Part I [Business](index=5&type=section&id=ITEM%201.%20BUSINESS) The company is a self-managed REIT with a diversified commercial real estate portfolio and a focus on fintech/proptech investments - Modiv became a **self-managed REIT** on December 31, 2019, after merging with REIT I and acquiring its former sponsor, BrixInvest[17](index=17&type=chunk)[26](index=26&type=chunk)[52](index=52&type=chunk) - As of December 31, 2020, the portfolio comprised **40 commercial properties** totaling over 2.3 million square feet of leasable space[17](index=17&type=chunk) - In 2021, the company sponsored a Special Purpose Acquisition Company (SPAC), Modiv Acquisition Corp (MACS), to acquire a business in the **fintech and proptech sectors**[18](index=18&type=chunk)[19](index=19&type=chunk)[20](index=20&type=chunk) - A **1:3 reverse stock split** was effected on February 1, 2021, with all share and per-share data adjusted accordingly[27](index=27&type=chunk) - The Follow-on Offering was terminated on January 27, 2021, after selling 6.6 million Class C shares for **$197.5 million** and 63,711 Class S shares for **$1.9 million**[37](index=37&type=chunk)[42](index=42&type=chunk) [Completion of the Merger and the Self-Management Transaction](index=9&type=section&id=Completion%20of%20the%20Merger%20and%20the%20Self-Management%20Transaction) The company became a self-managed REIT on December 31, 2019, through a merger with REIT I and the acquisition of its sponsor - On December 31, 2019, the company merged with REIT I, issuing **2,680,740.5 shares** of Class C common stock to REIT I shareholders[46](index=46&type=chunk)[47](index=47&type=chunk) - Concurrently, the company acquired its former sponsor, BrixInvest, by issuing **657,949.5 Class M OP Units**, completing its self-management transition[26](index=26&type=chunk)[49](index=49&type=chunk)[52](index=52&type=chunk) Class M OP Unit Conversion Ratio Hurdles | Fiscal Year | AUM Target | AFFO Per Share Target ($) | Class M Conversion Ratio (to Class C OP Units) | | :--- | :--- | :--- | :--- | | Initial | N/A | N/A | 1:1.6667 | | 2021 | $860,000,000 | $1.770 | 1:1.9167 | | 2022 | $1,175,000,000 | $1.950 | 1:2.5000 | | 2023 | $1,551,000,000 | $2.100 | 1:3.0000 | [Investment Objectives and Strategies](index=11&type=section&id=Investment%20Objectives%20and%20Strategies) The company's primary objectives are providing cash distributions, preserving capital, and achieving NAV appreciation - The company's primary investment objectives include providing **attractive cash distributions**, preserving stockholder capital, and realizing appreciation in Net Asset Value (NAV)[63](index=63&type=chunk)[68](index=68&type=chunk) - The investment strategy focuses on a diversified portfolio of income-generating commercial real estate and potential acquisitions of other non-listed REITs[62](index=62&type=chunk)[65](index=65&type=chunk)[67](index=67&type=chunk) - A key strategic focus is on **real estate-related fintech and proptech companies** that are disrupting capital markets and investment management[69](index=69&type=chunk)[71](index=71&type=chunk) [General Acquisition and Investment Policies](index=12&type=section&id=General%20Acquisition%20and%20Investment%20Policies) The company employs a discretionary acquisition approach guided by its board, focusing on tenant quality and long-term net leases - The company's charter limits total borrowing to 300% of net assets, but internal policy targets leverage **not to exceed 55% of tangible asset value**[86](index=86&type=chunk) - The company primarily acquires single-tenant properties with existing **triple-net or double-net leases**, typically with remaining lease terms of 5 to 15 years[83](index=83&type=chunk) - Due to the COVID-19 pandemic, the company **did not acquire any operating properties in 2020**, instead selling five properties for gross proceeds of $31.1 million to enhance liquidity[98](index=98&type=chunk)[101](index=101&type=chunk) [Risk Factors](index=18&type=section&id=ITEM%201A.%20RISK%20FACTORS) The company faces risks from its limited operating history, lack of a public market, and the impacts of the COVID-19 pandemic - The company has a limited operating history and is a **"blind pool,"** creating reliance on management's discretion for future investments[117](index=117&type=chunk)[120](index=120&type=chunk)[125](index=125&type=chunk) - **Risks related to the COVID-19 pandemic are significant**, including adverse effects on tenants' financial conditions and business operations[119](index=119&type=chunk)[190](index=190&type=chunk)[266](index=266&type=chunk) - **No public market exists for the company's stock**, and liquidity depends on a share repurchase program with significant limitations[119](index=119&type=chunk)[170](index=170&type=chunk) - **Failure to maintain REIT qualification** would result in corporate income tax, reducing cash available for distributions[119](index=119&type=chunk)[126](index=126&type=chunk)[231](index=231&type=chunk) - The company faces risks from its sponsorship of a SPAC (MACS), including the **potential loss of its entire investment** if a business combination fails[120](index=120&type=chunk)[155](index=155&type=chunk) - The company's reliance on tenants for revenue creates risk from **tenant bankruptcies or lease defaults**, particularly for single-tenant properties[119](index=119&type=chunk)[196](index=196&type=chunk)[209](index=209&type=chunk) [Unresolved Staff Comments](index=47&type=section&id=ITEM%201B.%20UNRESOLVED%20STAFF%20COMMENTS) The company has no unresolved staff comments from the Securities and Exchange Commission - There are **no unresolved staff comments**[272](index=272&type=chunk) [Properties](index=48&type=section&id=ITEM%202.%20PROPERTIES) As of December 31, 2020, the company owned a diversified portfolio of 36 operating properties across 14 states Property Portfolio Summary (as of Dec 31, 2020) | Property Type | Number of Properties | Rentable Square Feet | % of Total Leased Square Feet | | :--- | :--- | :--- | :--- | | Retail | 11 | 220,553 | 10.4% | | Office | 14 | 853,963 | 40.1% | | Industrial | 11 | 1,053,779 | 49.5% | | **Total** | **36** | **2,128,295** | **100.0%** | Lease Expiration Schedule by Annualized Base Rent (as of Dec 31, 2020) | Year of Expiration | % of Annualized Base Rent Expiring | | :--- | :--- | | 2021 | 3.1% | | 2022 | 12.2% | | 2023 | 10.9% | | 2024 | 3.8% | | 2025 | 24.8% | | Thereafter | 45.2% | - In addition to the main portfolio, the company holds an approximate **72.7% Tenant-in-Common (TIC) interest** in a 91,740 sq ft office property in Santa Clara, CA[279](index=279&type=chunk) [Legal Proceedings](index=50&type=section&id=ITEM%203.%20LEGAL%20PROCEEDINGS) The company is not a party to a lawsuit filed against its Former Advisor by a former employee - A lawsuit was filed against the company's Former Advisor, BrixInvest, by a former employee alleging retaliatory termination; **the company is not a party to this lawsuit**[819](index=819&type=chunk) [Mine Safety Disclosures](index=50&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This item is not applicable to the company - Not applicable[281](index=281&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=51&type=section&id=ITEM%205.%20MARKET%20FOR%20REGISTRANT'S%20COMMON%20EQUITY%2C%20RELATED%20STOCKHOLDER%20MATTERS%20AND%20ISSUER%20PURCHASES%20OF%20EQUITY%20SECURITIES) No public market exists for the company's stock, with liquidity provided through a limited Share Repurchase Program - **No public market exists** for the company's common stock; liquidity is primarily available through the Share Repurchase Program (SRP)[285](index=285&type=chunk)[170](index=170&type=chunk) - The company plans to pay a potential **13th distribution** for the year ending December 31, 2021, if AFFO exceeds regular distributions[300](index=300&type=chunk)[402](index=402&type=chunk) Historical Estimated NAV per Share (Adjusted for 1:3 split) | Effective Date of Valuation | Estimated NAV per Share (Unaudited) | | :--- | :--- | | December 31, 2020 | $23.03 | | April 30, 2020 | $21.01 | | December 31, 2019 | $30.81 | | December 31, 2018 | $30.48 | Sources of Distribution Payments | Period | Total Distributions Declared | % from Net Rental Income | % from Offering Proceeds | | :--- | :--- | :--- | :--- | | **2020** | $11,701,828 | 100% | 0% | | **2019** | $10,585,519 | 100% | 0% | Share Repurchases (Q4 2020) | Month | Value of Repurchase Requests Received | Value of Shares Repurchased | | :--- | :--- | :--- | | October 2020 | $5,907,195 | $1,537,198 | | November 2020 | $6,169,549 | $1,491,664 | | December 2020 | $4,304,962 | $2,980,560 | [Selected Financial Data](index=59&type=section&id=ITEM%206.%20SELECTED%20FINANCIAL%20DATA) This section provides a five-year summary of key financial data, reflecting the 2019 merger and 2020 pandemic-related impairments - The significant increase in net loss in 2020 was primarily due to **impairment charges of $44.9 million** on real estate, goodwill, and intangible assets[335](index=335&type=chunk)[336](index=336&type=chunk) Selected Balance Sheet Data (in thousands) | As of December 31, | 2020 | 2019 | | :--- | :--- | :--- | | Real estate investments, net | $339,459 | $413,924 | | Total assets | $407,433 | $490,917 | | Total liabilities | $217,181 | $236,675 | | Total equity | $182,887 | $240,173 | Selected Operating Data (in thousands, except per share data) | For the Year Ended December 31, | 2020 | 2019 | | :--- | :--- | :--- | | Total revenues | $38,903 | $24,545 | | Net loss | $(49,142) | $(4,416) | | Net loss per common share | $(6.14) | $(0.88) | | Cash flows from operations | $5,577 | $4,749 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=60&type=section&id=ITEM%207.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Management discusses the transition to a self-managed REIT and the significant financial impact of the COVID-19 pandemic in 2020 - The company became self-managed on December 31, 2019, and its 2020 results reflect the full-year impact of this change and the REIT I merger[346](index=346&type=chunk)[410](index=410&type=chunk) - The COVID-19 pandemic led to **impairment charges of $44.9 million** on real estate, goodwill, and intangible assets during 2020[420](index=420&type=chunk)[421](index=421&type=chunk) - To manage liquidity, the company sold five properties for **net proceeds of $13.5 million** and refinanced three mortgages for **net proceeds of $6.9 million**[381](index=381&type=chunk)[383](index=383&type=chunk) - In March 2021, the company entered into a **new $22 million credit facility** with Banc of California, increasing its credit line by $10 million[360](index=360&type=chunk)[375](index=375&type=chunk) FFO and AFFO Reconciliation (Year Ended Dec 31, 2020) | Metric | Amount (in millions) | Per Share (Basic/Diluted) | | :--- | :--- | :--- | | Net Loss | $(49.1) | $(6.14) | | FFO | $8.1 | $0.88 (Diluted) | | AFFO | $10.1 | $1.26 (Basic) | [Results of Operations](index=71&type=section&id=Results%20of%20Operations) Rental income grew due to the 2019 merger, but a net loss was driven by self-management costs and significant impairment charges - The increase in rental income was primarily due to the full-year contribution of 20 properties acquired through the **merger with REIT I**[412](index=412&type=chunk) - The company recorded **impairment charges totaling $44.8 million** in 2020 due to the negative impacts of the COVID-19 pandemic[420](index=420&type=chunk)[421](index=421&type=chunk) - A **net gain of $4.1 million** was recognized from the sale of five properties during 2020 to support