tenants upon the expiration of
existing leases; and
•our inability to generate sufficient cash flows due to market conditions,
competition, uninsured losses, changes in tax or other applicable laws.

    In addition, an investment in the Company involves numerous risks that
potential investors should consider carefully, including, without limitation:
•our cash resources are limited;
•we have a history of losses;
•we have not raised funds through a public equity offering;
•our trustees control a significant percentage of our voting shares;
•shareholders could experience possible future dilution through the issuance of
additional shares;
•we are dependent on a small number of key senior professionals who are
part-time employees; and
•we currently do not plan to distribute dividends to the holders of our shares.

Overview

    The Company is a Maryland real estate investment trust ("REIT") engaged in
investing in, owning and operating commercial properties. Future real estate
investments may include (i) acquisition and development of retail, office,
office warehouse, industrial, multifamily, hotel and other commercial
properties, (ii) acquisition of or merger with a REIT or real estate operating
company, and (iii) joint venture investments. Substantially all of our business
is conducted through our operating partnership Pillarstone OP. We are the sole
general partner of Pillarstone OP. As of June 30, 2020, we owned approximately
18.6% of the outstanding equity in Pillarstone OP and we fully consolidate it on
our condensed consolidated financial statements.

    As of June 30, 2020, the Company is a smaller reporting company current in
its quarterly and annual financial statement filings with the SEC, that may make
future real estate investments. There can be no assurance that we will be able
to close additional transactions.  Even if our management is successful in
closing additional transactions, investors may not value the transactions or the
Company in the same manner as we do, and investors may not value the
transactions as they would value other transactions or alternatives. Failure to
obtain additional sources of capital will materially and adversely affect the
Company's ability to continue operations, as well as its liquidity and financial
results.

Brief History

    Pillarstone was formed on March 15, 1994 as a Maryland REIT. The Company
operated as a traditional REIT by buying, selling, owning and operating
commercial and residential properties through December 31, 1999. In 2000, the
Company purchased a software technology company, resulting in the Company not
meeting the qualifications to be a REIT under the Code. In 2002, the Company
discontinued the operations of the technology segment, and from 2003 through
2006, pursued a value-added business plan primarily focused on acquiring well
located, under-performing multifamily residential properties, including
affordable housing communities, and repositioning them through renovation,
leasing, improved management and branding. From 2006 until December 2016, the
Company continued its existence as a corporate shell current in its SEC filings.

    On December 8, 2016, Pillarstone and Pillarstone OP entered into the
Contribution Agreement with Whitestone OP, a subsidiary and the operating
partnership of Whitestone, both of which are related parties to Pillarstone and
Pillarstone OP, pursuant to which Whitestone OP contributed to Pillarstone OP
all of the equity interests in four of its wholly-owned subsidiaries: Whitestone
CP Woodland Ph. 2, LLC, a Delaware limited liability company ("CP Woodland");
Whitestone Industrial-Office, LLC, a Texas limited liability company
("Industrial-Office"); Whitestone Offices, LLC, a Texas limited liability
company ("Whitestone Offices"); and Whitestone Uptown Tower, LLC, a Delaware
limited liability company ("Uptown Tower") that owned 14 real estate assets (the
"Real Estate Assets") for aggregate consideration of approximately $84 million,
consisting of (1) approximately $18.1 million of Class A units representing
limited partnership interests in Pillarstone
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OP issued at a price of $1.331 per OP Unit; and (2) the assumption of approximately $65.9 million of liabilities by Pillarstone OP (collectively, the "Acquisition").

    On December 27, 2018, Pillarstone OP sold a portfolio of three Real Estate
Assets, resulting in 11 Real Estate Assets in the Pillarstone OP's real estate
portfolio at December 31, 2018.
    On October 8, 2019, Pillarstone OP, through an indirect wholly owned
subsidiary, Industrial-Office, LLC, sold a portfolio of three Real Estate Assets
in Houston, Texas to an unaffiliated third party for $39.7 million in cash.
Pillarstone OP used the net proceeds, after customary closing deductions, to pay
off mortgage debt on several of the remaining Real Estate Assets, and repaid the
remaining $5.7 million loan from Whitestone. In addition to the $5.7 million
loan repayment, Whitestone received a $5.4 million cash distribution based on
its approximate 81.6% ownership in Pillarstone OP as a result of the sale. The
October 8, 2019 sale of three Real Estate Assets resulted in eight Real Estate
Assets remaining in the Company's real estate portfolio at June 30, 2020.

