fil-20221231

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

___________

FORM 10-K

☒ Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2022

☐ Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ___ to ___

Commission File Number 000-53912

____________

SILVER STAR PROPERTIES REIT, INC.

(Exact name of registrant as specified in its charter)


Maryland			26-3455189
(State of Organization)			(I.R.S. Employer Identification Number)
2909 Hillcroft
Suite 420
Houston
Texas			77057
(Address of principal executive offices)			(Zip Code)

____________

(713) 467-2222

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12 (b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
None	None	None

Securities registered pursuant to Section 12 (g) of the Act: Common stock, $0.001 par value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨ No ý

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company” and "emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller reporting company ☒ Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý

There is no established market for the registrant's shares of common stock. There were 34,894,496 shares of common stock held by non-affiliates as of June 30, 2022; the last business day of the registrant’s most recently completed second fiscal quarter.

As of May 16, 2023, there were 34,894,496 shares of the registrant’s common shares issued and outstanding.

Table of Contents

Cautionary Note Regarding Forward-Looking Statements

Item 1B.

Unresolved Staff Comments

Item 2.

Properties

Item 3.

Legal Proceedings

Item 4.

Mine Safety Disclosures

PART II

Item 5.

Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Item 6.

[Reserved]

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A.

Quantitative and Qualitative Disclosures about Market Risks

Item 8.

Financial Statements and Supplementary Data

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Item 9A.

Controls and Procedures

Item 9B.

Other Information

Item 9C.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

PART III

Item 10.

Directors, Executive Officers and Corporate Governance

Item 11.

Executive Compensation

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item 13.

Certain Relationships and Related Transactions and Director Independence

Item 14.

Principal Accounting Fees and Services

PART IV

Item 15.

Exhibits and Financial Statement Schedules

Item 16.

Form 10-K Summary

Index to Consolidated Financial Statements

Cautionary Note Regarding Forward-Looking Statements

As used herein, the terms “we,” “us” or “our” to Silver Star Properties REIT, Inc. and, as required by context, Hartman XX Limited Partnership, which we refer to as our “operating partnership,” and their respective subsidiaries.

Certain statements included in this annual report on Form 10-K (this “Annual Report”) that are not historical facts (including statements concerning investment objectives, other plans and objectives of management for future operations or economic performance, or assumptions, or forecasts related thereto) are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended. These statements are only predictions. We caution that forward-looking statements are not guarantees. Actual events related to our investments and results of operations could differ materially from those expressed or implied in any forward-looking statements. Forward-looking statements are typically identified by the use of terms such as “may,” “should,” “expect,” “could,” “intend,” “plan,” “anticipate,” “estimate,” “believe,” “continue,” “predict,” “potential,” or the negative of such terms and other comparable terminology.

Forward-looking statements included herein are based upon our current expectations, plans, estimates, assumptions and beliefs which involve numerous risks and uncertainties. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements.

Other factors that could have a material adverse effect on our operations and future prospects include, but are not limited to:


●			the fact that we have had a net loss for each annual period since our inception;
●			the imposition of federal taxes if we fail to qualify as a REIT in any taxable year or forego an opportunity to ensure REIT status;
●			uncertainties related to the national economy, the real estate industry in general and in our specific markets;
●			legislative or regulatory changes, including changes to laws governing REITS;
●			our ability to obtain financing on acceptable terms, satisfy our existing debt service obligations and negotiate maturity date extensions, particularly with our SASB Loan, or other modifications to the terms of our existing financing arrangements to the extent necessary
●			construction costs that may exceed estimates or construction delays;
●			increases in interest rates;
●			availability of credit or significant disruption in the credit markets;
●			litigation risks, including without limitation the outcome of pending litigation related to the pricing of electricity provided to certain of our properties during the severe winter weather experienced in Texas
●			risks inherent to the real estate business, including tenant defaults, potential liability related to environmental matters and the lack of liquidity of real estate investments;
●			inability to renew tenant leases or obtain new tenants upon the expiration of existing leases at our properties;
●			inability to generate sufficient cash flows due to market conditions, competition, uninsured losses, changes in tax or other applicable laws;
●			the potential need to fund tenant improvements or other capital expenditures out of operating cash flow;
●			our ability to generate sufficient cash flows to resume the payment of distributions to our stockholders;
●			the outcome of our pending legal appeal of a significant judgment against our Property Manager related to Winter Storm Uri (see Item 3. Legal Proceedings)
●			our ability to retain our executive officers and other key personnel; and
●			changes to generally accepted accounting principles, or GAAP.

Any of the assumptions underlying the forward-looking statements included herein could be inaccurate, and undue reliance should not be placed upon any forward-looking statements included herein. All forward-looking statements are made as of the date of this Annual Report, and the risk that actual results will differ materially from the expectations expressed herein will increase with the passage of time. Except as otherwise required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements made after the date of this Annual Report, whether as a result of new information, future events, changed circumstances or any other reason. In light of the significant uncertainties inherent in the forward-looking statements included in this Annual Report, including, without limitation, the risks described under “Risk Factors,” the inclusion of such forward-looking statements should not be regarded as a representation by us or any other person that the objectives and plans set forth in this Annual Report will be achieved.

RISK FACTOR SUMMARY

We are subject to numerous risks and uncertainties that could cause our actual results and future events to differ materially from those set forth or contemplated in our forward-looking statements, including those summarized below. The following list of risks and uncertainties is only a summary of some of the most important factors and is

not intended to be exhaustive. This risk factor summary should be read together with the more detailed discussion of risks and uncertainties set forth under “Item 1A. Risk Factors” of this Annual Report.

Risks Related to Our Business and Operations

•We have experienced annual net losses from inception through December 31, 2022 and may experience similar losses in the future.

•Our cash distributions are not guaranteed and monthly cash distributions were suspended in July 2022.

•We have in the past and may in the future pay distributions from sources other than our cash flow from operations. To the extent that we pay distributions from sources other than our cash flow from operations, we will have reduced funds available for investment and the overall return to our stockholders may be reduced.

•There is currently no public trading market for your shares; therefore, it will be difficult for you to sell your shares. If you are able to sell your shares, you may have to sell them at a substantial discount from the public offering price.

•We disclose funds from operations and modified funds from operations, each a non-GAAP financial measure, in communications with investors, including documents filed with the SEC; however, funds from operations and modified funds from operation are not equivalent to our net income or loss of cash flow from operations as determined under GAAP, and stockholders should consider GAAP measures to be more relevant to our operating performance.

•We recently transitioned to a self-managed real estate investment trust and have limited experience being self-managed.

•You are limited in your ability to sell your shares of common stock. You may not be able to sell any of your shares of our common stock back to us, and if you do sell your shares, you may not receive the price you paid.

Risks Related to Conflict of Interest

•Other Hartman real estate programs, which we sponsor or provide management and advisory services, have investment strategies that are similar to ours. Our executive officers will face conflicts of interest relating to the purchase and leasing of properties and other investments, and such conflicts may not be resolved in our favor.

•Our executive officers and some of our directors, will face conflicts of interest caused by their compensation arrangements with us, which could result in actions that are not in the long-term best interests of our stockholders.

General Investment Risks

•There is no public trading market for shares of our common stock and we are not required to effectuate a liquidity event by a certain date. As a result, repurchase of shares by us will likely be the only way to dispose of your shares. Our share repurchase program is subject to numerous restrictions and we may amend or suspend our share redemption program without stockholder approval.

•We cannot guarantee that we will make distributions. In July 2022, our board of directors suspended our monthly cash distribution. If and when we pay distributions, we may fund such distributions from sources other than cash flow from operations, including, without limitation, the sale of assets, borrowings, return of capital or offering proceeds, and we have no limits on the amounts we may pay from such sources.

•Changes in national, regional or local economic, demographic or real estate market conditions, including

actual or perceived instability in the U.S. banking system, may adversely affect our results of operations and returns to our stockholders

Risks Related to Our Organizational Structure

•Maryland law and our organizational documents limit your right to bring claims against our officers and directors.

•The limit on the percentage of shares of our common stock that any person may own may discourage a takeover or business combination that may benefit our stockholders.

•Your investment return may be reduced if we are required to register as an investment company under the Investment Company Act; if we are subject to registration under the Investment Company Act, we will not be able to continue our business.

•Stockholders have limited control over changes in our policies and operations.

Risks Related to Investments in Real Estate

•Many of our investments will be dependent on tenants for revenue, and lease terminations could reduce our ability to make distributions to stockholders.

•We may be unable to secure funds for future tenant improvements, which could adversely impact our ability to make cash distributions to our stockholders.

Risks Associated With Debt Financing

•Our borrowings may increase our business risks.

•If mortgage debt is unavailable at reasonable rates, we may not be able to refinance our properties.

•If we enter into financing arrangements involving balloon payment obligations, it may adversely affect our future ability to make distributions.

Federal Income Tax Risks

•To maintain our REIT status, we may be forced to forgo otherwise attractive opportunities, which may delay or hinder our ability to meet our investment objectives and reduce your overall return.

Retirement Plan Risks

•There are special considerations for pension or profit-sharing or 401(k) plans, health or welfare plans or individual retirement accounts whose assets are being invested in our common stock due to requirements under ERISA and the Internal Revenue Code. Furthermore, a person acting on behalf of a plan not subject to ERISA may be subject to similar penalties under applicable federal, state, local, or non-U.S. law by reason of purchasing our stock.

PART I

Item 1. Business

General

Silver Star Properties REIT, Inc. (previously known as Hartman Short Term Income Properties XX, Inc.) is a Maryland corporation formed on February 5, 2009, to acquire and invest in income-producing commercial real estate properties, including office buildings, retail shopping centers and flex and industrial properties. We have previously made investments in real estate assets located in the United States, with a strategic focus on real estate properties located in Texas. We recently began an initiative to pivot away from office, retail, and light industrial assets, and reposition our portfolio into the self-storage asset class. We currently own substantially all of our assets and conduct our operations through Hartman XX Limited Partnership, a Texas limited partnership, which we refer to as our “operating partnership.” Our wholly-owned subsidiary, Hartman XX REIT GP LLC, is the sole general partner of our operating partnership. We elected to be treated as a real estate investment trust, or REIT, for federal income tax purposes beginning with the taxable year ended December 31, 2011. References in this Annual Report to “shares” and “our common stock” refer to the shares of our common stock.

As of December 31, 2022, we owned 44 commercial properties comprising approximately 6,800,000 square feet plus four pad sites and two land developments all located in Texas. For more information on our real estate portfolio, see “Investment Portfolio” below.

On May 14, 2020, we completed: (i) the merger between us and Hartman Short Term Income Properties XIX, Inc.("Hartman XIX"), and (ii) the merger by us, our operating partnership, Hartman Income REIT, Inc. (“HIREIT”), and Hartman Income REIT Operating Partnership LP, (“HIREIT Operating Partnership”). The effective date of the mergers ("Mergers") was July 1, 2020.

Prior to July 1, 2020 and subject to certain restrictions and limitations, Hartman Advisors LLC ("Advisor") was responsible for managing our affairs on a day-to-day basis and for identifying and making acquisitions and investments on our behalf pursuant to an advisory agreement. Management of our properties is provided pursuant to property management agreements with Hartman Income REIT Management, Inc. (the "Property Manager"), formerly a wholly-owned subsidiary of HIREIT and effective July 1, 2020, our wholly owned subsidiary. The Property Manager owned 30% of the Advisor prior to the Mergers. Effective with the Mergers and the acquisition of the 70% interest of Advisor owned by affiliates of Allen R. Hartman, we are a self-advised and self-managed REIT.

On December 20, 2022, we filed an amendment to our Articles of Amendment with the Maryland Secretary of State to change our name from “Hartman Short Term Income Properties XX, Inc.” to “Silver Star Properties REIT, Inc.”

On April 6, 2023, the Executive Committee of the board of directors approved our previously-announced New Direction Plans to reposition the Company's assets into the self-storage asset class and away from office, retail, and light industrial assets.

Our principal executive offices are located at 2909 Hillcroft, Suite 420, Houston, Texas 77057. Our telephone number is 713-467-2222. Information regarding our company is available via the internet at www.hartmanreits.com. We are not incorporating our web-sites or any information from our web-sites into this Annual Report.

Going Concern Considerations

We have a $259,000,000 SPE Loan (the "SASB Loan") outstanding as of December 31, 2022 which has a maturity date of October 9, 2023, which is within one year of the date that this Annual Report was available to be issued. We are on the third and final one year maturity date option under the SASB Loan. Management has determined that the our ability to continue as a going concern is dependent upon the our ability to refinance the SASB Loan prior to the maturity date.

On October 19, 2022, we received a notice from the loan servicer of the SASB Loan in connection with an event of default due to the noncompliance with the loan agreement's insurance requirements relating to a single property. The event of default was previously waived for the sole purpose of exercising the final one-year extension option to the SASB Loan term. The default triggers cash management provisions under the SASB Loan agreement, which was implemented in November 2022. Cash management implementation has restricted access to tenant receipts and limited the amount of cash available to meet our operating obligations. Refer to Note 8 (Notes Payable) to the consolidated financial statements in the Annual Report for additional information regarding the timing and priority of disbursements we receive from the cash management accounts and required excess cash flow reserves.

Notwithstanding cash management implementation, we believe that we will have sufficient capital to meet our existing, monthly debt service and other operating obligations for the next year and that we have adequate resources to fund our cash needs. We are working with our third party advisor on refinancing options that are in alignment with a range of strategic alternatives being evaluated. However, the lack of lending activity in the debt markets, particularly in commercial office real estate markets, may have a direct impact on the value of our real estate and ability to refinance the properties in the SASB Loan due October 9, 2023. No assurances can be given we will meet our objective of refinancing the SASB Loan prior to the maturity date.

Investment Objectives and Strategy

We have invested in a diverse portfolio of real estate investments. As of December 31, 2022, we owned a total of 44 commercial properties, consisting of 29 office properties, 12 retail properties, and 3 industrial/flex properties. Historically, we have relied on a value add acquisition and development strategy, focused specifically properties located in Texas, to realize growth in the value of our investments, grow net cash from operations, and pay regular cash distributions to our stockholders.

The current economic slowdown, rising interest rate environment, inflation, and the COVID-19 pandemic have had a negative impact on us. Effective July 8, 2022, we suspended the payment of distributions and seek to preserve capital to secure our financial health on an ongoing basis.

We have changed our investment objectives and strategy to preserve the long-term health of our company and we do not anticipate acquiring any office properties in the near future. Management and the Executive Committee of our Board of Directors have identified, examined, and evaluated a range of strategic alternatives and are in the process of carrying out our New Direction Plans with the objective of maximizing shareholder value.

We do not anticipate that there will be any market for our shares of common stock unless they are listed on a national securities exchange. We recently engaged advisors to examine the possibility of listing our shares on a public exchange in conjunction with our previously-announced New Direction Plans. In the event that our shares of common stock are not listed or traded on an established securities exchange prior to the tenth anniversary of the termination of our initial public offering, which terminated on April 25, 2013, our charter requires that the board of directors must seek the approval of our stockholders of a plan to liquidate our assets, unless the board of directors has obtained the approval of our stockholders (1) to defer the liquidation of our assets or (2) of an alternate strategy. If the stockholders do not approve the proposal presented by the board of directors prior to the end of ten years after the termination of the Company’s initial public offering, the board of directors shall begin the process of liquidating the Company’s assets or listing the Company’s shares. The Executive Committee of the Board of Directors has

adopted resolutions directing management to begin the process of listing the Company’s shares on an established securities exchange, and it is taking steps to accomplish the listing, including without limitation engaging the services of an investment bank to assist with the listing.

We elected to be taxed as a REIT under the Internal Revenue Code beginning with the taxable year ending December 31, 2011. As a REIT we generally are not subject to federal income tax on income that we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year after the year in which we initially elected to be treated as a REIT, we will be subject to federal income tax on our taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year in which our qualification is denied. Such an event could materially and adversely affect our net income. However, we believe that we are organized and will operate in a manner that will enable us to qualify for treatment as a REIT for federal income tax purposes and we intend to operate so as to remain qualified as a REIT for federal income tax purposes.

Investment Portfolio

As of December 31, 2022, we owned 44 commercial properties comprising approximately 6,800,000 square feet plus four pad sites and two land developments, all located in Texas. For additional information regarding our property portfolio, see Part I, Item 2, “Properties” of this Annual Report.

Competition

The United States commercial real estate market is highly competitive. All our properties are located in areas that include competing properties. We face competition from various entities for investment opportunities in our targeted assets, including other REITs, pension funds, insurance companies, investment funds, real estate companies and developers. Many of these entities have substantially greater financial resources than we do and may be able to accept more risk than we can prudently manage, including risks with respect to the geographic location of investments or the creditworthiness of tenants. Competition from these entities may reduce the number of suitable investment opportunities offered to us or increase the bargaining power of property owners seeking to sell real estate assets. The amount of competition in a particular market could also impact our ability to lease space and impact the amount of rent we are able to charge.

Human Capital

As of December 31, 2022, we had 144 full-time employees. Our human capital management objectives are to attract, retain and develop the highest quality talent by creating a culture that promotes employee engagement.

Diversity. We provide equal employment opportunities to all employees and applicants for employment without regard to race, color, religion, sex, national origin, age, genetic information, or disability in accordance with applicable state and federal laws. We value diversity of views, experience, skill sets, gender and ethnicity throughout our organization.

Employee Retention. We value employee retention and actively seek to promote from within our company.

Employee Training and Development. We encourage our employees to take advantage of various internal training opportunities, as well as those provided by outside service providers to the extent they are business related. Our employees also receive extensive and ongoing training concerning important cybersecurity issues. Many of our employees hold professional licenses and we encourage them, and in many cases reimburse them, to attend ongoing continuing professional education such as is typically required of attorneys, engineers and certified public accountants.

Employee Compensation and Benefits. We maintain cash and equity based compensation programs designed to attract, retain and motivate our employees. We offer a comprehensive benefits program as well as a 401(k) with a matching employer contribution, flexible spending accounts, income protection through our sick pay, salary continuation and long term disability policies, paid vacation, paid maternity, paternity and adoption leave and holiday and personal days to balance work and personal life.

Employee Health and Safety. We recognize the importance of the health, safety and environmental well-being of our employees, and are committed to providing and maintaining a healthy work environment.

Regulations

All real property investments and the operations conducted in connection with such investments are subject to federal, state and local laws and regulations. Our investments are subject to various federal, state, and local laws, ordinances, and regulations, including, among other things, zoning regulations, land use controls, environmental controls relating to air and water quality, noise pollution, and indirect environmental impacts.

Under various federal and state environmental laws and regulations, as an owner or operator of real estate, we may be required to investigate and clean up certain hazardous or toxic substances, asbestos-containing materials, or petroleum product releases at our properties. We may also be held liable to a governmental entity or to third parties for property damage and for investigation and cleanup costs incurred by those parties in connection with the contamination. In addition, some environmental laws create a lien on the contaminated site in favor of the government for damages and costs it incurs in connection with the contamination. The presence of contamination or the failure to remediate contamination at any of our properties may adversely affect our ability to sell or lease the properties or to borrow using the properties as collateral.

We do not believe that compliance with existing environmental laws will have a material adverse effect on our financial condition or results of operations. However, we cannot predict the impact of unforeseen environmental contingencies or new or changed laws or regulations on properties in which we hold an interest, or on properties that may be acquired directly or indirectly in the future.

Tax Status

We have elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code, and have operated as such beginning with the taxable year ended December 31, 2011. To qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of our annual REIT taxable income (which is computed without regard to the dividends paid deduction and excluding net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP) to stockholders. As a REIT, we generally will not be subject to federal income tax so long as we maintain our REIT status. If we fail to qualify as a REIT in any taxable year after the taxable year in which we initially elected to be taxed as a REIT, we will be subject to federal income tax on our taxable income at regular corporate income tax rates and generally will not be permitted to qualify for treatment as a REIT for federal income tax purposes for the four taxable years following the year during which qualification is lost, unless the Internal Revenue Service grants us relief under certain statutory provisions. Such an event could materially adversely affect our net income and net cash available for distribution to stockholders. We believe we are organized and operate in such a manner as to qualify for taxation as a REIT under the Internal Revenue Code, and we intend to continue to operate in such a manner, but no assurance can be given that we will operate in a manner so as to qualify or remain qualified as a REIT.

Financial Information About Segments

Our current business consists of acquiring, developing, investing-in, owning, managing, leasing, operating, and disposing of real estate assets. We internally evaluate all of our real estate assets as one industry segment and, accordingly, do not report segment information.

Available Information

We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and, accordingly, we file annual reports, quarterly reports and other information with the SEC. Access to copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other filings with the SEC, including amendments to such filings, may be obtained free of charge from our website, http://www.hartmanreits.com/sec-filings/. These filings are available promptly after we file them with, or furnish them to, the SEC. We are not incorporating our website or any information from the website into this annual report. The SEC also maintains a website, http://www.sec.gov, were our filings with the SEC are available free of charge. We will provide without charge a copy of this Annual Report, including financial statements and schedules, upon written request delivered to our principal executive office at the address listed on the cover page of this Annual Report.

Item 1A. Risk Factors

The following are some of the risks and uncertainties that could cause our actual results to differ materially from those presented in our forward-looking statements. The risks and uncertainties described below are not the only ones we face but do represent those risks and uncertainties that we believe are material to us. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also harm our business. Our stockholders or potential investors may be referred to as “you” or “your” in this Item 1A.

Risks Related to Our Business and Operations

We have experienced annual net losses from inception through December 31, 2022 and may experience similar losses in the future.

From inception through December 31, 2022, we incurred a net loss of $108,239,000. We cannot assure that we will be profitable in the future or that we will realize growth in the value of our assets.

Our cash distributions have been indefinitely suspended. To the extent paid in the future, our distributions will not be guaranteed, may fluctuate and may constitute a return of capital or taxable gain from the sale or exchange of property.

We began paying a distribution in January 2011. Effective July 8, 2022, our board of directors approved the suspension of the payment of distributions to our stockholders. There can be no assurance when the payment of distributions will resume, if at all. To the extent the payment of distributions is resumed, the amount and timing of distributions will be determined by our board of directors and will typically depend upon the amount of funds available for distribution, which will depend on items such as current and projected cash requirements and tax considerations. As a result, our distribution rate and payment frequency may vary from time to time. Distributions payable to our stockholders may also include a return of capital, rather than a return on capital. Our long-term strategy is to fund the payment of regular distributions to our stockholders entirely from our funds from operations. However, we may need to borrow funds or utilize offering proceeds in order to make cash distributions. Accordingly, the amount of distributions paid at any given time may not reflect current cash flow from operations.

The geographic concentration of our portfolio may make us particularly susceptible to adverse economic developments in the real estate markets of those areas.

As of December 31, 2022, we owned or held a majority interest in 44 commercial properties comprising approximately 6,800,000 square feet plus four pad sites and two land developments, all located in Texas. As of December 31, 2022, we owned 15 properties located in Richardson, Arlington, and Dallas, Texas, 26 properties located in Houston, Texas and three properties located in San Antonio, Texas. Our geographic focus on the State of Texas is consistent with our investment strategy. However, our focus on investments in the State of Texas results in a geographic concentration in our portfolio which increases the likelihood that a downturn in economic or market conditions that selectively or disproportionately impact the State of Texas will have a significant impact on our results of operations and financial condition and our ability to pay distributions to our stockholders. Any adverse economic or real estate developments in the Texas market, such as business layoffs or downsizing, industry slowdowns, relocation of businesses, changing demographics and other factors, or any decrease in demand for commercial property space resulting from local business climates, could adversely affect our property revenue, and hence net operating income. An investment in our shares of common stock may entail more risk than an investment in the shares of common stock of a real estate investment trust with a more geographically diversified portfolio.

We have and may continue to pay distributions from sources other than our cash flow from operations. To the extent that we pay distributions from sources other than our cash flow from operations, we will have reduced funds available for investment and the overall return to our stockholders may be reduced.

Our organizational documents permit us to pay distributions from any source, including net proceeds from our public offerings, borrowings, advances from our sponsor or advisor and the deferral of fees and expense reimbursements by our advisor, in its sole discretion. Since our inception, our cash flow from operations has not been sufficient to fund all of our distributions, and as a consequence we have funded a significant portion of our distributions with the net proceeds of our public offerings. Of the $8,458,000 in total distributions we paid during the year ended December 31, 2022, excluding distributions we paid to non-controlling interests, 100% was funded from cash flow from operations. Of the $105,656,000 in total distributions we paid during the period from our inception through December 31, 2022, including shares issued pursuant to our distribution reinvestment plan and excluding distributions we paid to non-controlling interests, approximately 68% was funded from cash flow from operations and approximately 32% was funded from offering proceeds or other sources. In the future, our cash flow from operations may not be sufficient to fund our distributions and we may continue to fund all or a portion of our distributions from the remaining proceeds from our follow-on offering or other sources other than cash flow from operations. We have not established a limit on the amount of offering proceeds, or other sources other than cash flow from operations, which we may use to fund distributions. On July 8, 2022, we suspended the payment of distributions to our stockholders and there is no guarantee when we will resume the payment of distributions.

If we are unable to consistently fund distributions to our stockholders entirely from our cash flow from operations, the value of your shares upon a listing of our common stock, the sale of our assets or any other liquidity event may be reduced. To the extent that we fund distributions from sources other than our cash flow from operations, our funds available for investment will be reduced relative to the funds available for investment if our distributions were funded solely from cash flow from operations, our ability to achieve our investment objectives will be negatively impacted and the overall return to our stockholders may be reduced. In addition, if we make a distribution in excess of our current and accumulated earnings and profits, the distribution will be treated first as a tax-free return of capital, which will reduce the stockholder’s tax basis in its shares of common stock. The amount, if any, of each distribution in excess of a stockholder’s tax basis in its shares of our common stock will be taxable as gain realized from the sale or exchange of property.

Payment of fees to our advisor and its affiliates reduced cash available for investment, which may result in stockholders not receiving a full return of their invested capital.

Because a portion of the offering price from the sale of our shares was used to pay expenses and fees, the full offering price paid by our stockholders was not invested in real estate assets. As a result, stockholders will only receive a full return of their invested capital if we either (1) sell our assets or our company for a sufficient amount in excess of the original purchase price of our assets or (2) the market value of our company if we were to list our shares of common stock on a national securities exchange is substantially in excess of the original purchase price of our assets.

There is currently no public trading market for your shares and our share redemption program has been indefinitely suspended; therefore, it will be difficult for you to sell your shares. If you are able to sell your shares, you may have to sell them at a substantial discount from the public offering price.

There is currently no public market for the shares and we have no obligation to list our shares on any public securities market. It will therefore be difficult for you to sell your shares of our common stock promptly or at all.

Further, on July 8, 2022, our board of directors approved the indefinite suspension of our share redemption program to support the long-term fiscal health of our company. There is no way to predict when, if at all, our board of directors will determine to resume the repurchase of shares of our common stock pursuant to our share redemption program. If reopened at some future time, the redemption program may provide you with a limited opportunity to have your shares of our common stock redeemed by us after you have held them for at least one year, subject to the significant conditions and limitations. Subject to the board of directors discretion, shares will generally be redeemed under the share redemption program at a price equal to or at a discount from the lesser of (1) the average gross price per share the original purchaser or purchasers of the shares being redeemed paid to us, which we refer to as the “issue price,” and (2) the current offering price per share for the shares being redeemed. The share redemption program contains certain restrictions and limitations, including those relating to the number of shares of our common stock that we can redeem at any given time and limiting the redemption price. Specifically, the plan will limit the number of shares to be redeemed during any calendar year to no more than (1) 5.0% of the weighted average of the shares of our common stock outstanding during the prior calendar year and (2) those that could be funded from the net proceeds from the sale of shares under our distribution reinvestment plan in the prior calendar year plus, if we had positive operating cash flow from the previous fiscal year, 1.0% of all operating cash flow from the previous fiscal year. In addition, our board of directors reserves the right to reject any redemption request for any reason or no reason or to amend or suspend the share redemption program at any time. Therefore, you may not have the opportunity to make a redemption request prior to a termination of the share redemption program and you may not be able to sell any of your shares of common stock back to us pursuant to our share redemption program. Moreover, if you do sell your shares of common stock back to us pursuant to the share redemption program, you may not receive the same price you paid for any shares of our common stock being redeemed.

If we lose or are unable to obtain key personnel, our ability to implement our investment strategies could be delayed or hindered.

Our success depends to a significant degree upon the continued contributions of certain executive officers and other key personnel who would be difficult to replace. If any of our key personnel were to cease their affiliation with us, our operating results could suffer. We believe that our future success depends, in large part, upon our ability to hire and retain highly skilled managerial, operational and marketing personnel. Competition for persons with these skills is intense, and we cannot assure our stockholders that we will be successful in attracting and retaining such skilled personnel. Further, we have established, and intend in the future to establish, strategic relationships with firms that have special expertise in certain services or as to assets both nationally and in certain geographic regions. Maintaining these relationships will be important for us to effectively compete for assets. We cannot assure our stockholders that we will be successful in attracting and retaining such strategic relationships. If we lose or are unable to obtain the services of key personnel or do not establish or maintain appropriate strategic relationships, our ability to implement our investment strategies could be delayed or hindered.

Our Executive Committee determined an estimated net asset value per share of $6.25 for our shares of common stock as of December 31, 2022. You should not rely on the estimated value per share as being an accurate measure of the current value of our shares of common stock.

On April 13, 2023, the Executive Committee, which is comprised of independent directors, determined an estimated net asset value per share of our common stock of $6.25 as of December 31, 2022. Our Executive Committee’s objective in determining the estimated net asset value per share was to arrive at a value, based on the most recent data available, that it believed was reasonable based on methodologies that it deemed appropriate after consultation with our advisor. However, the market for commercial real estate can fluctuate quickly and substantially and the value of our assets is expected to change in the future and may decrease. Also, our Executive Committee did not consider certain other factors, such as a liquidity discount to reflect the fact that our shares are not currently traded on a national securities exchange and the limitations on the ability to redeem shares pursuant to our share repurchase plan.

As with any valuation method, the methods used to determine the estimated net asset value per share were based upon a number of assumptions, estimates and judgments that may not be accurate or complete. Our assets have been valued based upon appraisal standards and the values of our assets using these methods are not required to be a reflection of market value under those standards and will not necessarily result in a reflection of fair value under GAAP. Further, different parties using different property-specific and general real estate and capital market assumptions, estimates, judgments and standards could derive a different estimated net asset value per share, which could be significantly different from the estimated net asset value per share determined by our board of directors. The estimated net asset value per share is not a representation or indication that, among other things: a stockholder would be able to realize the estimated value per share if he or she attempts to sell shares; a stockholder would ultimately realize distributions per share equal to the estimated value per share upon liquidation of assets and settlement of our liabilities or upon a sale of our company; shares of our common stock would trade at the estimated net asset value per share on a national securities exchange; a third party would offer the estimated net asset value per share in an arms-length transaction to purchase all or substantially all of our shares of common stock; or the methodologies used to estimate the net asset value per share would be acceptable to FINRA or ERISA with respect to their respective requirements. Further, the estimated net asset value per share was calculated as of a moment in time and the value of our shares will fluctuate over time as a result of, among other things, future acquisitions or dispositions of assets, developments related to individual assets and changes in the real estate and capital markets. For additional information on the calculation of our estimated net asset value per share as of December 31, 2022, see Item 5, “Market for Registrant’s Common Equity, Related Stockholder Matters and Purchases of Equity Securities—Estimated Net Asset Value Per Share.”

We disclose funds from operations and modified funds from operations, each a non-GAAP financial measure, in communications with investors, including documents filed with the SEC; however, funds from operations and modified funds from operation are not equivalent to our net income or loss of cash flow from operations as determined under GAAP, and stockholders should consider GAAP measures to be more relevant to our operating performance

We use and we disclose to investors funds from operations, or “FFO,” which is a non-GAAP financial measures, as defined herein (see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Funds From Operations”.) FFO is not equivalent to our net income or loss or cash flow from operations as determined in accordance with GAAP, and investors should consider GAAP measures to be more relevant to evaluating our operating performance and ability to pay distributions. FFO and GAAP net income differ because FFO excludes gains or losses from sales of property and asset impairment write-downs, and add back depreciation and amortization and adjustments for unconsolidated partnerships and joint ventures.

Because of these differences, FFO may not be accurate indicators of our operating performance, especially during periods in which we are acquiring properties. In addition, FFO is not indicative of cash flow available to fund cash needs and investors should not consider FFO as an alternative to cash flows from operations or an indication of our liquidity, or indicative of funds available to fund our cash needs, including our ability to pay distributions to our stockholders. Neither the SEC nor any other regulatory body has passed judgment on the acceptability of the adjustments that we use to calculate FFO. Also, because not all companies calculate FFO the same way, comparisons with other companies may not be meaningful.

We rely on information technology networks and systems, and any material failure, inadequacy, interruption or security failure of that technology could harm our business.

Risks associated with security breaches, whether through cyber-attacks or cyber-intrusions over the Internet, malware, computer viruses, attachments to e-mails, or otherwise, against persons inside our organization, persons with access to systems inside our organization, the U.S. government, financial markets or institutions, or major businesses, including tenants, could disrupt or disable networks and related systems, other critical infrastructures, and the normal operation of business. The risk of a security breach or disruption, particularly through cyber-attack or cyber-intrusion, including by computer hackers, foreign governments, and cyber-terrorists, has generally increased as the number, intensity, and sophistication of attempted attacks and intrusions from around the world have increased. Even though we may not be specifically targeted, cyber-attacks on the U.S. government, financial markets, financial institutions, or other major businesses, including tenants, could disrupt our normal business operations and networks, which may in turn have a material adverse impact on our financial condition and results of operations.

IT networks and related systems are essential to the operation of our business and our ability to perform day-to-day operations. They also may be critical to the operations of certain of our tenants. Although we believe we will be able to maintain the security and integrity of these types of networks and related systems, or implement various measures to manage the risk of a security breach or disruption, there can be no assurance that our security efforts and measures will be effective or that attempted security breaches or disruptions would not be successful or damaging. Even the most well protected information, networks, systems, and facilities remain potentially vulnerable because the techniques used in such attempted security breaches evolve and generally are not recognized until launched against a target, and in some cases are designed not to be detected and, in fact, may not be detected. While, to date, we are not aware that we have experienced any significant cyber-attacks or cyber-intrusions, we may not be able to anticipate or implement adequate security barriers or other preventive measures. A security breach or other significant disruption involving our IT networks and related systems could:

•disrupt the proper functioning of our networks and systems and therefore our operations and/or those of certain of our tenants;

•result in misstated financial reports, violations of loan covenants, missed reporting deadlines, and/or missed permitting deadlines;

•result in our inability to properly monitor our compliance with the rules and regulations regarding our qualification as a REIT;

•result in the unauthorized access to, and destruction, loss, theft, misappropriation, or release of proprietary, confidential, sensitive, or otherwise valuable information of ours or others, which others could use to compete against us or for disruptive, destructive, or otherwise harmful purposes and outcomes;

•result in our inability to maintain the building systems relied upon by our tenants for the efficient use of their leased space;

•require significant management attention and resources to remedy any damages that result;

•subject us to claims for breach of contract, damages, credits, penalties, or termination of leases or other agreements; or

•damage our reputation among our tenants and stockholders generally.

We may change our investment and operational policies without stockholder consent.

Except for changes to the investment restrictions contained in our charter, which require stockholder consent to amend, we may change our investment and operational policies, including our policies with respect to investments, operations, indebtedness, capitalization and distributions, at any time without the consent of our stockholders, which could result in our making investments that are different from, and possibly riskier or more highly leveraged than, the types of investments contemplated by our current investment policies. A change in our investment strategy may, among other things, increase our exposure to interest rate risk, default risk and real estate market fluctuations, all of which could materially affect our ability to achieve our investment objectives.

