Cole Real Estate Income Strategy (Daily NAV), Inc. (the “Company”) is a Maryland corporation, incorporated on July 27, 2010, that qualified as a real estate investment trust (“REIT”) for U.S. federal income tax purposes beginning with its taxable year ended December 31, 2012. Substantially all of the Company’s business is conducted through Cole Real Estate Income Strategy (Daily NAV) Operating Partnership, LP (“Cole OP”), a Delaware limited partnership. The Company is the sole general partner of, and owns, directly or indirectly, 100% of the partnership interests in Cole OP. ~~The Company is externally managed by~~

On December 6, 2011, pursuant to a registration statement filed on Form S-11 (Registration No. 333-169535) (the “Initial Registration Statement”) under the Securities Act of 1933, as amended (the “Securities Act”), the Company commenced its initial public offering on a “best efforts” basis of $4.0 billion in shares of common stock. On August 26, 2013, pursuant to a registration statement filed on Form S-11 (Registration No. 333-186656) (the “Multi-Class Registration Statement”) under the Securities Act, the Company designated the existing shares of the Company’s common stock that were sold prior to such date to be Wrap Class shares (“W Shares”) of common stock and registered two new classes of the Company’s common stock, Advisor Class shares (“A Shares”) and Institutional Class shares (“I Shares”). Pursuant to a registration statement filed on Form S-11 (Registration No. 333-213271) on February 10, 2017 (the “Continuing Offering Registration Statement”), the Company is offering up to $4.0 billion in shares of common stock of the three classes (the “Offering”), consisting of $3.5 billion in shares in the Company’s primary offering (the “Primary Offering”) and $500.0 million in shares pursuant to a distribution reinvestment plan (the “DRIP”). The Company is offering to sell any combination of W Shares, A Shares and I Shares with a dollar value up to the maximum offering amount. As of ~~September~~June 30, ~~2017,~~2018, the Company had issued approximately ~~28.0~~35.7 million shares of common stock in the Offering for gross offering proceeds of ~~$501.2~~$643.1 million before offering costs and selling commissions of $12.1 million, and the current portion of dealer manager fees and distribution fees of ~~$14.1~~$7.8 million.

The per share purchase price for each class of common stock varies from day-to-day and, on each business day, is equal to, for each class of common stock, the Company’s net asset value (“NAV”) for such class, divided by the number of shares of that

The Company intends to use substantially all of the net proceeds from the Offering to acquire and operate a diversified portfolio primarily consisting of (1) necessity retail, office and industrial properties that are leased to creditworthy tenants under long-term net leases, and are strategically located throughout the United States, (2) notes receivable and other investments secured by commercial real estate, including the origination of loans, and (3) U.S. government securities, agency securities, corporate debt and other investments for which there is reasonable liquidity. As of ~~September~~June 30, ~~2017,~~2018, the Company owned ~~135~~151 commercial properties, ~~which includes~~including properties owned through a consolidated joint venture arrangement (the “Consolidated Joint Venture”), located in 36 states, containing ~~4.1~~5.4 million rentable square feet of commercial space, including the square feet of buildings ~~which~~that are on land subject to ground leases. As of ~~September~~June 30, ~~2017,~~2018, the rentable square feet at these properties was ~~99.3%~~99.6% leased, including month-to-month agreements, if any.

The Company is structured as a perpetual-life, non-exchange traded REIT. This means that, subject to regulatory approval of its filing for additional offerings, the Company will be selling shares of common stock on a continuous basis and for an indefinite period of time to the extent permissible under applicable law. The Company will endeavor to take all reasonable actions to avoid interruptions in the continuous offering of shares of common stock. The Company reserves the right to terminate the Offering at any time.

The summary of significant accounting policies presented below is designed to assist in understanding the Company’s condensed consolidated financial statements. These accounting policies conform to accounting principles generally accepted in the United States of America (“GAAP”) in all material respects, and have been consistently applied in preparing the accompanying condensed consolidated financial statements.

The condensed consolidated financial statements of the Company have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission regarding interim financial reporting, including the instructions to Form 10-Q and Article 10 of Regulation S-X, and do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the statements for the interim periods presented include all adjustments, which are of a normal and recurring nature, necessary for a fair presentation of the results for such periods. Results for these interim periods are not necessarily indicative of full year results. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company’s audited consolidated financial statements as of and for the year ended December 31, ~~2016,~~2017, and related notes thereto set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017. The condensed consolidated financial statements should also be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in this Quarterly Report on Form 10-Q.

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries and the Consolidated Joint Venture in which the Company has a controlling financial interest. All intercompany balances and transactions have been eliminated in consolidation.

In connection with the adoption of Accounting Standards Update (“ASU”) ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”), certain reclassifications have been made to prior period balances to conform to the current presentation in the condensed consolidated statements of cash flows. Under ASU 2016-18, transfers to or from restricted cash, which have previously been shown in the Company’s investing activities section of the condensed consolidated statements of cash flows, are now required to be shown as part of the total change in cash, cash equivalents and restricted cash in the condensed consolidated statements of cash flows. This change resulted in a decrease in cash flows used in investing activities of $75,000 during the six months ended June 30, 2017.

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

Real estate assets are stated at cost, less accumulated depreciation and amortization. Amounts capitalized to real estate assets consist of the costs of acquisition, including certain acquisition-related expenses, construction and any tenant improvements, major improvements and betterments that extend the useful life of the real estate assets and leasing costs. All repairs and maintenance costs are expensed as incurred. In April 2017, the Company early adopted Accounting Standards Update (“ASU”) No. 2017-01, ~~Business Combinations (Topic 805): Clarifying the Definition of a Business~~ (“ASU 2017-01”), which clarifies the definition of a business by adding guidance to assist entities in evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The Company’s acquisitions qualify as asset acquisitions, and as such, certain acquisition-related expenses related to these asset acquisitions are capitalized. Prior to the adoption of ASU 2017-01, all acquisition-related expenses were expensed as incurred, and all of the Company’s acquisitions were accounted for as business combinations.

The Company continually monitors events and changes in circumstances that could indicate that the carrying amounts of its real estate assets may not be recoverable. Impairment indicators that the Company considers include, but are not limited ~~to,~~to: bankruptcy or other credit concerns of a property’s major tenant, such as a history of late payments, rental concessions and other ~~factors,~~factors; a significant decrease in a property’s revenues due to lease ~~terminations, vacancies,~~terminations; vacancies; co-tenancy ~~clauses,~~clauses; reduced

Upon the acquisition of real properties, the Company allocates the purchase price ~~including certain acquisition-related expenses after the adoption of ASU 2017-01,~~ to acquired tangible assets, consisting of land, buildings and improvements, and to identified intangible assets and liabilities, consisting of the value of above- and below-market leases and the value of in-place leases and other intangibles, based in each case on their respective fair values. The Company utilizes independent appraisals to assist in the determination of the fair values of the tangible assets of an acquired property (which includes land and buildings). The information in the appraisal, along with any additional information available to the Company’s management, is used in estimating the amount of the purchase price that is allocated to land. Other information in the appraisal, such as building value and market rents, may be used by the Company’s management in estimating the allocation of purchase price to the building and to intangible lease assets and liabilities. The appraisal firm has no involvement in management’s allocation decisions other than providing this market information.

The determination of the fair values of the real estate assets and liabilities acquired requires the use of significant assumptions with regard to the current market rental rates, rental growth rates, capitalization and discount rates, interest rates and other variables. The use of alternative estimates may result in a different allocation of the Company’s purchase price, which could materially impact the Company’s results of operations.

The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity computed under the effective interest method and is recorded in the accompanying condensed consolidated statements of operations in interest and other expense, net. Upon the sale of a security, the realized net gain or loss is computed on the specific identification method.