Results of Operations

The following is a discussion of our results of operations for the three and six month periods ended June 30, 2020 and 2019 and our financial condition, including:

•Explanation of changes in the results of operations in the Condensed Consolidated Statements of Operations for the three and six month periods ended June 30, 2020 and 2019.


•Our critical accounting policies and estimates that require our subjective
judgment and are important to the presentation of our financial condition and
results of operations.

•Our primary sources and uses of cash for the six month periods ended June 30, 2020 and 2019, and how we intend to generate cash for long-term capital needs.

•Our current income tax status.

The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements and notes thereto appearing elsewhere in this Quarterly Report.

The comparability of our results of operations for the six months ended June 30, 2020 to future periods may be impacted by the effects of the COVID-19 pandemic.

Comparison of the Six Month Periods Ended June 30, 2020 and 2019

Leasing Activity


For the six month period ended June 30, 2020, we executed 27 leases for a total
lease value of $2.0 million compared to 57 leases for a total lease value of
$6.3 million for the six month period ended June 30, 2019.

Results of Operations

The following provides a general comparison of our results of operations for the six month periods ended June 30, 2020 and 2019 (dollars in thousands):

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Six Months Ended June 30,

                                                                                2020                      2019
Number of properties                                                                   8                        11
Aggregate GLA (sq. ft.)                                                          926,798                 1,307,930
Ending occupancy rate                                                                 67   %                    77  %

Total revenues                                                           $         5,026           $         7,673
Total operating expenses                                                           4,252                     5,386
Total other expenses                                                                 472                     1,053
Provision for income tax expense (benefit)                                           (36)                       98
Net income                                                                           338                     1,136
Less: Non-controlling interest in subsidiary                                         611                     1,059
Net income (loss) available to Common Shareholders                       $          (273)          $            77



Revenues from Operations

    We had total revenues for the six month periods ended June 30, 2020 and
2019 of approximately $5,026,000  and $7,673,000, respectively, for a decrease
of approximately $2,647,000, or 34%. The difference was comprised of decreases
of approximately $1,997,000 in rental revenues, $636,000 in expense
reimbursements, $2,000 in other revenue and an increase of $12,000 in bad debt.
The overall decrease was primarily due to the sale of three Real Estate Assets
as of October 8, 2019.

Expenses from Operations
    Our operating expenses were approximately $4,252,000 for the six months
ended June 30, 2020 compared to approximately $5,386,000 for the six months
ended June 30, 2020, a decrease of approximately $1,134,000, or 21%. The overall
decrease was mostly due to the sale of three Real Estate Assets as of October 8,
2019, offset by an increase in general and administrative expenses of
approximately $267,000 for Trustee fees. The primary components of operating
expenses are detailed in the table below (in thousands):
                                           Six Months Ended June 30,
                                          2020                      2019    

Change % Change

 Operating and maintenance          $      1,348$ 1,722

$ (374) (22) %

 Real estate taxes                           850                   1,295    

(445) (34) %

 General and administrative                  675                     374            301            80  %
 Depreciation and amortization             1,075                   1,559           (484)          (31) %
 Management fees                             304                     436           (132)          (30) %
  Total operating expenses          $      4,252$ 5,386$ (1,134)          (21) %


The comparability of our results of operations for the three months ended June 30, 2020 to future periods may be impacted by the effects of the COVID-19 pandemic.

Comparison of the Three Month Periods Ended June 30, 2020 and 2019

Leasing Activity

For the three month period ended June 30, 2020, we executed 12 leases for a total lease value of $0.8 million compared to 21 leases for a total lease value of $2.4 million for the three month period ended June 30, 2019.

Results of Operations

The following provides a general comparison of our results of operations for the three month periods ended June 30, 2020 and 2019 (dollars in thousands):

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Three Months Ended June 30,

                                                                                2020                      2019
Number of properties                                                                   8                        11
Aggregate GLA (sq. ft.)                                                          926,798                 1,307,930
Ending occupancy rate                                                                 67   %                    77  %

Total revenues                                                           $         2,440           $         3,817
Total operating expenses                                                           2,088                     2,740
Total other expenses                                                                 211                       524
Provision for income tax expense (benefit)                                           (38)                       31
Net income                                                                           179                       522
Less: Non-controlling interest in subsidiary                                         393                       491
Net income (loss) available to Common Shareholders                       $          (214)          $            31



Revenues from Operations


    We had total revenues for the three month periods ended June 30, 2020 and
2019 of approximately$2,440,000 and $3,817,000, respectively, for a decrease of
approximately $1,377,000, or 36%. The difference was comprised of decreases of
approximately $1,069,000 in rental revenues, $279,000 in expense reimbursements,
$5,000 in other revenue, and an increase of $24,000 in bad debt. The overall
decrease was primarily due to the sale of three Real Estate Assets as of October
8, 2019.

