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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
ý☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20192020
OR
¨☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from____________to____________
Commission file number: 000-55776
RW HOLDINGS NNN REIT, INC.
(Exact name of registrant as specified in its charter)
Maryland47-4156046
(State or other jurisdiction of
incorporation or organization)		(I.R.S. Employer Identification No.)
Maryland120 Newport Center Drive, Newport Beach, CA47-415604692660
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)
3090 Bristol Street, Suite 550, Costa Mesa, CA92626
(Address of principal executive offices)(Zip Code)
(855) 742-4862
(Registrant’s telephone number, including area code:)code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Act.
Title of each classTrading symbols(s)Name of each exchange on which registered
N/ANoneN/AN/ANoneNone
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý☒ No ¨☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý☒ No ¨☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of "large“large accelerated filer," "accelerated” “accelerated filer," "smaller” “smaller reporting company"company” and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act.

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Large accelerated filer ☐
Accelerated filer ☐
Large accelerated filer ¨
Accelerated filer ¨
Non-accelerated filer x
☒
Smaller reporting company x
☒
Emerging growth company x
☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.ý☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No ý☒
As of October 31, 2019,2020, there were 15,545,72023,890,719 shares of Class C common stock outstanding and 186,260188,063 shares of Class S common stock outstanding.



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RW HOLDINGS NNN REIT, INC.
FORM 10-Q
INDEX
5
5
PART I -
4
Item 1.
Financial Statements (Unaudited)
4
Condensed Consolidated Balance Sheets – September 30, 20192020 and December 31, 20182019
45
56
67
78
89
910
3649
5268
5268
5269
5269
5369
5470
4973
Item 6.
Exhibits
57
5975

2
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FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within 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”), and we intend that such forward-looking statements be subject to the safe harbor provisions created thereby. For this purpose, any statements made in this Quarterly Report on Form 10-Q that are not historical or current facts may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, words such as "anticipates," "believes," "seeks," "estimates," "expects," "intends," "continue," "can," "may," "plans," "potential," "projects," "should," "could," "will," "would"“anticipates,” “believes,” “seeks,” “estimates,” “expects,” “intends,” “continue,” “can,” “may,” “plans,” “potential,” “projects,” “should,” “could,” “will,” “would” or similar expressions and the negatives of those expressions are intended to identify forward-looking statements. Such statements include, but are not limited to, any 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.
The forward-looking statements included herein represent our management’s current expectations and assumptions based on information available as of the date of this report. These statements involve numerous 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 the forward-looking statements. Readers should carefully review these risks, as well as the additional risks described in other documents we file from time-to-time with the Securities and Exchange Commission.Commission (the “SEC”). In light of the significant risks and uncertainties inherent in the forward-looking information included herein, the inclusion of such information should not be regarded as a representation by us or any other person that such results will be achieved, and readers are cautioned not to place undue reliance on such forward-looking information, which speak only as of the date of this report.
Moreover, we operate in an evolving environment. New risks and uncertainties emerge from time-to-time and it is not possible for our management to predict all risks and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual future results to be materially different from those expressed or implied by any forward-looking statements. 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 our forward-looking statements:
There can•We are subject to risks associated with deteriorating economic conditions resulting from the novel coronavirus (“COVID-19”) pandemic and related disruptions in the financial markets.
•The magnitude and duration of the COVID-19 pandemic and its impact on our tenants, operations and liquidity is uncertain as of the filing date of this Quarterly Report on Form 10-Q and may continue to have an adverse impact on our business and results of operations.
•We may be no certainty that the pending mergerunable to renew leases, lease vacant space or self-management transactions described in Note 1re-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 unaudited condensed consolidated financial statements in Part I, Item 1 below willproperties.
•Our properties, intangible assets and other assets may be consummated, and failuresubject to consummate the pending merger or the self-management transaction could negatively affect our future business and financial results. In the event that the pending merger and self-management transactions are consummated, we will assume potential liabilities related to Rich Uncle Real Estate Investment Trust I (in the case of the merger) and our sponsor and advisor (in the case of the self-management transaction), and our performance will suffer if we do not effectively integrate and manage our expanded operations following these transactions.further impairment charges.
If we are unable to raise substantial funds from our securities offerings, we will be limited in the number and type of investments we may make.
•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 or dispose of, or lease, properties on a timely basis or on attractive terms.
We may be unable to renew leases, lease vacant space or re-lease space as leases expire on favorable terms or at all.
Disruptions in the financial markets and uncertain economic conditions affecting us, the geographies or industries in which our properties are concentrated, or our tenants may adversely affect our business, financial condition and results of operations.
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 of properties and may be unable to dispose of 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, and may incur additional secured or unsecured debt, which may affect our ability to pay distributions, and expose us to interest rate fluctuation risk, impose limitations on how we operate and expose us to the risk of default under our debt obligations.
•We may be affected by risks related to the incurrence of additional secured or unsecured debt.
We have only a limited prior operating history, and the prior performance of real estate investment programs sponsored by affiliates of our sponsor, BrixInvest, LLC (d/b/a Rich Uncles LLC), may not be an indication of our future results.able to extend or refinance existing indebtedness before it becomes due.
•We may not be able to attain or maintain profitability.
Cash•The only sources of cash for distributions to investors will be cash flow from net rental incomeour operations (including sales of properties) or waiverany net proceeds that result from financing or deferral of reimbursements torefinancing our sponsorproperties or, fees paid toin limited circumstances, proceeds from our advisor, and the amount of distributions we pay, if any, is uncertain.offering.
•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.
Until the self-management transaction described in Note 1 to our unaudited condensed consolidated financial statements in Part I, Item 1 below, we are dependent upon our advisor, sponsor and their affiliates to conduct our operations, and adverse changes in their financial health could cause our operations to suffer; our advisor also has the right to terminate the advisory agreement upon 60 days’ written notice without cause or penalty.
Our advisor, sponsor and their affiliates, including all of our executive officers and our affiliated directors and other key real estate professionals, face conflicts of interest, which may result in actions that are not in the long-term best interests of our stockholders.
•Risks of security breaches through cyber-attacks, cyber intrusions or otherwise, as well as other significant disruptions of our information technology networks and related systems, could adversely affect our business and results of operations.
Our forward-looking statements contained in this Quarterly Report on Form 10-Q should be read in light of the risk factors identified above and the additional risks and uncertainties described in Item 1A of this Quarterly Report on Form 10-Q and in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2018.2019 and our Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2020 and June 30, 2020.
Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. We qualify all of our forward-looking statements by these cautionary statements.

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PART I – FINANCIAL INFORMATION
Item 1 – Financial Statements
RW HOLDINGS NNN REIT, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
September 30, 2019 December 31, 2018September 30,
2020		December 31, 2019
Assets   Assets
Real estate investments:   Real estate investments:
Land$41,126,392
 $41,126,392
Land$74,082,722 $86,775,988 
Buildings and improvements176,555,229
 176,367,798
Buildings and improvements276,926,627 309,904,890 
Tenant origination and absorption costs17,717,819
 17,717,819
Tenant origination and absorption costs24,274,555 27,266,610 
Total investments in real estate property235,399,440
 235,212,009
Total investments in real estate property375,283,904 423,947,488 
Accumulated depreciation and amortization(17,740,380) (10,563,664)Accumulated depreciation and amortization(28,856,496)(20,411,794)
Total investments in real estate property, net217,659,060
 224,648,345
Investments in unconsolidated entities (Note 5)13,727,158
 14,275,815
Total investments in real estate property, net (Note 4)Total investments in real estate property, net (Note 4)346,427,408 403,535,694 
Investment in unconsolidated entity (Note 5)Investment in unconsolidated entity (Note 5)10,085,476 10,388,588 
Total real estate investments, net231,386,218
 238,924,160
Total real estate investments, net356,512,884 413,924,282 
   
Real estate investments held for sale, net (Note 4)Real estate investments held for sale, net (Note 4)23,033,118 0 
Total real estate investmentsTotal real estate investments379,546,002 413,924,282 
Cash and cash equivalents12,115,498
 5,252,686
Cash and cash equivalents8,745,052 6,823,568 
Restricted cash177,204
 3,503,242
Restricted cash265,654 113,362 
Tenant receivables4,969,896
 3,659,114
Tenant receivables, net (Note 6)Tenant receivables, net (Note 6)6,958,611 6,224,764 
Above-market lease intangibles, net511,464
 584,248
Above-market lease intangibles, net910,501 1,251,734 
Due from affiliates (Note 8)5,377
 16,838
Refundable purchase deposit—
 100,000
Non-refundable purchase deposit2,000,000
 —
Other assets2,141,135
 234,399
Due from affiliates (Note 9)Due from affiliates (Note 9)0 2,332 
Prepaid expenses and other assetsPrepaid expenses and other assets2,317,708 1,867,777 
Interest rate swap derivatives—
 151,215
Interest rate swap derivatives0 34,567 
Assets related to real estate investments held for saleAssets related to real estate investments held for sale864,008 0 
Operating lease right-of-use assetOperating lease right-of-use asset0 2,386,877 
Goodwill, netGoodwill, net17,320,857 50,588,000 
Intangible assets, netIntangible assets, net5,587,932 7,700,000 
Total assets$253,306,792
 $252,425,902
Total assets$422,516,325 $490,917,263 
Liabilities and Stockholders' Equity   
Mortgage notes payable, net$114,824,998
 $122,709,308
Liabilities and EquityLiabilities and Equity
Mortgage notes payable, net (Note 7)Mortgage notes payable, net (Note 7)$179,001,117 $194,039,207 
Mortgage notes payable related to real estate investments held for sale, netMortgage notes payable related to real estate investments held for sale, net14,671,370 0 
Total mortgage notes payable, netTotal mortgage notes payable, net193,672,487 194,039,207 
Unsecured credit facility, net—
 8,998,000
Unsecured credit facility, net5,967,729 7,649,861 
Accounts payable, accrued and other liabilities5,200,892
 7,164,713
Short-term notes payableShort-term notes payable0 4,800,000 
Economic relief notes payableEconomic relief notes payable527,000 0 
Accounts payable, accrued and other liabilities (Note 6)Accounts payable, accrued and other liabilities (Note 6)7,944,998 11,555,161 
Share repurchases payable1,203,835
 584,676
Share repurchases payable1,393,275 0 
Below-market lease intangibles, net2,239,589
 2,595,382
Below-market lease intangibles, net13,274,833 14,591,359 
Due to affiliates (Note 8)644
 979,174
Interest rate swap derivatives1,245,261
 300,929
Due to affiliates (Note 9)Due to affiliates (Note 9)0 630,820 
Interest rate swap derivatives (Note 8)Interest rate swap derivatives (Note 8)2,006,997 1,021,724 
Liabilities related to real estate investments held for saleLiabilities related to real estate investments held for sale3,934,795 0 
Operating lease liabilityOperating lease liability0 2,386,877 
Total liabilities124,715,219
 143,332,182
Total liabilities228,722,114 236,675,009 
   
Commitments and contingencies (Note 10)

 

Commitments and contingencies (Note 10)
   
Redeemable common stock2,558,713
 6,000,951
Redeemable common stock8,282,554 14,069,692 
   
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, 15,916,672 and 12,943,294 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively.15,916
 12,943
Class S common stock $0.001 par value, 100,000,000 shares authorized, 186,260 and 17,594 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively.186
 18
Preferred stock, $0.001 par value, 50,000,000 shares authorized, 0 shares issued and outstandingPreferred stock, $0.001 par value, 50,000,000 shares authorized, 0 shares issued and outstanding0 0 
Class C common stock $0.001 par value, 300,000,000 shares authorized, 24,008,115 and 23,647,466 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectivelyClass C common stock $0.001 par value, 300,000,000 shares authorized, 24,008,115 and 23,647,466 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively24,008 23,647 
Class S common stock $0.001 par value, 100,000,000 shares authorized, 188,425 and 186,606 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectivelyClass S common stock $0.001 par value, 100,000,000 shares authorized, 188,425 and 186,606 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively188 187 
Additional paid-in-capital152,936,157
 119,247,245
Additional paid-in-capital227,745,917 220,714,676 
Cumulative distributions and net losses(26,919,399) (16,167,437)Cumulative distributions and net losses(92,861,456)(31,168,948)
Total stockholders' equity126,032,860
 103,092,769
Total liabilities and stockholders' equity$253,306,792
 $252,425,902
Total shareholders' equityTotal shareholders' equity134,908,657 189,569,562 
Noncontrolling interests in the Operating PartnershipNoncontrolling interests in the Operating Partnership50,603,000 50,603,000 
Total equityTotal equity185,511,657 240,172,562 
Total liabilities and equityTotal liabilities and equity$422,516,325 $490,917,263 
See accompanying notes to condensed consolidated financial statements.