The Company had $~~501,000~~93,000 and ~~$600,000~~$1,000 in restricted cash as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively. Included in restricted cash was $93,000 and $1,000 held by lenders in lockbox accounts as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016 was $500,000 held by a lender in an escrow account for a certain property in accordance with the associated loan agreement. Additionally, as~~2017, respectively. As part of certain debt agreements, rent from certain of the Company’s tenants is deposited directly into a lockbox account, from which funds in excess of the required minimum balance are disbursed on a weekly basis to the Company. ~~As of September 30, 2017 and December 31, 2016, the Company had~~ ~~$1,000~~ and $25,000, respectively, held in a lockbox account. In addition, restricted cash included $75,000 of escrowed investor proceeds for which shares of common stock had not been issued as of December 31, 2016. There were no such proceeds as of September 30, 2017.

The Company pays ~~CCC~~CCO Capital dealer manager and distribution fees, which are calculated on a daily basis in the amount of 1/365th of the amount indicated in the table below for each class of common stock:

Certain properties have leases where the minimum rental ~~payments increase~~payment increases during the term of the lease. The Company records rental income for the full term of each lease on a straight-line basis when earned and collectability is reasonably assured. When the Company acquires a property, the terms of existing leases are considered to commence as of the acquisition date for the purpose of this calculation. The Company defers the recognition of contingent rental income, such as percentage rents, until the specific target that triggers the contingent rental income is achieved. Expected reimbursements from tenants for recoverable real estate taxes and operating expenses are included in tenant reimbursement income in the period when such costs are incurred. Effective January 1, 2018, the Company adopted ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which supersedes the revenue recognition requirements in Revenue Recognition, Accounting Standards Codification (“ASC”) Topic 605 and requires an entity to recognize revenue in a way that depicts the transfer of

The Company continually reviews receivables related to rent, including any straight-line rent, and current and future operating expense reimbursements from tenants, and determines their collectability by taking into consideration the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located. In the event that the collectability of a receivable is uncertain, the Company will record an increase in the allowance for uncollectible accounts. As of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, the Company had anno allowance for uncollectible ~~accounts of $1,000 and $2,000, respectively.~~accounts.

The Company has three classes of common stock with nonforfeitable dividend rights that are determined based on a different NAV for each class. Accordingly, the Company utilizes the two-class method to determine its earnings per share, which ~~results~~can result in ~~the same~~different earnings per share ~~when rounded to one cent~~ for each of the classes. Under the two-class method, earnings per share of each class of common stock are computed by dividing the sum of the distributed earnings to common stockholders and undistributed earnings allocated to common stockholders by the weighted average number of shares for each class of common stock for the respective period. Diluted income per share, when applicable, considers the effect of any potentially dilutive share equivalents, of which the Company had none for each of the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 or ~~2016.~~2017. Distributions per share isare calculated based on the authorized daily distribution rate.

GAAP defines fair value, establishes a framework for measuring fair value and requires disclosures about fair value measurements. GAAP emphasizes that fair value is intended to be a market-based measurement, as opposed to a transaction-specific measurement.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. Depending on the nature of the asset or liability, various techniques and assumptions can be used to estimate the fair value. Assets and liabilities are measured using inputs from three levels of the fair value hierarchy, as follows:

Level 1 — Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. An active market is defined as a market in which transactions for the assets or liabilities occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2 — Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active (markets with few transactions), inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data correlation or other means (market corroborated inputs).

Level 3 — Unobservable inputs, which are only used to the extent that observable inputs are not available, reflect the Company’s assumptions about the pricing of an asset or liability.

The following describes the methods the Company uses to estimate the fair value of the Company’s financial assets and liabilities:

~~Notes~~Credit facility and notes payable ~~and line of credit~~— The fair value is estimated by discounting the expected cash flows based on estimated borrowing rates available to the Company as of the measurement date. Current and prior period liabilities’ carrying and fair values exclude net deferred financing costs. These financial instruments are valued using Level 2 inputs. As of ~~September~~June 30, 2018, the estimated fair value of the Company’s debt was $375.1 million, compared to a carrying value of $382.2 million. As of December 31, 2017, the estimated fair value of the Company’s debt was ~~$261.5~~$274.0 million, compared to ~~the~~a carrying value of ~~$262.2 million. The estimated fair value and the carrying value of the Company’s debt was $161.2~~$278.2 million ~~as of December 31, 2016.~~.

Marketable securities — The Company’s marketable securities are carried at fair value and are valued using Level 1 inputs. The estimated fair value of the Company’s marketable securities are based on quoted market prices that are readily and regularly available in an active market.

Derivative instruments — The Company’s derivative instruments are comprised of interest rate swaps. All derivative instruments are carried at fair value and are valued using Level 2 inputs. The fair value of these instruments is determined using interest rate market pricing models. In addition, credit valuation adjustments are incorporated into the fair values to account for the Company’s potential nonperformance risk and the performance risk of the respective counterparties.

Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with those derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by the Company and its counterparties. However, as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, the Company has assessed the overall significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of the Company’s derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

Considerable judgment is necessary to develop estimated fair values of financial assets and liabilities. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize, or be liable for, upon disposition of the financial assets and liabilities. As of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, there have been no transfers of financial assets or liabilities between fair value hierarchy levels.

In accordance with the fair value hierarchy described above, the following tables show the fair value of the Company’s financial assets and liabilities that are required to be measured at fair value on a recurring basis as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016~~2017 (in thousands):

Balance as of Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs
Significant
Unobservable Inputs
September 30, 2017 (Level 1) (Level 2) (Level 3)
Financial asset:
Interest rate swaps $ 398
$ —
$ 398
$ —
Marketable securities 5,387
5,387
—
—
Total financial assets $ 5,785
$ 5,387
$ 398
$ —
Financial liabilities:
Interest rate swaps $ (371 ) $ —
$ (371 ) $ —

During the six months ended June 30, 2018, the Company disposed of one multi-tenant property, excluding a related outparcel of land, for an aggregate gross sales price of $8.1 million, resulting in proceeds of $7.8 million after closing costs and a loss of $209,000. Also during the six months ended June 30, 2018, the Company disposed of the related outparcel of land for an aggregate gross sales price of $1.6 million, resulting in proceeds of $1.6 million after closing costs and a gain of $136,000. No disposition fees were paid to affiliates in connection with the sale of this property and the Company has no continuing involvement with this property. The loss on sale of real estate is included in gain (loss) on disposition of real estate, net in the condensed consolidated statements of operations.

During the six months ended June 30, 2017, the Company acquired a 100% interest in 2725 commercial properties, of which 1513 were determined to be asset acquisitions and 12 were acquired prior to the adoption of ASU 2017-01 in April 2017 and thus were accounted for as business combinations for an aggregate purchase price of ~~$200.6~~$167.1 million (the “2017 Acquisitions”). The Company funded the 2017 Acquisitions with net proceeds from the Offering and available borrowings.

The following table summarizes the consideration transferred for the properties purchased during the ~~nine~~six months ended ~~September~~June 30, 2017 (in thousands):

During the ~~nine~~six months ended ~~September~~June 30, 2017, the Company acquired a 100% interest in 1513 commercial properties for an aggregate purchase price of ~~$148.1~~$114.6 million (the “2017 Asset Acquisitions”), which includes $~~1.2 million~~963,000 of external acquisition-related expenses that were capitalized in accordance with ASU 2017-01. Prior to the adoption of ASU 2017-01, costs related to property acquisitions were expensed as incurred. The following table summarizes the purchase price allocation for the 2017 ~~Asset~~ Acquisitions purchased during the ~~nine~~six months ended ~~September~~June 30, 2017 (in thousands):

The unaudited pro forma information for the ~~nine~~three and six months ended ~~September~~June 30, 2017 was adjusted to exclude $426,000 of acquisition-related expenses recorded during such periods related to the 2017 Business Combination Acquisitions. Accordingly, these expenses were instead recognized in the pro forma information for the ~~nine~~three and six months ended ~~September~~June 30, 2016. The pro forma information is presented for informational purposes only and may not be indicative of what actual results of operations would have been had the transactions occurred at the beginning of 2016, nor does it purport to represent the results of future operations.