On April 6, 2023, the Executive Committee of the board of directors approved the previously-announced New Direction Plans to reposition the Company's assets into the self-storage asset class and away from office, retail, and light industrial assets. The Executive Committee is in the process of carrying out the New Direction Plans with the

objective of maximizing shareholder value. There can be no assurances the objectives of the New Direction Plan will be met.

The recent events in the credit markets have increased the cost of borrowing and has made financing more difficult to obtain, each of which may have a material adverse effect on our results of operations and business.

Recent events in the financial markets have had an adverse impact on the credit markets and, as a result, the availability of credit has become more expensive and more difficult to obtain. Some lenders are imposing more stringent restrictions on the terms of credit and there may be a general reduction in the amount of credit available in the markets in which we conduct business. The negative impact of the tightening of the credit markets may have a material adverse effect on us resulting from, but not limited to, an inability to finance the acquisition of real estate assets on favorable terms, if at all, increased financing costs or financing with increasingly restrictive covenants.

We are uncertain of our sources for funding our future capital needs. If we cannot obtain debt or equity financing on acceptable terms, our ability to acquire real estate assets and to expand our operations will be adversely affected.

In the event that we develop a need for additional capital in the future for investments, the improvement of our real properties or for any other reason, sources of funding may not be available to us. If we cannot establish reserves out of cash flow generated by our real estate assets or out of net sale proceeds in non-liquidating sale transactions, or obtain debt or equity financing on acceptable terms, our ability to acquire real estate assets and to expand our operations will be adversely affected. As a result, we would be less likely to achieve portfolio diversification and our investment objectives, which may negatively impact our results of operations and reduce our ability to make distributions to our stockholders.

Risks Related to Conflicts of Interest

Other affiliated real estate programs, which we sponsor or provide management and advisory services, have investment strategies that are similar to ours. Our executive officers will face conflicts of interest relating to the purchase and leasing of properties and other investments, and such conflicts may not be resolved in our favor.

Although we generally seek to avoid simultaneous public or private offerings of funds that have a substantially similar mix of fund characteristics, including targeted investment types, investment objectives and criteria, and

anticipated fund terms, there may be periods during which one or more sponsored programs are seeking to invest in similar properties and other real estate-related investments. As a result, we may be buying properties and other real estate-related investments at the same time as one or more of the other sponsored programs managed by our officers and employees, and these other sponsored programs may use investment strategies that are similar to ours. Our executive officers are also the executive officers of other affiliate-sponsored REITs and real estate investment programs and/or the advisors or fiduciaries of other affiliate-sponsored programs, and these entities are and will be under common control. There is a risk that our advisor will choose a property that provides lower returns to us than a property purchased by another sponsored program. In the event these conflicts arise, we cannot assure stockholders that our best interests will be met when officers and employees acting on behalf of advisors and managers of other sponsored programs decide whether to allocate any particular property to us or to another sponsored program or affiliate of our advisor, which may have an investment strategy that is similar to ours. In addition, we may acquire properties in geographic areas where other affiliate-sponsored programs own properties. If one of the other sponsored programs attracts a tenant that we are competing for, we could suffer a loss of revenue due to delays in locating another suitable tenant. Stockholders will not have the opportunity to evaluate the manner in which these conflicts of interest are resolved before or after making an investment.

Our executive officers and some of our directors, will face conflicts of interest caused by their compensation arrangements with us, which could result in actions that are not in the long-term best interests of our stockholders.

As advisor and property manager of other sponsored programs, we may be entitled to substantial fees under the terms of the advisory agreement and the property management agreements with such other sponsored programs. These fees could influence our advice as well as the judgment of officers and employees with respect to our performing services for them. Among other matters, these compensation arrangements could affect judgment with respect to:

•the continuation, renewal or enforcement of advisory and property management agreements;

•property sales, which may entitle us as advisor to receive real estate commissions or other equity compensation;

•property acquisitions from other sponsored programs, which may entitle us as advisor to real estate commissions and possible success-based sale fees in connection with services for advised and managed sellers;

•development of real properties, which may entitle us as advisor sponsored programs or their affiliates to development acquisition fees and asset management fees;

•acquisition of properties from third parties, which entitle us as advisor to acquisition fees and asset management fees;

•borrowings to acquire properties, which borrowings will increase the acquisition and asset management fees payable to us as advisor;

•whether and when we seek or sponsored programs under our control seek to list common stock on a national securities exchange, which listing could entitle us as advisor to the issuance of shares of common stock through the conversion of our convertible preferred stock; and

•whether and when we seek to sell our assets or assets of sponsored programs under our control, which sale could entitle us to real estate commissions and/or the issuance of shares of common stock through the conversion of our convertible preferred stock.

The fees we may receive in connection with transactions involving the purchase and management of an asset are based on the cost of the investment, including the amount budgeted for the development, construction, and improvement of each asset, and not based on the quality of the investment or the quality of the services rendered to the sponsored program. This may influence us to recommend riskier transactions to sponsored programs. As advisor, we will refund fees to the extent they are based on budgeted amounts that prove too high once development,

construction, or improvements are completed, but the fact that these fees are initially calculated in part based on budgeted amounts could influence us to overstate the estimated costs of development, construction, or improvements in order to accelerate the cash flow we receive.

Executive officers and key personnel will face competing demands on their time, and this may cause our return to suffer.

We rely upon our executive officers and employees to conduct our day-to day operations and performance. These persons also conduct the day-to-day operations of other sponsored programs and may have other business interests as well. Because these persons have competing interests on their time and resources, they may have conflicts of interest in allocating their time between our business and these other activities. During times of intense activity in other programs and ventures, they may devote less time and resources to our business than is necessary or appropriate. If this occurs, we may lose the opportunity to enter into or renew a lease or to purchase or sell a property and the returns on our investments may suffer. Our executive officers and employees have a fiduciary relationship to us and to our stockholders’ and will endeavor to avoid putting us in a situation where we would lose an economic opportunity due to the inability of our advisor or property manager to perform a necessary task.

Our officers face conflicts of interest related to the positions they hold with sponsored program entities for with we are the advisor, which could diminish the value of the services they provide to us.

Some of our executive officers are also officers of other entities of which we are the sponsor and/or advisor. As a result, these individuals owe fiduciary duties to these other entities and their investors, which may conflict with the fiduciary duties that they owe to us and our stockholders. Their loyalties to these other entities and investors could result in action or inaction that is detrimental to our business, which could harm the implementation of our business strategy and our investment and leasing opportunities. Conflicts with our business and interests are most likely to arise from involvement in activities related to (1) allocation of new investments and management time and services between us and the other entities, (2) the timing and terms of the investment in or sale of an asset, (3) development of our properties by affiliates of our advisor, (4) investments with affiliates of which we are the advisor. If we do not successfully implement our business strategy, we may be unable to generate the cash needed to make distributions to stockholders and to maintain or increase the value of our assets.

Existing shareholders will be diluted upon conversion of the convertible preferred stock.

Our former advisor, which as of July 1, 2020 is wholly owned by us, purchased 1,000 shares of our convertible preferred stock for an aggregate purchase price of $10,000. Prior to our acquisition of the 70% of the advisor owned by affiliates of Allen Hartman, 700 shares of our convertible preferred stock were distributed to the affiliates of Allen Hartman. Under limited circumstances, these shares may be converted into shares of our common stock, resulting in dilution of our stockholders’ interest in us. Our convertible preferred stock will convert to shares of common stock if (1) we have made total distributions on then outstanding shares of our common stock equal to the issue price of those shares plus a 6% cumulative, non-compounded, annual return on the issue price of those outstanding shares, (2) we list our common stock for trading on a national securities exchange if the sum of prior distributions on then outstanding shares of our common stock plus the aggregate market value of our common stock (based on the 30-day average closing price) meets the same 6% performance threshold, or (3) our advisory agreement with our advisor expires without renewal or is terminated (other than because of a material breach by our advisor), and at the time of such expiration or termination we are deemed to have met the foregoing 6% performance threshold based on our enterprise value and prior distributions, and, at or subsequent to the expiration or termination, the stockholders actually realize such level of performance upon listing or through total distributions. In general, our

convertible preferred stock will convert into shares of common stock with a value equal to 15% of the excess of our enterprise value plus the aggregate value of distributions paid to date on then outstanding shares of our common stock over the aggregate issue price of those outstanding shares plus a 6% cumulative, non-compounded, annual return on the issue price of those outstanding shares. With respect to conversion in connection with the termination of the advisory agreement, this calculation is made at the time of termination even though the actual conversion may occur later or not at all. As a result, following conversion, the holder of the convertible preferred stock will be entitled to a portion of amounts distributable to our stockholders, which such amounts distributable to the holder could be significant.

Risks Related To Our Organizational Structure

Maryland law and our organizational documents limit your right to bring claims against our officers and directors.

Maryland law provides that a director will not have any liability as a director so long as he or she performs his or her duties in accordance with the applicable standard of conduct. In addition, our charter provides that, subject to the applicable limitations set forth therein or under Maryland law, no director or officer will be liable to us or our stockholders for monetary damages. Our charter also provides that we will generally indemnify and advance expenses to our directors, our officers, our advisor and its affiliates for losses they may incur by reason of their service in those capacities subject to any limitations under Maryland law or in our charter. As a result, we and our stockholders may have more limited rights against these persons than might otherwise exist under common law. In addition, we may be obligated to fund the defense costs incurred by these persons in some cases. However, our charter provides that we may not indemnify our directors, our advisor and its affiliates for loss or liability suffered by them or hold our directors or our advisor and its affiliates harmless for loss or liability suffered by us unless they have determined that the course of conduct that caused the loss or liability was in our best interests, they were acting on our behalf or performing services for us, the liability was not the result of negligence or misconduct by our non-independent directors, our advisor and its affiliates or gross negligence or willful misconduct by our independent directors, and the indemnification or obligation to hold harmless is recoverable only out of our net assets, including the proceeds of insurance, and not from the stockholders.

The limit on the percentage of shares of our common stock that any person may own may discourage a takeover or business combination that may benefit our stockholders.

Our charter restricts the direct or indirect ownership by one person or entity to no more than 9.8% of the value of our then outstanding shares of capital stock (which includes common stock and any preferred stock we may issue) and no more than 9.8% of the value or number of shares, whichever is more restrictive, of our then outstanding common stock unless exempted by our board of directors. This restriction may discourage a change of control of us and may deter individuals or entities from making tender offers for shares of our common stock on terms that might be financially attractive to stockholders or which may cause a change in our management. In addition to deterring potential transactions that may be favorable to our stockholders, these provisions may also decrease your ability to sell your shares of our common stock.

Maryland law prohibits certain business combinations, which may make it more difficult for us to be acquired.

Under Maryland law, “business combinations” between a Maryland corporation and an interested stockholder or an affiliate of an interested stockholder are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. These business combinations include a merger, consolidation, share exchange, or, in circumstances specified in the statute, an asset transfer or issuance or reclassification of equity securities. An interested stockholder is defined as:

•any person who beneficially owns 10% or more of the voting power of the then outstanding voting stock of the corporation; or

•an affiliate or associate of the corporation who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of the then outstanding voting stock of the corporation.

A person is not an interested stockholder under the statute if the board of directors approved in advance the transaction by which he otherwise would have become an interested stockholder. However, in approving a transaction, the board of directors may provide that its approval is subject to compliance, at or after the time of approval, with any terms and conditions determined by the board.

After the expiration of the five-year period described above, any business combination between the Maryland corporation and an interested stockholder must generally be recommended by the board of directors of the corporation and approved by the affirmative vote of at least:

•80% of the votes entitled to be cast by holders of the then outstanding shares of voting stock of the corporation; and

•two-thirds of the votes entitled to be cast by holders of voting stock of the corporation other than shares held by the interested stockholder with whom or with whose affiliate the business combination is to be effected or held by an affiliate or associate of the interested stockholder.

These super-majority vote requirements do not apply if the corporation’s common stockholders receive a minimum price, as defined under Maryland law, for their shares in the form of cash or other consideration in the same form as previously paid by the interested stockholder for its shares. Maryland law also permits various exemptions from these provisions, including business combinations that are exempted by the board of directors before the time that the interested stockholder becomes an interested stockholder. The business combination statute may discourage others from trying to acquire control of us and increase the difficulty of consummating any offer.

Maryland law also limits the ability of a third party to buy a large stake in us and exercise voting power in electing directors.

Maryland law provides a second anti-takeover statute, the Control Share Acquisition Act, which provides that “control shares” of a Maryland corporation acquired in a “control share acquisition” have no voting rights except to the extent approved by the corporation’s disinterested stockholders by a vote of two-thirds of the votes entitled to be cast on the matter. Shares of stock owned by interested stockholders, that is, by the acquirer, by officers or by directors who are employees of the corporation, are excluded from the vote on whether to accord voting rights to the control shares. “Control shares” are voting shares of stock that would entitle the acquirer to exercise voting power in electing directors within specified ranges of voting power. Control shares do not include shares the acquiring person is then entitled to vote as a result of having previously obtained stockholder approval. A “control share acquisition” means the acquisition of control shares. The control share acquisition statute does not apply (1) to shares acquired in a merger, consolidation or share exchange if the corporation is a party to the transaction or (2) to acquisitions approved or exempted by a corporation’s charter or bylaws. Our charter contains a provision exempting from the Control Share Acquisition Act any and all acquisitions by any person of shares of our stock. We can offer no assurance that this provision will not be amended or eliminated at any time in the future. This statute could have the effect of discouraging offers from third parties to acquire us and increasing the difficulty of successfully completing this type of offer by anyone other than our affiliates or any of their affiliates.

Our charter includes an anti-takeover provision that may discourage a stockholder from launching a tender offer for our shares.

Our charter provides that any tender offer made by a stockholder, including any “mini-tender” offer, must comply with most provisions of Regulation 14D of the Exchange Act. The offering stockholder must provide our company notice of such tender offer at least ten business days before initiating the tender offer. If the offering stockholder does not comply with these requirements, our company will have the right to redeem that stockholder’s shares and any shares acquired in such tender offer. In addition, the non-complying stockholder shall be responsible for all of our company’s expenses in connection with that stockholder’s noncompliance. This provision of our charter may discourage a stockholder from initiating a tender offer for our shares and prevent a stockholder from receiving a premium price for their shares in such a transaction.

Your investment return may be reduced if we are required to register as an investment company under the Investment Company Act; if we are subject to registration under the Investment Company Act, we will not be able to continue our business.

Neither we, our operating partnership nor any of our subsidiaries intend to register as an investment company under the Investment Company Act. Our operating partnership’s and subsidiaries’ intended investments in real estate will represent the substantial majority of our total asset mix. In order for us not to be subject to regulation under the Investment Company Act, we intend to engage, through our operating partnership and our wholly and majority owned subsidiaries, primarily in the business of buying real estate.

We expect that most of our assets will be held through wholly-owned or majority-owned subsidiaries of our operating partnership. We expect that most of these subsidiaries will be outside the definition of an “investment company” under Section 3(a)(1) of the Investment Company Act as they are generally expected to hold at least 60% of their assets in real property. Section 3(a)(1)(A) of the Investment Company Act defines an investment company as any issuer that is or holds itself out as being engaged primarily in the business of investing, reinvesting or trading in securities. Section 3(a)(1)(C) of the Investment Company Act defines an investment company as any issuer that is engaged or proposes to engage in the business of investing, reinvesting, owning, holding or trading in securities and owns or proposes to acquire investment securities having a value exceeding 40% of the value of the issuer’s total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis, which we refer to as the “40% test.” Excluded from the term “investment securities,” among other things, are U.S. government securities and securities issued by majority-owned subsidiaries that are not themselves investment companies and are not relying on the exception from the definition of investment company set forth in Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act.

We believe that we, our operating partnership and most of the subsidiaries of our operating partnership will not fall within either definition of investment company under Section 3(a)(1) of the Investment Company Act as we intend to invest primarily in real property, through our wholly or majority-owned subsidiaries, the majority of which we expect to have at least 60% of their assets in real property. As these subsidiaries would be investing either solely or primarily in real property, they would be outside of the definition of “investment company” under Section 3(a)(1) of the Investment Company Act. We are organized as a holding company that conducts its businesses primarily through our operating partnership, which in turn is a holding company conducting its business through its subsidiaries. Both we and our operating partnership intend to conduct our operations so that we comply with the 40% test. We will monitor our holdings to ensure continuing and ongoing compliance with this test. In addition, we believe that neither we nor our operating partnership will be considered an investment company under Section 3(a)(1)(A) of the Investment Company Act because neither we nor our operating partnership will engage primarily or hold itself out as being engaged primarily in the business of investing, reinvesting or trading in securities. Rather, through our operating partnerships wholly owned or majority owned subsidiaries, we and our operating partnership will be primarily engaged in the non-investment company businesses of these subsidiaries, namely the business of purchasing or otherwise acquiring real property.

In the event that the value of investment securities held by a subsidiary of our operating partnership were to exceed 40% of the value of its total assets, we expect that subsidiary to be able to rely on the exclusion from the definition of “investment company” provided by Section 3(c)(5)(C) of the Investment Company Act. Section 3(c)(5)(C), as interpreted by the staff of the SEC, requires each of our subsidiaries relying on this exception to invest at least 55% of its portfolio in “mortgage and other liens on and interests in real estate,” which we refer to as “qualifying real estate assets,” and maintain at least 80% of its assets in qualifying real estate assets or other real estate-related assets. The remaining 20% of the portfolio can consist of miscellaneous assets. What we buy and sell is therefore limited by these criteria. How we determine to classify our assets for purposes of the Investment Company Act will be based in large measure upon no-action letters issued by the SEC staff in the past and other SEC interpretive guidance and, in the absence of SEC guidance, on our view of what constitutes a qualifying real estate asset and a real estate-related asset. These no-action positions were issued in accordance with factual situations that may be substantially different from the factual situations we may face, and a number of these no-action positions were issued more than ten years ago. Pursuant to this guidance, and depending on the characteristics of the specific investments, certain mortgage loans, participations in mortgage loans, mortgage-backed securities, mezzanine loans, joint venture investments and the equity securities of other entities may not constitute qualifying real estate assets and therefore investments in these types of assets may be limited. No assurance can be given that the SEC or its staff will concur with our classification of our assets. Future revisions to the Investment Company Act or further guidance from the SEC staff may cause us to lose our exclusion from the definition of investment company or force us to re-evaluate our portfolio and our investment strategy. Such changes may prevent us from operating our business successfully.

There can be no assurance that the laws and regulations governing the Investment Company Act status of REITs, including more specific or different guidance regarding these exclusions that may be published by the SEC or its staff, will not change in a manner that adversely affects our operations. In addition, the SEC or its staff could take action that results in our or our subsidiary’s failure to maintain an exception or exemption from the Investment Company Act.

In the event that we, or our operating partnership, were to acquire assets that could make either entity fall within one of the definitions of an investment company under Section 3(a)(1) of the Investment Company Act, we believe that we would still qualify for an exclusion from registration pursuant to Section 3(c)(6) of the Investment Company Act. Although the SEC staff has issued little interpretive guidance with respect to Section 3(c)(6), we believe that we and our operating partnership may rely on Section 3(c)(6) if 55% of the assets of our operating partnership consist of, and at least 55% of the income of our operating partnership is derived from, qualifying real estate assets owned by wholly owned or majority-owned subsidiaries of our operating partnership.

To ensure that neither we, our operating partnership nor any of our subsidiaries are required to register as an investment company, each entity may be unable to sell assets that it would otherwise want to sell and may need to sell assets that it would otherwise wish to retain. In addition, we, our operating partnership or our subsidiaries may be required to acquire additional income- or loss-generating assets that we might not otherwise acquire or forego opportunities to acquire interests in companies that we would otherwise want to acquire. Although we, our operating partnership and our subsidiaries intend to monitor our portfolio periodically and prior to each acquisition and disposition, any of these entities may not be able to remain outside the definition of investment company or maintain an exclusion from the definition of an investment company. If we, our operating partnership or our subsidiaries are required to register as an investment company but fail to do so, the unregistered entity would be prohibited from engaging in our business, and criminal and civil actions could be brought against such entity. In addition, the contracts of such entity would be unenforceable unless a court required enforcement, and a court could appoint a receiver to take control of the entity and liquidate its business.

Stockholders have limited control over changes in our policies and operations.

Our board of directors determines our major policies, including our policies regarding financing, growth, debt capitalization, REIT qualification and distributions. Our board of directors may amend or revise these and other policies without a vote of the stockholders. Our charter sets forth the stockholder voting rights required to be set forth therein under the NASAA REIT Guidelines. Under our charter and the Maryland General Corporation Law, our stockholders currently have a right to vote only on the following matters:

•the election or removal of directors;

•any amendment of our charter, provided that our board of directors may amend our charter without stockholder approval to:

◦increase or decrease the aggregate number of our shares;

◦increase or decrease the number of our shares of any class or series that we have the authority to issue;

◦classify or reclassify any unissued shares by setting or changing the preferences, conversion or other rights, restrictions, limitations as to distributions, qualifications or terms and conditions of redemption of such shares; and

◦effect reverse stock splits;

•after the listing of our shares of common stock on a national securities exchange, opting into any of the provisions of Subtitle 8 of Title 3 of the Maryland General Corporation Law (see “Description of Shares — Provisions of Maryland Law and our Charter and Bylaws – Subtitle 8” below);

•our liquidation and dissolution; and

•our being a party to any merger, consolidation, sale or other disposition of substantially all of our assets (notwithstanding that Maryland law may not require stockholder approval).

All other matters are subject to the discretion of our board of directors.

We may issue preferred stock or other classes of common stock; which issuance could adversely affect the holders of our common stock issued pursuant to our public offerings.

Existing shareholders do not have preemptive rights to any shares issued by us in the future. We may issue, without stockholder approval, preferred stock or other classes of common stock with rights that could dilute the value of your shares of common stock. However, the issuance of preferred stock must be approved by a majority of our independent directors not otherwise interested in the transaction, who will have access, at our expense, to our legal counsel or to independent legal counsel. The issuance of preferred stock or other classes of common stock could increase the number of stockholders entitled to distributions without simultaneously increasing the size of our asset base.

Our board of directors may amend our charter from time to time to increase or decrease the aggregate number of authorized shares of capital stock or the number of authorized shares of capital stock of any class or series without stockholder approval. If we ever created and issued preferred stock with a distribution preference over common stock, payment of any distribution preferences of outstanding preferred stock would reduce the amount of funds available for the payment of distributions on our common stock. Further, holders of preferred stock are normally entitled to receive a preference payment in the event we liquidate, dissolve or wind up before any payment is made to our common stockholders, likely reducing the amount common stockholders would otherwise receive upon such an occurrence.

Our UPREIT structure may result in potential conflicts of interest with limited partners in our operating partnership whose interests may not be aligned with those of our stockholders.

We are structured as an “UPREIT,” which stands for “umbrella partnership real estate investment trust.” We use the UPREIT structure because a contribution of property directly to us is generally a taxable transaction to the contributing property owner. In the UPREIT structure, a contributor of a property who desires to defer taxable gain on the transfer of a property may transfer the property to our operating partnership in exchange for limited partnership units and defer taxation of gain until the contributor later exchanges his or her limited partnership units, typically on a one-for-one basis, for shares of our common stock. We believe that using an UPREIT structure gives us an advantage in acquiring desired properties from persons who may not otherwise sell their properties because of unfavorable tax results.

We may issue limited partner interests of our operating partnership in connection with certain transactions. Limited partners in our operating partnership have the right to vote on certain amendments to the operating partnership agreement, as well as on certain other matters. Persons holding such voting rights may exercise them in a manner that conflicts with the interests of our stockholders. As general partner of our operating partnership, we are obligated to act in a manner that is in the best interest of all partners of our operating partnership. Circumstances may arise in the future when the interests of limited partners in our operating partnership may conflict with the interests of our stockholders. These conflicts may be resolved in a manner stockholders do not believe are in their best interest.

Adverse economic conditions will negatively affect our returns and profitability.

Our operating results may be affected by many factors, including a continued or exacerbated general economic slowdown experienced by the nation as a whole or by the local economies where our properties and the properties underlying our other real estate-related investments are located. These factors include:

•poor economic conditions may result in defaults by tenants of our properties;

•job transfers and layoffs may cause tenant vacancies to increase;

•increasing concessions, reduced rental rates or capital improvements may be required to maintain occupancy levels;

•increased insurance premiums may reduce funds available for distribution or, to the extent such increases are passed through to tenants, may lead to tenant defaults. Also, increased insurance premiums may make it difficult to increase rents to tenants on turnover, which may adversely affect our ability to increase our returns.

•changes in general economic or local conditions;

•changes in supply of or demand for similar or competing properties in an area;

•changes in interest rates and availability of permanent mortgage funds that may render the sale of a property difficult or unattractive;

•the illiquidity of real estate investments generally;

•changes in tax, real estate, environmental and zoning laws; and

•periods of high interest rates and tight money supply.

For these and other reasons, we cannot assure stockholders that we will be profitable or that we will realize growth in the value of our real estate properties. The length and severity of any economic downturn cannot be predicted. Our operations could be negatively affected to the extent that an economic downturn is prolonged or becomes more severe.

General Risks Related to Investments in Real Estate

Our operating results will be affected by economic and regulatory changes that impact the real estate market in general.

Our investments in commercial properties will be subject to risks generally attributable to the ownership of real property, including:

•changes in global, national, regional or local economic, demographic or real estate market conditions, including any actual or perceived instability in the U.S. banking system;

•changes in supply of or demand for similar properties in an area;

•increased competition for real property investments targeted by our investment strategy;

•bankruptcies, financial difficulties or lease defaults by our tenants;

•changes in interest rates and availability of financing;

•changes in the terms of available financing, including more conservative loan-to-value requirements and shorter debt maturities;

•competition from other commercial properties;

•the inability or unwillingness of tenants to pay rent increases;

•changes in government rules, regulations and fiscal policies, including changes in tax, real estate, environmental and zoning laws; and

•the severe curtailment of liquidity for certain real estate related assets.

All of these factors are beyond our control. Any negative changes in these factors could affect our ability to meet our obligations and make distributions to stockholders.

We are unable to predict future changes in global, national, regional or local economic, demographic or real estate market conditions. For example, a recession or rise in interest rates could make it more difficult for us to lease or dispose of properties and could make alternative interest-bearing and other investments more attractive and therefore potentially lower the relative value of the real estate assets we acquire. These conditions, or others we cannot predict, may adversely affect our results of operations and returns to our stockholders. In addition, the value of the properties we acquire may decrease following the date we acquire such properties due to the risks described above or any other unforeseen changes in market conditions. If the value of our properties decreases, we may be forced to dispose of our properties at a price lower than the price we paid to acquire our properties, which could adversely impact the results of our operations and our ability to make distributions and return capital to our investors.

Acquisition and ownership of real estate is subject to risks associated with environmental hazards.

Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real property may be liable for the cost of removal or remediation of hazardous or toxic substances on, under or in such property. The costs of removal or remediation could be substantial. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. Environmental laws also may impose restrictions on the manner in which property may be used or businesses may be operated, and these restrictions may require substantial expenditures. Environmental laws provide for sanctions in the event of noncompliance and may be enforced by governmental agencies or, in certain circumstances, by private parties. Certain environmental laws and common law principles could be used to impose liability for release of and exposure to hazardous substances, including asbestos-containing materials into the air, and third parties may seek recovery from owners or operators of real properties for personal injury or property damage associated with exposure to released hazardous substances. The cost of defending against claims of liability, of compliance with environmental regulatory requirements, of remediating any contaminated

property, or of paying personal injury claims could materially adversely affect our business, assets or results of operations and, consequently, amounts available for distribution. We may be liable for environmental hazards at our properties, including those created by prior owners or occupants, existing tenants, abutters or other persons. The properties that we plan to develop or acquire could include automobile and truck repair and maintenance facilities and tanks for the storage of petroleum products and other hazardous substances, all of which create the potential for environmental damages. As a result, we may be expected to regularly incur environmental clean-up costs. We intend to include in the leases that we entered with future tenants, an agreement for such tenant to indemnify us from all environmental liabilities arising its activities at such property during the term of the lease. Despite this indemnity, various federal and state laws impose environmental liabilities upon property owners, such as us, for any environmental damages arising on properties they own or occupy, and we cannot be assured that we will not be held liable for environmental clean-up at our properties, including environmental damages at sites we own and lease. As an owner or previous owner of properties which contain environmental hazards, we also may be liable to pay damages to governmental agencies or third parties for costs and damages they incur arising from environmental hazards at the properties. Moreover, the costs and damages which may arise from environmental hazards are often difficult to project and our future tenants may not have sufficient resources to pay its environmental liabilities.

Properties that have significant vacancies could be difficult to sell, which could diminish the return on stockholders’ investments.

A property may incur vacancies either by the continued default of tenants under their leases or the expiration of tenant leases. If vacancies continue for a long period of time, we may suffer reduced revenues resulting in decreased distributions to stockholders. In addition, the value of the property could be diminished because the market value of a particular property will depend principally upon the value of the leases of such property.

Our properties may be subject to impairment charges.

On a quarterly basis, we assess whether there are any indicators that the value of our properties may be impaired. A property’s value is considered to be impaired only if the estimated aggregate future cash flows (undiscounted and without interest charges) to be generated by the property are less than the carrying value of the property. In our estimate of cash flows, we consider factors such as expected future operating income, trends and prospects, the effects of demand, competition and other factors. If we are evaluating the potential sale of an asset or development alternatives, the undiscounted future cash flows analysis considers the most likely course of action at the balance sheet date based on current plans, intended holding periods and available market information. We are required to make subjective assessments as to whether there are impairments in the value of our properties. These assessments may be influenced by factors beyond our control, such as early vacating by a tenant or damage to properties due to earthquakes, tornadoes, hurricanes and other natural disasters, fire, civil unrest, terrorist acts or acts of war. These assessments may have a direct impact on our earnings because recording an impairment charge results in an immediate negative adjustment to earnings. There can be no assurance that we will not take impairment charges in the future related to the impairment of our properties. Any such impairment could have a material adverse effect on our business, financial condition and results of operations in the period in which the charge is taken.

Many of our investments will be dependent on tenants for revenue, and lease terminations could reduce our ability to make distributions to stockholders.

The success of our real property investments often will be materially dependent on the financial stability of our tenants. Lease payment defaults by tenants could cause us to reduce the amount of distributions to stockholders. A default by a significant tenant on its lease payments to us would cause us to lose the revenue associated with such lease and cause us to have to find an alternative source of revenue to meet mortgage payments and prevent a foreclosure if the property is subject to a mortgage. In the event of a tenant default, we may experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment and re-letting our

property. If significant leases are terminated, we cannot assure stockholders that we will be able to lease the property for the rent previously received or sell the property without incurring a loss.

We may be unable to secure funds for future tenant improvements, which could adversely impact our ability to make cash distributions to our stockholders.

When tenants do not renew their leases or otherwise vacate their space, in order to attract replacement tenants, we will be required to expend substantial funds for tenant improvements and tenant refurbishments to the vacated space. If we have insufficient capital reserves, we will have to obtain financing from other sources. We intend to establish capital reserves on a property-by-property basis, as we deem necessary. In addition to any reserves we establish, a lender may require escrow of capital reserves in excess of our established reserves. If these reserves or any reserves otherwise established are designated for other uses or are insufficient to meet our cash needs, we may have to obtain financing from either affiliated or unaffiliated sources to fund our cash requirements. We cannot assure stockholders that sufficient financing will be available or, if available, will be available on economically feasible terms or on terms acceptable to us. Moreover, certain reserves required by lenders may be designated for specific uses and may not be available for capital purposes such as future tenant improvements. Additional borrowing for capital purposes will increase our interest expense, and therefore our financial condition and our ability to make cash distributions to our stockholders may be adversely affected. If we do not have enough reserves for capital to supply needed funds for capital improvements throughout the life of the investment in a property and there is insufficient cash available from our operations, we may be required to defer necessary improvements to the property, which may cause the property to suffer from a greater risk of obsolescence or a decline in value, or a greater risk of decreased cash flow as a result of fewer potential tenants being attracted to the property. If this happens, we may not be able to maintain projected rental rates for affected properties, and our results of operations may be negatively impacted. The need for and amount of reserves for capital improvements will be determined on a property by property basis in consultation with our property manager. Generally, we will be responsible for the costs of these capital improvements, which gives rise to the following risks:

•cost overruns and delays;

•renovations can be disruptive to operations and can displace revenue at the properties, including revenue lost while under renovation and out of service;

•the cost of funding renovations and the possibility that financing for these renovations may not be available on attractive terms; and

•the risk that the return on our investment in these capital improvements will not be what we expect.

If we have insufficient cash flow from operations to fund needed capital expenditures, we will need to borrow to fund future capital improvements.

We may be unable to sell a property if or when we decide to do so, which could adversely impact our ability to make cash distributions to our stockholders.

We intend to hold the various real properties in which we invest until such time as we determine that a sale or other disposition appears to be advantageous to achieve our investment objectives or until it appears that such objectives will not be met. Otherwise, subject to approval of our board of directors, management may exercise its discretion as to whether and when to sell a property and we will have no obligation to sell properties at any particular time, except upon our liquidation. If we have not listed the Company's common stock on an established national securities exchange within ten years of the termination of our initial public offering, our charter requires that we begin the process of liquidating our assets or obtain the approval of a majority of our shareholders to defer such a liquidation or approve an alternate strategy. The real estate market is affected, as discussed above, by many factors, such as general economic conditions, availability of financing, interest rates and other factors, including supply and demand, which are beyond our control. We cannot predict whether we will be able to sell any asset for

the price or on the terms set by us, or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We cannot predict the length of time needed to find a willing purchaser and to close the sale of an asset. If we are unable to sell an asset when we determine to do so, it could have a significant adverse effect on our cash flow and results of operations.

Our co-venture partners, co-tenants or other partners in co-ownership arrangements could take actions that decrease the value of an investment to us and lower stockholder’s overall return.

We may enter into joint ventures or other co-ownership arrangements with other Hartman programs or with third parties having investment objectives similar to ours for the acquisition, development or improvement of properties as well as the acquisition of real estate-related investments. We may also purchase and develop properties in joint ventures or in partnerships, co-tenancies or other co-ownership arrangements with the sellers of the properties, affiliates of the sellers, developers or other persons. Such investments may involve risks not otherwise present with other forms of real estate investment, including, for example:

•the possibility that our co-venturer, co-tenant or partner in an investment might become bankrupt;

•the possibility that a co-venturer, co-tenant or partner in an investment might breach a loan agreement or other agreement or otherwise, by action or inaction, act in a way detrimental to us or the investment;

•that such co-venturer, co-tenant or partner may at any time have economic or business interests or goals that are or that become inconsistent with our business interests or goals;

•the possibility that we may incur liabilities as the result of the action taken by our partner or co-investor; or

•that such co-venturer, co-tenant or partner may be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives, including our policy with respect to qualifying and maintaining our qualification as a REIT.

Any of the above might subject a property to liabilities in excess of those contemplated and thus reduce our returns on that investment.

Uninsured losses relating to real property or excessively expensive premiums for insurance coverage may adversely affect stockholder returns.

We have a duty to ensure that all of our properties are adequately insured to cover casualty losses. The nature of the activities at certain properties we may acquire will expose us and our operators to potential liability for personal injuries and, in certain instances property damage claims. In addition, there are types of losses, generally catastrophic in nature, such as losses due to wars, acts of terrorism, earthquakes, floods, hurricanes, pollution or environmental matters that are uninsurable or not economically insurable, or may be insured subject to limitations, such as large deductibles or co-payments. Insurance risks associated with potential terrorist acts could sharply increase the premiums we pay for coverage against property and casualty claims. Mortgage lenders generally insist that specific coverage against terrorism be purchased by commercial property owners as a condition for providing mortgage loans. It is uncertain whether such insurance policies will be available, or available at reasonable cost, which could inhibit our ability to finance or refinance our properties. In such instances, we may be required to provide other financial support, either through financial assurances or self-insurance, to cover potential losses. We cannot assure stockholders that we will have adequate coverage for such losses. In the event that any of our properties incurs a casualty loss that is not fully covered by insurance, the value of our assets will be reduced by the amount of any such uninsured loss. In addition, other than the capital reserve or other reserves we may establish, we have no source of funding to repair or reconstruct any uninsured damaged property, and we cannot assure stockholders that any such sources of funding will be available to us for such purposes in the future. Also, to the extent we must pay unexpectedly large amounts for insurance, we could suffer reduced earnings that would result in decreased distributions to stockholders.