liquidity[410](index=410&type=chunk)[425](index=425&type=chunk) Comparison of Operations (Years Ended Dec 31) | Item | 2020 | 2019 | Change (%) | | :--- | :--- | :--- | :--- | | Rental Income | $38,903,430 | $24,544,958 | +58.5% | | General & Administrative | $10,399,194 | $2,711,573 | +283.5% | | Depreciation & Amortization | $17,592,253 | $9,848,130 | +78.6% | | Interest Expense | $11,460,747 | $7,382,610 | +55.2% | | Impairment Charges | $44,840,028 | $0 | N/A | | **Net Loss** | **$(49,141,910)** | **$(4,415,992)** | **+1012.8%** | [Liquidity and Capital Resources](index=63&type=section&id=Liquidity%20and%20Capital%20Resources) The company managed liquidity through asset sales and debt refinancing, securing a new $22 million credit facility in March 2021 - In March 2021, the company entered into a **new $22 million credit facility** with Banc of California, replacing its previous $12 million facility[360](index=360&type=chunk)[375](index=375&type=chunk) - During 2020, the company sold five properties for **net proceeds of $13.5 million** and refinanced three mortgages for **net proceeds of $6.9 million**[381](index=381&type=chunk)[383](index=383&type=chunk) - The company's subsidiary received a **$517,000 PPP loan** in April 2020, which was fully forgiven in February 2021[377](index=377&type=chunk)[378](index=378&type=chunk) - The company's leverage ratio was **47%** as of December 31, 2020, within its board-approved maximum of 55%[365](index=365&type=chunk) [Critical Accounting Policies](index=77&type=section&id=Critical%20Accounting%20Policies) Key policies include revenue recognition, valuation of real estate, impairment testing, and fair value measurement of derivatives - The company adopted Topic 842 (Leases) and uses a practical expedient to **combine lease and non-lease components** for revenue recognition[459](index=459&type=chunk)[460](index=460&type=chunk) - Real estate acquisitions are valued at fair value, with the purchase price allocated to tangible and intangible assets based on **significant management assumptions**[477](index=477&type=chunk)[478](index=478&type=chunk)[483](index=483&type=chunk) - The company monitors for impairment indicators, which in 2020 led to **significant impairment charges** due to the COVID-19 pandemic[485](index=485&type=chunk)[487](index=487&type=chunk) - The company uses **derivative instruments (interest rate swaps)** to hedge interest rate risk, which are recorded at fair value[637](index=637&type=chunk)[782](index=782&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=82&type=section&id=ITEM%207A.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) This item is not applicable as the company is a smaller reporting company - Not applicable as the Company is a **smaller reporting company**[495](index=495&type=chunk) [Financial Statements and Supplementary Data](index=82&type=section&id=ITEM%208.%20FINANCIAL%20STATEMENTS%20AND%20SUPPLEMENTARY%20DATA) This section directs the reader to the complete financial statements located at page F-1 of the report - The full financial statements and supplementary data are available starting at **page F-1** of the report[496](index=496&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=82&type=section&id=ITEM%209.%20CHANGES%20IN%20AND%20DISAGREEMENTS%20WITH%20ACCOUNTANTS%20ON%20ACCOUNTING%20AND%20FINANCIAL%20DISCLOSURE) This item is not applicable to the company for the reporting period - Not applicable[497](index=497&type=chunk) [Controls and Procedures](index=82&type=section&id=ITEM%209A.%20CONTROLS%20AND%20PROCEDURES) Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of year-end 2020 - Management concluded that the company's **disclosure controls and procedures were effective** as of December 31, 2020[500](index=500&type=chunk) - Based on the COSO 2013 framework, management concluded that the company's **internal control over financial reporting was effective**[502](index=502&type=chunk) - As an emerging growth company, the report **does not include an auditor attestation** on internal control over financial reporting[503](index=503&type=chunk) [Other Information](index=84&type=section&id=ITEM%209B.%20OTHER%20INFORMATION) The company entered into a new $22 million credit facility with Banc of California in March 2021 - On March 29, 2021, the company secured a **new $22 million credit facility** with Banc of California, maturing on March 30, 2023[507](index=507&type=chunk) - The new facility provides a **$17 million revolving line** for real estate acquisitions and a **$5 million line** for working capital[507](index=507&type=chunk) - The interest rate is variable at prime + 1.00% with a **floor of 4.75%**, and the facility is secured by substantially all company assets[507](index=507&type=chunk)[508](index=508&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=85&type=section&id=ITEM%2010.%20DIRECTORS%2C%20EXECUTIVE%20OFFICERS%20AND%20CORPORATE%20GOVERNANCE) Information is incorporated by reference from the company's definitive proxy statement - Information is **incorporated by reference** to the definitive proxy statement for the 2021 annual meeting of stockholders[511](index=511&type=chunk) [Executive Compensation](index=85&type=section&id=ITEM%2011.%20EXECUTIVE%20COMPENSATION) Information is incorporated by reference from the company's definitive proxy statement - Information is **incorporated by reference** to the definitive proxy statement for the 2021 annual meeting of stockholders[512](index=512&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=85&type=section&id=ITEM%2012.%20SECURITY%20OWNERSHIP%20OF%20CERTAIN%20BENEFICIAL%20OWNERS%20AND%20MANAGEMENT%20AND%20RELATED%20STOCKHOLDER%20MATTERS) Information is incorporated by reference from the company's definitive proxy statement - Information is **incorporated by reference** to the definitive proxy statement for the 2021 annual meeting of stockholders[513](index=513&type=chunk) [Certain Relationships and Related Transactions and Director Independence](index=85&type=section&id=ITEM%2013.%20CERTAIN%20RELATIONSHIPS%20AND%20RELATED%20TRANSACTIONS%20AND%20DIRECTOR%20INDEPENDENCE) Information is incorporated by reference from the company's definitive proxy statement - Information is **incorporated by reference** to the definitive proxy statement for the 2021 annual meeting of stockholders[514](index=514&type=chunk) [Principal Accounting Fees and Services](index=85&type=section&id=ITEM%2014.%20PRINCIPAL%20ACCOUNTING%20FEES%20AND%20SERVICES) Information is incorporated by reference from the company's definitive proxy statement - Information is **incorporated by reference** to the definitive proxy statement for the 2021 annual meeting of stockholders[515](index=515&type=chunk) Part IV [Exhibits, Financial Statement Schedules](index=86&type=section&id=ITEM%2015.%20EXHIBITS%2C%20FINANCIAL%20STATEMENT%20SCHEDULES) This section lists all exhibits filed with the report, including key corporate and financial agreements - This section lists all exhibits filed with the report, including key agreements such as the **Merger Agreement and Contribution Agreement**[524](index=524&type=chunk)[526](index=526&type=chunk) - **Financial Statement Schedule III** - Real Estate Assets and Accumulated Depreciation and Amortization is included in the report[519](index=519&type=chunk) [Form 10-K Summary](index=88&type=section&id=ITEM%2016.%20FORM%2010-K%20SUMMARY) This item is not applicable to the company - None[529](index=529&type=chunk) [Consolidated Financial Statements](index=89&type=section&id=INDEX%20TO%20CONSOLIDATED%20FINANCIAL%20STATEMENTS) [Report of Independent Registered Public Accounting Firm](index=90&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) The independent auditor issued an unqualified opinion on the 2020 and 2019 consolidated financial statements - Baker Tilly US, LLP issued an **unqualified opinion** on the consolidated financial statements, stating they are presented fairly in conformity with U.S. GAAP[536](index=536&type=chunk) - The company is not required to have an audit of its internal control over financial reporting, and the **auditors expressed no opinion on its effectiveness**[538](index=538&type=chunk) [Consolidated Financial Statements](index=91&type=section&id=Consolidated%20Financial%20Statements) The financial statements show a decrease in assets and a significant net loss in 2020 driven by large impairment charges Consolidated Balance Sheet Highlights (as of Dec 31) | (in millions) | 2020 | 2019 | | :--- | :--- | :--- | | Total Real Estate Investments, Net | $364.0 | $413.9 | | Goodwill, Net | $17.3 | $50.6 | | Total Assets | $407.4 | $490.9 | | Total Mortgage Notes Payable, Net | $185.0 | $194.0 | | Total Liabilities | $217.2 | $236.7 | | Total Equity | $182.9 | $240.2 | Consolidated Statement of Operations Highlights (Year Ended Dec 31) | (in millions) | 2020 | 2019 | | :--- | :--- | :--- | | Rental Income | $38.9 | $24.5 | | Total Expenses | $91.5 | $29.6 | | Impairment Charges (included in expenses) | $44.8 | $0.0 | | Gain on Real Estate Investments, Net | $4.1 | $0.0 | | **Net Loss** | **$(49.1)** | **$(4.4)** | Consolidated Cash Flow Summary (Year Ended Dec 31) | (in millions) | 2020 | 2019 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $5.6 | $4.7 | | Net Cash from (used in) Investing Activities | $24.8 | $(29.6) | | Net Cash (used in) from Financing Activities | $(28.9) | $23.0 | [Notes to Consolidated Financial Statements](index=97&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) [Note 3: Merger and Self-Management Transaction](index=113&type=section&id=NOTE%203.%20MERGER%20AND%20SELF-MANAGEMENT%20TRANSACTION) This note details the accounting for the 2019 merger and self-management transaction, including subsequent goodwill impairment - The merger with REIT I was accounted for as an asset acquisition with a total purchase price of **$81.7 million**[672](index=672&type=chunk)[676](index=676&type=chunk) - The Self-Management Transaction was a business combination resulting in the recognition of **$50.6 million in goodwill** and **$7.7 million in intangible assets**[691](index=691&type=chunk)[692](index=692&type=chunk)[695](index=695&type=chunk) - Due to the COVID-19 pandemic, the company recorded impairment charges in Q1 2020, reducing goodwill by **$33.3 million** and intangible assets by **$1.3 million**[697](index=697&type=chunk)[703](index=703&type=chunk) [Note 4: Real Estate Investments](index=119&type=section&id=NOTE%204.%20REAL%20ESTATE%20INVESTMENTS) This note details the real estate portfolio, including $10.3 million in 2020 impairment charges and $31.1 million in property sales - In 2020, the company sold five properties for a total contract price of **$31.1 million**, realizing a net gain of $4.1 million[720](index=720&type=chunk) - As of December 31, 2020, **four retail properties** were classified as held for sale[741](index=741&type=chunk) - Future minimum contractual rent payments due under noncancelable operating leases total **$151.3 million** as of December 31, 2020[733](index=733&type=chunk) Real Estate Impairment Charges (Year Ended Dec 31, 2020) | Property | Location | Impairment Charge | | :--- | :--- | :--- | | 24 Hour Fitness | Las Vegas, NV | $5,664,517 | | Dana | Cedar Park, TX | $2,184,395 | | Dinan Cars | Morgan Hill, CA | $1,308,156 | | Other (3 properties) | Various | $1,110,557 | | **Total** | | **$10,267,625** | [Note 7: Debt](index=129&type=section&id=NOTE%207.%20DEBT) As of year-end 2020, the company had total debt of $182.9 million and was in compliance with all debt covenants - In August 2020, the company amended its unsecured credit facility, extending the maturity of the remaining **$6.0 million balance** to October 2021[760](index=760&type=chunk) - The company was in **compliance with all financial loan covenants** as of December 31, 2020[772](index=772&type=chunk) - In March 2021, the company entered into a **new $22 million credit facility**, which was used to repay and replace the existing $6 million facility[765](index=765&type=chunk) Debt Summary (as of Dec 31, 2020) | Debt Instrument | Principal Balance | | :--- | :--- | | Mortgage Notes Payable | $176,948,438 | | Unsecured Credit Facility | $6,000,000 | | Economic Relief Note Payable (PPP) | $517,000 | | **Total Principal** | **$183,465,438** | [Note 11: Subsequent Events](index=142&type=section&id=NOTE%2011.%20SUBSEQUENT%20EVENTS) The company reported numerous significant events post-year-end, including asset sales, refinancing, and sponsoring a SPAC - In Q1 2021, the company sold three properties held for sale for total **net proceeds of $10.6 million**[833](index=833&type=chunk)[834](index=834&type=chunk)[835](index=835&type=chunk) - On March 5, 2021, the company refinanced four mortgage notes with an aggregate principal of $10.1 million, replacing them with **new loans totaling $12.1 million**[836](index=836&type=chunk) - The company is sponsoring a SPAC (MACS) and deposited **$4.5 million in escrow** to purchase warrants upon the SPAC's IPO[847](index=847&type=chunk)[848](index=848&type=chunk) - On January 25, 2021, the company granted **360,000 Class R OP Units** to employees as incentive compensation, which vest in March 2024[845](index=845&type=chunk)