During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, the Company sold 5610 marketable securities for aggregate proceeds of ~~$1.4 million.~~$667,000. Unrealized (losses) gains ~~(losses)~~ on marketable securities are recorded in other comprehensive income (loss), with a portion of the amount subsequently reclassified into other expense, net on the accompanying condensed consolidated statements of operations as securities are sold and gains (losses) are recognized. In addition, the Company recorded an unrealized ~~gain~~loss of ~~$66,000~~$112,000 on its investments, which is included in accumulated other comprehensive ~~(loss)~~ income on the accompanying condensed consolidated statement of changes in equity for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and the condensed consolidated balance sheet as of ~~September~~June 30, ~~2017.~~2018.

The scheduled maturities of the Company’s marketable securities as of ~~September~~June 30, ~~2017~~2018 are as follows (in thousands):

In estimating other-than-temporary impairment losses, management considers a variety of factors, including (1) whether the Company has the intent to sell the impaired security, (2) whether the Company expects to hold the investment for a period of time sufficient to allow for anticipated recovery in fair value, and (3) whether the Company expects to recover the entire amortized cost basis of the security. The Company believes that none of the unrealized losses on investment securities are other-than-temporary as management expects the Company will fully recover the entire amortized cost basis of all securities. As of ~~September~~June 30, ~~2017,~~2018, the Company had no other-than-temporary impairment losses.

~~Any ineffective portion of the change in fair value of the derivative instruments is recorded in interest expense. During the nine months ended September 30, 2017,~~ ~~$17,000~~ ~~of the change in the fair value of the interest rate swaps was considered ineffective.~~ ~~There were no portions of the change in the fair value of the interest rate swaps that were considered ineffective~~ ~~during the three months ended September 30, 2017 and 2016 and the nine months ended September 30, 2016.~~

Supplemental cash flow disclosures for the six months ended June 30, 2018 and 2017 are as follows (in thousands):



	Six Months Ended June 30,
	2018			2017
Supplemental Disclosures of Non-Cash Investing and Financing Activities:
Change in accrued dealer manager fee and distribution fee	$	4,686		$	4,552
Distributions to stockholders declared and unpaid	$	2,341		$	1,738
Common stock issued through distribution reinvestment plan	$	6,416		$	4,589
Change in fair value of marketable securities	$	(111	)	$	52
Change in fair value of interest rate swaps	$	3,121		$	71
Accrued capital expenditures	$	18		$	9
Supplemental Cash Flow Disclosures:
Interest paid	$	5,846		$	3,230

In the ordinary course of business, the Company may become subject to litigation and claims. The Company is not aware of any material pending legal proceedings, other than ordinary routine litigation incidental to the Company’s business, to which the Company is a party or of which the Company’s properties are the subject.

As of June 30, 2018, the Company had entered into a purchase agreement with an unaffiliated third-party seller to acquire a 100% interest in one retail property, subject to meeting certain criteria, for an aggregate purchase price of $13.7 million, exclusive of closing costs. As of June 30, 2018, the Company had $500,000 of property escrow deposits held by an escrow agent in connection with this future property acquisition. This deposit is included in the condensed consolidated balance sheets in derivative assets, property escrow deposits, prepaid expenses and other assets. As of June 30, 2018, this escrow deposit has not been forfeited.

In connection with the ownership and operation of real estate, the Company may potentially be liable for costs and damages related to environmental matters. In addition, the Company may own or acquire certain properties that are subject to environmental remediation. Generally, the seller of the property, the tenant of the property and/or another third party is responsible for environmental remediation costs related to a property. Additionally, in connection with the purchase of certain properties, the respective sellers and/or tenants may agree to indemnify the Company against future remediation costs. The Company also carries environmental liability insurance on its properties that provides limited coverage for any remediation liability and/or pollution liability for third-party bodily injury and/or property damage claims for which the Company may be liable. The Company is not aware of any environmental matters which it believes are reasonably likely to have a material effect on its results of operations, financial condition or liquidity.

The Company has incurred, and will continue to incur, commissions, fees and expenses payable to Cole Income NAV Strategy Advisors and certain of its affiliates in connection with the Offering, and the acquisition, management and performance of the Company’s assets.

In connection with the Offering, ~~CCC,~~CCO Capital, the Company’s dealer manager, will receive selling commissions, an asset-based dealer manager fee and/or an asset-based distribution fee, as summarized in the table below for each class of common stock:

The Company incurred commissions, fees and expense reimbursements as shown in the table below for services provided by Cole Income NAV Strategy Advisors and its affiliates related to the services described above during the periods indicated (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
Selling commissions	$	921	$	921	$	1,403	$	1,477
Distribution fee⁽¹⁾	$	229	$	132	$	433	$	239
Dealer manager fees⁽¹⁾	$	695	$	502	$	1,336	$	949
Organization and offering expense reimbursement	$	419	$	394	$	683	$	682
Acquisition expense reimbursement	$	682	$	429	$	1,233	$	845
Advisory fee	$	1,425	$	1,012	$	2,660	$	1,935
Operating expense reimbursement	$	799	$	620	$	1,339	$	1,579

______________________

As of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~ ~~$18.8~~2017, $24.1 million and $~~14.8~~22.0 million, ~~respectively,~~respectively, was due to Cole Income NAV Strategy Advisors or its affiliates primarily related to the estimated liability for current and future dealer manager and distribution fees, ~~advisory fees,~~ the reimbursement of organization and offering expenses and ~~acquisition expenses,~~advisory fees, which were included in amounts due to affiliates on the condensed consolidated balance sheets.

Under various agreements, the Company has engaged and may in the future engage Cole Income NAV Strategy Advisors or its affiliates to provide certain services that are essential to the Company, including asset management services, supervision of the management and leasing of properties owned by the Company, asset acquisition and disposition decisions, the sale of shares of the Company’s common stock available for issuance, as well as other administrative responsibilities for the Company including accounting services and ~~investor~~stockholder relations. As a result of these relationships, the Company is dependent upon Cole Income NAV Strategy Advisors or its affiliates. In the event that these companies are unable to provide the Company with these services, the Company would be required to find alternative providers of these services.

Pursuant to the Services Agreement, VEREIT OP will continue to provide certain services to CCO Group and to the Company, including operational real estate support. VEREIT OP will continue to provide such services through March 31, 2019 (or, if later, the date of the last government filing other than a tax filing made by any of the Cole REITs with respect to its 2018 fiscal year) and will provide consulting and research services through December 31, 2023 as requested by CCO Group, LLC.

The Company’s real estate assets are leased to tenants under operating leases for which the terms and expirations vary. As of ~~September~~June 30, ~~2017,~~2018, the leases had a weighted-average remaining term of ~~10.5~~10.7 years. Certain leases include provisions to extend the lease agreements, options for early termination after paying a specified penalty, rights of first refusal to purchase the property at competitive market rates, and other negotiated terms and conditions. The Company retains substantially all of the risks and benefits of ownership of the real estate assets leased to tenants. As of ~~September~~June 30, ~~2017,~~2018, the future minimum rental income from the Company’s ~~investment in~~ real estate assets under non-cancelable operating leases, assuming no exercise of renewal options for the succeeding five fiscal years and thereafter, was as follows (in thousands):

The following events occurred subsequent to ~~September~~June 30, ~~2017.~~2018:

Subsequent to June 30, 2018, the Company acquired a 100% interest in one real estate property for an aggregate purchase price of $15.5 million. The acquisition was funded with net proceeds from the Offering and available borrowings. The Company has not completed its initial purchase price allocation with respect to this property and therefore cannot provide a similar disclosure to those included in Note 4 — Real Estate Assets in these condensed consolidated unaudited financial statements for this property.

