| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
2023
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
from____________to____________
RW HOLDINGS NNN REIT,001-40814
Maryland | 47-4156046 | ||||
| (State or other jurisdiction of
| (I.R.S. Employer Identification No.) | ||||
| (Address of principal executive offices) | (Zip Code) | ||||
(855) 742-4862
code)
| Modiv Inc. | ||
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | ||||||||||||
| Class C Common Stock, $0.001 par value per share | MDV | New York Stock Exchange | ||||||||||||
| 7.375% Series A Cumulative Redeemable Perpetual Preferred Stock, $0.001 par value per share | MDV.PA | New York Stock Exchange | ||||||||||||
Large accelerated filer | Accelerated filer | |||||
| Non-accelerated filer | Smaller reporting company | |||||
| Emerging growth company | ||||||
☐
RW HOLDINGS NNN REIT,
September 30, 2017
ITEM 1 – Unaudited Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets
(Unaudited)
| September 30, 2017 | December 31, 2016 | |||||||
| ASSETS | ||||||||
| Real estate investments: | ||||||||
| Land | $ | 17,410,432 | $ | 5,369,238 | ||||
| Building and improvements | 73,844,326 | 24,243,072 | ||||||
| Tenant origination and absorption costs | 7,326,827 | 3,632,731 | ||||||
| Total investments in real estate property | 98,581,585 | 33,245,041 | ||||||
| Accumulated depreciation and amortization | (2,571,155 | ) | (493,185 | ) | ||||
| Total investments in real estate property, net | 96,010,430 | 32,751,856 | ||||||
| Investments in unconsolidated entities (Note 4) | 14,656,306 | 3,523,809 | ||||||
| Real estate investments, net | 110,666,736 | 36,275,665 | ||||||
| Cash and cash equivalents | 8,490,282 | 3,431,769 | ||||||
| Restricted cash | 1,099,680 | 245,604 | ||||||
| Tenant receivables | 1,151,344 | 114,320 | ||||||
| Above-market leases, net | 705,554 | 148,577 | ||||||
| Due from affiliates (Note 8) | 26,456 | 108,433 | ||||||
| Purchase and other deposits | 44,550 | 500,000 | ||||||
| Prepaid expenses and other assets | 1,067,454 | 478,192 | ||||||
| TOTAL ASSETS | $ | 123,252,056 | $ | 41,302,560 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Mortgage notes payable, net | $ | 42,705,968 | $ | 7,113,701 | ||||
| Unsecured credit facility, net | 7,119,739 | 10,156,685 | ||||||
| Accounts payable, accrued expenses and other liabilities | 2,170,142 | 470,236 | ||||||
| Below-market leases, net | 763,672 | 150,767 | ||||||
| Due to affiliates (Note 8) | 871,189 | 383,422 | ||||||
| Interest rate swap derivatives | 100,006 | - | ||||||
| Investor deposits | - | 582,516 | ||||||
| Share repurchases payable | 194,121 | 17,467 | ||||||
| TOTAL LIABILITIES | 53,924,837 | 18,874,794 | ||||||
| Redeemable common stock | 234,648 | 196,660 | ||||||
| Preferred stock, $0.001 par value, 50,000,000 shares authorized, no shares issued and outstanding | - | - | ||||||
| Class C common stock $0.001 par value, 300,000,000 shares authorized, 7,612,512 and 2,458,881 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively | 7,613 | 2,458 | ||||||
| Class S common stock $0.001 par value, 100,000,000 shares authorized, 3,000 and 0 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively | 3 | - | ||||||
| Additional paid-in-capital | 73,443,478 | 23,643,435 | ||||||
| Cumulative distributions and net losses | (4,358,523 | ) | (1,414,787 | ) | ||||
| TOTAL STOCKHOLDERS' EQUITY | 69,092,571 | 22,231,106 | ||||||
| Commitments and contingencies (Note 9) | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 123,252,056 | $ | 41,302,560 | ||||
See accompanying notes
ITEM
Balance Sheets
| June 30, 2023 | December 31, 2022 | ||||||||||
| Assets | |||||||||||
| Real estate investments: | |||||||||||
| Land | $ | 105,646,718 | $ | 103,657,237 | |||||||
| Buildings and improvements | 376,619,602 | 329,867,099 | |||||||||
| Equipment | 4,429,000 | 4,429,000 | |||||||||
| Tenant origination and absorption costs | 16,393,977 | 19,499,749 | |||||||||
| Total investments in real estate property | 503,089,297 | 457,453,085 | |||||||||
| Accumulated depreciation and amortization | (44,974,782) | (46,752,322) | |||||||||
| Total real estate investments, net, excluding unconsolidated investment in real estate property and real estate investments held for sale, net | 458,114,515 | 410,700,763 | |||||||||
| Unconsolidated investment in a real estate property | 10,011,347 | 10,007,420 | |||||||||
| Total real estate investments, net, excluding real estate investments held for sale, net | 468,125,862 | 420,708,183 | |||||||||
| Real estate investments held for sale, net | 47,169,589 | 5,255,725 | |||||||||
| Total real estate investments, net | 515,295,451 | 425,963,908 | |||||||||
| Cash and cash equivalents | 9,912,110 | 8,608,649 | |||||||||
| Tenant receivables | 9,468,576 | 7,263,202 | |||||||||
| Above-market lease intangibles, net | 1,351,949 | 1,850,756 | |||||||||
| Prepaid expenses and other assets | 5,430,520 | 6,100,937 | |||||||||
| Interest rate swap derivatives | 5,613,847 | 4,629,702 | |||||||||
| Other assets related to real estate investments held for sale | 2,337,517 | 12,765 | |||||||||
| Total assets | $ | 549,409,970 | $ | 454,429,919 | |||||||
| Liabilities and Equity | |||||||||||
| Mortgage notes payable, net | $ | 44,243,807 | $ | 44,435,556 | |||||||
| Credit facility revolver | — | 3,000,000 | |||||||||
| Credit facility term loan, net | 248,263,340 | 148,018,164 | |||||||||
| Accounts payable, accrued and other liabilities | 7,015,513 | 7,649,806 | |||||||||
| Below-market lease intangibles, net | 9,328,801 | 9,675,686 | |||||||||
| Interest rate swap derivatives | — | 498,866 | |||||||||
| Liabilities related to real estate investments held for sale | 465,252 | 117,881 | |||||||||
| Total liabilities | 309,316,713 | 213,395,959 | |||||||||
Commitments and contingencies (Note 10) | |||||||||||
| 7.375% Series A cumulative redeemable perpetual preferred stock, $0.001 par value, 2,000,000 shares authorized, issued and outstanding as of June 30, 2023 and December 31, 2022 | 2,000 | 2,000 | |||||||||
| Class C common stock, $0.001 par value, 300,000,000 shares authorized; 7,874,502 shares issued and 7,530,992 shares outstanding as of June 30, 2023 and 7,762,506 shares issued and 7,512,353 shares outstanding as of December 31, 2022 | 7,875 | 7,762 | |||||||||
| Additional paid-in-capital | 280,815,445 | 278,339,020 | |||||||||
| Treasury stock, at cost, 343,510 shares and 250,153 shares held as of June 30, 2023 and December 31, 2022, respectively | (5,290,780) | (4,161,618) | |||||||||
| Cumulative distributions and net losses | (123,895,028) | (117,938,876) | |||||||||
| Accumulated other comprehensive income | 3,080,694 | 3,502,616 | |||||||||
| Total Modiv Industrial, Inc. equity | 154,720,206 | 159,750,904 | |||||||||
| Noncontrolling interests in the Operating Partnership | 85,373,051 | 81,283,056 | |||||||||
| Total equity | 240,093,257 | 241,033,960 | |||||||||
| Total liabilities and equity | $ | 549,409,970 | $ | 454,429,919 | |||||||
| Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Revenue: | ||||||||||||||||
| Rental income | $ | 1,926,722 | $ | 286,576 | $ | 3,990,317 | $ | 328,041 | ||||||||
| Tenant recoveries | 389,784 | 72,968 | 915,431 | 72,968 | ||||||||||||
| Total revenue | 2,316,506 | 359,544 | 4,905,748 | 401,009 | ||||||||||||
| Expenses: | ||||||||||||||||
| Property expenses (Note 8) | 413,161 | 91,541 | 968,902 | 91,541 | ||||||||||||
| Fees to affiliates (Note 8) | 264,927 | 46,575 | 573,081 | 528,262 | ||||||||||||
| General and administrative | 904,818 | 584,488 | 2,922,840 | 590,867 | ||||||||||||
| Acquisition costs | - | - | - | 73,028 | ||||||||||||
| Depreciation and amortization | 921,692 | 204,743 | 2,077,970 | 238,232 | ||||||||||||
| Interest expense | 541,282 | 174,271 | 1,111,287 | 214,921 | ||||||||||||
| Total expenses | 3,045,879 | 1,101,618 | 7,654,080 | 1,736,851 | ||||||||||||
| Less: Expenses reimbursed/fees waived by Sponsor or affiliates (Note 8) | (626,715 | ) | (446,130 | ) | (2,064,684 | ) | (446,130 | ) | ||||||||
| Net expenses | 2,419,165 | 655,488 | 5,589,396 | 1,290,721 | ||||||||||||
| Other income (loss): | ||||||||||||||||
| Interest income | 2,988 | 619 | 3,875 | 619 | ||||||||||||
| Equity in earnings (losses) from unconsolidated entities | 688 | (4,300 | ) | 168,043 | (4,300 | ) | ||||||||||
| Total other income (loss) | 3,676 | (3,681 | ) | 171,918 | (3,681 | ) | ||||||||||
| Net loss | $ | (98,983 | ) | $ | (299,625 | ) | $ | (511,730 | ) | $ | (893,393 | ) | ||||
| Net loss per share, basic and diluted | $ | (0.01 | ) | $ | (1.39 | ) | $ | (0.10 | ) | $ | (10.44 | ) | ||||
| Weighted-average number of common shares outstanding, basic and diluted | 6,873,249 | 215,369 | 5,220,371 | 85,598 | ||||||||||||
| Dividends declared per share | $ | 0.175 | $ | 0.14 | $ | 0.525 | $ | 0.14 | ||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||
| Rental income | $ | 11,836,563 | $ | 10,144,478 | $ | 22,147,745 | $ | 19,714,091 | ||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||||
| General and administrative | 1,597,776 | 1,615,182 | 3,505,831 | 3,721,365 | ||||||||||||||||||||||
| Stock compensation expense | 660,170 | 679,747 | 1,320,339 | 1,191,612 | ||||||||||||||||||||||
| Depreciation and amortization | 3,956,334 | 3,682,681 | 7,228,394 | 6,983,173 | ||||||||||||||||||||||
| Property expenses | 1,527,868 | 1,434,215 | 3,234,712 | 3,594,080 | ||||||||||||||||||||||
| Impairment of real estate investment property | — | — | 3,499,438 | — | ||||||||||||||||||||||
| Impairment of goodwill | — | — | — | 17,320,857 | ||||||||||||||||||||||
| Total operating expenses | 7,742,148 | 7,411,825 | 18,788,714 | 32,811,087 | ||||||||||||||||||||||
| Gain on sale of real estate investments | — | 720,071 | — | 7,595,157 | ||||||||||||||||||||||
| Operating income (loss) | 4,094,415 | 3,452,724 | 3,359,031 | (5,501,839) | ||||||||||||||||||||||
| Other income (expense): | ||||||||||||||||||||||||||
| Interest income | 216,841 | 1,763 | 270,535 | 15,198 | ||||||||||||||||||||||
| Interest expense, net of derivative settlements and unrealized gain on interest rate swaps | 179,931 | (1,197,154) | (3,838,861) | (2,765,329) | ||||||||||||||||||||||
| Income from unconsolidated investment in a real estate property | 72,773 | 66,868 | 128,340 | 162,332 | ||||||||||||||||||||||
| Loss on early extinguishment of debt | — | — | — | (1,725,318) | ||||||||||||||||||||||
| Other | 65,993 | 66,143 | 131,987 | 132,136 | ||||||||||||||||||||||
| Other income (expense), net | 535,538 | (1,062,380) | (3,307,999) | (4,180,981) | ||||||||||||||||||||||
| Net income (loss) | 4,629,953 | 2,390,344 | 51,032 | (9,682,820) | ||||||||||||||||||||||
| Less: net (income) loss attributable to noncontrolling interest in Operating Partnership | (649,643) | (219,214) | 166,556 | 1,708,815 | ||||||||||||||||||||||
| Net income (loss) attributable to Modiv Industrial, Inc. | 3,980,310 | 2,171,130 | 217,588 | (7,974,005) | ||||||||||||||||||||||
| Preferred stock dividends | (921,875) | (921,875) | (1,843,750) | (1,843,750) | ||||||||||||||||||||||
| Net income (loss) attributable to common stockholders | $ | 3,058,435 | $ | 1,249,255 | $ | (1,626,162) | $ | (9,817,755) | ||||||||||||||||||
| Net income (loss) per share attributable to common stockholders: | ||||||||||||||||||||||||||
| Basic | $ | 0.41 | $ | 0.17 | $ | (0.22) | $ | (1.31) | ||||||||||||||||||
| Diluted | $ | 0.35 | $ | 0.14 | $ | (0.22) | $ | (1.31) | ||||||||||||||||||
| Weighted-average number of common shares outstanding: | ||||||||||||||||||||||||||
| Basic | 7,532,106 | 7,478,973 | 7,532,080 | 7,505,673 | ||||||||||||||||||||||
| Diluted | 10,638,311 | 10,221,490 | 7,532,080 | 7,505,673 | ||||||||||||||||||||||
| Distributions declared per common share | $ | 0.2875 | $ | 0.2875 | $ | 0.5750 | $ | 0.6750 | ||||||||||||||||||
PART I – FINANCIAL INFORMATION (continued)
ITEM 1 – Unaudited Condensed Consolidated Financial Statements (continued)
Condensed Consolidated Statement of Stockholders' Equity
For the Nine months ended September 30, 2017
(unaudited)
| Cumulative | ||||||||||||||||||||||||||||
| Common Stock | Additional | Distributions | Total | |||||||||||||||||||||||||
| Class C | Class S | Paid-in | and Net | Stockholders' | ||||||||||||||||||||||||
| Shares | Amounts | Shares | Amounts | Capital | Losses | Equity (Deficit) | ||||||||||||||||||||||
| Balance, December 31, 2016 | 2,458,881 | $ | 2,458 | - | $ | - | $ | 23,643,435 | $ | (1,414,787 | ) | $ | 22,231,106 | |||||||||||||||
| Issuance of common stock | 5,301,994 | 5,302 | 3,000 | 3 | 53,044,638 | - | 53,049,943 | |||||||||||||||||||||
| Offering costs | - | - | - | - | (1,593,899 | ) | - | (1,593,899 | ) | |||||||||||||||||||
| Distributions declared | - | - | - | - | - | (2,432,006 | ) | (2,432,006 | ) | |||||||||||||||||||
| Stock compensation expense | 12,500 | 12 | - | - | 124,988 | - | 125,000 | |||||||||||||||||||||
| Repurchase of common stock | (160,863 | ) | (159 | ) | - | - | (1,561,042 | ) | - | (1,561,201 | ) | |||||||||||||||||
| Net loss | - | - | - | - | - | (511,730 | ) | (511,730 | ) | |||||||||||||||||||
| Reclassification to redeemable common stock | - | - | - | - | (214,642 | ) | - | (214,642 | ) | |||||||||||||||||||
| Balance, September 30, 2017 | 7,612,512 | $ | 7,613 | 3,000 | $ | 3 | $ | 73,443,478 | $ | (4,358,523 | ) | $ | 69,092,571 | |||||||||||||||
of Equity NYSE under the symbol “MDV” and has been trading since February 11, 2022. 30, 2023), 12 retail properties (including 11 classified as held for sale properties), which represent approximately 16% of the portfolio, and six office properties (including three classified as held for sale properties), which represent approximately 16% of the portfolio. SEC on March 13, 2023. Condensed Consolidated Financial Statements (continued) and Hedging Activities income (loss) or net income (loss) per share for the three and six months ended June 30, 2022 accompanying unaudited condensed consolidated statements of operations. ESTATE INVESTMENTS, NET 2023 2022 are as follows: electromagnetic effects on emerging technologies. An ISO 17025 accredited company and registered government contractor, EMC Shop manufactures and stocks solutions including non-conductive tables, preamplifiers, line impedance stabilization networks, antenna measurements, automotive radar, and millimeter wave solutions for 5G testing. Its calibration laboratories includes three areas: electrostatic discharge, radio frequency and conducted immunity/susceptibility. Percentage of As of 2023, the Company classified the following 14 real estate investment properties as held for sale: Nine months ended 2022, respectively. 2023 and December 31, 2022, tenant receivables consisted of the following: Net 2023. 2023. 2023: granted this cancellation option because it reduced the swap rate by approximately 50 basis points. The Company Derivative Number of Notional Amount Reference Rate as Weighted Average Weighted Average increases if the Company's leverage ratio increases above 40%. 2023 and December 31, 2022: Carrying Carrying Quoted Prices in Significant Other Significant Unobservable dismiss or stay this litigation on July 10, 2023 and a hearing is scheduled for September 19, 2023. (continued) 16, 2023 to holders of Series A Preferred Stock of record as of September 29, 2023. various factors. See “Forward-Looking Statements” above. 2016 June 30, 2023 and 2022: remain unpredictable in the foreseeable future; for example, increased demand for work-from-home arrangements resulting from the COVID-19 pandemic may adversely impact the operations of our remaining four office properties (one of which is held for sale). 2023 and 2022 was $11,836,563 and $10,144,478, respectively. The The $41,097,689. The decrease of $19,577, or 3%, as compared with the second quarter of 2022 is primarily due to forfeitures of Class R OP Units related to employee terminations during the first and third quarters of 2022. There have been no subsequent forfeitures. Rate per Share per unaudited condensed consolidated financial statements. six months ended June 30, 2023. discussion of commitments and contingencies). report. recent accounting pronouncements. 2022 and 2021 as previously reported in the consolidated statement of operations. Total number of Total Number of Average Price Dollar Value of ContentsThree Months Ended
June 30,Six Months Ended
June 30,2023 2022 2023 2022 Net income (loss) $ 4,629,953 $ 2,390,344 $ 51,032 $ (9,682,820) Other comprehensive loss: cash flow adjustment Add: Amortization of unrealized holding gain on interest rate swap 253,093 — 503,404 — Comprehensive income (loss) 4,883,046 2,390,344 554,436 (9,682,820) Net (income) loss attributable to noncontrolling interest in Operating Partnership (649,643) (219,214) 166,556 1,708,815 Other comprehensive loss attributable to noncontrolling interest in Operating Partnership: cash flow adjustment Add: Amortization of unrealized holding gain on interest rate swap 44,341 — 81,482 — Comprehensive (income) loss attributable to noncontrolling interest in Operating Partnership (605,302) (219,214) 248,038 1,708,815 Comprehensive income (loss) attributable to Modiv Industrial, Inc. $ 4,277,744 $ 2,171,130 $ 802,474 $ (7,974,005) the condensed consolidated financial statements.Financial Statements
of Equity5PART I – FINANCIAL INFORMATION (continued)ITEM 1 – Unaudited Preferred Stock Class C Additional
Paid-in
CapitalCumulative
Distributions
and Net
(Losses) IncomeAccumulated Other Comprehensive Income (Loss) Total
Modiv Industrial, Inc.
EquityNoncontrolling Interests in the Operating Partnership Total
EquityCommon Stock Treasury Stock Shares Amounts Shares Amounts Shares Amounts Balance, March 31, 2023 2,000,000 $ 2,000 7,822,940 $ 7,823 $ 279,565,984 (254,618) $ (4,211,300) $ (124,790,431) $ 3,289,446 $ 153,863,522 $ 80,052,419 $ 233,915,941 Issuance of common stock - distribution reinvestments — — 46,062 46 589,297 — — — — 589,343 — 589,343 Issuance of Class C OP Units — — — — — — — — — — 5,175,285 5,175,285 Stock compensation expense — — 5,500 6 82,494 — — — — 82,500 — 82,500 OP Units compensation expense — — — — 577,670 — — — — 577,670 — 577,670 Repurchase of common stock — — — — — (88,892) (1,079,480) — — (1,079,480) — (1,079,480) Dividends declared, preferred stock — — — — — — — (921,875) — (921,875) — (921,875) Distributions declared, common stock — — — — — — — (2,163,032) — (2,163,032) — (2,163,032) Distributions declared, Class C OP Units — — — — — — — — — — (459,955) (459,955) Net income — — — — — — — 3,980,310 — 3,980,310 649,643 4,629,953 Amortization of unrealized holding gain on interest rate swap — — — — — — — — (208,752) (208,752) (44,341) (253,093) Balance, June 30, 2023 2,000,000 $ 2,000 7,874,502 $ 7,875 $ 280,815,445 (343,510) $ (5,290,780) $ (123,895,028) $ 3,080,694 $ 154,720,206 $ 85,373,051 $ 240,093,257 Preferred Stock Class C Additional
Paid-in
CapitalCumulative
Distributions
and Net (Losses) IncomeTotal
Modiv Industrial, Inc.
EquityNoncontrolling Interests in the Operating Partnership Total
EquityCommon Stock Treasury Stock Shares Amounts Shares Amounts Shares Amounts Balance, March 31, 2022 2,000,000 $ 2,000 7,601,081 $ 7,601 $ 275,371,078 (50,863) $ (852,721) $ (115,598,562) $ 158,929,396 $ 81,107,213 $ 240,036,609 Issuance of common stock -distribution reinvestments — — 42,911 43 711,180 — — — 711,223 — 711,223 OP Units compensation expense — — — — 597,247 — — — 597,247 — 597,247 Offering costs — — — — (757,278) — — — (757,278) — (757,278) Repurchase of common stock — — — — — (136,567) (2,401,181) — (2,401,181) — (2,401,181) Dividend declared - preferred stock — — — — — — — (921,875) (921,875) — (921,875) Distributions declared, common stock — — — — — — — (2,142,075) (2,142,075) — (2,142,075) Distributions declared, Class C OP Units — — — — — — — — — (377,296) (377,296) Net income — — — — — — — 2,171,130 2,171,130 219,214 2,390,344 Balance, June 30, 2022 2,000,000 $ 2,000 7,643,992 $ 7,644 $ 275,922,227 (187,430) $ (3,253,902) $ (116,491,382) $ 156,186,587 $ 80,949,131 $ 237,135,718 Financial Statements (continued)Preferred Stock Class C Additional
Paid-in
CapitalCumulative
Distributions
and Net
(Losses) IncomeAccumulated Other Comprehensive Income (Loss) Total
Modiv Industrial, Inc.
EquityNoncontrolling Interests in the Operating Partnership Total
EquityCommon Stock Treasury Stock Shares Amounts Shares Amounts Shares Amounts Balance, December 31, 2022 2,000,000 $ 2,000 7,762,506 $ 7,762 $ 278,339,020 (250,153) $ (4,161,618) $ (117,938,876) $ 3,502,616 $ 159,750,904 $ 81,283,056 $ 241,033,960 Issuance of common stock - distribution reinvestments — — 98,735 99 1,156,100 — — — — 1,156,199 — 1,156,199 Issuance of Class C OP Units — — — — — — — — — — 5,175,285 5,175,285 Stock compensation expense — — 13,261 14 164,986 — — — — 165,000 — 165,000 OP Units compensation expense — — — — 1,155,339 — — — — 1,155,339 — 1,155,339 Repurchase of common stock — — — — — (93,357) (1,129,162) — — (1,129,162) — (1,129,162) Dividends declared, preferred stock — — — — — — — (1,843,750) — (1,843,750) — (1,843,750) Distributions declared, common stock — — — — — — — (4,329,990) — (4,329,990) — (4,329,990) Distributions declared, Class C OP Units — — — — — — — — — — (837,252) (837,252) Net income (loss) — — — — — — — 217,588 — 217,588 (166,556) 51,032 Amortization of unrealized holding gain on interest rate swap — — — — — — — — (421,922) (421,922) (81,482) (503,404) Balance, June 30, 2023 2,000,000 $ 2,000 7,874,502 $ 7,875 $ 280,815,445 (343,510) $ (5,290,780) $ (123,895,028) $ 3,080,694 $ 154,720,206 $ 85,373,051 $ 240,093,257 Preferred Stock Class C Additional
Paid-in
CapitalCumulative
Distributions
and Net
LossesTotal
Modiv Industrial, Inc.