[PART I - FINANCIAL INFORMATION](index=5&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements (Unaudited)](index=5&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) The unaudited financial statements show a significant nine-month net loss driven by major impairment charges [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets and equity declined significantly as of September 30, 2020, due to goodwill impairment Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | Sep 30, 2020 | Dec 31, 2019 | Change | | :--- | :--- | :--- | :--- | | Total real estate investments | $379,546 | $413,924 | ($34,378) | | Goodwill, net | $17,321 | $50,588 | ($33,267) | | **Total assets** | **$422,516** | **$490,917** | **($68,401)** | | Total mortgage notes payable, net | $193,672 | $194,039 | ($367) | | **Total liabilities** | **$228,722** | **$236,675** | **($7,953)** | | **Total equity** | **$185,512** | **$240,173** | **($54,661)** | [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) The nine-month net loss widened dramatically to $52.1 million due to significant impairment charges Key Operating Results (in thousands) | Metric | Q3 2020 | Q3 2019 | 9 Months 2020 | 9 Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Rental income | $9,557 | $6,126 | $29,889 | $17,908 | | Impairment charges | $0 | $0 | $44,079 | $0 | | Total expenses | $11,232 | $7,226 | $82,743 | $21,438 | | **Net loss** | **($1,064)** | **($921)** | **($52,097)** | **($2,974)** | | Net loss per share | ($0.04) | ($0.06) | ($2.17) | ($0.20) | [Condensed Consolidated Statements of Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Equity) Total equity decreased by $54.7 million in the first nine months of 2020, driven by a net loss and distributions - For the nine months ended September 30, 2020, the company's total equity was significantly impacted by a **net loss of $52.1 million** and **distributions declared of $9.6 million**[23](index=23&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash from operations decreased while investing activities provided cash due to proceeds from property sales Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Cash Flow Category | 2020 | 2019 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $3,812 | $4,563 | | Net Cash from Investing Activities | $13,208 | ($6,481) | | Net Cash from Financing Activities | ($14,946) | $5,454 | | **Net Increase in Cash** | **$2,074** | **$3,537** | [Notes to Condensed Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Notes detail the financial impact of the REIT I merger, self-management, and COVID-19 impairments - In response to the COVID-19 pandemic, the company suspended its primary offerings, updated its **NAV per share to $7.00**, and resumed offerings at the lower price[39](index=39&type=chunk) - The company recorded a **goodwill impairment charge of $33.3 million** and an **intangible asset impairment of $1.3 million** due to COVID-19 impacts[124](index=124&type=chunk)[128](index=128&type=chunk) - The company recorded **$9.5 million in impairment charges** on four real estate properties due to tenant issues, including the bankruptcy of 24 Hour Fitness[134](index=134&type=chunk)[139](index=139&type=chunk) - The company terminated its corporate office lease early, resulting in a **lease termination expense of $1.175 million**[238](index=238&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=54&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the significant impact of COVID-19, including tenant issues, NAV reduction, and impairment charges - The company became **self-managed on December 31, 2019**, following a merger with REIT I and the acquisition of its former sponsor[261](index=261&type=chunk) - Due to the COVID-19 pandemic, **rent collections were approximately 95% for Q3 2020**, though key tenant 24 Hour Fitness filed for bankruptcy[268](index=268&type=chunk) - The company's **leverage ratio was 48%** as of September 30, 2020, below the board-approved maximum of 55%[280](index=280&type=chunk) [Results of Operations](index=62&type=section&id=Results%20of%20Operations) Q3 2020 rental income grew 56% YoY, but the nine-month results show a $52.1 million net loss from impairments Comparison of Operating Results (Q3 2020 vs Q3 2019) | Metric | Q3 2020 | Q3 2019 | Change (%) | | :--- | :--- | :--- | :--- | | Rental Income | $9.6M | $6.1M | +56% | | General & Administrative | $2.5M | $0.9M | +175% | | Depreciation & Amortization | $4.3M | $2.4M | +80% | | Interest Expense | $2.7M | $1.7M | +57% | | **Net Loss** | **($1.1M)** | **($0.9M)** | **+22%** | - For the nine months ended September 30, 2020, the company recorded significant non-cash charges including **$9.5M for real estate impairment**, **$34.6M for goodwill and intangible asset impairment**, and a **$3.1M reserve for a loan guarantee**[324](index=324&type=chunk)[325](index=325&type=chunk)[326](index=326&type=chunk) [Liquidity and Capital Resources](index=57&type=section&id=Liquidity%20and%20Capital%20Resources) The company enhanced liquidity in Q3 2020 through property sales and mortgage refinancing - During Q3 2020, the company sold three retail properties, generating **total net proceeds of $9.7 million** after debt repayment[285](index=285&type=chunk) - In July and August 2020, the company refinanced three properties, generating **total net proceeds of $6.9 million**, which were used to repay other debt obligations[289](index=289&type=chunk) [Distributions](index=66&type=section&id=Distributions) The company declared $9.6 million in distributions for the first nine months of 2020 and reduced its daily distribution rate in May Distributions Summary (2020) | Period | Total Declared | Per Share | Source | | :--- | :--- | :--- | :--- | | Q1 2020 | $4,189,102 | $0.175875 | Net Rental Income | | Q2 2020 | $3,270,291 | $0.136000 | Net Rental Income | | Q3 2020 | $2,135,815 | $0.136000 | Net Rental Income | | **9M 2020 Total** | **$9,595,208** | **$0.447875** | **Net Rental Income** | - The daily distribution rate was reduced in May 2020 to $0.00095890 per share, reflecting an **annualized rate of 5.0%** on the updated NAV of $7.00 per share[249](index=249&type=chunk)[342](index=342&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=68&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, this section is not applicable - As a smaller reporting company, the registrant is not required to provide the information under this item[370](index=370&type=chunk) [Controls and Procedures](index=68&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of September 30, 2020 - The CEO and CFO concluded that the company's **disclosure controls and procedures were effective** as of September 30, 2020[372](index=372&type=chunk) - There were **no material changes to internal control** over financial reporting during Q3 2020, and the shift to remote work has not had a material effect[373](index=373&type=chunk) [PART II - OTHER INFORMATION](index=69&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) [Legal Proceedings](index=69&type=section&id=Item%201.%20Legal%20Proceedings) The company is not a party to any material legal proceedings, though its Former Advisor faces a lawsuit - A lawsuit was filed against the company's Former Advisor by a former employee for alleged retaliatory termination; **the company is not a party to this lawsuit**[247](index=247&type=chunk)[374](index=374&type=chunk) [Risk Factors](index=69&type=section&id=Item%201A.%20Risk%20Factors) The primary risk factors relate to the ongoing COVID-19 pandemic's impact on tenants and operations - The COVID-19 pandemic poses significant risks to the business, including **tenants' ability to pay rent**, potential for store closures, and operational disruptions[376](index=376&type=chunk)[377](index=377&type=chunk) - The pandemic could negatively impact compliance with financial covenants, access to capital, and the value of intangible assets[381](index=381&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=70&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company issued unregistered shares, used offering proceeds for investments, and conducted share repurchases in Q3 2020 - Since inception, the company has raised **$195.9 million in gross proceeds** from its Registered Offerings, with **$187.1 million in net proceeds** used for real estate investments[386](index=386&type=chunk)[388](index=388&type=chunk) - For Q3 2020, the company received **repurchase requests totaling $23.1M** but only repurchased shares valued at approximately **$3.8M**[243](index=243&type=chunk)[391](index=391&type=chunk) Share Repurchase Activity (Q3 2020) | Month | Total Shares Repurchased | Average Price Paid Per Share | | :--- | :--- | :--- | | July 2020 | 107,853 | $6.96 | | August 2020 | 142,857 | $6.97 | | September 2020 | 203,990 | $6.96 | | **Total** | **454,700** | | [Exhibits](index=73&type=section&id=Item%206.%20Exhibits) This section provides an index of all exhibits filed with the Quarterly Report on Form 10-Q