Our operating results may be negatively affected by potential development and construction delays and result in increased costs and risks, which could diminish the return on stockholders’ investments.

We may invest in the acquisition, development and/or redevelopment of properties upon which we will develop and construct improvements. We could incur substantial capital obligations in connection with these types of investments. We will be subject to risks relating to uncertainties associated with rezoning for development and environmental concerns of governmental entities and/or community groups and our builder’s ability to control construction costs or to build in conformity with plans, specifications and timetables. The developer or builder’s failure to perform may necessitate legal action by us to rescind the purchase or the construction contract or to compel performance. Performance may also be affected or delayed by conditions beyond the builder’s control. Delays in completion of construction could also give tenants the right to terminate preconstruction leases for space at a newly developed project. We may incur additional risks when we make periodic progress payments or other advances to such builders prior to completion of construction. These and other such factors can result in increased costs of a project or loss of our investment. Substantial capital obligations could delay our ability to make distributions. In addition, we will be subject to normal lease-up risks relating to newly constructed projects. Furthermore, we must rely upon projections of rental income and expenses and estimates of the fair market value of property upon completion of construction when agreeing upon a price to be paid for the property at the time of acquisition of the property. If our projections are inaccurate, we may pay too much for a property, and the return on our investment could suffer.

In addition, we may invest in unimproved real property. Returns from development of unimproved properties are also subject to risks and uncertainties associated with rezoning the land for development and environmental concerns of governmental entities and/or community groups. Although our principal intention is to acquire developed properties and to limit any investment in unimproved property, a portion of stockholders’ investment nevertheless may be subject to the risks associated with investments in unimproved real property.

Competition with third parties in acquiring properties and other assets may reduce our profitability and the return on stockholders’ investment.

We believe that the current market for properties that meet our investment objectives is highly competitive. We compete with many other entities engaged in real estate investment activities, including individuals, corporations, bank and insurance company investment accounts, other REITs, real estate limited partnerships, and other entities engaged in real estate investment activities, many of which have greater resources than we will. Larger real estate programs may enjoy significant competitive advantages that result from, among other things, a lower cost of capital and enhanced operating efficiencies. In addition, the number of entities and the amount of funds competing for suitable properties may increase. Any such increase would result in increased demand for these assets and therefore increased prices paid for them. If we pay higher prices for properties and other investments, our profitability will be reduced and stockholders may experience a lower return on investment.

A concentration of our investments in any one property class may leave our profitability vulnerable to a downturn in such sector.

At any one time, a significant portion of our investments could be in one property class. As a result, we will be subject to risks inherent in investments in a single type of property. If our investments are substantially in one property class, then the potential effects on our revenues, and as a result, on cash available for distribution to our stockholders, resulting from a downturn in the businesses conducted in those types of properties could be more pronounced than if we had more fully diversified our investments.

Failure to succeed in new markets or in new property classes may have adverse consequences on our performance.

We may from time to time commence development activity or make acquisitions outside of our existing market areas or the property classes of our primary focus if appropriate opportunities arise. Our historical experience in our existing markets in developing, owning and operating certain classes of property does not ensure that we will be able to operate successfully in new markets, should we choose to enter them, or that we will be successful in new property classes. We may be exposed to a variety of risks if we choose to enter new markets, including an inability to evaluate accurately local market conditions, to obtain land for development or to identify appropriate acquisition opportunities, to hire and retain key personnel, and a lack of familiarity with local governmental and permitting procedures. In addition, we may abandon opportunities to enter new markets or acquire new classes of property that we have begun to explore for any reason and may, as a result, fail to recover expenses already incurred.

Acquiring or attempting to acquire multiple properties in a single transaction may adversely affect our operations.

From time to time, we may attempt to acquire multiple properties in a single transaction. Portfolio acquisitions are more complex and expensive than single property acquisitions, and the risk that a multiple-property acquisition does not close may be greater than in a single-property acquisition. Portfolio acquisitions may also result in us owning investments in geographically dispersed markets, placing additional demands on our ability to manage the properties in the portfolio. In addition, a seller may require that a group of properties be purchased as a package even though we may not want to purchase one or more properties in the portfolio. In these situations, if we are unable to identify another person or entity to acquire the unwanted properties, we may be required to operate or attempt to dispose of these properties. To acquire multiple properties in a single transaction we may be required to accumulate a large amount of cash. We would expect the returns that we earn on such cash to be less than the ultimate returns in real property and therefore, accumulating such cash could reduce the funds available for distributions. Any of the foregoing events may have an adverse effect on our operations.

Our failure to integrate acquired properties and new personnel could create inefficiencies and reduce the return of stockholders’ investment.

To grow successfully, we must be able to apply our experience in managing real estate to a larger number of properties. In addition, we must be able to integrate new management and operations personnel as our organization grows in size and complexity. Failures in either area will result in inefficiencies that could adversely affect our expected return on our investments and our overall profitability.

Properties in which we have invested may not be readily adaptable to other uses, and if these properties become unprofitable, we may not be able to recoup the value of our investment.

Properties in which we have invested may have limited alternative uses. If the operations of any of our properties in these sectors become unprofitable due to industry competition, a general deterioration of the applicable industry or otherwise, we may have great difficulty selling the property or we may have to sell the property for substantially less than the amount we paid for it. Should any of these events occur, our income and cash available for distribution could be reduced.

The costs of compliance with environmental laws and other governmental laws and regulations may adversely affect our income and the cash available for any distributions.

All real property and the operations conducted on real property are subject to federal, state and local laws and regulations relating to environmental protection and human health and safety. These laws and regulations generally govern wastewater discharges, air emissions, the operation and removal of underground and above-ground storage tanks, the use, storage, treatment, transportation and disposal of solid and hazardous materials, and the remediation of contamination associated with disposals. Some of these laws and regulations may impose joint and several liability on tenants, owners or operators for the costs of investigation or remediation of contaminated properties, regardless of fault or the legality of the original disposal. In addition, the presence of these substances, or the failure to properly remediate these substances, may adversely affect our ability to sell or rent such property or to use the property as collateral for future borrowing.

Compliance with new or more stringent laws or regulations or stricter interpretation of existing laws may require material expenditures by us. We cannot assure stockholders that future laws, ordinances or regulations will not impose any material environmental liability, or that the current environmental condition of our properties will not be affected by the operations of the tenants, by the existing condition of the land, by operations in the vicinity of the properties, such as the presence of underground storage tanks, or by the activities of unrelated third parties. In addition, there are various local, state and federal fire, health, life-safety and similar regulations that we may be required to comply with, and that may subject us to liability in the form of fines or damages for noncompliance. Any foreign investments we make will be subject to similar laws in the jurisdictions where they are located.

Our costs associated with complying with the Americans with Disabilities Act may affect cash available for distributions.

Our properties are generally subject to the Americans with Disabilities Act of 1990, as amended (Disabilities Act), or similar laws of foreign jurisdictions. Under the Disabilities Act, all places of public accommodation are required to comply with federal requirements related to access and use by disabled persons. The Disabilities Act has separate compliance requirements for “public accommodations” and “commercial facilities” that generally require that buildings and services be made accessible and available to people with disabilities. The Disabilities Act’s requirements could require removal of access barriers and could result in the imposition of injunctive relief, monetary penalties or, in some cases, an award of damages. We attempt to acquire properties that comply with the Disabilities Act or similar laws of foreign jurisdictions or place the burden on the seller or other third party, such as a tenant, to ensure compliance with such laws. However, we cannot assure stockholders that we will be able to acquire properties or allocate responsibilities in this manner. If we cannot, our funds used for compliance with these laws may affect cash available for distributions and the amount of distributions.

Any properties we acquire must comply with Title III of the Disabilities Act, to the extent that such properties are “public accommodations” and/or “commercial facilities” as defined by the Disabilities Act. Compliance with the Disabilities Act could require removal of structural barriers to handicapped access in public areas of our properties where such removal is readily achievable.

If we sell properties by providing financing to purchasers, we will bear the risk of default by the purchaser.

If we decide to sell any of our properties, we intend to use commercially reasonable efforts to sell them for cash or in exchange for other property. However, in some instances we may sell our properties by providing financing to purchasers. If we provide financing to purchasers, we will bear the risk of default by the purchaser and will be subject to remedies provided by law, which could negatively impact distributions to our stockholders. There are no limitations or restrictions on our ability to take purchase money obligations. We may, therefore, take a purchase money obligation secured by a mortgage as partial payment for the purchase price of a property. The terms of payment to us generally will be affected by custom in the area where the property being sold is located and the then-prevailing economic conditions. If we receive promissory notes or other property in lieu of cash from property sales, the distribution of the proceeds of sales to our stockholders, or their reinvestment in other assets, will be delayed until the promissory notes or other property are actually paid, sold, refinanced or otherwise disposed of. In some

cases, we may receive initial down payments in cash and other property in the year of sale in an amount less than the selling price and subsequent payments will be spread over a number of years. If any purchaser defaults under a financing arrangement with us, it could negatively impact our ability to make distributions to our stockholders.

The impact of damage from catastrophic weather and other natural events may adversely affect our financial condition or results of operations.

Certain of our properties may be located in areas that have experienced and may in the future experience severe weather and other catastrophic natural events from time to time, including fires, snow or ice storms, windstorms, tornadoes, hurricanes, flooding and earthquakes. In addition, to the extent that extreme weather continues to occur and changes in precipitation and temperature, we may experience physical damage or decrease in demand for properties located in these areas or affected by these conditions. These adverse weather or natural events could cause substantial damages or losses to our properties which could exceed our insurance coverage. Should the impacts be material in nature or occur for lengthy periods of time, our financial condition or results of operations may be adversely affected. In addition, changes in federal and state legislation and regulation on extreme weather could result in increased capital expenditures to improve the energy efficiency of our properties.

Risks Associated with Debt Financing

Our borrowings may increase our business risks and may adversely affect our ability to continue as a going concern.

We financed a portion of the acquisition cost of our real properties with mortgage indebtedness. In addition, we have entered into revolving credit agreements with banks secured by certain real properties. We also may borrow funds if necessary to satisfy the requirement that we distribute to stockholders at least 90% of our annual REIT taxable income, or otherwise as is necessary or advisable to assure that we maintain our qualification as a REIT for federal income tax purposes.

There is no limitation on the amount we may invest in any single property or other asset or on the amount we can borrow for the purchase of any individual property or other investment. Our board of directors has adopted a policy to generally limit our aggregate borrowings to approximately 50% of the aggregate value of our assets unless substantial justification exists that borrowing a greater amount is in our best interests. Our policy limitation, however, does not apply to individual real estate assets and only will apply once we have ceased raising capital and invested substantially all of our capital. As a result, we expect to borrow more than 50% of the contract purchase price of each real estate asset we acquire to the extent our board of directors determines that borrowing these amounts is prudent. Our policy of limiting our aggregate borrowings to no more than 50% of the value of our properties’ value will have the effect of causing the aggregate debt to equal our net asset value. Such debt may be at a level that is higher than real estate investment trusts with similar investment objectives or criteria. High debt levels would cause us to incur higher interest charges, would result in higher debt service payments, and could be accompanied by restrictive covenants. These factors could limit the amount of cash we have available to distribute and could result in a decline in the value of stockholders’ investment.

We do not intend to incur mortgage debt on a particular real property unless we believe the property’s projected cash flow is sufficient to service the mortgage debt. However, if there is a shortfall in cash flow, then the amount available for distributions to stockholders may be affected. In addition, incurring mortgage debt increases the risk of loss because defaults on indebtedness secured by a property may result in foreclosure actions initiated by lenders and our loss of the property securing the loan that is in default. For tax purposes, a foreclosure of any of our properties would be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on foreclosure, but would not receive any cash proceeds from the

foreclosure. We may give full or partial guarantees to lenders of mortgage debt to the entities that own our properties. When we give a guaranty on behalf of an entity that owns one of our properties, we will be responsible to the lender for satisfaction of the debt if it is not paid by such entity. If any mortgages contain cross-collateralization or cross-default provisions, there is a risk that more than one real property may be affected by a default. If any of our properties are foreclosed upon due to a default, our ability to make distributions to our stockholders will be adversely affected.

Our SASB Loan matures on October 9, 2023. We are on the third and final one year maturity date option under the SASB Loan. On October 19, 2022, we received a notice from the loan servicer of the SASB Loan in connection with an event of default due to the noncompliance with the loan agreement's insurance requirements relating to a single property. The event of default was previously waived for the sole purpose of exercising the final one-year extension option to the SASB Loan term. The default triggers cash management provisions under the SASB Loan agreement, which was implemented in November 2022. Cash management implementation has restricted access to tenant receipts and limited the amount of cash available to meet our operating obligations. Our ability to continue as a going concern is dependent upon the our ability to refinance the SASB Loan prior to the maturity date. No assurances can be given we will meet our objective of refinancing the SASB Loan prior to the maturity date.

If mortgage debt is unavailable at reasonable rates, we may not be able to refinance our properties, which could reduce the amount of cash distributions we can make.

When we place mortgage debt on properties, we run the risk of being unable to refinance the properties when the loans come due, or of being unable to refinance on favorable terms. If interest rates are higher when the properties are refinanced, we may not be able to finance the properties at reasonable rates and our income could be reduced. If this occurs, it would reduce cash available for distribution to our stockholders, and it may prevent us from borrowing more money.

Lenders may require us to enter into restrictive covenants relating to our operations, which could limit our ability to make distributions to our stockholders.

In connection with obtaining financing, a lender could impose restrictions on us that affect our ability to incur additional debt and our distribution and operating policies. In general, we expect our loan agreements to restrict our ability to encumber or otherwise transfer our interest in the respective property without the prior consent of the lender. Loan documents we enter may contain other customary negative covenants that may limit our ability to further mortgage the property, discontinue insurance coverage or impose other limitations. Any such restriction or limitation may have an adverse effect on our operations and our ability to make distributions.

Interest-only indebtedness may increase our risk of default and ultimately may reduce our funds available for distribution to our stockholders.

We may finance our property acquisitions using interest-only mortgage indebtedness. During the interest-only period, the amount of each scheduled payment will be less than that of a traditional amortizing mortgage loan. The principal balance of the mortgage loan will not be reduced (except in the case of prepayments) because there are no scheduled monthly payments of principal during this period. After the interest-only period, we will be required either to make scheduled payments of amortized principal and interest or to make a lump-sum or “balloon” payment at maturity. These required principal or balloon payments will increase the amount of our scheduled payments and may increase our risk of default under the related mortgage loan. If the mortgage loan has an adjustable interest rate, the amount of our scheduled payments also may increase at a time of rising interest rates. Increased payments and substantial principal or balloon maturity payments will reduce the funds available for distribution to our stockholders because cash otherwise available for distribution will be required to pay principal and interest associated with these mortgage loans.

Increases in interest rates could increase the amount of our debt payments and adversely affect our ability to make distributions to our stockholders.

We may incur indebtedness that bears interest at a variable rate. In addition, from time to time we may pay mortgage loans or finance and refinance our properties in a rising interest rate environment. Accordingly, increases in interest rates could increase our interest costs, which could have an adverse effect on our operating cash flow and our ability to make distributions. In addition, if rising interest rates cause us to need additional capital to repay indebtedness in accordance with its terms or otherwise, we may need to liquidate one or more of our investments at times that may not permit realization of the maximum return on such investments.

If we enter into financing arrangements involving balloon payment obligations, it may adversely affect our ability to make distributions.

Some of our financing arrangements may require us to make a lump-sum or “balloon” payment at maturity. Our ability to make a balloon payment at maturity is uncertain and may depend upon our ability to obtain additional financing or our ability to sell the property. At the time the balloon payment is due, we may or may not be able to refinance the balloon payment on terms as favorable as the original loan or sell the property at a price sufficient to make the balloon payment. The effect of a refinancing or sale could affect the rate of return to stockholders and the projected time of disposition of our assets. In addition, payments of principal and interest made to service our debts may leave us with insufficient cash to pay the distributions that we are required to pay to maintain our qualification as a REIT. Any of these results would have a significant, negative impact on stockholders’ investment.

Changes in how LIBOR is determined, or the potential replacement of LIBOR with an alternative reference rate, may adversely affect our interest expense.

The London Interbank Offered Rate ("LIBOR") has been the subject of regulatory guidance and proposals for reform, and in March 2021, the United Kingdom's Financial Conduct Authority (the authority that regulates LIBOR) announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after June 30, 2023. Our SASB Loan has a LIBOR-based variable interest rate. Our SASB Loan agreement provides for an alternate rate index which is a floating rate that is commonly accepted by participants in CMBS transactions as an alternative to LIBOR and is publicly recognized by ISDA as an alternative to LIBOR, such as the Secured Overnight Financing Rate ("SOFR"). There can be no assurances as to what alternative interest rates may be and whether such interest rates, such as SOFR, will be more or less favorable than LIBOR and any other unforeseen impacts of the discontinuation of LIBOR.

We are subject to risks related to bank failures.

The current economic and regulatory environment has raised the risk of instability in the banking sector and bank failures. We may be affected by bank failures to the extent that our depository accounts with a distressed bank exceed Federal Deposit Insurance Corporation (“FDIC”) limits and cannot be recovered or we have obtained a line of credit or other financing from a distressed bank that can no longer be drawn upon. These risks can apply at the company or investment level. We review all direct banking relationships as part of its ongoing diligence of our key service providers.

U.S. Federal Income Tax Risks

Failure to qualify as a REIT would adversely affect our operations and our ability to make distributions.

Our qualification as a REIT depends on our ongoing satisfaction of numerous requirements established under highly technical and complex provisions of the Internal Revenue Code for which there are only limited judicial or administrative interpretations and involve the determination of various factual matters and circumstances not entirely within our control. The complexity of these provisions and of the applicable income tax regulations that have been promulgated under the Internal Revenue Code is greater in the case of a REIT that holds its assets through a partnership, as we do. Moreover, no assurance can be given that legislation, new regulations, administrative interpretations or court decisions will not change the tax laws with respect to qualification as a REIT or the federal income tax consequences of that qualification.

If we fail to qualify as a REIT in any taxable year for which we have elected to be taxed as a REIT and do not qualify for certain statutory relief provisions, we would be required to pay U.S. federal income tax on our taxable income, and distributions to our stockholders would not be deductible by us in determining our taxable income. In such a case, we might need to borrow money or sell assets in order to pay our taxes. Our payment of income tax would decrease the amount of our income available for distribution to our stockholders. Furthermore, we would not be required to distribute substantially all of our net taxable income to our stockholders. If we fail to qualify as a REIT in any taxable year for which we have elected to be taxed as a REIT, unless we are eligible for certain statutory relief provisions, we could not re-elect to qualify as a REIT until the fifth calendar year following the year in which we failed to qualify. In addition, although we intend to operate in a manner intended to qualify as a REIT, it is possible that future economic, market, legal, tax or other considerations may cause our board of directors to recommend that we revoke our REIT election.

We believe that our operating partnership will be treated for federal income tax purposes as a partnership and not as an association or as a publicly traded partnership taxable as a corporation. If the Internal Revenue Service were successfully to determine that our operating partnership should properly be treated as a corporation, our operating partnership would be required to pay federal income tax at corporate rates on its net income. In addition, we would fail to qualify as a REIT, with the resulting consequences described above.

Legislative, regulatory or administrative changes could adversely affect us.

The tax laws are complex and are subject to change at any time as a result of legislative, judicial or administrative actions, and these changes may adversely affect the taxation of a stockholder. Any such changes could have an adverse effect on an investment in our shares or on the market value or the resale potential of our assets.

On December 22, 2017, the TCJA was signed into law, which makes major changes to the Code, including a number of provisions of the Code that affect the taxation of REITs and their stockholders. The individual and collective impact of these provisions and other provisions of the TCJA on REITs and their stockholders is uncertain, and may not become evident for some period of time. Prospective investors should consult their tax advisors regarding the implications of the TCJA on their investment in our shares.

To qualify as a REIT we must meet annual distribution requirements, which may result in us distributing amounts that may otherwise be used for our operations.

To qualify as a REIT, we are required each year to distribute to our stockholders at least 90% of our real estate investment trust taxable income, determined without regard to the dividends-paid deduction and excluding net

capital gains. We will be subject to federal income tax on any undistributed taxable income and to a 4% nondeductible excise tax on any amount by which distributions we pay with respect to any calendar year are less than the sum of (1) 85% of our ordinary income, (2) 95% of our capital gain net income and (3) 100% of our undistributed income from prior years. These requirements could cause us to distribute amounts that otherwise would be spent on investments in real estate assets, and it is possible that we might be required to borrow funds or sell assets to fund these distributions. If we fund distributions through borrowings, then we will have to repay debt using money we could have otherwise used to acquire properties. If we sell assets or use offering proceeds to pay distributions, we also will have fewer investments. Fewer investments may impact our ability to generate future cash flows from operations and, therefore, reduce your overall return. Although we intend to make distributions sufficient to meet the annual distribution requirements and to avoid corporate income and excise taxes, it is possible that we might not always be able to do so.

In certain circumstances, we may be subject to federal and state income taxes as a REIT which would reduce our cash available to pay distributions.

Even if we maintain our status as a REIT, we may yet become subject to federal income taxes and related state taxes.

example:

•We are subject to tax on any undistributed income. We will be subject to a 4% nondeductible excise tax on the amount, if any, by which distributions we pay in any calendar year plus amounts retained for which federal income tax was paid are less than the sum of 85% of our ordinary income, 95% of our capital gain net income, and 100% of our undistributed income from prior years.

•State laws may change so as to begin taxing REITs.

REIT distribution requirements could adversely affect our ability to execute our business plan.

We generally must distribute annually at least 90% of our REIT taxable income (which is determined without regard to the dividends paid deduction or net capital gain for this purpose) in order to qualify as a REIT. To the extent that we satisfy this distribution requirement, but distribute less than 100% of our REIT taxable income (including net capital gain), we will be subject to federal corporate income tax on our undistributed REIT taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we pay out to our stockholders in a calendar year is less than a minimum amount specified under federal tax laws. We intend to make distributions to our stockholders to comply with the REIT requirements of the Internal Revenue Code.

From time to time, we may generate taxable income greater than our taxable income for financial reporting purposes, or our taxable income may be greater than our cash flow available for distribution to stockholders. If we do not have other funds available in these situations we could be required to borrow funds, sell investments at disadvantageous prices or find another alternative source of funds to make distributions sufficient to satisfy the REIT distribution requirement and to avoid corporate income tax and the 4% excise tax in a particular year. There is no assurance that outside financing will be available to us. Even if available, the use of outside financing or other alternative sources of funds to pay distributions could increase our costs or dilute our stockholders’ equity interests. Thus, compliance with the REIT requirements may hinder our ability to operate solely on the basis of maximizing profits.

To maintain our REIT status, we may be forced to forgo otherwise attractive opportunities, which may delay or hinder our ability to meet our investment objectives and reduce your overall return.

To maintain our REIT status, we must satisfy certain tests on an ongoing basis concerning, among other things, the sources of our income, nature of our assets and the amounts we distribute to our stockholders. We may be

required to make distributions to stockholders at times when it would be more advantageous to reinvest cash in our business or when we do not have funds readily available for distribution. Compliance with the REIT requirements may hinder our ability to operate solely on the basis of maximizing profits and the value of your investment.

Our gains from sales of our assets are potentially subject to the prohibited transaction tax, which could reduce the return on your investment.

Our ability to dispose of property during the first few years following acquisition is restricted to a substantial extent as a result of our REIT status. We will be subject to a 100% tax on any gain realized on the sale or other disposition of any property (other than foreclosure property) we own, directly or through any subsidiary entity, including our operating partnership, but excluding our taxable REIT subsidiaries, that is deemed to be inventory or property held primarily for sale to customers in the ordinary course of trade or business unless we qualify for a statutory safe harbor. Whether property is inventory or otherwise held primarily for sale to customers in the ordinary course of a trade or business depends on the particular facts and circumstances surrounding each property. We intend to avoid the 100% prohibited transaction tax by (1) conducting activities that may otherwise be considered prohibited transactions through a taxable REIT subsidiary, (2) conducting our operations in such a manner so that no sale or other disposition of an asset we own, directly or through any subsidiary other than a taxable REIT subsidiary, will be treated as a prohibited transaction or (3) structuring certain dispositions of our properties to comply with certain safe harbors available under the Internal Revenue Code for properties held at least two years. However, no assurance can be given that any particular property we own, directly or through any subsidiary entity, including our operating partnership, but excluding our taxable REIT subsidiaries, will not be treated as inventory or property held primarily for sale to customers in the ordinary course of a trade or business.

Complying with REIT requirements may force us to liquidate otherwise attractive investments.

To maintain our REIT status, we must ensure that at the end of each calendar quarter, at least 75% of the value of our assets consists of cash, cash items, government securities and qualifying real estate assets, including certain mortgage loans and mortgage-backed securities. Our investment in securities (other than government securities and qualified real estate assets) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our assets (other than government securities and qualified real estate assets) can consist of the securities of any one issuer, and no more than 25% of the value of our total assets can be represented by securities of one or more taxable REIT subsidiaries.

If we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences. As a result, we may be required to liquidate from our portfolio otherwise attractive investments. These actions could have the effect of reducing our income and amounts available for distribution to our stockholders.

Liquidation of assets may jeopardize our REIT status.

To maintain our REIT status, we must comply with requirements regarding our assets and our sources of income. If we are compelled to liquidate our investments to repay obligations to our lenders, we may be unable to comply with these requirements, ultimately jeopardizing our qualification as a REIT, or we may be subject to a 100% tax on any resultant gain if we sell assets that are treated as dealer property or inventory.

Legislative or regulatory action could adversely affect investors.

In recent years, numerous legislative, judicial and administrative changes have been made to the federal income tax laws applicable to investments in REITs and similar entities. Additional changes to tax laws are likely to continue to occur in the future and we cannot assure you that any such changes will not adversely affect the taxation of a stockholder. Any such changes could have an adverse effect on an investment in shares of our common stock. We urge you to consult with your own tax advisor with respect to the status of legislative, regulatory or administrative developments and proposals and their potential effect on an investment in shares of our common stock.

Non-U.S. investors may be subject to U.S. federal income tax on the sale of shares of our common stock if we are unable to qualify as a “domestically controlled” REIT.

A non-U.S. person disposing of a U.S. real property interest, including shares of a U.S. corporation whose assets consist principally of U.S. real property interests, is generally subject to U.S. federal income tax on the gain recognized on such disposition. A non-U.S. stockholder generally would not be subject to U.S. federal income tax, however, on gain from the disposition of stock in a REIT if the REIT is a “domestically controlled REIT.” A domestically controlled REIT is a REIT in which, at all times during a specified testing period, less than 50% in value of its shares is held directly or indirectly by non-U.S. holders. We cannot assure you that we will qualify as a domestically controlled REIT. If we were to fail to so qualify, gain realized by a non-U.S. investor on a sale of our common stock would be subject to U.S. federal income tax unless our common stock was traded on an established securities market, which is not currently the case, and the non-U.S. investor did not at any time during a specified testing period directly or indirectly own more than 10% of the value of our outstanding common stock.

Retirement Plan Risks

There are special considerations for pension or profit-sharing or 401(k) plans, health or welfare plans or individual retirement accounts whose assets are being invested in our common stock due to requirements under ERISA and the Internal Revenue Code. Furthermore, a person acting on behalf of a plan not subject to ERISA may be subject to similar penalties under applicable federal, state, local, or non-U.S. law by reason of purchasing our stock.

If you are investing the assets of a pension, profit sharing or 401(k) plan, health or welfare plan, or an IRA, or other plan or arrangement subject to ERISA or Section 4975 of the Internal Revenue Code in us, you should consider:

•whether the investment is consistent with stockholders’ fiduciary obligations under ERISA and the Internal Revenue Code;

•whether the investment is made in accordance with the documents and instruments governing the plan or IRA, including plan or account’s investment policy;

•whether the investment satisfies the prudence and diversification requirements of Section 404(a)(1)(B) and 404(a)(1)(C) of ERISA and other applicable provisions of ERISA and/or the Internal Revenue Code;

•whether the investment will not impair the liquidity of the plan or IRA;

•whether the investment will not produce unrelated business taxable income, referred to as UBTI, for the plan or IRA;

•whether the stockholder will be able to value the assets of the plan annually in accordance with ERISA requirements and applicable provisions of the plan or IRA; and

•whether the investment will not constitute a prohibited transaction under Section 406 of ERISA or Section 4975 of the Internal Revenue Code.

You should consider whether your investment in us will cause some or all of our assets to be considered assets of an employee benefit plan, IRA, or other arrangement. We do not believe that under ERISA and U.S. Department of Labor regulations currently in effect that our assets would be treated as “plan assets” for purposes of ERISA, although there can be no assurances. However, if our assets were considered to be plan assets, transactions involving our assets would be subject to ERISA and Section 4975 of the Internal Revenue Code and some of the transactions we have entered into with our advisor and its affiliates could be considered “prohibited transactions,” under ERISA or the Internal Revenue Code. If such transactions were considered “prohibited transactions,” our advisor and its affiliates could be subject to liabilities and excise taxes or penalties. In addition, our officers and directors, our advisor and its affiliates could be deemed to be fiduciaries under ERISA, subject to other conditions, restrictions and prohibitions under Part 4 of Title I of ERISA and those serving as fiduciaries of plans investing in us may be considered to have improperly delegated fiduciary duties to us. Additionally, other transactions with “parties-in-interest” or “disqualified persons” with respect to an investing plan might be prohibited under ERISA, the Internal Revenue Code or other governing authority in the case of a government plan.

Therefore, we would be operating under a burdensome regulatory regime that could limit or restrict investments we can make or our management of our real estate assets. Even if our assets are not considered to be plan assets, a prohibited transaction could occur if we or any of our affiliates is a fiduciary (within the meaning of ERISA) with respect to an employee benefit plan purchasing shares and, therefore, in the event any such persons are fiduciaries (within the meaning of ERISA) of your plan or IRA, you should not purchase shares unless an administrative or statutory exemption applies to your purchase.

Failure to satisfy the fiduciary standards of conduct and other requirements of ERISA, the Internal Revenue Code, or other applicable statutory or common law may result in the imposition of civil (and criminal, if the violation was willful) penalties, and can subject the fiduciary to equitable remedies and/or damages. In addition, if an investment in our common stock constitutes a prohibited transaction under ERISA or the Internal Revenue Code, the fiduciary that authorized or directed the investment may be subject to the imposition of excise taxes with respect to the amount invested. Furthermore, to the extent that the assets of a plan or arrangement not subject to the fiduciary provisions of ERISA (for example, governmental plans, non-electing church plans, and foreign plans) will be used to purchase our stock, such plans should consider the impact of applicable federal, state, local, or non-U.S. law on the decision to make such purchase.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

General

Our properties are managed by our subsidiary, Hartman Income REIT Management, Inc. Our property manager is responsible for operating, leasing and maintaining our properties.

Substantially all of our revenues consist of base rents and expense recoveries under leases that generally have terms that range from less than one year to 15 years. A majority of our existing leases as of December 31, 2022 contain “rent bump” rental provisions which provide for increases in base rental amounts over the term of the lease.

Our principal executive offices are located at 2909 Hillcroft, Suite 420, Houston, Texas 77057. We consider these facilities to be suitable and adequate for the management and operations of our business.

Our Properties

The following table provides summary information regarding our properties as of December 31, 2022.