Subsequent to June 30, 2018, the Company disposed of one property for a gross sales price of $3.1 million, resulting in proceeds of $2.9 million after closing costs and a gain of $2,600. No disposition fees were paid to Cole ~~Capital~~

The following discussion and analysis should be read in conjunction with the accompanying condensed consolidated financial statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q. We make statements in this section that are forward-looking statements within the meaning of the federal securities laws. Certain risks may cause our actual results, performance or achievements to differ materially from those expressed or implied by the following discussion. For a complete discussion of such risk factors, see Item 1A — Risk Factors of this Quarterly Report on Form 10-Q and the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017. Capitalized terms used herein, but not otherwise defined, shall have the meaning ascribed to those terms in “Part I — Financial Information” of this Quarterly Report on Form 10-Q, including the notes to the condensed consolidated financial statements contained therein. The terms “we,” “us,” “our” and the “Company” refer to Cole Real Estate Income Strategy (Daily NAV), Inc.

This Quarterly Report on Form 10-Q includes “forward-looking statements” (within the meaning of the federal securities laws, Section 27A of the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that reflect our expectations and projections about our future results, performance, prospects and opportunities. We have attempted to identify these forward-looking statements by the use of words such as “may,” “will,” “seek,” “expects,” “anticipates,” “believes,” “targets,” “intends,” “should,” “estimates,” “could,” “continue,” “assume,” “projects,” “plans” or similar expressions. These forward-looking statements are based on information currently available to us and are subject to a number of known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. These factors include, among other things, those discussed below. We intend for all such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act and Section 21E of the Exchange Act, as applicable by law. We do not undertake to publicly update or revise any forward-looking statements, whether as a result of changes in underlying assumptions or new information, future events or otherwise, except as may be required to satisfy our obligations under federal securities law. The forward-looking statements should be read in light of the risk factors identified in Item 1A. Risk Factors of this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017.

We use certain defined terms throughout this Quarterly Report on Form 10-Q that have the following meanings:

We were formed on July 27, 2010 to acquire and operate a diversified portfolio of (1) necessity retail, office and industrial properties that are leased to creditworthy tenants under long-term net leases, and are strategically located throughout the United States, (2) notes receivable and other investments secured by commercial real estate, including the origination of loans, and (3) U.S. government securities, agency securities, corporate debt and other investments for which there is reasonable liquidity. We commenced our principal operations on December 7, 2011, when we issued the initial ~~$10.0~~$10.0 million in shares of our common stock in the Offering and acquired our first real estate property. We have no paid employees and are externally advised and managed by Cole Income NAV Strategy Advisors.

In addition, as part of the Transaction, pursuant to the Services Agreement, VEREIT OP will continue to provide certain services to CCO Group and to us, including operational real estate support. VEREIT OP will continue to provide such services through March 31, 2019 (or, if later, the date of the last government filing other than a tax filing made by any of the Cole REITs with respect to its 2018 fiscal year) and will provide consulting and research services through December 31, 2023 as requested by CCO Group, LLC.

Despite the indirect change of ownership and control of our advisor, dealer manager, property manager and sponsor, ~~Cole Capital.~~ we expect that, during the Initial Services Term of the Services Agreement, the advisory, dealer manager and property management services we receive will continue without any material changes in personnel (except as supplemented by the management oversight of CIM personnel) or material change in service procedures. During the Initial Services Term of the Services Agreement, CCO Group, LLC intends to evaluate and effectuate an appropriate transition of VEREIT OP’s services under the Services Agreement to other CIM affiliates or third parties with the goal of ensuring continuity and minimizing disruption.

As we acquire additional commercial real estate, we will be subject to changes in real estate prices and changes in interest rates on any current variable rate debt, refinancings or new indebtedness used to acquire the properties. We may manage our risk of changes in real estate prices on future property acquisitions, when applicable, by entering into purchase agreements and loan commitments simultaneously, or through loan assumptions, so that our operating yield is determinable at the time we enter into a purchase agreement, by contracting with developers for future delivery of properties, or by entering into sale-leaseback transactions. We manage our interest rate risk by monitoring the interest rate environment in connection with our future property acquisitions, when applicable, or upcoming debt maturities to determine the appropriate financing or refinancing terms, which may include fixed rate loans, variable rate loans or interest rate hedges. If we are unable to acquire suitable properties or obtain suitable financing terms for future acquisitions or refinancing, our results of operations may be adversely affected.

Our operating results and cash flows are primarily influenced by rental income from our commercial properties, and interest expense on our property indebtedness and acquisition and operating expenses. Rental and other property income accounted for 89% and 91% of our total revenue for the three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively, and ~~91%~~90% and ~~89%~~92% for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively. As ~~99.3%~~99.6% of our rentable square feet was under lease as of~~September~~

As of ~~September~~June 30, ~~2017,~~2018, we owned ~~135~~151 properties located in 36 states, comprising ~~4.1~~5.4 million rentable square feet, which includes the rentable square feet of buildings on land subject to ground leases. As of ~~September~~June 30, ~~2017,~~2018, no single tenant accounted for greater than 10% of our ~~2017~~2018 annualized rental income. As of ~~September~~June 30, ~~2017,~~2018, we had certain geographic concentrations in our property holdings. In particular, as of ~~September~~June 30, ~~2017,~~2018, 1517 of our properties were located in Ohio ~~and~~ ~~six~~ ~~of our properties were located in~~ ~~Illinois~~, accounting for ~~11%~~13% ~~and~~ ~~10%, respectively,~~ of our ~~2017~~2018 annualized rental income. In addition, we had tenants in the ~~discount store~~manufacturing industry, which accounted for ~~13%~~15% of our ~~2017~~2018 annualized rental income. Our results of operations are influenced by the timing of acquisitions and the operating performance of our real estate ~~investments.~~assets. The following table shows the property statistics of our real estate assets as of ~~September~~June 30, ~~2017,~~2018, and ~~2016:~~2017:



	As of June 30,
	2018		2017
Number of properties	151		133
Rentable square feet (in thousands) ⁽¹⁾	5,370		3,901
Percentage of rentable square feet leased	99.6	%	99.3	%
Percentage of investment-grade tenants ⁽²⁾	36.3	%	45.7	%

As of September 30,
2017 2016
Number of properties 135
96
Rentable square feet (in thousands) ⁽¹⁾
4,061
2,644
Percentage of rentable square feet leased 99.3 % 99.2 %
Percentage of investment-grade tenants ⁽²⁾
43.8 % 46.6 %

______________________

(1) Includes square feet of ~~the~~ buildings on land that are subject to ground leases.

(2) Investment-grade tenants are those with a credit rating of BBB- or higher by Standard & Poor’s Financial Services LLC (“Standard & Poor’s”) or a credit rating of Baa3 or higher by Moody’s Investor Service, Inc. (“Moody’s”). The ratings may reflect those assigned by Standard & Poor’s or Moody’s to the lease guarantor or the parent company, as applicable. The weighted average credit rating is weighted based on annualized rental income, and is for only those tenants rated by Standard & Poor’s.

The following table summarizes our consolidated real estate ~~investment~~acquisition activity during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016:~~2017:


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016		2018		2017		2018		2017
Properties acquired	2		6		27		19		7		13		13		25
Purchase price of acquired properties (in thousands)	$	33,534	$	44,033	$	200,602	$	85,664	$	74,262	$	114,611	$	182,489	$	167,068
Rentable square feet of acquired properties (in thousands) ⁽¹⁾	169		390		921		718		515		504		1,066		762

The increase in revenue of $~~6.4~~6.6 million and $~~15.2~~11.9 million during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, respectively, as compared to the same periods in ~~2016,~~2017, was primarily due to the acquisition of 3919 rental income-producing properties subsequent to ~~September~~June 30, ~~2016.~~2017. Rental and other property income from net leased commercial properties accounted for 89% and 91% of our total revenues for the three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively, and ~~91%~~90% and ~~89%~~92% of our total revenues for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively. We also incurred certain operating expenses subject to reimbursement by our tenants, which resulted in $~~1.4~~1.8 million and $~~3.1~~3.2 million in tenant reimbursement income during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, respectively, compared to ~~$697,000~~$938,000 and ~~$1.9~~$1.7 million during the same periods in ~~2016.~~2017.