EquityNoncontrolling Interests in the Operating Partnership Total
EquityCommon Stock Treasury Stock Shares Amounts Shares Amounts Shares Amounts Balance, December 31, 2021 2,000,000 $ 2,000 7,490,404 $ 7,491 $ 273,441,831 — $ — $ (101,624,430) $ 171,826,892 $ 50,603,000 $ 222,429,892 Issuance of common stock -distribution reinvestments — — 108,989 109 2,203,518 — — — 2,203,627 — 2,203,627 Listed offering of common stock, net — — 40,000 40 114,460 — — — 114,500 — 114,500 Issuance of Class C OP Units — — — — — — — — — 32,809,551 32,809,551 Stock compensation expense — — 4,599 4 82,496 — — — 82,500 — 82,500 OP Units compensation expense — — — — 1,026,612 — — — 1,026,612 — 1,026,612 Offering costs — — — — (946,690) — — — (946,690) — (946,690) Repurchase of common stock — — — — — (187,430) (3,253,902) — (3,253,902) — (3,253,902) Dividend declared - preferred stock — — — — — — — (1,843,750) (1,843,750) — (1,843,750) Distributions declared, common stock — — — — — — — (5,049,197) (5,049,197) — (5,049,197) Distributions declared, Class C OP Units — — — — — — — — — (754,605) (754,606) Net loss — — — — — — — (7,974,005) (7,974,005) (1,708,815) (9,682,820) Balance, June 30, 2022 2,000,000 $ 2,000 7,643,992 $ 7,644 $ 275,922,227 (187,430) $ (3,253,902) $ (116,491,382) $ 156,186,587 $ 80,949,131 $ 237,135,718 RW HOLDINGS NNN REIT, Nine months ended September 30, 2017 September 30, 2016 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (511,730 ) $ (893,393 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 2,077,970 238,232 Stock compensation expense 125,000 68,000 Deferred rents (620,748 ) 15,682 Amortization of deferred financing costs 89,645 10,637 Amortization of above-market lease 59,509 9,720 Amortization of below-market leases (37,213 ) - Unrealized loss on interest rate swap valuation 100,006 - Equity in (earnings) losses from investment in unconsolidated entities (168,043 ) 4,300 Distributions from investment in unconsolidated entities 204,212 - Change in operating assets and liabilities: Tenant receivables (416,277 ) - Due from affiliates 57,411 - Prepaid expenses and other assets (589,261 ) (63,513 ) Accounts payable, accrued expenses and other liabilities 1,697,446 75,942 Due to affiliates 478,445 1,649 Net cash provided by (used in) operating activities 2,546,372 (532,744 ) CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of real estate investments (62,245,697 ) (15,730,500 ) Additions to real estate investments (685,161 ) - Payments of acquisition fees to affiliate (2,772,329 ) - Repayment of amounts due from affiliate 28,571 - Investment in unconsolidated entities (10,542,594 ) (2,000,000 ) Proceeds from acquisition closing payable to unconsolidated entity 363,168 - Refundable purchase deposits and other acquisition costs - (100,000 ) Net cash used in investing activities (75,854,042 ) (17,830,500 ) CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings from unsecured credit facility 43,390,000 11,000,000 Repayments of unsecured credit facility (46,428,064 ) (4,036,500 ) Proceeds from mortgage note payable 36,904,988 7,319,700 Principal payments on mortgage notes payable (218,599 ) (21,316 ) Refundable loan deposits (44,550 ) - Payments of deferred financing costs to third parties (920,699 ) (176,063 ) Payment of financing fees to affiliates (261,950 ) - Proceeds from issuance of common stock and investor deposits 50,500,102 6,646,976 Payments of offering costs (1,675,149 ) (187,101 ) Payments to redeem common stock (1,561,201 ) - Distributions paid to common stockholders (464,619 ) (4,852 ) Net cash provided by financing activities 79,220,259 20,540,844 NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 5,912,589 2,177,600 CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD 3,677,373 200,815 CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD $ 9,589,962 $ 2,378,415 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest $ 756,783 $ 192,327 SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES Transfers to redeemable common stock $ 214,642 $ 33,311 Distributions paid to common stockholders through common stock issuance pursuant to the distribution reinvestment plan $ 1,967,325 $ 7,226 Increase in deferred commissions payable to Class S distributor $ 2,400 $ - Increase in lease incentive obligation $ - $ 535,500 Reinvested distributions to investment in Rich Uncles REIT I $ - $ 2,885 Tax withholding on distributions $ 62 $ - Purchase deposits applied to acquisition of real estate $ 500,000 $ - Increase in share repurchases payable $ 176,654 $ 8,315 Six Months Ended June 30, 2023 2022 Cash Flows from Operating Activities: Net income (loss) $ 51,032 $ (9,682,820) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 7,228,394 6,983,173 Stock compensation expense 1,320,339 1,191,612 Amortization of deferred rents (2,755,717) (809,558) Amortization of deferred lease incentives 177,140 147,049 Write-offs and amortization of deferred financing costs and premium/discount 390,426 1,368,507 Amortization of (below) above market lease intangibles, net (392,184) (647,973) Impairment of real estate investment property 3,499,438 — Impairment of goodwill — 17,320,857 Gain on sale of real estate investments — (7,595,157) Unrealized gain on interest rate swap valuation (1,986,415) (589,997) Write-off of unrealized gain on interest rate swaps — (788,016) Income from unconsolidated investment in a real estate property (128,340) (162,332) Distributions from unconsolidated investment in a real estate property 124,414 147,153 Change in operating assets and liabilities: Increase in tenant receivables (81,200) (1,356,969) Decrease in prepaid and other assets 144,778 572,422 Decrease in accounts payable, accrued and other liabilities (302,997) (1,021,479) Net cash provided by operating activities 7,289,108 5,076,472 Cash Flows from Investing Activities: Acquisitions of real estate investments (93,757,187) (99,691,164) Additions to existing real estate investments (421,576) (1,546,131) Collection of note receivable from early termination of lease — 390,000 Net proceeds from sale of real estate investments — 45,257,181 Purchase deposits, net (1,687,800) (730,780) Payment of lease incentives (10,815) (2,100,000) Net cash used in investing activities (95,877,378) (58,420,894) Cash Flows from Financing Activities: Borrowings from credit facility term loan 100,000,000 150,000,000 Repayments of credit facility revolver, net (3,000,000) (1,247,000) Principal payments on mortgage notes payable (153,653) (130,361,583) Payments of deferred financing costs — (2,186,468) Proceeds from listed offering of common stock, net — 114,500 Payments of offering costs — (946,690) Repurchases of common stock (1,129,162) (3,253,902) Dividends paid to preferred stockholders (1,843,750) (1,987,153) Distributions paid to common stockholders (3,172,005) (2,860,513) Distributions paid to Class C OP Units holders (809,699) (628,840) Net cash provided by financing activities 89,891,731 6,642,351 Net increase (decrease) in cash and cash equivalents 1,303,461 (46,702,071) Cash and cash equivalents, beginning of period 8,608,649 58,407,520 Cash and cash equivalents, end of period $ 9,912,110 $ 11,705,449 MODIV INDUSTRIAL, INC. Condensed Consolidated Statements of Cash Flows (continued) (Unaudited) Six Months Ended June 30, 2023 2022 Supplemental Disclosure of Cash Flow Information: Cash paid for interest $ 5,148,297 $ 2,874,272 Supplemental Schedule of Noncash Investing and Financing Activities: Issuance of Class C OP Units in the acquisition of a real estate investment $ 5,175,284 $ 32,809,550 Reinvested distributions from common stockholders $ 1,161,894 $ 2,203,627 Unpaid real estate improvements $ — $ 522,845 Reclassification of tenant improvements from other assets to real estate investments $ — $ 73,323 Accrued distributions and dividends $ 29,338 $ (32,581) Supplemental disclosure related to changes in real estate investments held for sale, net: Real estate investments held for sale, net $ 41,913,864 $ 31,510,762 Other assets related to real estate investments held for sale $ 2,324,752 $ 788,296 Mortgage notes payable related to real estate investments held for sale, net $ — $ (21,699,912) Other liabilities related to real estate investments held for sale $ 347,371 $ (383,282) thecondensed consolidated financial statements.6PART I – FINANCIAL INFORMATION (continued)ITEM 1 – Unaudited Condensed Consolidated Financial Statements (continued)NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSSeptember 30, 2017(unaudited)RW Holdings NNN REIT,14,15, 2015 as a Maryland corporation. The Company was originally incorporated under the name Rich Uncles Real Estate Investment Trust, Inc., but changed its name on October 19, 2015from Modiv Inc. to Rich Uncles NNN REIT,Modiv Industrial, Inc. and again oneffective August 14, 2017 to RW Holdings NNN REIT, Inc. As of September 30, 2017, the11, 2023. The Company has the authority to issue 450,000,000 shares of stock, consisting of 50,000,000 shares of preferred stock, $0.001 par value per share, of which 2,000,000 shares are designated as 7.375% Series A cumulative redeemable perpetual preferred stock (“Series A Preferred Stock”), 300,000,000 shares of Class C common stock, $0.001 par value per share, and 100,000,000 shares of Class S common stock, $0.001 par value per share. The Company was formed to primarily invest, directly or indirectly through investments in real estate owning entities, in single-tenant income-producing corporate properties located infiles its reports with the United States, which are leased to creditworthy tenantsSecurities and Exchange Commission (the “SEC”) as a smaller reporting company under long-term net leases.Rule 12b-2 of the Securities Exchange Act of 1934, as amended. The Company’s goalCompany's Series A Preferred Stock is to generate current income for investorslisted on the New York Stock Exchange (the “NYSE”) under the symbol MDV.PA and long-term capital appreciation inhas been trading since September 17, 2021. The Company's Class C common stock is listed on the value of its properties. wholly owned limited liability companies which are wholly ownedwholly-owned subsidiaries of Rich Uncles NNNModiv Operating Partnership, LP, a Delaware limited partnership (the “Operating Partnership”). The Operating Partnership was formed on January 28, 2016. The Company is the sole general partner of, and owns a 99% partnership interest in, the Operating Partnership. Rich Uncles NNN LP, LLC, a Delaware limited liability company formed on May 13, 2016, owns the remaining 1%owned an approximate 71% and 73% partnership interest in, the Operating Partnership as of June 30, 2023 and isDecember 31, 2022, respectively. The Operating Partnership's limited partners include holders of several classes of units with various vesting and enhancement terms as further described in Note 11.sole limited partner. Rich Uncles NNN LP, LLC is wholly owned by the Company. The Company had no significant operations prior to its purchaseCompany's portfolio of approximately 4.3 million square feet of aggregate leasable space consisted of investments in 56 real estate properties, comprised of: 38 industrial properties, including an approximate 72.7% tenant-in-common interest in a Santa Clara, California property (the “TIC Interest”), which represent approximately 68% of the portfolio (expressed as a percentage of annual base rent (“ABR”) as of June 2016.externally managed by its advisor, Rich Uncles NNN REIT Operator, LLC (the “Advisor”)97%, reflecting a Delaware limited liability company wholly owned by3% discount (or such other discount as may then be in effect) of the Market Price (as defined in the Second Amended and Restated DRP) of the Class C common stock. This discount is subject to change from time to time, in the Company’s sponsor, Rich Uncles, LLC (the “Sponsor”), a Delaware limited liability company whose members include Harold Hofer, Howard Makler,sole discretion, but will be between 0% to 5% of the Market Price.Ray Wirta. OnRestated DRP) actually paid for such shares of Class C common stock, excluding any processing fees. The Second Amended and Restated DRP also reflects the $0.05 per share processing fee that will be paid to the Company's transfer agent by DRP participants for each share of Class C common stock purchased through the DRP. The Second Amended and Restated DRP was effective beginning with distributions paid in February 2022. From February 2022 through June 24, 2015 and December 31, 2015,30, 2023, the Company issued 10,000309,046 shares of itsClass C common stock under the DRP.Sponsor, respectively, for a purchase priceCompany's board of $10.00 per share.On July 15, 2015,directors authorized up to $20,000,000 in repurchases of the Company filed a registration statement on Form S-11 with the Securities and Exchange Commission (the “SEC”) to register an initial public offering of its common stock to offer a maximum of $900,000,000 inCompany's outstanding shares of common stock for salethrough December 31, 2022 (“2022 SRP”). On December 21, 2022, the Company's board of directors authorized up to $15,000,000 in repurchases of the public (the “Primary Offering”). The Company also registered a maximum of $100,000,000Company's outstanding shares of common stock and Series A Preferred Stock from January 1, 2023 through December 31, 2023 (“2023 SRP”). Repurchases made pursuant to the Company’s distribution reinvestment plan (the “Registered DRP Offering”2023 SRP will be made from time-to-time in the open market, in privately negotiated transactions or in any other manner as permitted by federal securities laws and together with the Primary Offering, the “Registered Offering”).other legal requirements. The SEC declared the Company’s registration statement effective on June 1, 2016timing, manner, price and in July 20, 2016,amount of any repurchases will be determined by the Company began offering sharesin its discretion and will be subject to economic and market conditions, stock price, applicable legal requirements and other factors. The program may be suspended or discontinued at any time.public. Pursuant to its securities offering registered with the SEC,2022 SRP, the Company sellsrepurchased an aggregate of 250,153 shares of its Class C common stock directly to investorsfor an aggregate value of $4,161,618 at a purchase pricean average cost of $10.00$16.64 per share, with a minimum investment in shares of $500. Commencing in August 2017,share. Under the 2023 SRP, during the six months ended June 30, 2023, the Company began sellingrepurchased an aggregate of 93,357 shares of its Class C common stock only to U.S. persons as defined under Rule 903 promulgated under the Securities Actfor an aggregate value of 1933, as amended (the “Securities Act”).On August 11, 2017, the Company began offering up to 100,000,000 shares$1,129,162 at an average cost of Class S common stock exclusively to non-U.S. Persons as defined under Rule 903 promulgated under the Securities Act pursuant to an exemption from the registration requirements of the Securities Act under and in accordance with Regulation S of the Securities Act (the “Class S Offering” and, together with the Registered Offering, the “Offerings”). The Class S common stock has similar features and rights as the Class C common stock, including with respect to voting and liquidation, except that the Class S common stock offered in the Class S Offering may be sold through brokers or other persons who may be paid upfront and deferred selling commissions and fees.Through September 30, 2017, the Company had sold 7,739,712 shares of “Class C” common stock in the Registered Offering, including 209,232 shares of Class C common stock sold under its Registered DRP Offering, for aggregate gross offering proceeds of $77,397,120, and 3,000 shares of Class S common stock in the Class S Offering for aggregate gross offering proceeds of $30,000.
$12.10 per share.7PART I – FINANCIAL INFORMATION (continued)ITEM 1 – Unaudited Condensed Consolidated Financial Statements (continued)RW HOLDINGS NNN REIT, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)September 30, 2017(unaudited)Condensed Consolidated Financial Statementscondensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles generally accepted in the United States of America (“GAAP”) for interim financial informationstatements as contained inwithin the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“Codification”ASC”), and in conjunction withthe rules and regulations of the SEC, including the instructions to Form 10-Q and Article 10 of Regulation S-X.SEC. Accordingly, the unaudited Condensed Consolidated Financial Statementsthey do not include certaincontain all information and footnote disclosuresfootnotes required by GAAP for auditedannual financial statements. Instatements pursuant to those rules and regulations, although the opinion of management,Company believes that the disclosures made are adequate to make the information not misleading. Such unaudited Condensed Consolidated Financial Statements reflect all adjustments whichcondensed consolidated financial statements and notes are of a normal and recurring nature, necessary for a fair and consistent presentationthe representations of the Company’s management, which is responsible for their integrity and objectivity. These unaudited condensed consolidated financial position and the results for the interim period presented. Operating results for the three and nine months ended September 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. The accompanying unaudited interim financial informationstatements should be read in conjunction with ourthe audited consolidated financial statements as of December 31, 2022 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 as filed with the SEC.Condensed Consolidated Financial Statements includecondensed consolidated financial statements have been prepared on the accountssame basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which are normal and recurring, necessary to fairly state the Company, the Operating Partnership,Company's financial position, results of operations and directly wholly owned subsidiaries.cash flows. All significant intercompany balances and transactions are eliminated in consolidation.Immaterial CorrectionDuring 2017, The unaudited condensed consolidated balance sheet as of December 31, 2022 included herein was derived from the audited financial statements.identifiedand the limited partner interests not held by the Company are reflected as noncontrolling interests in the accompanying unaudited condensed consolidated balance sheets and statements of equity. Other than the noncontrolling interests related to an immaterial misstatement within“UPREIT” transaction completed in January 2022, as discussed in Note 11, all noncontrolling interests currently represent non-voting, non-distribution accruing interests with no allocation of profits or losses, but have various conversion rights to obtain future rights to distributions and allocation of profits and losses as discussed in Note 11.statementaccompanying unaudited condensed consolidated financial statements and the accompanying notes thereto in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. These estimates are based on historical experience and, in some cases, assumptions based on current and future market experience. Actual results may differ from those estimates.flowsor a credit against its rent) that is funded is treated as a lease incentive and amortized as a reduction of revenue over the lease term.ninetenant’s receivable balance and generally will not recognize subsequent rental income until cash is received or until the tenant is no longer in bankruptcy and has the ability to make rental payments.SeptemberJune 30, 2016 related2022 met these criteria at closing. When properties are sold, operating results of the properties remain in continuing operations, and any associated gain or loss from the disposition is included in gain or loss on sale of real estate investments in the Company’s accompanying unaudited condensed consolidated statements of operations.classificationextent the carrying value exceeds the estimated fair value of cashthe investments in real estate properties.and reported as investor deposits which understatedfor an asset or paid to transfer a liability (an existing price) in the net cash usedprincipal or most advantageous market for the asset or liability in operating activities and understated net cash provided by financing activities by $485,494. Staff Accounting Bulletin: No. 99 – Materiality wasan orderly transaction between market participants at the measurement date. Valuation techniques used to evaluatemeasure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy, which is based on three levels of inputs, the first two of which are considered observable and the last unobservable, that may be used to measure fair value, is as follows:misstatement. The misstatement was correctedcontracts, are incorporated in the statement of cash flowsfair values to account for the nine months ended September 30, 2016 presented herein. Net cash used in operating activities for the nine months ended September 30, 2016 was previously reported as $47,250 as compared to $532,744. Net cash provided by financing activities for the nine months ended September 30, 2016 was increased by $485,494 to $20,540,844. These amounts also include the impactpotential nonperformance risk.early adoptionCompany’s credit facility approximate the carrying value as their interest rate and other terms are comparable to those available in the marketplace for similar credit facilities.ASU 2016-18the Company’s mortgage notes payable are estimated using a discounted cash flow analysis based on management’s estimates of current market interest rates for instruments with similar characteristics, including remaining loan term, loan-to-value ratio, type of collateral and other credit enhancements. Additionally, when determining the fair value of liabilities in circumstances in which a quoted price in an active market for an identical liability is not available, the Company measures fair value using (i) a valuation technique that uses the quoted price of the identical liability when traded as an asset or quoted prices for similar liabilities when traded as assets or (ii) another valuation technique that is consistent with the principles of fair value measurement, such as the income approach or the market approach. The Company classifies these inputs as Level 3 inputs.the presentation of changes in restricted cashreal estate investments held for sale,” respectively, in the statementaccompanying unaudited condensed consolidated balance sheets. Other liabilities related to real estate investments held for sale are classified as “liabilities related to real estate investments held for sale” in the accompanying unaudited condensed consolidated balance sheets. Real estate investments classified as held for sale are no longer depreciated and are reported at the lower of cash flowstheir carrying value or their estimated fair value less estimated costs to sell. Operating results of properties that were classified as describedheld for sale in Note 2 “New Accounting Standards Issued and Adopted”.The Company will reflect the correction relating to the classificationordinary course of the investor deposit liabilities of an additional amount of $97,000 for the three months ended December 31, 2016business are included in continuing operations in the Company’s annual report on Form 10-K.ReclassificationsCertain amounts in the Company’s prior periodaccompanying unaudited condensed consolidated financial statements have been reclassifiedof operations.conform to the current period presentation. These reclassifications have not changed the results of operations of prior periods.Other Comprehensive IncomeFor all periods presented, other comprehensive income (loss) is the same as net income (loss).mortgage notes payable.debt. The Company does not enter into derivatives for speculative purposes. The Company records these derivative instruments at fair value on its accompanying unaudited condensed consolidated balance sheets. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. If the Company elects to designate a derivative in a hedging relationship and the hedging relationship satisfies the criteria necessary to apply hedge accounting, the derivative is designated as a cash flow hedge and the unrealized holding gain or loss on the interest rate swap is presented in comprehensive income (loss) and accumulated other comprehensive income in the Company's accompanying unaudited condensed consolidated balance sheets. If the derivative instrument does not meet the hedge accounting criteria, the change in the fair value of the derivative is recorded as a gain or loss on the interest rate swap and included in interest expense, net of derivative settlements and unrealized gain on interest rate swaps in the Company's accompanying unaudited condensed consolidated statements of operations.Balance Sheets. The Company’s mortgage derivativeFinancial Statements (continued)havedo not been designatedmeet liability classification under ASC 480-10, the Company assesses the requirements under ASC 815-40, which states that contracts that require or may require the issuer to settle the contract for cash are liabilities recorded at fair value, irrespective of the likelihood of the transaction occurring that triggers the net cash settlement feature. If the equity instruments do not require liability classification under ASC 815-40, in order to conclude equity classification, the Company assesses whether the equity instruments are indexed to its common stock and whether the equity instruments are classified as effective hedgesequity under ASC 815-40 or other applicable GAAP guidance. After all relevant assessments are made, the Company concludes whether the equity instruments are classified as liability or equity. Liability classified equity instruments are required to be accounted for at fair value both on the date of issuance and therefore theon subsequent accounting period ending dates, with all changes in fair value areafter the issuance date recorded in the statements of operations as a gain or lossloss. Equity classified equity instruments are accounted for at fair value on derivative instrumentsthe issuance date with no changes in fair value recognized after the accompanying Consolidated Statementissuance date.Operations.Use of EstimatesThe preparation of the unaudited Condensed Consolidated Financial Statements and the accompanying notes thereto in conformity with GAAP requires2023, management to make estimates and assumptionsdetermined that affect the amounts reported in the unaudited Condensed Consolidated Financial Statements and accompanying notes. Actual results may differ from those estimates.8PART I – FINANCIAL INFORMATION (continued)ITEM 1 – Unaudited Condensed Consolidated Financial Statements (continued)RW HOLDINGS NNN REIT, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)September 30, 2017(unaudited)Recent Accounting PronouncementsNew Accounting Standards Issued and AdoptedIn January 2017, the FASB issued Accounting Standards Update (“ASU”) No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”) which clarified the definition of a business. The update added further guidance that assists preparers in evaluating whether a transaction will be an acquisition of an asset or a business. The Company expects that most of its acquisitions will qualify as an asset acquisition and therefore acquisition costs are capitalized as part of the cost of the acquired properties. The Company adopted the standard as of October 1, 2016. For periods prior to the adoption of ASU 2017-01, the Company’s financial statements will not be comparable because acquisitionstreatment of property qualified as a business and therefore acquisition costs were expensed.In August 2016, the FASB issued ASU No. 2016-15,Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows. ASU 2016-15 addresses certain issuestaxes in those instances where diversity in practice was identified. It amends existing guidance, which is principles based and often requires judgment to determine the appropriate classification of cash flows as operating, investing or financing activities. In addition, ASU 2016-15 clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows. On January 1, 2017, we early adopted this standard in its entirety on a retrospective basis and determined that the only clarification to significantly impact the Company was responsible for paying property taxes and subsequently seeking tenant reimbursement should be treated differently than those instances where property taxes were paid directly by tenants to taxing authorities. Management determined that property taxes paid directly by tenants to taxing authorities should not have been recorded in the classificationCompany’s accompanying unaudited condensed consolidated statements of distributions received from our equity method investment in Rich Uncles REIT I. The update allowsoperations for the electionprior year periods in accordance with ASU 2018-20 “Leases (Topic 842) - Narrow-Scope Improvements for Lessors.” Accordingly, the Company’s accompanying unaudited condensed consolidated statements of operations for the three and six months ended June 30, 2022 reflect an adjustment to classify distributions received from equity methodreduce rental income and a corresponding reduction in property expenses of $531,670 and $1,136,397, respectively, for such property taxes and the Company's consolidated balance sheet as of December 31, 2022 reflects a reduction in tenant receivables with a corresponding reduction in accounts payable, accrued and other liabilities of $1,596,127. The corrections did not affect net income (loss) or net income (loss) per share for the three and six months ended June 30, 2022 accompanying unaudited condensed consolidated statements of operations.based on either a cumulative earnings approach or a nature of distribution approach. We have elected the nature of the distribution approach, in which cash flows generated from the operations of an unconsolidated entity are classified as a return on investment (cash inflow from operating activities) and cash flows that were generated from property sales, debt refinancing or sales of our investments are classified as a return of investment (cash inflow from investing activities). We adopted this approach based on the information available to us to determine the nature of the underlying activity that generated the distributions from unconsolidated entities.In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”). ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and restricted cash. Therefore, amounts generally described as restricted cashpreviously sold should be included with cash and cash equivalents when reconciling the beginning of period and end of period total amounts shown on the statement of cash flows, and transfers between cash and cash equivalents and restricted cash are no longer presented within the statement of cash flows. ASU 2016-18 is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. The Company elected to early adopt ASU 2016-18 for the reporting period ended December 31, 2016, and the standard was applied retrospectively for all periods presented. As a result of the adoption of ASU 2016-18, the Company no longer presents the change within restricted cash in the Consolidated Statement of Cash Flows. Therefore, $390,672 of restricted cash at September 30, 2016 has been included as cash, cash equivalents and restricted cash on the September 30, 2016 statement of cash flows and notreclassified as a component of the related gain on sale of the real estate investments rather than as an offset to rental income as previously presented in the Company's statements of operations. Accordingly, the Company’s accompanying unaudited condensed consolidated statements of operations for the three and six months ended June 30, 2022 reflect an increase in rental income and a corresponding reduction in the gain on sale of real estate investments of $282,030 and $807,721, respectively. The reclassification did not affect net cash provided by financing activities.Not Yet AdoptedIn May 2014,six months ended June 30, 2023 that will materially affect or affected the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). ASU 2014-09 requires an entityCompany's consolidated financial statements or operations. recognize the revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. ASU 2014-09 supersedes the revenue requirements inRevenue Recognition (Topic 605) and most industry-specific guidance throughout the Industry Topics of the Codification. ASU 2014-09 does not apply to lease contracts within the scope ofLeases (Topic 840). ASU 2014-09 was to be effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and is to be applied retrospectively, with early application not permitted. In August 2015, the FASB issued ASU 2015-14,Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which defers the effective date of ASU 2014-09 by one year. Early adoption is permitted but not before the original effective date. As the primary source of revenue for the Company is generated through leasing arrangements, which are scoped out of this standard, the Company does not expect the adoption of ASU 2014-09 to have a significant impact on its Consolidated Financial Statements.9PART I – FINANCIAL INFORMATION (continued)ITEM 1 – Unaudited Condensed Consolidated Financial Statements (continued)RW HOLDINGS NNN REIT, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)September 30, 2017(unaudited)In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). The amendments in ASU 2016-02 change the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU 2016-02 is effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption of ASU 2016-02 is permitted. The new standard for lease accounting requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The Company is currently evaluating the impact of adopting the new leases standard on its consolidated financial statements.PROPERTYSeptemberJune 30, 2017,2023, the Company’s real estate investment portfolio consisted of sixteen56 operating properties located in eight18 states consisting of eightcomprised of: 38 industrial properties (including the Company's approximate 72.7% TIC Interest in a Santa Clara, California industrial property which is not reflected in the table below but discussed in Note 4), 12 retail properties (including the 11 held for sale properties not reflected in the table below) and six office and two industrial properties. properties (including the three held for sale properties not reflected in the table below).real estate41 operating properties held for investment and use as of SeptemberJune 30, 2017:Property Location Acquisition
Date Property Type Land,
Buildings and
Improvements Tenant
Origination
and Absorption
Costs Accumulated
Depreciation
and
Amortization Total
Investsment in
Real Estate
Property, Net Accredo Orlando, FL 6/15/2016 Office $ 9,850,052 $ 1,053,637 $ (637,856 ) $ 10,265,833 Walgreens Stockbridge, GA 6/21/2016 Retail 4,147,948 705,423 (423,613 ) 4,429,758 Dollar General Litchfield, ME 11/4/2016 Retail 1,281,812 116,302 (35,213 ) 1,362,901 Dollar General Wilton, ME 11/4/2016 Retail 1,543,776 140,653 (45,065 ) 1,639,364 Dollar General Thompsontown, PA 11/4/2016 Retail 1,199,860 106,730 (33,834 ) 1,272,756 Dollar General Mt. Gilead, OH 11/4/2016 Retail 1,174,188 111,847 (32,439 ) 1,253,596 Dollar General Lakeside, OH 11/4/2016 Retail 1,112,872 100,857 (33,292 ) 1,180,437 Dollar General Castalia, OH 11/4/2016 Retail 1,102,086 86,408 (32,347 ) 1,156,147 Dana Cedar Park, TX 12/27/2016 Industrial 8,392,906 1,210,874 (388,373 ) 9,215,407 Northrop Grumman Melbourne, FL 3/7/2017 Office 12,382,991 1,341,199 (424,141 ) 13,300,049 exp US Services Maitland, FL 3/27/2017 Office 5,920,121 388,248 (117,617 ) 6,190,752 Harley Bedford, TX 4/13/2017 Retail 13,178,286 - (140,939 ) 13,037,347 Wyndham Summerlin, NV 6/22/2017 Office 9,447,270 669,232 (84,742 ) 10,031,760 Williams Sonoma Summerlin, NV 6/22/2017 Office 7,517,050 550,486 (71,732 ) 7,995,804 Omnicare Richmond, VA 7/20/2017 Industrial 7,042,928 281,442 (47,905 ) 7,276,465 EMCOR Cincinnati, OH 8/29/2017 Office 5,960,612 463,489 (22,047 ) 6,402,054 $ 91,254,758 $ 7,326,827 $ (2,571,155 ) $ 96,010,430
2023:10Property Tenant Location Acquisition Date Property Type Land, Buildings and Improvements Equipment Tenant Origination and Absorption Costs Accumulated Depreciation and Amortization Total Investment in Real Estate Property, Net Northrop Grumman Melbourne, FL 3/7/2017 Industrial $ 13,608,084 $ — $ 1,469,737 $ (4,244,244) $ 10,833,577 Northrop Grumman Melbourne, FL 6/21/2018 Land 329,410 — — — 329,410 Husqvarna Charlotte, NC 11/30/2017 Industrial 11,840,200 — 1,013,948 (2,006,386) 10,847,762 AvAir Chandler, AZ 12/28/2017 Industrial 27,357,899 — — (3,846,315) 23,511,584 3M DeKalb, IL 3/29/2018 Industrial 14,762,819 — 3,037,057 (5,857,614) 11,942,262 Taylor Fresh Foods Yuma, AZ 10/24/2019 Industrial 34,194,369 — 2,894,017 (4,901,205) 32,187,181 Levins Sacramento, CA 12/31/2019 Industrial 4,429,390 — 221,927 (772,130) 3,879,187 Labcorp San Carlos, CA 12/31/2019 Industrial 9,672,174 — 408,225 (715,123) 9,365,276 WSP USA San Diego, CA 12/31/2019 Industrial 9,869,520 — 539,633 (1,269,640) 9,139,513 ITW Rippey El Dorado, CA 12/31/2019 Industrial 7,071,143 — 304,387 (958,596) 6,416,934 L3Harris San Diego, CA 12/31/2019 Industrial 11,690,952 — 662,101 (1,463,070) 10,889,983 EMC Shop (1) Rocklin, CA 12/31/2019 Industrial 6,357,172 — 464,592 (1,474,375) 5,347,389 Arrow-TruLine Archbold, OH 12/3/2021 Industrial 11,518,084 — — (638,998) 10,879,086 Kalera Saint Paul, MN 1/31/2022 Industrial 3,690,009 4,429,000 — (495,740) 7,623,269 Lindsay Colorado Springs 1, CO 4/19/2022 Industrial 2,311,934 — — (70,473) 2,241,461 Lindsay Colorado Springs 2, CO 4/19/2022 Industrial 3,314,406 — — (41,938) 3,272,468 Lindsay Dacano, CO 4/19/2022 Industrial 6,561,054 — — (101,671) 6,459,383 Lindsay Alachua, FL 4/19/2022 Industrial 8,518,123 — — (438,155) 8,079,968 Lindsay Franklinton, NC 4/19/2022 Industrial 7,181,113 — — (193,176) 6,987,937 Lindsay Canal Fulton 1, OH 4/19/2022 Industrial 11,345,533 — — (415,480) 10,930,053 Lindsay Canal Fulton 2, OH 4/19/2022 Industrial 10,190,942 — — (380,675) 9,810,267 Lindsay Rock Hill, SC 4/19/2022 Industrial 6,555,983 — — (203,295) 6,352,688 Lindsay Gap, PA 4/13/2023 Industrial 16,580,044 — — (155,413) 16,424,631 Producto Endicott, NY 7/15/2022 Industrial 2,362,310 — — (74,894) 2,287,416 Producto Jamestown, NY 7/15/2022 Industrial 3,073,686 — — (91,688) 2,981,998 Valtir Centerville, UT 7/26/2022 Industrial 4,685,355 — — (112,231) 4,573,124 Valtir Orangeburg, SC 7/26/2022 Industrial 4,243,308 — — (133,535) 4,109,773 Valtir Fort Worth, TX 7/26/2022 Industrial 3,278,522 — — (59,525) 3,218,997 Valtir Lima, OH 8/4/2022 Industrial 9,921,943 — — (323,528) 9,598,415 Plastic Products Princeton, MN 1/26/2023 Industrial 6,118,411 — 553,780 (267,875) 6,404,316 Stealth Manufacturing Savage, MN 3/31/2023 Industrial 5,526,310 — — (49,478) 5,476,832 Summit Steel Reading, PA 4/13/2023 Industrial 11,397,091 — — (83,086) 11,314,005 PBC Linear Roscoe, IL 4/20/2023 Industrial 20,023,978 — — (153,451) 19,870,527 Cameron Tool Lansing, MI 5/3/2023 Industrial 5,776,590 — — (28,679) 5,747,911 S.J. Electro Systems Detroit Lakes, MN 5/5/2023 Industrial 6,314,057 — — (23,026) 6,291,031 S.J. Electro Systems Plymouth, MN 5/5/2023 Industrial 2,225,635 — — (11,509) 2,214,126 S.J. Electro Systems Ashland, OH 5/5/2023 Industrial 7,555,211 — — (26,924) 7,528,287 Titan Alleyton, TX 5/11/2023 Industrial 17,146,503 — — (111,460) 17,035,043 PART I – FINANCIAL INFORMATION (continued)ITEM 1 – UnauditedRW HOLDINGS NNN REIT, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)September(Operating properties table continued) Property Tenant Location Acquisition Date Property Type Land, Buildings and Improvements Equipment Tenant Origination and Absorption Costs Accumulated Depreciation and Amortization Total Investment in Real Estate Property, Net KIA/Trophy of Carson Carson, CA 1/18/2022 Retail $ 69,286,444 $ — $ 118,606 $ (1,548,550) $ 67,856,500 Costco Issaquah, WA 12/20/2018 Office 27,585,942 — 2,765,136 (5,950,867) 24,400,211 Solar Turbines San Diego, CA 12/31/2019 Office 7,162,087 — 324,221 (839,020) 6,647,288 OES (2) Rancho Cordova, CA 12/31/2019 Office 29,632,580 — 1,616,610 (4,441,744) 26,807,446 $ 482,266,320 $ 4,429,000 $ 16,393,977 $ (44,974,782) $ 458,114,515 2017(unaudited)Current Acquisitionsninesix months ended SeptemberJune 30, 2017,2023, the Company acquired 10 industrial real estate properties as follows:Property Tenant Location Acquisition Date Land Buildings and
ImprovementsTenant
Origination
and
Absorption
CostsBelow-
Market
Lease IntangiblesAcquisition Price Plastic Products Princeton, MN 1/26/2023 $ 421,997 $ 5,696,414 $ 553,780 $ (285,139) $ 6,387,052 Stealth Manufacturing Savage, MN 3/31/2023 770,752 4,755,558 — — 5,526,310 Lindsay Gap, PA 4/13/2023 2,125,604 14,454,440 — — 16,580,044 Summit Steel Reading, PA 4/13/2023 1,517,782 9,879,309 — — 11,397,091 PBC Linear Roscoe, IL 4/20/2023 699,198 19,324,780 — — 20,023,978 Cameron Tool Lansing, MI 5/03/2023 246,355 5,530,235 — — 5,776,590 S.J. Electro Systems Detroit Lakes, MN 5/05/2023 1,736,976 4,577,081 — — 6,314,057 S.J. Electro Systems Plymouth, MN 5/05/2023 627,903 1,597,732 — — 2,225,635 S.J. Electro Systems Ashland, OH 5/05/2023 251,233 7,303,978 — — 7,555,211 Titan Alleyton, TX 5/11/2023 2,056,161 15,090,342 — — 17,146,503 $ 10,453,961 $ 88,209,869 $ 553,780 $ (285,139) $ 98,932,471 following properties, not includingCompany provided a $1,800,000 deposit to fund improvements to the Company’s investmentpreviously acquired Lindsay property in a tenant-in-common (“TIC”) ownership interest in the Fujifilm Santa Clara, CA property (“Fujifilm”) see Note 4:Property Acquisition Date Land Buildings and
Improvements Tenant
Origination
and Absorption
Costs Above-Market
Lease Below-Market
Lease Total Northrop Grumman 3/7/2017 $ 1,191,024 $ 11,191,967 $ 1,341,199 $ - $ - $ 13,724,190 exp US Services 3/27/2017 785,801 5,134,320 388,248 616,486 - 6,924,855 Harley 4/13/2017 1,145,196 12,033,090 - - - 13,178,286 Wyndham 6/22/2017 4,144,069 5,303,201 669,232 - - 10,116,502 Williams Sonoma 6/22/2017 3,546,744 3,478,337 550,486 - (364,555 ) 7,211,012 Omnicare 7/20/2017 800,772 6,242,156 281,442 - - 7,324,370 EMCOR 8/29/2017 427,591 5,533,021 463,489 - (285,563 ) 6,138,538 $ 12,041,197 $ 48,916,092 $ 3,694,096 $ 616,486 $ (650,118 ) $ 64,617,753 Purchase price $ 64,617,753 Purchase deposits applied (500,000 ) Acquisition fees to affiliates (1,872,056 ) Cash paid for acquisition of real estate investments $ 62,245,697 The purchase price allocations reflected in the accompanying unauditedFranklinton, North Carolina.is based upon estimates(continued)assumptions that are subjectsix months ended June 30, 2023, the Company recognized $1,831,121 and $1,946,695, respectively, of total revenue related to change that may impact the fair value of the assets and liabilities above (including real estate investments, other assets and accrued liabilities). above-acquired properties.ninesix months ended SeptemberJune 30, 20172023 are as follows:PropertyLease ExpirationNorthrop GrummanProperty Tenant5/31/2021Lease Expirationexp US ServicesPlastic Products11/30/202610/31/2028HarleyStealth Manufacturing4/12/20423/31/2043WyndhamLindsay2/28/20254/30/2047Williams SonomaSummit Steel10/31/20224/30/2043OmnicarePBC Linear5/31/20314/30/2043EMCORCameron Tool2/28/20375/31/2043S.J. Electro Systems, for all three properties acquired 5/31/2040 Titan 5/31/2043 The Company recorded these acquisitions as asset acquisitions and capitalized $513,398 and $2,236,649 of acquisition fees and costs forthree and ninesix months ended SeptemberJune 30, 2017, respectively. 2022, the Company acquired 10 retail and industrial real estate properties as follows:Property Tenant Location Acquisition Date Land Buildings and
ImprovementsEquipment Tenant
Origination
and
Absorption
CostsAcquisition Price KIA/Trophy of Carson Carson, CA 1/18/2022 $ 32,741,781 $ 36,544,663 $ — $ 118,606 $ 69,405,050 Kalera St. Paul, MN 1/31/2022 562,356 3,127,653 4,429,000 — 8,119,009 Lindsay Colorado Springs 1, CO 4/19/2022 1,195,178 1,116,756 — — 2,311,934 Lindsay Colorado Springs 2, CO 4/19/2022 2,239,465 1,074,941 — — 3,314,406 Lindsay Dacono, CO (1) 4/19/2022 2,263,982 3,294,640 — — 5,558,622 Lindsay Alachua, FL 4/19/2022 966,192 7,551,931 — — 8,518,123 Lindsay Franklinton, NC 4/19/2022 2,843,811 4,337,302 — — 7,181,113 Lindsay Fulton 1, OH 4/19/2022 726,877 10,618,656 — — 11,345,533 Lindsay Fulton 2, OH 4/19/2022 635,865 9,555,077 — — 10,190,942 Lindsay Rock Hill, SC 4/19/2022 2,816,322 3,739,661 — — 6,555,983 $ 46,991,829 $ 80,961,280 $ 4,429,000 $ 118,606 $ 132,500,715 ninesix months ended SeptemberJune 30, 2017,2022, the Company recognized $1,569,346$2,490,498 and $2,635,398,$3,631,748, respectively, of total revenue related to thesethe above-acquired properties.11PART I – FINANCIAL INFORMATION (continued)ITEM 1 – UnauditedRW HOLDINGS NNN REIT, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)September2017(unaudited)Operating LeasesProperty Tenant Lease Expiration KIA/Trophy of Carson 1/17/2047 Kalera (1) 2/28/2042 Lindsay, for all eight properties acquired 4/30/2047 Property Tenant Location Disposition Date Property Type Rentable Square Feet Contract Sale Price Gain on Sale Net Proceeds Bon Secours Richmond, VA 2/11/2022 Office 72,890 $ 10,200,000 $ 28,595 $ — (1) Omnicare Richmond, VA 2/11/2022 Flex 51,800 8,760,000 1,890,624 — (1) Texas Health Dallas, TX 2/11/2022 Office 38,794 7,040,000 87,480 11,892,305 (1) Accredo Orlando, FL 2/24/2022 Office 63,000 14,000,000 4,868,387 5,012,724 EMCOR Cincinnati, OH 6/29/2022 Office 39,385 6,525,000 720,071 6,345,642 265,869 $ 46,525,000 $ 7,595,157 $ 23,250,671 SeptemberJune 30, 2017, our portfolio’s2023 and December 31, 2022, the Company’s real estate portfolio asset concentration (greater than 10% of total assets) was as follows:Property and Location Net Carrying
Value Percentage of
Total Assets Northrop Grumman, FL $ 13,300,049 10.79 % Harley, TX $ 13,037,347 10.58 % At SeptemberJune 30, 2023 December 31, 2022 Property Tenant and Location Net Carrying Value Percentage of
Total AssetsNet Carrying Value Percentage of
Total AssetsKIA, Carson, CA $ 67,856,500 12.4 % $ 68,387,431 15.0 % Lindsay, nine properties acquired in: Colorado (three), Ohio (two), Pennsylvania, North Carolina, South Carolina and Florida 70,558,856 12.8 % 54,661,221 12.0 % Total $ 138,415,356 25.2 % $ 123,048,652 27.0 % 20172023 and 2022, the Company’s rental income concentration (greater than 10% of rental income) was as follows:Three Months Ended June 30, 2023 2022 Property Tenant and Location Rental Income Percentage of
Total Rental IncomeRental Income Percentage of
Total Rental IncomeKIA, Carson, CA $ 1,298,205 11.0 % $ 1,341,536 13.2 % Lindsay, nine properties acquired in: Colorado (three), Ohio (two), Pennsylvania, North Carolina, South Carolina and Florida $ 1,609,584 13.6 % (1) (1) Six Months Ended June 30, 2023 2022 Property Tenant and Location Rental Income Percentage of
Total Rental IncomeRental Income Percentage of
Total Rental IncomeKIA, Carson, CA $ 2,590,056 11.7 % $ 2,359,781 12.0 % Lindsay, nine properties acquired in: Colorado (three), Ohio (two), Pennsylvania, North Carolina, South Carolina and Florida $ 2,822,448 12.7 % (1) (1) 2016, tenant receivables included $650,7232034. The lease includes a purchase option which EMC Shop can exercise any time through March 31, 2024. EMC Shop is engaged with consultants and $29,975, respectively,other engineers involved in frontline experimentation of straight-line rent.SeptemberJune 30, 2017,2023, the future minimum contractual rent payments due to the Company under the Company’s non-cancellable operating leases, including lease amendments executed though the date of this report, if any, are as follows:October 1, 2017 through December 31, 2017 $ 1,754,045 2018 7,748,156 2019 7,921,668 2020 7,952,063 2021 6,644,366 2022 5,658,981 Thereafter 24,676,720 $ 62,355,999 Revenue ConcentrationForJuly through December 2023 $ 20,184,537 2024 40,651,896 2025 39,604,759 2026 36,173,918 2027 34,762,044 Thereafter 494,897,231 $ 666,274,385 nine months ended September 30, 2017, our portfolio’s revenue concentration (greater than 10% total revenue) was as follows:Property and Location Revenue
Total Revenue Accredo, FL $ 820,420 16.72 % Northrop Grumman, FL $ 793,245 16.17 % Harley, TX $ 646,331 13.17 % Dana, TX $ 686,399 13.99 %
Company's Real Estate12PART I – FINANCIAL INFORMATION (continued)ITEM 1 – Unaudited Condensed Consolidated Financial Statements (continued)RW HOLDINGS NNN REIT, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)September 30, 2017(unaudited)SeptemberJune 30, 2017, our portfolio’s tenant concentration (greater than 10% of annualized base rent) was as follows:Property and Location Effective
Annualized
Base Rent* Percentage of
Annualized
Base Rent Accredo, FL $ 899,010 11.95 % Northrop Grumman, FL $ 1,162,274 15.45 % Harley, TX $ 900,000 11.96 % Wyndham, NV $ 798,827 10.62 % *Effective Annualized Base Rent is calculated based on2023 and December 31, 2022, intangible assets, net related to the monthly base rent at September 30, 2017 for twelve months.As of September 30, 2017, no other tenant accounted for more than 10% of annualized base rent.IntangiblesAs of September 30, 2017, the Company’s intangiblesCompany's real estate were as follows: Tenant
Origination
and
Absorption
Costs Above-Market
Leases Below-Market
Leases Cost $ 7,326,827 $ 783,114 $ (801,727 ) Accumulated amortization (895,211 ) (77,560 ) 38,055 Net amount $ 6,431,616 $ 705,554 $ (763,672 ) AmortizationJune 30, 2023 December 31, 2022 Tenant Origination and Absorption Costs Above-Market Lease Intangibles Below-Market Lease Intangibles Tenant Origination and Absorption Costs Above-Market Lease Intangibles Below-Market Lease Intangibles Cost $ 16,393,977 $ 1,586,015 $ (14,860,880) $ 19,499,749 $ 2,485,510 $ (14,378,808) Accumulated amortization (10,767,795) (234,066) 5,532,079 (12,722,558) (634,754) 4,703,122 Net $ 5,626,182 $ 1,351,949 $ (9,328,801) $ 6,777,191 $ 1,850,756 $ (9,675,686) overfor the remaining six months of the current year ending December 31, 2023 and for each of the next fivefour years and thereafter is expected to be as follows: Tenant
Origination
and
Absorption
Costs Above-Market
Leases Below-Market
Leases October 1, 2017 through December 31, 2017 $ 290,635 $ 24,261 $ (26,047 ) 2018 1,162,541 97,045 (104,190 ) 2019 1,162,541 97,045 (104,190 ) 2020 1,162,541 97,045 (104,190 ) 2021 746,281 78,994 (104,190 ) 2022 472,808 63,719 (84,499 ) Thereafter 1,434,269 247,445 (236,366 ) $ 6,431,616 $ 705,554 $ (763,672 ) Weighted-Average Remaining Amortization Period 7.41 years 8.21 years 10.70 years 13Tenant Origination and Absorption Costs Above-Market Lease Intangibles Below-Market Lease Intangibles July through December 2023 $ 532,584 $ 37,990 $ (460,198) 2024 1,022,678 73,999 (920,395) 2025 822,121 70,712 (920,395) 2026 476,147 54,278 (920,395) 2027 459,475 54,278 (920,395) Thereafter 2,313,177 1,060,692 (5,187,023) $ 5,626,182 $ 1,351,949 $ (9,328,801) Weighted-average remaining amortization period 8.7 years 23.3 years 10.3 years PART I – FINANCIAL INFORMATION (continued)ITEM 1 – UnauditedRW HOLDINGS NNN REIT, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)September2017(unaudited)NOTE 4. INVESTMENTS IN UNCONSOLIDATED ENTITIESProperty Tenant Location Property Type Dollar General Litchfield, ME Retail Dollar General Wilton, ME Retail Dollar General Thompsontown, PA Retail Dollar General Mt. Gilead, OH Retail Dollar General Lakeside, OH Retail Dollar General Castalia, OH Retail Dollar General Bakersfield, CA Retail Dollar General Big Spring, TX Retail Dollar Tree Morrow, GA Retail PreK Education San Antonio, TX Retail Walgreens Santa Maria, CA Retail exp US Services Maitland, FL Office GSA (MSHA) Vacaville, CA Office Cummins Nashville, TN Office unconsolidated entities is as follows: September 30, 2017 December 31, 2016 Rich Uncles Real Estate Investment Trust I ("REIT I") $ 3,487,639 $ 3,523,809 RU Martin Street Santa Clara ("TIC") (1) 11,168,667 - $ 14,656,306 $ 3,523,809 (1) The Company’s investment in unconsolidated entities includes $626,073real estate property of acquisition fees to affiliates.REIT IThe Company’s investment in REIT I represented an approximate 4.38% and 4.39% ownership interest as of September 30, 2017 and December 31, 2016, respectively. Through March 31, 2017, the Company had recorded its share of equity in the earnings (losses) of REIT I based on estimates of REIT I’s results of operations. In July 2017, REIT I’s financial statements$2,080,727 for the year ended December 31, 2016 were prepared2022 based on the expected net proceeds from a sale of the property compared to the property's net book value (“NBV”), reclassified the property’s adjusted NBV of $5,255,725 to real estate held for sale as of December 31, 2022 and audited. The Company’s equity in earnings (losses) of REIT Isuspended recording depreciation for the year endedproperty as of that date. During the first four months of 2023, the prospective buyer made non-refundable deposits to the Company totaling $195,000 in exchange for various extensions to the PSA through May 31, 2023. Following the prospective buyer’s delay in obtaining financing for a purchase of the property, the Company entered into a lease for the property with an affiliate of the prospective buyer on June 29, 2023 and reclassified the Rocklin Property to real estate investment held for investment and use. The lease agreement includes an option for the tenant to purchase the property for $5,466,960 which expires on March 31, 2024.2016 should have been equity2022. The estimated fair value of the property as of the June 2023 determination was $5,420,000, based on management’s value for the property in earningsthe December 31, 2022 net asset value analysis (the most recent valuation).$30,038 ratherthe property was lower than equityits fair value of $5,420,000, the Company recorded the property at its adjusted carrying value of $5,238,050 as of June 30, 2023. The recording of the property at its adjusted carrying value resulted in lossesan adjustment to reduce the carrying value of $79,271 which was recorded. The Company’s equity pick up forthe property by $17,675 during the three months ended MarchJune 30, 2023. In addition, the Company capitalized a leasing commission of $109,339 related to the new lease as of June 30, 2023.2017 should have been equity2022:June 30,
2023December 31,
2022Assets related to real estate investments held for sale: Land, buildings and improvements $ 53,061,881 $ 6,357,172 Tenant origination and absorption costs 5,055,575 355,252 Accumulated depreciation and amortization (10,947,867) (1,456,699) Real estate investments held for sale, net 47,169,589 5,255,725 Other assets, net 2,337,517 12,765 Total assets related to real estate investments held for sale: $ 49,507,106 $ 5,268,490 Liabilities related to real estate investments held for sale: Other liabilities, net $ 465,252 $ 117,881 Total liabilities related to real estate investments held for sale: $ 465,252 $ 117,881 earningsunconsolidated property as of $18,813 rather than the equityJune 30, 2023 and December 31, 2022 is as follows:June 30,
2023December 31,
2022The TIC Interest $ 10,011,347 $ 10,007,420 earnings of $7,957 which was recorded. Forunconsolidated property for the three and six months ended SeptemberJune 30, 2023 and 2022 is as follows:Three Months Ended
June 30,Six Months Ended
June 30,2023 2022 2023 2022 The TIC Interest $ 72,774 $ 66,868 $ 128,340 $ 162,332 recorded equity in earnings from REIT Ithrough a wholly-owned subsidiary of $688. For the nine months ended September 30, 2017, the Company recorded equity in earnings from REIT I of $168,043, which included $109,309 related to periods prior to January 1, 2017 as described above.The following is summarized financial information for REIT I: Three months ended
September 30,
September 30, 2017 2016 2017 2016 Total revenue $ 3,277,854 $ 1,917,889 $ 9,512,071 $ 4,163,249 Net income (loss) $ 10,468 $ (120,874 ) $ 1,342,330 $ (2,521,867 ) TICOn September 28, 2017, the CompanyOperating Partnership, acquired a 72.71% TICan approximate 72.7% interest in a 91,740 square foot industrial property in Santa Clara, California in a tenants-in-common ownership structure which requires a unanimous vote for significant decisions about the Fujifilm property. The remaining 27.29%approximate 27.3% of undivided interest in the FujifilmSanta Clara property is held by Hagg Lane II, LLC (23.37%)(an approximate 23.4% interest) and Hagg Lane III, LLC (3.92%)(an approximate 3.9% interest). The manager of both Hagg Lane II, LLC and Hagg Lane III, LLC iswas a board member of the Sponsor.Company's board of directors from December 2019 to December 2021. The Fujifilminterest in the Santa Clara property does not qualify as a VIE and consolidation is not required asover which the Company has the ability to exercise significant influence, but for which the Company does not have financial or operating control the TIC. Therefore, the Company accountsis accounted for its interest in the TIC using the equity method.method of accounting. The Company receives 72.71%approximately 72.7% of the cash flow distributions and recognizes 72.71%approximately 72.7% of the results of operations.At Septemberoperations for this property.2017, Fujifilm had real estate assets2023 and 2022, the Company received $58,718 and $51,786 in cash distributions, respectively, and received cash distributions of $29,625,072, total assets of $29,988,240, mortgage note payable of $14,500,000$124,414 and total liabilities of $14,311,258. The equity pick-up (72.71% of net income) for three days$147,153 during the periodsix months ended SeptemberJune 30, 2017 was immaterial2023 and therefore not recorded.Company’s equity in earnings in unconsolidated entitiesfollowing is summarized financial information for the Santa Clara property as follows: Three Months Ended
September 30 Nine Months Ended
September 30 2017 2016 2017 2016 REIT I $ 688 $ (4,300 ) $ 168,043 $ (4,300 ) TIC - - - - $ 688 $ (4,300 ) $ 168,043 $ (4,300 )