Name/Location	Rentable SF	Date Acquired	Acquisition Cost (in thousands)		Annualized Base Rent (in thousands)		In-Place Occupancy
Promenade Dallas, TX	176,585	10/1/2018	$	20,000	$	1,608	80%
Prestonwood Park Dallas, TX	105,783	10/1/2018	23,000		1,788		86%
Richardson Heights Dallas, TX	201,433	12/28/2010	19,150		3,080		76%
Cooper Street Dallas, TX	127,696	5/11/2012	10,613		1,535		95%
One Mason SC Houston, TX	75,183	10/1/2018	12,860		1,073		91%
Chelsea Square SC Houston, TX	70,275	10/1/2018	7,110		537		66%
Mission Center SC Houston, TX	112,971	10/1/2018	10,600		925		90%
Garden Oaks SC Houston, TX	106,858	10/1/2018	20,760		1,755		96%
Harwin Houston, TX	38,813	10/1/2018	5,280		370		87%
Fondren Houston, TX	93,196	10/1/2018	9,980		913		93%
Northeast Square SC Houston, TX	40,525	10/1/2018	4,910		469		85%
Walzem Plaza SC San Antonio, TX	182,713	10/1/2018	16,400		1,577		72%
North Central Plaza Dallas, TX	198,374	10/1/2018	19,800		1,987		68%
Gateway Tower Dallas, TX	266,412	10/1/2018	29,100		2,115		64%
Bent Tree Green Dallas, TX	139,609	10/16/2012	12,013		2,032		71%
Parkway Plaza I&II Dallas, TX	136,506	3/15/2013	9,490		1,524		84%
Hillcrest Dallas, TX	203,688	5/1/2015	11,400		2,230		81%
Skymark Dallas, TX	115,700	9/2/2015	8,846		1,641		85%
Corporate Park Place Dallas, TX	113,429	8/24/2015	9,500		1,081		80%
Westway One Dallas, TX	165,982	6/1/2016	21,638		2,406		82%
Three Forest Plaza Dallas, TX	366,549	12/22/2016	35,655		4,953		77%
Spring Valley Dallas, TX	94,304	10/1/2018	5,620		933		71%
Tower Pavilion Houston, TX	87,589	10/1/2018	6,670		771		90%
The Preserve Houston, TX	218,689	10/1/2018	22,300		2,789		92%
Westheimer Central Houston, TX	182,506	10/1/2018	18,500		1,571		74%
11811 N Freeway Houston, TX	156,362	10/1/2018	5,490		1,423		64%
Atrium I Houston, TX	118,461	10/1/2018	4,750		1,391		83%
Atrium II Houston, TX	111,853	7/1/2020	5,300		1,218		96%
3100 Timmons Houston, TX	111,265	10/1/2018	15,300		1,568		85%
Cornerstone Houston, TX	71,008	10/1/2018	3,650		543		67%
Northchase Houston, TX	128,981	10/1/2018	9,070		1,044		66%
616 FM 1960 Houston, TX	142,194	10/1/2018	11,710		1,139		62%
601 Sawyer Houston, TX	88,258	10/1/2018	17,300		1,352		90%
Gulf Plaza Houston, TX	120,651	3/11/2014	13,950		2,033		84%
Timbercreek Atrium Houston, TX	51,035	12/30/2014	2,897		441		70%
Copperfield Houston, TX	42,621	12/30/2014	2,419		611		99%
400 N. Belt Houston, TX	230,872	5/8/2015	10,150		1,109		41%
Ashford Crossing Houston, TX	158,451	7/31/2015	10,600		2,041		88%
Regency Square Houston, TX	64,245	10/1/2018	2,630		536		90%
Energy Plaza San Antonio, TX	180,119	12/30/2014	17,610		3,051		83%
One Technology Ctr San Antonio, TX	196,348	11/10/2015	19,575		4,475		89%
Central Park Dallas, TX	73,099	10/1/2018	4,570		584		91%
Quitman Houston, TX	736,957	10/1/2018	5,870		1,353		88%
Mitchelldale Houston, TX	377,752	6/13/2014	19,175		2,447		95%
	6,781,900		$	553,211	$	70,022	80%

The following table sets forth certain information relating to our properties, by commercial property type, as of December 31, 2022:


Property Name	Location	Gross Leasable Area SF	In-Place Occupancy		Annualized Base Rental Revenue (in thousands)		Average Base Rental Revenue per Occupied SF		Average Net Effective Annual Base Rent per Occupied SF
Retail:
Promenade	Dallas	176,585	80	%	$	1,608	$	11.38	$	11.43
Prestonwood Park	Dallas	105,783	86	%	$	1,788	$	19.76	$	19.08
Richardson Heights	Dallas	201,433	76	%	$	3,080	$	20.06	$	17.62
Cooper Street	Dallas	127,696	95	%	$	1,535	$	12.70	$	12.70
One Mason SC	Houston	75,183	91	%	$	1,073	$	15.61	$	15.61
Chelsea Square SC	Houston	70,275	66	%	$	537	$	11.55	$	11.63
Mission Center SC	Houston	112,971	90	%	$	925	$	9.10	$	9.10
Garden Oaks SC	Houston	106,858	96	%	$	1,755	$	17.14	$	17.49
Harwin	Houston	38,813	87	%	$	370	$	10.97	$	11.38
Fondren	Houston	93,196	93	%	$	913	$	10.51	$	10.55
Northeast Square SC	Houston	40,525	85	%	$	469	$	13.68	$	13.68
Walzem Plaza SC	San Antonio	182,713	72	%	$	1,577	$	12.03	$	12.07
Total - Retail		1,332,031	83	%	$	15,630	$	14.06	$	13.73
Office:
North Central Plaza	Dallas	198,374	68	%	$	1,987	$	14.79	$	14.86
Gateway Tower	Dallas	266,412	64	%	$	2,115	$	12.32	$	12.17
Bent Tree Green	Dallas	139,609	71	%	$	2,032	$	20.41	$	20.41
Parkway Plaza I&II	Dallas	136,506	84	%	$	1,524	$	13.32	$	13.18
Hillcrest	Dallas	203,688	81	%	$	2,230	$	13.52	$	13.52
Skymark	Dallas	115,700	85	%	$	1,641	$	16.60	$	16.56
Corporate Park Place	Dallas	113,429	80	%	$	1,081	$	11.86	$	11.57
Westway One	Dallas	165,982	82	%	$	2,406	$	17.59	$	17.46
Three Forest Plaza	Dallas	366,549	77	%	$	4,953	$	17.83	$	17.70
Spring Valley	Dallas	94,304	71	%	$	933	$	13.87	$	13.99
Tower Pavilion	Houston	87,589	90	%	$	771	$	9.74	$	9.65
The Preserve	Houston	218,689	92	%	$	2,789	$	13.82	$	13.79
Westheimer Central	Houston	182,506	74	%	$	1,571	$	11.57	$	11.37
11811 N Freeway	Houston	156,362	64	%	$	1,423	$	14.17	$	14.21
Atrium I	Houston	118,461	83	%	$	1,391	$	14.20	$	14.36
Atrium II	Houston	111,853	96	%	$	1,218	$	11.16	$	11.48
3100 Timmons	Houston	111,265	85	%	$	1,568	$	16.60	$	16.60
Cornerstone	Houston	71,008	67	%	$	543	$	11.48	$	11.49
Northchase	Houston	128,981	66	%	$	1,044	$	12.34	$	12.47
616 FM 1960	Houston	142,194	62	%	$	1,139	$	12.97	$	12.92
601 Sawyer	Houston	88,258	90	%	$	1,352	$	17.03	$	17.03
Gulf Plaza	Houston	120,651	84	%	$	2,033	$	20.02	$	20.44
Timbercreek Atrium	Houston	51,035	70	%	$	441	$	12.43	$	12.77
Copperfield	Houston	42,621	99	%	$	611	$	14.41	$	14.41
400 N. Belt	Houston	230,872	41	%	$	1,109	$	11.80	$	12.10
Ashford Crossing	Houston	158,451	88	%	$	2,041	$	14.62	$	14.68
Regency Square	Houston	64,245	90	%	$	536	$	9.27	$	9.28
Energy Plaza	San Antonio	180,119	83	%	$	3,051	$	20.48	$	20.48
One Technology Ctr	San Antonio	196,348	89	%	$	4,475	$	25.50	$	25.54
Total -office		4,262,061	77	%	50,008		15.30		15.29
Industrial/Flex
Central Park	Dallas	73,099	91	%	$	584	$	8.77	$	9.00
Quitman	Houston	736,957	88	%	$	1,353	$	2.08	$	2.07
Mitchelldale	Houston	377,752	95	%	$	2,447	$	6.81	$	6.82
Total - Industrial/Flex		1,187,808	91	%	$	4,384	$	4.08	$	4.09
Grand Total		6,781,900	80	%	70,022		$	12.84	$	12.76

Significant Tenants

The following table sets forth information about our ten largest tenants as of December 31, 2022:


Tenant Name	Location	Annualized Rental Revenue (in thousands)		Percentage of Total Annualized Rental Revenue		Initial Lease Date	Lease Expiration Year
Galen College Of Nursing	One Technology	$	1,855	3.00	%	7/1/2013	6/30/2025
Gulf Interstate Engineering	Gulf Plaza	1,771		3.00	%	3/1/2011	4/30/2024
Lennar Homes Of Texas	Westway	1,252		2.00	%	5/1/2014	8/31/2023
Gsa-Veterans Administration	One Technology	1,216		2.00	%	8/1/2004	1/14/2024
Board Of Regents Of The University Of Texas System	One Technology	1,045		1.00	%	8/1/2003	8/31/2025
Sunbelt Warehouse, LLC	Quitman	1,035		1.00	%	8/1/2003	8/31/2025
Cec Entertainment, INC.	Westway	757		1.00	%	8/1/2015	7/31/2026
Iced Tea With Lemon, LLC.	Richardson Heights	685		1.00	%	8/1/2013	7/31/2028
QRX Medical Management, LLC.	Three forest plaza	551		1.00	%	10/1/2013	7/31/2025
Harris County Sheriff'S Dept Office	Atrium I	487		1.00	%	8/1/2003	1/31/2030
		$	10,654	16.00	%

Lease Expirations

The following table shows lease expirations for our properties as of December 31, 2022 during each of the next ten years:


		Gross Leasable Area Covered by Expiring Leases		Annualized Base Rent Represented by Expiring Leases
Year of Lease Expiration	Number of Leases Expiring	Approx. Square Feet	Percent of Total Occupied Square Feet	Amount (in thousands)		Percent of Total Rent
2023	352	723	14%	$	11,464	17%
2024	361	948	18%	15,531		23%
2025	339	1,383	27%	13,987		21%
2026	179	525	9%	6,935		10%
2027	231	896	17%	9,919		15%
2028	85	385	7%	5,122		8%
2029	29	63	1%	585		1%
2030	21	148	3%	2,222		3%
2031	5	10	1%	117		—%
2032+	19	104	2%	1,188		2%
Total	1,621	5,185	99%	$	67,070	99%

Location of Properties

Our properties, which represent continuing operations, are located in the Houston, Dallas and San Antonio metropolitan statistical areas (“MSAs”). We believe that the long-term outlook for Texas MSAs remains positive.

As of December 31, 2022, our real estate properties comprised the following annualized base rental revenue, in thousands, by asset type and geographic location:


	Retail		Office		Flex/Industrial		Total
Houston	$	6,042	$	21,580	$	3,800	$	31,422
Dallas	8,011		20,902		584		29,497
San Antonio	1,577		7,526		—		9,103
Total	$	15,630	$	50,008	$	4,384	$	70,022

Item 3. Legal Proceedings

During February 2021, the state of Texas experienced a severe winter storm, unofficially referred to as Winter Storm Uri, which resulted in power outages and electrical grid failures across the state. Wholesale prices for electricity increased significantly during this period. As a result, we experienced a substantial increase in electricity billings for a number of our properties during the month of and after the storm.

On May 26, 2021, Summer Energy LLC (“Summer”) filed a lawsuit against Hartman Income REIT Management, Inc. (the “Property Manager”), our wholly owned subsidiary that manages our properties, in state court in Harris County, Texas. In this lawsuit, Summer seeks to collect approximately $8.4 million from the Property Manager that Summer claims that the Property Manager owes Summer under one or more electricity sales agreements (“Agreements”) related to Winter Storm Uri. Of the approximately $8.4 million claimed in the lawsuit, approximately $7.6 million relates to wholly owned properties. Under the Agreements, Summer provided electricity to buildings managed by the Property Manager at indexed prices.

On March 24, 2022, the court entered a judgment in favor of Summer against the Property Manager in the amount of $7,871,000 plus customary pre- and post-judgment interest and attorney's fees. The Property Manager continues to dispute the amount of liability to Summer and has appealed the judgment. The outcome of the appeal is subject to significant uncertainty and we cannot provide any assurance that the Property Manager will ultimately prevail. Even if the Property Manager is ultimately successful in its appeal, it may take considerable time to resolve the matter. The Company had recognized the share of the judgment amount applicable to wholly owned properties of the Company, approximately $6,731,000, within the Company's consolidated statement of operations for fiscal year 2021. The Company has also recognized $370,000 of pre-judgment interest and attorney fees in 2021 and $304,000 of post-judgment interest in 2022. Many of the Company’s leases contain provisions that require tenants to pay their allocable share of operating expenses, including utilities. The Company began its assessment of tenants' applicable share during 2022. For those properties with completed assessments, we billed approximately $1,330,000 of tenants' share during the fourth quarter of 2022. Approximately 50% has been collected to date.

On April 25, 2022, the Property Manager filed its supersedeas surety bond totaling $2,197,000 in order to suspend enforcement the judgment for the duration of the Property Manager's appeal. The share of the supersedeas surety bond applicable to wholly owned properties of the Company totaled $2,001,000 and is recorded in prepaid expenses and other assets on the Company's consolidated balance sheets.

The Property Manager continues to dispute the amount of litigation to Summer and had appeal the judgment, filing its Notice of Appeal on June 21, 2022. The outcome of the appeal is subject to significant uncertainty and we cannot provide any assurance that the Property Manager will ultimately prevail. Even if the Property Manager is ultimately successful in its appeal, it may take considerable time to resolve the matter.

Item 4. Mine Safety Disclosures.

Not applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Stockholder Information

As of December 31, 2022, we had 34,894,496 shares of common stock issued and outstanding, held by a total of approximately 4,451 stockholders. The number of stockholders is based on the records of Phoenix American Financial Services, Inc. which serves as our transfer agent.

Market Information

Our shares of common stock are not currently listed on a national securities exchange or any over-the-counter market. We do not expect our shares to become listed in the near future, and they may not become listed at all. Consequently, there is the risk that our stockholders may not be able to sell their shares at a time or price acceptable to them. Effective March 31, 2016, we terminated our follow-on offering. Our board of directors continues to evaluate potential liquidity events to maximize the total potential return to our stockholders. For further discussion regarding liquidity, see Investment Objectives and Strategy on page 6.

Determination of Estimated Net Asset Value per Share

On April 13, 2023, our Executive Committee, which is comprised of independent directors determined an estimated net asset value (“NAV”) per share of our common stock of $6.25 per share as of December 31, 2022.

In determining the estimated NAV per share, the Executive Committee relied upon information contained in a report, or the valuation report, provided by our advisor, the recommendation of the audit committee of our board and our Executive Committee's experience with, and knowledge of, our real property and other assets as of December 31, 2022. The objective of our board in determining the estimated NAV per share of our common stock was to arrive at a value, based on recent, available data, that our board believed was reasonable based on methods that it deemed appropriate after consultation with our advisor and the audit committee. In preparing the valuation report, our advisor relied in part on valuations of commercial real estate properties provided by LaPorte CPAs and Business Advisors, which we refer to herein as the Valuation Expert. To calculate the estimated NAV per share in the Valuation Report, our advisor used a methodology pursuant to the provisions of Practice Guideline 2013-01, Valuations of Publicly Registered Non-Listed REITs, issued by the Institute for Portfolio Alternatives in April 2013. The Valuation Expert did not determine the NAV of the Company’s common shares.

As a result, the estimated NAV per share as of December 31, 2022 should not be considered as an accurate or approximate value of a share of our common stock at this time, or the amount that stockholders would receive in the event of our liquidation.

We intend to determine an updated estimated fair value per share every year on or about the last day of our fiscal year or more frequently in the sole discretion of our board of directors. The market for commercial real estate can fluctuate quickly and substantially, and values of our assets and liabilities are expected to change in the future.

Unregistered Sales of Equity Securities

During the year ended December 31, 2022 we did not sell any equity securities that were not registered under the Securities Act of 1933.

Share Redemption Program

On July 8, 2022, the board of directors suspended our redemption program to support the long-term fiscal health our company.

Our board of directors reserves the right in its sole discretion at any time to (1) waive the any holding period in the event of exigent circumstances affecting a stockholder such as bankruptcy, a mandatory distribution requirement under a stockholder’s IRA or death or disability (as described below), (2) reject any request for redemption, (3) change the purchase price for redemptions, or (4) otherwise amend the terms of our redemption program.

For the years ended December 31, 2022 and 2021, we redeemed approximately 135,000 and 248,000 shares, respectively, at a weighted average price per share of $8.88 and $9.86 per share, respectively.

Distribution Policy

To maintain our qualification as a REIT, we must meet certain organizational and operational requirements, including a requirement to annually distribute at least 90% of our REIT taxable income (computed without regard to the dividends-paid deduction and excluding net capital gain and which does not necessarily equal net income as calculated in accordance with U.S. generally accepted accounting principles, or GAAP) to our stockholders. Our board of directors may authorize distributions in excess of those required for us to maintain REIT status depending on our financial condition and such other factors as our board of directors deems relevant.

We declare distributions on a quarterly basis to be paid monthly. On July 8, 2022, the board of directors suspended distributions to stockholders. The distribution suspension will not impact our REIT status for the 2022 fiscal year. Our last paid distribution was calculated at a rate which was $0.45 annually per share of common stock.

For federal income tax purposes, distributions to common stockholders are characterized as ordinary dividends, capital gain distributions or nontaxable distributions. To the extent that we make distributions in excess of our current or accumulated earnings and profits, the distribution will be a nontaxable return of capital which reduces the tax basis of each share of common stock held by a U.S. stockholder. The amount of distributions in excess of a U.S. stockholder’s tax basis will be a taxable gain realized upon the sale of the stockholders’ shares.

The following table summarizes the distributions we paid in cash and pursuant to our distribution reinvestment plan for the years ended December 31, 2022 and 2021, in thousands:


Period	Cash (1)		DRIP (1)(2)		Total
First Quarter 2022	$	3,958	$	—	$	3,958
Second Quarter 2022	4,500		—		4,500
Third Quarter 2022	—		—		—
Fourth Quarter 2022	—		—		—
Total	$	8,458	$	—	$	8,458
First Quarter 2021	$	3,082	$	—	$	3,082
Second Quarter 2021	3,246		—		3,246
Third Quarter 2021	3,662		—		3,662
Fourth Quarter 2021	3,927		—		3,927
Total	$	13,917	$	—	$	13,917

(1) Distributions are paid on a monthly basis. Distributions for all record dates of a given month are paid approximately 20 days (and effective January 2022 approximately 40 days) following the end of such month.

(2) Our distribution reinvestment plan which was terminated effective July 16, 2016.

Item 6. [Reserved]

Not applicable.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our consolidated financial statements and the notes thereto included in this Annual Report. Also see “Forward Looking Statements” preceding Part I of this Annual Report. As used herein, the terms “we,” “our,” “us” and “our company” refer to Silver Star Properties REIT, Inc. and, as required by context, Hartman XX Limited Partnership, our operating partnership, and to their respective subsidiaries. References to “shares” and “our common stock” refer to the shares of our common stock.

Overview

We were formed as a Maryland corporation on February 5, 2009 to invest in and operate real estate and real estate-related assets on an opportunistic basis. We have acquired a variety of commercial properties, including office, industrial, retail, and other real properties. These properties are income-producing properties. We focused on acquiring properties with significant possibilities for short-term capital appreciation, such as those requiring development, redevelopment or repositioning or those located in markets with high growth potential. We may also have invested in real estate-related securities and, to the extent that our advisor determines that it is advantageous, we may have invested in mortgage loans. Our investments in real estate assets on properties located in Texas.

On February 9, 2010, we commenced our initial public offering of up to $250,000,000 in shares of our common stock to the public at a price of $10.00 per share and up to $23,750,000 in shares of our common stock to our stockholders pursuant to our distribution reinvestment plan at a price of $9.50 per share. On April 25, 2013, we terminated our initial public offering. As of the termination of our initial public offering on April 25, 2013, we had accepted subscriptions for and issued 4,455,678 shares of our common stock, including 162,561 shares of our common stock issued pursuant to our distribution reinvestment plan, resulting in aggregate gross offering proceeds of $43,943,731.

On July 16, 2013, we commenced our follow-on offering of up to $200,000,000 in shares of our common stock to the public at a price of $10.00 per share and up to $19,000,000 in shares of our common stock to our stockholders pursuant to our distribution reinvestment plan at a price of $9.50 per share. We accepted subscriptions for, and issued, 18,574,461 shares of our common stock in our initial public offering and follow-on offering, including 1,216,240 shares of our common stock issued pursuant to our distribution reinvestment plan, resulting in aggregate gross proceeds of $181,336,480.

Effective March 31, 2016, we terminated the offer and sale of shares of our common stock to the public in our follow-on offering. The sale of shares of our common stock to our stockholders pursuant to our distribution reinvestment plan was terminated effective July 16, 2016.

We do not anticipate that there will be any market for our shares of common stock unless they are listed on a national securities exchange. For further discussion regarding liquidity, see Investment Objectives and Strategy on page 6.

Our independent directors have undertaken a strategic review process to identify, examine, and consider a range of strategic alternatives available to us with the objective of maximizing shareholder value. As a part of its strategic review, the independent directors engaged a third party to serve as a strategic advisor to our board of directors. On October 14, 2022, the our board of directors formed the Executive Committee whose duties include, among other items, the continuation of the review of strategic alternatives with the objective of maximizing shareholder value and the communication, reporting, and decision-making process between the board and the Chief Executive Officer. On April 6, 2023, the Executive Committee of the board of directors approved the previously-announced New Direction Plans to reposition the Company's assets into the self-storage asset class and away from office, retail, and light industrial assets. The Executive Committee is in the process of carrying out the New Direction Plans with the objective of maximizing shareholder value.

As of December 31, 2022 we owned 44 commercial real properties comprising approximately 6.8 million square feet plus four pad sites and two development sites, all located in Texas.

We operate under the direction of our board of directors, the members of which are accountable to the Company and our stockholders. We are internally managed by our subsidiary, Hartman Income REIT Management, Inc. Our property manager is responsible for operating, leasing and maintaining our properties.

We elected under Section 856 of the Internal Revenue Code to be taxed as a REIT beginning with the taxable year ending December 31, 2011. As a REIT we generally are not subject to federal income tax on income that we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year after the year in which we initially elected to be treated as a REIT, we will be subject to federal income tax on our taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year in which our qualification is denied. Such an event could materially and adversely affect our net income. However, we believe that we are organized and will operate in a manner that will enable us to qualify for treatment as a REIT for federal income tax purposes and we intend to operate so as to remain qualified as a REIT for federal income tax purposes.

Going Concern Considerations

We have a $259,000,000 SPE Loan (the "SASB Loan") outstanding as of December 31, 2022 which has a maturity date of October 9, 2023, which is within one year of the date that this Annual Report was available to be issued. We are on the third and final one year maturity date option under the SASB Loan. Management has determined our Company's ability to continue as a going concern is dependent upon our ability to refinance the SASB Loan prior to the maturity date.

On October 19, 2022, we received a notice from the loan servicer of the SASB Loan in connection with an event of default due to the noncompliance with the loan agreement's insurance requirements relating to a single property. The event of default was previously waived for the sole purpose of exercising the final one-year extension option to the SASB Loan term. The default triggers cash management provisions under the SASB Loan agreement, which was implemented in November 2022. Cash management implementation has restricted access to tenant receipts and limited the amount of cash available to meet our operating obligations. Refer to Note 8 (Notes Payable) to the consolidated financial statements included in this Annual Report for additional information regarding the timing and priority of disbursements we receive from the cash management accounts and required excess cash flow reserves.

Our operations are subject to a variety of risks, including, but not limited to, changes in national economic conditions, the restricted availability of financing, changes in demographic trends and interest rates and declining real estate valuations. As a result of these uncertainties, there can be no assurance that we will meet our investment objectives, refinancing objectives, or that the risks described above will not have an adverse effect on our properties or results of operations.

Market Outlook - Real Estate and Real Estate Finance Markets

The ongoing challenges affecting the U.S. commercial real estate industry, especially as it pertains to commercial office buildings, continues to be one of the most significant risks and uncertainties we face. The current economic slowdown, rising interest rate environment, inflation, the COVID-19 pandemic, as well as the lack of lending activity in the debt markets have had a negative impact on our Company and the commercial real estate markets. During the second and third quarters of 2022, we failed to secure long-term, fixed rate financing to replace our current SASB Loan. Continued disruptions in the financial markets and economic uncertainty could adversely affect our ability to implement any strategic alternatives or asset reposition, if approved by our stockholders.

Amidst the challenges mentioned above coupled with slower than expected return-to-office, these circumstances have had direct material impacts on the value of our real estate and ability to access the debt markets. We recognized impairment charges on 8 of our properties where the carrying values were not deemed recoverable. Potential changes in tenant behavior, such as the continued use and perceived economic benefits of work-from-home arrangements could materially and negatively impact the future demand for office space in our current real estate portfolio. Valuations of U.S. office properties continue to fluctuate due to weakness in the current real estate capital markets as a result of the factors above and the lack of transaction volume for U.S. office properties, increasing the uncertainty of valuations in the current market environment.

Our Real Estate Portfolio

As of December 31, 2022, our portfolio consisted of the 44 commercial real estate properties listed below.


Property Name	Location	Gross Leasable Area SF	In-Place Occupancy		Annualized Base Rental Revenue (in thousands)		Average Base Rental Revenue per Occupied SF		Average Net Effective Annual Base Rent per Occupied SF
Retail:
Promenade	Dallas	176,585	80	%	$	1,608	$	11.38	$	11.43
Prestonwood Park	Dallas	105,783	86	%	$	1,788	$	19.76	$	19.08
Richardson Heights	Dallas	201,433	76	%	$	3,080	$	20.06	$	17.62
Cooper Street	Dallas	127,696	95	%	$	1,535	$	12.70	$	12.70
One Mason SC	Houston	75,183	91	%	$	1,073	$	15.61	$	15.61
Chelsea Square SC	Houston	70,275	66	%	$	537	$	11.55	$	11.63
Mission Center SC	Houston	112,971	90	%	$	925	$	9.10	$	9.10
Garden Oaks SC	Houston	106,858	96	%	$	1,755	$	17.14	$	17.49
Harwin	Houston	38,813	87	%	$	370	$	10.97	$	11.38
Fondren	Houston	93,196	93	%	$	913	$	10.51	$	10.55
Northeast Square SC	Houston	40,525	85	%	$	469	$	13.68	$	13.68
Walzem Plaza SC	San Antonio	182,713	72	%	$	1,577	$	12.03	$	12.07
Total - Retail		1,332,031	83	%	$	15,630	$	14.06	$	13.73
Office:
North Central Plaza	Dallas	198,374	68	%	$	1,987	$	14.79	$	14.86
Gateway Tower	Dallas	266,412	64	%	$	2,115	$	12.32	$	12.17
Bent Tree Green	Dallas	139,609	71	%	$	2,032	$	20.41	$	20.41
Parkway Plaza I&II	Dallas	136,506	84	%	$	1,524	$	13.32	$	13.18
Hillcrest	Dallas	203,688	81	%	$	2,230	$	13.52	$	13.52
Skymark	Dallas	115,700	85	%	$	1,641	$	16.60	$	16.56
Corporate Park Place	Dallas	113,429	80	%	$	1,081	$	11.86	$	11.57
Westway One	Dallas	165,982	82	%	$	2,406	$	17.59	$	17.46
Three Forest Plaza	Dallas	366,549	77	%	$	4,953	$	17.83	$	17.70
Spring Valley	Dallas	94,304	71	%	$	933	$	13.87	$	13.99
Tower Pavilion	Houston	87,589	90	%	$	771	$	9.74	$	9.65
The Preserve	Houston	218,689	92	%	$	2,789	$	13.82	$	13.79
Westheimer Central	Houston	182,506	74	%	$	1,571	$	11.57	$	11.37
11811 N Freeway	Houston	156,362	64	%	$	1,423	$	14.17	$	14.21
Atrium I	Houston	118,461	83	%	$	1,391	$	14.20	$	14.36
Atrium II	Houston	111,853	96	%	$	1,218	$	11.16	$	11.48
3100 Timmons	Houston	111,265	85	%	$	1,568	$	16.60	$	16.60
Cornerstone	Houston	71,008	67	%	$	543	$	11.48	$	11.49
Northchase	Houston	128,981	66	%	$	1,044	$	12.34	$	12.47
616 FM 1960	Houston	142,194	62	%	$	1,139	$	12.97	$	12.92
601 Sawyer	Houston	88,258	90	%	$	1,352	$	17.03	$	17.03
Gulf Plaza	Houston	120,651	84	%	$	2,033	$	20.02	$	20.44
Timbercreek Atrium	Houston	51,035	70	%	$	441	$	12.43	$	12.77
Copperfield	Houston	42,621	99	%	$	611	$	14.41	$	14.41
400 N. Belt	Houston	230,872	41	%	$	1,109	$	11.80	$	12.10
Ashford Crossing	Houston	158,451	88	%	$	2,041	$	14.62	$	14.68
Regency Square	Houston	64,245	90	%	$	536	$	9.27	$	9.28
Energy Plaza	San Antonio	180,119	83	%	$	3,051	$	20.48	$	20.48
One Technology Ctr	San Antonio	196,348	89	%	$	4,475	$	25.50	$	25.54
Total -office		4,262,061	77	%	$	50,008	$	15.30	$	15.29
Industrial/Flex
Central Park	Dallas	73,099	91	%	$	584	$	8.77	$	9.00


Quitman	Houston	736,957	88	%	$	1,353	$	2.08	$	2.07
Mitchelldale	Houston	377,752	95	%	$	2,447	$	6.81	$	6.82
Total - Industrial/Flex		1,187,808	91	%	$	4,384	$	4.08	$	4.09

Grand Total		6,781,900	80	%	$	70,022	$	12.84	$	12.76

Inflation

Although inflation has been historically low and has had a minimal impact on the operating performance of our properties, inflation has recently increased in the United States. Monetary policy and stimulus measures implemented by the federal government and the Federal Reserve could lead to higher inflation rates or lengthen the period of inflation, which may negatively impact our tenants, our operating costs, and our construction costs. Our increased use of net lease agreements mitigates the adverse effect of inflation, including rent escalations and requirements for tenants to pay their allocable share of operating expenses, including common area maintenance, utilities, real estate taxes, and insurance. Additionally, many of our leases are for terms less than ten years, which allows us to target increased rents to current market rates upon renewal.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our results of operations and financial condition, as reflected in the accompanying consolidated financial statements and related notes, require us to make estimates and assumptions that are subject to management’s evaluation and interpretation of business conditions, changing capital market conditions and other factors related to the ongoing viability of our customers. With different estimates or assumptions, materially different amounts could be reported in our consolidated financial statements. We believe the following are our more critical accounting policies due to the significance, subjectivity and judgment used in determining our estimates included in the preparation of our consolidated financial statements. See also Item 15 - Exhibit F, Note 2 of our consolidated financial statements. We evaluate our assumptions and estimates on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable and appropriate based upon the circumstances.

Revenue Recognition

The Company’s leases are accounted for as operating leases. Certain leases provide for tenant occupancy during periods for which no rent is due and/or for increases or decreases in the minimum lease payments over the terms of the leases. Revenue is recognized on a straight-line basis over the terms of the individual leases. Revenue recognition under a lease begins when the tenant takes possession of or controls the physical use of the leased space. When the Company acquires a property, the term of existing leases is considered to commence as of the acquisition date for the purposes of this calculation. The Company’s accrued rents are included in accrued rent and accounts receivable, net, on the accompanying consolidated balance sheets. The Company will defer the recognition of contingent rental income, such as percentage rents, until the specific target that triggers the contingent rental income is achieved. Additionally, cost recoveries from tenants are included in the Tenant Reimbursement and Other Revenues line item in the consolidated statements of operations in the period the related costs are incurred.

The Company’s revenue is primarily derived from leasing activities, which is specifically excluded from ASC 606 - Revenue from Contracts with Customers ("ASC 606"). The Company also earns revenue from tenant reimbursements for real estate taxes, insurance, common area maintenance, and operating. Reimbursements from real estate taxes and certain other expenses are also excluded from of ASC 606.

In addition to our leasing income, the Company also earns fee revenues by providing certain management and advisory services to related parties. These fees are accounted for within the scope of ASC 606 and are recorded as management and advisory income on the consolidated statements of operations. These services primarily include asset management and advisory, operating and leasing of properties, and construction management. Refer to Item 15 - Exhibit F, Note 2 of the consolidated financial statements for additional discussion regarding performance obligations and timing of revenue recognition for our management and advisory income.

Real Estate

Allocation of Purchase Price of Acquired Assets

Upon the acquisition of real properties, it is the Company’s policy to allocate the purchase price of properties to acquired tangible assets, consisting of land and buildings, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases, other value of in-place leases and leasehold improvements and value of tenant relationships, based in each case on their fair values. The Company utilizes internal valuation methods to determine the fair values of the tangible assets of an acquired property (which includes land and buildings).

The fair values of above-market and below-market in-place lease values, including below-market renewal options for which renewal has been determined to be reasonably assured, are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (a) the contractual amounts to be paid pursuant to the in-place leases and (b) an estimate of fair market lease rates for the corresponding in-place leases and below-market renewal options, which is generally obtained from independent appraisals, measured over a period equal to the remaining non-cancelable term of the lease. The above-market and below-market lease and renewal option values are capitalized as intangible lease assets or liabilities and amortized as an adjustment to rental revenues over the remaining expected terms of the respective leases.

The fair values of in-place leases include direct costs associated with obtaining a new tenant, opportunity costs associated with lost rentals which are avoided by acquiring an in-place lease, and tenant relationships. Direct costs associated with obtaining a new tenant include commissions, tenant improvements, and other direct costs and are estimated based on independent appraisals and management’s consideration of current market costs to execute a similar lease. These direct costs are included in intangible lease assets and are amortized to expense over the remaining terms of the respective leases. The value of opportunity costs is calculated using the contractual amounts to be paid pursuant to the in-place leases over a market absorption period for a similar lease. Customer relationships are valued based on expected renewal of a lease or the likelihood of obtaining a particular tenant for other locations. These intangibles are included in intangible lease assets in the consolidated balance sheets and are amortized to expense over the remaining term of the respective leases.

The determination of the fair values of the assets and liabilities acquired requires the use of significant assumptions with regard to the current market rental rates, rental growth rates, discount rates and other variables. The use of inaccurate estimates would result in an incorrect assessment of the purchase price allocations, which could impact the amount of our reported net income (loss).

Real Estate Joint Ventures and Partnerships

To determine the method of accounting for partially owned real estate joint ventures and partnerships, management determines whether an entity is a variable interest entity ("VIE") and, if so, determines which party is the primary beneficiary by analyzing whether we have both the power to direct the entity’s significant economic activities and the obligation to absorb potentially significant losses or receive potentially significant benefits. Significant judgments and assumptions inherent in this analysis include the design of the entity structure, the nature

of the entity’s operations, future cash flow projections, the entity’s financing and capital structure, and contractual relationships and terms. We consolidate a VIE when we have determined that we are the primary beneficiary.

Primary risks associated with our involvement with our VIEs include the potential funding of the entities’ debt obligations or making additional contributions to fund the entities’ operations or capital activities.

Partially owned, non-variable interest real estate joint ventures and partnerships over which we have a controlling financial interest are consolidated in our consolidated financial statements. In determining if we have a controlling financial interest, we consider factors such as ownership interest, authority to make decisions, kick-out rights and substantive participating rights. Partially owned real estate joint ventures and partnerships where we do not have a controlling financial interest, but have the ability to exercise significant influence, are accounted for using the equity method.

Management continually analyzes and assesses reconsideration events, including changes in the factors mentioned above, to determine if the consolidation or equity method treatment remains appropriate.

Depreciation and amortization

Depreciation is computed using the straight-line method over the estimated useful lives of 5 to 39 years for buildings and improvements. Tenant improvements are depreciated using the straight-line method over the lesser of the life of the improvement or the remaining term of the lease. In-place leases are amortized using the straight-line method over the weighted average years calculated on terms of all of the leases in-place when acquired.

Impairment

We review our real estate assets on an asset by asset basis for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of the assets 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.

Projections of expected future cash flows require management to estimate future market rental income amounts subsequent to the expiration of current lease agreements, property operating expenses, discount rates, the number of months it takes to release the property and the number of years the property is held for investment. The use of inaccurate assumptions in the future cash flow analysis would result in an incorrect assessment of the property’s future cash flow and fair value and could result in the overstatement of the carrying value of our real estate and related intangible assets and net income. Refer to Note 3 (Real Estate) for additional information regarding our impairment analysis and related recognition of loss on impairment in the consolidated statements of operations for the year ended December 31, 2022.

Accrued Rent and Accounts Receivable, net

Accrued rent and accounts receivable includes base rents, tenant reimbursements and receivables attributable to recording rents on a straight-line basis. An allowance for the uncollectible portion of accrued rent and accounts receivable is determined based upon customer credit-worthiness (including expected recovery of our claim with respect to any tenants in bankruptcy), historical bad debt levels, and current economic trends.

RESULTS OF CONTINUING OPERATIONS

Comparison of the year ended December 31, 2022 versus the year ended December 31, 2021.

As of December 31, 2022 and 2021, respectively, we owned 44 commercial properties comprising approximately 6.8 million square feet plus four pad sites and two land developments, all in Texas. As of December 31, 2022 and 2021, we owned 15 properties located in Richardson, Arlington, and Dallas, Texas, 26 properties located in Houston, Texas and three properties located in San Antonio, Texas.

Revenues – The primary source of our revenue is rental revenues and management and advisory income. For the years ended December 31, 2022 and 2021 we had total rental revenues and of $94,017,000 and $87,194,000, respectively. The overall increase is mainly attributable to increase in recoverable operating costs under net leases. With the rapid rise inflation beginning in 2021 and extending throughout 2022, the utility, maintenance, and insurance costs incurred on our properties has increased. Theses costs are recoverable from our tenants to the extent provided under net leasing arrangements. Recoverable operating costs increased approximately $4,336,000 Additionally, as discussed in Note 14 (Commitments and Contingencies) of the consolidated financial statements, in the fourth quarter of 2022 we recognized $667,000 of recoverable electricity expenses as a result of Winter Storm Uri. This amount reflects only those properties with completed assessments in 2022 of recoverable amounts. The remaining assessments are expected to be completed during the first quarter of 2023. For the years ended December 31, 2022 and 2021, we had total management and advisory expenses of $4,053,000 and $4,964,000, respectively. The overall decrease is attributable to lease management services provided to affiliates during the second half of 2022. Revenue from these services decreased approximately $683,000 from 2021 to 2022.

Property operating expenses – Property operating expenses consists of labor, contract services, repairs and maintenance, utilities and management fees. For the years ended December 31, 2022 and 2021, we had property operating expenses of $26,591,000 and $31,117,000, respectively. The decrease in property operating expenses is primarily due to the extraordinary electricity expense we incurred in 2021 as a direct result of Winter Storm Uri. Electricity expense for the years ended December 31, 2022 and 2021, was $8,569,000 and $13,710,000, respectively.

Real estate taxes and insurance – Real estate taxes and insurance were $15,004,000 and $13,952,000 for the years ended December 31, 2022 and 2021, respectively. The increase in real estate taxes and insurance is attributable to increased premiums for commercial property insurance, driven by inflationary trends as well as volatile conditions in the commercial insurance market.

Depreciation and amortization – Depreciation and amortization were $26,971,000 and $26,726,000, for the years ended December 31, 2022 and 2021, respectively.