PART I - FINANCIAL INFORMATION [Financial Statements (Unaudited)](index=5&type=section&id=Item%201%2E%20Financial%20Statements%20(Unaudited)) The unaudited condensed consolidated financial statements for the six months ended June 30, 2020, detail the company's financial position, operations, equity, and cash flows [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheet as of June 30, 2020, shows a decrease in total assets to $437.1 million, primarily driven by a significant impairment of goodwill Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total real estate investments | $396,564 | $413,924 | | Cash and cash equivalents | $3,820 | $6,824 | | Goodwill, net | $17,321 | $50,588 | | **Total assets** | **$437,059** | **$490,917** | | Total mortgage notes payable, net | $196,227 | $194,039 | | **Total liabilities** | **$238,471** | **$236,675** | | **Total equity** | **$189,663** | **$240,173** | - Goodwill decreased from **$50.6 million to $17.3 million** due to impairment charges recorded during the first quarter of 2020[16](index=16&type=chunk)[81](index=81&type=chunk) - The company classified four properties with a net value of **$17.9 million** as 'Real estate investments held for sale' as of June 30, 2020[16](index=16&type=chunk)[45](index=45&type=chunk) [Condensed Consolidated Statements of Operations](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For the six months ended June 30, 2020, the company reported a net loss of $51.0 million, driven by non-cash impairment charges totaling $44.1 million Statement of Operations Highlights (in thousands) | Metric | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | Rental income | $20,331 | $11,782 | | Impairment of real estate | $9,507 | $0 | | Impairment of goodwill & intangibles | $34,572 | $0 | | **Net loss** | **($51,033)** | **($2,053)** | | **Net loss per share** | **($2.13)** | **($0.14)** | - The significant increase in net loss was primarily due to impairment charges on real estate investment properties (**$9.5M**), goodwill and intangible assets (**$34.6M**), and a reserve for a loan guarantee (**$3.1M**)[20](index=20&type=chunk) - Rental income for the six months ended June 30, 2020, **increased by 73%** compared to the prior year period, mainly due to properties acquired in the Merger with REIT I[20](index=20&type=chunk)[302](index=302&type=chunk)[314](index=314&type=chunk) [Condensed Consolidated Statements of Equity](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Equity) Total equity decreased from $240.2 million to $189.7 million as of June 30, 2020, primarily due to a net loss of $51.0 million Changes in Equity - Six Months Ended June 30, 2020 (in thousands) | Description | Amount | | :--- | :--- | | **Beginning Equity (Dec 31, 2019)** | **$240,173** | | Issuance of common stock | $14,092 | | Repurchase of common stock | ($9,988) | | Distributions declared | ($7,459) | | Net loss | ($51,033) | | Other changes | $3,878 | | **Ending Equity (June 30, 2020)** | **$189,663** | [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended June 30, 2020, net cash from operations was $3.4 million, while financing activities used $2.5 million Cash Flow Summary - Six Months Ended June 30 (in thousands) | Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $3,383 | $2,886 | | Net cash used in investing activities | ($3,694) | ($3,488) | | Net cash (used in) provided by financing activities | ($2,547) | $2,637 | | **Net (decrease) increase in cash** | **($2,858)** | **$2,035** | [Notes to Condensed Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes detail the 2019 merger, significant impairment charges of $44.1 million in H1 2020, and other key disclosures on debt and subsequent events - On December 31, 2019, the company completed a merger with REIT I and a Self-Management Transaction, becoming self-managed and acquiring 20 properties[36](index=36&type=chunk)[98](index=98&type=chunk)[104](index=104&type=chunk) - Due to the COVID-19 pandemic, the company recorded significant impairment charges in H1 2020: **$9.5 million** on real estate properties, **$33.3 million** on goodwill, and **$1.3 million** on intangible assets[81](index=81&type=chunk)[82](index=82&type=chunk)[143](index=143&type=chunk) - In response to COVID-19's economic impact, the company's board suspended its primary offerings, updated its **NAV per share from $10.27 to $7.00**, and then resumed offerings at the lower price[43](index=43&type=chunk) - Subsequent to the quarter end, the company sold one property for **$7.25 million** and refinanced three mortgage notes, generating net proceeds of **$6.9 million**[243](index=243&type=chunk)[246](index=246&type=chunk)[247](index=247&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=52&type=section&id=Item%202%2E%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the significant impact of the COVID-19 pandemic on operations, liquidity, and capital resources, resulting in a $51.0 million net loss - The COVID-19 pandemic has severely impacted the company, leading to tenant rent deferral requests, the bankruptcy of tenant **24 Hour Fitness**, and a slowdown in capital raising[267](index=267&type=chunk)[288](index=288&type=chunk) - In response to the pandemic's impact, the company updated its **NAV per share from $10.27 to $7.00** and temporarily suspended its primary offerings[268](index=268&type=chunk)[269](index=269&type=chunk) Comparison of Results - Six Months Ended June 30 | Metric (in millions) | 2020 | 2019 | | :--- | :--- | :--- | | Rental Income | $20.3 | $11.8 | | General & Administrative | $4.9 | $1.4 | | Impairment Charges (Total) | $44.1 | $0 | | Net Loss | ($51.0) | ($2.1) | - To improve liquidity, the company is selling properties, including one sold for **$7.25 million**, and has increased its maximum leverage limit to **55%** of tangible assets[277](index=277&type=chunk)[283](index=283&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=69&type=section&id=Item%203%2E%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section is not applicable as the company qualifies as a smaller reporting company - The company is a smaller reporting company and is therefore **not required to provide this disclosure**[359](index=359&type=chunk) [Controls and Procedures](index=69&type=section&id=Item%204%2E%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2020 - The CEO and CFO concluded that the company's disclosure controls and procedures were **effective** as of June 30, 2020[361](index=361&type=chunk) - No material changes to internal control over financial reporting occurred during the quarter, despite the shift to remote work due to COVID-19[362](index=362&type=chunk) PART II - OTHER INFORMATION [Legal Proceedings](index=69&type=section&id=Item%201%2E%20Legal%20Proceedings) The company is not a party to a lawsuit filed against its Former Advisor by a former employee - A lawsuit was filed against the company's Former Advisor by a former employee in September 2019; the company is **not a party** to this litigation[239](index=239&type=chunk)[363](index=363&type=chunk) [Risk Factors](index=69&type=section&id=Item%201A%2E%20Risk%20Factors) The COVID-19 pandemic presents material and adverse risks to the business, including tenant financial instability and potential property value declines - The COVID-19 outbreak has **adversely affected** and may continue to affect the business, operations, and the financial condition of its tenants[365](index=365&type=chunk) - The pandemic could negatively impact the company's financial condition through tenant defaults, difficulty accessing capital, and potential **debt covenant non-compliance**[370](index=370&type=chunk) - The widespread adoption of remote work could negatively impact the long-term demand for **office space**, a significant portion of the company's portfolio[370](index=370&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=71&type=section&id=Item%202%2E%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company details unregistered stock issuances, use of proceeds, and significant unmet demand for its share repurchase program - In Q2 2020, the company issued **6,816 Class C shares** to directors and **1,945 Class S shares** via its DRP, both exempt from registration[373](index=373&type=chunk)[374](index=374&type=chunk) - Through June 30, 2020, the company has raised aggregate gross proceeds of **$193.8 million** from its registered offerings of Class C common stock[376](index=376&type=chunk) - The company received share repurchase requests for over **$26 million** but only honored a fraction due to liquidity constraints and offering suspension[383](index=383&type=chunk) [Exhibits](index=73&type=section&id=Item%206%2E%20Exhibits) This section provides an index of all exhibits filed, including agreements, corporate documents, and required Sarbanes-Oxley Act certifications - An amendment to the Loan Agreement with Pacific Mercantile Bank, dated August 13, 2020, is filed as **Exhibit 10.1**[393](index=393&type=chunk) - The report includes required certifications from the Principal Executive Officer and Principal Financial Officer pursuant to **Sections 302 and 906 of the Sarbanes-Oxley Act of 2002**[393](index=393&type=chunk)

[PART I - FINANCIAL INFORMATION](index=6&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements (Unaudited)](index=6&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) The unaudited Q1 2020 financial statements show a $48.8 million net loss, driven by $43.7 million in impairment charges, reflecting COVID-19 impact and the REIT I merger [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets decreased to $442.6 million from $490.9 million by March 31, 2020, primarily due to goodwill and real estate impairments, leading to a $48.9 million equity decline Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2020 | December 31, 2019 | Change | | :--- | :--- | :--- | :--- | | Total real estate investments, net | $401,037 | $413,924 | ($12,887) | | Goodwill, net | $17,321 | $50,588 | ($33,267) | | **Total assets** | **$442,632** | **$490,917** | **($48,285)** | | Total liabilities | $241,661 | $236,675 | $4,986 | | **Total equity** | **$191,295** | **$240,173** | **($48,878)** | [Condensed Consolidated Statements of Operations](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Q1 2020 net loss surged to $48.8 million from $0.9 million in 2019, primarily due to $43.7 million in COVID-19 related impairment charges on assets Key Operating Results (Three Months Ended March 31, in thousands) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Rental income | $11,054,409 | $5,885,445 | | Impairment of real estate | $9,157,068 | $0 | | Impairment of goodwill & intangibles | $34,572,403 | $0 | | Reserve for loan guarantee | $3,129,290 | $0 | | **Net loss** | **($48,823,286)** | **($913,158)** | | **Net loss per share** | **($2.05)** | **($0.07)** | [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Q1 2020 saw $1.9 million net cash from operations, offset by $3.4 million used in investing and $1.0 million in financing, resulting in a $2.5 million net cash decrease Cash Flow Summary (Three Months Ended March 31, 2020, in thousands) | Activity | Amount | | :--- | :--- | | Net cash provided by operating activities | $1,947,505 | | Net cash used in investing activities | ($3,446,225) | | Net cash used in financing activities | ($1,002,536) | | **Net decrease in cash** | **($2,501,256)** | - Financing activities included **$6.9 million** in proceeds from stock issuance, **$4.3 million** in borrowings from the unsecured credit facility, and **$4.0 million** from mortgage notes. These inflows were offset by **$9.1 million** in common stock repurchases, **$3.8 million** in short-term note repayments, and **$1.4 million** in distributions paid[27](index=27&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Notes detail the company's self-management transition, significant Q1 2020 impairment charges due to COVID-19, debt structure, and subsequent NAV and distribution cuts [Note 1. Business and Organization](index=12&type=section&id=Note%201.%20Business%20and%20Organization) The company, a self-managed REIT with 45 properties, suspended offerings and cut NAV to $7.00/share due to COVID-19, resuming sales at the new price - On December 31, 2019, the Company completed a merger with REIT I and a self-management transaction, becoming self-managed[35](index=35&type=chunk) - As of March 31, 2020, the Company's portfolio included **45 operating properties** (20 retail, 16 office, 9 industrial), one parcel of land, and a **72.7% TIC interest** in an office property[44](index=44&type=chunk) - Due to COVID-19 impacts, the board suspended primary offerings on May 7, 2020, and on May 20, 2020, approved an updated NAV per share of **$7.00**, down from **$10.27**. Offerings resumed on June 1, 2020, at the new price[42](index=42&type=chunk) [Note 3. Merger and Self-Management Transaction](index=21&type=section&id=Note%203.