of June 30, 2023 and December 31, 2022 and for the three and six months ended June 30, 2023 and 2022:14June 30,
2023December 31,
2022Assets: Real estate investments, net $ 29,042,413 $ 29,294,081 Cash and cash equivalents 679,755 300,405 Other assets 1,370 43,159 Total assets $ 29,723,538 $ 29,637,645 Liabilities: Mortgage note payable, net $ 12,790,723 $ 12,936,929 Below-market lease, net 2,441,006 2,514,199 Other liabilities 722,937 424,662 Total liabilities 15,954,666 15,875,790 Total equity 13,768,872 13,761,855 Total liabilities and equity $ 29,723,538 $ 29,637,645 PART I – FINANCIAL INFORMATION (continued)ITEM 1 – UnauditedThree Months Ended
June 30,Six Months Ended
June 30,2023 2022 2023 2022 Total revenues $ 677,049 $ 676,780 $ 1,343,195 $ 1,391,758 Expenses: Depreciation and amortization 255,906 261,956 522,958 523,912 Interest expense 131,938 134,968 263,263 269,262 Other expenses 189,118 187,890 378,847 375,324 Total expenses 576,962 584,814 1,165,068 1,168,498 Net income $ 100,087 $ 91,966 $ 178,127 $ 223,260 RW HOLDINGS NNN REIT, INC.NOTES TOFINANCIAL STATEMENTS (CONTINUED)SeptemberBALANCE SHEETS DETAILS2017(unaudited)June 30,
2023December 31,
2022Straight-line rent $ 9,011,971 $ 6,607,220 Tenant rent and billed reimbursements 106,352 196,477 Accrued tenant reimbursements 350,253 459,505 Total $ 9,468,576 $ 7,263,202 June 30,
2023December 31,
2022Deferred tenant allowance $ 543,753 $ 2,564,806 Prepaid expenses and other assets (1) 3,954,759 2,420,777 Deferred financing costs on credit facility revolver 932,008 1,115,354 Total $ 5,430,520 $ 6,100,937 June 30,
2023December 31,
2022Accounts payable $ 470,258 $ 1,001,411 Accrued expenses 1,924,881 2,163,821 Accrued distributions and dividends 1,797,407 1,768,068 Accrued interest payable 344,764 285,392 Unearned rent 1,927,961 1,870,057 Lease incentive obligation 550,242 561,057 Total $ 7,015,513 $ 7,649,806 5.6. DEBTJune 30,
2023December 31,
2022Mortgage notes payable, net $ 44,243,807 $ 44,435,556 Credit facility: Revolver — 3,000,000 Term loan, net 248,263,340 148,018,164 Total $ 292,507,147 $ 195,453,720 SeptemberJune 30, 2017,2023 and December 31, 2022, the Company’s mortgage notes payable consisted of the following:Collateral Principal
Amount Deferred
Loan Costs,
net Net Balance Contractual
Interest Rate (1) Effective
Interest
Rate (1) Loan
MaturityAccredo/Walgreens properties $ 7,167,501 $ (133,762 ) $ 7,033,739 3.95% 3.95 % 7/1/2021 Dana property 4,728,857 (131,129 ) 4,597,728 4.56% 4.56 % 4/1/2023 Six Dollar General properties (2) 3,962,211 (162,403 ) 3,799,808 4.69% 4.69 % 4/1/2022 Wyndham property (3) 5,945,400 (112,374 ) 5,833,026 One-month
LIBOR + 2.05% 4.34 % 6/5/2027 Williams Sonoma property (3) 4,719,600 (90,057 ) 4,629,543 One-month
LIBOR + 2.05% 4.05 % 6/5/2022 Omnicare property 4,440,000 (174,480 ) 4,265,520 4.36% 4.36 % 6/1/2022 Harley property 7,010,000 (207,598 ) 6,802,402 4.25% 4.25 % 9/1/2024 Northrop Grumman property 5,978,965 (234,763 ) 5,744,202 4.40% 4.40 % 3/2/2021 $ 43,952,534 $ (1,246,566 ) $ 42,705,968 (1)Collateral 2023 Principal
Amount2022 Principal
AmountContractual Interest
Rate (1)Effective
Interest Rate (2)Loan
MaturityCostco property $ 18,850,000 $ 18,850,000 4.85% 4.85% 1/01/2030 Taylor Fresh Foods property 12,350,000 12,350,000 3.85% 3.85% 11/01/2029 OES property 13,161,357 13,315,009 4.50% 4.50% 3/09/2024 Total mortgage notes payable 44,361,357 44,515,009 Plus unamortized mortgage premium, net (3) 66,679 119,245 Less unamortized deferred financing costs (184,229) (198,698) Mortgage notes payable, net $ 44,243,807 $ 44,435,556 interest rate in effect under the mortgage note payable as of September 30, 2017. Effective interest rate is calculated as the actual interest rate in effect as of September 30, 2017 (consisting of the contractual interest rate and the effect of the interest rate swap, if applicable). For further information regarding the Company’s derivative instruments, see Note 6.(2)For the three and nine-months ended September 30, 2017, the loan was cross-collateralized with all six Dollar General properties owned by the Company and one Dollar General property owned by REIT I. As of September 30, 2017, the deeds of trust for the Company’s six Dollar General properties and the deed of trust for the REIT I Dollar General property contained cross-collateralization and cross default provisions. At September 30, 2017, the outstanding principal balance of the loan on REIT I’s one Dollar General property was $634,046. The cross-collateralization was removed on October 13, 2017.(3)The loans on each of the Williams Sonoma and Wyndham properties (collectively, the “Property”) located in Summerlin, Nevada were originated by Nevada State Bank (“Bank”). The loans are collateralized by a deed of trust and a security agreement with assignment of rents and fixture filing. In addition, the individual loans are subject to a cross collateralization and cross default agreement whereby any default under, or failure to comply with the terms of any one or both of the loans is an event of default under the terms of both loans. The value of the Property must be in an amount sufficient to maintain a loan to value ratio of no more than 60%. If the loan to value ratio is ever more than 60%, the borrower shall, upon the Bank’s written demand, reduce the principal balance of the loans so that the loan to value ratio is no more than 60%.Unsecured Credit FacilityOn June 7, 2016, the Operating Partnership (defined and discussed below) with KeyBank National Association (“Borrower”KeyBank”) entered into a credit agreement (the “Unsecured Credit Agreement”) with Pacific Mercantile Bank (“Lender”). Pursuant to the Unsecured Credit Agreement, the Borrower has a $12,000,000 unsecured credit facility with anin January 2022 given their prepayment penalties.equal to 1% over an independent index, that is calculated as the highestactual interest rate on corporate loans posted by at least 75%in effect as of June 30, 2023 and December 31, 2022 consisting of the thirty (30) largest banks incontractual interest rate.United States, knownmerger with Rich Uncles Real Estate Investment Trust I on December 31, 2019. The Wall Street Journal Prime Rate, as published in the Wall Street Journal. Payments under the Unsecured Credit Agreement are interest only and are due on the 15th day of each month. The Unsecured Credit Agreement initially had a maturity date of June 15, 2017. On May 12, 2017, the maturity date30, 2023 and December 31, 2022:June 30, 2023 December 31, 2022 Face Value Carrying
ValueFair Value Face value Carrying
ValueFair Value Mortgage notes payable $ 44,361,357 $ 44,243,807 $ 41,039,641 $ 44,515,009 $ 44,435,556 $ 41,293,644 October 28, 2017. On October 4, 2017, the maturity date of the unsecured credit agreement was extended to January 26, 2018. The effective interest rate for borrowings under the Unsecured Credit Agreement during the nine months ended September 30, 2017 was 5.12%.The Unsecured Credit Agreement is guaranteed in the amount of $12,000,000 by the Company, Rich Uncles NNN LP, LLC, Harold Hofer, Howard Makler and Ray Wirta and trusts affiliated with the aforementioned individuals. The guarantees are to be released once the Company has book equity of $60,000,000.We are negotiating the extension of the maturity date of the Unsecured Credit Agreement and we expect to complete this process prior to its current January 26, 2018 maturity date.15PART I – FINANCIAL INFORMATION (continued)ITEM 1 – Unaudited Condensed Consolidated Financial Statements (continued)RW HOLDINGS NNN REIT,NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)September2017(unaudited)the mortgage notes payable on certain of the Company’s properties and the Unsecured Credit Agreement,Facility, the Company and/or the Operating Partnershipsubsidiary borrowers are subject to certain financial loan covenants. The Company and/or the Operating Partnership wassubsidiary borrowers were in compliance with allsuch financial covenants of these loan agreementcovenants as of SeptemberJune 30, 2017.repaymentrepayments of the Company’s mortgage notes payable and unsecured credit facilityCredit Facility as of SeptemberJune 30, 2017: Mortgage Note
Payable Unsecured
Credit Facility Total Remaining 2017 $ 190,909 $ 7,119,739 $ 7,310,648 2018 $ 793,487 - 793,487 2019 $ 828,346 - 828,346 2020 $ 861,835 - 861,835 2021 $ 7,452,683 - 7,452,683 2022 $ 13,789,779 - 13,789,779 2023 $ 20,035,495 - 20,035,495 Total Principal 43,952,534 7,119,739 51,072,273 Deferred financing costs, net (1,246,566 ) - (1,246,566 ) Total Principal $ 42,705,968 $ 7,119,739 $ 49,825,707 Mortgage Notes Credit Facility Payable Revolver Term Loan Total July through December 2023 $ 160,349 $ — $ — $ 160,349 2024 13,270,624 — — 13,270,624 2025 543,886 — — 543,886 2026 568,369 — — 568,369 2027 593,972 — 250,000,000 250,593,972 Thereafter 29,224,157 — — 29,224,157 Total principal 44,361,357 — 250,000,000 294,361,357 Plus unamortized mortgage premium, net 66,679 — — 66,679 Less deferred financing costs (184,229) — (1,736,660) (1,920,889) Net principal $ 44,243,807 $ — $ 248,263,340 $ 292,507,147 ninesix months ended SeptemberJune 30, 20172023 and 2016: Three Months Ended September 30 Nine Months Ended September 30 2017 2016 2017 2016 Mortgage notes payable Interest expense (1) $ 401,174 $ 48,153 $ 667,011 $ 58,742 Amortization of deferred financing costs 53,141 8,689 88,526 9,845 Unrealized loss (gain) on interest rate swaps (see Note 6) (4,627 ) - 100,006 - Unsecured credit facility Interest expense 81,594 115,707 224,626 144,582 Amortization of deferred financing costs - 762 1,118 792 Forfeited loan fee 10,000 960 30,000 960 Total interest expense $ 541,282 $ 174,271 $ 1,111,287 $ 214,921 (1)Includes $20,831 for the three and nine months ended September 30, 2017, respectively, of monthly payments to settle the Company’s interest rate swaps. Accrued interest payable of $7,172 at September 30, 2017 represented the unsettled portion of the interest rate swaps for the period from origination of the interest rate swap through September 30, 2017. The Company had no swap agreements as of September 30, 2016.
2022:16Three Months Ended
June 30,Six Months Ended
June 30,2023 2022 2023 2022 Mortgage notes payable: Interest expense $ 471,092 $ 460,886 $ 943,032 $ 1,273,605 Amortization of deferred financing costs 7,235 7,235 14,470 14,459 Credit facility: Interest expense 3,997,972 1,098,435 6,386,908 1,666,432 Unused commitment fees 103,403 — 289,639 22,233 Derivative cash settlements (1) (1,401,716) — (2,475,801) — Amortization of deferred financing costs 214,261 120,830 428,522 221,520 Unrealized gain on interest rate swap valuation for first swap (2) (1,639,768) (589,997) (495,750) (589,997) Amortization of interest rate swap valuation (2) (253,092) — (503,403) — Unrealized gain on interest rate swap valuation for second swap (3) (1,815,737) — (987,262) — Other 136,419 99,765 238,506 157,077 Interest expense, net $ (179,931) $ 1,197,154 $ 3,838,861 $ 2,765,329 PART I – FINANCIAL INFORMATION (continued)ITEM 1 – Unaudited Condensed Consolidated Financial Statements (continued)RW HOLDINGS NNN REIT, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)September2017(unaudited)6.7. INTEREST RATE SWAP DERIVATIVESprimary goal of the Company’s risk management practicesCompany, through its Operating Partnership, entered into a five-year swap agreement on May 10, 2022 to fix SOFR at 2.258% effective May 31, 2022 related to the variable interest rate risk ison its original $150,000,000 Term Loan. The swap agreement matures on January 15, 2027 and the financial institution counterparty has a one-time option to prevent changes in interest rates from adversely impactingcancel the Company’s ability to achieve its investment return objectives.swap on December 31, 2024. The Company does not enter into derivatives for speculative purposes.enters into interest rate swaps as a fixed rate payer to mitigate its exposure to rising interest rates on its variable rate mortgage notes payable. The value of interest rate swaps is primarily impacted by interest rates, market expectations about interest rates, anddesignated the remaining life of the applicable instrument. In general, increases in interest rates, or anticipated increases in interest rates, will increase the value of the fixed rate payer position and decrease the value of the variable rate payer position. As the remaining life of thepay-fixed, receive-floating interest rate swap decreases,with the valueterms described in the table below as of both positions will generally move towards zero.DuringJuly 1, 2022 as a cash flow hedge and it was effective through December 31, 2022. The derivative instrument failed to qualify as a cash flow hedge during the three and six months ended June 2017,30, 2023 as described below.(or wholly owned limited liability company subsidiaries) entered intodid not designate the pay-fixed, receive-floating interest rate swap agreements with amortizing notional amounts relatingthe terms described in the table below as of November 30, 2022 as a cash flow hedge. The swap agreement matures on November 30, 2027 and the financial institution counterparty has a one-time option to two of its mortgage notes payable. cancel the swap on December 31, 2024. The Company granted this cancellation option because it reduced the swap rate by approximately 50 basis points.SeptemberJune 30, 2017. 2023 and December 31, 2022:June 30, 2023 December 31, 2022 Interest Rate Derivative
InstrumentsNumber of Instruments Notional
Amount (i)Reference
RateWeighted Average Fixed Pay Rate (ii) Weighted
Average
Remaining TermNumber of Instruments Notional
Amount (i)Reference Rate Fixed Pay Rate (ii)
Remaining TermDesignated — $ — — — % 0 years 1 $ 150,000,000 USD - SOFR 3.86 % 4.1 years Non-designated 2 $ 250,000,000 USD - SOFR 4.33 % 3.5 years 1 $ 100,000,000 USD - SOFR 5.04 % 4.1 years is an indication of the extent of the Company’s involvement in each instrumentswaps correspond to the principal balance on the Term Loan. The minimum notional amount (outstanding principal balance at that time, but does not represent exposure to credit, interestthe maturity date) as of June 30, 2023 and December 31, 2022 was $250,000,000.or market risks: September 30, 2017
Instruments
Instruments
(i)
of 6/30/2016
Fixed Pay Rate
Remaining TermInterest Rate
Swap Derivatives 2 $ 10,665,000 One-month LIBOR + applicable spread/Fixed at 4.05%-4.34% 4.21 % 7.5 years (i)The notional amount of the Company’s swaps decrease each month to correspond to the outstanding principal balance on the related mortgage. The minimum notional amount (outstanding principal balance at the maturity date) as of September 30, 2017 was $9,083,700.Condensed Consolidated Balance Sheetsaccompanying unaudited condensed consolidated balance sheets as of SeptemberJune 30, 2017. September 30, 2017 Derivative Instrument Balance Sheet Location Number of
Instruments Fair Value Interest Rate Swaps Liability – Interest rate swap derivatives, at fair value 2 $ (100,006 ) June 30, 2023 December 31, 2022 Derivative Instrument Balance Sheet Location Number of
InstrumentsFair Value Number of
InstrumentsFair Value Change in Fair Value Interest Rate Swaps Asset - Interest rate swap derivatives, at fair value 2 $ 5,613,847 1 $ 4,629,702 $ 984,145 Interest Rate Swaps Liability - Interest rate swap derivatives, at fair value — $ — 1 $ (498,866) $ 498,866 valuevalues of the first Term Loan swap of $1,639,768 and $495,750 for the three and six months ended June 30, 2023, respectively, were recorded as unrealized gains on interest rate swap valuation and reflected as a decrease to interest expense in the Company's accompanying unaudited condensed consolidated statements of operations. The unrealized gain reflects increases during the second quarter of 2023 in the forward curve for future SOFR rates through December 31, 2024 (the one-time cancellation option date). Future increases or decreases in the forward curve for SOFR rates through December 31, 2024 will result in future unrealized gains or losses on swap valuations. Interest expense was also reduced by the $253,093 and $503,404 amortization of the unrealized gain on this swap for the three and six months ended June 30, 2023, respectively, as further described below.instrumentinstrument's failure to qualify as a cash flow hedge for the quarterly periods ended June 30, 2023, the unrealized gain on interest rate swap derivative of $4,105,103 as of December 31, 2022 (recorded in the Company's financial statements as follows: (i) $3,502,616 of accumulated other comprehensive income and (ii) $602,487 of noncontrolling interest in operating partnership) is being amortized on a straight-line basis as a reduction to interest expense through the maturity date of the swap agreement. There is no income tax expense resulting from this amortization.is$511,747 of the remaining unrealized gain on interest rate swap derivative will be reclassified from accumulated other comprehensive income and noncontrolling interest in operating partnership as a reduction to interest expense in the Company's accompanying unaudited condensed consolidated statements of operations over the next six months.isfor financial accounting purposes. The change in its fair value of $1,815,737 and $987,262 for the three and six months ended June 30, 2023, respectively, was recorded as an unrealized gain on interest rate swap valuation and reflected as a decrease to interest expense in the Company's accompanying Condensed Consolidated Statementsunaudited condensed consolidated statements of Operations. Noneoperations.derivativesClass C common stock. In addition, upon the occurrence of a Delisting Event, the dividend rate will be increased on the day after the occurrence of the Delisting Event by 2.00% per annum to the rate of 9.375% of the $25.00 liquidation preference per share per annum (equivalent to $2.34375 per share each year) from and after the date of the Delisting Event. Following the cure of such Delisting Event, the dividend rate will revert to the rate of 7.375% of the $25.00 liquidation preference per share per annum. The necessary conditions to convert the Series A Preferred Stock into the Company's Class C common stock have not been met as of June 30, 2023.Septembera price per share of $25.00. On February 15, 2022, the Company completed the Listed Offering of its Class C common stock, and in connection with the Listed Offering, the Company sold to the Company’s former Chairman of the board of directors all 40,000 shares of its Class C common stock offered in the Listed Offering at $25.00 per share for aggregate net proceeds of $114,500, after deducting the underwriting discount of $70,000, and other offering costs of $815,500. The primary purpose of the Listed Offering was to provide liquidity to the Company’s existing stockholders. The shares of Class C common stock began trading on the NYSE on February 11, 2022.20172022, the Company filed a Registration Statement on Form S-3 (File No. 333-263985), and on May 27, 2022, the Company filed Amendment No. 1 to the Registration Statement on Form S-3, to issue and sell from time to time, together or separately, the following securities at an aggregate public offering price that will not exceed $200,000,000: Class C common stock, preferred stock, warrants, rights and units. The Form S-3, as amended, became effective on June 2, 2022 and the Company filed a prospectus supplement for the Company's at-the-market offering of up to $50,000,000 of its Class C common stock (the “ATM Offering”) on June 6, 2022. As of June 30, 2023, no shares have been issued in connection with the Company's ATM Offering.designated as hedging instruments; therefore the net realized loss recognized on interest rate swaps of $100,006 was recorded as an increase in interest expense$0.29 for both the three and nine months ended SeptemberJune 30, 2017.
2023 and 2022, respectively, and $0.58 and $0.67 for the six months ended June 30, 2023 and 2022, respectively, which reflect an annualized distribution rate of $1.15 per share for both periods, along with a special 13th distribution for the year ended December 31, 2021, which was declared and paid in January 2022.17PART I – FINANCIAL INFORMATION (continued)ITEM 1 – UnauditedRW HOLDINGS NNN REIT, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)September 30, 2017(unaudited)NOTE 7. FAIR VALUE DISCLOSURESThe fair value for certain financial instruments is derived using valuation techniques that involve significant management judgment. The price transparency of financial instruments is a key determinant of the degree of judgment involved in determining the fair value of the Company’s financial instruments. Financial instruments for which actively quoted prices or pricing parameters are available and for which markets contain orderly transactions will generally have a higher degree of price transparency than financial instruments for which markets are inactive or consist of non-orderly trades. The Company evaluates several factors when determining if a market is inactive or when market transactions are not orderly. The following is a summary of the methods and assumptions used by management in estimating the fair value of each class of financial instrument for which it is practicable to estimate the fair value:Cash and cash equivalents, restricted cash, tenant receivables, due from affiliates, purchase and other deposits, prepaid expenses and other assets, accounts payable, accrued expenses and other liabilities and due to affiliates: These balances approximate their fair values due to the short maturities of these items.Derivative Instruments: The Company’s derivative instruments are presented at fair value in the accompanying Condensed Consolidated Balance Sheets. The valuation of these instruments is determined using a proprietary model that utilizes observable inputs. As such, the Company classifies these inputs as Level 2 inputs. The proprietary model uses the contractual terms of the derivatives, including the period to maturity, as well as observable market-based inputs, including interest rate curves and volatility. The fair values of interest rate swaps are estimated using the market standard methodology of netting the discounted fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on an expectation of interest rates (forward curves) derived from observable market interest rate curves. In addition, credit valuation adjustments, which consider the impact of any credit risks to the contracts, are incorporated in the fair values to account for potential nonperformance risk.Unsecured Credit Facility: The fair value of the Company’s Unsecured Credit Facility approximates its carrying value as the interest rates and other terms are comparable to those available in the market place for a similar credit facility.Mortgage notes payable: The fair value of the Company’s mortgage notes payable is estimated using a discounted cash flow analysis based on management’s estimates of current market interest rates for instruments with similar characteristics, including remaining loan term, loan-to-value ratio, type of collateral and other credit enhancements. Additionally, when determining the fair value of liabilities in circumstances in which a quoted price in an active market for an identical liability is not available, the Company measures fair value using (i) a valuation technique that uses the quoted price of the identical liability when traded as an asset or quoted prices for similar liabilities or similar liabilities when traded as assets or (ii) another valuation technique that is consistent with the principles of fair value measurement, such as the income approach or the market approach. The Company classifies these inputs as Level 3 inputs.The following were the face value, carrying amount and fair value of the Company’s mortgage notes payable as of September 30, 2017 and December 31, 2016:September 30, 2017 December 31, 2016 Face value
value Fair value Face Value
Value Fair Value $ 43,952,534 $ 42,705,968 $ 44,152,390 $ 7,266,145 $ 7,113,701 $ 7,266,145 Disclosures of the fair values of financial instruments are based on pertinent information available to the Company as of September 30, 2017 and require a significant amount of judgment. The actual value could be materially different from the Company’s estimate of value.18PART I – FINANCIAL INFORMATION (continued)ITEM 1 – Unaudited Condensed Consolidated Financial Statements (continued)RW HOLDINGS NNN REIT, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)September 30, 2017(unaudited)During the nine months ended September 30, 2017, the Company measured the following assets and liabilities at fair value (in thousands):Recurring Basis Total
Active Markets for
Identical Assets
(Level 1)
Observable Inputs
(Level 2)
Inputs
(Level 3) Interest rate swap liabilities $ 100,006 $ - $ 100,006 $ - 8.9. RELATED PARTY TRANSACTIONShas entered into an agreement (the “Advisory Agreement”) withpays the Advisor. This agreement entitles the Advisormembers of its board of directors who are not executive officers for services rendered through cash payments and by issuing shares of Class C common stock to specifiedthem. Total fees upon the provisionincurred and paid or accrued for board of certain services with regard to the investment of funds in real estate investments, the management of those investments, among other services, and the disposition of investments, as well as entitles the Advisor to reimbursement of organization and offering costs incurred by the Advisor or Sponsor on behalf of the Company, such as expenses related to the Offerings, and certain costs incurred by the Advisor or Sponsor in providingdirectors' services to the Company. In addition,Company for the Advisor is entitled to certain other fees, including an incentive fee upon achieving certain performance goals, as detailed in the Advisory Agreement. The Sponsor also serves as the sponsor for Rich Uncles REIT I. During the ninethree and six months ended SeptemberJune 30, 20172023 and 2016, no other business transactions occurred between2022 are as follows:Three Months Ended
June 30,Six Months Ended
June 30,Board of Directors Compensation 2023 2022 2023 2022 Payments for services rendered $ 67,500 $ 67,500 $ 135,000 $ 135,000 Value of shares issued for services rendered 82,500 82,500 165,000 165,000 Total $ 150,000 $ 150,000 $ 300,000 $ 300,000 Number of shares issued for services rendered 5,500 4,666 13,261 9,265 Rich Uncles REIT I, other than described below or elsewhere herein, and thoserelated equipment leased to Kalera Inc. (“Kalera”) in Saint Paul, Minnesota for $8,079,000. Kalera was introduced to the Company by Curtis B. McWilliams, one of the Company’s independent directors. Since Mr. McWilliams was serving as an executive of Kalera at the time of the acquisition, all of the disinterested members of the Company’s board of directors approved this transaction in January 2022.investmentproperty in Rich Uncles REIT I.Summarized below areSaint Paul, Minnesota leased to Kalera.related party costs incurredsale of Kalera’s assets to the winning bidder, Kalera’s lender, was approved by the bankruptcy court on June 30, 2023. The pending sale of Kalera’s assets may include its interest in the Company's lease for the Saint Paul, Minnesota property; however, the winning bidder has the right to accept or reject the Company's lease. In the event of the latter outcome, the Company including those incurred pursuantwould be responsible for the mechanic's liens discussed in Note 10 and would seek to find a new tenant or sell the property. On July 25, 2023, Kalera filed a motion with the bankruptcy court requesting that the deadline for assuming or rejecting unexpired leases be extended to the Advisory Agreement,earlier of October 31, 2023 or the effective date of Kalera’s Chapter 11 plan of reorganization and the court issued an order granting this motion on July 27, 2023.ninesix months ended SeptemberJune 30, 20172023 and 2016, respectively: Three months
ended Nine months
ended Three months
ended Nine months
ended September 30, 2017 September 30, 2017 September 30, 2016 December 31, 2016 Incurred Incurred Receivable Payable Incurred Incurred Receivable Payable Expensed Acquisition fees $ - $ - $ - $ - $ - $ 474,121 $ - $ - Asset management fees (2) 264,927 573,081 - 483,135 46,575 54,141 - 29,577 Property management fees 6,996 7,618 - 7,617 - - - - Expense reimbursements from Sponsor (1) (584,230 ) (1,945,160 ) 22,451 - (434,332 ) (434,332 ) 79,862 - Waiver of asset management fees (2) (42,485 ) (119,524 ) - - (11,798 ) (11,798 ) - - Capitalized Acquisition fees 1,014,559 2,498,129 - - - - - 274,200 Financing fees 174,500 261,950 - - - - - - Additional paid-in-capital Reimbursable organizational and offering expenses (3) 453,377 1,591,498 4,005 - 187,101 187,101 - 79,645 Other Costs reimbursable from Rich Uncles REIT I (4) - - - - - - 28,571 - Due to Rich Uncles REIT I (5) 17,269 17,269 - 17,269 - - - - Payable to TIC (6) 363,168 363,168 - 363,168 - - - - $ 26,456 $ 871,189 $ 108,433 $ 383,422 * Property management fees are presented2022 as property operating expenses.