The increase in general and ~~state franchise~~administrative expenses of $504,000 during the three months ended June 30, 2018, as compared to the same period in 2017, was primarily due to an increase in operating expense reimbursement to our advisor and ~~income taxes.~~legal fees during the three months ended June 30, 2018, primarily as a result of the acquisition of 19 additional rental income-producing properties subsequent to June 30, 2017.

The increase in general and administrative expenses of $~~359,000~~ ~~and~~ ~~$1.3 million~~318,000 during the ~~three and nine~~six months ended ~~September~~June 30, ~~2017, respectively,~~2018, as compared to the same ~~periods~~period in ~~2016~~2017, was primarily due to an increase in ~~operating expense reimbursements to our advisor during the three~~platform fees and ~~nine months ended September 30, 2017, primarily as a result of the acquisition of~~ 39 ~~additional rental income-producing properties subsequent to September 30, 2016.~~corporate insurance costs.

The increase in property operating expenses of $~~322,000~~301,000 and $~~561,000~~565,000 during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, respectively, as compared to the same periods in ~~2016,~~2017, was primarily due to the acquisition of 3919 additional rental income-producing properties subsequent to ~~September~~June 30, ~~2016,~~2017, as well as recognizing a full period of property operating expenses on ~~six~~13 and 1925 properties acquired during the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, respectively.

The increase in real estate tax expenses of $~~450,000~~599,000 and $~~801,000~~1.0 million during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, respectively, as compared to the same periods in ~~2016,~~2017, was primarily due to real estate taxes incurred on 3919 additional properties acquired subsequent to ~~September~~June 30, ~~2016,~~2017, as well as recognizing a full period of real estate taxes on ~~six~~13 and 1925 properties acquired during the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, respectively.

The increase in advisory fees and expenses of $~~403,000~~413,000 and $~~1.2 million~~725,000 during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, respectively, as compared to the same periods in ~~2016,~~2017, was primarily due to an increase in the total NAV for all share classes, which increased ~~$151.2~~$139.2 million subsequent to ~~September~~June 30, ~~2016.~~2017.

In April 2017, we ~~early~~ adopted ASU 2017-01, which clarifies the definition of a business by adding guidance to assist entities in evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. As of April 2017, our acquisitions qualify as asset acquisitions, and as such, certain acquisition costs related to these asset acquisitions are capitalized. Prior to the adoption of ASU 2017-01 in April 2017, costs related to property acquisitions were expensed as incurred.

The ~~decrease~~increase in acquisition-related expenses of $~~372,000~~266,000 during the three months ended ~~September~~June 30, ~~2017,~~2018, as compared to the same period in ~~2016,~~2017, was primarily due to an increase in advisor reimbursement expenses.

Acquisition-related expenses remained consistent for the ~~early adoption of ASU No. 2017-01, and as such certain acquisition costs related to asset acquisitions were capitalized during the three~~ six months ended ~~September~~June 30, ~~2017. During the three months ended September 30, 2016, acquisition-related costs related to future property acquisitions were expensed as incurred.~~

The increase in depreciation and amortization of $~~2.8~~2.4 million and $~~6.6~~4.7 million during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, respectively, as compared to the same periods in ~~2016,~~2017, was primarily due to the acquisition of 3919 additional rental income-producing properties subsequent to ~~September~~June 30, ~~2016,~~2017, as well as recognizing a full period of depreciation and amortization on ~~six~~13 and 1925 properties acquired during the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, respectively.

The increase in interest expense and other, net of $~~2.0~~1.4 millionand$~~3.7~~2.3 million during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, respectively, as compared to the same periods in ~~2016~~2017, was primarily due to an increase inin our average outstanding debt balance of $~~260.6~~373.7 million and $~~222.3~~338.7 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018, respectively, as compared to $~~120.8~~223.4 million and $~~115.1~~203.1 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2017, respectively.

The increase in gain (loss) on disposition of real estate, net of $136,000 during the three months ended June 30, 2018, as compared to the same period in 2017, was due to the disposition of land at a multi-tenant property during the three months ended June 30, 2018, compared to no dispositions during the three months ended June 30, 2017.

The decrease in gain (loss) on disposition of real estate, net of $73,000 during the six months ended June 30, 2018, as compared to the same period in 2017, was due to the disposition of building and land at a multi-tenant property in two separate transactions during the six months ended June 30, 2018, compared to no dispositions during the six months ended June 30, 2017.

Our charter prohibits us from incurring debt that would cause our borrowings to exceed 75% of our gross assets, valued at the aggregate cost (before depreciation and other non-cash reserves), unless approved by a majority of our independent directors and disclosed to our stockholders in our next quarterly report. In addition to this limitation in our charter, our board of directors has adopted a policy to further limit our borrowings to 60% of the greater of cost (before depreciation or other ~~non-~~

Our management reviews net debt as part of its management of our overall liquidity, financial flexibility, capital structure and leverage, and we therefore believe that the presentation of net debt provides useful information to ~~investors.~~stockholders. Net debt is a non-GAAP measure used to show our outstanding principal debt balance, excluding certain GAAP adjustments, such as financing and issuance costs and related accumulated amortization, less all cash and cash equivalents. As of ~~September~~June 30, ~~2017,~~2018, our net debt leverage ratio, which is the ratio of net debt to total gross real estate assets net of gross intangible lease liabilities, was ~~38.8%~~43.3%.

The following table provides a reconciliation of the credit facility and notes payable, ~~and credit facility,~~ net balance, as reported on our condensed consolidated balance sheet, to net debt as of ~~September~~June 30, ~~2017~~2018 (in thousands):


	Balance as of September 30, 2017			Balance as of June 30, 2018
Notes payable and credit facility, net	$	258,651
Credit facility and notes payable, net				$	379,113
Deferred costs, net ⁽¹⁾	3,583			3,121
Less: Cash and cash equivalents	(8,598		)	(1,957		)
Net debt	$	253,636		$	380,277
Gross real estate assets, net ⁽²⁾	$	653,578		$	878,324
Net debt leverage ratio	38.8		%	43.3		%



Maryland		27-3147801
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

2325 East Camelback Road, ~~Suite 1100~~10th Floor Phoenix, Arizona 85016		(602) 778-8700
(Address of principal executive offices; zip code)		(Registrant’s telephone number, including area code)



Large accelerated filer	¨	Accelerated filer	¨	Non-accelerated filer (Do not check if a smaller reporting company)	x

Smaller reporting company	¨	Emerging growth company	¨



PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016~~2017	3

Condensed Consolidated Statements of Operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017	4

Condensed Consolidated Statements of Comprehensive ~~(Loss)~~ Income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017.	5

Condensed Consolidated Statement of Changes in Equity for the ~~nine~~six months ended ~~September~~June 30, 2018 and 2017	6

Condensed Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017	7

Notes to Condensed Consolidated Financial Statements	8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	2728