%20Merger%20and%20Self-Management%20Transaction) The December 2019 merger and self-management led to $50.6 million goodwill and $7.7 million intangibles, subsequently impaired by $34.6 million in Q1 2020 due to COVID-19 - The merger with REIT I on December 31, 2019 was accounted for as an asset acquisition, adding **20 properties** to the portfolio[93](index=93&type=chunk)[94](index=94&type=chunk) - The self-management transaction on December 31, 2019 was accounted for as a business combination, resulting in the recognition of **$50.6 million** in goodwill and **$7.7 million** in intangible assets[99](index=99&type=chunk)[112](index=112&type=chunk)[117](index=117&type=chunk) - In Q1 2020, due to the COVID-19 pandemic's impact, the Company recorded impairment charges of **$33,267,143** against goodwill and **$1,305,260** against intangible assets (investor list)[120](index=120&type=chunk)[125](index=125&type=chunk) [Note 4. Real Estate Investments, Net](index=26&type=section&id=Note%204.%20Real%20Estate%20Investments,%20Net) The 45-property portfolio incurred $9.2 million in Q1 2020 impairment charges on three properties, primarily due to tenant bankruptcy and COVID-19 impacts Real Estate Impairment Charges (Q1 2020, in thousands) | Property | Location | Amount | | :--- | :--- | :--- | | Dana | Cedar Park, TX | $2,184,395 | | 24 Hour Fitness | Las Vegas, NV | $5,664,517 | | Dinan Cars | Morgan Hill, CA | $1,308,156 | | **Total** | | **$9,157,068** | - The impairment of the 24 Hour Fitness property was triggered by the tenant's closure due to COVID-19, non-payment of rent, and subsequent lease rejection in bankruptcy proceedings in June 2020[133](index=133&type=chunk) - As of March 31, 2020, future minimum contractual rent payments under non-cancellable operating leases totaled **$186.4 million**[143](index=143&type=chunk) [Note 7. Debt](index=34&type=section&id=Note%207.%20Debt) Total debt was $211.5 million as of March 31, 2020, with compliance concerns for a 24 Hour Fitness property mortgage due to tenant bankruptcy Total Debt Principal as of March 31, 2020 (in thousands) | Debt Type | Principal Amount | | :--- | :--- | | Mortgage Notes Payable | $198,429,236 | | Unsecured Credit Facility | $12,000,000 | | Short-term Notes Payable | $1,024,750 | | **Total** | **$211,453,986** | - The Company believes it is no longer in compliance with the mortgage covenants for the 24 Hour Fitness property following the tenant's lease rejection in its Chapter 11 bankruptcy proceeding[173](index=173&type=chunk) - On March 2, 2020, the Company borrowed **$4.0 million** from its Chairman, Ray Wirta, secured by two Chevron properties at an **8% interest rate**[185](index=185&type=chunk) [Note 11. Subsequent Events](index=46&type=section&id=Note%2011.%20Subsequent%20Events) Post-Q1, the company cut NAV to $7.00/share and distributions by 50% due to COVID-19, while collecting over 90% of Q2 rents despite a tenant bankruptcy - On May 22, 2020, the Company announced a new estimated NAV per share of **$7.00**, a significant decrease from the previous **$10.27**, reflecting the impact of the COVID-19 pandemic[227](index=227&type=chunk) - The annualized distribution rate was reduced to **$0.35 per share** (**5.0% yield** on the new NAV) from **$0.70 per share**, effective May 22, 2020[223](index=223&type=chunk) - A subsidiary received a **$517,000** loan under the Paycheck Protection Program (PPP) on April 20, 2020[231](index=231&type=chunk) - The Company has collected over **90% of rents** due for the second quarter of 2020, but one tenant, 24 Hour Fitness, formally rejected its lease in a Chapter 11 bankruptcy proceeding[230](index=230&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=49&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes Q1 2020 rental income growth to portfolio expansion, but a $48.8 million net loss resulted from COVID-19 related impairments and increased G&A post-self-management [Overview and Strategy](index=49&type=section&id=Overview%20and%20Strategy) The company, a self-managed UPREIT, focuses on acquiring single-tenant, net-leased properties, with a 97% occupancy rate and 6.3-year weighted average lease term as of Q1 2020 - The Company became self-managed on December 31, 2019, after merging with REIT I and internalizing its external advisor, BrixInvest[240](index=240&type=chunk) - The portfolio as of March 31, 2020, included **45 operating properties** with a **97% occupancy rate** and a weighted average remaining lease term of approximately **6.3 years**[252](index=252&type=chunk)[253](index=253&type=chunk) - The Company operates as a perpetual-life UPREIT, intending to conduct continuous offerings and hold assets long-term[236](index=236&type=chunk)[244](index=244&type=chunk) [Liquidity and Capital Resources](index=52&type=section&id=Liquidity%20and%20Capital%20Resources) COVID-19 severely impacted capital raising, decreasing proceeds by 42% and increasing share repurchases, while a major tenant's bankruptcy poses foreclosure risk despite 90% Q2 rent collection - The COVID-19 pandemic severely impacted capital raising, with a **42% decrease** in proceeds from January-April 2020 vs. the same period in 2019. Share repurchases increased from **$3.4 million** to **$9.1 million** over the same period[268](index=268&type=chunk) - The company's subsidiary, which owns the 24 Hour Fitness property, faces a potential foreclosure after the tenant rejected the lease in bankruptcy. A loan guarantee of **$3.1 million** was reserved for this risk[264](index=264&type=chunk)[266](index=266&type=chunk) - On March 27, 2020, the board approved an increase in the maximum leverage from **50% to 55%** of tangible asset value. As of March 31, 2020, the leverage ratio was **48%**[256](index=256&type=chunk) [Results of Operations](index=55&type=section&id=Results%20of%20Operations) Q1 2020 rental income grew 88% to $11.1 million, but a $48.8 million net loss was driven by $43.7 million in COVID-19 related impairments and a 374% rise in G&A expenses Comparison of Operating Results (Three Months Ended March 31, in thousands) | Item | 2020 | 2019 | Change (%) | | :--- | :--- | :--- | :--- | | Rental Income | $11,054,409 | $5,885,445 | +88% | | General & Administrative | $2,555,005 | $539,505 | +374% | | Depreciation & Amortization | $4,635,524 | $2,391,496 | +94% | | Interest Expense | $3,904,656 | $2,160,350 | +81% | | Impairment Charges (Total) | $43,729,471 | $0 | N/A | - The increase in rental income is primarily due to the **20 properties** acquired in the REIT I merger and one other 2019 acquisition[279](index=279&type=chunk) - The increase in G&A expenses reflects the costs of self-management, including personnel, occupancy, and technology, following the termination of the Advisory Agreement on Dec 31, 2019[281](index=281&type=chunk) [Distributions](index=58&type=section&id=Distributions) Q1 2020 distributions of $4.2 million were covered by operating cash flow, but the annualized rate was subsequently halved to $0.35 per share due to COVID-19 impacts Distributions Declared vs. Cash Flow from Operations (in thousands) | Period | Distributions Declared | Cash Flows Provided by Operating Activities | | :--- | :--- | :--- | | Q1 2020 | $4,189,102 | $1,947,505 | | Q1 2019 | $2,388,694 | $773,736 | - Subsequent to the quarter end, the annualized distribution rate was cut by **50%** to **$0.35 per share**, effective May 22, 2020[223](index=223&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=63&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section is not applicable as the Company is a smaller reporting company - The company is a smaller reporting company and is not required to provide this disclosure[319](index=319&type=chunk) [Item 4. Controls and Procedures](index=63&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls were effective as of March 31, 2020, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that disclosure controls and procedures were effective as of March 31, 2020[321](index=321&type=chunk) - No material changes in internal control over financial reporting occurred during the first quarter of 2020[322](index=322&type=chunk) [PART II - OTHER INFORMATION](index=63&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=63&type=section&id=Item%201.%20Legal%20Proceedings) The Company is not a party to any material legal proceedings, but notes a lawsuit against its Former Advisor by a former employee - A lawsuit was filed against the Company's Former Advisor by a former employee in September 2019. The Company itself is not a party to this lawsuit[220](index=220&type=chunk)[323](index=323&type=chunk) [Item 1A. Risk Factors](index=63&type=section&id=Item%201A.%20Risk%20Factors) COVID-19 poses material risks to the business, including tenant financial health, rent collection, capital access, and compliance with financial covenants - The COVID-19 outbreak may continue to adversely affect the business, tenants' financial condition, and profitability, especially for retail properties, due to closures and reduced customer traffic[326](index=326&type=chunk) - The pandemic is negatively impacting the Company's ability to collect rent, with many tenants requesting deferrals or abatements, which could impact the ability to pay distributions[330](index=330&type=chunk)[332](index=332&type=chunk) - The pandemic has created difficulty in accessing debt and equity capital on attractive terms and could negatively impact compliance with financial covenants[331](index=331&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=65&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company issued unregistered shares to board members and through its DRIP, raised $188.9 million from offerings, and repurchased 895,216 shares in Q1 2020 - Through March 31, 2020, the Company sold an aggregate of **18.8 million shares** of Class C common stock in its registered offerings for gross proceeds of **$188.9 million**[337](index=337&type=chunk) - During Q1 2020, the Company repurchased **895,216 shares** of Class C common stock for an average price of approximately **$10.16 per share**[346](index=346&type=chunk) [Item 6. Exhibits](index=67&type=section&id=Item%206.%20Exhibits) This section indexes all exhibits filed with the Form 10-Q, including merger agreements, corporate documents, and officer certifications - The Exhibit Index lists key corporate and transactional documents, including the Agreement and Plan of Merger (2.1), Contribution Agreement (2.2), Amended and Restated Share Repurchase Programs (4.4, 4.6), and officer certifications (31.1, 31.2, 32.1)[350](index=350&type=chunk)[353](index=353&type=chunk)

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ________________________________________________________ FORM 10-K ________________________________________________________ (Mark One) ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2019 OR ¨ 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 000-5 ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 For the transition period from____________to____________ Commission file number: 000-55776 RW HOLDINGS NNN REIT, INC. (Exact name of registrant as specified in its charter) Maryland 47-4156046 FORM 10-Q (Mark One) ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2019 OR ¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURI ...