follows:19Three Months Ended
June 30,Six Months Ended
June 30,2023 2022 2023 2022 TIC Interest management fee $ 65,993 $ 65,993 $ 131,986 $ 131,986 Company's share in the management fee $ 47,984 $ 47,984 $ 95,967 $ 95,967 PART I – FINANCIAL INFORMATION (continued)ITEM 1 – UnauditedRW HOLDINGS NNN REIT, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)September 30, 2017(unaudited)(1)The Company records payroll costs related to Company employees that answer questions from prospective shareholders. The Sponsor has agreed to reimburse the Company for these investor relations payroll costs which the Sponsor considers to be offering expenses in accordance with the Advisory Agreement. The receivable related to this is reflected in “Due from affiliates” in the Condensed Consolidated Balance Sheets.(2)To the extent the Advisor elects, in its sole discretion to defer all or any portion of its monthly asset management fee, the Advisor will be deemed to have waived, not deferred, that portion up to 0.025% of the total investment value of the Company’s assets. For the three and nine months ended September 30, 2017, the Advisor waived $42,485 and $119,524, respectively, of asset management fees, which are not subject to future recoupment by the Advisor. The Advisor waived $11,798 of asset management fees for the three and nine months ended September 30, 2016.(3)As of September 30, 2017, the Sponsor had incurred $5,844,047 of organizational and offering costs on behalf of the Company. However, the Company is only obligated to reimburse the Sponsor for such organizational and offering expenses to the extent of 3% of gross offering proceeds.(4)The Company incurred $28,571 of costs in conjunction with due diligence for a property acquisition which is owed to the Company from Rich Uncles REIT I as of December 31, 2016 and reflected in “Due from affiliates in the Condensed Consolidated Balance Sheets.(5)The Company incurred $17,269 for the nine months ended September 30, 2017 of interest on its unsecured credit facility. This amount was the result of a bank error. The monthly interest payment that was due on the unsecured credit facility was withdrawn from REIT I’s bank account rather than from the Company’s bank account.(6)After closing the acquisition of the Fujifilm property, the Company received $363,168 from the title company. These proceeds represent cash received by the title company in excess of the amounts needed to acquire the property. At September 30, 2017, these proceeds are payable to the TIC which owns the property.Organizational and Offering ExpensesPursuant to the Advisory Agreement, the Company is obligated to reimburse the Sponsor or its affiliates for organizational and offering expenses (as defined by the Sponsor) paid by the Sponsor on behalf of the Company. The Company will reimburse the Sponsor for organizational and offering expenses up to 3.0% of gross offering proceeds. The Sponsor and affiliates will be responsible for any organizational and offering expenses to the extent they exceed 3.0% of gross offering proceeds. As of September 30, 2017, the Sponsor has incurred organizational and offering expenses in excess of 3.0% of the gross offering proceeds received by the Company. To the extent the Company has more gross offering proceeds from future shareholders, the Company will be obligated to reimburse the Sponsor. As the amount of future gross offering proceeds is uncertain, the amount the Company is obligated to reimburse to the Sponsor is uncertain. As of September 30, 2017, the Company has reimbursed the Sponsor $2,332,819 in organizational and offering expenses of which $4,005 was receivable as of September 30, 2017 and is included in “Due from affiliates” in the Condensed Consolidated Balance Sheet. The Company’s maximum liability for organizational and offering costs through September 30, 2017 was $2,328,814Investor relations payroll expense reimbursement from SponsorThe Company employs investor personnel that answer inquiries from potential investors regarding the Company and/or its the Registered Offering. The payroll expense associated with the investor relations personnel is reimbursed by the Sponsor. The Sponsor considers these payroll costs to be offering expenses. The total amount of such payroll expense reimbursements was $584,230 and $1,945,160 for the three and nine months ended September 30, 2017.Acquisition FeesThe Company shall pay the Advisor a fee in an amount equal to 3.0% of the Company’s contract purchase price of its properties, as defined, as acquisition fees. The total of all acquisition fees and acquisition expenses shall be reasonable, and shall not exceed 6.0% of the contract price of the property. However, a majority of the directors (including a majority of the independent directors) not otherwise interested in the transaction may approve fees in excess of these limits if they determine the transaction to be commercially competitive, fair and reasonable to the Company. Acquisition fees incurred during the three and nine months ended September 30, 2017 were $1,014,559 and $2,498,129.20PART I – FINANCIAL INFORMATION (continued)ITEM 1 – Unaudited Condensed Consolidated Financial Statements (continued)RW HOLDINGS NNN REIT, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)September 30, 2017(unaudited)Asset Management FeeThe Company shall pay to the Advisor as compensation for the advisory services rendered to the Company, a monthly fee in an amount equal to 0.1% of the Company’s total investment value, as defined (the “Asset Management Fee”), as of the end of the preceding month. The Asset Management Fee shall be payable monthly on the last day of such month, or the first business day following the last day of such month. The Asset Management Fee, which must be reasonable in the determination of the Company’s independent directors at least annually, may or may not be taken, in whole or in part as to any year, in the sole discretion of the Advisor. All or any portion of the Asset Management Fee not paid as to any fiscal year shall be deferred without interest and may be paid in such other fiscal year as the Advisor shall determine.Additionally, to the extent the Advisor elects, in its sole discretion, to defer all or any portion of its monthly Asset Management Fee, the Advisor will be deemed to have waived, not deferred, that portion of its monthly Asset Management Fee that is up to 0.025% of the total investment value of the Company’s assets. The total amount of Asset Management Fees incurred in the three and nine months ended September 30, 2017 were $264,927 and 573,081, respectively, of which $42,485 and $119,524, respectively, was waived. Asset Management Fees payable at September 30, 2017 were $483,135.Financing Coordination FeeOther than with respect to any mortgage or other financing related to a property concurrent with its acquisition, if the Advisor or an affiliate provides a substantial amount of the services (as determined by a majority of the Company’s independent directors) in connection with the post-acquisition financing or refinancing of any debt that the Company obtains relative to a property, then the Company shall pay to the Advisor or such affiliate a financing coordination fee equal to 1.0% of the amount of such financing. Financing coordination fees incurred during the three and nine months ended September 30, 2017 were $174,500 and $261,950, respectively.Property Management FeesIf the Advisor or any of its affiliates provides a substantial amount of the property management services (as determined by a majority of the Company’s independent directors) for the Company’s properties, then the Company shall pay to the Advisor or such affiliate a property management fee equal to 1.5% of gross revenues from the properties managed. The Company also will reimburse the Advisor and any of its affiliates for property-level expenses that such person pays or incurs on behalf of the Company, including salaries, bonuses and benefits of persons employed by such person, except for the salaries, bonuses and benefits of persons who also serve as one of the Company’s executive officers or as an executive officer of such person. The Advisor or its affiliate may subcontract the performance of its property management duties to third parties and pay all or a portion of its property management fee to the third parties with whom it contracts for these services. For the three and nine months ended September 30, 2017, Property Management Fees were $6,996 and $7,617. There were no property management fees incurred during the three and nine months ended September 30, 2016.Disposition FeesFor substantial assistance in connection with the sale of properties, the Company shall pay to its Advisor or one of its affiliates 3.0% of the contract sales price, as defined, of each property sold; provided, however, that if, in connection with such disposition, commissions are paid to third parties unaffiliated with our Advisor or its affiliates, the disposition fees paid to our Advisor, our Sponsor, their affiliates and unaffiliated third parties may not exceed the lesser of the competitive real estate commission or 6% of the contract sales price. There were no disposition fees incurred during the three and nine months ended September 30, 2017 nor 2016.21PART I – FINANCIAL INFORMATION (continued)ITEM 1 – Unaudited Condensed Consolidated Financial Statements (continued)RW HOLDINGS NNN REIT, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)September 30, 2017(unaudited)Leasing Commission FeesIf a property or properties of the Company becomes unleased and the Advisor or any of its affiliates provides a substantial amount of the services (as determined by a majority of the Company’s independent directors) in connection with the Company’s leasing of the property or properties to unaffiliated third parties, then the Company shall pay to the Advisor or such affiliate leasing commissions equal to 6.0% of the rents due pursuant to such lease for the first ten years of the lease term; provided, however (i) if the term of the lease is less than ten years, such commission percentage will apply to the full term of the lease and (ii) any rents due under a renewal of a lease of an existing tenant upon expiration of the initial lease agreement (including any extensions provided for thereunder) shall accrue a commission of 3.0% in lieu of the aforementioned 6.0% commission. To the extent that an unaffiliated real estate broker assists in such leasing services, any compensation paid by the Company to the Advisor or any of its affiliates will be reduced by the amount paid to such unaffiliated real estate broker. There were no leasing commission fees incurred during the three and nine months ended September 30, 2017 nor 2016.Other Operating Expense ReimbursementPursuant to the Company’s charter, total operating expenses of the Company are limited to the greater of 2% of average invested assets or 25% of net income for the four most recently completed fiscal quarters (2%/25% Limitation). If the Company exceeds the 2%/25% Limitation, the Advisor must reimburse the Company the amount by which the aggregate total operating expenses exceeds the limitation, or the Company must obtain a waiver from the Company’s conflicts committee. For purposes of determining the 2%/25% Limitation amount, “average invested assets” means the average monthly book value of the Company’s assets invested directly or indirectly in equity interests and loans secured by real estate during the 12-month period before deducting depreciation, reserves for bad debts or other non-cash reserves. “Total operating expenses” means all expenses paid or incurred by the Company, as determined by GAAP, that are in any way related to the Company’s operation including Asset Management Fees, but excluding (a) the expenses of raising capital such as organization and offering expenses, legal, audit, accounting, underwriting, brokerage, listing, registration and other fees, printing and other such expenses and taxes incurred in connection with the issuance, distribution, transfer, listing and registration of shares of the Company’s common stock; (b) interest payments; (c) taxes; (d) non-cash expenditures such as depreciation, amortization and bad debt reserves; (e) reasonable incentive fees based upon increases in NAV per share; (f) acquisition fees and acquisition expenses (including expenses, relating to potential investments that the Company does not close); and (h) disposition fees on the sale of real property and other expenses connected with the acquisition, disposition and ownership of real estate interests or other property (other than disposition fees on the sale of assets other than real property), including the costs of insurance premiums, legal services, maintenance, repair and improvement of real property.Operating expense reimbursements for the four fiscal quarters ended September 30, 2017 exceeded the 2%/25% Limitation. The Company’s conflicts committee approved the operating expenses above the 2%/25% Limitation, as they determined that the relationship of the Company’s operating expenses to average invested assets were justified for the four fiscal quarters ended September 30, 2017 given the costs of operating as a public company and the early stage of the Company’s operations.9.10. COMMITMENTS AND CONTINGENCIESEconomic DependencyThe Company depends on its Sponsor and its Advisor for certain services that are essential to the Company, including the sale of the Company’s shares of common stock, the identification, evaluation, negotiation, origination, acquisition and disposition of investments; management of the daily operations of the Company’s investment portfolio; and other general and administrative responsibilities. In the event that these companies are unable to provide the respective services, the Company will be required to obtain such services from other sources.22PART I – FINANCIAL INFORMATION (continued)ITEM 1 – Unaudited Condensed Consolidated Financial Statements (continued)RW HOLDINGS NNN REIT, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)September 30, 2017(unaudited)Environmentalhas an obligationhad obligations to pay $2,802,652 and $1,789,027, respectively, for $1,738,136 in siteon-site and tenant improvements to be incurred at September 30, 2017. At September 30, 2017,by tenants.$931,697 of restricted cash heldfiled mechanic’s lien statements. The other defendants have filed counterclaims and crossclaims. The Company’s outside counsel filed a motion to fund the improvements.time to time,time-to-time, the Company or its subsidiaries may become party to legal proceedings that arise in the ordinary course of its business. Other thanExcept for the below,Kalera bankruptcy proceeding described in Note 9 – Related Party Transactions and the WPC foreclosure action described above, the Company, including its subsidiaries, is not a party to any legal proceeding, nor is the Company aware of any pending or threatened litigation that could have a material adverse effect on the Company’s business, operating results, cash flows or financial condition should such litigation be resolved unfavorably.The SEC is conducting an investigation related to the advertising and sale of securities byRegistered Offering.Self-Management Transaction and are non-voting, non-dividend accruing, and were not able to be converted or exchanged prior to the one-year anniversary of the Self-Management Transaction. Investors holding units in BrixInvest received Daisho units in a ratio of 1:1 for an aggregate of 657,949.5 Daisho units. During 2020, Daisho distributed the Class M OP Units to its members. The investigationClass M OP Units are convertible into units of Class C limited partnership interest in the Operating Partnership (“Class C OP Units”) at a conversion ratio of 1.6667 Class C OP Units for each one Class M OP Unit, subject to a reduction in the conversion ratio (which reduction will vary depending upon the amount of time held) if the exchange occurs prior to the four-year anniversary of the completion of the Self-Management Transaction.Date of Exchange Early Conversion Rate From December 31, 2020 to December 30, 2021 50% of the Class M conversion ratio From December 31, 2021 to December 30, 2022 60% of the Class M conversion ratio From December 31, 2022 to December 30, 2023 70% of the Class M conversion ratio Hurdles AUM AFFO Class M ($ in billions) Per Share ($) Conversion Ratio Initial Conversion Ratio 1:1.6667 Fiscal Year 2021 $ 0.860 $ 1.77 1:1.9167 Fiscal Year 2022 $ 1.175 $ 1.95 1:2.5000 Fiscal Year 2023 $ 1.551 $ 2.10 1:3.0000 non-public fact-finding inquiry. It is neither an allegationClass M OP Unit would be valued at $25.00. This value does not reflect the early conversion rate or the future conversion enhancement ratio of wrongdoing nor a finding that violationsthe Class M OP Units, as discussed above, and the units of law have occurred. InClass P limited partnership interest in the Operating Partnership (“Class P OP Units”), as discussed below.investigation,Self-Management Transaction. The Class P OP Units are intended to be treated as “profits interests” in the Operating Partnership, which are non-voting, non-dividend accruing, and are not able to be transferred or exchanged prior to the earlier of (1) March 31, 2024, (2) a change of control (as defined in the Third Amended and Restated Limited Partnership Agreement of the Operating Partnership (as amended, the “Operating Partnership Agreement”)), or (3) the date of the recipient's involuntary termination (as defined in the relevant award agreement for the Class P OP Units) (collectively, the “Lockup Period”). Following the expiration of the Lockup Period, the Class P OP Units are convertible into Class C OP Units at a conversion ratio of 1.6667 Class C OP Units for each one Class P OP Unit; provided, however, that the foregoing conversion ratio shall be subject to increase on generally the same terms and conditions as the Class M OP Units, as set forth above.certain affiliates have receivedPresident, and respondedRaymond J. Pacini, the Company’s Chief Financial Officer, including 26,318 Class P OP Units issued in exchange for Messrs. Halfacre's and Pacini's agreements to subpoenasforfeit a similar number of restricted units in BrixInvest in connection with the Self-Management Transaction. The remaining 29,711 Class P OP Units were issued to both executives as signing bonuses and as a portion of their incentive compensation for 2020 in connection with their entry into restrictive covenant agreements. The 29,711 Class P OP Units were valued based on the estimated NAV per share of $30.48 (unaudited) when issued on December 31, 2019 and the expected minimum conversion ratio of 1.6667 Class C OP Units for each one Class P OP Unit, which resulted in a valuation of $1,509,319. This amount is amortized on a straight-line basis over 51 months through March 31, 2024, the expected vesting date of the units, as a periodic charge to stock compensation expense.SEC requesting documentsyear ending December 31, 2023. Given that there are a large number of uncertainties that could impact the Company's funds from operations for the remainder of the year, including, but not limited to, the risks of potential tenant vacancies and/or bankruptcies, inflation, rising interest rates, changes in the value of interest rate swap derivatives, potential dispositions of non-core assets and other informationtightening credit markets, the Company concluded that as of each quarter end, including June 30, 2023, achieving the performance target to trigger the increased conversion ratio for the Class R OP Units is not yet deemed probable. The Company will adjust compensation expense prospectively if achieving the enhancement is deemed probable through the remainder of the vesting period.Three Months Ended
June 30,Six Months Ended
June 30,2023 2022 2023 2022 Class P OP Units $ 88,784 $ 88,784 $ 177,567 $ 177,567 Class R OP Units 488,886 508,463 977,772 849,045 82,500 82,500 165,000 165,000 Total $ 660,170 $ 679,747 $ 1,320,339 $ 1,191,612 Registered Offering. Company has the option to redeem the units for cash or shares of Class C common stock.SEC’s investigation is ongoing. above Class C OP Units received the following distributions and allocations of net income (loss) during the three and six months ended June 30, 2023 and 2022 as follows:Three Months Ended
June 30,Six Months Ended
June 30,2023 2022 2023 2022 Class C OP Units distributions $ 432,402 $ 377,301 $ 809,699 $ 628,840 Class C OP Units net income (loss) allocation $ 649,643 $ 219,214 $ (166,556) $ (1,708,815) has cooperatedreports a dual presentation of basic earnings per share (“Basic EPS”) and intendsdiluted earnings per share (“Diluted EPS”). Basic EPS excludes dilution and is computed by dividing net income or loss by the weighted average number of common shares outstanding during the period. Diluted EPS uses the treasury stock method or the if-converted method, where applicable, to continuecompute for the potential dilution that would occur if dilutive securities or commitments to cooperate withissue common stock were exercised (see Note 12 for additional information).SEC in this matter. The Company is unable to predict the likely outcomecomputation of the investigationCompany's basic and diluted net income (loss) per share attributable to common stockholders for the three and six months ended June 30, 2023 and 2022:Three Months Ended
June 30,Six Months Ended
June 30,2023 2022 2023 2022 Numerator - Basic: Net income (loss) $ 4,629,953 $ 2,390,344 $ 51,032 $ (9,682,820) Less: net (income) loss attributable to noncontrolling interest in Operating Partnership (649,643) (219,214) 166,556 1,708,815 Preferred stock dividends (921,875) (921,875) (1,843,750) (1,843,750) Net income (loss) attributable to common stockholders $ 3,058,435 $ 1,249,255 $ (1,626,162) $ (9,817,755) Numerator - Diluted Net income (loss) $ 4,629,953 $ 2,390,344 $ 51,032 $ (9,682,820) Preferred stock dividends (921,875) (921,875) (1,843,750) (1,843,750) Net income (loss) attributable to common stockholders $ 3,708,078 $ 1,468,469 $ (1,792,718) $ (11,526,570) Denominator: Weighted average shares outstanding - basic 7,532,106 7,478,973 7,532,080 7,505,673 Operating Partnership Units - Class C 1,599,898 1,312,382 — — Operating Partnership Units - Classes M, P and R 1,506,307 1,430,135 — — Weighted average shares outstanding - diluted 10,638,311 10,221,490 7,532,080 7,505,673 Earnings (loss) per share attributable to common stockholders: Basic $ 0.41 $ 0.17 $ (0.22) $ (1.31) Diluted $ 0.35 $ 0.14 $ (0.22) $ (1.31) determine its potential impact, if any, oncommitments to issue common stock that would have a dilutive effect for the Company.periods then ended.10.13. SUBSEQUENT EVENTSup until the date the accompanying unaudited condensed consolidated financial statements are issued. Significant subsequent events are described below:are issued.Unsecured Credit FacilityOctober 25, 2017, the $7,119,739 outstanding balance of the Unsecured Credit Facility was repaid.DistributionsOn October 11, 2017,August 7, 2023, the Company’s board of directors declared distributions based on daily record datesSeries A Preferred Stock dividends payable of $921,875 for the period September 1, 2017 through September 30, 2017 at a ratethird quarter of $0.0019444 per share per day, or $426,429, on the outstanding shares of the Company’s common stock,2023, which the Companywill be paid on October 11, 2017. Of the $426,429 distribution, $343,491 was reinvested through the Company’s dividend reinvestment plans.November 10, 2017,March 9, 2023, the Company’s board of directors declaredauthorized monthly distributions basedpayable to common stockholders and the Class C OP Unit holders of record as of June 30, 2023, which were paid on dailyJuly 25, 2023.dates for the periodas of July 31, 2023, August 31, 2023 and September 29, 2023, which will be paid on or about August 25, 2023, September 25, 2023 and October 1, 2017 through October 31, 2017 at a25, 2023, respectively. The monthly distribution amount of $0.095833 per share represents an annualized distribution rate of $0.0018817$1.15 per share per day, or $457,963, on the outstanding shares of the Company’s common stock, which is consistent with the annual dividend rate paid since October 1, 2021.paid on Novemberacquired an industrial manufacturing property located in Piqua, Ohio leased to Vistech Manufacturing Solutions, LLC (“Vistech”) for $13,500,000. Vistech has a 20-year operating history and is a leading provider of niche automotive parts in the noise, vibration and harness category. Vistech offers die cut acoustic components and soft trims, carpet underlayment, floor silencers, stuffer pads, hardsheet, stiffeners, spare tire covers and wheel liners. Vistech is a key provider to Honda, Toyota, Nissan, Stelantis and General Motors. The property is leased for a term of 25 years with annual rent escalations of 3.0%. The seller of the property was not affiliated with the Company or its affiliates.2017. Of2023, the $457,963 distribution, $371,072 was reinvested throughCompany sold 13 properties consisting of 11 retail and two office properties to GIPR for total sales proceeds of $42,000,000 comprised of $30,000,000 in cash and $12,000,000 of GIPR's newly-created Series A Redeemable Preferred Stock consisting of 2,400,000 shares with a liquidation preference of $5.00 per share and an annual dividend rate of 9.5% from the Company’soriginal issuance date to but not including the first anniversary of the original issuance date and an annual dividend reinvestment plans.Offering StatusThrough November 10, 2017,rate of 12.0% from and including the first anniversary of the original issuance date. GIPR is not affiliated with the Company or its affiliates.sold 8,147,894 shares$129,000,000 available under the Revolver, subject to borrowing base requirements. The Company will use a portion of common stock in the Registered Offering, for aggregate gross offeringcash proceeds received from the asset sale to GIPR described above to prepay the Revolver.$81,478,943, including 280,757 shares of Class C common stock sold under its Registered DRP Offering for aggregate gross offering proceeds of $2,807,575, and 3,000 shares of common stock in the Class S offering for aggregate offering proceeds of $30,000 including 35 shares of common stock under its Class S dividend reinvestment plan.Redeemable common stockFor the period from October 1, 2017 through November 10, 2017, the Company redeemed 41,630 shares of Class C common stock for $416,300.