Debt issuance cost write off - During the second and third quarters of 2022, the Company pursued a refinance to replace the SASB Loan with long term, fixed rate debt. Due to ongoing volatility in the commercial real estate lending market, our efforts were unsuccessful and for the year ended December 31, 2022, we expensed $1,018,000 of refinancing costs incurred from the pursued refinance.

General and administrative expenses - General and administrative expenses consist primarily of transfer agent fees, other professional fees, and independent director compensation. For the years ended December 31, 2022 and 2021, we had general and administrative expenses of $13,570,000 and $13,163,000, respectively.

Interest expense - Interest expense for the years ended December 31, 2022 and 2021 was $13,033,000 and $8,454,000, respectively. The increase is attributable to the impact of rising interest rates on our variable rate debt and increase in Notes Payable. The interest rate on our SASB Loan rose from 1.91% from January 2022 to 5.55% in

December 2022, which includes the impact of our interest rate cap required under the loan. Additionally, total Notes Payable - related party increased approximately $11,156,000.

Loss on impairment - Total impairment charge for the year ended December 31, 2022 was $26,485,000. We did not recognize any impairments in 2021. Refer to Note 3 (Real Estate) of the consolidated financial statements for additional information regarding 2022 impairments.

Interest write off (income) - For the year ended December 31, 2022, we wrote off $847,000 of interest receivable due under our related party note receivable.

Net loss – We incurred a net loss from continuing operations of $38,031,000 and $12,933,000 for the years ended December 31, 2022 and 2021, respectively. The increase in net loss is primarily attributable to increase in interest expense and impairment charges referenced above.

Funds From Operations

Funds From Operations, or FFO, is a non-GAAP financial measure defined by the National Association of Real Estate Investment Trusts (“NAREIT”), an industry trade group, which we believe is an appropriate supplemental measure to reflect the operating performance of a real estate investment trust, or REIT in conjunction with net income. FFO is used by the REIT industry as a supplemental performance measure. FFO is not equivalent to our net income or loss as determined under GAAP.

We define FFO, a non-GAAP measure, consistent with the standards established by the White Paper on FFO approved by the Board of Governors of NAREIT, as revised in February 2004, or the White Paper. The White Paper defines FFO as net income or loss computed in accordance with GAAP, excluding gains or losses from sales of property and asset impairment write-downs, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect FFO. Our FFO calculation complies with NAREIT’s policy described above.

The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably over time, especially if such assets are not adequately maintained or repaired and renovated as required by relevant circumstances and/or is requested or required by lessees for operational purposes in order to maintain the value disclosed. We believe that, since real estate values historically rise and fall with market conditions, including inflation, interest rates, the business cycle, unemployment and consumer spending, presentations of operating results for a REIT using historical accounting for depreciation may be less informative. Additionally, we believe it is appropriate to disregard impairment charges, as this is a fair value adjustment that is largely based on market fluctuations and assessments regarding general market conditions which can change over time. An asset will only be evaluated for impairment if certain impairment indicators exist and if the carrying, or book value, exceeds the total estimated undiscounted future cash flows (including net rental and lease revenues, net proceeds on the sale of the property, and any other ancillary cash flows at a property or group level under GAAP) from such asset. Investors should note, however, that determinations of whether impairment charges have been incurred are based partly on anticipated operating performance, because estimated undiscounted future cash flows from a property, including estimated future net rental and lease revenues, net proceeds on the sale of the property, and certain other ancillary cash flows, are taken into account in determining whether an impairment charge has been incurred. While impairment charges are excluded from the calculation of FFO as described above, investors are cautioned that due to the fact that impairments are based on estimated future undiscounted cash flows and the relatively limited term of our operations, it could be difficult to recover any impairment charges.

Historical accounting for real estate involves the use of GAAP. Any other method of accounting for real estate such as the fair value method cannot be construed to be any more accurate or relevant than the comparable

methodologies of real estate valuation found in GAAP. Nevertheless, we believe that the use of FFO, which excludes the impact of real estate related depreciation and amortization and impairments, provides a more complete understanding of the our performance to investors and to management, and when compared year over year, reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income. However, FFO should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income or in its applicability in evaluating our operating performance. The method utilized to evaluate the value and performance of real estate under GAAP should be construed as a more relevant measure of operational performance and considered more prominently than the non-GAAP FFO measures and the adjustments to GAAP in calculating FFO.

Presentation of this information is intended to provide useful information to investors as they compare the operating performance of different REITs, although it should be noted that not all REITs calculate FFO the same way, so comparisons with other REITs may not be meaningful. FFO is not necessarily indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income (loss) or income (loss) from continuing operations as an indication of our performance, as an alternative to cash flows from operations as an indication of its liquidity, or indicative of funds available to fund its cash needs including its ability to make distributions to its stockholders. FFO should be reviewed in conjunction with other GAAP measurements as an indication of our performance. FFO is not a useful measure in evaluating net asset value because impairments are taken into account in determining net asset value but not in determining FFO.

Neither the SEC, NAREIT nor any other regulatory body has passed judgment on the acceptability of the adjustments that we use to calculate FFO. In the future, the SEC, NAREIT, or another regulatory body may decide to standardize the allowable adjustments across the non-listed REIT industry and as a result we may have to adjust our calculation and characterization of FFO.

The table below summarizes our calculation of FFO for the years ended December 31, 2022 and 2021, respectively, and a reconciliation of such non-GAAP financial performance measures to our net loss, in thousands.


	December 31,
	2022		2021
Net loss	$	(38,031)	$	(12,933)
Depreciation and amortization of real estate assets	26,971		26,726
Loss on impairment	26,485		—
Funds from operations (FFO)	$	15,425	$	13,793

Distributions

The following table summarizes the distributions we paid in cash and pursuant to our distribution reinvestment plan for the period from January 2011 (the month we first paid distributions) through December 31, 2022, in thousands:


Period	Cash (1)		DRIP (2)(3)		Total
2011	$	255	$	242	$	497
2012	891		869		1,760
2013	1,681		1,594		3,275
2014	2,479		2,358		4,837
2015	3,475		3,718		7,193
2016	8,918		2,988		11,906
2017	12,650		—		12,650
2018	12,555		—		12,555
2019	12,811		—		12,811
2020	15,797		—		15,797
2021	13,917		—		13,917
2022	8,458		—		8,458
Total	$	93,887	$	11,769	$	105,656

(1)Distributions are paid on a monthly basis. Distributions for all record dates of a given month are paid approximately 20 days (and effective January 2022 approximately 40 days) following the end of such month. Effective July 8, 2022, we have suspended the payment of distributions.

(2)Distributions accrued for the period from December 27, 2010 through December 31, 2010 were paid on January 20, 2011, the date we first paid a distribution.

(3)Amount of distributions paid in shares of common stock pursuant to our distribution reinvestment plan. Effective July 16, 2016, we terminated the sale of additional shares of our common stock to our stockholders pursuant to our distribution reinvestment plan.

For the year ended December 31, 2022, we paid aggregate distributions of $8,458,000. During the same period, cash provided by operating activities was $15,901,000 and our FFO was $15,425,000. For the year ended December 31, 2022, 100% of distributions were paid from cash provided by operating activities.

For the year ended December 31, 2021, we paid aggregate distributions of $13,917,000. During the same period, cash provided by operating activities was $21,393,000 and our FFO was $13,793,000. For the year ended December 31, 2021, 100% of distributions were paid from cash provided by operating activities.

For the period from inception to December 31, 2022, we paid aggregate distributions of $105,656,000. During the period from our inception to December 31, 2022, our cash provided by operating activities was $156,072,000, our net loss was $108,239,000 and our FFO was $124,072,000. Of the $105,656,000 in aggregate distributions paid to our stockholders from inception to December 31, 2022, approximately 68% was paid from net cash provided by operating activities and approximately 32% was funded from offering proceeds. For a discussion of how we calculate FFO, see “Funds From Operations and Modified Funds From Operations.”

For federal income tax purposes, the cash distributed to stockholders was characterized as follows for the years ended December 31, 2022 and 2021:


	2022		2021
Ordinary income (unaudited)	73.4	%	40.4	%
Return of capital (unaudited)	26.6	%	59.6	%
Total	100.0	%	100.0	%

Liquidity and Capital Resources

As described above under "Overview - Going Concern Considerations," we are under our final one year maturity date option of our SASB Loan due October 9, 2023 and have an ongoing event of default under the SASB Loan relating to the loan agreement's insurance requirements relating to a single property. The Company's ability to continue as a going concern is dependent upon the Company's ability to refinance the SASB Loan prior to the maturity date.

The event of default triggered cash management provisions under the loan agreement which have been in effect since November 2022. The action has restricted access to tenant receipts from the 39 properties in the loan and disrupted both the timing and amount of free cash flow on hand. Tenant receipts on these 39 properties are deposited into a cash management account controlled by the loan servicer. On the 9th day of each month, distributions from the cash management account are made in the following priority: (i) property tax escrow, (ii) scheduled debt service (iii) budgeted operating expenses for the month of the payment date occurs, (iv) capital expenditure reserve, and (v) tenant improvement and lease commission reserve. All remaining amounts are disbursed to an excess cash flow reserve account, also maintained by the loan servicer. As a result, our unrestricted cash and cash equivalents on hand is limited. As of December 31, 2022, the SASB cash management account and excess cash flow reserve held $3,817,000 and $223,000, respectively, and are recorded in restricted cash on the December 31, 2022 consolidated balance sheet. The remaining five of our 44 revenue generating properties are outside the SASB Loan and are not subject to the provisions above.

Our principal demands for funds are for real estate and real estate-related acquisitions, for the payment of operating expenses, for the payment of interest on our outstanding indebtedness, and for the payment of distributions. Effective July 8, 2022, we have suspended the payment of distributions. Generally, we expect to meet cash needs for items other than acquisitions from our cash flow from operations; provided, that some or all of our distributions have been and may continue to be paid from sources other than cash from operations (as discussed below).

We have in the past and may in the future pay distributions from sources other than cash flow from operations, including proceeds of our public offerings, cash advances to us by affiliates and borrowings secured by our assets in anticipation of future operating cash flow. To the extent our investments are in development or redevelopment projects or in properties that have significant capital requirements, our ability to make future distributions may be negatively impacted, especially during our early periods of operation.

We use, and intend to use in the future, secured and unsecured debt to acquire properties and make other investments. As of December 31, 2022, our outstanding secured debt is $298,804,000. There is no limitation on the amount we may invest in any single property or other asset or on the amount we can borrow for the purchase of any individual property or other investment. Under our charter, we are prohibited from borrowing in excess of 300% of our “net assets” (as defined by our charter) as of the date of any borrowing; however, we may exceed that limit if approved by a majority of our independent directors and if such excess is disclosed to the stockholders in the next quarterly report along with the explanation for such excess borrowings. Our board of directors has adopted a policy to limit our aggregate borrowings to approximately 50% of the aggregate value of our assets unless substantial justification exists that borrowing a greater amount is in our best interests. Such limitation, however, does not apply to individual real estate assets and only will apply once we have ceased raising capital in our public offering and invested substantially all of our capital. As a result, we expect to borrow more than 50% of the contract purchase price of each real estate asset we acquire to the extent our board of directors determines that borrowing these amounts is prudent.

Potential future sources of capital include proceeds from additional private or public offerings of our securities, secured or unsecured financings from banks or other lenders, proceeds from the sale of properties and undistributed

funds from operations. If necessary, we may use financings or other sources of capital in the event of unforeseen significant capital expenditures.

Comparison of Cash Flow for the Years Ended December 31, 2022 and 2021

The following table sets forth a summary of cash flows for our company for the years ended December 31, 2022 and 2021:


	For the years ended December 31,
	2022		2021		Change
(Amounts in thousands)
Net Cash provided by (used in):
Operating activities	$	15,901	$	21,393	$	(5,492)
Investing activities	(11,977)		(13,382)		1,405
Financing activities	1,241		(12,930)		14,171

Operating Activities

We have generated $15,901,000 and $21,393,000 of cash from operating activities during the years ended December 31, 2022 and 2021, respectively. The decrease is mainly due to the rise in interest costs of our variable rate debt (see Results from Continuing Operations section above), $2,001,000 payment for supersedeas surety bond as a result of Winter Storm Uri judgment, and $2,254,000 interest rate cap premium.

Investing Activities

We used $11,977,000 and $13,382,000 in cash for investing activities during the years ended December 31, 2022, and 2021, respectively. All of our investing activities are for capital expenditures on our properties.

Financing Activities

Net cash provided by (used in) financing activities for the years ending December 31, 2022 and 2021, was $1,241,000 and $12,930,000, respectively. The increase in cash provided by financing activities is primarily due to an increase in net borrowing from affiliate and the suspension of distributions to stockholders. Net cash borrowings under our note payable to related party affiliate increased by $6,687,000 for the year ended December 31, 2022 compared to 2021. The capital provided by related party financing was used to aid funding of capital expenditures, the shares of the supersedeas surety bond applicable to wholly owned properties of our company totaling $2,001,000, and insurance premium payments.

Recent Accounting Pronouncements

Management does not believe that any recently issued, but not yet effective accounting standards, if currently adopted, would have a material effect on the accompanying consolidated financial statements. See Item 15 - Exhibit F, Note 2 to the notes to the consolidated financial statements included in this Annual Report.

Related-Party Transactions and Agreements

We have entered into agreements with our advisor and its affiliates whereby we have paid, and may continue to pay, certain fees to, or reimburse certain expenses of, our advisor and its affiliates. See Item 13, “Certain

Relationships and Related Transactions and Director Independence” and Item 15 - Exhibit F, Note 11 (Related Party Transactions) to the consolidated financial statements included in this Annual Report for a discussion of the various related-party transactions, agreements and fees.

Review of our Investment Policies

Our board of directors, including our independent directors, has reviewed our investment policies as described in this Annual Report and determined that such policies are in the best interests of our stockholders based on the following factors: (1) such policies increase the likelihood that we will be able to acquire a diversified portfolio of income producing properties, thereby reducing risk in our portfolio; (2) our executive officers and directors and the affiliates of our advisor have expertise with the type of real estate investments we seek; (3) there are sufficient property acquisition opportunities with the attributes that we seek; and (4) borrowings should enable us to purchase assets and earn income more quickly, thereby increasing the likelihood of generating income for our stockholders and preserving stockholder capital.

Item 7A. Quantitative and Qualitative Disclosures about Market Risks

We will be exposed to interest rate changes primarily as a result of long-term debt used to acquire properties and make loans and other permitted investments. Our interest rate risk management objectives will be to limit the impact of interest rate changes on earnings and cash flows and to lower overall borrowing costs. To achieve these objectives, we expect to borrow primarily at fixed rates or variable rates with the lowest margins available and, in some cases, with the ability to convert variable rates to fixed rates. With regard to variable rate financing, we will assess interest rate cash flow risk by continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging and interest rate cap opportunities.

Item 8. Financial Statements and Supplementary Data

The consolidated financial statements and supplementary data required by this Item 8 can be found beginning on page F-1 of this Annual Report.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Management’s Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rule 15a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to provide reasonable assurance that the information required to be disclosed in the reports that we file or submit under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures. Because of inherent limitations, disclosure controls or procedures, no matter how well designed it operated, can provide only reasonable, and not absolute, assurance that the objectives of disclosure controls and procedures are met.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2022. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of

December 31, 2022, our disclosure controls and procedures were not effective at a reasonable assurance level due to the material weaknesses in internal control over financial reporting described below.

Management's Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal controls over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by the board of directors, management another personnel, to provide reasonable assurance regarding the reliability of financial reporting in the preparation of financial statements for external purposes in accordance with generally excepted accounting principles in the United States of America (GAAP) and include those policies and procedures that:

•pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and disposition of our assets;

•provide reasonable assurance the transactions are recorded as necessary to permit preparation of financial statements in accordance with generally excepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorization of management and our directors; and

•provide reasonable assurance regarding prevention of timely detection of unauthorized acquisition, use or disposition of any of our assets in circumstances that could have a material adverse effect on our financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management, including our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934, as amended.

In connection with the preparation of this Annual Report, our management, including our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2022. In making that assessment, our management used the framework and criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013).

Based on its evaluation, our management has concluded that our internal control over financial reporting was not effective as of December 31, 2022, due to material weaknesses in our internal control over financial reporting discussed below. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

As of December 31, 2022, the following material weaknesses existed:

•The insufficient design and operation of controls over the review, approval, and disclosure of related party transactions.

•The insufficient design of controls related to the timing for revenue recognition of estimated recoveries of operating expense items under leasing arrangements.

The first material weakness is the result of a financing agreement executed in the first quarter of 2021. Under the agreement, one of our wholly owned properties was added to a credit facility of one of our affiliates. The affiliate transaction required the approval of our independent directors at that time and was not obtained. Further, during the ongoing renewal of the affiliate’s credit facility, a review of organizational and other financing documents required the Company to further evaluate its ownership interest in the property so that our consolidated financial statements are prepared in accordance with GAAP and fairly present, in all material respects, our financial position, results of operations and cash flows for each of the periods each of the periods ending December 31, 2022 and 2021, and related interim periods.

The second material weakness is related to the timing the Company's operating expense recovery recognition process. As required under most of our leases, after the close of our fiscal year the Company performs annual operating expense recoveries to reconcile tenants' prorated share of actual operating expenses incurred during the year against estimates billed throughout the year. Historically, the difference between the actual recoveries and estimates has not been material and is recognized in the subsequent fiscal period. However, primarily due to the rapid rise in inflation throughout 2022 and volatile insurance markets, recoverable costs outpaced our estimates by approximately $3,544,000. The adjustment is appropriately reflected in the consolidated financial statements included in this Annual Report on Form 10-K.

Notwithstanding these material weaknesses, management has concluded that the consolidated financial statements included in this Annual Report on Form 10-K present fairly, in all material respects, the financial position of the Company at December 31, 2022 in conformity with U.S. generally accepted accounting principles.

Weaver and Tidwell, L.L.P., an independent registered public accounting firm, audited our consolidated financial statements for the year ended December 31, 2022 included in this Annual Report on Form 10-K. Their report is included in “Item 15. Exhibits and Financial Statement Schedules” under the heading Report of Independent Registered Public Accounting Firm. This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm on our internal control over financial reporting due to exemption established by rule of the SEC for smaller reporting companies.

Remediation Efforts

Management has begun implementing remediation plans to address the material weaknesses in our internal control over financial reporting discussed above. The remediation plan for the first material weakness includes enhancing our policies and procedures around identifying related party transactions, approval thresholds, disclosure requirements, and strengthening documentation standards to ensure transactions with related parties are appropriately evaluated, reviewed, approved, and disclosed. The remediation plan for the second material weakness includes implementation of a fiscal year-end evaluation procedure to determine if recognition of an estimated recovery is warranted. We believe these actions will be sufficient to remediate the identified material weaknesses and strengthen our internal control over financial reporting; however, some of these actions will take time to be fully integrated and confirmed to be effective and sustainable. We will continue to monitor the effectiveness of our internal control over financial reporting and will make any further changes management determines appropriate.

Changes in Internal Control Over Financial Reporting

There have been no other changes during the quarter ended December 31, 2022 in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financing reporting.

Item 9B. Other Information

None.

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Not Applicable.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

Our current directors and executive officers and their respective ages and positions are listed below:


Name	Age	Position
Mark T. Torok	64	Chief Executive Officer and President
Louis T. Fox, III	62	Chief Financial Officer and Treasurer
Michael A. Racusin	42	General Counsel and Corporate Secretary
Jack I. Tompkins	77	Independent Director
Horst Schulze	83	Independent Director
Gerald W. Haddock	75	Independent Director
James S. Still	66	Independent Director
Allen R. Hartman	71	Director

On October 15, 2022, Mr. Torok assumed the role of Chief Executive Officer and Mr. Hartman assumed the role of Executive Chairman. On March 10, 2023, the Executive Committee of the board of directors removed Allen Hartman as Executive Chairman of the board of directors of the Company and terminated the agreement between the Company and Allen Hartman. The Executive Committee investigated issues related to certain violations of fiduciary and other duties to the Company by Mr. Hartman which has not concluded. Mr. Hartman remains a director on the Company’s Board.

Mark T. Torok, age 64, has served as our Chief Executive Officer and President since October 2022. He previously served as our General Counsel from April 2016 to April 2021. Mr. Torok is also the Founder and CEO of Southern Star Storage, a self storage owner and operator. Mr. Torok practiced law from 2006 to May 2015, as the founder of The Torok Law Firm P.C., where his practice focused on real estate, securities, and business law. In addition, he served as a fee attorney and provided escrow agent services for Providence Title Insurance Company. Prior to founding The Torok Law Firm in 2006, from 1989 to 1991, Mr. Torok served as a Hearings Officer for the Pennsylvania Insurance Department. From 1991 to 2000 he served as Assistant General Counsel and Assistant Secretary of the various companies of the Erie Insurance Group, a property and casualty insurance company. From 2000 to 2002 he served as Assistant General Counsel and Assistant Secretary for the United Services Automobile Association (USAA), a property and casualty insurance company. From 2002 to 2004 he served as Assistant General Counsel and Chief Compliance Officer for the companies of the Argonaut Group, a commercial property and casualty insurance company. He subsequently returned to USAA from 2004 to 2006 to serve as Director of Regulatory Compliance before founding his own law firm. Mr. Torok holds the insurance designations of Chartered Property Casualty Underwriter (CPCU) and Associate in Reinsurance (ARe). Mr. Torok holds an inactive real estate agent’s license in Texas and an inactive escrow agent’s license in Texas and is a member of the Texas Bar Association. Mr. Torok earned a Bachelor of Arts degree in Economics from Gettysburg College and a Juris Doctor degree from Willamette University College of Law.

Louis T. Fox, III, age 62, is our Chief Financial Officer and Treasurer. He has responsibility for financial reporting, accounting, treasury and investor relations. Mr. Fox is also a principal and CFO of Southern Star Storage, a self storage owner and operator. Prior to joining HIR Management in March, 2007, Mr. Fox served as Chief Financial Officer of Legacy Brands, a restaurant group from April, 2006 until January, 2007. Prior to that, Mr. Fox served as Chief Financial Officer of Unidynamics, Inc., a specialized EPC manufacturer of unique handling system solutions for the marine and energy industries from January, 2004 until April, 2006. He also served as Treasurer and

CFO of Goodman Manufacturing, a major manufacturer of residential and commercial HVAC products for 9 years prior to that. In addition to his years of experience in the manufacturing industry, he has served in senior financial positions in the construction and debt collection service concerns. He started his career as a tax accountant with Arthur Andersen & Co. Mr. Fox is a former practicing certified public accountant. Mr. Fox received a Bachelor of Arts degree in accounting from the University of Texas at San Antonio.

Michael A. Racusin, age 42, has served as our General Counsel and Corporate Secretary since May 2021. In this capacity, Mr. Racusin manages our in-house legal department and is responsible for all legal matters affecting our company and its affiliates. Prior to joining the Company in May 2021, Mr. Racusin served as General Counsel and Corporate Secretary of Luby's Inc., a publicly traded restaurant and food service company, where he also held positions as Associate General Counsel and Asst. Secretary since 2006. Mr. Racusin also co-founded and served as Chief Information Officer and General Counsel of EnergyFunders.com, the world’s first crowdfunding platform for energy projects. Mr. Racusin is a licensed member of the State Bar of Texas. Mr. Racusin earned a Bachelor of Arts from University of Texas at Austin and a Juris Doctor degree from University of Houston Law Center.

Jack I. Tompkins, age 77, has served as one of our independent directors since our inception in February, 2009. Mr. Tompkins has served since 1998 as Chairman and CEO of ARTA Equity Advisors, L.L.C., which was formed to engage in various entrepreneurial opportunities. Mr. Tompkins began his career with Arthur Young & Co., working as a certified public accountant there for three years before joining Arthur Andersen,& Co., where he was elected to the partnership in 1981 and served until 1988. While at Arthur Andersen he was in charge of the Merger and Acquisition Program for the Houston office as well as head of the Natural Gas Industry Group. From 1988 until October 1996, Mr. Tompkins served as Chief Financial Officer, Senior Vice President and Chief Information, Administrative and Accounting Officer of a large publicly traded energy company. Corporate functions reporting to Mr. Tompkins included financial planning, risk management, tax, accounting, information systems, administration and internal audit. Mr. Tompkins served as Chairman and CEO of Automotive Realty Trust Company of America from its inception in 1997 until its sale to a publicly traded REIT in January 1999. Automotive Realty was formed to engage in the business of consolidating real estate properties owned by automobile dealerships into a REIT. From March to September of 1999, Mr. Tompkins served as interim Executive Vice President and CFO of Crescent Real Estate Equities as the Company restructured. Mr. Tompkins served as an independent director of Hartman XIX from July 2009 until March 2010 and as an independent director of Hartman Income REIT from January 2008 until July 2009. Mr. Tompkins previously served on the board of directors of Bank of America Texas and Michael Petroleum Corp. He is a member of American Institute of Certified Public Accountants. Mr. Tompkins received a Bachelor of Business Administration and Master of Business Administration from Baylor University.

Our board of directors, excluding Mr. Tompkins, has determined that the experience as a certified public accountant and leadership positions previously and currently held by Mr. Tompkins, including experience Mr. Tompkins has accumulated from acquiring and managing investments in commercial real estate and debt, have provided Mr. Tompkins with the experiences, attributes and skills necessary to effectively carry out the duties and responsibilities of a director.

Horst Schulze, age 83, has served as one of our independent directors since May 2020. Mr. Schulze brings more than 65 years of experience in hospitality and operational quality to the Board. Mr. Schulze joined the Ritz-Carlton hotel brand in 1983 as a charter member and Vice President of Operations. He was appointed Assistant Vice-President in 1987 and then president and COO in 1988. Mr. Schulze became vice chairman of The Ritz-Carlton Hotel Company from 2001 to 2002, and in 2011, he left the company to form the Capella Hotel Group; at the time of his departure, Schulze was responsible for the $2 billion Ritz-Carlton operations worldwide. Mr. Schulze currently sits on multiple boards other than the Company, including the Cancer Treatment Centers of America and Reliance Trust. In 1995, he was awarded the Ishikawa Medal for his personal contributions to the quality movement. In 1999, Johnson & Wales University gave him an honorary Doctor of Business Administration degree in Hospitality Management.

Our board of directors, excluding Mr. Schulze, has determined that the leadership positions previously and currently held by Mr. Schulze, including the extensive experience Mr. Schulze has acquired in hospitality and operational quality, have provided Mr. Schulze with the experiences, attributes and skills necessary to effectively carry out the duties and responsibilities of a director.

Gerald W. Haddock, age 75, has served as one of our independent directors since May 2020. Mr. Haddock. brings more than 48 years of professional and leadership experience to the Board. He founded Haddock Enterprises, LLC in 2000 and has served as president since its formation. Prior to forming Haddock Enterprises, Mr. Haddock served as president and chief executive officer of Crescent Real Estate Equities, a diversified real estate investment trust. He was a partner at the law firms of Fulbright & Jaworski, LLP, Kelly, Hart & Hallman, PC, and Jackson Walker, LLP, before founding the Haddock Firm, LLP. He is currently a director for Meritage Homes Corporation, serving as Chairperson of the Nominating and Corporate Governance Committee. Mr. Haddock previously served as a director of Union Acquisition Corp. II, a special purpose acquisition corporation. Mr. Haddock served on the Audit Committee of Union Acquisition Corp. II's board of directors. Mr. Haddock was an investor and led the Rainwater Group’s acquisition partnership that acquired Blocker Energy, which became ENSCO International, PLC, a leading global offshore oil and gas drilling service company. From 1986 to 2019, Mr. Haddock served as a founding director of Ensco. As a founding director, Mr. Haddock led Ensco in its strategic planning and many of its acquisitions. . For more than 25 years, Mr. Haddock served on the Board of Directors as a director and as the Chairperson of the Audit Committee. He was also co-lead director for many years of his service. Mr. Haddock also served as a member of the Nominating and Governance Committee, and. in such position, led the Company in succession planning and hiring its chief executive officers. Mr. Haddock retired as a director with Ensco in early 2019 upon its merger with Rowan Companies plc which created Valaris plc. Mr. Haddock serves as a director for ProFrac Holding Corporation, a significant oilfield service company engaged primarily in fracking and the logistical supply business. He was one of the initial independent directors when ProFrac completed its initial public offering. He is currently on the audit and compensation committees. Mr. Haddock has served on many philanthropic boards. He previously served on the Board of Trustees for the M.D. Anderson Proton Therapy Education and Research Foundation and the Baylor College of Medicine, as well as a member of the Baylor University Executive Investment Committee. Since 2010, he has been involved with the CEELI Institute, a not-for profit, international provider of post-graduate, professional legal education headquartered in Prague. Mr. Haddock is currently a member of the Friends of the CEELI Institute Board of Directors based out of Washington DC. Mr. Haddock received his Bachelor of Business Administration and Juris Doctorate degree from Baylor University and Baylor Law School, and his Master of Laws in Taxation degree from New York University School of Law. He also received his Master of Business Administration degree from Dallas Baptist University.

Our board of directors, excluding Mr. Haddock, has determined that the experience and leadership positions previously and currently held have provided Mr. Haddock with the experiences, attributes and skills necessary to effectively carry out the duties and responsibilities of a director.

James S. Still, age 66, has served as one of our independent directors since May 2020. Mr. Still founded RDC Advisors, LLC in 2010, to serve as a holding company for his Board and interim management roles. Prior to forming RDC Advisors, Mr. Still served as President and CEO of Surgent, LLC from 2014 to 2016, and prior to that President and CEO of Thompson Media Group, LLC from 2010 to 2014. Both of these entities were focused on providing professional education to a number of sectors of the domestic economy. The two companies were owned by private equity and institutional lending firms. Earlier in his career, Mr. Still was President and CEO of Atlantic American Properties Trust, a diversified commercial and industrial real estate investment trust with holdings throughout the mid-Atlantic region. He was also the former President and CEO of Bell Atlantic Properties, Inc, a wholly owned investment real estate division of Bell Atlantic Corporation now Verizon Corporation. Since 2017, he has been a director for Intellective, Inc, a leading provider of technology-based solutions; Precision Camera, the largest camera repair company in the country; and DirectPath, a leading telecommunications provider. Each of these entities is privately held. He is a former Board member of Abington Health, a large regional health care provider and from 2017 to 2019 he was a member of the Finance and Investment Committees of Abington-Jefferson Health, upon the companies' merger in 2015. He was the President of the Alumni Board of William Penn Charter School, the

oldest Quaker high school in America. He also served on the Amherst College Alumni Board and was a Session member at Grace Presbyterian Church in suburban Philadelphia. Mr. Still earned Bachelor of Arts in Economics and Psychology and Master of Business Administration from the Wharton School of the University of Pennsylvania.

Our board of directors, excluding Mr. Still, has determined that the experience and leadership positions previously and currently held have provided Mr. Still with the experiences, attributes and skills necessary to effectively carry out the duties and responsibilities of a director.

Allen R. Hartman, age 71, served as Executive Chairman from October 15, 2022 to March 10, 2023. He previously served as our CEO and Chairman of our Board of Directors.

Board Committees

Executive Committee

Our board of directors has established an Executive Committee (the "Executive Committee"). The Executive Committee meets on a regular and as needed basis. The Executive Committee is comprised of three independent directors, Jack Tompkins, chairman, Gerald Haddock, and James Still, each of whom is “independent” as defined by our charter. The duties of the Executive Committee include, among other items, the continuation of the review of strategic alternatives with the objective of maximizing shareholder value and the streamlining of the communication, reporting, and decision-making process between the board and the Chief Executive Officer. To accomplish this objective and to communicate and manage the day-to-day communications and interactions with the Chief Executive Officer, the Executive Committee has all the authority of decision making of the whole board of directors. The Executive Committee is led by Gerald Haddock as Lead Director.

Audit Committee

Our board of directors has established an Audit Committee. The Audit Committee meets on a regular basis at least four times a year. Our Audit Committee is comprised of three independent directors, Jack Tompkins, chairman, Gerald Haddock, and James Still, each of whom is “independent” as defined by our charter. Our Board of Directors has adopted an Audit Committee Charter, a copy of which is posted on our website, http://www.hartmanreits.com/sec-filings/. The Audit Committee’s primary functions are to evaluate and approve the services and fees of our independent auditors; to periodically review the auditors’ independence; and to assist our board of directors in fulfilling its oversight responsibilities by reviewing the financial information to be provided to the stockholders and others, the system of internal controls that management has established, and the audit and financial reporting process. All members of the Audit Committee have significant financial experience. Our board of directors has determined that Mr. Tompkins satisfies the SEC’s requirements for and serves as our “Audit Committee financial expert.”

Compensation Committee

Our board of directors has established a Compensation Committee to assist the board of directors in discharging its responsibility in all matters of compensation practices, including any salary and other forms of compensation for our directors and for our employees. Our Compensation Committee is comprised of two independent directors, James Still, chairman, and Horst Schulze. Our Board of Directors has adopted our Compensation Committee Charter, a copy of which is posted on our website, http://www.hartmanreits.com/sec-filings/. The primary duties of the Compensation Committee include reviewing all forms of compensation for our directors; approving all stock option grants, warrants, stock appreciation rights and other current or deferred compensation payable with respect to

the current or future value of our shares; and advising on changes in compensation of members of our Board of Directors.

Nominating and Governance Committee

Our board of directors has established a Nominating and Governance Committee, or the “Nominating Committee.” Our Nominating Committee is comprised of two independent directors, Gerald Haddock, chairman, and Jack Tompkins. Our Board of Directors has adopted our Nominating Committee Charter, a copy of which is posted on our website, http://www.hartmanreits.com/sec-filings/. The Nominating Committee will recommend nominees to serve on our Board of Directors. The Nominating Committee will consider nominees recommended by stockholders if submitted to the committee in accordance with the procedures specified in our bylaws. Generally, this requires that the stockholder send certain information about the nominee to our corporate secretary between 120 and 150 days prior to the first anniversary of the mailing of notice for the annual meeting held in the prior year. The Nominating Committee is responsible for assessing the appropriate mix of skills and characteristics required of board members in the context of the perceived needs of the board at a given point in time and shall periodically review and recommend for approval by the board any updates to the criteria as deemed necessary. Diversity in personal background, race, gender, age and nationality for the board as a whole may be taken into account favorably in considering individual candidates. The Nominating Committee will evaluate the qualifications of each director candidate against these criteria in making its recommendation to our board concerning nominations for election or reelection as a director. The process for evaluating candidates recommended by our stockholders pursuant to our bylaws will be no different than the process for evaluating other candidates considered by the Nominating Committee.

Code of Ethics

We have adopted a Code of Business Conduct and Ethics which contains general guidelines for conducting our business and is designed to help directors, employees and consultants resolve ethical issues in an increasingly complex business environment. The Code of Business Conduct and Ethics applies to all of our officers, including our principal executive officer, principal financial officer and principal accounting officer and persons performing similar functions and all members of our board of directors. A copy of our Code of Business Conduct and Ethics will be made available, free of charge, to anyone who requests a copy in writing.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires each director, officer and individual beneficially owning more than 10% of our common stock to file with the SEC, within specified time frames, initial statements of beneficial ownership (Form 3) of our common stock and statements of changes in beneficial ownership (Forms 4 and 5) of our common stock. These specified time frames require the reporting of changes in ownership within two business days of the transaction giving rise to the reporting obligation. Reporting persons are required to furnish us with copies of all Section 16(a) forms filed with the SEC. Based solely on a review of the copies of such forms furnished to us during and with respect to the fiscal year ended December 31, 2022, or written representations that no additional forms were required, we believe that all required Section 16(a) filings were timely and correctly made by reporting persons during 2022.

Item 11. Executive Compensation

Compensation of our Executive Officers

Compensation Discussion and Analysis

Throughout this discussion, the following individuals who served as our chief executive officer and chief financial officer during 2022 and the other three most highly compensated executive officers as of the end of 2022, as determined in accordance with applicable SEC rules, are collectively referred to as our named executive officers.