Expenses from Operations

    Our operating expenses were approximately $2,088,000 for the three months
ended June 30, 2020 compared to approximately $2,740,000 for the three months
ended June 30, 2019, a decrease of approximately $652,000, or 24%. The overall
decrease was mostly due to the sale of three Real Estate Assets as of October 8,
2019, offset by an increase in general and administrative expenses of
approximately $267,000 for Trustee fees. The primary components of operating
expenses are detailed in the table below (in thousands):
                                           Three Months Ended June 30,
                                          2020                         2019 

Change % Change

 Operating and maintenance          $         523                   $   888

$ (365) (41) %

 Real estate taxes                            433                       645 

(212) (33) %

 General and administrative                   452                       187          265           142  %
 Depreciation and amortization                524                       796 

(272) (34) %

 Management fees                              156                       224 

(68) (30) %

  Total operating expenses          $       2,088$ 2,740

$ (652) (24) %

Liquidity and Capital Resources

Cash Flows

As of June 30, 2020, our unrestricted cash resources were approximately $4,875,000. We are dependent on cash generated by our ownership of the eight Real Estate Assets to meet our liquidity needs.


    During the six months ended June 30, 2020, the Company's cash balance
increased by $251,000 from $4,624,000 at December 31, 2019 to $4,875,000 at June
30, 2020. This increase in cash was due to cash provided by operating activities
of approximately $917,000, cash used in investing activities of approximately
$529,000 and cash used in financing activities of approximately $137,000.

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Our ability to access the capital markets will be dependent on a number of
factors as well, including general market conditions and market perceptions
about our Company. In light of the impact of the COVID-19 pandemic and other
dynamics in the capital markets impacted by COVID-19 and the economic slowdown,
our access to capital may be diminished.

Future Obligations


    As part of the Acquisition on December 8, 2016, Pillarstone OP assumed
approximately $65.9 million of liabilities related to the Real Estate Assets
contributed by Whitestone OP. As the general partner of Pillarstone OP, we are
ultimately liable for the repayment of the loans. Included in the $65.9 million
of liabilities was $15.5 million due to Whitestone OP by December 8, 2018. As of
December 31, 2018, Pillarstone repaid $17.3 million in outstanding loans, which
included $9.8 million to Whitestone OP and $7.5 million to other noteholders
using cash from operations and proceeds from the sale of certain Real Estate
Assets. On December 27, 2018, the Company sold three Real Estate Assets in
Houston, Texas to an unaffiliated third party for $15.9 million, resulting in 11
Real Estate Assets in the Company's real estate portfolio at December 31, 2018.

    On October 8, 2019, Pillarstone OP, sold three Real Estate Assets in
Houston, Texas to an unaffiliated third party for $39.7 million in cash,
resulting in eight Real Estate Assets in the Company's real estate portfolio at
December 31, 2019. Pillarstone OP used the net proceeds, after customary closing
deductions, to repay mortgage debt secured by the Real Estate Assets sold on
October 8, 2019 and other Real Estate Assets, and to repay the remaining $5.7
million of its $15.5 million loan from Whitestone OP. In addition to the $5.7
million loan repayment, Whitestone received a $5.4 million cash distribution
from its 81.4% ownership of Pillarstone OP as a result of the sale. We expect
our remaining debt balance to be repaid from raising capital, selling assets,
and/or debt refinancing. As of June 30, 2020, the Company's debt obligations are
approximately $15.6 million, including convertible notes payable. See Note 8 for
more details on the Company's convertible notes payable.

Long Term Liquidity and Operating Strategies

Historically, we have financed our long term capital needs, including acquisitions, as follows:

•borrowings from new loans; •additional equity issuances of our common and preferred shares; and •proceeds from the sales of our Real Estate Assets.

    From 2006 until December 2016, the Company continued its existence as a
corporate shell filing its periodic reports with the SEC so that it could be
used for future real estate transactions or sold to another company. During this
time, the Company was funded by its trustees who contributed $500,000 in
exchange for 125,000 Preferred C Shares and $197,780 in exchange for convertible
notes payable.

