Investment in Affiliate

March 19, 2019,

the Company entered into subscription agreements with HC Realty, pursuant to which it purchased (i)

200,000

shares of HC Realty’s

10.00%

Series B Cumulative Convertible Preferred Stock (the “Series B Stock”) for an aggregate purchase price of

$2,000,000

and (ii)

300,000

shares of HC Realty’s common stock for an aggregate purchase price of

$3,000,000.

Certain investors affiliated with HPCM purchased an additional

850,000

shares of Series B Stock for an aggregate purchase price of

$8,500,000.

While some of these investors have other investments with HPCM, each of these investors made a separate and direct investment in HC Realty and HPCM does

not

receive management fees, performance fees, or any other economic benefits with respect to these investors’ investment in HC Realty’s Series B Stock.

The Series B Stock is

not

deemed to be in-substance common stock and is accounted for using the measurement alternative for equity investments with

readily determinable fair value. The Series B Stock will be reported at cost, adjusted for impairments or any observable price changes in ordinary transactions with identical or similar investments issued by HC Realty.

The following table summarizes the Company’s investment in HC Realty as of

September 30, 2019

and

December 31, 2018 (

in thousands):

	Ownership %						Investment in Affiliate Balance				Loss recorded in the Consolidated Statements of Operations (b)
											For the Three Months Ended Sept. 30,					For the Nine Months Ended Sept. 30,
	Sept. 30, 2019			December 31, 2018			Sept. 30, 2019		December 31, 2018		2019			2018		2019			2018

HC Realty Series B Stock (a)		7.9	%		0.0	%	$	2,000		-	$	-			-	$	-			-
HC Realty common stock		8.5	%		0.0	%		2,603		-		(132	)		-		(273	)		-
Total		16.4	%		0.0	%	$	4,603		-	$	(132	)		-	$	(273	)		-

(a)

Represents investments in shares of HC Realty preferred stock with a basis of

million. Each share of preferred stock can be converted into

one

share of HC Realty common stock at a conversion price equal to the lesser of

$9.10

per share or the fair market value per share of HC Realty common stock, subject to adjustment upon the occurrence of certain events.

(b)

Loss from these investments is included in “Loss from affiliate” in the consolidated statement of operations. Since HC Realty is a Real Estate Investment Trust and

not

a taxable entity, the loss is

not

reported net of taxes.

The Company’s investment in HC Realty common stock is accounted for under the equity method of accounting. The company determined that accounting for under the equity method was appropriate even though the Company owns less than

20%

of the fully diluted shares outstanding because the Company holds significant influence of HC Realty.