PART I - FINANCIAL INFORMATION [Item 1. Financial Statements](index=6&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for RW Holdings NNN REIT, Inc. for the quarterly period ended June 30, 2019 It includes the balance sheets as of June 30, 2019, and December 31, 2018, statements of operations, stockholders' equity, and cash flows for the three and six months ended June 30, 2019 and 2018, along with detailed notes to these financial statements [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheet shows a slight decrease in total assets from $252.4 million at year-end 2018 to $250.1 million as of June 30, 2019 This was primarily driven by a reduction in total liabilities from $143.3 million to $123.5 million, while total stockholders' equity increased from $103.1 million to $120.8 million over the same period Condensed Consolidated Balance Sheet Highlights (Unaudited) | Account | June 30, 2019 ($) | December 31, 2018 ($) | | :--- | :--- | :--- | | Total real estate investments, net | 233,852,427 | 238,924,160 | | Cash and cash equivalents | 10,635,254 | 5,252,686 | | **Total assets** | **250,107,646** | **252,425,902** | | Mortgage notes payable, net | 115,032,981 | 122,709,308 | | **Total liabilities** | **123,532,240** | **143,332,182** | | **Total stockholders' equity** | **120,812,608** | **103,092,769** | [Condensed Consolidated Statements of Operations](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) The company reported a net loss of $1.14 million for the three months ended June 30, 2019, compared to a net loss of $0.21 million for the same period in 2018 For the six-month period, the net loss was $2.05 million in 2019 versus $0.25 million in 2018 The increased loss was driven by higher operating expenses, particularly depreciation and interest expense, which outpaced the growth in rental income Statement of Operations Highlights (Unaudited) | Metric | Three Months Ended June 30, 2019 ($) | Three Months Ended June 30, 2018 ($) | Six Months Ended June 30, 2019 ($) | Six Months Ended June 30, 2018 ($) | | :--- | :--- | :--- | :--- | :--- | | Rental income | 5,896,266 | 4,383,966 | 11,781,711 | 7,841,944 | | Total expenses | 7,246,115 | 4,931,884 | 14,212,136 | 8,843,256 | | **Net loss** | **(1,140,016)** | **(211,129)** | **(2,053,174)** | **(246,454)** | | Net loss per share | (0.08) | (0.02) | (0.14) | (0.02) | [Condensed Consolidated Statements of Stockholders' Equity](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity) Stockholders' equity increased from $103.1 million at the end of 2018 to $120.8 million at June 30, 2019 The increase was primarily due to the issuance of common stock, which added $30.0 million in capital, partially offset by a net loss of $2.1 million, distributions declared of $5.0 million, and common stock repurchases of $4.4 million during the first six months of 2019 Changes in Stockholders' Equity (Six Months Ended June 30, 2019) | Description | Amount ($) | | :--- | :--- | | Balance, December 31, 2018 | 103,092,769 | | Issuance of common stock | 30,005,491 | | Repurchase of common stock | (4,443,653) | | Distributions declared | (4,993,962) | | Net loss | (2,053,174) | | **Balance, June 30, 2019** | **120,812,608** | [Condensed Consolidated Statements of Cash Flows](index=11&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended June 30, 2019, net cash provided by operating activities was $2.9 million Net cash used in investing activities was $3.5 million, primarily for tenant improvements Net cash provided by financing activities was $2.6 million, reflecting proceeds from stock issuance offset by debt repayments and stock repurchases This resulted in a net increase in cash of $2.0 million Cash Flow Summary (Six Months Ended) | Cash Flow Activity | June 30, 2019 ($) | June 30, 2018 ($) | | :--- | :--- | :--- | | Net cash provided by operating activities | 2,886,131 | 1,318,015 | | Net cash used in investing activities | (3,487,699) | (33,032,691) | | Net cash provided by financing activities | 2,636,940 | 31,813,510 | | **Net increase in cash** | **2,035,372** | **98,834** | [Notes to Condensed Consolidated Financial Statements](index=13&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes provide detailed explanations of the company's business, accounting policies, and financial statement components Key disclosures include the company's business organization and offerings, the adoption of new accounting standards (Topic 842 for leases), details on the real estate portfolio, debt structure, related-party transactions with the Advisor and Sponsor, and commitments and contingencies, including an ongoing SEC investigation - The company primarily invests in single-tenant income-producing properties under long-term net leases As of June 30, 2019, it held **24 operating properties**, a parcel of land, a **72.7% TIC interest** in an office property, and a **4.8% interest** in affiliated REIT I[31](index=31&type=chunk)[39](index=39&type=chunk) - A special committee of the board is evaluating a potential transaction with the affiliated Rich Uncles Real Estate Investment Trust I (REIT I) and has entered an exclusive due diligence process[40](index=40&type=chunk)[42](index=42&type=chunk) - Effective January 1, 2019, the company adopted the new lease accounting standard, Topic 842, which did not have a material impact on the timing or pattern of revenue recognition as the company elected to apply practical expedients[71](index=71&type=chunk)[72](index=72&type=chunk) - The company is subject to an ongoing, non-public SEC investigation related to the advertising and sale of securities and compliance with broker-dealer regulations The company is cooperating with the SEC[154](index=154&type=chunk) - Subsequent to the quarter end, on August 9, 2019, the Advisory Agreement was amended to remove the subordinated participation fee and was renewed through December 31, 2019[160](index=160&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=39&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's performance, financial condition, and strategic initiatives The increase in revenue for Q2 and H1 2019 compared to 2018 is attributed to properties acquired in 2018 However, higher expenses, including depreciation and interest, led to a larger net loss The company details its liquidity sources, primarily from stock offerings and debt, and its investment strategy focused on single-tenant net-leased properties Management also addresses market conditions, noting a competitive environment and economic uncertainties - The company considers itself a perpetual-life investment vehicle with no finite liquidation date, intending to conduct continuous offerings of its common stock[165](index=165&type=chunk) - The company's investment strategy is to acquire single-tenant retail, office, and industrial real estate leased to creditworthy tenants on long-term leases, with an ideal portfolio mix of **40% office**, **40% industrial**, and **20% retail**[183](index=183&type=chunk) Comparison of Results of Operations (Six Months Ended June 30) | Metric | 2019 ($) | 2018 ($) | Change (%) | | :--- | :--- | :--- | :--- | | Rental Income | 11,781,711 | 7,841,944 | +50.2% | | Total Expenses | 14,212,136 | 8,843,256 | +60.7% | | Net Loss | (2,053,174) | (246,454) | +733.1% | - Distributions for 2018 and the first half of 2019 were fully funded from net rental income received, with no use of offering proceeds or fee waivers/deferrals from the Advisor[225](index=225&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=52&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section is not applicable to the company for this reporting period The company states that this disclosure is not required because it qualifies as a Smaller Reporting Company - The company is a Smaller Reporting Company and is therefore not required to provide Quantitative and Qualitative Disclosures About Market Risk[246](index=246&type=chunk) [Controls and Procedures](index=52&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of June 30, 2019 There were no material changes in internal control over financial reporting during the quarter - The Principal Executive Officer and Principal Financial Officer concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[248](index=248&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[249](index=249&type=chunk) PART II - OTHER INFORMATION [Legal Proceedings](index=53&type=section&id=Item%201.%20Legal%20Proceedings) This section incorporates by reference the disclosure from Note 9 of the financial statements, which details an ongoing, non-public investigation by the SEC related to the company's securities offerings and compliance with broker-dealer regulations - The company is subject to an ongoing SEC investigation concerning its securities offerings and broker-dealer regulations The company is cooperating with the inquiry[154](index=154&type=chunk)[251](index=251&type=chunk) [Risk Factors](index=53&type=section&id=Item%201A.%20Risk%20Factors) The company states that there have been no material changes to the risk factors previously disclosed in its Annual Report on Form 10-K for the year ended December 31, 2018 - No material changes have occurred to the risk factors disclosed in the company's 2018 Annual Report on Form 10-K[252](index=252&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=53&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the issuance of unregistered equity securities and the use of proceeds from registered sales During Q2 2019, the company issued unregistered Class C shares to independent directors and Class S shares to non-U.S. persons Net proceeds from all offerings through June 30, 2019, were approximately $164.1 million, which were substantially used for real estate investments The company also provides a table detailing its share repurchase activity for the quarter - During Q2 2019, the company issued **33,931 shares** of Class S common stock for gross proceeds of **$344,745** in unregistered sales under Regulation S[254](index=254&type=chunk) - Through June 30, 2019, net offering proceeds of approximately **$164.1 million** were used to make approximately **$251.7 million** of investments in real estate, with the difference funded by debt[259](index=259&type=chunk) Class C Common Stock Repurchases (Q2 2019) | Month | Total Shares Repurchased | Average Price Paid per Share ($) | | :--- | :--- | :--- | | April 2019 | 118,460 | 9.97 | | May 2019 | 49,822 | 9.93 | | June 2019 | 54,279 | 9.98 | | **Total** | **222,561** | **N/A** | [Other Information](index=56&type=section&id=Item%205.%20Other%20Information) This section discloses key events that occurred after the quarter-end On August 7, 2019, the board amended the share repurchase program to require a **90-day holding period** for Class C shares and approved a new indemnification agreement for officers and directors On August 9, 2019, the advisory agreement was amended to remove the subordinated participation fee and was renewed through December 31, 2019 - On August 7, 2019, the board amended the Class C share repurchase program to require a **90-day holding period** before shares are eligible for repurchase[266](index=266&type=chunk) - On August 9, 2019, the Advisory Agreement was amended to eliminate the subordinated participation fee and was renewed until December 31, 2019[268](index=268&type=chunk) [Exhibits](index=56&type=section&id=Item%206.%20Exhibits) This section provides an index of the exhibits filed with or incorporated by reference into the quarterly report Key new exhibits include an amendment to the advisory agreement and the form of the director and officer indemnification agreement - The report includes several exhibits, notably Amendment No. 2 to the Advisory Agreement and the Form of Director and Officer Indemnification Agreement, along with standard certifications[273](index=273&type=chunk)