    Subsequent to the Acquisition, Pillarstone has been developing strategies
for the Real Estate Assets in order to create value for the enterprise and our
shareholders and selling assets to pay off some of its debt. To implement the
strategy to create value with the Real Estate Assets additional capital will
need to be raised.

COVID-19

    The following discussion is intended to provide shareholders with certain
information regarding the impacts of the COVID-19 pandemic on our business and
management's efforts to respond to those impacts. Unless otherwise specified,
the statistical and other information regarding our portfolio and tenants are
estimates based on information available to us as of August 14, 2020. As a
result of the rapid development, fluidity and uncertainty surrounding the
COVID-19 pandemic, we expect that such statistical and other information will
change, potentially significantly, going forward and may not be indicative of
the actual impact of the COVID-19 pandemic on our business, operations, cash
flows and financial condition for future periods.

    The World Health Organization has declared COVID-19 to constitute a "Public
Health Emergency of International Concern" and characterized COVID-19 as a
pandemic. As a result, U.S. and many local governments have implemented enhanced
screenings, quarantine or shelter in place requirements and travel restrictions.
For example, local governments in Texas, where all our properties are located,
mandated a stay in place order, closed non-essential businesses and closed other
types of service businesses, such as bars and restaurants, though they can
continue to provide take out and drive through services temporarily and under
certain circumstances be open at a limited capacity. However, the timing and
ultimate impact of any such steps on the economy as a whole and on our and our
tenants' businesses and financial condition remains uncertain.
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We are unable to predict the impact that the COVID-19 pandemic will have on
our financial condition, results of operations and cash flows due to numerous
uncertainties including, but not limited to, the duration and spread of the
pandemic, its severity in our markets and elsewhere, governmental actions to
contain the spread of the pandemic and respond to the reduction in global
economic activity, and how quickly and to what extent normal economic and
operating conditions can resume.

Our portfolio and tenants have been impacted by these and other factors as follows:


•As of the date of this Quarterly Report, all of our properties are open and
have been operating in compliance with federal, state and local COVID-19
guidelines and mandates.
•Approximately 97% of our tenants (based on annualized base rent ("ABR")) are
open and operating.
•As of the date of this Quarterly Report, we have received payment of
approximately 95% of contractual base rent and common area maintenance
reimbursable expenses billed for the second quarter. As is believed to be the
case with other landlords across the U.S., we have received a number of rent
relief requests from tenants, most often in the form of rent deferral requests,
which we are evaluating on a case-by-case basis. Collections and rent relief
requests to-date may not be indicative of collections or requests in any future
period.

We have taken a number of proactive measures to maintain the strength of our business and manage the impact of COVID-19 on our operations and liquidity, including the following:


•We have cash and cash equivalents of approximately $4,875,000 as of June 30,
2020.
•We are carefully evaluating acquisition, development and redevelopment
opportunities on an individual basis.
•We have put in place a temporary response team to address tenant concerns. The
response team is in ongoing communication with our tenants and is assisting
tenants in identifying local, state and federal resources that may be available
to support their businesses and employees during the pandemic, including
stimulus funds that may be available under the Coronavirus Aid, Relief, and
Economic Security Act of 2020.
•We are proactively implementing expense reductions at the property level to
minimize cost pass-throughs to our tenants and at the corporate level to
preserve profitability.
•The health and safety of our employees, the staff that manages our properties,
and their respective families is a top priority. We have adapted our operations
to protect employees, including by implementing a work from home policy.

While we believe these steps have been effective to date, we expect there will
be additional challenges ahead that may impact either our operations or those of
our tenants, which could have an adverse effect on our and our tenants'
businesses and financial performance. We expect to continue to implement
proactive measures until we determine that the COVID-19 pandemic is adequately
contained for purposes of our business, and we may take further actions as
government authorities require or recommend or as we determine to be in the best
interests of our employees and tenants. As a result, we may incur additional
expenses in future periods in response to the pandemic, which could adversely
affect our results of operations. In addition, we may revise our approach to
these initiatives or take additional actions to meet the needs of our employees
and tenants.


Current Tax Status

    As of June 30, 2020 and December 31, 2019, we had net deferred tax
liabilities of $101,000 and $96,000, respectively. As of June 30, 2020, we have
an operating loss carryforward of approximately $326,000 available to be carried
to future periods.