Contents23PART I – FINANCIAL INFORMATION (continued)ITEMThe“Management’s Discussiondiscussion and Analysisanalysis of Financial Conditionour financial condition, results of operations and Results of Operations” should be read in conjunctioncash flows together with the Company’s Condensed Consolidated Financial Statementsaccompanying unaudited condensed consolidated financial statements and the Notes thereto contained in Part I of this Quarterly Report on Form 10-Q. See also “Forward Looking Statements” below. As used herein, “we,” “us,” and “our” refer to RW Holdings NNN REIT, Inc.Forward-Looking StatementsCertain statements containedrelated notes that are included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and notes thereto and management’s discussion and analysis of RW Holdings NNN REIT, Inc. (the “Company”), other than historical facts, may be considered forward-looking statements withinfinancial condition and results of operations for the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We intend for all such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements containedfiscal year ended December 31, 2022 included in Section 27A of the Securities Act and Section 21E of the Exchange Act, as applicable by law. Such statements include, in particular, statements about our plans, strategies, and prospects and are subject to certain risks and uncertainties, as well as known and unknown risks, which could cause actual results to differ materially from those projected or anticipated. Therefore, such statements are not intended to be a guarantee of our performance in future periods. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as “may,” “would,” “could,” “should,” “expect,” “intend,” “anticipate,” “estimate,” “believe,” “continue,” or other similar words. Forward-looking statements that were true at the time made may ultimately prove to be incorrect or false. We caution readers not to place undue reliance on forward-looking statements, which reflect our management’s view only as of the date this QuarterlyAnnual Report on Form 10-Q is10-K filed with the U.S. Securities and Exchange Commission (the “SEC”). Additionally, we undertake no obligation to update or revise on March 13, 2023. This discussion contains forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results.The following are some, but not all, of the assumptions,based upon current expectations that involve risks uncertainties and other factors that could cause ouruncertainties. Our actual results tomay differ materially from those presentedanticipated in our forward-looking statements:24PART I – FINANCIAL INFORMATION (continued)ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)The following are some, but not all, of the assumptions, risks, uncertainties and other factors that could cause our actual results to differ materially from those presented in our forward-looking statements:•We may be unable to renew leases, lease vacant space or re-lease space as leases expire on favorable terms or at all.•We are subject to risks associated with tenant, geographic and industry concentrations with respect to our properties.•Our properties, intangible assets and other assets may be subject to impairment charges.•We could be subject to unexpected costs or unexpected liabilities that may arise from potential dispositions and may be unable to dispose of properties on advantageous terms.•We are subject to competition in the acquisition and disposition of properties and in the leasing of our properties and we may be unable to acquire, dispose of, or lease properties on advantageous terms.•We could be subject to risks associated with bankruptcies or insolvencies of tenants or from tenant defaults generally.•We have substantial indebtedness, which may affect our ability to pay distributions, and expose us to interest rate fluctuation risk and the risk of default under our debt obligations.•We may be affected by the incurrence of additional secured or unsecured debt.•We may not be able to attain profitability.•Cash for distributions to investors will be from net rental income (including sales of properties) or waiver or deferral of reimbursements to our Sponsor or fees paid to our Advisor.•We may not generate cash flows sufficient to pay our distributions to stockholders or meet our debt service obligations.•We may be affected by risks resulting from losses in excess of insured limits.•We may fail to qualify as a REIT for U.S. federal income tax purposes.•Our business, financial condition and results of operations may be adversely affected by an ongoing investigation by the U.S. Securities and Exchange Commission (“SEC”).•We are dependent upon our Advisor which has the right to terminate the advisory agreement upon 60 days’ written notice without cause or penalty.Thethese forward-looking statements contained in this Quarterly Report on Form 10-Q should be read in lightas a result of the risk factors identified above and the additional risks and uncertainties described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 and Item IA of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017.isare based upon our accompanying unaudited Condensed Consolidated Financial Statements,condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these financial statements requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On a regular basis, we evaluate these estimates. These estimates are based on management’s historical industry experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.Management’s 14,15, 2015 as a Maryland corporation. We believe that we were organizedcorporation and have operated in a manner that enabled uselected to qualifybe taxed as a REIT for federal income tax purposes beginning with our taxable year ended December 31, 2016 and we2016. We changed our name from Modiv Inc. to Modiv Industrial, Inc. effective August 11, 2023. We intend to continue to operate so as to remain qualified as a REIT for federal income tax purposes, thereafter. If we meetwhich requires us to annually distribute at least 90% of our taxable income (excluding net capital gains) in the REIT qualification requirements, we generally will not be subject to federal income tax on the income that we distribute to our stockholders each year. If we fail to qualify for taxation as a REIT in any year after electing REIT status, our income will be taxed at regular corporate rates, and we may be precluded from qualifying for treatment as a REIT for the four-year period following our failure to qualify. Such an event could materially and adversely affect our net income and cash available forform of distributions to our stockholders.We consider our Company to be a perpetual-life investment vehicle because we have no finite date for liquidation and no intention to list our shares of common stock for trading on a national securities exchange or over-the-counter trading market. Although we have registered a fixed amount of shares for the Registered Offering (as defined below), we intend to effectively conduct a continuous offering of an unlimited amount of our shares of common stock over an unlimited time period by conducting an uninterrupted series of additional public offerings, subject to regulatory approval of our filings for such additional offerings, and one or more private offerings of shares of our common stock. This perpetual-life structure is aligned with our overall objective of investing in real estate assets with a long-term view towards making regular cash distributions and generating capital appreciation.25PART I – FINANCIAL INFORMATION (continued)ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)Subject to certain restrictions and limitations, our business is externally managed by our advisor, Rich Uncles NNN REIT Operator, LLC (our “Advisor”), a limited liability company wholly owned by our sponsor, Rich Uncles LLC (our “Sponsor”), pursuant to the Amended and Restated Advisory Agreement between us, our Advisor and our Sponsor (the “Advisory Agreement”). Our Advisor manages our operations and will manage our portfolio of core real estate properties and real estate related assets. Our Advisor also provides asset-management and other administrative services on our behalf. Our Advisor is paid certain fees as set forth in Note 8 to the Condensed Consolidated Financial Statements.We have investor relations personnel, but all expenses are reimbursed by our Sponsor as part of the organizational and offering services they provide to us to manage our organization and the securities offerings and to provide administrative investor relations. However, our Sponsor is then entitled to include the reimbursement of such expenses as part of our reimbursement to them of organization and offering costs, but reimbursement shall not exceed an amount equal to 3% of gross offering proceeds.On June 24, 2015, our Sponsor purchased 10,000 shares of common stock for $100,000 and became the initial stockholder. Our Sponsor purchased another 10,000 shares of common stock on December 31, 2015 for $100,000.On July 15, 2015, we filed a registration statement on Form S-11 with the SEC to register an initial public offering to offer a maximum of 90 million in shares of common stock for sale to the public (the “Primary Offering”). We also registered a maximum of 10,000,000 shares of common stock pursuant to our distribution reinvestment plan (the “Registered DRP Offering” and together with the Primary Offering, the “Registered Offering”). The SEC declared our registration effective on June 1, 2016 and we commenced the sale of our shares to the public on July 20, 2016 at an initial offering price of $10.00 per shares. On August 11, 2017, our Board of Directors approved amendments to our charter to rename and redesignate our common stock as “Class C” common stock, which we will offer and sell in the Registered Offering. Commencing in August 2017, we began selling shares of our Class C common stock in the Registered Offering only to U.S. Persons as defined under Rule 903 promulgated under the Securities Act of 1933 (the “Securities Act”). We do not retain a broker-dealer to offer our shares of Class C common stock. Rather, we offer these shares directly to the public.Also on August 11, 2017, our Board of Directors approved amendments to our charter to reclassify and designate a portion of the shares of common stock as “Class S” common stock. This reclassification of the Company’s common stock is intended to facilitate an offering by us of up to 100,000,000 shares of Class S common stock exclusively to non-U.S. Persons as defined under Rule 903 promulgated under the Securities Act pursuant to an exemption from the registration requirements of the Securities Act under and in accordance with Regulation S of the Securities Act (the “Class S Offering” and, together with the Registered Offering, the “Offerings”). The Class S common stock has similar features and rights as the Class C common stock, including with respect to voting and liquidation, except that the Class S common stock offered in the Class S Offering may be sold through brokers or other persons who may be paid upfront and deferred selling commissions and fees.We expect to use substantially all of the net proceeds from the Offerings to acquire and manage a portfolio of real estate investments. We intend to invest primarily in single tenant income-producing corporate properties which are leased to creditworthy tenants under long-term net leases. While our focus is on single tenant net leased properties, we plan to diversify our portfolio by geography, investment size and investment risk with the goal of acquiring a portfolio of income-producing real estate investments that provides attractive and stable returns to our stockholders. Although we are not limited as to the form our investments may take, our investments in real estate will generally constitute acquiring fee title or interestinterests in entities that own and operate real estate. We will make substantially all acquisitions of our real estate investments directly through Rich Uncles NNNModiv Operating Partnership, LP, a Delaware limited liability companypartnership (the “Operating Partnership”), or indirectly through limited liability companies or limited partnerships, including through other REITs, or through investments in joint ventures, partnerships, tenants-in-common, co-tenancies or other co-ownership agreementsarrangements with other owners of properties, affiliates some of which may be affiliated with us or our executive officers or directors. The Operating Partnership was formed on January 28, 2016. We are the sole general partner of, and owned an approximate 71% and 73% partnership interest in the Operating Partnership as of June 30, 2023 and December 31, 2022, respectively. The Operating Partnership's limited partners include holders of several classes of units with various vesting and enhancement terms as further described in Note 11 of our advisor or other persons.Our investment objectives and policies may be amended or changed at any timeaccompanying unaudited condensed consolidated financial statements.our boardleasing properties to tenants pursuant to net leases. As of directors. Although we have no plans at this time to change any ofJune 30, 2023, our investment objectives, our board of directors may change any and all such investment objectives, including our focus on single tenant properties, if it believes such changes are in the best interest of our stockholders.Our Advisor will make recommendations on all investments to our board of directors. All proposed real estate investments must be approved by at least a majorityinvestment portfolio consisted of our board of directors.As of September 30, 2017, the Company owned (i) 1656 properties in 8 states consisting of retail, office and industrial properties, (ii) an approximate 4.38% interest in an affiliated REIT, and (iii) a 72.2% interest in a tenant-in-common entity that owns an office property.as further described below. The net book value of theseour real estate investments at Septemberas of June 30, 20172023 was $110,666,736.The CompanyWe$515,295,451.a publicly registered, non-exchange traded company dedicated to providing stockholders with dependable monthly distributions. The Company believes it is qualified and operatesas follows:real estate investment trust, or REIT,percentage of annualized base rent (“ABR”) as of June 30, 2023), 12 retail properties (including 11 classified as held for sale) which requires it to annually distribute at least 90%represent approximately 16% of its taxable income (excluding net capital gains) in the formportfolio and six office properties (including three classified as held for sale) which represent approximately 16% of distributions to its stockholders. The Company’s monthly distributions are supported by the cash flow generated from real estate owned under long-term, net lease agreements with local, regional, and national commercial tenants and, to some extent, the waiver or deferral of asset management fees by our Sponsor and offering proceeds. See “Distributions” below.
portfolio;26PART I – FINANCIAL INFORMATION (continued)ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)At November 13, 2017, we have a diversified portfolio that is wholly owned. This wholly-owned portfolio is:·Composed of sixteen properties, of which eight properties are retail properties that represent 31.06% of the portfolio, six properties are office properties that represent 52.84% of the portfolio, and two properties are industrial properties that represent 16.10% of the portfolio (expressed as a percentage of annualized rental revenue);·Fully leased with an occupancy rate of 100.0%;·Leased to eleven different commercial tenants doing business in nine separate industries;·Located in ten states;·Composed of approximately 556,844 square feet of aggregate leasable space; with an average leasable space per property of approximately 34,803 square feet; approximately 23,410 square feet per retail property, approximately 45,383 square feet per office property, and 48,633 square feet per industrial property; and·Subject to a balance of outstanding debt of approximately $49.8 million.Of the sixteen properties in the wholly-owned portfolio, all, or 100.0%, are single-tenant properties. At November 13, 2017, all sixteen properties were leased with a weighted•Weighted average remaining lease term (excluding(“WALT”), excluding tenant rights to extend leases, of approximately 13.0 years;lease atsale to Generation Income Properties, Inc., a publicly-traded REIT (NASDAQ: GIPR). These 13 properties were sold for $42,000,000 with $30,000,000 paid in cash and the optionremaining $12,000,000 paid in 2,400,000 shares of GIPR's newly-created Series A Redeemable Preferred Stock with a liquidation preference of $5.00 per share and an annual dividend yield of 9.5% from the original issuance date to but not including the first anniversary of the tenant butoriginal issuance date and an annual dividend rate of 12.0% from and including the first anniversary of the original issuance date.market lease renewals)as of August 14, 2023, we own 45 properties, including 40 industrial properties, which represent approximately 76% of the portfolio (expressed as a percentage of ABR on a pro forma basis as of June 30, 2023), one retail property, which represents approximately 11% of the portfolio, and four office properties (including one held for sale property), which represent approximately 13% of the portfolio. These properties are leased to 31 different commercial tenants in 26 separate industries, and located in 16 states. The leases have a WALT of approximately 9.8 years, based14.3 years.annualized rental income.We alsoU.S. Treasury securities during 2022 and 2023, and the ripple effect of the recent bank failures, may negatively impact our operating results, liquidity and sources of borrowings.invested in a 72.71% TIC interest in a 91,740 square foot office property located in Santa Clara, CA.Investment StrategyOur investment strategy is to acquire single-tenant retail, office,diminished and industrialthe general commercial real estate leasedmarket appears to creditworthybe recovering from such impacts, the COVID-19 pandemic has resulted in significant disruptions in utilization of office properties and expected negative impacts regarding how tenants on long-termof office properties will respond when their leases are scheduled to expire. Our ideal portfolio is comprised of 40% office, 40% industrial,20% retail, with greater than 50% ofresult in lower occupancy, lower rental rates and declining values in our real estate portfolio, which could have the following negative effects on us: the values of our investments in commercial properties could decrease below the amounts paid for such investments; and/or revenues from our properties could decrease due to fewer tenants and/or lower rental rates, making it more difficult for us to make distributions or meet our debt service obligations. We successfully negotiated lease extensions for five properties during 2022 and the first six months of 2023; however, changing circumstances may make future lease extensions more difficult.investment grade tenants as determined by onethe State of California's Office of Emergency Services (“OES”) matures on March 9, 2024 and the other three mortgages do not mature until after September 2027. All four of these mortgages are at fixed rates. As a result of the big three credit rating agencies (Standard & Poor’s, Moody’sinterest rate swap agreements entered into during 2022, 100% of our indebtedness as of June 30, 2023 held a fixed interest rate.Fitch Group). When identifying new properties for investment,at all, at the various maturity dates, we generally focus on acquiring high-qualitymay be forced to dispose of some of our assets. Market conditions can change quickly, potentially negatively impacting the value of real estate that tenants consider important to the successful operation of their business. We generally seek to acquire real estate that has the following characteristics:·Properties that are freestanding, and commercially-zoned with a single tenant;·Properties that are located in significant markets, which markets are identified and ranked based on several key demographic and real estate specific metrics such as population growth, income, unemployment, job growth, GDP growth, rent growth, and vacancy rates;·Properties that are located in strategic locations critical to generating revenue for the tenants that occupy them (i.e., the tenants need the properties in which they operate in order to conduct their businesses);·Properties that are located within attractive demographic areas relative to the business of our tenants and are generally fungible and have good visibility and easy access to major thoroughfares;·Properties with rental or lease payments that approximate or are lower than market rents; and·Properties that can be purchased with the simultaneous execution or assumption of long-term, net lease agreements, offering both current income and the potential for future rent increases.
investments.27PART I – FINANCIAL INFORMATION (continued)ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)See Note 1 to the Condensed Consolidated Financial Statements for further information on our business and organization.The Company’s proceeds from shares sold have been,will continue to be, primarily for (i) property acquisitions; (ii)refinancings, capital expenditures;expenditures and (iii) payment of principal on its outstanding indebtedness. Our cash needs for the purchase of real estate properties and other real estate investments will be funded primarilyby bank borrowings through our Credit Facility, mortgage indebtedness on our properties, real estate property sales and internally generated funds, or offerings of shares of Class C common stock. Our cash requirements for operating expenses and dividends on our Series A Preferred Stock and distributions on our Class C common stock will be funded by internally generated funds.saleLenders. The maturities for our Revolver and Term Loan remain unchanged with the Revolver’s maturity in January 2026 with options to extend for a total of 12 months, and the Term Loan’s maturity in January 2027.shares or from debt proceeds.At Septemberaccompanying unaudited condensed consolidated financial statements, which results in a fixed interest rate of 4.058% on our original $150,000,000 Term Loan based on our leverage ratio of 47% as of June 30, 2017,2023.the Company’sour mortgage notes payable was $43,952,534 and the Company’s outstanding balance on the Company’s unsecured credit facility with Pacific Mercantile Bankoperating properties was $7,119,739. This unsecured credit agreement initially had a maturity date$44,361,357 and $44,515,009, respectively, our Revolver outstanding principal balance was zero and $3,000,000, respectively, and our Term Loan outstanding principal balance was $250,000,000 and $150,000,000, respectively. As of June 15, 2017. On May 12, 2017, the maturity date30, 2023 and December 31, 2022, our approximately 72.7% pro-rata share of the unsecured credit agreement was extended to October 28, 2017. On October 4, 2017, the maturity date of the unsecured credit agreement was extended to January 26, 2018. We are negotiating the extension of the maturity date of the unsecured credit agreement and we expect to complete this process prior to its current January 26, 2018 maturity date. See Note 5 to the Condensed Consolidated Financial Statements for additional information regarding our outstanding indebtedness. The Company’s pro rata share (4.38%) of REIT I’s mortgage notes payable was $2,807,401 at September 30, 2017. The Company’s pro rata share (72.71%) of the TIC’sTIC Interest’s mortgage note payable was $10,542,950 at September 30, 2017.Portfolio InformationOur wholly owned real estate investments were as follows: As of September 30, 2017 December 31, 2016 September 30, 2016 Number of Properties: Retail 8 7 1 Office 6 1 1 Industrial 2 1 - Total 16 9 2 Leasable Square Feet: Retail 187,283 68,443 15,120 Office 272,296 63,000 63,000 Industrial 97,265 45,465 - Total 556,844 176,908 78,120 Our 72.71% interest in a tenant-in-common entity owns a 91,740 square feet of office property$9,372,615 and $9,487,515, respectively, which is not included in our accompanying unaudited condensed consolidated balance sheets.tabletotal Term Loan balance outstanding to the total commitment amount of $250,000,000. We used a portion of the proceeds from the draw on the Term Loan to acquire eight properties as described in Note 3 of our accompanying unaudited condensed consolidated financial statements.ninesix months ended September 30: 2017 Net cash provided by (used in) operating
activities $ 2,546,372 $ (532,744 ) Net cash used in investing activities $ (75,854,042 ) $ (17,830,500 ) Net cash provided by financing activities $ 79,220,259 $ 20,540,844 Six Months Ended June 30, 2023 2022 Net cash provided by operating activities $ 7,289,108 $ 5,076,472 Net cash used in investing activities $ (95,877,378) $ (58,420,894) Net cash provided by financing activities $ 89,891,731 $ 6,642,351 As of September 30, 2017, we owned sixteen properties and an investment in an affiliated REIT and a 72.71% interest in a TIC. During the nine months ended September 30, 2017, net$2,546,372. offset in part by cash used to fund changes in operating assets and liabilities of $239,419 during the six months ended June 30, 2023 due to an increase in tenant receivables and a decrease in accounts payable, accrued and other liabilities, offset in part by a decrease in prepaid and other assets. that our cash flows from operating activitiesoperations will continue to be positive in the next 12 months due to an increase in future periodsour investments in operating assets as a result of anticipated future acquisitions of real estateour year to date and the related operations from such investments.As of September 30, 2016, we owned two properties and an investment in an affiliated REIT. During the nine months ended September 30, 2016, net cash used in operating activities was $532,744.
subsequent acquisitions; however, there can be no assurance that this expectation will be realized.28PART I – FINANCIAL INFORMATION (continued)ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)$75,854,042$95,877,378 for the ninesix months ended SeptemberJune 30, 20172023 and primarily consisted of the following:·$62,245,697 for the acquisition of seven properties;·$685,161 for additions to real estate investments;·$2,772,329 for payment of acquisition fees to affiliate;·$28,571 payments received due from affiliate;·$363,168 proceeds from acquisition closing payable to unconsolidated entity;·$10,542,594 for a TIC investment in a property located in Santa Clara, CA; and·$363,168 proceeds from acquisition closing of the Fujifilm property payable to TIC.$17,830,500$58,420,894 for the ninesix months ended SeptemberJune 30, 20162022 and consisted primarily consisted of the following:·$15,730,500 for the acquisition of two properties;·$2,000,000 for investment in Rich Uncles REIT I; and·$100,000 for refundable purchase deposits and other acquisition costs.$79,220,259$89,891,731 for the ninesix months ended SeptemberJune 30, 20172023 and primarily consisted of the following:·$43,390,000 from borrowings from our unsecured credit facility and payments on our unsecured credit facility of $46,428,064;·$50,500,102 of proceeds from issuance of common stock and investor deposits offset by payments of offering costs of $1,675,149;·Proceeds from mortgage notes payable of $36,904,988, offset by principal payments of $218,599 and deferred financing costs and fees of $1,182,649;·$1,561,201 used to repurchase shares of common stock under the share repurchase plan; and·$464,619 of cash distributions ($2,432,006 of total distributions of which $1,967,325 was reinvested through the Company’s dividend reinvestment programs and $62 was tax withholding).$20,540,844$6,642,351 for the ninesix months ended SeptemberJune 30, 20162022 and consisted primarily consisted of the following:·$11,000,000 from borrowings from our unsecured credit facility offset by $4,036,500 principal payments;·Proceeds from mortgage notes payable of $7,319,700 offset by $21,316 principal payments and deferred financing costs of $176,063; and·$6,646,976 of proceeds from issuance of common stock and investor deposits offset by payments of offering costs of $187,101.Capital ResourcesGenerally, cash needs for property acquisitions, debt payments, capital expenditures, other investments will be funded by the Offerings and bank borrowings, and to a lesser extent, by internally generated funds. Cash needs for operating and interest expenses and distributions will generally be funded by internally generated funds. If available, future sources of capital includeOfferings, securedissuance of common stock in the Listed Offering (as defined and described in Note 8 of our accompanying unaudited condensed consolidated financial statements).unsecured borrowingsloss computed in accordance with GAAP, excluding extraordinary items, as defined by GAAP, and gains and losses from bankssales of depreciable operating property, plus real estate-related depreciation and amortization (excluding amortization of deferred financing costs and depreciation of non-real estate assets), and after adjustment for unconsolidated partnerships, joint ventures, preferred dividends and real estate impairments. Because FFO calculations adjust for such items as depreciation and amortization of real estate assets and gains and losses from sales of operating real estate assets (which can vary among owners of identical assets in similar conditions based on historical cost accounting and useful-life estimates), they facilitate comparisons of operating performance between periods and between other REITs. As a result, we believe that the use of FFO, together with the required GAAP presentations, provides a more complete understanding of our performance relative to our competitors and a more informed and appropriate basis on which to make decisions involving operating, financing, and investing activities. It should be noted, however, that other REITs may not define FFO in accordance with the current Nareit definition or other lenders, proceedsmay interpret the current Nareit definition differently than we do, making comparisons less meaningful.saleextinguishment of properties, as well as undistributed funds from operations.Resultsdebt, unrealized gains (losses) on derivative instruments, and write-offs of OperationsOurdue diligence expenses for abandoned pursuits. We also believe that AFFO is a recognized measure of sustainable operating performance of the REIT industry. Further, we believe AFFO is useful in comparing the sustainability of our operating performance with the sustainability of the operating performance of other real estate companies. Management believes that AFFO is a beneficial indicator of our ongoing portfolio performance and ability to sustain our current distribution level. More specifically, AFFO isolates the financial results of our operations. AFFO, however, is not considered an appropriate measure of historical earnings as it excludes certain significant costs that are otherwise included in reported earnings. Further, since the measure is based on historical financial information, AFFO for the period presented may not be indicative of future results or our future ability to pay our dividends. By providing FFO and AFFO, we present information that assists investors in aligning their analysis with management’s analysis of long-term operating activities.through September 30, 2017net income or loss and cash flows from operating activities, as defined by GAAP, are helpful supplemental performance measures and useful to investors in evaluating the performance of our real estate portfolio. However, a material limitation associated with FFO and AFFO is that they are not indicative of those expectedour cash available to fund distributions since other uses of cash, such as capital expenditures at our properties and principal payments of debt, are not deducted when calculating FFO and AFFO. AFFO is useful in assisting management and investors in assessing our ongoing ability to generate cash flow from operations and continue as a going concern in future periodsoperating periods. Therefore, FFO and AFFO should not be viewed as a more prominent measure of performance than income or loss from operations, net income or loss or cash flows from operating activities and each should be reviewed in connection with GAAP measurements.Three Months Ended
June 30,Six Months Ended