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RW HOLDINGS NNN REIT, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended
September 30,		Nine Months Ended
September 30,
Three Months Ended September 30, Nine Months Ended
September 30,		2020201920202019
2019 2018 2019 2018
Rental income$6,125,957
 $4,725,279
 $17,907,668
 $12,567,223
Rental income:Rental income:$9,557,191 $6,125,957 $29,888,620 $17,907,668 
       
Expenses:       Expenses:
Fees to affiliates (Note 8)812,349
 532,355
 2,436,386
 1,411,585
Fees to affiliates (Note 9)Fees to affiliates (Note 9)0 812,349 0 2,436,386 
General and administrative918,636
 598,578
 2,312,081
 2,047,761
General and administrative2,522,719 918,636 7,447,082 2,312,081 
Depreciation and amortization2,393,725
 1,861,649
 7,176,716
 4,888,394
Depreciation and amortization4,304,470 2,393,725 13,420,256 7,176,716 
Interest expense1,738,791
 1,070,860
 5,975,866
 3,364,736
Interest expense2,732,528 1,738,791 9,196,061 5,975,866 
Property expenses1,362,661
 772,394
 3,537,249
 1,966,616
Property expenses1,677,055 1,362,661 5,480,411 3,537,249 
Impairment of real estate investment properties (Note 4)Impairment of real estate investment properties (Note 4)0 0 9,506,525 0 
Impairment of goodwill and intangible assets (Note 3)Impairment of goodwill and intangible assets (Note 3)0 0 34,572,403 0 
Reserve for (reversal of) loan guarantee (Note 6)Reserve for (reversal of) loan guarantee (Note 6)(4,359)0 3,120,678 0 
Total expenses7,226,162
 4,835,836
 21,438,298
 13,679,092
Total expenses11,232,413 7,226,162 82,743,416 21,438,298 
Less: Expenses reimbursed by Sponsor or affiliates (Note 8)(96,104) (298,645) (332,336) (952,098)
Net expenses7,130,058
 4,537,191
 21,105,962
 12,726,994
Less: Expenses reimbursed by Former Sponsor (Note 9)Less: Expenses reimbursed by Former Sponsor (Note 9)0 (96,104)0 (332,336)
Expenses, netExpenses, net11,232,413 7,130,058 82,743,416 21,105,962 
       
Other income:       
Other operating income:Other operating income:
Gain on sale of real estate investments (Note 4)Gain on sale of real estate investments (Note 4)1,693,642 0 1,693,642 0 
Real estate operating income (loss)Real estate operating income (loss)18,420 (1,004,101)(51,161,154)(3,198,294)
Other (expense) income:Other (expense) income:
Lease termination expense (Note 10)Lease termination expense (Note 10)(1,175,192)0 (1,175,192)0 
Interest income45,940
 4,648
 56,971
 12,568
Interest income51 45,940 4,873 56,971 
Income from investments in unconsolidated entities, net37,570
 69,863
 167,558
 163,348
Income from investments in unconsolidated entities, net92,617 37,570 239,028 167,558 
Total other income83,510
 74,511
 224,529
 175,916
Net (loss) income$(920,591) $262,599
 $(2,973,765) $16,145
OtherOther0 0 (4,855)0 
Total other (expense) income, netTotal other (expense) income, net(1,082,524)83,510 (936,146)224,529 
Net lossNet loss$(1,064,104)$(920,591)$(52,097,300)$(2,973,765)
       
Net (loss) income per share, basic and diluted (Note 2)$(0.06) $0.02
 $(0.20) $0.00
Net loss per share, basic and diluted (Note 2)Net loss per share, basic and diluted (Note 2)$(0.04)$(0.06)$(2.17)$(0.20)
       
Weighted-average number of common shares outstanding, basic and diluted15,809,624
 11,611,906
 14,754,347
 10,578,708
Weighted-average number of common shares outstanding, basic and diluted24,225,210 15,809,624 24,059,227 14,754,347 
       
Dividends declared per common share$0.176
 $0.176
 $0.528
 $0.586
Distributions declared per common shareDistributions declared per common share$0.136 $0.176 $0.311 $0.528 
See accompanying notes to condensed consolidated financial statements.

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RW HOLDINGS NNN REIT, INC.
Condensed Consolidated Statements of Stockholders' Equity
Three Months Ended September 30, 20192020 and 20182019
(Unaudited)
Common StockAdditional
Paid-in
Capital		Cumulative
Distributions
and Net
Losses		Total
Stockholders'
Equity		Noncontrolling Interests in the Operating PartnershipTotal
Equity
Class CClass S
SharesAmountsSharesAmounts
Balance, June 30, 202024,137,134 $24,137 187,649 $188 $228,696,741 $(89,661,537)$139,059,529 $50,603,000 $189,662,529 
Issuance of common stock299,431 300 776 — 2,101,388 — 2,101,688 — 2,101,688 
Stock compensation expense26,250 26 — — 183,724 — 183,750 — 183,750 
Class P OP Units compensation expense— — — — 88,784 — 88,784 — 88,784 
Offering costs— — — — (158,826)— (158,826)— (158,826)
Repurchase of common stock(454,700)(455)— — (3,165,894)— (3,166,349)— (3,166,349)
Distributions declared— — — — — (2,135,815)(2,135,815)— (2,135,815)
Net loss— — — — — (1,064,104)(1,064,104)— (1,064,104)
Balance, September 30, 202024,008,115 $24,008 188,425 $188 $227,745,917 $(92,861,456)$134,908,657 $50,603,000 $185,511,657 
 Common Stock 
Additional
Paid-in
Capital
 
Cumulative
Distributions
and Net
Losses
 
Total
Stockholders'
Equity
 Class C Class S 
 Shares Amounts Shares Amounts 
Balance, June 30, 201915,313,171
 $15,313
 166,448
 $166
 $144,011,702
 $(23,214,573) $120,812,608
Issuance of common stock988,121
 988
 19,812
 20
 10,238,741
 —
 10,239,749
Stock compensation expense10,334
 10
 —
 —
 104,990
 —
 105,000
Offering costs—
 —
 —
 —
 (307,068) —
 (307,068)
Reclassification to redeemable common stock—
 —
 —
 —
 2,823,079
 —
 2,823,079
Repurchase of common stock(394,954) (395) —
 —
 (3,935,287) —
 (3,935,682)
Distributions declared—
 —
 —
 —
 —
 (2,784,235) (2,784,235)
Net loss—
 —
 —
 —
 —
 (920,591) (920,591)
Balance, September 30, 201915,916,672
 $15,916
 186,260
 $186
 $152,936,157
 $(26,919,399) $126,032,860
Common StockAdditional
Paid-in
Capital		Cumulative
Distributions
and Net
Losses		Total
Stockholders'
Equity		Noncontrolling Interests in the Operating PartnershipTotal
Equity
Common Stock 
Additional
Paid-in
Capital
 
Cumulative
Distributions
and Net
Losses
 
Total
Stockholders'
Equity
Class CClass S
Class C Class S SharesAmountsSharesAmounts
Shares Amounts Shares Amounts 
Balance, June 30, 201811,182,489
 $11,183
 3,098
 $3
 $104,138,416
 $(10,368,038) $93,781,564
Balance, June 30, 2019Balance, June 30, 201915,313,171 $15,313 166,448 $166 $144,011,702 $(23,214,573)$120,812,608 $0 $120,812,608 
Issuance of common stock1,154,690
 1,154
 34
 —
 11,603,826
 —
 11,604,980
Issuance of common stock988,121 988 19,812 20 10,238,741 — 10,239,749 — 10,239,749 
Stock compensation expense4,800
 5
 —
 —
 48,235
 —
 48,240
Stock compensation expense10,334 10 — — 104,990 — 105,000 — 105,000 
Offering costs—
 —
 —
 —
 (348,015) —
 (348,015)Offering costs— — — — (307,068)— (307,068)— (307,068)
Reclassification to redeemable common stockReclassification to redeemable common stock— — — — 2,823,079 — 2,823,079 — 2,823,079 
Repurchase of common stock(207,652) (208) —
 —
 (2,055,962) —
 (2,056,170)Repurchase of common stock(394,954)(395)— — (3,935,287)— (3,935,682)— (3,935,682)
Distributions declared—
 —
 —
 —
 —
 (2,041,912) (2,041,912)Distributions declared— — — — — (2,784,235)(2,784,235)— (2,784,235)
Net income—
 —
 —
 —
 —
 262,599
 262,599
Balance, September 30, 201812,134,327
 $12,134
 3,132
 $3
 $113,386,500
 $(12,147,351) $101,251,286
Net lossNet loss— — — — — (920,591)(920,591)— (920,591)
Balance, September 30, 2019Balance, September 30, 201915,916,672 $15,916 186,260 $186 $152,936,157 $(26,919,399)$126,032,860 $0 $126,032,860 
See accompanying notes to condensed consolidated financial statements.

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RW HOLDINGS NNN REIT, INC.
Condensed Consolidated Statements of Stockholders' Equity
Nine Months Ended September 30, 20192020 and 20182019
(Unaudited)
Common StockAdditional
Paid-in
Capital		Cumulative
Distributions
and Net
Losses		Total
Stockholders'
Equity		Noncontrolling Interests in the Operating PartnershipTotal
Equity
Class CClass S
SharesAmountsSharesAmounts
Balance, December 31, 201923,647,466 $23,647 186,606 $187 $220,714,676 $(31,168,948)$189,569,562 $50,603,000 $240,172,562 
Issuance of common stock1,757,559 1,758 3,755 3 16,192,166 — 16,193,927 — 16,193,927 
Stock compensation expense38,931 39 — — 313,295 — 313,334 — 313,334 
Class P OP Units compensation expense— — — — 266,350 — 266,350 — 266,350 
Offering costs— — — — (981,748)— (981,748)— (981,748)
Reclassification to redeemable common stock— — — — 4,393,863 — 4,393,863 — 4,393,863 
Repurchase of common stock(1,435,841)(1,436)(1,936)(2)(13,152,685)— (13,154,123)— (13,154,123)
Distributions declared— — — — — (9,595,208)(9,595,208)— (9,595,208)
Net loss— — — — — (52,097,300)(52,097,300)— (52,097,300)
Balance, September 30, 202024,008,115 $24,008 188,425 $188 $227,745,917 $(92,861,456)$134,908,657 $50,603,000 $185,511,657 
 Common Stock 
Additional
Paid-in
Capital
 
Cumulative
Distributions
and Net
Losses
 
Total
Stockholders'
Equity
 Class C Class S 
 Shares Amounts Shares Amounts 
Balance, December 31, 201812,943,294
 $12,943
 17,594
 $18
 $119,247,245
 $(16,167,437) $103,092,769
Issuance of common stock3,795,112
 3,795
 168,666
 168
 40,241,277
 —
 40,245,240
Stock compensation expense20,669
 21
 —
 —
 209,979
 —
 210,000
Offering costs—
 —
 —
 —
 (1,206,930) —
 (1,206,930)
Reclassification to redeemable common stock—
 —
 —
 —
 2,823,079
 —
 2,823,079
Repurchase of common stock(842,403) (843) —
 —
 (8,378,493) —
 (8,379,336)
Distributions declared—
 —
 —
 —
 —
 (7,778,197) (7,778,197)
Net loss—
 —
 —
 —
 —
 (2,973,765) (2,973,765)
Balance, September 30, 201915,916,672
 $15,916
 186,260
 $186
 $152,936,157
 $(26,919,399) $126,032,860
Common StockAdditional
Paid-in
Capital		Cumulative
Distributions
and Net
Losses		Total
Stockholders'
Equity		Noncontrolling Interests in the Operating PartnershipTotal
Equity
Common Stock 
Additional
Paid-in
Capital
 
Cumulative
Distributions
and Net
Losses
 
Total
Stockholders'
Equity
Class CClass S
Class C Class S SharesAmountsSharesAmounts
Shares Amounts Shares Amounts 
Balance, December 31, 20178,838,002
 $8,838
 3,032
 $3
 $85,324,921
 $(6,083,896) $79,249,866
Balance, December 31, 2018Balance, December 31, 201812,943,294 $12,943 17,594 $18 $119,247,245 $(16,167,437)$103,092,769 $0 $103,092,769 
Issuance of common stock3,865,204
 3,865
 100
 —
 38,821,577
 —
 38,825,442
Issuance of common stock3,795,112 3,795 168,666 168 40,241,277 — 40,245,240 — 40,245,240 
Stock compensation expense12,900
 13
 —
 —
 129,632
 —
 129,645
Stock compensation expense20,669 21 — — 209,979 — 210,000 — 210,000 
Offering costs—
 —
 —
 —
 (1,164,313) —
 (1,164,313)Offering costs— — — — (1,206,930)— (1,206,930)— (1,206,930)
Reclassification to redeemable common stock—
 —
 —
 —
 (4,006,747) —
 (4,006,747)Reclassification to redeemable common stock— — — — 2,823,079 — 2,823,079 — 2,823,079 
Repurchase of common stock(581,779) (582) —
 —
 (5,718,570) —
 (5,719,152)Repurchase of common stock(842,403)(843)— — (8,378,493)— (8,379,336)— (8,379,336)
Distributions declared—
 —
 —
 —
 —
 (6,079,600) (6,079,600)Distributions declared— — — — — (7,778,197)(7,778,197)— (7,778,197)
Net income—
 —
 —
 —
 —
 16,145
 16,145
Balance, September 30, 201812,134,327
 $12,134
 3,132
 $3
 $113,386,500
 $(12,147,351) $101,251,286
Net lossNet loss— — — — — (2,973,765)(2,973,765)— (2,973,765)
Balance, September 30, 2019Balance, September 30, 201915,916,672 $15,916 186,260 $186 $152,936,157 $(26,919,399)$126,032,860 $0 $126,032,860 
See accompanying notes to condensed consolidated financial statements.