PART I - FINANCIAL INFORMATION [Item 1. Financial Statements (Unaudited)](index=6&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements of RW Holdings NNN REIT, Inc. for Q1 2019 and 2018, encompassing balance sheets, statements of operations, equity, and cash flows, with detailed explanatory notes [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of March 31, 2019, total assets were $249.4 million, a slight decrease from $252.4 million at year-end 2018, primarily driven by reductions in mortgage notes payable and the unsecured credit facility, while total stockholders' equity increased to $113.3 million due to common stock issuance Condensed Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | March 31, 2019 | December 31, 2018 | Change | | :--- | :--- | :--- | :--- | | Total real estate investments, net | $236,373 | $238,924 | ($2,551) | | Cash and cash equivalents | $4,415 | $5,253 | ($838) | | **Total Assets** | **$249,411** | **$252,426** | **($3,015)** | | Mortgage notes payable, net | $115,189 | $122,709 | ($7,520) | | Unsecured credit facility, net | $4,069 | $8,998 | ($4,929) | | **Total Liabilities** | **$130,719** | **$143,332** | **($12,613)** | | **Total Stockholders' Equity** | **$113,288** | **$103,093** | **$10,195** | [Condensed Consolidated Statements of Operations](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For the three months ended March 31, 2019, the company reported a net loss of $913,158, a significant increase from the $35,325 net loss in the same period of 2018, driven by higher operating expenses, particularly depreciation and interest, which outpaced the 70% growth in rental income from 2018 property acquisitions Three Months Ended March 31, (in thousands) | Metric | 2019 | 2018 | YoY Change | | :--- | :--- | :--- | :--- | | Rental income | $5,885 | $3,458 | +70.2% | | Total expenses | $6,966 | $3,911 | +78.1% | | Net expenses | $6,878 | $3,552 | +93.6% | | **Net Loss** | **($913)** | **($35)** | **+2508.6%** | | Net loss per share | ($0.07) | ($0.00) | N/A | [Condensed Consolidated Statements of Stockholders' Equity](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) During the first quarter of 2019, total stockholders' equity increased by $10.2 million to $113.3 million, primarily due to $16.2 million from common stock issuance, partially offset by $2.4 million in distributions, $2.2 million in stock repurchases, and a $0.9 million net loss Changes in Stockholders' Equity (Q1 2019, in thousands) | Description | Amount | | :--- | :--- | | **Beginning Balance (Dec 31, 2018)** | **$103,093** | | Issuance of common stock | $16,157 | | Repurchase of common stock | ($2,226) | | Distributions declared | ($2,389) | | Net loss | ($913) | | Other (Stock comp, offering costs) | ($435) | | **Ending Balance (Mar 31, 2019)** | **$113,288** | [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the first quarter of 2019, net cash provided by operating activities was $0.8 million, with no cash used in investing activities, while net cash used in financing activities was $1.6 million, resulting in a net decrease in cash of $0.8 million for the quarter Cash Flow Summary (Three Months Ended March 31, in thousands) | Cash Flow Category | 2019 | 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $774 | $38 | | Net cash used in investing activities | $0 | ($16,323) | | Net cash (used in) provided by financing activities | ($1,591) | $23,978 | | **Net (decrease) increase in cash** | **($817)** | **$7,693** | [Notes to Condensed Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes provide detailed information supporting the financial statements, covering the company's business model, adoption of the new lease accounting standard, real estate portfolio composition, debt facilities, related-party transactions, and an ongoing SEC investigation - The company's business focuses on investing in **single-tenant, income-producing properties** in the U.S. under **long-term net leases**[28](index=28&type=chunk) - As of March 31, 2019, the company's portfolio consisted of **24 operating properties** (nine retail, 10 office, five industrial), one parcel of land, a **72.7% TIC interest** in an office property, and a **4.8% interest** in affiliated REIT I[36](index=36&type=chunk) - A special committee of the board is evaluating a **potential acquisition of affiliated REIT I** or its portfolio[37](index=37&type=chunk) - Effective January 1, 2019, the company adopted the **new lease accounting standard, Topic 842**, which **did not have a material impact** on the timing or pattern of revenue recognition[64](index=64&type=chunk)[67](index=67&type=chunk) - The SEC is conducting a **non-public investigation** related to the company's **advertising, sale of securities, and compliance with broker-dealer regulations**; the company is cooperating with the investigation[143](index=143&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=34&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's business strategy, portfolio, and financial performance for the first quarter of 2019, highlighting significant year-over-year growth in rental income due to 2018 property acquisitions, increased expenses, liquidity, capital resources, debt, distribution policies, and the exploration of a potential acquisition of affiliated REIT I - The company's primary business is acquiring, financing, and owning **single-tenant retail, office, and industrial real estate** leased to creditworthy tenants on **long-term leases**[167](index=167&type=chunk) - As of March 31, 2019, the portfolio of **24 operating properties** was **100% leased** with a weighted average remaining lease term of approximately **7.1 years**[168](index=168&type=chunk) - A special committee of independent directors is evaluating a **potential acquisition of affiliated REIT I** or its portfolio[163](index=163&type=chunk) - The company's primary source of liquidity is **proceeds from its stock offerings**, which are used for property acquisitions, capital expenditures, and debt payments[174](index=174&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=47&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company has omitted this section, as it is not required for a Smaller Reporting Company - Disclosure about market risk is **not required** as the company qualifies as a **Smaller Reporting Company**[226](index=226&type=chunk) [Item 4. Controls and Procedures](index=47&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the principal executive and financial officers, evaluated the company's disclosure controls and procedures and concluded they were effective as of March 31, 2019, with no material changes to internal control over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures were **effective** as of the end of the period covered by the report[227](index=227&type=chunk) - **No changes** in internal control over financial reporting occurred during the quarter that have **materially affected**, or are reasonably likely to materially affect, internal controls[228](index=228&type=chunk) PART II - OTHER INFORMATION [Item 1. Legal Proceedings](index=48&type=section&id=Item%201.%20Legal%20Proceedings) This section incorporates by reference information from Note 9 of the financial statements regarding legal matters, specifically an ongoing, non-public SEC investigation related to the company's advertising, sale of securities, and compliance with broker-dealer regulations - The company is subject to an **ongoing, non-public SEC investigation** concerning its **securities offering, advertising, and broker-dealer compliance**; the company is cooperating with the inquiry[143](index=143&type=chunk)[231](index=231&type=chunk) [Item 1A. Risk Factors](index=48&type=section&id=Item%201A.%20Risk%20Factors) The company states that there have been no material changes to the risk factors previously disclosed in its Annual Report on Form 10-K for the year ended December 31, 2018 - There have been **no material changes** to the risk factors disclosed in the company's 2018 Annual Report on Form 10-K[232](index=232&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=48&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the issuance of unregistered equity securities and the use of proceeds from its registered offering, including the issuance of 4,921 Class C shares and 114,929 Class S shares during the quarter, and the use of $150.8 million in net proceeds primarily for real estate investments through March 31, 2019 - During Q1 2019, the company issued **4,921 unregistered Class C shares** to directors and **114,929 unregistered Class S shares** in its Class S Offering[233](index=233&type=chunk)[234](index=234&type=chunk) Use of Proceeds from Registered Offering (through March 31, 2019) | Item | Amount | | :--- | :--- | | Gross Offering Proceeds | $155,496,984 | | Reimbursable Org. & Offering Expenses | ($4,705,238) | | **Net Offering Proceeds** | **$150,832,074** | | Investments in Real Estate Properties | ~$255,034,000 (funded by proceeds and debt) | | Acquisition Fees to Advisor | $6,293,558 | | Financing Coordination Fees to Advisor | $588,650 | - The company repurchased a total of **283,818 shares of Class C common stock** for approximately **$2.8 million** during the first quarter of 2019 under its share repurchase program[241](index=241&type=chunk) [Item 6. Exhibits](index=49&type=section&id=Item%206.%20Exhibits) This section provides an index of the exhibits filed with the Quarterly Report on Form 10-Q, including required certifications by the Principal Executive Officer and Principal Financial Officer - The report includes **required certifications** from the Principal Executive Officer and Principal Financial Officer pursuant to **Sections 302 and 906 of the Sarbanes-Oxley Act**[246](index=246&type=chunk)

PART I [Business](index=5&type=section&id=ITEM%201.%20BUSINESS) The company operates as an externally managed REIT, investing in single-tenant commercial properties under long-term net leases to provide stable cash distributions and preserve stockholder capital - The Company operates as an externally managed REIT, primarily investing in single-tenant commercial properties with long-term net leases to creditworthy tenants[13](index=13&type=chunk)[14](index=14&type=chunk)[15](index=15&type=chunk) - The company's primary investment objectives are to provide stockholders with attractive and stable cash distributions and to preserve and return their capital contributions[25](index=25&type=chunk)[28](index=28&type=chunk) - As of December 31, 2018, the portfolio included **24 operating properties**, one parcel of land, a **72.7%** tenant-in-common (TIC) interest in a Santa Clara office property, and a **4.8%** interest in an affiliated REIT (REIT I)[54](index=54&type=chunk)[55](index=55&type=chunk) - In 2018, the company acquired six properties leased to tenants including 3M Company, Cummins Inc., 24 Hour Fitness, Texas Health Resources, Bon Secours Health System, and Costco Wholesale Corporation[56](index=56&type=chunk)[57](index=57&type=chunk)[59](index=59&type=chunk) - The company's borrowing policy intends to utilize up to **50% leverage**, with a charter limit of borrowing up to **50% of tangible assets**, unless an excess is approved by the conflicts committee[44](index=44&type=chunk) Offering Proceeds as of December 31, 2018 | Stock Class | Shares Sold | Gross Proceeds | | :--- | :--- | :--- | | Class C Common Stock | 14,027,968 | $140,507,461 | | Class S Common Stock | 17,588 | $176,604 | [Risk Factors](index=13&type=section&id=ITEM%201A.%20RISK%20FACTORS) The company faces significant risks including limited operating history, reliance on its Advisor, lack of public market for shares, conflicts of interest, and an ongoing SEC investigation - The company has a limited operating history, having commenced its Registered Offering in July 2016, with net real estate investments of **$238.9 million** as of December 31, 2018[81](index=81&type=chunk) - The SEC is conducting a non-public, fact-finding investigation related to the company's advertising and sale of securities, with uncertain duration, scope, and outcome that could have a material adverse effect on the business[89](index=89&type=chunk)[91](index=91&type=chunk) - The offerings are on a "best efforts" basis, meaning there is no guarantee of raising substantial funds, which could limit portfolio diversification and increase risks associated with the performance of a smaller number of properties[83](index=83&type=chunk) - The company is considered a "blind pool" as investors do not have the opportunity to evaluate specific investments before they are made, relying entirely on the Advisor's discretion[85](index=85&type=chunk) - Significant conflicts of interest exist as executive officers and directors are affiliated with the Advisor and other Brix-sponsored programs, which could influence decisions regarding fees, acquisitions, and other strategic actions[123](index=123&type=chunk)[127](index=127&type=chunk) - There is no public market for the company's shares, and the share repurchase program is subject to significant limitations, including funding availability and volume caps (e.g., **2% of aggregate NAV per month**), which restricts stockholder liquidity[148](index=148&type=chunk)[150](index=150&type=chunk) - Failure to maintain qualification as a REIT would subject the company to federal income tax at corporate rates, reducing net earnings available for distribution to stockholders[88](index=88&type=chunk)[207](index=207&type=chunk) [Unresolved Staff Comments](index=38&type=section&id=ITEM%201B.%20UNRESOLVED%20STAFF%20COMMENTS) The company reports no unresolved staff comments from the Securities and Exchange Commission - None[231](index=231&type=chunk) [Properties](index=39&type=section&id=ITEM%202.%20PROPERTIES) As of December 31, 2018, the company's 100% occupied portfolio comprised 24 operating properties and one land parcel, generating $17.4 million in annualized base lease revenue, with additional interests in a TIC and an affiliated REIT Property Portfolio Summary as of December 31, 2018 | Metric | Value | | :--- | :--- | | Total Operating Properties | 24 | | Total Rentable Square Feet | 1,536,684 | | Occupancy | 100% | | Annualized Base Lease Revenue | $17,372,544 | | Investment in Real Property, Net | $222,637,211 | | Mortgage Financing (Principal) | $125,022,937 | - In 2018, the company acquired six operating properties and one parcel of land, with tenants including 3M, Cummins, 24 Hour Fitness, Texas Health Resources, Bon Secours, and Costco[238](index=238&type=chunk)[239](index=239&type=chunk)[241](index=241&type=chunk)[244](index=244&type=chunk)[245](index=245&type=chunk)[246](index=246&type=chunk) - The company's lease expirations are staggered, with **12.1% of square footage** expiring in 2021 and **29.0% in 2022**, and no leases set to expire in 2019 or 2020[236](index=236&type=chunk) - The company holds a **72.7% Tenant-in-Common (TIC) interest** in a Santa Clara office property and an approximate **4.8% interest** in REIT I, an affiliated REIT[253](index=253&type=chunk) - REIT I, an affiliate in which the company holds an investment, announced it is exploring strategic alternatives, including a potential sale of its real estate portfolio, prompting the company to form a special committee to evaluate a potential acquisition of REIT I or its portfolio[259](index=259&type=chunk) [Legal Proceedings](index=42&type=section&id=ITEM%203.