June 30,2023 2022 2023 2022 Net income (loss) (in accordance with GAAP) $ 4,629,953 $ 2,390,344 $ 51,032 $ (9,682,820) Preferred stock dividends (921,875) (921,875) (1,843,750) (1,843,750) Net income (loss) attributable to common stockholders and Class C OP Unit holders 3,708,078 1,468,469 (1,792,718) (11,526,570) FFO adjustments: Depreciation and amortization of real estate properties 3,956,334 3,682,681 7,228,394 6,983,173 Amortization of lease incentives 88,570 75,655 177,140 147,049 Depreciation and amortization for unconsolidated investment in a real estate property 186,069 190,468 380,242 380,936 Impairment of real estate investment property — — 3,499,438 — Gain on sale of real estate investments, net — (720,071) — (7,595,157) FFO attributable to common stockholders and Class C OP Unit holders 7,939,051 4,697,202 9,492,496 (11,610,569) AFFO adjustments: Impairment of goodwill — — — 17,320,857 Stock compensation 660,170 679,747 1,320,339 1,191,612 Deferred financing costs 195,213 101,781 390,426 1,368,506 Non-recurring loan prepayment penalties — — — 615,336 Swap termination costs — — — 733,000 Due diligence expenses, including abandoned pursuit costs 3,848 4,639 346,390 591,308 Deferred rents (1,580,358) (981,083) (2,755,717) (1,617,279) Unrealized gain on interest rate swap valuation (3,708,598) (589,997) (1,986,415) (1,378,013) Amortization of (below) above market lease intangibles, net (195,901) (317,354) (392,184) (647,972) Other adjustments for unconsolidated investment in a real estate property 11,819 (188) 23,638 (376) AFFO attributable to common stockholders and Class C OP Unit holders $ 3,325,244 $ 3,594,747 $ 6,438,973 $ 6,566,410 Weighted average shares outstanding: Basic 7,532,106 7,478,973 7,532,080 7,505,673 Fully Diluted (1) 10,638,311 10,221,490 10,494,527 10,241,023 FFO Per Share: Basic $ 1.05 $ 0.63 $ 1.26 $ (1.55) Fully Diluted $ 0.75 $ 0.46 $ 0.90 $ (1.55) AFFO Per Share: Basic $ 0.44 $ 0.48 $ 0.85 $ 0.87 Fully Diluted $ 0.31 $ 0.35 $ 0.61 $ 0.64 continuingpresenting the following information regarding our property portfolio to raise capital throughhelp investors better understand our strategic direction:Offeringsthree and acquiresix months ended June 30, 2023:Three Months Ended June 30, 2023 Industrial Core Tactical Non-Core (1) Other Non-Core (2) Non-Property & Other (3) Consolidated Net income (loss) (in accordance with GAAP) $ 1,057,024 $ 668,408 $ (230,726) $ 3,135,247 $ 4,629,953 Preferred stock dividends — — — (921,875) (921,875) Net income (loss) attributable to common stockholders and Class C OP Unit holders 1,057,024 668,408 (230,726) 2,213,372 3,708,078 FFO adjustments: Depreciation and amortization of real estate properties 2,715,600 808,227 432,507 — 3,956,334 Amortization of lease incentives 17,177 — 71,393 — 88,570 Depreciation and amortization for unconsolidated investment in a real estate property 186,069 — — — 186,069 FFO attributable to common stockholders and Class C OP Unit holders 3,975,870 1,476,635 273,174 2,213,372 7,939,051 AFFO adjustments: Stock compensation — — — 660,170 660,170 Deferred financing costs 151,295 (24,048) 67,966 — 195,213 Due diligence expenses, including abandoned pursuit costs (1,629) (83) 5,560 — 3,848 Deferred rents (976,452) (611,634) 7,728 — (1,580,358) Unrealized gain on interest rate swap valuation — — — (3,708,598) (3,708,598) Amortization of (below) above market lease intangibles, net (209,779) — 13,878 — (195,901) Other adjustments for unconsolidated investment in a real estate property 11,819 — — — 11,819 AFFO attributable to common stockholders and Class C OP Unit holders $ 2,951,124 $ 840,870 $ 368,306 $ (835,056) $ 3,325,244 Weighted average shares outstanding: Basic 7,532,106 7,532,106 7,532,106 7,532,106 7,532,106 Fully diluted (4) 10,638,311 10,638,311 10,638,311 10,638,311 10,638,311 FFO Per Share: Basic $ 0.53 $ 0.20 $ 0.04 $ 0.29 $ 1.05 Fully Diluted (5) $ 0.37 $ 0.14 $ 0.03 $ 0.21 $ 0.75 AFFO Per Share: Basic $ 0.39 $ 0.11 $ 0.05 $ (0.11) $ 0.44 Fully Diluted (5) $ 0.28 $ 0.08 $ 0.03 $ (0.08) $ 0.31 Six Months Ended June 30, 2023 Industrial Core Tactical Non-Core (1) Other Non-Core (2) Non-Property & Other (3) Consolidated Net income (loss) (in accordance with GAAP) $ 2,516,280 $ 1,376,875 $ (3,880,735) $ 38,612 $ 51,032 Preferred stock dividends — — — (1,843,750) (1,843,750) Net income (loss) attributable to common stockholders and Class C OP Unit holders 2,516,280 1,376,875 (3,880,735) (1,805,138) (1,792,718) FFO adjustments: Depreciation and amortization of real estate properties 4,640,468 1,614,642 973,284 — 7,228,394 Amortization of lease incentives 34,354 — 142,786 — 177,140 Depreciation and amortization for unconsolidated investment in a real estate property 380,242 — — — 380,242 Impairment of real estate investment property — — 3,499,438 — 3,499,438 FFO attributable to common stockholders and Class C OP Unit holders 7,571,344 2,991,517 734,773 (1,805,138) 9,492,496 AFFO adjustments: Stock compensation — — — 1,320,339 1,320,339 Deferred financing costs 295,564 (9,529) 104,391 — 390,426 Due diligence expenses, including abandoned pursuit costs 12,044 — 334,346 — 346,390 Deferred rents (1,555,613) (1,216,415) 16,311 — (2,755,717) Unrealized gain on interest rate swap valuation — — — (1,986,415) (1,986,415) Amortization of (below) above market lease intangibles, net (417,491) — 25,307 — (392,184) Other adjustments for unconsolidated investment in a real estate property 23,638 — — — 23,638 AFFO attributable to common stockholders and Class C OP Unit holders $ 5,929,486 $ 1,765,573 $ 1,215,128 $ (2,471,214) $ 6,438,973 Weighted average shares outstanding: Basic 7,532,080 7,532,080 7,532,080 7,532,080 7,532,080 Fully diluted (4) 10,494,527 10,494,527 10,494,527 10,494,527 10,494,527 FFO Per Share: Basic $ 1.01 $ 0.40 $ 0.10 $ (0.24) $ 1.26 Fully Diluted (5) $ 0.72 $ 0.29 $ 0.07 $ (0.17) $ 0.90 AFFO Per Share: Basic $ 0.79 $ 0.23 $ 0.16 $ (0.33) $ 0.85 Fully Diluted (5) $ 0.57 $ 0.17 $ 0.12 $ (0.24) $ 0.61 properties.The Company owned nineuses to include flex/R&D and multi-family.an approximate 4.36%two legacy office properties, all classified as held for sale as of June 30, 2023, (2) one legacy office property leased to Cummins classified as held for sale as of June 30, 2023 (see Note 3of our accompanying unaudited condensed consolidated financial statements for additional details of the held for sale assets) and (3) one additional legacy office property leased to Solar Turbines. We define legacy assets as those inherited through prior mergers and acquisitions activity and such assets that were acquired by different management teams utilizing different investment objectives or underwriting criteria.in an affiliated REIT at December 31, 2016. The Company acquired seven additional properties in 2017 with tworate hedges, and other comprehensive items.those withinClass C common stock for the three and six months ended SeptemberJune 30, 2017. In addition2023, respectively;Companythree and six months ended June 30, 2023, respectively, including 1,312,382 issued in January 2022 in connection with the acquisition of the KIA auto dealership property and 287,516 and 143,758, respectively, weighted average units outstanding which were issued in April 2023 in conjunction with our acquisition of the property in Reading, Pennsylvania leased to Summit Steel & Manufacturing, LLC;Three Months Ended June 30, 2023 Industrial Core Tactical Non-Core (1) Other Non-Core (2) Non-Property & Other (3) Consolidated Rental income $ 7,546,101 $ 2,742,572 $ 1,547,890 $ — $ 11,836,563 Expenses: General and administrative — — — 1,597,776 1,597,776 Stock compensation expense — — — 660,170 660,170 Depreciation and amortization 2,715,601 808,227 432,506 — 3,956,334 Property expenses 682,509 198,622 646,737 — 1,527,868 Impairment of real estate investment property — — — — — Total expenses 3,398,110 1,006,849 1,079,243 2,257,946 7,742,148 Operating income (loss) 4,147,991 1,735,723 468,647 (2,257,946) 4,094,415 Other (expense) income: Interest income (46) — — 216,887 216,841 Interest expense, net of derivative settlements and unrealized gain on interest rate swaps (4) (3,163,694) (1,067,315) (699,373) 5,110,313 179,931 Income from unconsolidated investment in a real estate property 72,773 — — — 72,773 Other (5) — — — 65,993 65,993 Other (expense) income, net (3,090,967) (1,067,315) (699,373) 5,393,193 535,538 Net income (loss) 1,057,024 668,408 (230,726) 3,135,247 4,629,953 Less: net loss attributable to noncontrolling interest in Operating Partnership — — — (649,643) (649,643) Net income (loss) attributable to Modiv Industrial, Inc. 1,057,024 668,408 (230,726) 2,485,604 3,980,310 Preferred stock dividends — — — (921,875) (921,875) Net income (loss) attributable to common stockholders $ 1,057,024 $ 668,408 $ (230,726) $ 1,563,729 $ 3,058,435 Six Months Ended June 30, 2023 Industrial Core Tactical Non-Core (1) Other Non-Core (2) Non-Property & Other (3) Consolidated Rental income $ 13,302,916 $ 5,520,916 $ 3,323,913 $ — $ 22,147,745 Expenses: General and administrative — — — 3,505,831 3,505,831 Stock compensation expense — — — 1,320,339 1,320,339 Depreciation and amortization 4,640,469 1,614,642 973,283 — 7,228,394 Property expenses 1,106,888 586,575 1,541,249 — 3,234,712 Impairment of real estate investment property — — 3,499,438 — 3,499,438 Total expenses 5,747,357 2,201,217 6,013,970 4,826,170 18,788,714 Operating income (loss) 7,555,559 3,319,699 (2,690,057) (4,826,170) 3,359,031 Other (expense) income: Interest income (46) — — 270,581 270,535 Interest expense, net of derivative settlements and unrealized gain on interest rate swaps (4) (5,167,573) (1,942,824) (1,190,678) 4,462,214 (3,838,861) Income from unconsolidated investment in a real estate property 128,340 — — — 128,340 Other (5) — — — 131,987 131,987 Other (expense) income, net (5,039,279) (1,942,824) (1,190,678) 4,864,782 (3,307,999) Net income (loss) 2,516,280 1,376,875 (3,880,735) 38,612 51,032 Less: net loss attributable to noncontrolling interest in Operating Partnership — — — 166,556 166,556 Net income (loss) attributable to Modiv Industrial, Inc. 2,516,280 1,376,875 (3,880,735) 205,168 217,588 Preferred stock dividends — — — (1,843,750) (1,843,750) Net income (loss) attributable to common stockholders $ 2,516,280 $ 1,376,875 $ (3,880,735) $ (1,638,582) $ (1,626,162) As of June 30, 2023 Industrial Core Tactical Non-Core (1) Other Non-Core (2) Non-Property & Other (3) Consolidated Assets Real estate investments: Land $ 59,774,822 $ 43,387,936 $ 2,483,960 $ — $ 105,646,718 Buildings and improvements 288,824,445 83,117,030 4,678,127 — 376,619,602 Equipment 4,429,000 — — — 4,429,000 Tenant origination and absorption costs 11,569,403 4,500,352 324,222 — 16,393,977 Total investments in real estate property 364,597,670 131,005,318 7,486,309 — 503,089,297 Accumulated depreciation and amortization (32,194,601) (11,941,160) (839,021) — (44,974,782) Total investments in real estate property , net, excluding unconsolidated investment in real estate property and real estate investments held for sale, net 332,403,069 119,064,158 6,647,288 — 458,114,515 Unconsolidated investment in a real estate property 10,011,347 — — — 10,011,347 Total real estate investments, net, excluding real estate investments held for sale, net 342,414,416 119,064,158 6,647,288 — 468,125,862 Real estate investments held for sale, net — — 47,169,589 — 47,169,589 Total real estate investments, net 342,414,416 119,064,158 53,816,877 — 515,295,451 Cash and cash equivalents — — — 9,912,110 9,912,110 Tenant receivables 6,652,360 2,743,622 72,594 — 9,468,576 Above-market lease intangibles, net 1,351,949 — — — 1,351,949 Prepaid expenses and other assets (4) 3,252,515 33,038 70,818 2,074,149 5,430,520 Interest rate swap derivatives — — — 5,613,847 5,613,847 Other assets related to real estate investments held for sale — — 2,337,517 — 2,337,517 Total assets $ 353,671,240 $ 121,840,818 $ 56,297,806 $ 17,600,106 $ 549,409,970 Liabilities and Equity Mortgage notes payable, net $ 12,223,789 $ 32,020,018 $ — $ — $ 44,243,807 Credit facility term loan 169,512,148 39,751,549 38,999,643 — 248,263,340 Accounts payable, accrued and other liabilities 2,221,510 812,937 285,115 3,695,951 7,015,513 Below-market lease intangibles, net 9,328,801 — — — 9,328,801 Liabilities related to real estate investments held for sale — — 465,252 — 465,252 Total liabilities 193,286,248 72,584,504 39,750,010 3,695,951 309,316,713 Commitments and contingencies Total Modiv Industrial, Inc. equity, net of due to affiliates 160,384,992 49,256,314 16,547,796 (71,468,896) 154,720,206 Noncontrolling interests in the Operating Partnership — — — 85,373,051 85,373,051 Total equity 160,384,992 49,256,314 16,547,796 13,904,155 240,093,257 Total liabilities and equity $ 353,671,240 $ 121,840,818 $ 56,297,806 $ 17,600,106 $ 549,409,970 a 72.71% interest in a TIC10 operating properties during each of the first six months of 2023 and 2022. We sold five properties (four office and one flex) during the threefirst six months of 2022 and did not sell any properties during the first six months of 2023. The operating results of the 14 properties that were classified as held for sale as of June 30, 2023, and five properties that were sold during the six months ended SeptemberJune 30, 2017.2022, were included in our continuing results of operations for the three and six months ended June 30, 2023 and 2022. We expect that rental income, tenant reimbursements, depreciation and amortization expense, and interest expense and asset management fees to affiliates to each increase in future periods as a result of owning the seven properties acquired in 2017 for an entire period and anticipated future acquisitions of real estate investments. The Company expects that its equity in earnings from unconsolidated entities will increase in future periodsfor the full year of 2023 as compared with the full year of 2022, as a result of the TIC investment$129,753,498 of industrial manufacturing property acquisitions during the first seven months of 2023, which will be partially offset by the sale of the 13 retail and office properties completed on August 10, 2023. Our results of operations for the six months ended June 30, 2023 may not be indicative of those expected for the full year of 2023 or in future periods.was made during September 2017.and Nine months ended SeptemberMonths Ended June 30, 20172023 to the Three and NineMonths Ended June 30, 2022SeptemberJune 30, 2016increasesincrease in rental income tenant recoveries, general and administrative expenses, depreciation and amortization, interest expense and property expenseof $1,692,085, or 17%, as compared with the second quarter of 2022 primarily reflects the rental income contribution from our acquisitions of 16 industrial manufacturing properties acquired since June 30, 2022, partially offset by the decrease in rental income from the applicable prior-year periods were primarily due tosale of four properties acquired after September 30, 2016.Rental IncomeRental income forduring the threelast seven months of 2022 (three office and nine months ended September 30, 2017 was $1,926,722 and $3,990,317, respectively, and $286,576 and $328,041 for the three and nine months ended September 30, 2016, respectively. The annualized rental income of the properties owned as of September 30, 2017 was $7,523,748.29PART I – FINANCIAL INFORMATION (continued)ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)Tenant RecoveriesTenant recoveries were $389,784 and $915,431 for the three and nine months ended September 30, 2017, respectively, and $72,968 for the three and nine months ended September 30, 2016.one retail). Pursuant to most of our lease agreements, tenants are required to pay or reimburse all or a portion of the property operating expenses.Fees to AffiliateExpensed acquisition fees and management fees to affiliate for the three and nine months ended September 30, 2017 were $264,927 and $573,081, respectively, and $46,575 and $528,262 for the three and nine months ended September 30, 2016, respectively. Upon adopting ASU 2017-01 on October 1, 2016, acquisition fees have been capitalized as the Company’s investments have represented asset acquisitions. Therefore, the 2017 acquisition fees totaling $1,014,559 and $2,498,129 were capitalized for the three and nine months ended September 30, 2017, respectively.asset management fees are equal to 1.2% per annumABR of the Company’s total investment value. Of56 properties owned as of June 30, 2023 was $42,327,050. Following the asset management fees, $42,485acquisition of two industrial manufacturing properties during July 2023 and $119,524the disposition of such fees were waived for the three13 retail and nine months ended Septemberoffice properties on August 10, 2023 as described above, our pro forma ABR as of June 30, 2017, respectively, and $11,798 for the three and nine months ended September 30, 2016. Therefore, the September 2017 asset management fee of $94,9862023 was paid. In previous months, 75% of the monthly asset management fee had been deferred and 25% had been waived. As of September 30, 2017, the cumulative amount of deferred asset management fees was $483,135.There were no disposition fees to affiliate in the three and nine months ended September 30, 2017 or 2016.Property management fees to affiliates for the three and nine months ended September 30, 2017 were $6,996 and $7,617, respectively. There were no property management fees to affiliate in the three and nine months ended September 30, 2016.and nine months ended SeptemberJune 30, 2017 were $904,8182023 and $2,922,840 respectively2022, respectively. The decrease of $17,406, or 1%, as compared with the second quarter of 2022 reflects decreases in compensation to employees due to personnel reductions during 2022, and directors and officers insurance, partially offset by increased costs for professional services during the second quarter of 2023.and nine months ended SeptemberJune 30, 2016 were $584,4882023 and $590,867,2022, respectively.and nine months ended SeptemberJune 30, 2017 was $921,6922023 and $2,077,970, respectively, and for the three and nine months ended September 30, 2016, was $204,743 and $238,232,2022, respectively. The purchase price of theproperties acquired properties is allocated to tangible assets, identifiable intangibles and assumed liabilities, if any, and depreciated or amortized over their estimated useful lives.Interest ExpenseInterest expense The increase of $273,653, or 7%, as compared with the second quarter of 2022 primarily reflects an increase in depreciation of real estate properties due to our acquisitions, partially offset by a reduction in amortization of intangible lease assets during the three months ended June 30, 2023.and nine months ended SeptemberJune 30, 2017 was $541,2822023 and $1,111,287, respectively and for the three and nine months ended September 30, 2016 was $174,271 and $214,921,2022, respectively. See Note 5 for the detail of the components of interest expense.Property ExpensesProperty expenses for the three and nine months ended September 30, 2017 were $413,161 and $968,902, respectively, and for the three and nine months ended September 30, 2016, were $91,541. These expenses primarily relate to property taxes insurance and repairs and maintenance expenses.Other IncomeInterest incomeexpenses, the majority of which are reimbursed by tenants. The increase of $93,653, or less than 7%, as compared with the second quarter of 2022 primarily reflects increases in insurance and property management fees associated with acquired properties, partially offset by decreases in property taxes and repairs and maintenance expenses related to assets sold during 2022.and nine months ended SeptemberJune 30, 20172022 relates to the gain on sale of one office property. We did not sell any real estate investments during the second quarter of 2023.$2,988$216,841 and $3,875, respectively. Interest income$1,763 for the three and nine months ended SeptemberJune 30, 20162023 and 2022, respectively, reflecting interest earned on cash proceeds from April 2023 draws on the Term Loan prior to utilizing such cash to acquire industrial manufacturing properties in May 2023.$619.30PART I – FINANCIAL INFORMATION (continued)ITEM 2. Management’s Discussion$179,931 and Analysis of Financial Condition and Results of Operations (continued)Equity in earnings from unconsolidated entities$(1,197,154) for the three and nine months ended SeptemberJune 30, 20172023 and 2022, respectively (see $688 and $168,043, respectively. This represents4.33% during the Company’s 4.38% interest in the operationssecond quarter of Rich Uncles REIT I and includes the recognition2023 when our leverage ratio was no more than 40%. The unrealized gains on swap valuation of certain amounts related to previous periods as described in Note 2. See Note 2. Equity in loss from Rich Uncles REIT 1$3,455,505 for the three and nine months ended SeptemberJune 30, 20162023, which reflects the change in valuation of both our $150,000,000 first swap and $100,000,000 second swap, more than offset other components of interest expense. The first swap derivative instrument failed to qualify as a cash flow hedge beginning January 1, 2023 because the swap was $4,300.deemed ineffective due to our counterparty’s one-time cancellation option on December 31, 2024, as compared with the maturity date of the Term Loan. The second derivative instrument was not designated as a cash flow hedge. These unrealized gains reflect increases during the quarter in the forward curve for future SOFR rates through December 31, 2024 (the one-time cancellation option date). Future increases or decreases in the forward curve for SOFR rates through December 31, 2024 will result in future unrealized gains or losses on swap valuations. If there is a significant drop in interest rates in the future, the first interest rate swap derivative could potentially qualify again as a cash flow hedge.was formed on September 28, 2017 andInterest in the Santa Clara property's results of operations for the second quarter of 2023 and 2022, respectively.SeptemberJune 30, 2017 were immaterial.New Accounting PronouncementsSee Note 22023 and 2022, respectively, reflects our monthly management fee from the entities that own the TIC Interest property, which is equal to 0.1% of the total investment value of the property.Notes toSix Months Ended June 30, 2022Condensed Consolidated Financial Statements.Organizationalsix months ended June 30, 2023 and Offering CostsOur organizational2022 was $22,147,745 and offering costs are paid by our Sponsor on our behalf. Offering costs include all expenses incurred$19,714,091, respectively. The increase in connectionrental income of $2,433,654, or 12%, as compared with the Offerings, including investor relations payrollfirst six months of 2022 primarily reflects the rental income contribution from our acquisitions of 16 industrial manufacturing properties acquired since June 30, 2022, partially offset by the decrease in rental income from the sale of eight properties during 2022. Pursuant to most of our lease agreements, tenants are required to pay or reimburse all or a portion of the property operating expenses. Other organizational and offering costs include all expenses incurred in connection with our formation, including, but not limited to legal fees, federal and state filing fees, and other costs to incorporate.DuringThe ABR of the Offerings, we are obligated to reimburse our Sponsor for organizational and offering costs related to the Offerings paid by them on our behalf provided such reimbursement would not exceed 3% of gross offering proceeds raised in the Offeringsoperating properties owned as of the date of the reimbursement.As of SeptemberJune 30, 2017, the Company had not incurred any organizational and offering costs related to the Offering as all such costs had been funded by our Sponsor. As a result, these organizational and offering costs related to the Offering are not recorded in our financial statements as of September 30, 2017 other than to the extent of 3% of the gross offering proceeds. As of September 30, 2017, the Sponsor had incurred $5,844,047 of organizational and offering costs on behalf of the Company and the Company has reimbursed the Sponsor $2,332,819 in organizational and offering expenses of which $4,0052023 was receivable as of September 30, 2017 and is included in “Due from Affiliates” in the Condensed Consolidated Balance Sheet. The Company’s maximum liability for organizational and offering costs through September 30, 2017 was $2,328,814. See Note 8 to the Condensed Consolidated Financial Statements for additional information.DistributionsDuring our offering stage, when we may raise capital more quickly than we acquire income producing assets, and from time to time during our operational state, we way not pay distributions from operations. In these cases, distributions may be paid in whole or in part from the waiver or deferral of fees otherwise due to our Advisor, if so elected by our Advisor. Historically, the sources of cash used to pay our distributions have been from net rental income received and the waiver and deferral of management fees. The leases for certain of our real estate acquisitions may provide for rent abatements. These abatements are an inducement for the tenant to enter into or extend the term of its lease. In connection with$42,327,050. Following the acquisition of sometwo industrial manufacturing properties we may be ablein July 2023 and the disposition of 13 retail and office properties on August 10, 2023 as described above, our pro forma ABR as of June 30, 2023 was $41,097,689.negotiateemployees due to personnel reductions during 2022, directors and officers insurance and costs for technology services, offset in part by an increase in costs for professional services during the first six months of 2023.reducedforfeiture of Class R OP Units related to an employee termination during the first six months of 2022. There were no forfeitures during the six months ended June 30, 2023.an amount that equalsNashville, Tennessee which is leased to Cummins until February 29, 2024. The impairment charge represents the previously agreed-upon rent abatement. Duringexcess of the period of any rent abatement on properties that we acquire, we may be unable to fully fund our distributions from net rental income received and waivers or deferrals of advisor asset management fees. In that event, we may expandproperty's carrying value over the sources of cash used to fund our stockholder distributions to include proceedsproperty's estimated sale price less estimated selling costs for the salepotential sale. We did not incur any impairment of real estate property charges for the first six months of 2022.but only duringsince it began trading on the periods, and up to the amounts, of any rent abatements where we able to negotiate a reduced purchase price. DuringNew York Stock Exchange in February 2022. For the quarter ended September 30, 2017, $288,370March 31, 2022, management considered the fact that the trading price of offering proceedsour common stock caused our market capitalization to be below the book value of our equity as of March 31, 2022. Our stock price was usedevaluated to fundbe materially below both our historical net asset value and the book value of our equity, reflecting the negative impacts of rising inflation and interest rates, declining office occupancy rates affecting owners of real estate properties and fears of a portionpotential recession. We, therefore, reduced the carrying value of stockholder distributions, including the distributiongoodwill to zero as of March 31, 2022.period Septembersix months ended June 30, 2022 relates to the gain on sale of five properties (four office and one flex) during the first six months of 2022 (see Note 3 of our accompanying unaudited condensed consolidated financial statements for more details of the gain on sale of real estate investments). We did not sell any real estate investments during the first six months of 2023.20172023 because the swap was deemed ineffective due to our counterparty’s one-time cancellation option on December 31, 2024, as compared with the maturity date of the Term Loan. The second derivative instrument was not designated as a cash flow hedge. These unrealized gains reflect increases during the six months ended June 30, 2023 in the forward curve for future SOFR rates through SeptemberDecember 31, 2024 (the one-time cancellation option date). Future increases or decreases in the forward curve for SOFR rates through December 31, 2024 will result in future unrealized gains or losses on swap valuations. If there is a significant drop in interest rates in the future, the first interest rate swap derivative could potentially qualify again as a cash flow hedge.20172023 and 2022, respectively. The decrease primarily reflects changes in the timing of common area maintenance recoveries.October 10, 2017,April 17, 2023 and $127,455April 15, 2022, respectively. On June 15, 2023 and June 15, 2022, our Board declared Series A Preferred Stock dividends payable of asset management fees$921,875 for each of the second quarters of 2023 and 2022, which were deferred and $42,485 of asset management fees were waived.Distributions declared, distributions paid and cash flow used in operations were as follows: Cash flows Total provided by Total distributions (used in) distributions declared per Distributions paid Operating Period declared share Cash Reinvested Activities First Quarter 2016 $ - $ - $ - $ - $ (91 ) Second Quarter 2016 - - - - 56,531 Third Quarter 2016 12,078 0.175 4,852 7,226 (589,184 )(2) Fourth Quarter 2016 (1) 159,083 0.175 41,313 117,770 (176,942 )(2) First Quarter 2017 486,862 0.175 100,126 386,736 182,764 Second Quarter 2017 824,641 0.175 152,193 672,448 1,248,798 Third Quarter 2017 1,120,503 0.175 212,300 908,203 1,114,810 Totals $ 2,603,167 $ 0.875 $ 510,784 $ 2,092,383 $ 1,836,686 (1)Includes the reclassification of $37,554 of distributions received in the fourth quarter of 2016 from our investment in Rich Uncles REIT I as a result of retroactively adopting ASU 2016-15.(2)Updated for immaterial correction.31PART I – FINANCIAL INFORMATION (continued)ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)Distributions are paid on a monthly basis. In general, distributions for record dates as of the end of a given month are paid on or about the 10th of the following month.July 17, 2023 and July 15, 2022, respectively. were declared and paid based on daily record dates at rates per share per day as follows:Distribution Period
Day Declaration Date Payment Date June 15 (date of purchase of first property)-30 $ 0.00180556 July 5, 2016 July 11, 2016 July 1-31 $ 0.00174731 August 10, 2016 August 11, 2016 August 1-31 $ 0.00174731 September 7, 2016 September 12, 2016 September 1-30 $ 0.00194440 October 7, 2016 October 11, 2016 October 1-31 $ 0.00188170 November 9, 2016 November 10, 2016 November 1-30 $ 0.00194440 December 12, 2016 December 12, 2016 December 1-31 $ 0.00188170 January 10, 2017 January 10, 2017 January 1-31 $ 0.00188170 February 10, 2017 February 10, 2017 February 1-28 $ 0.00208333 March 10, 2017 March 10, 2017 March 1-31 $ 0.00188170 April 10, 2017 April 10, 2017 April 1-30 $ 0.00194440 May 10, 2017 May 10, 2017 May 1-31 $ 0.00188170 June 10, 2017 June 10, 2017 June 1-30 $ 0.00194440 July 11, 2017 July 11, 2017 July 1-31 $ 0.00188170 August 10, 2017 August 10, 2017 August 1-31 $ 0.00188170 September 11, 2017 September 11, 2017 September 1-30 $ 0.00194440 October 10, 2017 October 10, 2017 Going forward, we expect our board of directors to continue to declare cash distributions based on daily record dates and these distributions on a monthly basis, and afterwe paid our offering stage to continue to declare distributions basedfirst distribution on a single record date as of the end of the month, and to pay these distributions on a monthly basis. Cash distributions will beAugust 10, 2016. The distribution rate is determined by our board of directorsthe Board based on our financial condition and such other factors as our boardthe Board deems relevant. The Board has not pre-established a percentage range of directors deems relevant.return for distributions to stockholders. We have not established a minimum dividend or distribution level, and our charter does not require that we make dividends or distributions to our stockholders other than as necessary to meet REIT qualification requirements.PropertiesAsCash Flows Provided by (Used in) Operating Activities Period Total Distributions Declared Distributions Declared Per Share Distributions Paid Net Rental Income Received Offering Proceeds Quarter End Accrued Distribution Cash Reinvested 2023 First Quarter $ 2,544,255 $ 0.287500 $ 1,943,307 $ 595,585 $ 2,784,869 $ 2,544,255 $ — $ 851,794 Second Quarter 2,622,987 0.287500 2,038,397 566,309 4,504,239 2,622,987 — 875,408 2023 Total $ 5,167,242 $ 0.575000 $ 3,981,704 $ 1,161,894 $ 7,289,108 $ 5,167,242 $ — 2022 First Quarter (1) $ 3,284,431 $ 0.387499 $ 1,418,783 $ 1,492,404 $ (1,083,310) $ 3,284,431 $ — $ 854,599 Second Quarter 2,519,371 0.287500 2,070,570 711,223 6,159,782 2,519,371 — 844,183 Third Quarter 2,520,740 0.287500 1,856,735 663,219 4,250,291 2,520,740 — 841,510 Fourth Quarter 2,523,067 0.287500 1,895,194 623,313 7,322,058 2,523,067 — 846,070 2022 Totals $ 10,847,609 $ 1.249999 $ 7,241,282 $ 3,490,159 $ 16,648,821 $ 10,847,609 $ — Distribution Period Rate Per Share Per Month Declaration Date Payment Date 2022 January 1-31 $ 0.095833 January 27, 2022 February 25, 2022 February 1-28 $ 0.095833 February 17, 2022 March 25, 2022 March 1-31 $ 0.095833 February 17, 2022 April 25, 2022 April 1-30 $ 0.095833 March 18, 2022 May 25, 2022 May 1-31 $ 0.095833 March 18, 2022 June 27, 2022 June 1-30 $ 0.095833 March 18, 2022 July 25, 2022 July 1-31 $ 0.095833 June 15, 2022 August 25, 2022 August 1-31 $ 0.095833 June 15, 2022 September 26, 2022 September 1-30 $ 0.095833 June 15, 2022 October 25, 2022 October 1-31 $ 0.095833 August 18, 2022 November 23, 2022 November 1-30 $ 0.095833 August 18, 2022 December 23, 2022 December 1-31 $ 0.095833 August 18, 2022 January 25, 2023 2023 January 1-31 $ 0.095833 November 7, 2022 February 24, 2023 February 1-28 $ 0.095833 November 7, 2022 March 24, 2023 March 1-31 $ 0.095833 November 7, 2022 April 25, 2023 April 1-30 $ 0.095833 March 9, 2023 May 25, 2023 May 1-31 $ 0.095833 March 9, 2023 June 26, 2023 June 1-30 $ 0.095833 March 9, 2023 July 25, 2023 July 1-31 $ 0.095833 June 15, 2023 August 25, 2023 (1) August 1-31 $ 0.095833 June 15, 2023 September 25, 2023 (1) September 1-30 $ 0.095833 June 15, 2023 October 25, 2023 (1) 2017, we owned sixteen properties encompassing 556,844 rentable square feet in eight states, a 4.38% interest in an affiliated REIT2023, December 31, 2022 and a 72.71% TIC interest in aJune 30, 2022, and the 91,740 square foot industrial property underlying the TIC Interest for all balance sheet dates presented were as follows:As of June 30,
2023December 31, 2022 June 30,
2022Number of properties: (1) (2) Industrial, including TIC Interest 38 27 20 Retail 12 12 13 Office 6 7 10 Total operating properties and properties held for sale 56 46 43 Leasable square feet: Industrial 3,695,167 2,541,792 2,068,388 Retail 230,176 230,176 234,029 Office 361,181 401,291 585,967 Total 4,286,524 3,173,259 2,888,384 Property Tenant Location Property Type Area (Square Feet) Lease Term (Years) Annual Rent Increase Acquisition Price Initial Cap Rate 2023 Plastic Products Princeton, MN Industrial 148,012 5.8 3.0% $ 6,368,776 7.5 % Stealth Manufacturing Savage, MN Industrial 55,175 20 2.5% 5,500,000 7.7 % Lindsay Gap, PA Industrial 137,086 24 2.2% 16,543,624 7.5 % Summit Steel Reading, PA Industrial 116,560 20 2.9% 11,200,000 7.3 % PBC Linear Roscoe, IL Industrial 219,287 20 2.5% 20,000,000 7.8 % Cameron Tool Lansing, MI Industrial 93,085 20 2.5% 5,721,174 8.5 % S.J. Electro Systems Three properties acquired: Minnesota (2) and Ohio Industrial 159,680 17 2.8% 15,975,000 7.5 % Titan Alleyton, TX Industrial 223,082 20 2.9% 17,100,000 8.2 % 1,151,967 $ 98,408,574 (1) 2022 KIA/Trophy of Carson Carson, CA Retail 72,623 25 2.0% $ 69,275,000 5.7 % Kalera Saint Paul, MN Industrial 78,857 20 2.5% 8,079,000 7.0 % Lindsay Eight properties acquired: Colorado (3), Ohio (2), North Carolina, South Carolina and Florida Industrial 618,195 25 2.0% 56,150,000 6.7 % 769,675 $ 133,504,000 Property Location Disposition Date Property Type Rentable Square Feet Contract Sales Price Net Proceeds 2022 Bon Secours Richmond, VA 2/11/2022 Office 72,890 $ 10,200,000 $ — (1) Omnicare Richmond, VA 2/11/2022 Flex 51,800 8,760,000 — (1) Texas Health Dallas, TX 2/11/2022 Office 38,794 7,040,000 11,892,305 (1) Accredo Orlando, FL 2/24/2022 Office 63,000 14,000,000 5,012,724 EMCOR Cincinnati, OH 6/29/2022 Office 39,385 6,525,000 6,345,642 265,869 $ 46,525,000 $ 23,250,671 Santa Clara, CA. San Diego, California since 2008.beenother plans to incur any significant costs to renovate, improve or develop the properties. We believe that our properties are adequately insured. Pursuant to lease agreements, as of June 30, 2023 and December 31, 2022, we had obligations to pay $2,802,652 and $1,789,027, respectively, for on-site and tenant improvements to be incurred by tenants. We expect that the related improvements will be completed during the next twelve months and will be funded from cash on hand, operating cash flow or borrowings under our Revolver.offering statenext 12 months. Approximately $54,000 of our life cycle and will continuethese improvements are expected to acquire assets that adhere to our investment criteria with proceedsbe recoverable from the saletenant through operating expense reimbursements. We will initially pay for the improvements, and the recoveries will be billed over an extended period of our shares and financing proceeds. More detail about our properties can be found in Note 3time according to the Condensed Consolidated Financial Statements.Recent Market ConditionsBeginning in late 2007, domestic and international financial markets experienced significant disruptions that severely impacted the availability of credit and contributed to rising costs associated with obtaining credit. Financial conditions affecting commercial real estate have improved and continue to improve, as low treasury rates and increased lending from banks, insurance companies and commercial mortgage backed securities (“CMBS”) conduits have increased lending activity. Nevertheless, the debt market remains sensitive to the macro environment, such as Federal Reserve policy, market sentiment or regulatory factors affecting the banking and CMBS industries. While we expect that financial conditions will remain favorable, if they were to deteriorate we may experience more stringent lending criteria, which may affect our ability to finance certain property acquisitions or refinance any debt at maturity. Additionally, for properties for which we are able to obtain financing, the interest rates and other terms on such loans may be unacceptable. We expect to manage the current mortgage lending environment by considering alternative lending sources, including securitized debt, fixed rate loans, borrowings on a line of credit, short-term variable rate loans, assumed mortgage loans in connection with property acquisitions, interest rate lock or swap agreements, or any combination of the foregoing.