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RW HOLDINGS NNN REIT, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months EndedNine Months Ended
September 30, 2019 September 30, 2018September 30, 2020September 30, 2019
Cash Flows from Operating Activities:   Cash Flows from Operating Activities:
Net (loss) income$(2,973,765) $16,145
Adjustments to reconcile net (loss) income to net cash provided by operating activities:   
Net lossNet loss$(52,097,300)$(2,973,765)
Adjustments to reconcile net loss to net cash provided by operating activities:Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization7,176,716
 4,888,394
Depreciation and amortization13,420,256 7,176,716 
Stock compensation expense281,667
 129,645
Stock compensation expense522,183 281,667 
Amortization of deferred rents(991,009) (910,390)
Amortization of deferred financing costs511,336
 654,146
Deferred rentsDeferred rents(1,027,863)(991,009)
Amortization of deferred lease incentivesAmortization of deferred lease incentives45,903 45,903 
Amortization of deferred financing costs and premiumAmortization of deferred financing costs and premium796,810 511,336 
Amortization of above-market lease intangibles72,784
 72,784
Amortization of above-market lease intangibles134,412 72,784 
Amortization of below-market lease intangibles(355,793) (287,732)Amortization of below-market lease intangibles(1,157,951)(355,793)
Amortization of deferred lease incentives45,903
 —
Unrealized loss (gain) on interest rate swap valuation1,095,547
 (406,023)
Impairment of real estate investment propertiesImpairment of real estate investment properties9,506,525 0 
Impairment of goodwill and intangible assetsImpairment of goodwill and intangible assets34,572,403 0 
Gain on sale of real estate investmentsGain on sale of real estate investments(1,693,642)0 
Unrealized loss on interest rate swap valuationUnrealized loss on interest rate swap valuation1,019,840 1,095,547 
Income from investments in unconsolidated entities(167,558) (163,348)Income from investments in unconsolidated entities(239,028)(167,558)
Distributions from investments in unconsolidated entities716,215
 557,968
Distributions from investments in unconsolidated entities542,140 716,215 
Change in operating assets and liabilities:   Change in operating assets and liabilities:
Increase in tenant receivables(319,773) (606,798)Increase in tenant receivables(563,259)(319,773)
Increase in other assets(102,872) (148,851)
Increase (decrease) in accounts payable, accrued and other liabilities541,315
 (279,972)
Decrease in due to affiliates, net(967,518) (959,979)
Increase in prepaid and other assetsIncrease in prepaid and other assets(513,161)(102,872)
Increase in accounts payable, accrued and other liabilitiesIncrease in accounts payable, accrued and other liabilities1,171,868 541,315 
Decrease in due to affiliatesDecrease in due to affiliates(628,488)(967,518)
Net cash provided by operating activities4,563,195
 2,555,989
Net cash provided by operating activities3,811,648 4,563,195 
   
Cash Flows from Investing Activities:   Cash Flows from Investing Activities:
Acquisition of real estate investments—
 (50,863,080)
Additions to existing real estate investments(181,972) (749,094)Additions to existing real estate investments(600,291)(181,972)
Payment for tenant improvements(3,387,699) —
Additions to intangible assetsAdditions to intangible assets(566,102)0 
Net proceeds from sale of real estate investmentsNet proceeds from sale of real estate investments15,364,073 0 
Payment of tenant improvementsPayment of tenant improvements0 (3,387,699)
Payment of acquisition fees to affiliate(5,459) (1,541,108)Payment of acquisition fees to affiliate0 (5,459)
Costs related to pending merger with an affiliate(1,005,523) —
Costs related to pending merger with an affiliate0 (1,005,523)
Refund (payment) of refundable purchase deposit100,000
 (500,000)
Non-refundable purchase deposit(2,000,000) —
Net cash used in investing activities(6,480,653) (53,653,282)
   
Additions to lease incentivesAdditions to lease incentives(990,000)0 
Refund of refundable purchase depositRefund of refundable purchase deposit0 100,000 
Refundable purchase depositRefundable purchase deposit0 (2,000,000)
Net cash provided by (used in) investing activitiesNet cash provided by (used in) investing activities13,207,680 (6,480,653)
Cash Flows from Financing Activities:   Cash Flows from Financing Activities:
Borrowings from unsecured credit facility4,869,000
 18,450,000
Borrowings from unsecured credit facility4,260,000 4,869,000 
Repayments of unsecured credit facility(13,869,000) (30,450,000)Repayments of unsecured credit facility(6,000,000)(13,869,000)
Proceeds from mortgage notes payable6,350,000
 51,587,500
Proceeds from mortgage notes payable35,705,500 6,350,000 
Principal payments on mortgage notes payable(14,557,433) (12,664,740)Principal payments on mortgage notes payable(36,421,500)(14,557,433)
Proceeds from economic relief notes payableProceeds from economic relief notes payable527,000 0 
Principal payments on short-term notes payablePrincipal payments on short-term notes payable(4,800,000)0 
Refundable loan deposits(171,000) —
Refundable loan deposits0 (171,000)
Payments of deferred financing costs to third parties(175,311) (996,010)Payments of deferred financing costs to third parties(389,662)(175,311)
Payments of deferred financing fees to affiliates(63,500) (209,550)
Payments of financing fees to affiliatesPayments of financing fees to affiliates0 (63,500)
Proceeds from issuance of common stock and investor deposits34,559,949
 34,616,876
Proceeds from issuance of common stock and investor deposits10,378,762 34,559,949 
Payments of offering costs(1,206,930) (1,177,728)Payments of offering costs(981,748)(1,206,930)
Payments of commissions to Class S distributor(632) —
Repurchase of common stock(8,379,336) (5,719,152)
Liabilities for (payments of) selling commissions on Class S common stockLiabilities for (payments of) selling commissions on Class S common stock1,916 (632)
Repurchases of common stockRepurchases of common stock(13,154,123)(8,379,336)
Distributions paid to common stockholders(1,901,575) (1,172,542)Distributions paid to common stockholders(4,071,697)(1,901,575)
Net cash provided by financing activities5,454,232
 52,264,654
   
Net cash (used in) provided by financing activitiesNet cash (used in) provided by financing activities(14,945,552)5,454,232 
Net increase in cash, cash equivalents and restricted cash3,536,774
 1,167,361
Net increase in cash, cash equivalents and restricted cash2,073,776 3,536,774 
   
Cash, cash equivalents and restricted cash, beginning of period8,755,928
 4,182,755
Cash, cash equivalents and restricted cash, beginning of period6,936,930 8,755,928 
   
Cash, cash equivalents and restricted cash, end of period$12,292,702
 $5,350,116
Cash, cash equivalents and restricted cash, end of period$9,010,706 $12,292,702 
   
Supplemental Disclosure of Cash Flow Information:   Supplemental Disclosure of Cash Flow Information:
Cash paid for interest$4,372,246
 $2,940,543
Cash paid for interest$5,062,906 $4,372,246 
   
Supplemental Schedule of Noncash Investing and Financing Activities:   Supplemental Schedule of Noncash Investing and Financing Activities:
Reclassification (from) to redeemable common stock$(3,442,238) $3,422,345
Reclassification to redeemable common stockReclassification to redeemable common stock$4,393,863 $2,823,079 
Reinvested distributions from common stockholders$5,685,291
 $4,208,566
Reinvested distributions from common stockholders$5,815,165 $5,685,291 
Real estate investments held for sale, netReal estate investments held for sale, net$23,033,118 $0 
Assets related to real estate investments held for saleAssets related to real estate investments held for sale$864,008 $0 
Mortgage notes payable related to real estate investments held for sale, netMortgage notes payable related to real estate investments held for sale, net$14,671,370 $0 
Liabilities related to real estate investments held for saleLiabilities related to real estate investments held for sale$3,934,795 $0 
Increase in share repurchases payable$619,159
 $584,402
Increase in share repurchases payable$1,393,275 $619,159 
Accrued dividends$937,863
 $698,492
Accrued distributionsAccrued distributions$291,654 $937,863 
Unpaid capitalized costs related to pending merger with an affiliate$620,647
 $—
Unpaid capitalized costs related to pending merger with an affiliate$0 $620,647 
See accompanying notes to condensed consolidated financial statements.