Named Executive Officer			Title
Mark T. Torok			Chief Executive Officer
Louis T. Fox, III			Chief Financial Officer, Chief Accounting Officer and Treasurer
Michael A. Racusin			General Counsel and Corporate Secretary
Allen R. Hartman			Chief Executive Officer and Executive Chairman
Richard A. Maloof			Executive Vice President of Leasing

We provide what we believe is a competitive total compensation package to our named executive officers through a combination of base salary, annual cash incentive bonuses, and profit sharing/phantom equity incentive compensation and broad-based benefits programs. We seek to maintain a total compensation package that provides fair, reasonable and competitive compensation for our executives while also permitting us the flexibility to differentiate actual pay based on the level of individual and company performance. We place significant emphasis on annual and incentive compensation, including cash and phantom equity-based incentives, which are designed to reward our executives based on achievement of company and individual goals and our strategic objective of delivering long-term stable and consistent returns to our stockholders.

Say-on-Pay and Say-on-Frequency Votes

Since the mergers of the Company and its Hartman affiliates effective July 1, 2020, we have not yet held an annual meeting of stockholders at which time the Company will hold an advisory vote on the compensation of our named executive officers and at such annual meeting and thereafter we plan to hold an advisory vote as required under the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act. The Dodd-Frank Act requires that such stockholder votes on frequency be held at least once every six years.

Overview of Compensation Philosophy & Objectives

We seek to maintain a total compensation package that provides fair, reasonable and competitive compensation for our executive officers while also permitting us the flexibility to differentiate actual pay based on the level of individual and organizational performance. Our executive compensation programs are designed to:

•Attract and retain talented and experienced executives;

•Motivate our executives whose knowledge, skills and performance are critical to our success; and

•Align the interests or executive officers and stockholders by motivating executive officers to increase stockholder value and reward executive officers based on increased value.

Roles of the Compensation Committee, Compensation Consultant and Management

Compensation Committee

The members of the Compensation Committee are James Still, chairman, and Horst Schulze, each of whom is “independent” under the independence standards of the NYSE. The Compensation Committee, is active and undertaking its responsibility for monitoring the performance of our executives and evaluating and approving our executive compensation plans, policies and programs. In addition, the Compensation Committee oversees the administration our 2021 Hartman Profit Sharing and Retention Plan.

Compensation Consultant

For fiscal 2022 executive compensation, the Compensation Committee did not engage the services of any independent outside compensation consultants.

Management

For fiscal 2022, our Executive Committee and our Chief Executive Officer exercised discretion with respect to the evaluation of the individual performance and appropriate compensation levels for the other executive officers.

Compensation of Executive Officers

Executive compensation programs include three principal elements – base salary, incentive cash bonus, and profit sharing and retention incentives, in the form of performance-based incentive units awarded from time to time in our Hartman Profit Sharing and Retention Plan. In fiscal 2021, we awarded unit grants to our named executive officers to recognize their significant contributions to the Company’s performance and to further incentivize our named executive officers’ continued service to the Company. We believe that an emphasis on annual incentive cash bonus and profit sharing compensation creates greater alignment with the interests of our stockholders, ensures that our business strategy is executed by decision-makers in a manner that focuses on the creation of both long-term value and short-term results, and encourages prudent evaluation of risks. The following table presents the base salary, incentive cash bonus compensation and profit sharing compensation for our Chief Executive Officer and each of our other named executive officers for fiscal 2022.

Fiscal 2022 Summary Compensation Table


Name and Principal Position	Year	Salary ($)		Bonus ($)		Stock Awards ($)		Option Awards ($)		Nonequity incentive plan compensation ($)		Nonqualified deferred compensation earnings ($)		All Other Compensation		Total Compensation
Mark T. Torok, Chief Executive Officer (1)	2022	$	83,077	$	—	$	—	$	—	$	—	$	—	$	8,723	$	91,800
	2021	49,039		6,127		—		—		—		—		—		55,166
Louis T. Fox, III, Chief Financial Officer, Principal Accounting Officer and Treasurer	2022	181,731		15,382		—		—		—		—		14,691		211,804
	2021	173,872		27,718		—		—		23,141		—		1,475		226,206
Michael A. Racusin, General Counsel and Corporate Secretary (2)	2022	228,219		9,125		—		—		—		—		12,597		249,941
	2021	137,596		6,750		—		—		—		—		50		144,396
Allen R. Hartman, Chief Executive Officer and Executive Chairman (3)	2022	130,195		—		—		—		—		—		9,753		139,948
	2021	15,997		—		—		—		—		—		—		15,997
Richard A. Maloof, Executive Vice President of Leasing (4)	2022	178,615		58,242		—		—		—		—		229,747		466,604
	2021	148,582		81,717		—		—		9,603		—		114,157		354,059

(1) Mr. Torok previously served in the role of Chief Operating Officer of the Company before his departure on April 9, 2021. He rejoined the Company and assumed the role of Chief Executive Officer on October 15, 2022.

(2) Mr. Racusin joined the Company on May 11, 2021.

(3) Mr. Hartman assumed the role of Executive Chairman on October 15, 2022. On March 10, 2023, the Executive Committee of the board of directors removed Mr. Hartman as Executive Chairman of the board of directors of the Company.

(4) Richard A. Maloof departed the Company on January 23, 2023.

Base Salary

The base salary payable to each named executive officer provides a fixed component of compensation that reflects the executive’s position and responsibilities. The goal of our base salary program is to provide salaries at a level that allows us to attract and retain highly qualified executives while preserving significant flexibility to recognize and reward individual performance within the overall executive compensation program. Base salaries will be reviewed annually by the Compensation Committee and may be adjusted to better match competitive market levels or to recognize an executive’s professional growth, development and increased responsibility.

In connection with its annual review of base salaries, the Compensation Committee will review the results of benchmarking analysis prepared by the committee or its compensation consultant in order to determine appropriate increases in base salaries for each of our named executive officers in light of (i) the Company’s growth in terms of occupancy and cash flows from operations, (ii) each named executive officer’s individual performance, scope of responsibilities and prospects, and (iii) market data provided the compensation consultant, if any.

Annual Incentive Cash Bonus

Annual incentive cash bonuses are designed to reward our named executive officers for strong financial, operational and individual performance. We expect that eligibility to receive these cash bonuses will incentivize our named executive officers to strive to attain Company and individual performance goals that further our interests and the interests of our stockholders. The Company utilizes a quarterly scorecard incentive compensation arrangement structured on the achievement of formulaic Company objectives as well as specific individual qualitative goals, each of which are set on a quarterly basis.

Long-Term/Profit Sharing Incentive Compensation

While there were no grants in fiscal 2022, the Compensation Committee believes that a substantial portion of each named executive officer’s annual compensation should be in the form of long-term equity and or profit sharing incentive compensation. Equity incentive awards, including profit sharing/phantom equity plans, encourage management to create stockholder value over the long-term, because the value of the incentive awards is directly attributable to changes in the price of our common stock over time. In addition, phantom equity awards are an effective tool for management retention because full vesting of the awards generally requires continued employment for multiple years.

In September 2020, the board of directors approved the Hartman Profit Sharing and Retention Plan ("Plan") for employees of the Company including our named executive officers. There are two main parts to the Plan. One is a profit sharing payment component payable monthly and a retention bonus that will be paid at the end of the retention period as defined in the Plan. The Plan allows participants to receive payments on the retention bonus immediately at the same rate and time as distributions are paid on a like amount of the common stock of the company held by our stockholders. These payments continue to the extent that distributions are paid on the Company's common stock until the retention period has expired. Payments are not guaranteed and can fluctuate with any changes in the distributions paid on the actual common stock of the Company. The second part is a final payout of the retention bonus paid, at the Company's option: (1) a cash amount equal to the value of the Company's shares of common stock 60 days after the participant's individual retention period expires; (2) in common stock of the Company; or (3) as the

Company and the participant may agree. Unit awards under the Plan are not of actual shares of common stock or any ownership interest in the Company but are a profit sharing payment that mirrors the common stock performance. The units awarded under the Plan do not have voting rights in any manner upon which the common stockholders vote.

Other Elements of Compensation

Employee Benefits and Perquisites. Our full-time employees are eligible to participate in health and welfare benefit plans, such as medical cost sharing, dental, life and short and long-term disability insurance.

401(k) Plan. The Internal Revenue Code of 1986, as amended, or the Code, allows eligible employees to defer a portion of their compensation, within prescribed limits, on a pre-tax basis through contributions to a 401(k) plan. We established a 401(k) retirement savings plan for our employees, including our named executive officers, who satisfy certain eligibility requirements. Our named executive officers are eligible to participate in the 401(k) plan on the same terms as other full-time employees.

Lease Commissions: We also pay in-house leasing representatives leasing commissions for signed leases.

Tax Considerations

Deductibility of Executive Compensation. Under Section 162(m) of the Code, a publicly held corporation generally may not deduct compensation of more than $1 million paid to any “covered employee” in any year. We do not expect Section 162(m) to have a significant impact on our Compensation Committee’s compensation decisions for our executive officers.

Accounting Standards

The Compensation Committee will regularly consider the accounting implications of significant compensation decisions, especially in connection with decisions that relate to our equity plans and programs. As accounting standards change, we may revise certain programs to appropriately align accounting expenses of our equity awards with our overall executive compensation philosophy and objectives. ASC Topic 718 requires us to recognize an expense for the fair value of equity-based compensation awards. We do not believe that unit awards under the Hartman Profit Sharing and Retention Plan are required to be accounted for under ASC Topic 718.

Risk Considerations in Our Compensation Programs

Our Compensation Committee does not believe the goals, or the underlying philosophy, of our compensation programs encourage excessive or inappropriate risk taking.

We structure the compensation to our executive officers to consist of both fixed and variable compensation. The fixed portion (base salary) of compensation is designed to provide a base level of income regardless of our financial or share price performance. The variable portion of compensation (annual incentive cash bonus and profit sharing plan) is designed to encourage and reward both short- and long-term financial, operational and individual performance, with appropriate caps on the maximum amount of annual cash incentive compensation and shares and/or units that can be earned.

Outstanding Equity Awards at Fiscal 2022 Year End


Name and Principal Position	Number of securities underlying unexercised options (#) exercisable	Number of securities underlying unexercised options (#) unexercisable	Equity incentive plan awards: Number of securities underlying unexercised unearned options (#)	Option exercise price ($)	Option expiration date	Number of shares or units of stock that have not vested (#)	Market value of shares of units of stock that have not vested ($)	Equity incentive plan awards: Number of unearned shares, units or other rights that have not vested (#)	Equity incentive plan awards: Market or payout value of unearned shares, units or other rights that have not vested ($)(6)
Mark T. Torok, Chief Executive Officer (1)	—	—	—	—	—	—	—	—	—
Louis T. Fox, III, Chief Financial Officer, Principal Accounting Officer and Treasurer	—	—	—	—	—	—	—	53,286 (4)	333,038
Michael A. Racusin, General Counsel and Corporate Secretary	—	—	—	—	—	—	—	—	—
Allen R. Hartman, Chief Executive Officer and Executive Chairman (2)	—	—	—	—	—	—	—	—	—
Richard A. Maloof, Executive Vice President of Leasing (3)	—	—	—	—	—	—	—	26,643(5)	166,519

(1) Mr. Torok assumed the role of Chief Executive Officer on October 15, 2022.

(2) Mr. Hartman assumed the role of Executive Chairman on October 15, 2022. On March 10, 2023, the Executive Committee of the board of directors removed Mr. Hartman as Executive Chairman of the board of directors of the Company.

(3) Richard A. Maloof departed the Company on January 23, 2023.

(4) The awards disclosed are under the Plan which vest July 1, 2026.

(5) The awards disclosed are under the Plan which would have vested April 12, 2039 except that they were forfeited when Mr. Maloof departed the Company on January 23, 2023.

(6) Market value is based on the number of units multiplied by the NAV of $6.25 per share as of December 31, 2022.

Employment and Change in Control Agreements

The Company has entered into employment agreements with Mr. Torok and Mr. Fox. The Company and Mr. Torok entered into the Job Description and Management Agreement effective October 15, 2022. Mr. Fox entered into an employment agreement with the Company on July 1, 2021. As participants in the Hartman Profit Sharing and Retention Plan, each named executive officers may be entitled to retention bonus compensation as provided for in the plan. Each of our named executive officers, other than Mr. Torok and Mr. Fox, and all of our employees are employees at will.

Compensation of our Directors

The following table sets forth certain information regarding compensation earned by or paid to our directors during the year ended December 31, 2022. Directors who are also our executive officers do not receive compensation for services rendered as a director.


Name	Fees Earned or Paid In Cash (1)	Stock award ($)	Option awards ($)	Non-equity incentive plan compensation ($)	Non-qualified deferred compensation earnings ($)	All other compensation ($)	Total ($)
Allen R. Hartman	$—	$—	$—	$—	$—	$—	$—
Jack I. Tompkins	158,625	—	—	—	—	—	158,625
Gerald W. Haddock	157,063	—	—	—	—	—	157,063
James S. Still	152,062	—	—	—	—	—	152,062
Horst Schulze	139,500	—	—	—	—	—	139,500
	$607,250	$—	$—	$—	$—	$—	$607,250

(1)The amounts shown in this column include fees earned for attendance at board of director and committee meetings and annual retainers, as described below under “Cash Compensation.” Amounts include payment of previously accrued stock awards which were settled in cash.

Cash Compensation

We pay each of our independent directors an annual retainer of $75,000, plus $2,000 per board meeting attended and $500 per committee meeting attended; provided, however, we do not pay an additional fee to our directors for attending a committee meeting when the committee meeting is held on the same day as a board meeting. The Audit Committee chair receives $12,500 annually and members receive $500 per quarterly meeting. The Compensation Committee chair receives $5,000 annually and members receive $500 per meeting. The Nominating and Governance Committee chair receives $5,000 annually and members receive $500 per meeting. We also reimburse all directors for reasonable out-of-pocket expenses incurred in connection with attending board meetings.

Compensation Committee Interlocks and Insider Participation

There are no interlocks or insider participation as to compensation decisions required to be disclosed pursuant to SEC regulations.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Security Ownership of Beneficial Owners

The following table sets forth information as of December 31, 2022, regarding the beneficial ownership of our common stock by (1) each person known by us to be the beneficial owner of 5% or more of the outstanding shares of common stock, (2) each of our directors, (3) each of our executive officers, and (4) all of our directors and executive officers as a group. The percentage of beneficial ownership set forth in the table below is calculated based on 34,894,496 shares of our common stock outstanding as of December 31, 2022. The address of each beneficial owner listed below is c/o Silver Star Properties REIT, Inc., 2909 Hillcroft, Suite 420, Houston, Texas 77057.


Name of Beneficial Owner	Amount and Nature of Shares Beneficially Owned (1)
	Number	Percentage
Allen R. Hartman (2)	2,594,045	7.43%
Jack I. Tompkins	71,274	0.20%
Gerald W. Haddock	4,472	0.01%
James S. Still	4,472	0.01%
Horst Schulze	4,472	0.01%
Mark T. Torok	—	—%
Louis T. Fox, III	—	—%
Michael A. Racusin	—	—%
All Officers and Directors as a group	2,678,735	7.66%

(1)Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities and shares issuable pursuant to options warrants and similar rights held by the respective person or group which may be exercised within 60 days. Except as otherwise indicated by footnote, and subject to community property laws where applicable, the persons named in the table above have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them.

(2)Includes 19,000 shares owned by Hartman XX Holdings, Inc., a Texas corporation, and 3,420 shares owned by Mr. Hartman’s spouse, Mrs. Lisa Hartman. Mr. Hartman is the sole stockholder of Hartman XX Holdings, Inc. and controls the voting and disposition decisions of Hartman XX Holdings, Inc. Additionally. Mr. Hartman has beneficial interest in 1,442,257 Operating Partnership OP Units.

Item 13. Certain Relationships and Related Transactions and Director Independence

The following describes all transactions since January 1, 2016 involving us, our directors, our advisor, our sponsor and any affiliate thereof and all such proposed transactions. See also Item 15 - Exhibit F, Note 11 (Related Party Arrangements) to the consolidated financial statements included in this Annual Report. Our independent directors are specifically charged with and have examined the fairness of such transactions to our stockholders, and have determined that all such transactions are fair and reasonable to us.

Ownership Interests

We initially issued 100 shares of our common stock to Hartman XX Holdings, Inc., or “Holdings,” for $1,000. Holdings is a Texas corporation wholly owned by Allen R. Hartman. Holdings was formed solely for the purpose of facilitating the organization and offering of the initial offering of our shares. Effective October 15, 2009 we issued an additional 18,900 shares of common stock to Holdings for $189,000. Holdings contributed a related party liability in the amount of $189,000 to us in exchange for the issuance of an additional 18,900 shares of our common stock. The transaction resulted in a total of 19,000 shares of our common stock issued for total consideration of $190,000.

We issued our former external advisor, Hartman Advisors LLC, 1,000 shares of our non-voting convertible preferred stock, or “convertible stock,” for $10,000. Upon the terms described below, these shares may be converted into shares of our common stock, resulting in dilution of common stockholders’ interest in our company. As a result of the HIREIT Merger, the Company acquired the Advisor's interest of affiliates of Allen Hartman in exchange for 602,842 Operating Partnership OP units with a fair value of $6,525,000. Prior to our acquisition of the

70% of the advisor owned by affiliates of Allen Hartman, 700 shares of our convertible preferred stock were distributed to the affiliates of Allen Hartman. Further, as a result of the HIREIT Merger, Allen Hartman's HIREIT Operating Partnership units converted into 839,415 Operating Partnership OP units.

The shares of our convertible stock held by our advisor will convert into shares of our common stock if (1) we have made total distributions on then then outstanding shares of our common stock equal to the issue price of those shares plus a 6% cumulative, non-compounded, annual return on the issue price of those outstanding shares, (2) we list our common stock for trading on a national securities exchange, provided that the sum of prior distributions on then outstanding shares of our common stock plus the aggregate market value of our common stock (based on the 30-day average closing price) meets the same 6% performance threshold, or (3) our advisory agreement with our advisor expires without renewal or is terminated (other than because of a material breach by our advisor), and at the time of such expiration or termination we are deemed to have met the foregoing 6% performance threshold based on our enterprise value and prior distributions and, at or subsequent to the expiration or termination, the stockholders actually realize such level of performance upon listing or through total distributions. In general, the convertible stock will convert into shares of common stock with a value equal to 15% of the excess of our enterprise value plus the aggregate value of distributions paid to date on then outstanding shares of common stock over the aggregate issue price of those outstanding shares plus a 6% cumulative, non-compounded, annual return on the issue price of those outstanding shares. With respect to conversion in connection with the termination of the advisory agreement, this calculation is made at the time of termination even though the actual conversion may occur later, or not at all.

Our consolidated financial statements include the accounts of Hartman SPE, LLC in which our membership interest is 97.53%. Our wholly owned subsidiary, Hartman SPE Management, LLC, is the sole manager of Hartman SPE, LLC.

Transactions with Related Persons

The following describes all transactions during the period from January 1, 2018 to December 31, 2022 involving us, our directors, our advisor, our sponsor and any affiliate thereof and all such proposed transactions. See also Item 15 - Exhibit F, Note 11 (Related Party Transactions) to the consolidated financial statements included in this Annual Report. Our independent directors are specifically charged with and have examined the fairness of such transactions to our stockholders, and have determined that all such transactions are fair and reasonable to us.

Loan to Hartman Retail II Holdings Company, Inc.

Our taxable REIT subsidiary, Hartman TRS, Inc. ("TRS") has a note receivable from Hartman Retail II Holdings Company, Inc., an affiliate of the Advisor and the Property Manager, in the original amount of $7,231,000 pursuant to a promissory note in the amount of up to $8,820,000 to Hartman Retail II Holdings Company, Inc (“Retail II Holdings”), an affiliate of the Advisor and the Property Manager, in connection with the acquisition of a retail shopping center by Hartman Retail II DST, a Delaware statutory trust sponsored by the Property Manager. Pursuant to the terms of the promissory note, TRS received a two percent (2%) origination fee of amounts advanced under the promissory note, and interest at ten percent (10%) per annum on the outstanding principal balance. The outstanding principal balance of the promissory note will be repaid as investor funds are raised by Hartman Retail II DST. The maturity date of the promissory note, as amended, is June 30, 2024, which is included in notes receivable – related party in the accompanying consolidated balance sheets. The note receivable had an outstanding balance of the note is $1,726,000 as of December 31, 2022 and 2021, respectively.

Loan from Hartman vREIT XXI, Inc.

During 2019, the Company borrowed under an unsecured promissory note payable to Hartman vREIT XXI, Inc., an affiliate of the Advisor and the Property Manager, in the face amount of $10,000,000. The outstanding balance of the note is $10,000,000 and $6,012,000 as of December 31, 2022 and 2021, respectively. In addition to

the balance due under this note, the Company received advances from vREIT XXI totaling $7,168,000 which were outstanding as of December 31, 2022 and which were not covered by the unsecured promissory note referred to herein. The total balance of $17,168,000 as of as of December 31, 2022 has been included in Notes Payable - related party on the accompanying balance sheets.

Other than as described above and the transaction with Southern Star Self-Storage Investment Company in Note 16 (Subsequent Events), there is no currently proposed material transactions with related persons.

Policies and Procedures for Transactions with Related Persons

In order to reduce or eliminate certain potential conflicts of interest, our charter and our Advisory Agreement contain restrictions and conflict resolution procedures relating to transactions we enter into with our advisor, our directors or their respective affiliates. Each of the restrictions and procedures that apply to transactions with our advisor and its affiliates will also apply to any transaction with any entity or real estate program controlled by our advisor and its affiliates. As a general rule, any related party transaction must be approved by a majority of the directors (including a majority of independent directors) not otherwise interested in the transaction. In determining whether to approve or authorize a particular related party transaction, these persons will consider whether the transaction between us and the related party is fair and reasonable to us and has terms and conditions no less favorable to us than those available from unaffiliated third parties.

Director Independence

As required by our charter, a majority of the members of our Board of Directors must qualify as “independent directors,” as such term is defined by our charter. Our charter defines independent director in accordance with the North American Securities Administrators Association, Inc.’s Statement of Policy Regarding Real Estate Investment Trusts, as revised and adopted on May 7, 2007. As defined in our charter, an independent director is a person who is not, on the date of determination, and within the last two years from the date of determination been, directly or indirectly, associated with our sponsor or our advisor by virtue of (1) ownership of an interest in our sponsor, our advisor, or any of their affiliates; (2) employment by our sponsor, our advisor, or any of their affiliates; (3) service as an officer or director of our sponsor, our advisor, or any of their affiliates (other than as one of our directors); (4) performance of services, other than as a director, for us; (5) service as a director or trustee of more than three real estate investment trusts organized by our sponsor or advised by our advisor; or (6) maintenance of a material business or professional relationship with our sponsor, our advisor, or any of their affiliates. A business or professional relationship is considered “material” if the aggregate gross revenue derived by the director from the sponsor, the advisor, and their affiliates exceeds 5.0% of either the director’s annual gross revenue during either of the last two years or the director’s net worth on a fair market value basis. An indirect association with the sponsor or the advisor shall include circumstances in which a director’s spouse, parent, child, sibling, mother- or father-in-law, son- or daughter-in-law, or brother- or sister-in-law is or has been associated with the sponsor, the advisor, any of their affiliates, or with us.

We have a five-member board of directors. We do not consider Mr. Hartman to be an independent director. After review of all relevant transactions or relationships between each director, or any of his family members, and our company, our senior management and our independent registered public accounting firm, our board has determined that Messrs. Tompkins, Haddock, Still and Schulze, who comprise the majority of our board, qualify as independent directors as defined in our charter.

Item 14. Principal Accounting Fees and Services

Independent Registered Public Accounting Firm

The audit committee engaged Weaver and Tidwell, L.L.P. (“Weaver”) as our independent registered public accounting firm to audit our consolidated financial statements for the years ended December 31, 2022 and 2021.

The audit committee reserves the right to select new auditors at any time in the future in its discretion if it deems such decision to be in the best interests of our company and our stockholders.

Pre-Approval Policies

The audit committee charter imposes a duty on the audit committee to pre-approve all auditing services performed for us by our independent auditors as well as all permitted non-audit services in order to ensure that the provision of such services does not impair the auditors’ independence. In determining whether or not to pre-approve services, the audit committee will consider whether the service is a permissible service under the rules and regulations promulgated by the SEC. The audit committee, may, in its discretion, delegate to one or more of its members the authority to pre-approve any audit or non-audit services to be performed by the independent auditors, provided any such approval is presented to and approved by the full audit committee at its next scheduled meeting.

All services rendered to us by Weaver for the years ended December 31, 2022 and 2021 were pre-approved in accordance with the policies and procedures described above.

Independent Registered Public Accounting Firm Fees

The audit committee reviewed the audit and non-audit services performed by Weaver, as well as the fees charged by Weaver for such services. In its review of the non-audit service fees, the audit committee considered whether the provision of such services is compatible with maintaining the independence of Weaver. The aggregate fees billed to us by Weaver for professional accounting services for the years ended December 31, 2022 and 2021 are set forth in the tables below.

Weaver


	2022		2021
Audit fees	$	401,700	$	441,500
Audit related fees	10,815		12,946
Tax fees	69,783		79,000
Total	$	482,298	$	564,666

For purposes of the preceding tables, Weaver’s professional fees are classified as follows:

•Audit fees—These are fees for professional services performed for the audit of our annual financial statements, the required review of quarterly financial statements, registration statements and other procedures performed in order for them to be able to form an opinion on our consolidated financial statements. These fees also cover services that are normally provided by independent auditors in connection with statutory and regulatory filings or engagements.

•Audit-related fees—These are fees for assurance and related services that traditionally are performed by independent auditors that are reasonably related to the performance of the audit or review of the financial statements, such as audits and due diligence related to acquisitions and dispositions, attestation services that are not required by statute or regulation, internal control reviews, and consultation concerning financial accounting and reporting standards.

•Tax fees—These are fees for all professional services performed by professional staff in our independent auditor’s tax division, except those services related to the audit of our financial statements. These include fees for tax compliance, tax planning, and tax advice, including federal, state, and local issues. Services may also include assistance with tax audits and appeals before the IRS and similar state and local agencies, as well as federal, state, and local tax issues related to due diligence

PART IV

Item 15. Exhibits and Financial Statement Schedules

The following documents are filed as part of this Annual Report:

(a) Exhibits

Exhibits. The index of exhibits below is incorporated herein by reference.

(b) Financial Statement Schedules

See the Index to Consolidated Financial Statements and Schedule at page F-1 of this report.

The following financial statement schedule is included herein at pages F-29 through F-31 of this report:

Schedule III – Real Estate Assets and Accumulated Depreciation and Amortization

Item 16. Form 10-K Summary

The Company has elected not to provide summary information

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Houston, State of Texas, on May 26, 2023.

SILVER STAR PROPERTIES REIT, INC.


By:			/s/ David Wheeler
			David Wheeler Interim President (Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the date indicated.


By:	/s/ David Wheeler	Date: May 26, 2023
	David Wheeler, Interim President (Principal Executive Officer)

By:	/s/ Louis T. Fox, III	Date: May 26, 2023
	Louis T. Fox, III, Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

By:	/s/ Jack I. Tompkins	Date: May 26, 2023
	Jack I. Tompkins, Director, Executive Committee

By:	/s/ Gerald Haddock	Date: May 26, 2023
	Gerald Haddock, Lead Director, Executive Committee

By:	/s/ James Still	Date: May 26, 2023
	James Still, Director, Executive Committee

By:	/s/ Horst Schulze	Date: May 26, 2023
	Horst Schulze, Director


EXHIBIT INDEX
Exhibit Number			Description of Documents
1.1			Dealer Manager Agreement (Incorporated by reference to Exhibit 1.1 to the Company’s Form 8-K filed February 1, 2012)
3.1.1			First Articles of Amendment to Third Amended and Restated Articles of Incorporation of the Registrant. (Incorporated by reference to Exhibit 3.1to the Company’s Form 10-K filed April 12, 2012)
3.1.2			Third Amended and Restated Articles of Incorporation of the Registrant. (Incorporated by reference to Exhibit 1 to the registrant’s registration statement on Form 8-A12G (SEC File No. 000-53912) March 22, 2010)
3.2			Bylaws of the Registrant (Incorporated by reference to Exhibit 2 to the registrant’s registration statement on Form 8-A12G (SEC File No. 000-53912) March 22, 2010)
4.1*			Description of Securities Registered under Section 12 of the Exchange Act
10.1			Form of Property Management Agreement between the Registrant and Hartman Income REIT Management, Inc. (Incorporated by reference to Exhibit 10.2 to registrant’s registration statement on Form S-11 Amendment No. 9 (SEC File No. 333-154750) November 24, 2009)
10.2			Form of Employee and Director Incentive Share Plan (Incorporated by reference to Exhibit 10.3 to registrant’s registration statement on Form S-11 Amendment No. 5 (SEC File No. 333-154750) July 14, 2009)
21.1*			List of subsidiaries of Silver Star Properties REIT, Inc.
31.1*			Certification of the Company’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*			Certification of the Company’s Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*			Certification of the Company’s 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 the Company’s Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.SCH			XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT
101.CAL			XBRL TAXONOMY EXTENSION CALCULATION LINKBASE DOCUMENT
101.DEF			XBRL TAXONOMY EXTENSION DEFINITION LINKBASE DOCUMENT
101.LAB			XBRL TAXONOMY EXTENSION LABEL LINKBASE DOCUMENT
101.PRE			XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE DOCUMENT

* Filed herewith


INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE			Page
Report of Independent Registered Public Accounting Firm (PCAOB ID No. 410)			F-1
Consolidated Balance Sheets			F-4
Consolidated Statements of Operations			F-5
Consolidated Statements of Stockholders’ Equity			F-6
Consolidated Statements of Cash Flows			F-7
Notes to Consolidated Financial Statements			F-9
Financial Statement Schedule
Schedule III – Real Estate Assets and Accumulated Depreciation and Amortization			F-32

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders

Silver Star Properties REIT, Inc. and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Silver Star Properties REIT, Inc. and Subsidiaries

(the Company) as of December 31, 2022 and 2021, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2022, and the related notes and schedule (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

Going Concern

The accompanying consolidated financial statements have been prepared assuming that the entity will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company’s Hartman SPE term loan has a maturity date less than twelve months from the date these consolidated financial statements are issued, which raises substantial doubt about the Company’s ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These consolidated financial statements are the responsibility of the entity’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.

F-1

Evaluation of real estate assets for potential impairment. Refer to Note 2 to the Consolidated Financial Statements

Critical Audit Matter Description

The Company evaluates, on at least an annual basis, its real estate assets for potential impairment whenever changes in circumstances indicate that the value of real estate assets may not be recoverable. An impairment loss is recognized if the carrying amount of an asset is not recoverable and exceeds its fair value.

We identified the evaluation of real estate assets for potential impairment and management’s determination of fair values as a critical audit matter. Subjective and challenging auditor judgement was required to evaluate certain assumptions used in determining the recoverability of these assets. Management’s impairment analysis of its real estate assets was significant to our audit because the amounts are material to the consolidated financial statements. Auditing management’s assessment is complex and involves significant judgment as the Company’s ability to generate future cash flows could be impacted by various economic and industry conditions.

How we addressed the matter in our audit

We obtained an understanding of the design and implementation of management’s controls with respect to impairment analysis and evaluated the inputs used and underlying significant assumptions.

Our testing of the Company's impairment analysis included, among other procedures, evaluating the methods and underlying significant assumptions used to develop the fair value estimates, testing the accuracy and completeness of operating data used in the calculation, identifying capitalization rates by geographic market, assessing the reasonableness of the market-specific capitalization rates, and performing a sensitivity analysis of the underlying significant assumptions to evaluate the potential changes in the fair value estimates. We also utilized an auditor specialist to assist in estimating the fair values based upon recent market comparable transactions.

Presentation and disclosure of related party transactions. Refer to Note 11 to the Consolidated Financial Statements

Critical Audit Matter Description

The Company has a material amount of related party transactions as it regularly transacts with multiple other Hartman affiliates in the normal course of business.

Auditing the presentation and disclosure of these related party transactions, including the completeness thereof, was challenging due to the affiliates involvement in many aspects of the Company’s business, including (1) formal and informal affiliate borrowings and advances, and (2) joint and several liability indebtedness with pledged property collateral.

How we addressed the matter in our audit

We obtained an understanding of the design and implementation of controls over the Company’s process of identifying and disclosing related party transactions.

To test the completeness of related party transactions, a listing of all related party relationships was compared to the Hartman affiliates legal structure and evidence obtained from other audit procedures including, among others, inquiries of management and the audit committee, review of the board of directors and other committee meeting minutes, and review of contracts. In addition, using the related party listing, we performed procedures to test material related party account activity and account balances including, among others, testing the related party amounts and disclosures of transactions in revenue, expense, and balance sheet accounts by inspecting source documentation, and evaluating the aggregation and presentation and disclosure of related party transactions. Further, for the joinder agreement transaction, we obtained written confirmation from an affiliate on the terms of the transaction.

F-2

/s/ Weaver and Tidwell, L.L.P.

WEAVER AND TIDWELL, L.L.P.

We have served as the Company's auditor since 2019.

Houston, Texas

May 26, 2023

F-3


SILVER STAR PROPERTIES REIT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
	2022		2021
ASSETS
Real estate assets, at cost	$	580,602	$	620,585
Accumulated depreciation and amortization	(189,509)		(173,040)
Real estate assets, net	391,093		447,545

Cash and cash equivalents	334		285
Restricted cash	24,088		18,972
Accrued rent and accounts receivable, net	16,507		13,238
Notes receivable - related party	1,726		1,726
Deferred leasing commission costs, net	9,826		10,487
Goodwill	250		250
Prepaid expenses and other assets	6,019		2,100
Real estate held for development	1,596		10,403
Real estate held for sale	25,963		—
Due from related parties	1,714		115
Investment in affiliate	201		201
Total assets	$	479,317	$	505,322

LIABILITIES AND EQUITY
Liabilities:
Notes payable, net	$	297,692	$	297,765
Notes payable - related party	17,168		6,012
Accounts payable and accrued expenses	46,670		38,471
Tenants' security deposits	6,143		5,756
Total liabilities	367,673		348,004
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.001 par value, 200,000,000 convertible, non-voting shares authorized, 1,000 shares issued and outstanding at December 31, 2022 and 2021, respectively	—		—
Common stock, $0.001 par value, 750,000,000 authorized, 34,894,496 shares and 35,110,421 shares issued and outstanding at December 31, 2022 and 2021, respectively	35		35
Additional paid-in capital	296,152		297,335
Accumulated distributions and net loss	(204,080)		(162,355)
Total stockholders' equity	92,107		135,015
Noncontrolling interests in subsidiary	19,537		22,303
Total equity	111,644		157,318
Total liabilities and equity	$	479,317	$	505,322
The accompanying notes are an integral part of these consolidated financial statements.

F-4


SILVER STAR PROPERTIES REIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
	Year Ended December 31,
	2022		2021
Revenues
Rental revenues	$	94,017	$	87,194
Management and advisory income	4,053		4,964
Total revenues	98,070		92,158

Expenses (income)
Property operating expenses	26,591		31,117
Organization and offering costs	31		103

Real estate taxes and insurance	15,004		13,952
Depreciation and amortization	26,971		26,726
Management and advisory expenses	12,551		11,751
Debt issuance write off cost	1,018		—
General and administrative	13,570		13,163
Interest expense	13,033		8,454
Interest write off (income)	847		(175)
Loss on impairment	26,485		—
Total expenses, net	136,101		105,091
Net loss	$	(38,031)	$	(12,933)
Net loss attributable to noncontrolling interests	$	(1,783)	$	(597)
Net loss attributable to common stockholders	$	(36,248)	$	(12,336)
Net loss attributable to common stockholders per share	$	(1.04)	$	(0.35)
Weighted average number of common shares outstanding, basic and diluted	34,991		35,202
The accompanying notes are an integral part of these consolidated financial statements.