The income tax expense (income) included in the condensed consolidated statements of operations for the three and six months ended June 30, 2020 and 2019 was comprised of the following components (in thousands):

                                                              Three Months Ended June 30,                                      Six Months Ended June 30,
                                                               2020                   2019                 2020                       2019
Federal                                                 $         (51)           $         8          $       (63)         $                 12
Texas franchise tax                                                13                     23                   27                            86
                                                        $         (38)           $        31$       (36)         $                 98



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Interest Rates and Inflation

    The Company was not significantly affected by inflation during the periods
presented in this report due primarily to the relative low nationwide inflation
rates and the Company having approximately 100% of its debt with fixed rates as
of June 30, 2020.

Off-Balance Sheet Arrangements

    We have no off-balance sheet arrangements that have, or are likely to have,
a current or future material effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources.

Application of Critical Accounting Estimates


    Our condensed consolidated financial statements are prepared in accordance
with GAAP, which require us to make certain estimates and assumptions. The
following section is a summary of certain estimates that both require our most
subjective judgment and are most important to the presentation of our financial
condition and results of operations. It is possible that the use of different
estimates or assumptions in making these judgments could result in materially
different amounts being reported in our condensed consolidated financial
statements.

    Revenue recognition. All leases on our properties are classified as
operating leases, and the related rental income is recognized on a straight-line
basis over the terms of the related leases. For the three and six months ending
June 30, 2020, we recognized a straight-line rent reserve adjustment decreasing
rental revenue by approximately $50,000 for the conversion of four tenants to
cash basis revenue as a result of our COVID-19 collectibility analysis.
Differences between rental income earned and amounts due per the respective
lease agreements are capitalized or charged, as applicable, to accrued rents and
accounts receivable. Recoveries from tenants for taxes, insurance, and other
operating expenses are recognized as revenues in the period the corresponding
costs are incurred. We combine lease and nonlease components in lease contracts,
which includes combining base rent and recoveries into a single line item,
Rental, within the condensed consolidated statements of operations.

    We recognize lease termination fees in the year that the lease is terminated
and collection of the fee is reasonably assured. Additionally, we may have
tenants who pay real estate taxes directly to the taxing authority. We exclude
these costs paid directly by the tenant to third parties on our behalf from
revenue recognized and the associated property operating expense.

    Acquired Properties and Acquired Lease Intangibles. We allocate the purchase
price of the acquired properties to land, building and improvements,
identifiable intangible assets and to the acquired liabilities based on their
respective fair values at the time of purchase. Identifiable intangibles include
amounts allocated to acquired out-of-market leases, the value of in-place leases
and customer relationship value, if any. We determine fair value based on
estimated cash flow projections that utilize appropriate discount and
capitalization rates and available market information. Estimates of future cash
flows are based on a number of factors including the historical operating
results, known trends and specific market and economic conditions that may
affect the property. Factors considered by management in our analysis of
determining the as-if-vacant property value include an estimate of carrying
costs during the expected lease-up periods considering market conditions, and
costs to execute similar leases. In estimating carrying costs, management
includes real estate taxes, insurance and estimates of lost rentals at market
rates during the expected lease-up periods, tenant demand and other economic
conditions. Management also estimates costs to execute similar leases including
leasing commissions, tenant improvements, legal and other related expenses.
Intangibles related to out-of-market leases and in-place lease value are
recorded as acquired lease intangibles and are amortized as an adjustment to
rental revenue or amortization expense, as appropriate, over the remaining terms
of the underlying leases. Premiums or discounts on acquired out-of-market debt
are amortized to interest expense over the remaining term of such debt.

Depreciation. Depreciation is computed using the straight-line method over the
estimated useful lives of 5 to 39 years for improvements and buildings. Tenant
improvements are depreciated using the straight-line method over the life of the
improvement or remaining term of the lease, whichever is shorter.

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Impairment. We review our properties for impairment at least annually or
whenever events or changes in circumstances indicate that the carrying amount of
the assets, including accrued rental income, may not be recoverable through
operations. We determine whether an impairment in value has occurred by
comparing the estimated future cash flows (undiscounted and without interest
charges), including the estimated residual value of the property, with the
carrying cost of the property. If impairment is indicated, a loss will be
recorded for the amount by which the carrying value of the property exceeds its
fair value. Management has determined that there has been no impairment in the
carrying value of our real estate assets as of June 30, 2020.


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