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RW HOLDINGS NNN REIT, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 1. BUSINESS AND ORGANIZATION
RW Holdings NNN REIT, Inc. (the "Company"“Company”) was incorporated on May 14, 2015 as a Maryland corporation. 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, 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 properties located in the United States, which are leased to creditworthy tenants under long-term net leases. The Company’s goal is to generate current income for investors and long-term capital appreciation in the value of its properties.
The Company holds its investments in real property through special purpose limited liability companies which are wholly-owned subsidiaries of Rich UnclesRW Holdings NNN REIT Operating Partnership, LP, a Delaware limited partnership (the "Operating Partnership"“Operating Partnership”), or through the Operating Partnership.Katana Merger Sub, LP (“Merger Sub”), which is described below. The Operating Partnership was formed on January 28, 2016. The Company is the sole general partner of and ownsowned a 99% partnership interest in the Operating Partnership.Partnership prior to the completion of the Self-Management Transaction (defined below) on December 31, 2019. The Company's wholly-owned subsidiary, Rich Uncles NNN LP, LLC, a Delaware limited liability company formed on May 13, 2016 ("(“NNN LP"LP”), ownsowned the remaining 1% partnership interest in the Operating Partnership and iswas the sole limited partner.partner of the Operating Partnership prior to the completion of the Self-Management Transaction on December 31, 2019.
Following completion of the Self-Management Transaction, the Company, including NNN LP, isowns an approximately 87% partnership interest in the Operating Partnership. Daisho OP Holdings, LLC, a formerly wholly-owned bysubsidiary of BrixInvest (defined below) (“Daisho”) which was spun off from BrixInvest on December 31, 2019, was issued and held 657,949.5 units of Class M limited partnership interest (the “Class M OP Units”), or an approximate 12% limited partnership interest, in the Company.Operating Partnership as of December 31, 2019. The Class M OP Units were distributed to the members of Daisho during 2020. In connection with the Self-Management Transaction, the Company's Chief Executive Officer and Chief Financial Officer were issued an aggregate of 56,029 units of Class P limited partnership interest (the “Class P OP Units”) in the Operating Partnership and thereby own the remaining approximate 1% limited partnership interest in the Operating Partnership.
The Company iswas externally managed by its former advisor, Rich Uncles NNN REIT Operator, LLC (the "Advisor"“Former Advisor”), a Delaware limited liability company, pursuant to an advisory agreement,the Second Amended and Restated Advisory Agreement dated August 11, 2017, as amended (the "Advisory Agreement"“Advisory Agreement”)., through December 31, 2019. The Former Advisor iswas wholly-owned by the Company’s former sponsor, BrixInvest, LLC (f/k/a Rich Uncles, LLC,LLC) (“BrixInvest” or the "Sponsor"“Former Sponsor”), a Delaware limited liability company, whose members include Aaron S. Halfacre and Raymond Wirta, the Company’s Chief Executive Officer and Chairman of the Board, of Directors, respectively. On each of June 24, 2015 and December 31, 2015, the Company issued 10,000 shares of its Class C common stock to the Former Sponsor, for a total of 20,000 shares of Class C common stock, at a purchase price of $10.00 per share. As of September 30, 2019 and December 31, 2018,Upon completing the SponsorSelf-Management Transaction, the Former Sponsor's previously held 10,740 shares of the Company’s Class C common stock.stock were canceled.
On December 31, 2019, pursuant to an Agreement and Plan of Merger dated September 19, 2019 (the “Merger Agreement”), Rich Uncles Real Estate Investment Trust I (“REIT I”) merged with and into Merger Sub, a Delaware limited partnership and wholly-owned subsidiary of the Company, with Merger Sub surviving as a direct, wholly-owned subsidiary of the Company (the “Merger”). At such time, the separate existence of REIT I ceased. As a result, the Company issued 8,042,221.6 shares of its Class C common stock to former shareholders of REIT I. In addition, on December 31, 2019, a self-management transaction was completed, whereby the Company, the Operating Partnership, BrixInvest and Daisho effectuated a Contribution Agreement dated September 19, 2019 (the “Contribution Agreement”) pursuant to which the Company acquired substantially all of the assets and assumed certain liabilities of BrixInvest in exchange for 657,949.5 Class M OP Units in the Operating Partnership (the “Self-Management Transaction”). As a result of the completion of the Merger and the Self-Management Transaction, the Company became self-managed (see Note 3).
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RW HOLDINGS NNN REIT, INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
On July 15, 2015, the Company filed a registration statement on Form S-11 (File No. 333-205684) with the U.S. Securities and Exchange Commission (the "SEC")SEC to register an initial public offering of a maximum of 90,000,000 of its shares of common stock for sale to the public (the "Primary Offering"“Primary Offering”). The Company also registered a maximum of 10,000,000 of its shares of common stock pursuant to the Company’s distribution reinvestment plan (the "Registered“Registered DRP Offering"Offering” and together with the Primary Offering, the "Registered Offering"“Registered Offering”). The SEC declared the Company’s registration statement effective on June 1, 2016, and on July 20, 2016, the Company began offering shares of common stock to the public. Pursuant to its securities offering registered with the SEC,Registered Offering, the Company is eligible to sellsold shares of its "Class C"Class C common stock directly to investors, with a minimum investment in shares of $500. Commencing in August 2017, the Company began selling shares of its Class C common stock only to U.S. persons as defined under Rule 903 promulgated under the Securities Act, and began selling shares of 1933,its Class S common stock as amended (the "Securities Act"). The Registered Offering is currently suspended. See “Temporary Suspension of Primary Offerings, Distribution Reinvestment Plans and Share Repurchase Programs” below.
Under applicable SEC rules, the current registration statement for the Registered Offering was scheduled to terminate on June 1, 2019, but remained effective because the Company filed a new registration statement on Form S-11 with the SEC on May 24, 2019 to extend the Registered Offering in accordance with Rule 415result of the Securities Act. On October 18, 2019,commencement of the Company filed a pre-effective amendmentClass S Offering (as defined below) to its Form S-11 which includes the Company’s updated plan of distribution whereby the Company will offer its Class C common stock through North Capital Private Securities Corporation (“North Capital”), a registered broker dealer.
The Company’s current registration statement on Form S-11 will terminate when the new registration statement is declared effective by the SEC. As required by some states, the Company is also required to renew the registration statement for the Registered Offering annually or file a new registration statement to continue the Registered Offering.non-U.S. Persons.
On August 11, 2017, the Company began offering up to 100,000,000 shares of its 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 and in accordance with Regulation S of the Securities Act (the "Class“Class S Offering"Offering” and, together with the Registered Offering and the "Offerings"Follow-on Offering (as defined below), 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 offeringOffering may be sold only to non-U.S. Persons and may be sold through brokers or other persons who may be paid upfront and/orand deferred selling commissions and fees. The
On December 23, 2019, the Company commenced a follow-on offering pursuant to a new registration statement on Form S-11 (File No. 333-231724) (the “Follow-on Offering” and, together with the Registered Offering, the “Registered Offerings”), which registered the offer and sale of up to $800,000,000 in share value of Class C common stock, including $725,000,000 in share value of Class C common stock pursuant to the primary portion of the Follow-on Offering is currently suspended. See “Temporary Suspensionand $75,000,000 in share value of PrimaryClass C common stock pursuant to the Company's distribution reinvestment plan. The Company ceased offering shares pursuant to the Registered Offering concurrently with the commencement of the Follow-on Offering.
On January 31, 2020, the Company’s board of directors approved and established an estimated net asset value (“NAV”) per share of the Company’s common stock of $10.27 (unaudited). Effective February 1, 2020, the purchase price per share of the Company’s common stock in the primary portion of the Follow-on Offering and the distribution reinvestment plans was increased from $10.16 (unaudited) to $10.27 (unaudited). Also, commencing February 1, 2020, the purchase price per share in the primary portion of the Class S Offering was increased to $10.27 (unaudited) plus the amount of any applicable upfront commissions and fees, and the NAV per share used for purposes of the share repurchase programs was increased to $10.27 (unaudited).
In response to the significant economic impacts of the COVID-19 pandemic, effective as of the close of business on May 7, 2020, the Company’s board of directors temporarily suspended the primary portion of the Company’s Follow-on Offering and Class S Offering until such time as the board of directors approved and established an updated estimated NAV per share of the Company’s common stock and determined to resume such primary offerings. On May 20, 2020, the Company’s board of directors approved and established an updated estimated NAV per share of the Company’s common stock of $7.00 (unaudited) to reflect the Company's valuation of its real estate assets, debt and other assets and liabilities as of April 30, 2020. Additional information on the determination of the Company's estimated NAV per share, including the process used to determine its estimated NAV per share, can be found in the Company's Current Report on Form 8-K filed with the SEC on May 22, 2020. With respect to distributions paid to stockholders on May 26, 2020, the purchase price per share of the Company’s common stock in the distribution reinvestment plans was decreased from $10.27 to $7.00. Commencing on June 1, 2020, the Company’s board of directors resumed the primary portions of the Follow-on Offering and the Class S Offering. The purchase price per share in the primary portion of the Follow-on Offering was decreased from $10.27 to $7.00, and the purchase price per share in the primary portion of the Class S Offering was decreased to $7.00 plus the amount of any applicable upfront commissions and fees. The NAV per share used for purposes of future repurchases pursuant to the share repurchase programs was also decreased from $10.27 (unaudited) to $7.00 (unaudited).
Through September 30, 2020, the Company had sold 19,645,508 shares of Class C common stock in the Registered Offerings, Distribution Reinvestment Plansincluding 2,208,870 shares of Class C common stock sold under its registered distribution reinvestment plan, for aggregate gross offering proceeds of $195,859,756, and Share Repurchase Programs” below.

190,361 shares of Class S common stock in the Class S Offering, including 5,397 shares of Class S common stock sold under its distribution reinvestment plan, for aggregate gross offering proceeds of $1,926,663.
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RW HOLDINGS NNN REIT, INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)

On January 11, 2019, the Company’s board of directors approved and established an estimated net asset value ("NAV") per share of the Company’s common stock of $10.16 (unaudited). Effective January 14, 2019, the purchase price per share of the Company’s common stock in the Offerings and share repurchase program ("SRP") increased from $10.05 (unaudited) to $10.16 (unaudited).
Through September 30, 2019, the Company had sold 17,823,024 shares of Class C common stock in the Registered Offering, including 1,461,804 shares of Class C common stock sold under its Registered DRP Offering, for aggregate gross offering proceeds of $179,039,271, and 186,260 shares of Class S common stock in the Class S Offering, including 1,948 shares of Class S common stock sold under its dividend reinvestment plan applicable to Class S common stock, for aggregate gross offering proceeds of $1,890,319.
As of September 30, 2019,2020, the Company had investedinvestments in (i) 2439 operating properties, comprised of: nine14 retail properties, 1014 office properties and five11 industrial properties;properties (including 17 operating properties of the original 20 operating properties which were acquired through the Merger on December 31, 2019, and are comprised of: (a) 8 retail properties, (b) 4 office properties and (c) 5 industrial properties); (ii) one1 parcel of land, which currently serves as an easement to one of the Company’s office properties; and (iii) an approximate 72.7% tenant-in-common interest in a Santa Clara office property (the "TIC Interest"“TIC Interest”); and (iv) an approximate 4.8% interest in Rich Uncles Real Estate Investment Trust I ("REIT I"), an affiliated REIT.
Pending Merger
On March 19, 2019,. During the three months ended June 30, 2020, the Company announced that it intendeddetermined to explore a potential acquisition of REIT I, an affiliated real estate investment trust that is sponsored by the Company's Sponsor and is approximately 4.8% owned by the Company as further discussed in Note 5, or its real estate properties portfolio (the "REIT I Portfolio") and that it had formed a special committee of all independent directors (the "Special Committee") to evaluate the potential for a transaction with REIT I. The Special Committee engaged UBS Securities LLC as its financial advisor and Morris Manning & Martin, LLP as its legal advisor to assist the Special Committee regarding the potential acquisition of REIT I or the REIT I Portfolio. REIT I conducted a multi-round bidding process directed by Cushman & Wakefield. The bidding process resulted in a short list of bidders submitting acquisition bids, including the Company's bid, to a special committee of REIT I's board of trust managers for review. On June 21, 2019, the Company announced that following REIT I's review of all bids, REIT I and the Special Committee commenced an exclusive due diligence process in order to determine whether a potential transaction might result.
On September 20, 2019 the Company announced that it had entered into an agreement and plan of merger (the "Merger Agreement") pursuant to which a business combination would be effected by a merger of REIT I with the Company's subsidiary (the "Merger") and REIT I's existence would cease. The Merger is subject to certain closing conditions, including the approval of the Merger by both the Company's stockholders and REIT I’s shareholders, as discussed below. If approved, the Merger is expected to close as soon as practicable following the Company's annual stockholders' meeting, which currently is scheduled to be held on December 17, 2019, and the satisfaction of the closing conditions. The combined company following the Merger will retain the Company's name. The Merger is intended to qualify as a “reorganization” under, and within the meaning of, Section 368(a) of the Internal Revenue Code of 1986, as amended.
Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger, each of REIT I's common shares (the “REIT I Common Shares”) issued and outstanding immediately prior to the effective time of the Merger (other than REIT I Common Shares owned by the Company) will be automatically canceled and retired, and converted into the right to receive one share of the Company's Class C common stock (the “Class C Common Stock”), with any fractional REIT I Common Shares converted into a corresponding number of fractional shares of Class C Common Stock. REIT I currently owns 20 single tenant operating retail, office and industrial assets.
On October 22, 2019, the Company filed a joint proxy statement and prospectus with the SEC related to the annual meeting of stockholders to be held on December 17, 2019 to vote on the Merger and other matters. Stockholders of record on October 21, 2019 are eligible to vote on the proposal to approve the Merger. There can be no assurance that the Merger will close.
Pending Self-Management Transaction
In addition, on September 20, 2019, the Company announced that it had entered into a contribution agreement (the "Contribution Agreement") with the Sponsor and Daisho OP Holdings, LLC, a wholly-owned subsidiary of the Sponsor (“Daisho). The Contribution Agreement provides for a series of transactions, agreements, and amendments to the Company’s existing agreements and arrangements whereby the Company will acquire substantially all of the assets of the Sponsor in exchange for 657,949.5 units of Class M limited partnership interest (the “Class M OP Units”) in the Operating Partnership (the “Self-Management Transaction”).

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Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)

Prior to the closing of the Self-Management Transaction, (i) substantially all of the Sponsor’s assets and liabilities will be contributed to Daisho’s wholly-owned subsidiary, modiv, LLC (“modiv”), and (ii) the Sponsor will spin off Daisho to the Sponsor’s members (the “Spin Off”). Pursuant to the Self-Management Transaction, Daisho will contribute to the Operating Partnership all of the membership interests in modiv in exchange for the Class M OP Units. As a result of these transactions and the Self-Management Transaction, the Sponsor, through its subsidiary, Daisho, will transfer allsell 4 of its operating assets,properties, including but not limited to (a) all personal3 retail properties and 1 industrial property, used in or necessaryand classified them as real estate investments held for the conductsale as of the Sponsor’s business, (b) all intellectual property, goodwill, licenses and sublicenses granted and obtained with respect thereto and certain domain names, (c) all continuing employees, and (d) certain other assets and liabilities, to modiv, and will distribute 100% of the ownership interests in Daisho to the members of the SponsorJune 30, 2020 in the Spin Off.Company's unaudited condensed consolidated balance sheet. The Sponsor is currently engaged3 retail properties were subsequently sold during the three months ended September 30, 2020 and the industrial property was sold in October 2020. During the business of serving directly or indirectly as our sponsor and advisor as well as REIT I’s advisor, and was the sponsor and advisor for BRIX REIT, Inc. (“BRIX REIT”) until the BRIX REIT advisory agreement was terminated effective October 28, 2019. The Company is the sole general partner of the Operating Partnership. Therefore, upon the consummation of the Self-Management Transaction,three months ended September 30, 2020, the Company will become self-managed,also determined to sell an additional 2 retail properties, bringing the total real estate investments held for sale to 3 properties consisting of 2 retail properties and if the Merger is consummated, the combined company following the Merger would become self-managed.
The terms of the Class M OP Units to be issued in the Self-Management Transaction will be set forth in a Second Amended and Restated Limited Partnership Agreement, which will become effective upon the closing of the Self-Management Transaction (the “Amended OP Agreement”). The Class M OP Units will be non-voting, non-dividend accruing, and will not be able to be transferred or exchanged prior to the one-year anniversary of completing the Self-Management Transaction. Following the one-year anniversary of completing the Self-Management Transaction, the Class M OP Units will be convertible into units of Class C limited partnership interests in the Operating Partnership (“Class C OP Units”) at a conversion ratio of five Class C OP Units for each one Class M OP Unit, subject to a reduction in the conversion ratio (which reduction varies depending upon the amount of time held) if the exchange occurs prior to the four-year anniversary of completing the Self-Management Transaction. Under the Amended OP Agreement, the Class C OP Units will continue to be exchangeable for cash or shares of our Class C Common Stock on a one for one basis,1 industrial property as the Company determines. The Class M OP Units will be eligible for an increase in the conversion ratio if the Company achieves the agreed-upon targets for assets under management and adjusted funds from operations in 2021, 2022 and 2023.
As of September 30, 2019,2020 (see Notes 4 and 11 for additional discussion).
The Company continues to offer shares of common stock under its Offerings. In some states, the Company had incurred $2,426,530 in costs relatedis required to the Merger and the Self-Management Transaction. The Merger will be accounted for as an asset acquisition and the related costs will be capitalized and allocated to the assets acquired upon completion of the Merger. The Self-Management Transaction will be accounted for as an acquisition of a business and the related costs are charged to expense. The Company allocated the costs of the financial and legal advisors between the Merger and the Self-Management Transaction based on the relative value of the transactions, resulting in $1,626,170 of Merger costs recorded in other assets pending completion of the Merger and $800,360 of expenses for the Self-Management Transaction recorded as general and administrative expenses.
Temporary Suspension of Primary Offerings, Distribution Reinvestment Plans and Share Repurchase Programs
On September 18, 2019, the board of directors of the Company approved the temporary suspension of the Primary Offering, which is registered with the SEC under the Securities Act, and the primary offering portion of the Class S Offering, which the Company offers exclusively to non-U.S. investors. The Company’s automatic investment program was also temporarily suspended effective as of the close of business on September 18, 2019. The Company filed a pre-effective amendment to its Form S-11 on October 18, 2019, which includes the Company’s updated plan of distribution whereby the Company will offer its Class C common stock through North Capital, a registered broker dealer. On October 23, 2019, North Capital filed an application with the Financial Industry Regulatory Authority ("FINRA") with respect to the offering of the Company’s Class C common stock. The Registered Offering of the Company’s Class C common stock is expected to recommence following receipt of a no objection letter from FINRA, and the SEC declaringrenew the registration statement effective. Upon recommencement offor the RegisteredFollow-on Offering stockholders enrolled inannually or file a new registration statement to continue the automatic investment program will again automatically purchase shares pursuant to such program unless otherwise determined byFollow-on Offering. The Company may terminate the Company’s board of directors.Offerings at any time.
The board of directors of the Company also approved the temporary suspension of the DRPs for Class C Common Stock and Class S Common Stock effective September 18, 2019 and the temporary suspension of the SRPs for Class C Common Stock and Class S Common Stock effective October 19, 2019. Redemption requests submitted prior to 10 a.m. PDT on October 19, 2019 were honored in accordance with the terms of the SRPs. Pursuant to the suspension of the DRPs, beginning September 19, 2019, all future distributions shall be paid to the Company's stockholders in cash until the DRPs are reinstated. The DRPs and the SRPs will remain suspended until such time, if any, as the Company’s board of directors, in its discretion, may approve the reinstatement of the DRPs and SRPs.