Item 3. Quantitative and Qualitative Disclosures About Market Risk	3739

Item 4. Controls and Procedures	3839

PART II — OTHER INFORMATION

Item 1. Legal Proceedings	3941

Item 1A. Risk Factors	3941

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	3942

Item 3. Defaults Upon Senior Securities	4043

Item 4. Mine Safety Disclosures	4043

Item 5. Other Information	4043

Item 6. Exhibits	4144

Signature	4245


	September 30, 2017			December 31, 2016			June 30, 2018			December 31, 2017
ASSETS
Investment in real estate assets:
Real estate assets:
Land	$	125,588		$	86,858		$	146,479		$	129,344
Buildings and improvements	454,831			319,589			624,692			488,741
Intangible lease assets	87,978			52,965			119,479			93,891
Total real estate investments, at cost	668,397			459,412
Total real estate assets, at cost							890,650			711,976
Less: accumulated depreciation and amortization	(36,259		)	(22,638		)	(53,298		)	(40,550		)
Total real estate investments, net	632,138			436,774
Total real estate assets, net							837,352			671,426
Investment in marketable securities	5,387			5,563			5,355			5,496
Total real estate investments and marketable securities, net	637,525			442,337
Total real estate assets and marketable securities, net							842,707			676,922
Cash and cash equivalents	8,598			4,671			1,957			2,923
Restricted cash	501			600			93			1
Rents and tenant receivables, net	6,631			4,206			8,738			7,377
Prepaid expenses, derivative assets and other assets	951			684
Derivative assets, property escrow deposits, prepaid expenses and other assets							5,539			2,731
Deferred costs, net	1,448			1,074			1,203			1,359
Due from affiliates							—			100
Assets held for sale							2,908			8,050
Total assets	$	655,654		$	453,572		$	863,145		$	699,463
LIABILITIES AND EQUITY
Notes payable and credit facility, net	$	258,651		$	159,143
Credit facility and notes payable, net							$	379,113		$	274,830
Accrued expenses and accounts payable	3,378			2,798			3,981			3,374
Escrowed investor proceeds	—			75
Due to affiliates	18,798			14,786			24,071			21,980
Intangible lease liabilities, net	13,095			5,798			12,917			12,753
Distributions payable	1,903			1,444			2,341			2,126
Deferred rental income, derivative liabilities and other liabilities	2,100			1,442
Deferred rental income and other liabilities							1,969			1,930
Total liabilities	297,925			185,486			424,392			316,993
Commitments and contingencies
Redeemable common stock	43,183			32,076			53,699			47,024
STOCKHOLDERS’ EQUITY
Preferred stock, $0.01 par value; 10,000,000 shares authorized, none issued and outstanding	—			—			—			—
W Shares common stock, $0.01 par value; 164,000,000 shares authorized, 15,242,210 and 12,461,616 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively	153			125
A Shares common stock, $0.01 par value; 163,000,000 shares authorized, 7,743,545 and 4,449,352 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively	78			45
I Shares common stock, $0.01 par value; 163,000,000 shares authorized, 916,940 and 788,270 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively	9			8
W Shares common stock, $0.01 par value; 164,000,000 shares authorized, 17,774,819 and 15,837,102 shares issued and outstanding as of June 30, 2018 and December 31, 2017, respectively							178			158
A Shares common stock, $0.01 par value; 163,000,000 shares authorized, 10,820,114 and 8,793,223 shares issued and outstanding as of June 30, 2018 and December 31, 2017, respectively							108			88
I Shares common stock, $0.01 par value; 163,000,000 shares authorized, 903,552 and 1,065,232 shares issued and outstanding as of June 30, 2018 and December 31, 2017, respectively							9			11
Capital in excess of par value	352,643			259,817			435,516			378,266
Accumulated distributions in excess of earnings	(39,157		)	(24,399		)	(56,234		)	(45,506		)
Accumulated other comprehensive income (loss)	43			(372		)
Accumulated other comprehensive income							4,704			1,657
Total stockholders’ equity	313,769			235,224			384,281			334,674
Non-controlling interests	777			786			773			772
Total equity	$	314,546		$	236,010		$	385,054		$	335,446
Total liabilities, redeemable common stock, and equity	$	655,654		$	453,572		$	863,145		$	699,463


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016			2018			2017			2018			2017
Revenues:
Rental income	$	11,822		$	6,163		$	31,188		$	17,160		$	15,893		$	10,159		$	29,703		$	19,366
Tenant reimbursement income	1,391			697			3,118			1,936			1,843			938			3,236			1,727
Interest income on marketable securities	31			29			90			88			32			29			63			59
Total revenues	13,244			6,889			34,396			19,184			17,768			11,126			33,002			21,152
Operating expenses:
General and administrative	1,685			1,326			4,823			3,512			1,891			1,387			3,456			3,138
Property operating	561			239			1,244			683			694			393			1,248			683
Real estate tax	998			548			2,319			1,518			1,327			728			2,339			1,321
Advisory fees and expenses	1,128			725			3,063			1,911			1,425			1,012			2,660			1,935
Acquisition-related	333			705			1,629			1,748			713			447			1,282			1,296
Depreciation and amortization	5,174			2,390			13,259			6,674			6,843			4,415			12,775			8,085
Total operating expenses	9,879			5,933			26,337			16,046			12,893			8,382			23,760			16,458
Operating income	3,365			956			8,059			3,138			4,875			2,744			9,242			4,694
Other expense:
Interest expense and other, net	(3,289		)	(1,326		)	(7,536		)	(3,805		)	(3,590		)	(2,220		)	(6,587		)	(4,247		)
Net income (loss)	76			(370		)	523			(667		)
Income before real estate dispositions													1,285			524			2,655			447
Gain (loss) on disposition of real estate, net													136			—			(73		)	—
Net income													1,421			524			2,582			447
Net income allocated to noncontrolling interest	8			—			26			—			8			9			17			18
Net income (loss) attributable to the Company	$	68		$	(370	)	$	497		$	(667	)
Weighted average number of common shares outstanding:
Basic and diluted	23,045,184			14,200,887			20,854,620			12,342,600
Net income (loss) per common share:
Basic and diluted	$	—		$	(0.03	)	$	0.02		$	(0.05	)
Net income attributable to the Company													$	1,413		$	515		$	2,565		$	429

Class W Common Stock:
Net income attributable to the Company													$	880		$	362		$	1,603		$	308
Basic and diluted weighted average number of common shares outstanding													17,252,804			14,000,038			16,739,049			13,526,864
Basic and diluted net income per common share													$	0.05		$	0.03		$	0.10		$	0.02
Distributions declared per common share	$	0.25		$	0.25		$	0.73		$	0.73		$	0.24		$	0.24		$	0.48		$	0.48

Class A Common Stock:
Net income attributable to the Company													$	484		$	129		$	866		$	99
Basic and diluted weighted average number of common shares outstanding													10,133,191			5,908,140			9,640,614			5,384,545
Basic and diluted net income per common share													$	0.05		$	0.02		$	0.09		$	0.02
Distributions declared per common share													$	0.24		$	0.24		$	0.48		$	0.48

Class I Common Stock:
Net income attributable to the Company													$	49		$	24		$	96		$	22
Basic and diluted weighted average number of common shares outstanding													908,512			857,535			959,215			829,775
Basic and diluted net income per common share													$	0.05		$	0.03		$	0.10		$	0.03
Distributions declared per common share													$	0.24		$	0.24		$	0.48		$	0.48