F-5


SILVER STAR PROPERTIES REIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)

	Preferred Stock			Common Stock
	Shares	Amount		Shares	Amount		Additional Paid-In Capital		Accumulated Distributions and Net Loss		Total Stockholders' Equity		Noncontrolling Interests		Total Equity
Balance, December 31, 2020	1	$	—	35,318	$	35	$	299,375	$	(135,633)	$	163,777	$	24,365	$	188,142
Issuance of common shares pursuant to stock based compensation	—	—		41	—		461		—		461		—		461
Redemption of common shares	—	—		(248)			(2,501)		—		(2,501)		—		(2,501)
Dividends and distributions (cash)	—	—		—	—		—		(14,386)		(14,386)		(1,465)		(15,851)
Net loss	—	—		—	—		—		(12,336)		(12,336)		(597)		(12,933)
Balance, December 31, 2021	1	$	—	35,111	$	35	$	297,335	$	(162,355)	$	135,015	$	22,303	$	157,318

Outstanding shares correction	—	—		(81)	—		—		—		—		—		—
Redemptions of common shares	—	—		(135)	—		(1,183)		—		(1,183)		—		(1,183)
Dividends and distributions (cash)	—	—		—	—		—		(5,477)		(5,477)		(983)		(6,460)
Net loss	—	—		—	—		—		(36,248)		(36,248)		(1,783)		(38,031)
Balance, December 31, 2022	1	$	—	34,895	$	35	$	296,152	$	(204,080)	$	92,107	$	19,537	$	111,644
The accompanying notes are an integral part of these consolidated financial statements.

F-6


SILVER STAR PROPERTIES REIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
	Year Ended December 31,
	2022		2021
Cash flows from operating activities:
Net loss	$	(38,031)	$	(12,933)
Adjustments to reconcile net loss to net cash provided by operating activities:
Stock based compensation	505		667
Depreciation and amortization	26,971		26,726
Deferred loan and lease commission costs amortization	2,476		2,477
Bad debt expense	1,498		397
Straight-line rent	236		(994)
Defined contribution plan income	(311)		(1,011)
Impairment of real estate assets	26,485		—
ERP implementation cost write off	357		—
Interest receivable, related party write-off	847		—
Unrealized gain on derivative instruments	(97)		—
Changes in operating assets and liabilities:
Accrued rent and accounts receivable	(5,850)		(442)
Deferred leasing commissions costs	(896)		(1,194)
Prepaid expenses and other assets	(4,276)		(265)
Accounts payable and accrued expenses	9,734		10,713
Due to/from related parties	(4,134)		(3,189)
Tenants' security deposits	387		441
Net cash provided by operating activities	15,901		21,393
Cash flows from investing activities:

Investment in other assets	—		(357)

Additions to real estate	(11,977)		(13,025)
Net cash used in investing activities	(11,977)		(13,382)
Cash flows from financing activities:
Distributions to common stockholders	(8,458)		(13,917)
Distributions to non-controlling interest	(981)		(1,216)
Repayments to affiliates	(2,417)		—
Borrowings from an affiliate	15,312		6,208
Repayments under insurance premium finance note	(2,933)		(3,156)
Borrowings under insurance premium finance note	2,892		3,019
Repayments under term loan notes	(3,564)		(1,313)
Borrowings under term loan notes	2,645		—
Redemptions of common stock	(1,183)		(2,501)
Payments of deferred loan costs	(72)		(54)
Net cash provided by (used in) financing activities	1,241		(12,930)

Net change in cash and cash equivalents and restricted cash	$	5,165	$	(4,919)
Cash and cash equivalents and restricted cash, beginning of period	$	19,257	$	24,176
Cash and cash equivalents and restricted cash, end of period	$	24,422	$	19,257

The accompanying notes are an integral part of these consolidated financial statements.

F-7


SILVER STAR PROPERTIES REIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Supplemental cash flow information:
	Year Ended December 31,
	2022		2021
Cash paid for interest	$	11,312	$	6,924

Supplemental disclosures of non-cash activities:





Decrease in interest payable from Hartman XXI settlement	$	795	$	1,151
Decrease in due from related parties from Hartman XXI settlement	$	2,535	$	4,135
Decrease in borrowing from affiliate from Hartman XXI settlement	$	1,740	$	2,984
Increase of additions to real estate in accounts payable and accrued expenses	$	2,183	$	—
The accompanying notes are an integral part of these consolidated financial statements.

F-8

SILVER STAR PROPERTIES REIT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Organization and Business

Silver Star Properties REIT, Inc. (the “Company”), is a Maryland corporation formed on February 5, 2009. The Company elected to be treated as a real estate investment trust (“REIT”) beginning with the taxable year ended December 31, 2011. As used herein, the "Company," "we," "us," or "our" refer to Silver Star Properties REIT, Inc. and its consolidated subsidiaries and partnerships, including the Operating Partnership and SPE LLC, except where context requires otherwise.

On July 19, 2018, we entered into a limited liability company agreement with our affiliates Hartman Income REIT, Inc. (“HIREIT”), Hartman Short Term Income Properties XIX, Inc. (“Hartman XIX”) and Hartman vREIT XXI, Inc. (“vREIT XXI”) to form Hartman SPE, LLC ("SPE LLC"), a special purpose entity.

On October 1, 2018, SPE LLC, as borrower, and Goldman Sachs Mortgage Company entered into a term loan agreement, pursuant to which the lender made a term loan to SPE LLC in the principal amount of $259,000,000.

Contemporaneously therewith and together with our affiliates HIREIT, Hartman XIX and vREIT XXI, we contributed a total of 39 commercial real estate properties ("Properties") to SPE, LLC, subject to the then existing mortgage indebtedness encumbering the Properties, in exchange for membership interests in SPE LLC. Proceeds of the Loan were immediately used to extinguish the existing mortgage indebtedness encumbering the Properties.

Substantially all of our business is conducted through our subsidiary, the Operating Partnership and SPE LLC. Our wholly-owned subsidiary, Hartman XX REIT GP LLC, a Texas limited liability company, is the sole general partner of the Operating Partnership. Our wholly-owned subsidiary, Hartman SPE Management, LLC ("SPE Management") is the manager of SPE LLC. Our single member interests in our limited liability company subsidiaries are owned by the Operating Partnership or its wholly owned subsidiaries.

On July 21, 2017, the Company and Hartman XIX, entered into an agreement and plan of merger (the “XIX Merger Agreement”) and (ii) the Company, the Operating Partnership, HIREIT and Hartman Income REIT Operating Partnership LP, the operating partnership of HIREIT, (“HIROP”), entered into an agreement and plan of merger (the “HIREIT Merger Agreement,” and together with the XIX Merger Agreement, the “Merger Agreements”).

On May 14, 2020, the Merger Agreements were approved by the respective company shareholders. The effective date of the Mergers for financial reporting is July 1, 2020.

Prior to July 1, 2020 and subject to certain restrictions and limitations, Hartman Advisors LLC ("Advisor") was responsible for managing our affairs on a day-to-day basis and for identifying and making acquisitions and investments on our behalf pursuant to an advisory agreement. Management of the Company’s properties and the Properties, is provided pursuant to property management agreements with Hartman Income REIT Management, Inc. (the "Property Manager"), formerly a wholly-owned subsidiary of HIREIT and effective July 1, 2020, our wholly owned subsidiary. Effective with the Mergers and the acquisition of the 70% interest of Advisor not acquired as part of the Mergers, we are a self-advised and self-managed REIT.

On December 20, 2022, Silver Star Properties REIT, Inc. (previously known as Hartman Short Term Income Properties XX, Inc.) filed an amendment to its Articles of Amendment with the Maryland Secretary of State to change its name from “Hartman Short Term Income Properties XX, Inc.” to “Silver Star Properties REIT, Inc.” The amendment is effective as of December 20, 2022.

As of December 31, 2022 and 2021, we owned 44 commercial properties comprising approximately 6.8 million square feet plus four pad sites and two land developments, all located in Texas. As of December 31, 2022 and 2021, we owned 15 properties located in Richardson, Arlington, and Dallas, Texas, 26 properties located in Houston, Texas and three properties located in San Antonio, Texas.

F-9

SILVER STAR PROPERTIES REIT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Board of Directors (the "Board") of the Company established a share redemption program (the "Redemption Plan"), which permitted stockholders to sell their shares back to the Company, subject to certain significant conditions and limitations. On July 8, 2022, the Board voted to suspend the Redemption Plan to support the long-term fiscal health of the Company.

The Company does not anticipate that there will be any market for its shares of common stock unless they are listed on a national securities exchange. The Executive Committee has adopted resolutions directing management to begin the process of listing the Company’s shares on an established securities exchange, and it is taking steps to accomplish the listing, including without limitation engaging the services of an investment bank to assist with the listing.

On October 14, 2022, the Company’s board of directors formed the Executive Committee, composed of independent directors, to continue the review of strategic alternatives with the objective of maximizing shareholder value and to streamline the communicating, reporting, and decision-making between the board and the Chief Executive Officer. To accomplish this objective and to communicate and manage the day-to-day communications and interactions with the Chief Executive Officer, the Executive Committee has all the authority of decision making of the whole board of directors. The Executive Committee performed a strategic review process to identify, examine, and consider a range of strategic alternatives available to the Company. On April 6, 2023, the Executive Committee of the board of directors approved the previously-announced New Direction Plans to reposition the Company's assets into the self-storage asset class and away from office, retail, and light industrial assets. The Executive Committee is in the process of carrying out the New Direction Plans with the objective of maximizing shareholder value.

Note 2 - Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements as of December 31, 2022 and 2021 and for the years then ended have been prepared by the Company in accordance with accounting principles generally accepted in the United States and pursuant to the rules and regulations of the Securities and Exchange Commission, including Form 10-K and Regulation S-K. The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments), which are, in the opinion of management, necessary to fairly present the operating results for the respective periods.

These consolidated financial statements include the accounts of the Company and its subsidiaries, the Operating Partnership and its subsidiaries, and SPE LLC. All significant intercompany balances and transactions have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents on the accompanying consolidated balance sheets include all cash and liquid investments with initial maturities of three months or less. Cash and cash equivalents as of December 31, 2022 and 2021 consisted of demand deposits at commercial banks. We maintain accounts which may from time to time exceed federally insured limits. We have not experienced any losses in these accounts and believe that the Company

F-10

SILVER STAR PROPERTIES REIT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

is not exposed to any significant credit risk and regularly monitors the financial stability of these financial institutions. As of December 31, 2022 and 2021, the Company had a bank overdraft at two financial institutions totaling $5,666,000 and $2,710,000, respectively. The overdraft is recorded as a liability in accounts payable and accrued expenses on the consolidated balance sheets.

Restricted Cash

Restricted cash on the accompanying consolidated balance sheets consists of amounts escrowed for future real estate taxes, insurance, capital expenditures and debt service reserves, as required by certain of our mortgage debt agreements. As of December 31, 2022 and 2021, the Company had a restricted cash balance of $24,088,000 and $18,972,000, respectively.

Financial Instruments

The accompanying consolidated balance sheets include the following financial instruments: cash and cash equivalents, accrued rent and accounts receivable, notes payable, accounts payable and accrued expenses and balances due to/due from related parties, related party notes receivable, and derivatives. With the exception of derivative financial instruments, the Company considers the carrying value of these financial instruments to approximate their respective fair values due to their short-term nature. Disclosure about the fair value of financial instruments is based on relevant information available as of December 31, 2022 and 2021.

The Company does not hold or issue derivative financial instruments for trading or speculative purposes. Under our SASB loan, we are required to enter into an interest rate cap agreement. The interest rate cap is recorded at fair value on the consolidated balance sheets as an other asset. We have elected not to apply hedge accounting and the change in fair value of the the interest rate cap is recognized as a component of interest expense on the accompanying statements of operations.

Revenue Recognition

The Company's leases are accounted for as operating leases. Certain leases provide for tenant occupancy during periods for which no rent is due and/or for increases or decreases in the minimum lease payments over the terms of the leases. Revenue is recognized on a straight-line basis over the terms of the individual leases. Revenue recognition under a lease begins when the tenant takes possession of or controls the physical use of the leased space. When the Company acquires a property, the terms of existing leases are considered to commence as of the acquisition date for the purposes of this calculation. The Company's accrued rents are included in accrued rent and accounts receivable, net. The Company defers the recognition of contingent rental income, such as percentage rents, until the specific target that triggers the contingent rental income is achieved.

The Company’s revenue is primarily derived from leasing activities, which is specifically excluded from ASC 606, Revenue from Contracts with Customers ("ASC 606"). The Company’s rental revenue is also comprised of tenant reimbursements for real estate taxes, insurance, common area maintenance, and operating expenses. Reimbursements from real estate taxes and certain other expenses are also excluded from ASC 606 and accounted for under ASC 842 - Leases. The Company elected to utilize the practical expedient provided by Accounting Standards Update (“ASU”) 2018-11 related to the separation of lease and non-lease components and as a result, rental revenues related to leases are reported on one line in the presentation within the consolidated statements of operations.

F-11

SILVER STAR PROPERTIES REIT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In addition to our rental income, the Company also earns fee revenues by providing certain management and advisory services to related parties. These fees are accounted for within the scope of ASC 606 and are recorded as management and advisory income on the consolidated statements of operations. These services primarily include asset management and advisory, operating and leasing of properties, and construction management. These services are currently provided under various combinations of advisory agreements, property management agreements, and other service agreements (the "Management Agreements"). The wide variety of duties within the Management Agreements makes determining the performance obligations within the contracts a matter of judgment. We have concluded that each of the separately disclosed fee types in the below table represents a separate performance obligation within the Management Agreements.


Fee	Performance Obligation Satisfied	Timing of Payment	Description
Property Management	Over time	Due monthly	The Company provides property management services on a contractual basis for owners of and investors in office and retail properties. The Company is compensated for our services through a monthly management fee earned based on a fixed fee. We are also often reimbursed for our administrative and payroll costs directly attributable to the properties under management. Revenue is recognized at the end of each month.
Property Leasing and Property Acquisition Services	Point in time (upon close of a transaction)	Upon completion	The Company provides strategic advice and execution for owners, investors, and occupiers of real estate in connection with the leasing of office and retail space. The Company is compensated for our services in the form of a commission and, in some instances may earn various forms of variable incentive consideration. Commission is paid upon the occurrence of certain contractual event. For leases, the Company typically satisfies its performance obligation at a point in time when control is transferred. Revenue is recognized in an amount equal to the fees charged by unaffiliated persons rendering comparable services. For acquisitions, our commission is typically paid at the closing date of sale, which represents transfer of control of services to the customer.
Asset Management	Over time	Due monthly	The Company earns asset management advisory fees on a recurring, monthly basis for certain properties. The Company is compensated on a monthly basis based on a fixed percentage of respective asset value.
Construction Management	Point in time (upon close of project)	Upon completion	Construction management services are performed on a contractual basis for owners of an investors in office and retail properties. The Company is compensated for its services upon completion of a project, when its performance obligation has been completed.

Due to the nature of the services being provided under our Management Agreements, each performance obligation has a variable component. Therefore, when we determine the transaction price for the contracts, we are required to constrain our estimate to an amount that is not probable of significant revenue reversal. For most of these fee types, such as acquisition fees and leasing commissions, compensation only occurs if a transaction takes place and the amount of compensation is dependent upon the terms of the transaction. For our property and asset management fees, due to the large number and broad range of possible consideration amounts, we calculate the amount earned at the end of each month.

F-12

SILVER STAR PROPERTIES REIT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Real Estate

Allocation of Purchase Price of Acquired Assets

The fair values of above-market and below-market in-place lease values, including below-market renewal options for which renewal has been determined to be reasonably assured, are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (a) the contractual amounts to be paid pursuant to the in-place leases and (b) an estimate of fair market lease rates for the corresponding in-place leases and below-market renewal options, which is generally obtained from independent appraisals, measured over a period equal to the remaining non-cancelable term of the lease. The above-market and below-market lease and renewal option values are capitalized as intangible lease assets or liabilities and amortized as an adjustment of rental revenue over the remaining expected terms of the respective leases.

The fair values of in-place leases include direct costs associated with obtaining a new tenant, opportunity costs associated with lost rentals which are avoided by acquiring an in-place lease, and tenant relationships. Direct costs associated with obtaining a new tenant include commissions, tenant improvements, and other direct costs and are estimated based on independent appraisals and management’s consideration of current market costs to execute a similar lease. These direct costs are included in intangible lease assets and are amortized to expense over the remaining terms of the respective leases. The value of opportunity costs is calculated using the contractual amounts to be paid pursuant to the in-place leases over a market absorption period for a similar lease. Customer relationships are valued based on expected renewal of a lease or the likelihood of obtaining a particular tenant for other locations. These intangibles are included in real estate assets in the consolidated balance sheets and are being amortized to expense over the remaining term of the respective leases.

Real Estate Joint Ventures and Partnerships

F-13

SILVER STAR PROPERTIES REIT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

rights and substantive participating rights. Partially owned real estate joint ventures and partnerships where we do not have a controlling financial interest, but have the ability to exercise significant influence, are accounted for using the equity method.

Depreciation and amortization

Depreciation is computed using the straight-line method over the estimated useful lives of 5 to 39 years for buildings and improvements. Tenant improvements are depreciated using the straight-line method over the lesser of the life of the improvement or the remaining term of the lease. In-place leases are amortized using the straight-line method over the weighted average years remaining calculated on terms of all of the leases in-place when acquired.

Impairment

The Company reviews its real estate assets 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. The Company determines 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.

Projections of expected future cash flows require management to estimate future market rental income amounts subsequent to the expiration of current lease agreements, property operating expenses, discount rates, the number of months it takes to re-lease the property and the number of years the property is held for investment. The use of inaccurate assumptions in the future cash flow analysis would result in an incorrect assessment of the property’s future cash flow and fair value and could result in the overstatement of the carrying value of the Company’s real estate and related intangible assets and net income.

Fair Value Measurement

Fair value measures are classified into a three-tiered fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1: Observable inputs such as quoted prices in active markets.

Level 2: Directly or indirectly observable inputs, other than quoted prices in active markets.

Level 3: Unobservable inputs in which there is little or no market data, which require a reporting entity to

develop its own assumptions.

Assets and liabilities measured at fair value are based on one or more of the following valuation techniques:

Market approach: Prices and other relevant information generated by market transactions involving

identical or comparable assets or liabilities.

Cost approach: Amount required to replace the service capacity of an asset (replacement cost).

Income approach: Techniques used to convert future amounts to a single amount based on market

expectations (including present-value, option-pricing, and excess-earnings models).

The Company’s estimates of fair value were determined using available market information and appropriate valuation methods. Considerable judgment is necessary to interpret market data and develop estimated fair value.

F-14

SILVER STAR PROPERTIES REIT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The use of different market assumptions or estimation methods may have a material effect on the estimated fair value amounts. The Company classifies assets and liabilities in the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement.

Recurring fair value measurements:

The carrying values of cash and cash equivalents, restricted cash, accrued rent and accounts receivable, other assets and accounts payable and accrued expenses are reasonable estimates of fair values because of the short maturities of these instruments. For our disclosure of debt instrument fair value in Note 8, we use a discounted cash flow analysis based on borrowing rates currently available to the Company for loans with similar terms and maturities, discounting the future contractual interest and principal payments (categorized within Level 2 of the fair value hierarchy). For our disclosure of interest rate cap derivative fair value, refer to Note 6. Fair value determination of the interest rate cap derivative is based on Level 2 inputs.

Nonrecurring fair value measurements:

Property Impairments

The Company reviews its real estate assets 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. Our estimated fair values are determined by utilizing cash flow models, market capitalization rates and market discount rates, obtaining third-party broker valuation estimates, or appraisals (categorized within Level 3 of the fair value hierarchy).

Accrued Rent and Accounts Receivable, net

Accrued rent and accounts receivable includes base rents, tenant reimbursements and receivables attributable to recording rents on a straight-line basis. An allowance for the uncollectible portion of accrued rent and accounts receivable is determined based upon customer credit-worthiness (including expected recovery of the Company’s claim with respect to any tenants in bankruptcy), historical bad debt levels, and current economic trends.

Deferred Leasing Commissions Costs, net

Leasing commissions are amortized using the straight-line method over the term of the related lease agreements.

Goodwill

GAAP requires the Company to test goodwill for impairment at least annually or more frequently whenever events or circumstances occur indicating goodwill might be impaired. The Company applies a one-step quantitative assessment to determine if the estimated fair value is less than the carrying amount. If the carrying amount exceeds the estimated fair value, the Company will record a goodwill impairment equal to such excess, not to exceed the total amount of goodwill. No goodwill impairment has been recognized in the accompanying consolidated financial statements.

Noncontrolling Interests

Noncontrolling interests is the portion of equity in a subsidiary not attributable to a parent. The ownership interests not held by the parent are considered noncontrolling interests. Accordingly, the Company has reported noncontrolling interests in equity on the consolidated balance sheets but separate from the Company's equity. On the

F-15

SILVER STAR PROPERTIES REIT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

consolidated statements of operations, subsidiaries are reported at the consolidated amount, including both the amount attributable to the Company and noncontrolling interests.

Stock-Based Compensation

The Company follows ASC 718 - Compensation - Stock Compensation, with regard to issuance of stock in payment of services. ASC 718 requires that compensation cost relating to share-based payment transactions be recognized in the consolidated financial statements. The compensation cost is measured based on the estimated grant date fair value, as of the grant date of the Company’s common stock, of the equity or liability instruments issued. Stock-based compensation expense are recorded over the vesting period and is included in general and administrative expense in the accompanying consolidated statements of operations.

Income Taxes

The Company has elected to be treated as a REIT under the Internal Revenue Code of 1986, as amended, beginning with its taxable year ended December 31, 2011. To qualify as a REIT, the Company must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of the Company’s annual REIT taxable income to stockholders (which is computed without regard to the dividends-paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP). As a REIT, the Company generally will not be subject to federal income tax on income that it distributes as dividends to its stockholders. If the Company fails to qualify as a REIT in any taxable year, it will be subject to federal income tax on its taxable income at regular corporate income tax rates and generally will not be permitted to qualify for treatment as a REIT for federal income tax purposes for the four taxable years following the year during which qualification is lost, unless the Internal Revenue Service grants the Company relief under certain statutory provisions. Such an event could materially and adversely affect the Company’s net income and net cash available for distribution to stockholders; however, the Company believes that it is organized and will continue to operate in such a manner as to qualify for treatment as a REIT.

For the years ended December 31, 2022 and 2021, the Company incurred a net loss of $38,031,000 and $12,933,000, respectively. The Company formed a taxable REIT subsidiary which may generate future taxable income which may be offset by the net loss carry forward. The Company considers that any deferred tax benefit and corresponding deferred tax asset which may be recorded in light of the net loss carry forward would be properly offset by an equal valuation allowance. Accordingly, no deferred tax benefit or deferred tax asset has been recorded in the consolidated financial statements.

The Company is required to recognize in its consolidated financial statements the financial effects of a tax position only if it is determined that it is more likely than not that the tax position will not be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Management has reviewed the Company’s tax positions and is of the opinion that material positions taken by the Company would more likely than not be sustained upon examination. Accordingly, the Company has not recognized a liability related to uncertain tax positions.

Income (Loss) Per Share

The computations of basic and diluted income (loss) per common share are based upon the weighted average number of common shares outstanding and potentially dilutive securities. The Company’s potentially dilutive securities include preferred shares that are convertible into the Company’s common stock. As of December 31, 2022 and 2021, there were no shares issuable in connection with these potentially dilutive securities. These potentially dilutive securities were excluded from the computations of diluted net income (loss) per share for the years ended December 31, 2022 and 2021 because no shares were issuable.

F-16

SILVER STAR PROPERTIES REIT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Concentration of Risk

The geographic concentration of the Company’s real estate assets makes it susceptible to adverse economic developments in the State of Texas. Any adverse economic or real estate developments in these markets, such as business layoffs or downsizing, relocation of businesses, increased competition or any other changes, could adversely affect the Company’s operating results and its ability to make distributions to stockholders. The product type concentration in office space, which accounts for approximately 71% of our base rental revenue for the year ended December 31, 2022, is susceptible to any negative trends in the future demand for office space.

Going Concern Evaluation

Pursuant to ASC 205-40, “Presentation of Financial Statements – Going Concern,” management is required to evaluate the Company’s ability to continue as a going concern within one year after the date that these consolidated financial statements are issued. The Hartman SPE, LLC loan agreement (the “SASB Loan”) had an initial maturity date of October 9, 2020.The SASB Loan provides for three successive one-year maturity date extensions. On October 9, 2022, SPE LLC executed the third and final maturity date option to extend the maturity to October 9, 2023.

The October 9, 2023 SASB Loan maturity date is within one year of the issuance of these consolidated financial statements. Uncertainty as to the Company's ability to obtain financing to satisfy the existing SASB Loan obligation requires management to conclude, in accordance with guidance provided by ASU 2014-15, that there is a substantial doubt about the Company's ability to continue as a going concern within one year of the issuance date of these consolidated financial statements. The Company is working with our third party advisor on refinancing options that align with a range of strategic alternatives under evaluation. Management believes that the SASB Loan Borrower will be able to obtain financing to replace the SASB Loan prior to the October 9, 2023 maturity date, however, no assurances can be given that the Company will be successful in achieving a refinance. The Company's ability to continue as a going concern is dependent upon the Company's ability to refinance the SASB Loan prior to the maturity date.

Recent Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The updated guidance requires measurement and recognition of expected credit losses for financial assets, including trade and other receivables, held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This is different from the current guidance as this will require immediate recognition of estimated credit losses expected to occur over the remaining life of many financial assets. Generally, the pronouncement requires a modified retrospective method of adoption. This guidance is effective for fiscal years and interim periods within those years beginning after January 2023, with early adoption permitted. The Company does not expect the adoption of ASU 2016-13 to have a material impact on the consolidated financial statements.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides optional expedients for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The standard is effective for all entities as of March 12, 2020 through December 31, 2022. An entity can elect to apply the amendments as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to that date that the financial statements are available to be issued. In October 2022, the FASB approved a two-year extension of the temporary accounting relief provided under ASU 2020-04 to December 31, 2024.

F-17

SILVER STAR PROPERTIES REIT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the period from January 1, 2020 (the earliest date the Company may elect to apply ASU 2020-04) through December 31, 2022, the Company did not have any contract modifications impacting current reference rates. The Company's SASB Loan and derivative instrument use LIBOR as the current reference rate. The optional expedients for hedging relationships described in ASU 2020-04 are not expected to have an impact to the Company as the Company has elected to not designate its derivative instrument as a hedge.

Correction of an Immaterial Error

During the fourth quarter of 2022, the Company identified an error related to the number of outstanding shares of its common stock. Subsequent to the Merger Agreements referenced in Note 1 (Organization and Business), shares of the 401(k) Profit Sharing Plan were not appropriately eliminated. Shares contributed to the plan are mandatory redeemable upon separation and thus recorded as a liability. Additionally, immaterial share count corrections were made to shares converted via the Merger Agreements.

Management has considered both the quantitative and qualitative impact of the error and has concluded that the prior period error was immaterial to the previously issued financial statements. As such, management has elected to correct the error in the current period. The outstanding share correction is presented in the "Outstanding shares correction" line item on the 2022 consolidated statement of stockholders' equity. There error resulted in no change to the Company's net loss per share and had no impact on equity account values in current or prior periods.

Note 3 — Real Estate

The Company's real estate assets consisted of the following, in thousands:


	December 31,
	2022		2021
Land	$	132,533	$	146,056
Buildings and improvements	352,060		372,868
In-place lease value intangible	96,009		101,661
	580,602		620,585
Less accumulated depreciation and amortization	(189,509)		(173,040)
Total real estate assets, net	$	391,093	$	447,545

Depreciation expense for the years ended December 31, 2022 and 2021 was $19,789,000 and $18,588,000, respectively.

The Company identifies and records the value of acquired lease intangibles at the property acquisition date. Such intangibles include the value of acquired in-place leases and above and below-market leases. Acquired lease intangibles are amortized over the leases' remaining terms. With respect to all properties owned by the Company, the Company considers all of the in-place leases to be market rate leases.

The amount of total in-place lease intangible asset and the respective accumulated amortization are as follows, in thousands:


	December 31,
	2022		2021
In-place lease value intangible	$	96,009	$	101,661
Less: In-place leases – accumulated amortization	(89,926)		(87,608)
Acquired lease intangible assets, net	$	6,083	$	14,053

F-18

SILVER STAR PROPERTIES REIT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The estimated aggregate future amortization amounts from acquired lease intangibles are as follows, in thousands:


December 31,	In-place lease amortization
2023	$	6,083
Total	$	6,083

Amortization expense for the year ended December 31, 2022 and 2021 was $7,182,000 and $8,138,000, respectively.

As of December 31, 2022 and 2021, we owned or held a majority interest in 44 commercial properties comprising approximately 6.8 million square feet plus four pad sites and two land developments, all located in Texas. As of December 31, 2022 and 2021, we owned 15 properties located in Richardson, Arlington, and Dallas, Texas, 26 properties located in Houston, Texas and three properties located in San Antonio, Texas.

Real Estate Held for Development

The Company's investment in real estate assets held for development consists of one pad site development in progress acquired from HIREIT.

Real Estate Held for Sale

The Company's Real Estate Held for Sale includes both land developments referenced above, the Mitchelldale property, and the Quitman property. The 17 acre development site located in Fort Worth, Texas was sold on January 31, 2023, the Mitchelldale property was sold on March 10, 2023, and the Quitman property was sold on April 6, 2023 . Refer to Note 16 (Subsequent Events) for additional information.

Impairments

Impairment of Real Estate Assets

The Company tests for impairment whenever changes in circumstances indicate a building’s carrying value may not be recoverable. Considering the conditions surrounding the Company's potential asset reposition, current expectations exist that a number of real estate assets will be sold or otherwise disposed of before the end of their useful lives. As a result of these circumstances and impairment analysis, the Company determined that the carrying values of 8 properties held and used for the year ended December 31, 2022 were not recoverable. As a result, the Company recorded impairment charges of $24,145,000 for the year ended December 31, 2022.

Impairment of Real Estate Assets Held for Sale

During the fourth quarter of 2022, the Company accepted an offer on its 17 acre development site located in Fort Worth, Texas for a sale price of $4,525,000. The sale closed on January 31, 2023. Because the carrying value of the development site exceeded the net sale proceeds (including selling costs), the Company recorded a $2,340,000 impairment charge for the year ended December 31, 2022.

F-19

SILVER STAR PROPERTIES REIT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4 - Accrued Rent and Accounts Receivable, net

Accrued rent and accounts receivable, net, consisted of the following, in thousands:


	December 31,
	2022		2021
Tenant receivables	$	11,617	$	5,803
Accrued rent	11,118		11,355
Accrued interest receivable - related party	—		849
Allowance for uncollectible accounts	(6,228)		(4,769)
Accrued rents and accounts receivable, net	$	16,507	$	13,238

As of December 31, 2022 and 2021, the Company had an allowance for uncollectible accounts of $6,228,000 and $4,769,000, respectively. For the years ended December 31, 2022 and 2021, the Company recorded bad debt expense of $1,498,000 and $397,000, respectively, related to tenant receivables that we have specifically identified as potentially uncollectible based on the Company’s assessment of each tenant’s credit-worthiness. Bad debt expenses and any related recoveries are included in property operating expenses in the accompanying consolidated statements of operations.

Note 5 - Deferred Leasing Commission Costs, net

Costs which have been deferred consist of the following, in thousands:


	December 31,
	2022		2021
Deferred leasing commissions	$	21,244	$	20,347
Less: accumulated amortization	(11,418)		(9,860)
Deferred leasing commission costs, net	$	9,826	$	10,487

Note 6 - Derivative Financial Instruments

On October 5, 2022, the Company entered into an interest rate cap agreement with respect to the $259 million SASB Loan through the maturity date of October 9, 2023. The agreement capped the underlying one-month LIBOR rate at 3.75%. The Company has elected not to apply hedge accounting and the change in fair value of the the interest rate cap is recognized as a component of interest expense on the accompanying consolidated statements of operations.

The counterparty under the interest rate cap is a major financial institution. The Company paid a premium of $2,254,000 for the interest rate cap. As of December 31, 2022, the fair value of this cap was $2,351,000 and included in other assets in the Company's consolidated balance sheets. The Company recognized $98,000 of interest income from paid and accrued counterparty payments and $97,000 of gain from change in fair value of the interest rate cap during the year ended December 31, 2022. These amounts are recorded as a component of interest expense on the accompanying consolidated statement of operations.

The fair value of this interest rate cap is determined using observable inputs other than quoted prices in active markets, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities. These inputs are considered Level 2 inputs in the fair value hierarchy. In addition, any credit valuation adjustments are considered in the fair values to account for potential nonperformance risk to the extent they would be significant inputs to the calculation. It was determined that credit valuation adjustments were not considered to be significant inputs.

F-20

Note 7 - Future Minimum Rents

The Company leases to the majority its tenants under noncancellable operating leases which provide for minimum base rentals. A summary of minimum future rentals to be received (exclusive of renewals, tenant reimbursements, and contingent rentals) under noncancellable operating leases in existence at December 31, 2022 is as follows, in thousands:


December 31,	Minimum Future Rents
2023	$	65,358
2024	52,900
2025	37,862
2026	27,324
2027	19,032
Thereafter	27,499
Total	$	229,975

Note 8 - Notes Payable, net

The Operating Partnership is a party to four, cross-collateralized, term loan agreements with an insurance company. The term loans are secured by the Richardson Heights Property, the Cooper Street Property, the Bent Tree Green Property and the Mitchelldale Property. The loans require monthly payments of principal and interest due and payable on the first day of each month. Monthly payments are based on a 27-year loan amortization. Each of the loan agreements are subject to customary covenants, representations and warranties which must be maintained during the term of the loan agreements. Each of the loan agreements provides for a fixed interest rate of 4.61%. Each of the loan agreements are secured by a deed of trust, assignment of licenses, permits and contracts, assignment and subordination of the management agreements and assignment of rents. The terms of the security instruments provide for the cross collateralization/cross default of the each of the loans. The outstanding balance of the four loans was $39,324,000 and $40,724,000 as of December 31, 2022 and 2021, respectively. Refer to Note 16 (Subsequent Events) for information regarding retirement of the term loans.

On October 1, 2018, the Company through SPE LLC and Goldman Sachs Mortgage Company entered into a $259,000,000 term loan agreement. The Company together with its affiliates HIREIT, Hartman XIX and vREIT XXI, contributed a total of 39 commercial real estate properties ("Properties") to the SASB Loan Borrower in exchange for membership interests in SPE LLC.

The term of the SASB loan is comprised of an initial two-year term with three one-year extension options. Each extension option shall be subject to certain conditions precedent including (i) no default then outstanding, (ii) 30 days prior written notice, (iii) the properties must have a specified in-place net operating income debt yield and (iv) purchase of an interest rate cap as described below for the exercised option term or terms.

The outstanding principal of the SASB loan bears interest at the one-month LIBOR rate plus 1.8%. The SASB Loan is subject to an interest rate cap arrangement which caps LIBOR at 3.75% during each term of the SASB Loan.

On October 9, 2022, the SASB Loan Borrower exercised the third and final one-year maturity date extension agreement to extend the maturity date to October 9, 2023. The SASB Loan contains various customary covenants, including but not limited to financial covenants, covenants requiring monthly deposits in respect of certain property costs, such as taxes, insurance, tenant improvements, and leasing commissions, covenants imposing restrictions on indebtedness and liens, and restrictions on investments and participation in other asset disposition, merger or business combination or dissolution transactions. The SASB Loan is secured by, among other things, mortgages on the Properties. The Company is the sole guarantor.