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Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)

Should the Merger be completed, the Company currently anticipates the reinstatement of the SRPs to occur shortly after the closing of the transaction, which is expected to occur in late December 2019 or early January 2020.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP"(“GAAP”) for interim financial statements and the rules and regulations of the SEC. Accordingly, they do not contain all information and footnotes required by GAAP for annual financial statements pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. Such unaudited condensed consolidated financial statements and accompanying notes are the representations of the Company’s management, which is responsible for their integrity and objectivity. These unaudited condensed consolidated financial statements should be read in conjunction with the December 31, 2018 audited consolidated financial statements as of December 31, 2019 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 29, 2019.April 6, 2020.
The accompanying unaudited condensed consolidated financial statements have been prepared on the same 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 itsthe Company's financial position, results of operations and cash flows. All significant intercompany balances and transactions are eliminated in consolidation. The condensed consolidated balance sheet as of December 31, 2018 balance sheet2019 included herein was derived from the audited financial statements. The condensed consolidated financial statements but doesdo not include all disclosures or notes required by GAAP for complete financial statements.
Use of Estimates
The preparation of the 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 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, including considerations related to the COVID-19 pandemic (see Notes 3 and 4 for impairment charges related primarily to COVID-19). Actual results may differ from those estimates.
Noncontrolling Interests in Consolidated Entities
The Company accounts for the noncontrolling interests in its Operating Partnership in accordance with the related accounting guidance. Due to the Company's control of the Operating Partnership through its general partnership interest therein and the limited rights of the limited partners, the Operating Partnership, including its wholly-owned subsidiaries, are consolidated with the Company, and the limited partner interests are reflected as noncontrolling interests in the accompanying condensed consolidated balance sheets. The noncontrolling interests were issued on December 31, 2019 and represent non-voting, non-dividend accruing interests with no allocation of profits or losses. As described in Note 3, the interests are not able to be converted or exchanged prior to (i) December 31, 2020, the one-year anniversary of the closing of the Self-Management Transaction (in the case of the Class M OP Units), or (ii) the expiration of the Lockup Period (as defined below) (in the case of the Class P OP Units).
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Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
Business Combinations
The Company accounts for business combinations in accordance with Accounting Standards Codification (“ASC”) 805, Business Combinations (“ASC 805”)and applicable Accounting Standard Updates, whereby the total consideration transferred is allocated to the assets acquired and liabilities assumed, including amounts attributable to any non-controlling interests, when applicable, based on their respective estimated fair values as of the date of acquisition. Goodwill represents the excess of consideration transferred over the estimated fair value of the net assets acquired in a business combination.
ASC 805 defines a business as an integrated set of activities and assets (collectively, a “set”) that is capable of being conducted and managed for the purpose of providing a return in the form of dividends, lower costs, or other economic benefits directly to investors or other owners, members, or participants. To be considered a business, the set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output. ASC 805 provides a practical screen to determine when a set would not be considered a business. If the screen is not met and further assessment determines that the set is not a business, then the set is an asset acquisition. The primary difference between a business combination and an asset acquisition is that an asset acquisition requires cost accumulation and allocation at relative fair value. Acquisition costs are capitalized for an asset acquisition and expensed for a business combination (see Note 3 for a description of the Merger and Self-Management Transaction).
Revenue Recognition
The Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU No. 2014-09”), effective January 1, 2018. The Company’s revenue impacted by ASU No. 2014-09 included revenue generated by sales of real estate, other operating income and tenant reimbursements for substantial services earned at the Company’s properties. Such revenues are recognized when the services are provided and the performance obligations are satisfied. Tenant reimbursements, consisting of amounts due from tenants for common area maintenance, property taxes and other recoverable costs, are recognized in rental income subsequent to the adoption of Topic 842, as discussed below, in the period the recoverable costs are incurred. Tenant reimbursements, for which the Company pays the associated costs directly to third-party vendors and is reimbursed by the tenants, are recognized and recorded on a gross basis.
The Company adopted FASB ASU No. 2016-02, Leases (Topic 842), and the related FASB ASU Nos. 2018-10, 2018-11, 2018-20 and 2019-01 effective January 1, 2019, which provide practical expedients, technical corrections and improvements for certain aspects of ASU 2016-02, on a modified retrospective basis (collectively, “Topic 842”). Topic 842 establishes a single comprehensive model for entities to use in accounting for leases and supersedes the existing leasing guidance. Topic 842 applies to all entities that enter into leases. Lessees are required to report assets and liabilities that arise from leases. Lessor accounting has largely remained unchanged; however, certain refinements were made to conform with revenue recognition guidance, specifically related to the allocation and recognition of contract consideration earned from lease and non-lease revenue components. Topic 842 impacts the Company's accounting for leases primarily as a lessor. However, Topic 842 also impacts the Company's accounting as a lessee for an operating lease assumed as a result of the Self-Management Transaction, which was completed on December 31, 2019.
As a lessor, the Company's leases with tenants generally provide for the lease of real estate properties, as well as common area maintenance, property taxes and other recoverable costs. Under Topic 842, the lease of space is considered a lease component while the common area maintenance, property taxes and other recoverable costs billings are considered nonlease components, which fall under revenue recognition guidance in ASU No. 2014-09. However, upon adopting the guidance in Topic 842, the Company determined that its tenant leases met the criteria to apply the practical expedient provided by ASU No. 2018-11 to recognize the lease and non-lease components together as one single component. This conclusion was based on the consideration that (1) the timing and pattern of transfer of the nonlease components and associated lease components are the same, and (2) the lease component, if accounted for separately, would be classified as an operating lease. As the lease of properties is the predominant component of the Company's leasing arrangements, the Company accounted for all lease and nonlease components as one, single component under Topic 842. As a result, the adoption of Topic 842 did not have any impact on the Company's timing or pattern of recognition of rental revenues as compared to previous guidance. To reflect recognition as one lease component, rental income and tenant reimbursements and other lease related property income that meet the requirements of the practical expedient provided by ASU No. 2018-11 have been combined under rental income subsequent to the adoption of Topic 842 in the Company's consolidated statements of operations. For the three months ended September 30, 2020 and 2019, tenant reimbursements included in rental income amounted to $1,622,218 and $1,328,373, respectively, and for the nine months ended September 30, 2020 and 2019, tenant reimbursements included in rental income amounted to $5,521,723 and $3,514,836, respectively.
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Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
The Company recognizes rental income from tenants under operating leases on a straight-line basis over the noncancelable term of the lease when collectability of such amounts is reasonably assured. Recognition of rental income on a straight-line basis includes the effects of rental abatements, lease incentives and fixed and determinable increases in lease payments over the lease term. If the lease provides for tenant improvements, management of the Company determines whether the tenant improvements, for accounting purposes, are owned by the tenant or by the Company.
When the Company is the owner of the tenant improvements, the tenant is not considered to have taken physical possession or have control of the physical use of the leased asset until the tenant improvements are substantially completed. When the tenant is the owner of the tenant improvements, any tenant improvement allowance (including amounts that the tenant can take in the form of cash or 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. Tenant improvement ownership is determined based on various factors including, but not limited to:
•whether the lease stipulates how a tenant improvement allowance may be spent;
•whether the amount of a tenant improvement allowance is in excess of market rates;
•whether the tenant or landlord retains legal title to the improvements at the end of the lease term;
•whether the tenant improvements are unique to the tenant or general-purpose in nature; and
•whether the tenant improvements are expected to have any residual value at the end of the lease.
Tenant reimbursements of real estate taxes, insurance, repairs and maintenance, and other operating expenses are recognized as revenue in the period the expenses are incurred and presented gross if the Company is the primary obligor and, with respect to purchasing goods and services from third-party suppliers, has discretion in selecting the supplier and bears the associated credit risk. In instances where the operating lease agreement has an early termination option, the termination penalty is based on a predetermined termination fee or based on the unamortized tenant improvements and leasing commissions.
The Company evaluates the collectability of rents and other receivables on a regular basis based on factors including, among others, payment history, credit rating, the asset type, and current economic conditions. If the Company’s evaluation of these factors indicates it may not recover the full value of the receivable, it provides an allowance against the portion of the receivable that it estimates may not be recovered. This analysis requires the Company to determine whether there are factors indicating a receivable may not be fully collectible and to estimate the amount of the receivable that may not be collected.
The Company recognizes gain or loss on sale of real estate property when the Company has executed a contract for sale of the property, transferred controlling financial interest in the property to the buyer and determined that it is probable that the Company will collect substantially all of the consideration for the property. The Company's real estate property sale transactions for the three months ended September 30, 2020 met these criteria at closing.
Bad Debts and Allowances for Tenant and Deferred Rent Receivables
Since the adoption of Topic 842 on January 1, 2019, the Company's determination of the adequacy of its allowances for tenant receivables includes a binary assessment of whether or not the amounts due under a tenant’s lease agreement are probable of collection. For such amounts that are deemed probable of collection, revenue continues to be recorded on a straight-line basis over the lease term. For such amounts that are deemed not probable of collection, revenue is recorded as the lesser of (i) the amount which would be recognized on a straight-line basis or (ii) cash that has been received from the tenant, with any tenant and deferred rent receivable balances charged as a direct write-off against rental income in the period of the change in the collectability determination. In addition, for tenant and deferred rent receivables deemed probable of collection, the Company also may record an allowance under other authoritative GAAP depending upon the Company's evaluation of the individual receivables, specific credit enhancements, current economic conditions, and other relevant factors. Such allowances are recorded as increases or decreases through rental income in the Company's consolidated statements of operations.
With respect to tenants in bankruptcy, management makes estimates of the expected recovery of pre-petition and post-petition claims in assessing the estimated collectability of the related receivable. In some cases, the ultimate resolution of these claims can exceed one year. When a tenant is in bankruptcy, the Company will record a bad debt allowance for the tenant’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.
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Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
Leasing Costs
Upon adoption of Topic 842, the Company elected to apply the package of practical expedients provided and did not reassess the following as of January 1, 2019: (1) whether any expired or existing contracts are leases or contain leases; (2) the lease classification for any expired or existing leases; and (3) initial direct costs for any existing leases. Under Topic 842, initial direct costs for both lessees and lessors would include only those costs that are incremental to the arrangement and would not have been incurred if the lease had not been obtained. As a result, since January 1, 2019, the Company no longer capitalizes internal leasing costs and third-party legal leasing costs and instead charges these costs to expense as incurred. These expenses are included in legal leasing costs under property expenses in the Company's condensed consolidated statements of operations. The election of the package of practical expedients described above permits the Company to continue to account for its leases that commenced before January 1, 2019 under the previously existing lease accounting guidance for the remainder of their lease terms, and to apply the new lease accounting guidance to leases entered into or acquired commencing or modified after January 1, 2019.
Impairment of Investment in Real Estate Properties
The Company continually monitors events and changes in circumstances that could indicate that the carrying amounts of real estate assets may not be recoverable. When indicators of potential impairment are present that indicate that the carrying amounts of real estate assets may not be recoverable, management assesses whether the carrying value of the assets will be recovered through the future undiscounted operating cash flows expected from the use of and eventual disposition of the property. If, based on the analysis, the Company does not believe that it will be able to recover the carrying value of the asset, the Company records an impairment charge to the extent the carrying value exceeds the estimated fair value of the asset. As more fully discussed in Note 4, the Company recorded impairment charges of $9,506,525 related to 4 of its real estate properties during the nine months ended September 30, 2020. The Company did 0t incur any impairment charges for its real estate properties during the three months ended September 30, 2020.
Other Comprehensive Loss
For all periods presented, other comprehensive loss is the same as net loss.
Per Share Data
The Company reports a dual presentation of basic earnings per share (“Basic EPS”) and diluted 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 compute for the potential dilution that would occur if dilutive securities or commitments to issue common stock were exercised. Diluted EPS is the same as Basic EPS for the three and nine months ended September 30, 2020 and 2019 as the Company had a net loss for all reported periods. As of September 30, 2020, there were 657,949.5 Class M OP Units and 56,029 Class P OP Units that are convertible to Class C OP Units (defined below) at a conversion ratio of five Class C OP Units for each one Class M OP Unit or Class P OP Unit, as applicable, after a specified period of time (see Note 3). The holders of Class C OP Units may exchange such Class C OP Units for shares of the Company's Class C common stock on a 1-for-1 basis or, at the Company’s sole and absolute discretion, for cash. The Class M OP Units and Class P OP Units, and the shares of Class C common stock into which they may ultimately be converted, were excluded from the computation of Diluted EPS because their effect would not be dilutive. There were 0 other outstanding securities or commitments to issue common stock that would have a dilutive effect for the periods then ended.
The Company has presented the basic and diluted net loss per share amounts on the accompanying condensed consolidated statements of operations for Class C and Class S share classes as a combined common share class. Application of the two-class method for allocating net loss in accordance with the provisions of ASC 260, Earnings per Share, would have resulted in a net loss of $(0.04) and $(0.06) per share for Class C shares for the three months ended September 30, 2020 and 2019, respectively, and a net loss of $(0.04) and $(0.03) per share for Class S shares for the three months ended September 30, 2020 and 2019, respectively. The two-class method would have resulted in a net loss per share of $(2.17) and $(0.20) for Class C shares for the nine months ended September 30, 2020 and 2019, respectively, and a net loss per share of $(2.17) and $(0.20) for Class S shares for the nine months ended September 30, 2020 and 2019, respectively. The differences in net loss per share if allocated under this method primarily reflects the lower effective distributions per share for Class S shareholders as a result of the payment of the deferred commission to the Class S distributor of these shares, and also reflects the impact of the timing of the declaration of the distributions relative to the time the shares were outstanding.
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Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
Fair Value Disclosures
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an existing price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Valuation techniques used to measure 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:
Level 1: quoted prices in active markets for identical assets or liabilities;
Level 2: inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
Level 3: unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The 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, purchaseprepaid expenses and other deposits, other assets, accounts payable, accrued and other liabilities and due to affiliates: These balances approximate their fair values due to the short maturities of these items.