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


	W Shares Common Stock					A Shares Common Stock					I Shares Common Stock				Capital in Excess of Par Value				Accumulated Distributions in Excess of Earnings				Accumulated Other Comprehensive (Loss) Income				Total Stockholders’ Equity				Non- Controlling Interests				Total Equity			W Shares Common Stock					A Shares Common Stock					I Shares Common Stock					Capital in Excess of Par Value			Accumulated Distributions in Excess of Earnings			Accumulated Other Comprehensive Income		Total Stockholders’ Equity			Non- Controlling Interests			Total Equity
	Number of Shares		Par Value			Number of Shares		Par Value			Number of Shares		Par Value									Number of Shares					Total Stockholders’ Equity			Par Value					Total Equity			Number of Shares		Par Value			Number of Shares		Par Value								Capital in Excess of Par Value			Accumulated Distributions in Excess of Earnings			Accumulated Other Comprehensive Income		Total Stockholders’ Equity			Non- Controlling Interests			Total Equity
Balance, January 1, 2017	12,461,616		$	125		4,449,352		$	45		788,270		$	8	Capital in Excess of Par Value			$	Accumulated Distributions in Excess of Earnings	259,817			Accumulated Other Comprehensive (Loss) Income	$	(24,399	)		$	(372	)	Non- Controlling Interests			$	235,224			$	786		$	236,010
Balance, January 1, 2018																																						15,837,102		$	158		8,793,223		$	88		1,065,232		$	11		$	378,266		$	(45,506	)	$	1,657	$	334,674		$	772		$	335,446
Cumulative effect of accounting changes																																						—		—			—		—			—		—			—			(37		)	37		—			—			—
Issuance of common stock	4,045,992		40			3,480,749		35			126,160		1		140,145				—				—				140,221				—				140,221			2,682,635		27			2,300,847		23			10,382		—			92,474			—			—		92,524			—			92,524
Conversion of shares	(55,096	)	—			—		—			54,673		—		—				—				—				—				—				—
Distributions to investors	—		—			—		—			—		—		—				(15,255		)		—				(15,255		)		—				(15,255		)
Distributions declared																																						—		—			—		—			—		—			—			(13,256		)	—		(13,256		)	—			(13,256		)
Commissions, dealer manager and distribution fees	—		—			—		—			—		—		(9,034		)		—				—				(9,034		)		—				(9,034		)	—		—			—		—			—		—			(6,089		)	—			—		(6,089		)	—			(6,089		)
Other offering costs	—		—			—		—			—		—		(1,035		)		—				—				(1,035		)		—				(1,035		)	—		—			—		—			—		—			(683		)	—			—		(683		)	—			(683		)
Redemptions of common stock	(1,210,302	)	(12		)	(186,556	)	(2		)	(52,163	)	—		(26,143		)		—				—				(26,157		)		—				(26,157		)	(744,918	)	(7		)	(273,956	)	(3		)	(172,062	)	(2		)	(21,777		)	—			—		(21,789		)	—			(21,789		)
Changes in redeemable common stock	—		—			—		—			—		—		(11,107		)		—				—				(11,107		)		—				(11,107		)	—		—			—		—			—		—			(6,675		)	—			—		(6,675		)	—			(6,675		)
Distributions to non-controlling interests	—		—			—		—			—		—		—				—				—				—				(35		)		(35		)	—		—			—		—			—		—			—			—			—		—			(16		)	(16		)
Comprehensive income	—		—			—		—			—		—		—				497				415				912				26				938			—		—			—		—			—		—			—			2,565			3,010		5,575			17			5,592
Balance as of September 30, 2017	15,242,210		$	153		7,743,545		$	78		916,940		$	9	$	352,643			$	(39,157	)		$	43			$	313,769			$	777			$	314,546
Balance as of June 30, 2018																																						17,774,819		$	178		10,820,114		$	108		903,552		$	9		$	435,516		$	(56,234	)	$	4,704	$	384,281		$	773		$	385,054



Buildings		40 years
Site improvements		15 years
Tenant improvements		Lesser of useful life or lease term
Intangible lease assets		Lease term



	Dealer Manager Fee		Distribution Fee
W Shares	0.55	%	—
A Shares	0.55	%	0.50	%
I Shares	0.25	%	—



	Balance as of			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs			Significant Unobservable Inputs
	September 30, 2017			(Level 1)		(Level 2)			(Level 3)
Financial asset:
Interest rate swaps	$	398		$	—	$	398		$	—
Marketable securities	5,387			5,387		—			—
Total financial assets	$	5,785		$	5,387	$	398		$	—
Financial liabilities:
Interest rate swaps	$	(371	)	$	—	$	(371	)	$	—



	2018 Asset Acquisitions
Land	$	19,288
Building and improvements	138,140
Acquired in-place leases and other intangibles ⁽¹⁾	22,745
Acquired above-market leases ⁽²⁾	3,305
Intangible lease liabilities ⁽³⁾	(989		)
Total purchase price	$	182,489



	2017 Acquisitions
Real estate assets:
Purchase price of asset acquisitions	114,611
Purchase price of business combinations	52,457
Total purchase price of real estate assets acquired ⁽¹⁾	$	167,068



	2017 Acquisitions
Investments in real estate:
Purchase price of asset acquisitions	$	148,145
Purchase price of business combinations	52,457
Total purchase price of real estate investments acquired ⁽¹⁾	$	200,602


		2017 Asset Acquisitions			2017 Asset Acquisitions
Land		$	24,499		$	22,139
Building and improvements		112,520			84,324
Acquired in-place leases and other intangibles(1)	Acquired in-place leases and other intangibles(1)	16,350			Acquired in-place leases and other intangibles(1)	11,538
Acquired above-market leases(2)		1,522			1,529
Intangible lease liabilities(3)		(6,746		)	(4,919		)
Total purchase price		$	148,145		$	114,611


	Amortization Expense				Amortization
	In-Place Leases and Other Intangibles		Above-Market Leases		In-Place Leases and Other Intangibles		Above-Market Leases
Remainder of 2017	$	1,574	$	183
2018	$	7,038	$	759
Remainder of 2018					$	4,446	$	476
2019	$	6,978	$	746	$	9,323	$	1,025
2020	$	6,775	$	740	$	9,120	$	1,019
2021	$	6,595	$	740	$	8,941	$	1,018
2022					$	8,885	$	1,017



	Available-for-sale securities
	Amortized Cost Basis		Unrealized (Loss) Gain			Fair Value
U.S. Treasury Bonds	$	1,842	$	(8	)	$	1,834
U.S. Agency Bonds	547		—			547
Corporate Bonds	2,965		41			3,006
Total available-for-sale securities	$	5,354	$	33		$	5,387



	Available-for-sale securities
	Amortized Cost Basis		Unrealized (Loss) Gain			Fair Value
U.S. Treasury Bonds	$	1,769	$	(50	)	$	1,719
U.S. Agency Bonds	753		(11		)	742
Corporate Bonds	2,951		(57		)	2,894
Total available-for-sale securities	$	5,473	$	(118	)	$	5,355


		2017 Business Combination Acquisitions			2017 Business Combination Acquisitions
Land		$	14,232		$	14,232
Building and improvements		22,292			22,292
Acquired in-place leases and other intangibles(1)	Acquired in-place leases and other intangibles(1)	15,911			Acquired in-place leases and other intangibles(1)	15,911
Acquired above-market leases(2)		1,423			1,423
Intangible lease liabilities(3)		(1,401		)	(1,401		)
Total purchase price		$	52,457		$	52,457



	2016 Acquisitions
Land	$	12,862
Building and improvements	65,333
Acquired in-place leases and other intangibles ⁽¹⁾	6,965
Acquired above-market leases⁽²⁾	973
Intangible lease liabilities ⁽³⁾	(469		)
Total purchase price	$	85,664



	September 30, 2017		December 31, 2016
In-place leases and other intangibles, net of accumulated amortization of $11,451 and $6,942, respectively (with a weighted average life remaining of 10.5 and 12.0 years, respectively)
	$	66,965	$	39,353
Acquired above-market leases, net of accumulated amortization of $1,434 and $927, respectively
(with a weighted average life remaining of 12.5 and 12.3 years, respectively)	8,128		5,743
	$	75,093	$	45,096


	Available-for-sale securities				Available-for-sale securities
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Due within one year	$	730	$	730	$	506	$	505
Due after one year through five years	2,328		2,339		2,343		2,303
Due after five years through ten years	2,216		2,238		2,229		2,156
Due after ten years	80		80		395		391
Total	$	5,354	$	5,387	$	5,473	$	5,355


(1)	The interest rates consist of the underlying index swapped to a fixed rate and the applicable interest rate spread as of June 30, 2018.


(2)	As of December 31, 2017, one of the interest rate swaps with an aggregate outstanding notional amount of $16.4 million was in a liability position with an aggregate fair value balance of $17,000 and is included in deferred rental income and other liabilities in the accompanying condensed consolidated balance sheets.