F-21

SILVER STAR PROPERTIES REIT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On October 19, 2022, the SASB Loan Borrower received a notice from the loan servicer of the SASB Loan in connection with an event of default due to the noncompliance with the loan agreement's insurance requirements relating to a single property. The event of default was previously waived for the sole purpose of exercising the option to extend the SASB Loan term. The event of default triggers cash management provisions under the SASB Loan agreement, which was implemented in November 2022. Cash management requires tenant receipts of the SASB Loan Borrower be deposited into a cash management account controlled by the loan servicer. On the 9th day of each month, distributions from the cash management account are made in the following priority: (i) property tax escrow, (ii) scheduled debt service (iii) budgeted operating expenses for the month of the payment date occurs, (iv) capital expenditure reserve, and (v) tenant improvement and lease commission reserve. All remaining amounts are disbursed to an excess cash flow reserve account, also maintained by the loan servicer. As of December 31, 2022, the SASB cash management account and excess cash flow reserve held $3,817,000 and $223,000, respectively, and are recorded in restricted cash on the December 31, 2022 consolidated balance sheet.

On February 10, 2022, the Company executed a $2,645,000 promissory note with East West Bank, resulting in net proceeds of $2,528,000. The promissory note is secured by the Company's 17 acre development site located in Fort Worth, Texas and is payable in monthly installments of principal and interest until the maturity date of February 25, 2023. Refer to Note 16 (Subsequent Events) for information regarding retirement of the promissory note.

Refer to Note 11 (Related Party Transactions) for information regarding the Company's unsecured promissory note with Hartman vREIT XXI, Inc.

The following is a summary of the mortgage notes payable, in thousands:


					December 31,
Property/Facility	Payment (1)	Maturity Date	Rate		2022		2021
Richardson Heights	P&I	July 1, 2041	4.61	%	$	15,556	$	16,144
Cooper Street	P&I	July 1, 2041	4.61	%	6,764		6,995
Bent Tree Green	P&I	July 1, 2041	4.61	%	6,764		6,995
Mitchelldale	P&I	July 1, 2041	4.61	%	10,240		10,590
Hartman SPE LLC (1)	IO	October 9, 2023	5.55	%	259,000		259,000
Hartman XXI	IO	October 31, 2022	10.00	%	17,168		6,012
Fort Worth - EWB	P&I	February 25, 2023	8.50	%	480		—
					$	315,972	$	305,736
Less unamortized deferred loan costs					(1,112)		(1,959)
					$	314,860	$	303,777

(1) On October 9, 2022, the Company executed the third and final one-year maturity date extension to October 9, 2023.

Annual maturities of notes payable as of December 31, 2022 are as follows, in thousands:


December 31,	Amount Due
2023	$	278,087
2024	1,507
2025	1,578
2026	1,652
2027	1,730
Thereafter	31,418
Total	$	315,972

F-22

SILVER STAR PROPERTIES REIT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company’s loan costs are amortized using the straight-line method over the term of the loans, which approximates the interest method. Costs which have been deferred consist of the following, in thousands:


	December 31,
	2022		2021
Deferred loan costs	$	5,471	$	5,399
Less: deferred loan cost accumulated amortization	(4,359)		(3,440)
Total cost, net of accumulated amortization	$	1,112	$	1,959

Interest expense incurred for the year ending December 31, 2022 and 2021 was $13,033,000 and $8,454,000, respectively, which includes amortization expense of deferred loan costs of $919,000 and $930,000, respectively. Interest expense of $1,117,000 and $315,000 was payable as of December 31, 2022 and 2021, respectively, and is included in accounts payable and accrued expenses in the accompanying consolidated balance sheets.

On March 29, 2021, Hartman Income REIT Property Holdings, LLC ("HIRPH"), a wholly owned subsidiary of Hartman XX Limited Partnership, LP, was added, by means of a joinder agreement, to a master credit facility agreement where Hartman vREIT XXI, Inc. is the guarantor. The Company’s Atrium II office property was added to the collateral security for the master credit facility agreement where the borrowing base of the facility increased by $1,625,000. The master credit facility has a maturity date of March 9, 2023 and is currently in an extension period at the time of issuance of these consolidated financial statements. Refer to Note 14 (Commitments and Contingencies) for additional information regarding the review of the ownership of HIRPH's membership interest resulting from the joinder agreement.

Fair Value of Debt

The fair value of the Company’s fixed rate notes payable, variable rate notes payable and secured revolving credit facilities aggregates to $308,286,000 and $310,271,000 as compared to book value of $315,972,000 and $305,736,000 as of December 31, 2022 and 2021, respectively. The fair value of our debt instruments is estimated on a Level 2 basis, as provided by ASC 820, using a discounted cash flow analysis based on the borrowing rates currently available to the Company for loans with similar terms and maturities, discounting the future contractual interest and principal payments. Disclosure about the fair value of notes payable is based on relevant information available as of December 31, 2022 and 2021.

Note 9 - Loss Per Share

Basic (loss) income per share is computed using net (loss) income attributable to common stockholders and the weighted average number of common shares outstanding. Diluted weighted average shares outstanding reflect common shares issuable from the assumed conversion of convertible preferred stock into common shares. Only those items that have a dilutive impact on basic (loss) per share are included in the diluted loss per share.


	December 31,
	2022		2021
Numerator:
Net loss attributable to common stockholders (in thousands)	$	(36,248)	$	(12,336)
Denominator:
Weighted average number of common shares outstanding, basic and diluted (in thousands)	34,991		35,202
Basic and diluted loss per common share:
Net loss attributable to common stockholders per share	$	(1.04)	$	(0.35)

F-23

SILVER STAR PROPERTIES REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 10 - Income Taxes

Federal income taxes are not provided for because we qualify as a REIT under the provisions of the Internal Revenue Code and because we have distributed and intend to continue to distribute all of our taxable income to our stockholders. Our stockholders include their proportionate taxable income in their individual tax returns. As a REIT, we must distribute at least 90% of our real estate investment trust taxable income to our stockholders and meet certain income sources and investment restriction requirements. In addition, REITs are subject to a number of organizational and operational requirements. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate tax rates. The Company’s federal income tax returns for the years ended December 31, 2015, 2016, 2017, 2018, 2019 and 2020 have not been examined by the Internal Revenue Service. The Company’s federal income tax return for the year ended December 31, 2016 may be examined on or before September 15, 2023.

The Company has formed a taxable REIT subsidiary which may generate future taxable income which may be offset by the net loss carry forward. The Company considers that any deferred tax benefit and corresponding deferred tax asset which may be recorded in the light of the net loss carry forward would be properly offset by an equal valuation allowance. Accordingly, no deferred tax benefit or deferred tax asset has been recorded in the consolidated financial statements.

Taxable income (loss) differs from net income (loss) for financial reporting purposes principally due to differences in the timing of recognition of interest, real estate taxes, depreciation and amortization and rental revenue.

For federal income tax purposes, the cash distributed to stockholders was characterized as follows for the years ended December 31:


	2022		2021
Ordinary income (unaudited)	73.4	%	40.4	%
Return of capital (unaudited)	26.6	%	59.6	%

Total	100.0	%	100.0	%

A provision for Texas Franchise tax under the Texas Margin Tax Bill in the amount of $532,000 and $857,000 was recorded in the consolidated financial statements for the years ended December 31, 2022 and 2021, respectively, with a corresponding charge to real estate taxes and insurance.

Note 11 - Related Party Transactions

Hartman Advisors LLC ("Advisor"), is a Texas limited liability company. Advisor is the sole member of Hartman vREIT XXI Advisor, LLC ("XXI Advisor"), which is the advisor for Hartman vREIT XXI, Inc. Hartman vREIT XXI, Inc. ("vREIT XXI") pays acquisition fees and asset management fees to the Advisor in connection with the acquisition of properties and management of the Company. vREIT XXI pays property management and leasing commissions to the Property Manager in connection with the management and leasing of vREIT XXI's properties.

The table below shows the related party balances the Company is owed by, in thousands:

F-24

SILVER STAR PROPERTIES REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


	December 31,
	2022		2021
Due from (to) vREIT XXI	$	429	$	—
Due from (to) other related parties	1,285		115
	$	1,714	$	115

During the fourth quarter of 2019, the Company borrowed under an unsecured promissory note payable to Hartman vREIT XXI, Inc., an affiliate of the Advisor and the Property Manager, in the face amount of $10,000,000 with an interest rate of 10%. In addition to the balance due under this note, the Company received advances from vREIT XXI totaling $7,168,000 which were outstanding as of December 31, 2022 and which were not covered by the unsecured promissory note. The total balance of $17,168,000 and $6,012,000 as of December 31, 2022 and 2021, respectively has been included in Notes Payable - related party on the accompanying consolidated balance sheets. The Company recognized interest expense on the affiliate note in the amount of $1,233,000 and $505,000 for the years ended December 31, 2022 and 2021, respectively, which is included in interest expense in the accompanying consolidated statements of operations.

In May 2016, the Company, through its taxable REIT subsidiary, Hartman TRS, Inc. (“TRS”), loaned $7,231,000 pursuant to a promissory note in the face amount of up to $8,820,000 to Hartman Retail II Holdings Company, Inc. (“Retail II Holdings”), an affiliate of the Advisor and the Property Manager, in connection with the acquisition of a retail shopping center by Hartman Retail II DST, a Delaware statutory trust sponsored by the Property Manager. Pursuant to the terms of the promissory note, TRS will receive a two percent (2)% origination fee of amounts advanced under the promissory note, and interest at ten percent (10)% per annum on the outstanding principal balance. The outstanding principal balance of the promissory note will be repaid as investor funds are raised by Hartman Retail II DST or upon property sale.

The maturity date of the promissory note, as amended, is June 30, 2024. This note receivable had an outstanding balance of $1,726,000 as of December 31, 2022 and 2021, respectively, which is included in Notes receivable – related party in the accompanying consolidated balance sheets. The Company has determined that it's unlikely it will recover unpaid interest due on the loan and wrote off $1,022,000 of interest receivable for the year ended December 31, 2022 and will cease to recognize interest income in future periods. For the year ended December 31, 2021, the Company recognized interest income on this affiliate note of $173,000.

“VIEs” are defined as entities with a level of invested equity that is not sufficient to fund future operations on a stand-alone basis, or whose equity holders lack certain characteristics of a controlling financial interest. For identified VIEs, an assessment must be made to determine which party to the VIE, if any, has both the power to direct the activities of the VIE that most significantly impacts the performance of the VIE and the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.

The Company is not deemed to be the primary beneficiary of Hartman North Freeway Retail Holdings, LLC ("Retail Holdings"), Retail II Holdings, Hartman Retail III Holdings Company, Inc. ("Retail III Holdings") or Hartman Ashford Bayou SPE, LLC ("Ashford Bayou"), each of which qualifies as a VIE. Accordingly, the assets and liabilities and revenues and expenses of Retail Holdings, Retail II Holdings, Retail III Holdings and Ashford Bayou have not been included in the accompanying consolidated financial statements. The Company is a covenant guarantor for the secured mortgage indebtedness of each of the VIEs in the total amount of $24,276,000 and $24,748,000 as December 31, 2022 and 2021, respectively.

On March 29, 2021, Hartman Income REIT Property Holdings, LLC, a wholly owned subsidiary of Hartman XX Limited Partnership, LP, was added, by means of a joinder agreement, to a master credit facility agreement where vREIT XXI is the guarantor. The Company’s Atrium II office property was added to the collateral security for the master credit facility agreement where the borrowing base of the facility increased by $1,625,000. The master credit facility has a maturity date of March 9, 2023 and is currently in an extension period at the time of issuance of

F-25

SILVER STAR PROPERTIES REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

these consolidated financial statements. Refer to Note 14 (Commitments and Contingencies) for additional information regarding the review of the ownership of HIRPH's membership interest resulting from the joinder agreement.

Hartman vREIT XXI owns 1,198,228 shares of the Company's common stock and a 2.47% ownership interest in Hartman SPE, LLC.

During the year ended December 31, 2022, the Company, the Advisor, and the Property Manager (collectively the "Settlement Parties") settled amounts owed to Hartman vREIT XXI with amounts owed by Hartman vREIT XXI to the Settlement Parties. The settlement resulted in the reduction of $795,000 of interest payable and reduction of $1,740,000 in principal of the unsecured promissory note owed to Hartman vREIT XXI in exchange for the reduction of $2,535,000 in unpaid advisory and management fees owed from Hartman vREIT XXI. The settlement reflected balances through the third quarter of 2022. No such settlement was reached for balances through the fourth quarter of 2022.

Refer to Note 16 (Subsequent Events) for information regarding the Company's purchase of Southern Star Self-Storage Investment Company, where the Company's former Chief Executive Officer and Chief Financial Officer are equity holders.

Note 12 - Stockholders' Equity

Under the articles of incorporation, the Company has authority to issue 750,000,000 common shares of beneficial interest, $0.001 par value per share, and 200,000,000 preferred shares of beneficial interest, $0.001 par value per share.

Common Stock

Shares of common stock entitle the holders to one vote per share on all matters which stockholders are entitled to vote, to receive dividends and other distributions as authorized by the Company’s board of directors in accordance with the Maryland General Corporation Law and to all rights of a stockholder pursuant to the Maryland General Corporation Law. The common stock has no preferences or preemptive, conversion or exchange rights.

Preferred Stock

Under the Company’s articles of incorporation the Company’s board of directors has the authority to issue one or more classes or series of preferred stock, and prior to the issuance of such stock, the board of directors has the power to classify or reclassify, in one or more series, any unissued shares and designate the preferences, rights and privileges of such shares. As of December 31, 2022 and 2021, the Company has 1,000 shares of convertible preferred stock issued and outstanding, 300 shares of which are owned by a wholly-owned subsidiary.

Common Stock Issuable Upon Conversion of Convertible Preferred Stock

The convertible preferred stock issued to the Advisor will convert to shares of common stock if (1) the Company has made total distributions on then outstanding shares of the Company’s common stock equal to the issue price of those shares plus a 6% cumulative, non-compounded, annual return on the issue price of those outstanding shares, (2) the Company lists its common stock for trading on a national securities exchange if the sum of prior distributions on then outstanding shares of the Company’s common stock plus the aggregate market value of the Company’s common stock (based on the 30-day average closing price) meets the same 6% performance threshold, or (3) the Company’s advisory agreement with Hartman Advisors, LLC expires without renewal or is terminated (other than because of a material breach by the Advisor), and at the time of such expiration or termination the Company is deemed to have met the foregoing 6% performance threshold based on the Company’s enterprise value and prior distributions and, at or subsequent to the expiration or termination, the stockholders actually realize such

F-26

SILVER STAR PROPERTIES REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

level of performance upon listing or through total distributions. In general, the convertible stock will convert into shares of common stock with a value equal to 15% of the excess of the Company’s enterprise value plus the aggregate value of distributions paid to date on then outstanding shares of common stock over the aggregate issue price of those outstanding shares plus a 6% cumulative, non-compounded, annual return on the issue price of those outstanding shares. With respect to conversion in connection with the termination of the advisory agreement, this calculation is made at the time of termination even though the actual conversion may occur later, or not at all.

Stock-Based Compensation

On July 26, 2022, the Board approved cash payments totaling $400,000 in lieu of unissued shares due to non-employee directors under the non-employee director's compensation plan. The Incentive Plan that provides for the issuance of the restricted common stock awards to non-employee director has expired and requires stockholder approval for modification or reinstatement. All non-employee director compensation will be cash based until incentive stock is available.

The Company sponsors a defined contribution pension plan, the Hartman 401(k) Profit Sharing Plan, covering substantially all of its full-time employees who are at least 21 years of age. The Company matches 401(k) cash contributions with Company stock. The Company recognized $505,000 and $467,000 for employee 401(k) matching contributions as stock based compensation for the years ended December 31, 2022 and 2021, respectively.

Stock-based compensation expense is included in general and administrative expenses in the accompanying consolidated statements of operations.

Distributions

The following table reflects the total distributions the Company has paid in cash (in thousands, except per share amounts) and the amount through the distribution reinvestment plan, including paid per common share, in each indicated quarter:


Quarter Paid	Distributions per Common Share		Total Distributions Paid
2022
4th Quarter	$	—	$	—
3rd Quarter	—		—
2nd Quarter	0.128		4,500
1st Quarter	0.112		3,958
Total	$	0.240	$	8,458
2021
4th Quarter	$	0.112	$	3,927
3rd Quarter	0.104		3,662
2nd Quarter	0.092		3,246
1st Quarter	0.087		3,082
Total	$	0.395	$	13,917

On July 8, 2022, the board of directors approved the suspension of the payment of distributions to the Company's stockholders.

F-27

SILVER STAR PROPERTIES REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 13 - Incentive Awards Plan

The Company previously adopted an incentive plan called the Omnibus Stock Incentive Plan, (the “Incentive Plan”) that provides for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, deferred stock awards, restricted stock awards, dividend equivalent rights and other stock-based awards within the meaning of Internal Revenue Code Section 422, or any combination of the foregoing. The Incentive Plan has expired pursuant to its terms and requires stockholder approval for modification or reinstatement. The Board approved the payment of accrued director's fees in cash, as stock compensation was not available.

Note 14 - Commitments and Contingencies

Litigation

On May 26, 2021, Summer Energy LLC (“Summer”) filed a lawsuit against Hartman Income REIT Management, Inc. (the “Property Manager”), a wholly owned subsidiary of the Company that manages our properties, in state court in Harris County, Texas. In this lawsuit, Summer seeks to collect approximately $8.4 million from the Property Manager that Summer claims that the Property Manager owes Summer under one or more electricity sales agreements (“Agreements”) related to Winter Storm Uri. Of the approximately $8.4 million claimed in the lawsuit, approximately $7.6 million relates to wholly owned properties of the Company. Under the Agreements, Summer provided electricity to buildings managed by the Property Manager at indexed prices.

On March 24, 2022, the court entered a judgment in favor of Summer against the Property Manager in the amount of $7,871,000 plus customary pre- and post-judgment interest and attorney's fees.The Company had recognized the share of the judgment amount applicable to wholly owned properties of the Company, approximately $6,731,000, within the Company's consolidated statements of operations for fiscal year 2021. The Company has also recognized $370,000 of pre-judgment interest and attorney fees in 2021 and $304,000 of post-judgment interest in 2022. Many of the Company’s leases contain provisions that require tenants to pay their allocable share of operating expenses, including utilities. The Company began its assessment of tenants' applicable share during 2022. For those properties with completed assessments, we've collected and recognized $667,000 of tenant's share during the fourth quarter of 2022.

Atrium II Joinder Agreement

Through the execution of the joinder agreement referenced in Note 8 (Notes Payable) and Note 11 (Related Party Transactions), certain organizational and loan documents reference Hartman vREIT XXI Operating Partnership LP (“Hartman XXI OP”), a wholly owned subsidiary of Hartman vREIT XXI, Inc., as the sole member

F-28

SILVER STAR PROPERTIES REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

of HIRPH, which wholly owns the Atrium II property. There is neither an executed agreement to convey the Atrium II property nor a completed assignment of HIRPH’s membership interest to Hartman XXI OP.

Under the joinder agreement, HIRPH became a borrower under the loan and is jointly and severally liable with the other loan parties for the repayment of the loan. The Atrium II property is the sole asset of HIRPH with which to repay any debt under the loan. The loan is currently in an extension period to accommodate ongoing renewal terms. The outstanding balance of the loan which HIRPH is party totals $15,625,000. There are four other properties as named borrowers in the loan. If a renewal agreement is not reached, the Company may be required to relinquish ownership of the property to the lender in a foreclosure transaction or other alternative to foreclosure in satisfaction of the loan. The Company’s max potential loss in regards to its liability under the loan would be the value of the property. Considering there are four other properties in the loan, loss of full property value is remote.

Charter provision regarding liquidity or liquidation

The Company does not anticipate that there will be any market for its shares of common stock unless they are listed on a national securities exchange. In the event that Company shares of common stock are not listed or traded on an established securities exchange prior to the tenth anniversary of the completion or termination of the Company's initial public offering, which terminated on April 25, 2013, the Company's charter requires that the board of directors must seek the approval of the stockholders of a plan to liquidate assets, unless the board of directors has obtained the approval of the stockholders (1) to defer the liquidation of our assets or (2) of an alternate strategy. If the stockholders do not approve the proposal presented by the board of directors prior to the end of ten years after the termination of the Company’s initial public offering, the board of directors shall begin the process of liquidating the Company’s assets or listing the Company’s shares. The Executive Committee has adopted resolutions directing management to begin the process of listing the Company’s shares on an established securities exchange, and it is taking steps to accomplish the listing, including without limitation engaging the services of an investment bank to assist with the listing.

F-29

SILVER STAR PROPERTIES REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 15 - Defined Contribution Plan

The Company sponsors a defined contribution pension plan, the Hartman 401(k) Profit Sharing Plan, covering substantially all of its full-time employees who are at least 21 years of age. Participants may annually contribute up to 100% of pretax annual compensation and any applicable catch-up contributions, as defined in the plan and subject to deferral limitations as set forth in Section 401(k) of the Internal Revenue Code. Participants may also contribute amounts representing distributions from other qualified benefit or defined contribution plans. The Company may make discretionary matching contributions. For the year ended December 31, 2022 and 2021 the Company matched $505,000 and $467,000 in the form of Company stock, respectively. For the year ended December 31, 2022 and 2021, the Company recognized $311,000 and $1,011,000 of plan income due to change in estimate in the Company's stock match liability to the plan. The Company had a stock match liability to the plan of $1,808,000 and $1,613,000 as of December 31, 2022 and 2021, respectively.

Note 16 - Subsequent events

On January 31, 2023, the Company completed the sale of its 17 acre development site located in Fort Worth, Texas for a sale price of $4,525,000. Proceeds from the sale retired the term loan secured by the property. The property is presented in real estate held for sale on the December 31, 2022 consolidated balance sheet and the Company recognized a $2,340,000 impairment in the 2022 consolidated statement of operations as a result of the final contract price.

On February 14, 2023, the Company received notice from Hartman XXI terminating their property management and advisory agreements with the Company. Once the termination is effective, the Company will no longer provide management and advisory services to Hartman XXI and its subsidiaries. The termination is set to be effective 60 days after the receipt of notice.

On March 10, 2023, the Company completed the sale of its Mitchelldale property for a sale price of $40,510,000. Proceeds from the sale retired four, cross collateralized term loans secured by the Richardson Heights property, the Cooper Street property, the Bent Tree Green property, and the Mitchelldale Property. The property is presented in real estate held for sale on the December 31, 2022 consolidated balance sheet.

On March 10, 2023, the Executive Committee of the board of directors removed Allen Hartman as Executive Chairman and terminated the agreement between the Company and Allen Hartman. The Executive Committee investigated issues related to certain violations of fiduciary and other duties to the Company by Mr. Hartman which has not concluded. Mr. Hartman remains a director on the Company’s Board.

On April 6, 2023, the Company completed the sale of its Quitman property for a sale price for a sale price of $9,065,000. Proceeds from the sale were applied to the outstanding balance of the SASB Loan. The property is presented in real estate held for sale on the December 31, 2022 consolidated balance sheet. The disposal of the Quitman property granted us a one time waiver of event of default on the SASB Loan, subject to certain conditions. Most notably, the Company does have access to certain reserve accounts, however is still subject to cash management provisions until a 14% debt yield is reached.

On April 6, 2023, the Company agreed to purchase all of the equity interests in Southern Star Self-Storage Investment Company ("Southern Star") for approximately $3,000,000 in cash and 301,659 restricted stock units of the Company's Common Stock. Mark T. Torok and Louis T. Fox III, CFO, are equity holders of Southern Star. On May 5, 2023, the Company completed the acquisition of Southern Star, which will operate as a subsidiary of the Company’s operating partnership alongside the Company’s current operations, utilizing its expertise in developing assets within Delaware Statutory Trusts.

On April 6, 2023, the Executive Committee and Managing General Partner of Hartman XX Limited Partnership, our operating partnership, approved and adopted the Silver Star Properties REIT, Inc. and Hartman XX Limited Partnership 2023 Incentive Award Plan (the “2023 Incentive Award Plan”) to promote the success and

F-30

SILVER STAR PROPERTIES REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

enhance the value of the Company by retaining personnel that have the knowledge vision and ability not only with the Company but also in the capital markets as further described in the Employment Agreement included as Exhibit 10.3 to the Company’s Form 8-K filed April 10, 2023. The 2023 Incentive Award Plan recognizes that the entire Acquisition and the New Direction Plans were set up by the work and effort of the Chief Executive Officer and the Committee, and it further serves to incentivize and retain the Chief Executive Officer and the Committee, together, to execute the New Direction Plans and enable the Company and its shareholders to realize the value created by the New Direction Plans. The 2023 Incentive Award Plan allows for grants of performance units (“Performance Units”) which are intended to constitute profits interests units in the operating partnership convertible into Partnership Common Units of the operating partnership at the election of the participant which may be later exchanged for Common Stock of the Company based on a 1:1 ratio. The participant is also able to cause the redemption of the Performance Units, or the applicable Partnership Common Units received as a result of conversion, after three years from the Grant Date. The 2023 Incentive Award Plan includes a three-year vesting that is intended to ensure that the Committee and the Chief Executive Officer will stay in place and provide continued services to the Company.

On April 6, 2023, pursuant to the 2023 Incentive Award Plan, the Committee approved grants of founders’ Performance Units to retain and incentivize the following members of the Committee in carrying out the New Direction Plans, as defined below: Gerald Haddock, member of the Committee, (1,053,035 Performance Units), Jack Tompkins, member of the Committee, (1,053,035 Performance Units), and James Still, member of the Committee, (1,053,035 Performance Units). Performance Units vest 1/3 of the grant per year, and the term of each Performance Unit is ten (10) years from the date of grant as further described in the 2023 Incentive Award Plan included as Exhibit 10.4 to the Company’s Form 8-K filed April 10, 2023. The Executive Committee engaged a third-party compensation consultant to assist in determining the compensation structure for the Executive Committee and to evaluate their compensation relative to the marketplace.

Mark Torok tendered his resignation as Chief Executive Officer of Silver Star Properties REIT, Inc. (the “Company”) citing personal reasons, effective April 28, 2023, Mr. Torok’s resignation as Chief Executive Officer was not the result of any disagreement with the Company on any matter relating to the Company's operations, policies or practices. Also effective April 28, 2023, the Executive Committee of Board of Directors of the Company appointed David Wheeler to serve as the Company’s Interim President and has elevated the role and duties of Michael Racusin, General Counsel and Secretary. A search is underway to identify a permanent CEO with self-storage experience. The Executive Committee of the Board of Directors has retained a nationally recognized executive search firm to assist in the process.

F-31

SCHEDULE III - REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION AND AMORTIZATION

DECEMBER 31, 2022

(Dollars in thousands)


Initial Cost to the Company
Property	Date Acquired	Date of Construction	Land		Building and Improvements		In-place lease value intangible		Total		Post – acquisition Improvements (1)
Garden Oaks	10/01/2018	1956	$	1,770	$	17,969	$	1,021	$	20,760	$	1,623
Quitman	10/01/2018	1920	3,130		2,389		351		5,870		803
Chelsea Square	10/01/2018	1984	1,570		5,046		494		7,110		(273)
Mission Centre	10/01/2018	1987	2,020		7,690		890		10,600		373
Regency	10/01/2018	1979	960		819		851		2,630		997
Spring Valley	10/01/2018	1982	3,490		1,064		1,066		5,620		1,866
Northeast Square	10/01/2018	1984	1,300		3,330		280		4,910		250
One Mason	10/01/2018	1983	2,440		9,290		1,130		12,860		310
Tower	10/01/2018	1981	2,750		2,584		1,336		6,670		2,067
Preserve	10/01/2018	1970	9,730		9,085		3,485		22,300		8
Westheimer	10/01/2018	1983	3,800		12,416		2,284		18,500		(143)
Walzem Plaza	10/01/2018	1981	3,900		10,660		1,840		16,400		1,433
11811 North Freeway	10/01/2018	1982	1,980		1,037		2,473		5,490		1,120
Atrium I	10/01/2018	1980	2,540		716		1,494		4,750		932
Atrium II	07/01/2020	1980	958		1,345		1,264		3,567		2,943
North Central Plaza	10/01/2018	1982	2,330		14,511		2,959		19,800		(940)
3100 Timmons	10/01/2018	1975	10,330		3,543		1,427		15,300		1,764
Central Park	10/01/2018	1984	730		2,851		989		4,570		370
601 Sawyer	10/01/2018	1982	3,360		12,796		1,144		17,300		2,268
Prestonwood	10/01/2018	1999	7,410		13,895		1,695		23,000		432
Harwin	10/01/2018	1992	1,960		3,041		279		5,280		(145)
Fondren	10/01/2018	2004	1,650		7,326		1,004		9,980		379
Cornerstone	10/01/2018	1984	1,110		1,620		920		3,650		678
Northchase	10/01/2018	1984	1,700		5,821		1,549		9,070		340
616 FM 1960	10/01/2018	1983	1,510		8,931		1,269		11,710		(3,969)
Gateway	10/01/2018	1983	3,510		22,182		3,408		29,100		(7,605)
Promenade	10/01/2018	1973-1979	5,750		12,671		1,579		20,000		1,186
400 North Belt	05/08/2015	1982	2,538		3,800		3,812		10,150		3,211
Commerce Plaza Hillcrest	05/01/2015	1977	6,500		1,031		3,869		11,400		3,658
Corporate Park Place	08/24/2015	1980	2,375		5,215		1,910		9,500		1,996
Skymark Tower	09/02/2015	1985	2,212		4,404		2,230		8,846		3,003
Ashford Crossing	07/31/2015	1983	2,650		4,240		3,710		10,600		3,288
Energy Plaza	12/30/2014	1983	4,403		6,840		6,367		17,610		4,818
Westway	06/01/2016	2001	5,410		11,276		4,950		21,636		1,598
Three Forest Plaza	12/22/2016	1983	8,910		18,186		8,558		35,654		6,239
Parkway Plaza I & II	03/15/2013	1982	2,373		4,765		2,352		9,490		3,862
Gulf Plaza	03/11/2014	1979-1980	3,488		6,005		4,457		13,950		293
Timbercreek	12/30/2014	1984	724		962		1,211		2,897		955
Copperfield	12/30/2014	1986	605		760		1,054		2,419		854
One Technology	11/10/2015	1984	4,894		8,558		6,123		19,575		2,156
Richardson Heights	12/28/2010	1958-1962	4,788		10,890		3,472		19,150		7,724
Bent Tree Green	10/16/2012	1983	3,003		6,272		2,740		12,015		4,082
Cooper Street	05/11/2012	1992	2,653		5,768		2,192		10,613		636
Mitchelldale Business Park	06/13/2014	1977	4,794		9,816		4,565		19,175		4,139
Total			$	146,008	$	303,416	$	102,053	$	551,477	$	61,579

(1) Amounts include impact of impairments taken.

F-32

SCHEDULE III - REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION AND AMORTIZATION

DECEMBER 31, 2022

(Dollars in thousands)


Gross Carrying Amount at December 31, 2022
Property	Land		Building and Improvements (1)		In-place lease value intangible (1)		Total		Accumulated Depreciation & Amortization		Net Book Carrying Value		Encumbrances
Garden Oaks	$	1,770	$	19,592	$	1,021	$	22,383	$	(3,727)	$	18,656	10,379
Quitman	3,130		3,191		351		6,672		(643)		6,029		2,935
Chelsea Square	1,355		4,997		484		6,836		(1,325)		5,511		3,555
Mission Centre	2,020		8,063		890		10,973		(2,274)		8,699		5,300
Regency	960		1,815		852		3,627		(1,445)		2,182		1,315
Spring Valley	3,490		2,930		1,066		7,486		(2,546)		4,940		2,810
Northeast Square	1,300		3,579		280		5,159		(840)		4,319		2,455
One Mason	2,440		9,600		1,130		13,170		(2,510)		10,660		6,430
Tower	2,750		4,651		1,335		8,736		(2,390)		6,346		3,335
Preserve	8,244		10,659		3,405		22,308		(5,991)		16,317		11,148
Westheimer	3,050		13,091		2,217		18,358		(5,041)		13,317		9,249
Walzem Plaza	3,900		12,093		1,840		17,833		(4,497)		13,336		8,200
11811 N Freeway	1,980		2,157		2,473		6,610		(3,187)		3,423		2,744
Atrium I	2,540		1,648		1,494		5,682		(2,149)		3,533		2,375
Atrium II	1,006		4,240		1,264		6,510		(1,451)		5,059		—
North Central	1,842		14,152		2,866		18,860		(5,745)		13,115		9,899
3100 Timmons	10,330		5,306		1,428		17,064		(2,709)		14,355		7,650
Central Park	730		3,220		989		4,939		(1,658)		3,281		2,285
601 Sawyer	3,360		15,064		1,144		19,568		(3,271)		16,297		8,649
Prestonwood	7,410		14,328		1,695		23,433		(3,722)		19,711		11,498
Harwin	1,960		2,895		279		5,134		(773)		4,361		2,640
Fondren	1,650		7,704		1,005		10,359		(2,683)		7,676		4,990
Cornerstone	1,110		2,298		920		4,328		(1,515)		2,813		1,825
Northchase	1,459		6,435		1,516		9,410		(2,940)		6,470		4,535
616 FM 1960	1,204		5,640		896		7,740		(2,126)		5,614		5,855
Gateway	2,194		16,364		2,936		21,494		(6,114)		15,380		14,549
Promenade	5,750		13,858		1,578		21,186		(3,864)		17,322		9,999
400 North Belt	2,538		7,011		3,812		13,361		(7,137)		6,224		6,500
Commerce Plaza	6,500		4,689		3,869		15,058		(6,626)		8,432		7,150
Corporate Park	2,375		7,210		1,910		11,495		(4,195)		7,300		4,825
Skymark Tower	2,212		7,408		2,230		11,850		(4,791)		7,059		6,450
Ashford Crossing	2,650		7,528		3,710		13,888		(6,705)		7,183		5,150
Energy Plaza	4,403		11,659		6,367		22,429		(10,006)		12,423		8,400
Westway	5,410		12,875		4,951		23,236		(7,814)		15,422		11,399
Three Forest	8,913		24,423		8,557		41,893		(15,475)		26,418		24,348
Parkway Plaza	2,372		8,628		2,352		13,352		(6,368)		6,984		5,200
Gulf Plaza	2,688		7,098		4,457		14,243		(6,981)		7,262		5,700
Timbercreek	724		1,916		1,211		3,851		(2,092)		1,759		1,485
Copperfield	605		1,618		1,054		3,277		(1,749)		1,528		1,890
One Technology	4,893		10,714		6,123		21,730		(9,625)		12,105		13,899
Richardson Heights	4,788		18,614		3,472		26,874		(11,311)		15,563		15,556
Bent Tree Green	3,003		10,353		2,740		16,096		(7,569)		8,527		6,764
Cooper Street	2,653		6,404		2,192		11,249		(4,698)		6,551		6,764
Mitchelldale	4,794		13,955		4,565		23,314		(9,859)		13,455		10,240
Corporate Adjustments (2)	—		(2,457)		—		(2,457)		126		(2,331)		$	—
Total	$	140,455	$	369,216	$	100,926	$	610,597	$	(200,011)	$	410,586	$	298,324

F-33

(2) Amounts consists of elimination of intercompany construction development fees charged by construction manager to real estate assets.

The aggregate cost of real estate for federal income tax purposes was $642,488 (unaudited) as of December 31, 2022.

SCHEDULE III - REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION AND AMORTIZATION

DECEMBER 31, 2022

Summary of activity for real estate assets for the years ended December 31, 2022 and 2021, in thousands:


	Years ended December 31,
	2022		2021
Balance at beginning of period	$	620,585	$	607,669
Additions during the period:
Acquisitions	—		—
Improvements	14,158		12,916
	634,743		620,585
Provision for impairment	24,146		—
Balance at end of period	$	610,597	$	620,585

F-34