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Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)

Derivative Instruments: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:  Goodwill and Intangible Assets: Thefair value measurements of goodwill and intangible assets are considered Level 3 nonrecurring fair value measurements. For goodwill, fair value measurement involves the determination of fair value of a reporting unit. The Company uses a Monte Carlo simulation model to estimate future performance, generating the fair value of the Company’s Unsecured Credit Facility (as defined in Note 6) approximates itsreporting unit's business. For intangible assets, fair value measurements include assumptions with inherent uncertainty, including projected Offerings volumes and related projected revenues and long-term growth rates, among others. The carrying value of intangible assets is at risk of impairment if future projected Offerings proceeds, revenues or long-term growth rates are lower than those currently projected.
Unsecured credit facility and short-term notes payable: The fair values of the Company’s unsecured credit facility and short-term notes payable approximate the carrying values of the unsecured credit facility and short-term notes payable as thetheir interest rates and other terms are comparable to those available in the market place for a similar credit facility.facility and short-term note, respectively.
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Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
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.
Restricted Cash
Restricted cash is comprised of funds which are restricted for use as required by certain lenders in conjunction with an acquisition or debt financing or modification and for on-site and tenant improvements.improvements or property taxes. Restricted cash as of September 30, 20192020 and December 31, 20182019 amounted to $177,204$265,654 and $3,503,242,$113,362, respectively.
Pursuant to lease agreements, the Company hadhas obligations to pay for $156,046$60,598 and $3,535,163$98,329 in site and tenant improvements to be incurred by tenants as of September 30, 20192020 and December 31, 2018,2019, respectively, including a 72.7% share of tenant improvements for the Santa Clara property at both balance sheet dates. At both September 30, 20192020 and December 31, 2018,2019, the Company's restricted cash held to fund theother improvements totaled $100,135$92,684. As of September 30, 2020 and $3,486,927, respectively, andDecember 31, 2019, the Company also held restricted cash of $172,970 and $20,678, respectively, for lender reserves.
Real Estate Investments Held for Sale
The Company generally considers a real estate investment to fundbe “held for sale” when the following criteria are met: (i) management commits to a plan to sell the property, (ii) the property is available for sale immediately, (iii) the property is actively being marketed for sale at a price that is reasonable in relation to its current fair value, (iv) the sale of the property within one year is considered probable and (v) significant changes to the plan to sell are not expected. Real estate that is held for sale and its related assets are classified as “real estate investment held for sale, net” and “assets related to real estate investment held for sale,” respectively, in the accompanying condensed consolidated balance sheets. Mortgage notes payable and other liabilities related to real estate investments held for sale are classified as “mortgage notes payable related to real estate investments held for sale, net” and “liabilities related to real estate investments held for sale,” respectively, in the accompanying condensed consolidated balance sheets. Real estate investments classified as held for sale are no longer depreciated and are reported at the lower of their carrying value or their estimated fair value less estimated costs to sell. Operating results of properties that were classified as held for sale in the ordinary course of business are included in continuing operations in the Company’s accompanying condensed consolidated statements of operations.
Goodwill and Other Intangible Assets
The Company records goodwill when the purchase price of a business combination exceeds the estimated fair value of net identified tangible and intangible assets acquired. The Company evaluates goodwill for possible impairment in accordance with ASC 350, Intangibles–Goodwill and Other on an impounded property tax. Duringannual basis, or more frequently when events or changes in circumstances indicate that it is more likely than not that the ninefair value of a reporting unit has declined below its carrying value. If the carrying amount of the reporting unit exceeds its fair value, an impairment charge is recognized. Due to the impacts of the COVID-19 pandemic, the Company performed an impairment test of goodwill for the three months ended March 31, 2020. Since the Company is a single reporting unit, the Company performed a quantitative analysis to compare the estimated fair value of the Company’s net tangible and intangible assets to the preliminary carrying value of its net tangible and intangible assets as of March 31, 2020. The recorded goodwill impairment charge of $33,267,143 represents the excess of the Company’s net book value over its estimated fair value as of March 31, 2020. NaN additional goodwill impairment charges were recorded for the period from April 1, 2020 to September 30, 2019, $3,387,6992020.
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Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
Intangible assets consist of purchased customer-related intangible assets, marketing-related intangible assets, developed or acquired technology and other intangible assets. Intangible assets are amortized over their estimated useful lives using the straight-line method ranging from three years to five years. No significant residual value is estimated for intangible assets. An asset is considered impaired if its carrying amount exceeds the future net cash was releasedflow the asset is expected to generate. The Company evaluates long-lived assets (including intangible assets) for impairment whenever events or changes in circumstances indicate that the carrying amount of a tenantlong-lived asset may not be recoverable. Due to reimburse itthe impacts of the COVID-19 pandemic, the Company evaluated its intangible assets for tenant improvement costs underimpairment and recorded an impairment charge of $1,305,260 for the terms of its lease agreement.three months ended March 31, 2020. NaN additional impairment charges on intangible assets were recorded for the period from April 1, 2020 to September 30, 2020.
Other Comprehensive Income (Loss)
For all periods presented,See Note 3 for additional information related to goodwill and other comprehensive income (loss) isintangible assets acquired in connection with the same as net income (loss).Self-Management Transaction and impairments recorded.
Reclassifications
Certain prior period revenuecash flows from operations account balancesgrouping in the condensed consolidated statement of operations havecash flows has been reclassified to conform with the current year presentation. The reclassifications had no impact on net loss.
Per Share DataRestricted Stock Units and Restricted Stock Unit Awards
Basic earnings (loss) per share is calculated by dividing net income (loss)The fair values of the Operating Partnership's units or restricted stock unit awards issued or granted by the weighted average number of common shares outstanding duringCompany are based on the period. Diluted income (loss)most recent NAV per share of the Company’s common stock equals basic income (loss) per shareon the date of common stockissuance or grant. Operating Partnership units issued as there were no potentially dilutive securities outstanding duringpurchase consideration in connection with the Self-Management Transaction discussed in Note 3 are recorded in equity under noncontrolling interests in the Operating Partnership in the Company's condensed consolidated balance sheets as of September 30, 2020 and December 31, 2019 and condensed consolidated statements of equity for the three and nine months ended September 30, 20192020. For units granted to employees of the Company that are not included in the purchase consideration, the fair value of the award is amortized using the straight-line method over the requisite service period of the award, which is generally the vesting period (see Note 3).
The Company determines the accounting classification of equity instruments (e.g. restricted stock units) that are issued as purchase consideration or part of the purchase consideration in a business combination, as either liability or equity, by first assessing whether the equity instruments meet liability classification in accordance with ASC 480-10, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and 2018.Equity (“ASC 480-10”), and then in accordance with ASC 815-40, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock (“ASC 815-40”). Under ASC 480-10, equity instruments are classified as liabilities if the equity instruments are mandatorily redeemable, obligate the issuer to settle the equity instruments or the underlying shares by paying cash or other assets, or must or may require an unconditional obligation that must be settled by issuing a variable number of shares.

If equity instruments do not meet 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 equity 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 on subsequent accounting period ending dates, with all changes in fair value after the issuance date recorded in the statements of operations as a gain or loss. Equity classified equity instruments are accounted for at fair value on the issuance date with no changes in fair value recognized after the issuance date.
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Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)

For the three and nine months ended September 30, 2019 and 2018, the Company has presented net (loss) income per share amounts on the accompanying condensed consolidated statements of operations for Class C and S share classes as a combined common share class. Application of the two-class method for allocating (loss) income in accordance with the provisions of Accounting Standards Codification ("ASC") 260, Earnings per Share, would have resulted in a net (loss) income per share of $(0.05) and $0.02 for Class C shares for the three months ended September 30, 2019 and 2018, respectively, and $(0.02) and $(0.03) for Class S shares for the three months ended September 30, 2019 and 2018, respectively. The two-class method would have resulted in a net (loss) income per share of $(0.20) and $0.00 for Class C shares for the nine months ended September 30, 2019 and 2018, respectively, and $(0.20) and $(0.13) for Class S shares for the nine months ended September 30, 2019 and 2018, respectively.
The differences in net (loss) income per share if allocated under this method primarily reflect the lower effective dividends per share for Class S shareholders as a result of the payment of the deferred commission to the Class S distributor of these shares, and also reflect the impact of the timing of the declaration of the dividends relative to the time the shares were outstanding.
Distributions
The Company’s board of directors may declare distributions in advance of the periods to which they relate. Because such distributions relate to operations and cash available for distributions to be produced in future periods, these distributions will not included in distributions that are recorded in the current period being reported.
The following are the Company’s updated significant accounting policies that have been affected by the adoption of Topic 842 as discussed below in New Accounting Standards Issued and Adopted:
Revenue Recognition
The Company recognizes rental income, tenant reimbursements and other lease-related revenue when all of the following criteria are met: (i) the agreement has been fully executed and delivered, (ii) services have been rendered, (iii) the amount is fixed or determinable and (iv) payment has been received or the collectability of the amount due is probable. Lease termination fees are amortized over the remaining lease term, if applicable. If there is no remaining lease term, they are recognized when received and realized. Minimum annual rental revenues are recognized in rental income on a straight-line basis over the non-cancelable term of the related lease.
The recognition of rental income commences when the tenant takes possession or controls the physical use of the leased property. In order for the tenant to take possession, the leased property must be substantially complete and ready for its intended use. In order to determine whether the leased property is substantially complete and ready for its intended use, the Company begins by determining whether the Company or the tenant owns the tenant improvements, if the lease agreement provides for tenant improvements.
Tenant improvement ownership is determined based on various factors including, but not limited to:
whether the lease stipulates how a tenant improvement allowance may be spent;
whether the amount of a tenant improvement allowance is in excess of market rates;
whether the tenant or landlord retains legal title to the improvements at the end of the lease term;
whether the tenant improvements are unique to the tenant or general-purpose in nature; and
whether the tenant improvements are expected to have any residual value at the end of the lease.
When the Company concludes that it is the owner of tenant improvements, rental income recognition begins when the tenant takes possession of the completed property, which is generally when Company-owned tenant improvements are substantially complete. In addition, when the Company concludes that it is the owner of tenant improvements, the Company records the costs to construct the tenant improvements, including costs paid for or reimbursed by the tenants, as a capital asset. For these tenant improvements, the Company records the amount funded by or reimbursed by the tenants as deferred revenue, which is amortized on a straight-line basis as additional rental income over the term of the related lease.