leases. The remaining costs of approximately $937,000 are not recoverable from tenants. These improvements will be funded from cash on hand, operating cash flows, or borrowings under our Credit Facility.32PART I – FINANCIAL INFORMATION (continued)ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)Commercial real estate fundamentals continue to strengthen, as a moderate pace of job creation has supported gains in office absorption, retail sales and warehouse distribution. Although commercial property construction activity has increased, it remains near historic lows; as a result, incremental demand growth has helped to reduce vacancy rates and support modest rental growth. Improving fundamentals have resulted in gains in property values.beginning with the taxable year ended December 31, 2016.of 1986, as amended. We believe we willintend to continue to qualify as a REIT. To continue to qualify and maintain status as a REIT, we must meet certain requirements relating to our organization, sources of income, nature of assets, distributions of income to our stockholders and recordkeeping. As a REIT, we generally would not be subject to federal income tax on taxable income that we distribute to our stockholders so long as we distribute at least 90% of our annual taxable income (computed without regard to the dividendsdistributions paid deduction and excluding net capital gains).qualifymaintain our qualification as a REIT forin any reason in a taxable year, and applicable relief provisions do not apply, we will be subject to tax, including any applicable alternative minimum tax, on our taxable income at regular corporate rates. We will not be able to deduct distributions paid to our stockholders in any year in which we fail to qualify as a REIT. We also will be disqualified for the four taxable years following the year during which qualification is lost, unless we are entitled to relief under specific statutory provisions. Such an event could materially adversely affect our net income or loss and net cash available for distribution to stockholders. However, we believe that we are organized and operate in such a manner as to continue to qualify for treatment as a REIT for federal income tax purposes. No provision for federal income taxes has been made in our accompanying Condensed Consolidated Financial Statements.unaudited condensed consolidated financial statements. We will be subject to certain state and local taxes related to the operations of properties in certain locations. We are subject to certain state and local taxes related to the operations of properties in certain locations, which have been provided for in our accompanying Condensed Consolidated Financial Statements.for the year ended December 31, 2016 filed with the SEC.SEC on March 13, 2023. There have been no significant changes to our policies during 2017, except as disclosed in Note 2 of the Notes to the Condensed Consolidated Financial Statements.transactions. See transactions (see Note 9 to the Condensed Consolidated Financial Statements10 of our accompanying unaudited condensed consolidated financial statements for further detail.We have entered into an agreement with our Advisor whereby we have agreed to pay certain fees to, or reimburse certain expenses Advisor or its affiliates, such as acquisition fees and expenses, organization and offering costs, asset management fees, and reimbursement of certain operating costs. See Note 8 to the Condensed Consolidated Financial Statements and the Company’s 2016 Annual Report on Form 10-Kaccompanying unaudited condensed consolidated financial statements for a further explanationdetails of the various related-party transactions agreements and fees.
agreements.33PART I – FINANCIAL INFORMATION (continued)ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)CertainSeptemberJune 30, 20172023 through the filing date of this Quarterly Report on Form 10-Q. See Note 10 to the Condensed Consolidated Financial Statements for further explanation. to the Condensed Consolidated Financial Statements of our accompanying unaudited condensed consolidated financial statements for further explanation.As of September 30, 2017, we had material off-balance sheet arrangements that had or are reasonably likely to have a material current or future effect on our financial condition, results of operations, liquidity, or capital resources.resources as of June 30, 2023.ITEMaboutAbout Market RiskWeexposed to the effects of interest rate changes as a result of borrowings used to maintain liquidity and to fund the acquisition and refinancing of our real estate investment portfolio and operations. Our profitability and the value of our real estate investments may be adversely affected during any period as a result of interest rate changes. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings, prepayment penalties and cash flows and to lower overall borrowing costs. We may manage interest rate risk by maintaining a ratio of fixed rate, long-term debt such that variable rate exposure is kept at an acceptable level or we may utilize a variety of financial instruments, including interest rate caps, floors, and swap agreements, in order to limit the effects of changes in interest rates on our operations. When we use these types of derivatives to hedge the risk of interest-earning assets or interest-bearing liabilities, we may be subject to certain risks, including the risk that losses on a hedge position will reduce the funds available for the payment of distributions to our stockholders and that the losses may exceed the amount we invested in the instruments.As of September 30, 2017, the fair value of our mortgage notes payable was $44,152,390 and the outstanding principal balance was $43,952,534. The fair value estimate of our mortgage notes payable is calculated using a discounted cash flow analysis utilizing rates we would expect to pay for debt of a similar type and remaining maturity if the loans were originated as of September 30, 2017. With respect to our fixed rate instruments, we do not expect that fluctuations in interest rates, and the resulting change in fair value of our fixed rate instruments, would have a significant impact on our ongoing operations.Conversely, movements in interest rates on our variable rate debt would change our future earnings and cash flows, but not significantly affect the fair value of those instruments. However, changes in required risk premium would result in changes in the fair value of variable rate instruments. As of September 30, 2017, we were exposed to market risks related to fluctuations in interest rates on $10,665,000 of variable rate debt outstanding, after giving consideration to the impact of interest rate swap agreements on approximately $10,665,000 of our variable rate debt. Based on interest rates as of September 30, 2017, if interest rates were 100 basis points higher during the 12 months ended September 30, 2017, interest expense on our variable rate debt would increase by $106,650. As of September 30, 2017, one-month LIBOR was 1.23% and if this index was reduced to 0% during the 12 months ended September 30, 2017, interest expense on our variable rate debt would decrease by $131,180.The weighted average interest rates of our fixed rate debt and variable rate debt as of September 30, 2017 was 3.26% and 4.21%, respectively. The weighted-average interest rate represents the actual interest rate in effect as of September 30, 2017 (consisting of the contractual interest rate and the effect of interest rate swaps and floors, if applicable), using interest rate indices as of September 30, 2017, were applicable.
smaller reporting company.34PART I – FINANCIAL INFORMATION (continued)ITEMAs of the end of the period covered by this report, management, including our principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of ourprocedures. Disclosure controls and procedures include, without limitation, controls and proceduresthat are designed to ensure that information required to be disclosed by us in theour reports we file and submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, recorded, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management,us, including our principal executive officerChief Executive Officer and our principal financial officer,Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based upon,In designing and as ofevaluating the date of, the evaluation, our principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and we necessarily were not effectiverequired to apply our judgment in evaluating whether the benefits of the controls and procedures that we adopt outweigh their costs.SeptemberJune 30, 2017 because2023 was conducted under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures, as of June 30, 2023, were effective except for the material weaknessesweakness in our internal control over financial reporting described below.Item 9A of our Annualthis Quarterly Report on Form 10-K10-Q are fairly stated in all material respects in accordance with GAAP for each of the periods presented.yearyears ended December 31, 2016 that had not been remediated as2022 and 2021, inclusive of September 30, 2017. The Company corrected a misstatement in its statementthe interim periods therein, and (ii) corrections made during the fourth quarter of cash flows2022 related to the classification of straight-line rent receivable write-offs associated with real estate investment sales for the nine monthsyears ended September 30, 2016. ManagementDecember 31, 2022 and 2021, inclusive of the interim periods therein, it was concluded that the misstatement resulted fromcombination of the sametwo immaterial error corrections constituted a material weaknesses that were disclosedweakness as of December 31, 2022 in Item 9A of our Annual Report on form 10-K for the yearCompany’s ability to properly identify and evaluate applicable accounting standards involved with non-recurring transactions and recent accounting pronouncements.2016.ThereSeptemberJune 30, 20172023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.We will implement the Remediation PlanIn connection with the audit of our consolidated financial statements for the year ended December 31, 2016, material weaknesses in our internal control over financial reporting were identified as previously disclosed in Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2016. The material weaknesses identified related to (1) the lack of sufficient qualified resources to be able to produce accurate and complete financial statements and disclosures in a timely manner and (2) lack of established processes relating to the preparation and review of analyses and reconciliations necessary to execute a timely financial close resulting in accurate financial information. Management and our Board of Directors, are committed to remediatingcorrect the material weaknesses through hiring additional qualified resources, continued training of personnel, improving the structure and timeliness of our accounting close process and continuing to enhance our financial review controls. Accordingly, management has developed and is implementing its plan to remediate the deficiencies in internal control weakness described in our Annual Report on Form 10-K. Management has completed an analysis of the Advisor’s accounting and financial reporting organization. As a result, additional positions have been created. In addition, in October 2017, a review and documentation of the financial close process began and a plan has been developed to test the design and implementation of key controls related to the financial close and related processes. We expect that the aforementioned remediation activities will be substantially completed by December 31, 2017.We will test the effectiveness of the new controls and after they operate effectively for a sufficient period of time, we will consider the material weaknesses remediated. There is no assurance, however, that the new controls will remediate the material weaknesses or ensure that the Company’s internal control over financial reporting will be effective in the future. If we are unable to remediate these material weaknesses, we may not be able to timely file our periodic reports with the SEC which will have a material adverse effect on our ability to provide accurate financial information.9 to the Condensed Consolidated Financial Statements10 of our accompanying unaudited condensed consolidated financial statements is incorporated herein by reference.“Risk Factors”“Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2016, and Part II, Item 1A in our Quarterly Report2022 as filed with the SEC on Form 10-Q for the quarter ended March 31, 2017.
13, 2023.35PART II – OTHER INFORMATION (continued)SeptemberJune 30, 2017,2023, we issued 3,000an aggregate of 5,500 shares of Class C common stock to non-employee members of the Company’s directorsBoard for their servicesservice as board members.Board members during the third quarter of 2023. Such issuance wasissuances were made in reliance on the exemption from registration under RuleSection 4(a)(2) of the Securities Act.During the three months ended September 30, 2017, we also issued 3,000 sharesAct of Class S common stock1933, as amended (the “Securities Act”).the Class S Offering for aggregate gross offering proceedsrepurchases of $30,000. Such issuances were made in reliance of an exemption from the registration requirements of the Securities Act under and in accordance with Regulation S of the Securities Act.Use of Proceeds from Registered SecuritiesOn June 1, 2016, our Registration Statement on Form S-11 (File No. 333-205684) (the “Registration Statement”), covering an initial public offering to offer a maximum of 90,000,000 shares of common stock for sale to the public in the primary offering was declared effective under the Securities Act. Pursuant to the Registration Statement, we also registered a maximum of 10,000,000 shares of common stock pursuant to our distribution reinvestment plan Registered DRP Offering. The shares of common stock covered by the Registration Statement were renamed and redesignated as Class C shares of common stock pursuant to amendments to the Company’s charter that became effective in August 2017.The Registered Offering commenced on July 20, 2016 and will terminate on June 29, 2018. We expect to sell theoutstanding shares of Class C common stock offeredand Series A Preferred Stock from January 1, 2023 through December 31, 2023. Repurchases made pursuant to the 2023 SRP will be made from time-to-time in the Registered Offering over this two-year period. We intend to continue to offer shares beyond June 29, 2018open market, in privately negotiated transactions or in any other manner as permitted by federal securities laws and in order to do so itother legal requirements. The timing, manner, price and amount of any repurchases will be necessarydetermined by us in our discretion and will be subject to file a new registration statement with the SEC to continue offering shares. We will also need to renew the Registration Statementeconomic and market conditions, stock price, applicable legal requirements and other factors. The 2023 SRP may be suspended or file a new registration statement in many states to continue the Registered Offering. We may terminate the Registered Offeringdiscontinued at any time. Our boardFrom April 1, 2023 to June 30, 2023, we repurchased a total of directors will adjust the $10.00 per share initial offering price of the shares of Class C common stock offered and sold pursuant to the Registered Offering during the course of the Registered Offering as described in the Registration Statement, as amended.As of September 30, 2017, we had sold 7,739,712 shares of Class C common stock in the Registered Offering for gross proceeds of $77,397,120, including 209,232 shares of common stock sold under our Registered DRP Offering.Net proceeds available for investment after the payment of the organizational and offering costs described above were approximately $75,268,306. A portion of these proceeds, along with proceeds from the Class S Offering and debt financing, were used to make approximately $109.4 million of investments in real estate properties, including the purchase price of our investments, deposits paid for future acquisitions, acquisition fees and expenses, and costs of leveraging each real estate investment. In addition, during the three months ended September 30, 2017, $288,370 of proceeds from the Registered Offering were used to fund stockholder distributions.See Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations —Distributions for a description of the sources that have been used to fund our distributions.Issuer Redemptions of Equity SecuritiesClass C Common StockDuring the three months ended September 30, 2017, we fulfilled repurchase requests and repurchased88,892 shares of our Class C common stock pursuant tofor a total of $1,079,480 under this share repurchase program for an average cost of $12.14 per share.share repurchase program as follows:
Shares
Requested to be
Repurchased (1)
Shares
Repurchased
During the
Month
Paid per Share (2)
Shares Available
That May
Be Repurchased
Under the
Program (2) July 2017 18,366 32,028 $ 9.70 $ 583,163 August 2017 35,839 18,366 $ 9.70 $ 852,453 September 2017 19,979 35,839 $ 9.72 $ 234,648 (1)We generally repurchase shares approximately 5 days following the end of the applicable month in which requests were received.36PART II – OTHER INFORMATION (continued)(2)Maximum amount that may be repurchased is limited to 5% of the weighted average outstanding shares of Class C common stock in the prior 12 months less the actual shares repurchased during same twelve month period. The dollar value is as of the last day of the month presented. The dollar value is calculated as (1) the maximum number of shares that can be repurchased (5% of the weighted average number of shares outstanding during the prior twelve months (or a shorter period if the Company has not been selling shares for twelve months) reduced by the number of shares already repurchased multiplied by (2) the repurchase price (which is 97% of the $10.00 per share offering price for shares of Class C common stock held by the stockholder for less than a year (which would be most of the shares through September 30, 2017)( which is 98% of the $10.00 per share offering price for shares of Class C common stock held by the stockholder for more than a year and less than two years))). Repurchase price is increased if the shares have been held for a year or more, two years or more and three years or more. Furthermore, once the Company has published its NAV, the NAV per share is used in the calculation in place of the per share offering price. If the Company determines that sufficient funds aren’t available to fund the Class C the share repurchase program, it has the ability to repurchase the number of shares that it believes it has sufficient funds to repurchase. In addition, the Company’s board of directors may amend, suspend or terminate the Class C share repurchase program without stockholder approval upon 30 days’ notice. The Company’s board of directors may amend, suspend or terminate the Class C share repurchase program due to changes in law or regulation, or if the board of directors becomes aware of undisclosed material information that it believes should be publicly disclosed before shares are repurchased.Class S Common StockDuring the three months ended SeptemberJune 30, 2017, we did not repurchase any shares2023.Period Total Number of
Shares
Repurchased
During the
QuarterAverage Price Paid Per Share Total Number of Shares Repurchased as Part of Publicly Announced Plans or Programs Maximum Number (or Approximate Dollar Value) of Shares That May Yet be Repurchased Under the Plans or Programs April 1-30, 2023 32,805 $ 10.68 32,805 $ 14,599,850 May 1-31, 2023 53,268 $ 12.92 53,268 $ 13,911,666 June 1-30, 2023 2,819 $ 14.48 2,819 $ 13,870,838 Total 88,892 $ 12.14 88,892 our Class S common stock pursuant to our Class S share repurchase program. Stockholders are required to hold their Class S shares for a minimum of one year before they can participate in the program. We will repurchase Class S shares based on then-applicable NAV per share and repurchase of Class S shares of common stock will be limited to a 2% of our aggregate NAV per month for our Class S shares and up to 5% of our aggregate NAV per quarter for our Class S shares.We currently intend to determine our NAV and NAV per share annually in January of each year as of December 31 of the prior year, beginning in January 2018 and calculated as of December 31, 2017. In addition, we may update our NAV at any time between our annual calculations of NAV to reflect significant events that we have determined have had a material impact on NAV. We will report the NAV per share of our common stock (a) in a Current Report on Form 8-K or in our annual or quarterly reports, all publicly filed with the SEC, or (b) in a separate written notice to the stockholders. During our primary offering stage, we would also include this information in a prospectus supplement or post-effective amendment to the Registration Statement for the Registered Offering, as required under federal securities laws. We will also provide information about our NAV per share on our website (such information may be provided by means of a link to our public filings on the SEC’s website, www.sec.gov) and on our toll-free information line: (1-855-742-4862). In the event that our NAV and NAV per share change during the year, we will publish our new NAV per share no later than ten business days prior to the second-to-last business day of the month in which such adjustment occurs.Item 3.Defaults Upon Senior SecuritiesNo events occurred during the nine months ended September 30, 2017 that would require a response to this item.Item 4.Mine Safety DisclosuresNot applicable.No events occurred duringnine months ended September 30, 2017Board, effective as of August 8, 2023. Ms. Ishaq’s resignation is not due to any disagreement with us, our Board, or our management on any matter relating to our operations, policies, or practices. Ms. Ishaq served as a member of the Board’s compensation committee at the time of her resignation. Our Board has determined not to fill the vacancy left by Ms. Ishaq’s resignation and therefore has reduced the size of the Board from seven to six members, effective as of August 8, 2023.would require a responsewe filed in the state of Maryland solely to this item.change our name. We will continue to use the “MDV” ticker symbol and our Class C common stock will start trading as Modiv Industrial, Inc. Class C common stock on August 24, 2023.(following the signatures section of this Quarterly Report on Form 10-Q)below are included herewith or incorporated herein by reference.37Exhibit Description 3.1 3.2 3.3 3.4* 4.1 31.1* 31.2* 32.1** 101.INS* INLINE XBRL INSTANCE DOCUMENT 101.SCH* INLINE XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT 101.CAL* INLINE XBRL TAXONOMY EXTENSION CALCULATION LINKBASE 101.DEF* INLINE XBRL TAXONOMY EXTENSION DEFINITION LINKBASE 101.LAB* INLINE XBRL TAXONOMY EXTENSION LABELS LINKBASE 101.PRE* INLINE XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE 104* COVER PAGE INTERACTIVE DATA FILE (FORMATTED AS INLINE XBRL AND CONTAINED IN EXHIBIT 101) * Filed herewith. ** In accordance with Item 601(b)(32) of Regulation S-K, this Exhibit is not deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section. Such certifications will not be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference. Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.RW Holdings NNN REIT, Inc. (Registrant)Modiv Industrial, Inc.(Registrant) By:/s/ HAROLD HOFERName: By:Harold Hofer/s/ AARON S. HALFACRETitle:Name:Aaron S. Halfacre Title: Chief Executive Officer (principal executive officer) By: /s/ JEAN HORAYMOND J. PACININame: Jean HoRaymond J. PaciniTitle: Chief Financial Officer (principal financial officer and accounting officer)Date: November 13, 201738The following exhibits are included, or incorporated by reference, in this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2017 (and are numbered in accordance with Item 601 of Regulation S-K).39