				During the Nine Months Ended September 30, 2017																	During the Six Months Ended June 30, 2018
	Balance as of December 31, 2016				Debt Issuance, Net ⁽¹⁾			Repayments and Modifications				Accretion and (Amortization)			Balance as of September 30, 2017			Balance as of December 31, 2017				Debt Issuance, Net ⁽¹⁾		Repayments				Amortization		Balance as of June 30, 2018
Credit facility	$	64,000			$	236,500		$	(188,000	)		$	—		$	112,500		$	128,500			$	160,500	$	(56,500	)		$	—	$	232,500
Fixed rate debt	97,169				52,565			—				—			149,734			149,734				—		—				—		149,734
Total debt	161,169				289,065			(188,000		)		—			262,234			278,234				160,500		(56,500		)		—		382,234
Deferred costs ⁽²⁾	(2,026		)		(1,463		)	97			⁽³⁾	(191		)	(3,583		)	(3,404		)		—		35			⁽³⁾	248		(3,121		)
Total debt, net	$	159,143			$	287,602		$	(187,903	)		$	(191	)	$	258,651		$	274,830			$	160,500	$	(56,465	)		$	248	$	379,113


		Principal Repayments			Principal Repayments
Remainder of 2017		$	—
2018		—
Remainder of 2018				Remainder of 2018	$	—
2019	2019	—		2019	—
2020	2020	9,240		2020	9,240
2021	2021	31,717		2021	91,717
2022				2022	264,327
Thereafter	Thereafter	221,277		Thereafter	16,950
Total	Total	$	262,234	Total	$	382,234


	Amortization of		Amortization of
	Below-Market Leases		Below-Market Leases
Remainder of 2017	$	297
2018	$	1,403
Remainder of 2018			$	733
2019	$	1,391	$	1,475
2020	$	1,365	$	1,449
2021	$	1,123	$	1,208
2022			$	1,167



	Selling Commission ⁽¹⁾	Dealer Manager Fee⁽²⁾		Distribution Fee ⁽²⁾
W Shares	—	0.55	%	—
A Shares	up to 3.75%	0.55	%	0.50	%
I Shares	—	0.25	%	—


(2)	The dealer manager and distribution fees will be calculated on a daily basis in an amount equal to 1/365th of the percentage of NAV per W Share, A Share or I Share, as applicable, for such day on a continuous basis. ~~CCC,~~CCO Capital, in its sole discretion, may reallow a portion of the dealer manager fee and distribution fee to participating broker-dealers.



	Three Months Ended September 30,				Nine Months Ended September 30,
Offering:	2017		2016		2017		2016
Selling commissions	$	759	$	666	$	2,236	$	1,470
Distribution fee ⁽¹⁾	$	163	$	67	$	402	$	155
Dealer manager fees ⁽¹⁾	$	565	$	349	$	1,514	$	901
Organization and offering expense reimbursement	$	353	$	330	$	1,035	$	843
Acquisition expense reimbursement	$	316	$	430	$	1,161	$	1,087
Advisory fee	$	1,128	$	725	$	3,063	$	1,911
Operating expense reimbursement	$	647	$	478	$	2,226	$	1,227
Performance fee	$	—	$	—	$	—	$	—


	Future Minimum Rental Income		Future Minimum Rental Income
Remainder of 2017	$	11,418
2018	45,825
Remainder of 2018			$	34,044
2019	45,992		62,905
2020	45,877		63,025
2021	45,788		63,160
2022			63,164
Thereafter	309,873		421,955
Total	$	504,773	$	708,253


Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations



	As of September 30,
	2017		2016
Number of properties	135		96
Rentable square feet (in thousands) ⁽¹⁾	4,061		2,644
Percentage of rentable square feet leased	99.3	%	99.2	%
Percentage of investment-grade tenants ⁽²⁾	43.8	%	46.6	%


	Three Months Ended September 30,					2017 vs 2016 Increase (Decrease)				Nine Months Ended September 30,							2017 vs 2016 Increase (Decrease)				Three Months Ended June 30,							2018 vs 2017 Increase (Decrease)				Six Months Ended June 30,							2018 vs 2017 Increase (Decrease)
	2017		2016						2017				2016				2017 vs 2016 Increase (Decrease)			2018				2017				2018 vs 2017 Increase (Decrease)			2018				2017				2018 vs 2017 Increase (Decrease)
Total revenues	$	13,244	$	6,889		2017 vs 2016 Increase (Decrease)	$	6,355			$	34,396			$	19,184		$	15,212			$	17,768			$	11,126		$	6,642			$	33,002			$	21,152		$	11,850
General and administrative expenses	$	1,685	$	1,326		$	359			$	4,823			$	3,512		$	1,311			$	1,891			$	1,387		$	504			$	3,456			$	3,138		$	318
Property operating expenses	$	561	$	239		$	322			$	1,244			$	683		$	561			$	694			$	393		$	301			$	1,248			$	683		$	565
Real estate tax expenses	$	998	$	548		$	450			$	2,319			$	1,518		$	801			$	1,327			$	728		$	599			$	2,339			$	1,321		$	1,018
Advisory fees and expenses	$	1,128	$	725		$	403			$	3,063			$	1,911		$	1,152			$	1,425			$	1,012		$	413			$	2,660			$	1,935		$	725
Acquisition-related expenses	$	333	$	705		$	(372	)		$	1,629			$	1,748		$	(119	)		$	713			$	447		$	266			$	1,282			$	1,296		$	(14	)
Depreciation and amortization	$	5,174	$	2,390		$	2,784			$	13,259			$	6,674		$	6,585			$	6,843			$	4,415		$	2,428			$	12,775			$	8,085		$	4,690
Operating income	$	3,365	$	956		$	2,409			$	8,059			$	3,138		$	4,921			$	4,875			$	2,744		$	2,131			$	9,242			$	4,694		$	4,548
Interest expense and other, net	$	3,289	$	1,326		$	1,963			$	7,536			$	3,805		$	3,731			$	3,590			$	2,220		$	1,370			$	6,587			$	4,247		$	2,340
Net income (loss) attributable to the Company	$	68	$	(370	)	$	438			$	497			$	(667	)	$	1,164
Gain (loss) on disposition of real estate, net																					$	136			$	—		$	136			$	(73	)		$	—		$	(73	)
Net income attributable to the Company																					$	1,413			$	515		$	898			$	2,565			$	429		$	2,136



	Number of Properties	Three Months Ended June 30,				Increase/(Decrease)
Contract Rental Revenue	Number of Properties	2018		2017		$ Change			% Change
Rental income — as reported		$	15,893	$	10,159	$	5,734		56	%
Less: Amortization ⁽¹⁾		113		84		29			35	%
Less: Straight line rental income		791		423		368			87	%
Total contract rental revenue		14,989		9,652		5,337			55	%

Less: “Non-same store” properties	31	6,120		632		5,488			868	%
Less: Disposed properties ⁽²⁾	1	8		197		(189		)	(96	)%
“Same store” properties	119	$	8,861	$	8,823	$	38		0.4	%


	Payments due by period ⁽¹⁾										Payments due by period ⁽¹⁾
	Total		Less Than 1 Year		1-3 Years		3-5 Years		More Than 5 Years		Total		Less Than 1 Year		1-3 Years		3-5 Years		More Than 5 Years
Principal payments – credit facility ⁽²⁾	$	112,500	$	—	$	—	$	112,500	$	—	$	232,500	$	—	$	—	$	232,500	$	—
Interest payments – credit facility ⁽³⁾	18,596		3,769		7,548		7,279		—
Interest payments – credit facility ^(3),(4)											31,753		8,123		16,268		7,362		—
Principal payments – fixed debt rate	149,734		—		—		132,784		16,950		149,734		—		9,240		123,544		16,950
Interest payments – fixed debt rate ⁽³⁾⁽⁵⁾	27,879		5,850		11,713		8,678		1,638		23,500		5,850		11,519		5,013		1,118
Total	$	308,709	$	9,619	$	19,261	$	261,241	$	18,588	$	437,487	$	13,973	$	37,027	$	368,419	$	18,068


(1)	The table does not include amounts due to our advisor or its affiliates pursuant to our advisory agreement because such amounts are not fixed and determinable.


(2)	The table does not include the impact of any extension. We may elect to extend the maturity of the Revolving Loans to no later than September 6, 2022, subject to satisfying certain conditions contained in the Second Amended Credit Agreement or refinance the debt or enter into new financing arrangements.