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Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)

When the Company concludes that the tenant is the owner of tenant improvements, rental income recognition begins when the tenant takes possession of or controls the physical use of the leased property. Any tenant improvement allowance (including amounts that the tenant can take in the form of cash or 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. In addition, when the Company concludes that the tenant is the owner of tenant improvements for accounting purposes, the Company records its contribution towards such improvements as a lease incentive, which is included in deferred leasing costs and acquisition-related intangible assets, net in its consolidated balance sheets and amortized as a reduction to rental income on a straight-line basis over the term of the related lease.
Tenant Reimbursements
Tenant reimbursements, consisting of amounts due from tenants for common area maintenance, property taxes and other recoverable costs, are recognized in rental income in the period the recoverable costs are incurred. Tenant reimbursements are recorded on a gross basis when the Company pays the associated costs directly to third-party vendors and are reimbursed subsequently by the tenants.
Allowances for Tenant and Deferred Rent Receivables
The Company carries its tenant and deferred rent receivables net of allowances for amounts that may not be collected. Prior to the Company’s adoption of Topic 842 on January 1, 2019, the allowances were increased or decreased through provision for bad debts in the Company’s condensed consolidated statement of operations. Upon the adoption of Topic 842 on January 1, 2019, the determination of the adequacy of the Company's allowances for tenant and deferred rent receivables includes a binary assessment of whether the amounts due under a tenant’s lease agreement are probable of collection.
For such amounts that are deemed probable of collection, revenue continues to be recorded on a straight-line basis over the lease term. For such amounts that are deemed not probable of collection, revenue is recorded as the lesser of (i) the amount which would be recognized on a straight-line basis or (ii) cash that has been received from the tenant, with any current and deferred rent receivable balances charged as a direct write-off against rental income in the period of the change in the collectability determination.
Recent Accounting Pronouncements
New Accounting Standards Issued and Adopted
Effective January 1, 2019, the Company adopted Financial Accounting Standards Board ("FASB") ASU No. 2016-02 "Leases (Topic 842)" and the related FASB ASU Nos. 2018-10, 2018-11, 2018-20 and 2019-01, which provide practical expedients, technical corrections and improvements for certain aspects of ASU 2016-02, on a modified retrospective basis (collectively "Topic 842"). Topic 842 establishes a single comprehensive model for entities to use in accounting for leases and supersedes the existing leasing guidance. Topic 842 applies to all entities that enter into leases. Lessees are required to report assets and liabilities that arise from leases. Lessor accounting has largely remained unchanged; however, certain refinements were made to conform with revenue recognition guidance, specifically related to the allocation and recognition of contract consideration earned from lease and non-lease revenue components. The Company currently does not have any exposure to Topic 842 from the perspective of a lessee as the operating lease is borne by the Sponsor. The Company's exposure to Topic 842 is primarily as a lessor. The Company has elected to apply the applicable practical expedients provided by Topic 842. If the Self-Management Transaction is completed, the Company will address the impact of being a lessee for its administrative offices.

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Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)

Lessor Accounting
As a lessor, the Company’s leases with tenants generally provide for the lease of real estate properties, as well as common area maintenance, property taxes and other recoverable costs. Under Topic 842, the lease of space is considered a lease component while the common area maintenance, property taxes and other recoverable costs billings are considered nonlease components, which fall under revenue recognition guidance in Topic 606. However, upon adopting the guidance in Topic 842, the Company determined that its tenant leases met the criteria to apply the practical expedient provided by ASU 2018-11 to recognize the lease and non-lease components together as one single component. This conclusion was based on the consideration that 1) the timing and pattern of transfer of the nonlease components and associated lease component are the same, and 2) the lease component, if accounted for separately, would be classified as an operating lease. As the lease of properties is the predominant component of the Company’s leasing arrangements, the Company accounted for all lease and nonlease components as one-single component under Topic 842. As a result, the adoption of Topic 842 did not have any impact on the Company’s timing or pattern of recognition of rental revenues as compared to previous guidance. To reflect recognition as one lease component, rental income and tenant reimbursements and other lease related property income that meet the requirements of the practical expedient provided by ASU 2018-11 have been combined under rental income subsequent to the adoption of Topic 842 for the three and nine months ended September 30, 2019 in the Company’s consolidated statements of operations. The Company also made a conforming reclassification for the prior year’s tenant reimbursements. For the three month periods ended September 30, 2019 and 2018, tenant reimbursements included in rental income amounted to $1,328,373 and $815,216, respectively, and for the nine month periods ended September 30, 2019 and 2018, tenant reimbursements included in rental income amounted to $3,514,836 and $2,076,735, respectively.
Prior to the adoption of Topic 842, lessor costs for certain services directly reimbursed by tenants have already been presented by the Company on a gross basis in revenues and expenses.
Leasing Costs
Upon adoption of Topic 842, the Company elected to apply the package of practical expedients provided and did not reassess the following as of January 1, 2019: 1) whether any expired or existing contracts are leases or contain leases; 2) the lease classification for any expired or existing leases; and 3) initial direct costs for any existing leases. Under Topic 842, initial direct costs for both lessees and lessors would include only those costs that are incremental to the arrangement and would not have been incurred if the lease had not been obtained. As a result, beginning January 1, 2019, the Company will no longer capitalize internal leasing costs and third-party legal leasing costs and will instead expense these costs as incurred. These expenses will be included in legal leasing costs under general and administrative expenses in the Company's consolidated statements of operations. During the three months ended March 31, 2019, the Company did not incur any indirect leasing costs which would have been capitalized prior to the adoption of Topic 842. The election of the package of practical expedients described above permits the Company to continue to account for its leases that commenced before January 1, 2019 under the previously existing lease accounting guidance for the remainder of their lease terms, and to apply the new lease accounting guidance to leases entered into or acquired commencing or modified after January 1, 2019.
Allowances for Tenant and Deferred Rent Receivables
Upon the adoption of Topic 842 on January 1, 2019, the Company’s determination of the adequacy of its allowances for tenant receivables includes a binary assessment of whether or not the amounts due under a tenant’s lease agreement are probable of collection. For such amounts that are deemed probable of collection, revenue continues to be recorded on a straight-line basis over the lease term. For such amounts that are deemed not probable of collection, revenue is recorded as the lesser of (i) the amount which would be recognized on a straight-line basis or (ii) cash that has been received from the tenant, with any tenant and deferred rent receivable balances charged as a direct write-off against rental income in the period of the change in the collectability determination. In addition, for tenant and deferred rent receivables deemed probable of collection the Company also may record an allowance under other authoritative GAAP depending upon the Company’s evaluation of the individual receivables, specific credit enhancements, current economic conditions, and other relevant factors. Such allowances are recorded as increases or decreases through rental income in the Company’s consolidated statements of operations.

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Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)