%20LEGAL%20PROCEEDINGS) The company is involved in an ongoing, non-public SEC investigation regarding the advertising and sale of its securities, with an uncertain outcome - The SEC is conducting an investigation into the advertising and sale of securities by the Company in connection with its Registered Offering, which is a non-public, fact-finding inquiry, not an allegation of wrongdoing[261](index=261&type=chunk)[676](index=676&type=chunk) [Mine Safety Disclosures](index=42&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This item is not applicable to the company - Not applicable[262](index=262&type=chunk) PART II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=42&type=section&id=ITEM%205.%20MARKET%20FOR%20REGISTRANT%27S%20COMMON%20EQUITY%2C%20RELATED%20STOCKHOLDER%20MATTERS%20AND%20ISSUER%20PURCHASES%20OF%20EQUITY%20SECURITIES) There is no public market for the company's common stock, with its NAV per share established at $10.16 as of December 31, 2018, and a limited share repurchase program in place - No public market exists for the company's common stock, and there are no current plans to list the shares on a national securities exchange[266](index=266&type=chunk) - On January 11, 2019, the board established an estimated Net Asset Value (NAV) of **$10.16 per share** as of December 31, 2018, based on analysis provided by the independent third-party firm Cushman & Wakefield[268](index=268&type=chunk)[269](index=269&type=chunk) - The company has a share repurchase program, but it is limited, with repurchases capped at **2% of aggregate NAV per month** and **5% per quarter**, and the repurchase price is discounted based on the holding period for shares held less than three years[313](index=313&type=chunk)[319](index=319&type=chunk)[321](index=321&type=chunk) NAV Calculation as of December 31, 2018 | Item | Estimated Value | Per Share NAV | | :--- | :--- | :--- | | Total Assets | $269,524,631 | $20.80 | | Total Liabilities | $136,973,034 | $10.57 | | Preliminary NAV | $132,551,597 | $10.23 | | Subordinated participation fee payable | ($839,050) | ($0.07) | | **Total Estimated Value** | **$131,712,547** | **$10.16** | 2018 Distribution Tax Characterization | Tax Characterization | Per Share Amount | | :--- | :--- | | Ordinary income | $0.0352 (5.5%) | | Non-taxable distribution (Return of Capital) | $0.6683 (94.5%) | | **Total** | **$0.7035** | [Selected Financial Data](index=53&type=section&id=ITEM%206.%20SELECTED%20FINANCIAL%20DATA) Selected financial data for 2015-2018 shows significant growth in total assets and revenues, reaching $252.4 million and $18.0 million respectively in 2018, despite an increased net loss of $1.8 million Selected Balance Sheet Data (in thousands) | | 2018 | 2017 | | :--- | :--- | :--- | | Total real estate investment, net | $238,924 | $149,760 | | Total assets | $252,426 | $157,073 | | Total liabilities | $143,332 | $77,777 | | Total stockholders' equity | $103,093 | $79,250 | Selected Operating and Cash Flow Data (in thousands) | | 2018 | 2017 | | :--- | :--- | :--- | | Total revenues | $17,985 | $7,390 | | Net loss | ($1,802) | ($868) | | Cash flows provided by operations | $5,882 | $3,791 | | Net loss per common share | ($0.16) | ($0.15) | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=53&type=section&id=ITEM%207.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) The company's 2018 financial performance reflects significant portfolio growth, with revenues increasing to $18.0 million, though expenses also rose, resulting in a net loss of $1.8 million - The company is considered a perpetual-life investment vehicle with no finite liquidation date and intends to conduct continuous offerings of its common stock[335](index=335&type=chunk) - Rental income increased by **140% to $14.7 million** in 2018 from $6.1 million in 2017, driven by property acquisitions during 2017 and 2018[366](index=366&type=chunk) - Interest expense increased by **241% to $5.6 million** in 2018, reflecting a rise in the average principal balance of mortgage notes payable to approximately **$90.4 million** from $30.3 million in 2017[372](index=372&type=chunk) - As of December 31, 2018, the company had an outstanding principal balance of **$125.0 million** in mortgage notes and **$9.0 million** on its unsecured revolving credit facility[348](index=348&type=chunk) - The company's portfolio grew from **18 operating properties** at year-end 2017 to **24** at year-end 2018, with total leasable square feet nearly doubling from **785,179 to 1,536,684**[382](index=382&type=chunk) Cash Flow Summary (Year Ended Dec 31) | (in thousands) | 2018 | 2017 | | :--- | :--- | :--- | | Net cash provided by operating activities | $5,882 | $3,791 | | Net cash used in investing activities | ($92,020) | ($115,594) | | Net cash provided by financing activities | $90,711 | $112,308 | [Quantitative and Qualitative Disclosures About Market Risk](index=65&type=section&id=ITEM%207A.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) This section is not applicable as the company qualifies as a smaller reporting company - Not applicable as the Company is a smaller reporting company[420](index=420&type=chunk) [Financial Statements and Supplementary Data](index=65&type=section&id=ITEM%208.%20FINANCIAL%20STATEMENTS%20AND%20SUPPLEMENTARY%20DATA) This section refers to the Index to Consolidated Financial Statements, beginning on page F-1 of the report - This section directs the reader to the Index to Consolidated Financial Statements located at page F-1 of the Annual Report[421](index=421&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=65&type=section&id=ITEM%209.%20CHANGES%20IN%20AND%20DISAGREEMENTS%20WITH%20ACCOUNTANTS%20ON%20ACCOUNTING%20AND%20FINANCIAL%20DISCLOSURE) This section is not applicable to the company - Not applicable[422](index=422&type=chunk) [Controls and Procedures](index=65&type=section&id=ITEM%209A.%20CONTROLS%20AND%20PROCEDURES) Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2018, with no material changes identified - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2018[423](index=423&type=chunk) - Based on an evaluation using the COSO framework, management concluded that the company's internal control over financial reporting was effective as of December 31, 2018[426](index=426&type=chunk) - No changes in internal control over financial reporting occurred during the fourth quarter of 2018 that materially affected, or are reasonably likely to materially affect, internal controls[428](index=428&type=chunk) - The company is an emerging growth company and is therefore not required to include an attestation report from its independent registered public accounting firm regarding internal control over financial reporting[427](index=427&type=chunk) [Other Information](index=66&type=section&id=ITEM%209B.%20OTHER%20INFORMATION) This section is not applicable to the company - Not applicable[430](index=430&type=chunk) PART III [Directors, Executive Officers and Corporate Governance](index=66&type=section&id=ITEM%2010.%20DIRECTORS%2C%20EXECUTIVE%20OFFICERS%20AND%20CORPORATE%20GOVERNANCE) This section details biographical information for executive officers and directors, leadership changes, and the company's corporate governance structure, including its Code of Conduct and independent audit committee - Aaron S. Halfacre became CEO, President, and a director on January 1, 2019, succeeding Harold C. Hofer[434](index=434&type=chunk)[437](index=437&type=chunk) - Raymond E. Wirta serves as Chairman of the Board and is a principal of the company's sponsor and advisor[438](index=438&type=chunk) - The board has an audit committee and a conflicts committee, both composed of independent directors, with Jeffrey Randolph chairing the audit committee and designated as the "audit committee financial expert"[435](index=435&type=chunk)[453](index=453&type=chunk) - The company has adopted a Code of Business Conduct and Ethics applicable to all employees, officers, and directors[452](index=452&type=chunk) [Executive Compensation](index=71&type=section&id=ITEM%2011.%20EXECUTIVE%20COMPENSATION) Executive officers are compensated by affiliates, while independent directors receive stock-based compensation, which transitioned from per-meeting awards to quarterly retainers in 2019 - Executive officers are not compensated directly by the Company but by its sponsor, advisor, and/or their affiliates[455](index=455&type=chunk) - In 2019, director compensation was changed from a per-meeting stock award to quarterly retainers of **$12,500** for each independent director, plus additional retainers for committee service, all payable in Class C common stock[456](index=456&type=chunk) 2018 Director Compensation (Stock Awards) | Director | Stock Awards | | :--- | :--- | | David Feinleib | $16,080 | | Vipe Desai | $36,180 | | Jonathan Platt | $41,205 | | Jeffrey Randolph | $53,265 | | John Wang | $21,105 | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=72&type=section&id=ITEM%2012.%20SECURITY%20OWNERSHIP%20OF%20CERTAIN%20BENEFICIAL%20OWNERS%20AND%20MANAGEMENT%20AND%20RELATED%20STOCKHOLDER%20MATTERS) As of February 28, 2019, no single person beneficially owned more than 5% of outstanding stock, with executive officers and directors collectively owning less than 1% - As of February 28, 2019, no person is known to be a beneficial owner of more than **5%** of the outstanding Class C or Class S common stock[461](index=461&type=chunk) - All directors and executive officers as a group beneficially owned **18,619 shares** of Class C common stock, representing less than **1%** of the outstanding shares as of February 28, 2019[462](index=462&type=chunk) [Certain Relationships and Related Transactions and Director Independence](index=72&type=section&id=ITEM%2013.%20CERTAIN%20RELATIONSHIPS%20AND%20RELATED%20TRANSACTIONS%20AND%20DIRECTOR%20INDEPENDENCE) The company's related party transactions, including significant fees to its advisor and sponsor, are reviewed by an independent conflicts committee, ensuring fairness - The company is managed by its advisor under an Advisory Agreement, which entitles the advisor to various fees for services such as acquisitions, asset management, and financing[469](index=469&type=chunk)[470](index=470&type=chunk) - The company is obligated to reimburse its sponsor for organizational and offering costs up to **3.0% of gross offering proceeds**, with **$8.4 million** incurred and **$4.2 million** reimbursed as of December 31, 2018[473](index=473&type=chunk) - The board of directors has determined that four of its members (Markman, McWilliams, Nolan, Jr., and Randolph) qualify as Independent Directors under its charter and NYSE standards[467](index=467&type=chunk) - All transactions with related persons are reviewed and approved by the conflicts committee, which is composed of independent directors, to ensure fairness to the company[468](index=468&type=chunk) Fees Incurred to Advisor/Sponsor for Year Ended Dec 31, 2018 | Fee Type | Amount Incurred | | :--- | :--- | | Asset Management Fees | $2,004,760 | | Subordinated Participation Fees | $839,050 | | Acquisition Fees (Capitalized) | $2,752,339 | | Financing Coordination Fees (Capitalized) | $262,050 | | Property Management Fees | $174,529 | [Principal Accounting Fees and Services](index=76&type=section&id=ITEM%2014.%20PRINCIPAL%20ACCOUNTING%20FEES%20AND%20SERVICES) Squar Milner LLP became the independent accounting firm in May 2018, with total fees billed at $292,639 in 2018, all pre-approved by the audit committee - Squar Milner LLP was appointed as the independent registered public accounting firm in May 2018, succeeding Ernst & Young LLP[488](index=488&type=chunk) - The audit committee pre-approves all auditing and permissible non-audit services to ensure auditor independence, with all services in 2017 and 2018 being pre-approved[491](index=491&type=chunk)[492](index=492&type=chunk) Accounting Fees Billed | Fee Type | 2018 | 2017 | | :--- | :--- | :--- | | Audit Fees | $280,279 | $575,160 | | Tax Fees | $12,360 | $66,905 | | **Total** | **$292,639** | **$642,065** | PART IV [Exhibits, Financial Statement Schedules](index=78&type=section&id=ITEM%2015.%20EXHIBITS%2C%20FINANCIAL%20STATEMENT%20SCHEDULES) This section provides an index to the consolidated financial statements, including Schedule III, and a comprehensive list of all exhibits filed with the Form 10-K - This section contains the index to the Consolidated Financial Statements (page F-1) and Schedule III - Real Estate Assets and Accumulated Depreciation and Amortization[494](index=494&type=chunk) - A comprehensive list of exhibits filed with the report is provided, including corporate governance documents, material contracts like the Advisory Agreement, and certifications[497](index=497&type=chunk)[499](index=499&type=chunk) [Form 10-K Summary](index=79&type=section&id=ITEM%2016.%20FORM%2010-K%20SUMMARY) The company has elected not to provide a summary of the Form 10-K - None[499](index=499&type=chunk)