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)