New Accounting Standards Recently Issued and Not Yet Adopted
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework -Changes to the Disclosure Requirements for Fair Value Measurement ("“ASU No. 2018-13"2018-13”). ASU No. 2018-13 removes the requirement to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for the timing of transfers between levels and the valuation processes for Level 3 fair value measurements. It also adds a requirement to disclose changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and to disclose the range and weighted average of significant unobservable inputs used to develop recurring and nonrecurring Level 3 fair value measurements. For certain unobservable inputs, entities may disclose other quantitative information in lieu of the weighted average if the other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop the Level 3 fair value measurement. In addition, public entities are required to provide information about the measurement uncertainty of recurring Level 3 fair value measurements from the use of significant unobservable inputs if those inputs reasonably could have been different at the reporting date. ASU 2016-02No. 2018-13 is effective for the Company beginning January 1, 2020. Entities arewere permitted to early adopt either the entire standard or only the provisions that eliminate or modify the requirements. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The Company is still evaluating the impactadoption of adopting ASU No. 2018-13 on itsJanuary 1, 2020 did not have a material impact on the Company's consolidated financial statements.
In April 2020, the FASB issued a FASB Staff Q&A related to Topic 842 and Topic 840: Accounting for Lease Concessions Related to the Effects of the COVID-19 Pandemic (the “Topic 842 Q&A”). The Company adopted the lease accounting standards of Topic 842 beginning January 1, 2019. Under Topic 842, subsequent changes to lease payments that are not stipulated in the original lease contract are generally accounted for as lease modifications. Some contracts may contain explicit or implicit enforceable rights and obligations that require lease concessions if certain circumstances arise that are beyond the control of the parties to the contract. If a lease contract provides enforceable rights and obligations for concessions in the contract and no changes are made to that contract, the concessions are not accounted for under the lease modification guidance in Topic 842. If concessions granted by lessors are beyond the enforceable rights and obligations in the contract, entities would generally account for those concessions in accordance with the lease modification guidance in Topic 842.
Because of the unprecedented and global nature of the COVID-19 pandemic, the FASB staff is aware that it may be exceedingly challenging for entities to determine whether existing contracts provide enforceable rights and obligations for lease concessions and whether those concessions are consistent with the terms of the contract or are modifications to the contract. As such, the FASB staff believes that it would be acceptable for entities to make an election to account for lease concessions related to the effects of the COVID-19 pandemic consistent with how those concessions would be accounted for under Topic 842, as though enforceable rights and obligations for those concessions existed (regardless of whether those enforceable rights and obligations for the concessions explicitly exist in the contract). Consequently, for concessions related to the effects of the COVID-19 pandemic, an entity will not have to analyze each contract to determine whether enforceable rights and obligations for concessions exist in the contract and can elect to apply or not apply the lease modification guidance in Topic 842 to those contracts. This election is available for concessions related to the effects of the COVID-19 pandemic that do not result in a substantial increase in the rights of the lessor or the obligations of the lessee. For example, this election is available for concessions that result in the total payments required by the modified contract being substantially the same as or less than total payments required by the original contract. The FASB staff expects that reasonable judgment will be exercised in making those determinations. Some concessions will provide a deferral of payments with no substantive changes to the consideration in the original contract. A deferral affects the timing, but the amount of the consideration is substantially the same as that required by the original contract.
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Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
The FASB staff expects that there will be multiple ways to account for those deferrals, none of which the FASB staff believes are more preferable than the others. Two of those methods are: (1) account for the concessions as if no changes to the lease contract were made; under that accounting, a lessor would increase its lease receivable, and a lessee would increase its accounts payable as receivables/payments accrue; in its income statement, a lessor would continue to recognize income, and a lessee would continue to recognize expense during the deferral period; and (2) account for the deferred payments as variable lease payments.
The Company has elected to utilize the method wherein the concessions result in additional lease receivable during the deferral period as available under the Topic 842 Q&A for lease concessions related to the effects of the COVID-19 pandemic. The Company's lease concessions related to the effects of the COVID-19 pandemic resulted in a receivable of $79,463 on the Company’s condensed consolidated balance sheet as of September 30, 2020, approximately 29% of which was collected subsequent to September 30, 2020. Due to the continuing nature of the COVID-19 pandemic, there may be subsequent impacts from future tenant requests for lease concessions or deferrals for future periods. The Company maintains an inventory of tenants which have or are expected to request lease concessions. Future lease concessions may have an impact on the Company’s business, financial condition and results of operations, but the ultimate impact will largely depend on future developments with respect to the continued spread and treatment of COVID-19, which the Company cannot accurately predict at this time.
New Accounting Standards Recently Issued and Not Yet Adopted
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). ASU 2020-04 eases the potential burden in accounting for recognizing the effects of reference rate reform on financial reporting. Such challenges include the accounting and operational implications for contract modifications and hedge accounting. ASU 2020-04 provides optional expedients and exceptions for applying GAAP to loan and lease agreements, contracts, hedging relationships, and other transactions affected by reference rate reform. These provisions apply to contract modifications that reference the London Inter-bank Offered Rate (“LIBOR”) or another reference rate expected to be discounted because of reference rate reform.
Qualifying modifications of loan agreements should be accounted for by prospectively adjusting the effective interest rate, and the modification would be considered “minor” so that any existing unamortized deferred loan origination fees and costs would carry forward and continue to be amortized. Qualifying modifications of lease agreements should be accounted for as a continuation of the existing agreement with no reassessments of the lease classification and the discount rate or remeasurements of lease payments that otherwise would be required for modifications not accounted for as separate contracts. ASU 2020-04 also provides numerous optional expedients for hedge accounting. ASU 2020-04 is effective as of March 12, 2020 through December 31, 2022, with adoption permitted as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. Once elected, the amendments must be applied prospectively for all eligible contract modifications. The Company is currently evaluating the effect that ASU 2020-04 will have on the Company’s consolidated financial statements.
NOTE 3. MERGER AND SELF-MANAGEMENT TRANSACTION
REIT I Merger Transaction
On December 31, 2019, pursuant to the Merger Agreement, the Company completed the acquisition of REIT I. The Company's stockholders approved the Merger contemplated by the Merger Agreement at the Annual Meeting of Stockholders held on December 17, 2019 (the “Annual Meeting”). The shareholders of REIT I approved the Merger contemplated by the Merger Agreement at REIT I’s Special Meeting of Shareholders, also held on December 17, 2019. On December 31, 2019, REIT I merged with and into Merger Sub, which survived the Merger as the Company's direct, wholly-owned subsidiary. At such time, the separate existence of REIT I ceased. The acquisition primarily included 20 single-tenant commercial properties and related tenant receivables, mortgage notes payable and accounts payable, in exchange for Merger consideration for each of REIT I's common shares (the “REIT I Common Shares”) issued and outstanding immediately prior to the Merger, other than the REIT I Common Shares owned by the Company, which were automatically canceled and retired, and converted into the right to receive one share of the Company's Class C common stock, with any fractional REIT I Common Shares converted into a corresponding number of fractional shares of the Company’s Class C common stock. As a result, the Company issued 8,042,221.6 shares of its Class C common stock to former shareholders of REIT I. As further discussed in Note 5, prior to the merger of REIT I with and into Merger Sub on December 31, 2019, the Company had an approximate 4.8% ownership interest in REIT I.
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Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
Accounting Treatment
While the Merger transaction was treated legally as a merger of the two entities, for accounting purposes, the transaction was treated as an asset acquisition under GAAP because REIT I did not possess the capability to operate its properties to generate revenue since it had no workforce. It was dependent on its advisor and did not possess the processes to perform asset management, property purchase and sale transactions or the resulting revenue generation on a stand-alone basis. The real estate assets acquired are similar in nature to each other and represent substantially all of the fair value of the assets acquired. While there are some dissimilarities including the nature of the use (retail, industrial and office), each of the properties was subject to a multi-year lease with a single creditworthy tenant and the properties had similar risk profiles, generally including a mortgage secured only by the property. In addition, 17 of the 20 properties (approximately 93% by value as of the transaction date) were located in California and therefore subject to California law and all properties were managed without on-site offices. Merger Sub, not REIT I, was the surviving entity, there was no entity level debt and there was 0 contingent consideration paid, as would be typical in the purchase of an operating business.
The assets and liabilities acquired in the Merger were recorded at fair value as determined as of December 31, 2019, including normal adjustments for the values of lease-in-place and above/below market leases and premium/discount on outstanding mortgage notes payable. The Company incurred approximately $3,044,000 of acquisition-related transaction costs during 2019. These acquisition-related transaction costs were capitalized to the acquired real estate assets. As the transaction closed on the final day of the year, the Merger did not have an impact on the Company's consolidated statement of operations for the year ended December 31, 2019.
Purchase Price Allocation
The Company accounted for the Merger in accordance with the accounting standards codification guidance for business combinations, whereby the total purchase price was allocated to the acquired net tangible and intangible assets based on their estimated fair values as of the closing date. As of December 31, 2019, the Company had substantially completed its process for measuring the fair values of the assets acquired and liabilities assumed based on information available as of the closing date.
The following table summarizes the allocation of the purchase price to the fair values assigned to the REIT I assets acquired and liabilities assumed as of December 31, 2019, the Merger closing date. These fair values were based on internal Company and independent external third-party valuations:
Fair Values AssignedDecember 31,
2019
Assets:
Real estate property, including above/below lease intangibles$151,099,097 
Cash and cash equivalents1,612,331 
Tenant receivable310,169 
Prepaid expenses and other assets51,924 
Liabilities:
Mortgage notes payable, net(62,985,425)
Accounts payable and other liabilities(2,243,156)
Net87,844,940 
Less: Cancellation of investment in REIT I (Note 5)(3,091,489)
         Capitalized transaction-related costs(3,044,480)
Net Assets Acquired$81,708,971 
Self-Management Transaction
On September 19, 2019, the Company, the Operating Partnership, BrixInvest and Daisho entered into the Contribution Agreement pursuant to which the Company agreed to acquire substantially all of the net assets of BrixInvest in exchange for 657,949.5 Class M OP Units in the Operating Partnership and assumed certain liabilities. On December 31, 2019, the Self-Management Transaction was completed.
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Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
Prior to the closing of the Self-Management Transaction: (i) substantially all of BrixInvest’s assets and liabilities were contributed to Daisho’s wholly-owned subsidiary, modiv, LLC, a Delaware limited liability company (“modiv, LLC”); and (ii) BrixInvest spun off Daisho to the BrixInvest members (the “Spin Off”). Pursuant to the Self-Management Transaction, Daisho contributed to the Operating Partnership all of the membership interests in modiv, LLC in exchange for the Class M OP Units.
As a result of the Self-Management Transaction, BrixInvest, through its subsidiary, Daisho, transferred all of its operating assets, including but not limited to: (i) all personal property used in or necessary for the conduct of BrixInvest’s business; (ii) intellectual property, goodwill, licenses and sublicenses granted and obtained with respect thereto and certain domain names; (iii) all continuing employees and (iv) certain other assets and liabilities, to modiv, LLC and distributed 100% of the ownership interests in Daisho to the members of BrixInvest in the Spin Off.
BrixInvest had been engaged in the business of serving as the sponsor platform supporting the operations of the Company, REIT I and, prior to October 28, 2019, BRIX REIT, Inc. (“BRIX REIT”), including serving, directly or indirectly, as advisor and asset manager to the Company, REIT I and, until October 28, 2019, BRIX REIT.
As a result of the Merger and the Self-Management Transaction, effective December 31, 2019, the Company, its Former Advisor and BrixInvest, which wholly owned the Company's Former Advisor, mutually agreed to terminate the Advisory Agreement, and the Company became self-managed. Accordingly, disclosures with regard to the Advisory Agreement elsewhere in this Quarterly Report on Form 10-Q pertain only to transactions with the Company's Former Advisor through December 31, 2019.
Amendments to Operating Partnership Agreement
On December 31, 2019, the Company, the Operating Partnership and NNN LP entered into the Second Amended and Restated Agreement of Limited Partnership (the “Amended OP Agreement”), which amended the Amended and Restated Agreement of Limited Partnership of the Operating Partnership dated August 11, 2017. The amendments included amending the name of the Operating Partnership from “Rich Uncles NNN Operating Partnership, LP” to “RW Holdings NNN REIT Operating Partnership, LP” and provided the terms of the Class M OP Units and Class P OP Units issued in connection with the Self-Management Transaction and further described below.
The Class M OP Units were issued to Daisho on December 31, 2019 in connection with the Self-Management Transaction and are non-voting, non-dividend accruing, and are not able to be converted or exchanged prior to the one-year anniversary of the completion 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 and the Class M OP Units will become convertible into units of Class C limited partnership interest in the Operating Partnership (“Class C OP Units”) at a conversion ratio of five 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. In the event that the Class M OP Units are converted into Class C OP Units prior to December 31, 2023, such Class M OP Units shall be exchanged at the rate indicated below:
Date of ExchangeEarly Conversion Rate
From December 31, 2020 to December 30, 202150% of the Class M conversion ratio
From December 31, 2021 to December 30, 202260% of the Class M conversion ratio
From December 31, 2022 to December 30, 202370% of the Class M conversion ratio
The Class M OP Units are eligible for an increase in the conversion ratio (conversion ratio enhancement) if the Company achieves both of the targets for assets under management (“AUM”) and adjusted funds from operations (“AFFO”) in a given year as set forth below:
Hurdles
AUMAFFO Per ShareClass M
($ in billions)($)Conversion Ratio
Initial Conversion Ratio1:5.00
Fiscal Year 2021$0.860 $0.59 1:5.75
Fiscal Year 2022$1.175 $0.65 1:7.50
Fiscal Year 2023$1.551 $0.70 1:9.00
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RW HOLDINGS NNN REIT, INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
Based on the current conversion ratio of five Class C OP Units for each one Class M OP Unit, if a Class M OP Unit is converted on or after December 31, 2023, and based on the current NAV per share of $7.00, a Class M OP Unit would be valued at $35.00. The current NAV does not impact the early conversion rate or the future conversion enhancement ratio of the Class M OP Units and Class P OP Units.
The Company also issued a portion of the Class P OP Units described below in connection with the 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 Amended OP 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 five 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.
The Company issued a total of 56,029 Class P OP Units to Messrs. Halfacre and Raymond 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 forfeit 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 these executives 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 $10.16 when issued on December 31, 2019 and the expected minimum conversion ratio of five 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. During the three and nine months ended September 30, 2020, the Company amortized and charged $88,784 and $266,350, respectively, to stock compensation expense. The unamortized value of these units was $1,242,969 as of September 30, 2020.
Under the Amended OP Agreement, once the Class M OP Units or Class P OP Units are converted into Class C OP Units, they will be exchangeable for the Company’s shares of Class C common stock on a 1-for-1 basis, or for cash at the sole and absolute discretion of the Company. The Company recorded the ownership interests of the Class M OP Units and Class P OP Units as noncontrolling interests in the Operating Partnership, representing a combined total of approximately 13% of equity in the Operating Partnership as of December 31, 2019.
Registration Rights Agreement
On December 31, 2019, the Company, the Operating Partnership and Daisho entered into a Registration Rights Agreement pursuant to which Daisho (or any successor holder) has the right, after one year from the date of the Self-Management Transaction, to request that the Company register for resale, under the Securities Act, shares of the Company's Class C common stock issued or issuable to such holder in exchange for the Class C OP Units as described above.
Accounting Treatment
In accordance with GAAP, the Company accounted for the Self-Management Transaction as an acquisition of a business in accordance with the accounting standards codification guidance for business combinations because the parties to the transaction were not under common control and the acquisition was for an integrated set of activities and assets, consisting of inputs (executives and staff with knowledge and experience) and processes (operating a real estate investment trust and online investor website platform) that contribute to the creation of outputs (real estate transactions, asset management and generation of investors). Therefore, the total consideration transferred was allocated to the acquired net tangible and intangible assets based on their estimated fair values at December 31, 2019.
The fair value measurement of the consideration transferred was based on significant inputs not observable in the market and thus represent a Level 3 measurement as discussed in Note 2. The key assumptions used in estimating the fair value of the Class M OP Units and the Class P OP Units included projections for (i) property acquisitions and changes in property values, (ii) new investors, and (iii) follow on investments by existing stockholders. The consideration transferred in the Self-Management Transaction was determined to have a fair value of $50,603,000 as of December 31, 2019 based on a probability weighted analysis of achieving the requisite AUM and AFFO hurdles. The Class M OP Units and the 26,318 Class P OP Units issued in connection with the Self-Management Transaction were treated as permanent equity of the Company for accounting purposes because the Class M OP Units and the Class P OP Units are not mandatorily redeemable by the Company. In addition, there is no unconditional obligation to issue a variable number of shares; the Class M OP Units and the Class P OP Units are issued in the form of shares and as such would not represent a financial instrument other than an outstanding share that embodies a conditional
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Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
obligation, and they do not possess the characteristics of freestanding derivatives. Moreover, they are not redeemable for cash or other assets at the option of the holder or upon the occurrence of an event that is not solely within the control of the Company. The Class M OP Units and the Class P OP Units are a single financial instrument, including the conversion ratio enhancement, which cannot be detached and is not separately exercisable.
As of December 31, 2019, the Company had substantially completed its process for measuring the fair values of the assets acquired and liabilities assumed based on information available as of the closing date. The Company incurred $1,468,913 in costs in connection with the Self-Management Transaction, which were included in the consolidated statement of operations for the year ended December 31, 2019 and an additional $201,920 in post-closing costs during the nine months ended September 30, 2020, including $193,460 in post-closing costs that were incurred during the three months ended March 31, 2020 and $8,460 in post-closing costs that were incurred during the three months ended June 30, 2020.
Purchase Price Allocation
The following table summarizes the allocation of the purchase price to the fair values assigned to the BrixInvest assets acquired and liabilities assumed as of December 31, 2019, the closing date of the Self-Management Transaction. These fair values were based on internal Company and independent external third-party valuations:
Fair Values AssignedDecember 31, 2019
Assets:
Cash and cash equivalents$(204,176)
Prepaid expenses and other assets(305,212)
Operating lease right-of-use asset(2,386,877)
Intangible assets(7,700,000)
Liabilities:
Short-term notes payable4,800,000 
Due to affiliates630,820 
Bank line of credit800,000 
Accounts payable and other liabilities2,070,968 
Operating lease liability2,386,877 
Net liabilities assumed92,400 
Less: Cancellation of investment in the Company(107,400)
Add: Contribution of Class M OP Units and Class P OP Units50,603,000 
Goodwill$50,588,000 
Prior to the closing of the Self-Management Transaction, BrixInvest held 10,740 shares of Class C common stock in the Company, purchased at $10.00 per share. These shares were canceled in connection with the Self-Management Transaction.
Goodwill
The goodwill recognized was primarily attributable to the Company's ability to be self-managed, the value of the workforce which includes growth opportunities, from both existing and new investments, income streams and the ability to offer new products, the investor platform acquired from BrixInvest and its expected synergies resulting from the Self-Management Transaction and the Merger. Key areas of expected cost synergies include increased purchasing power for acquiring properties, lower financing costs and administrative efficiencies. Goodwill is expected to be mostly non-deductible for tax purposes. As permitted under ASC 805 for business combinations, the Company recorded goodwill because the purchase price of the Self-Management Transaction exceeded the estimated fair value of net identified tangible and intangible assets acquired.
The current COVID-19 pandemic in the United States and globally, and the magnitude and uncertain duration of the economic impacts have resulted in challenges in attracting investor equity during this period of economic weakness and volatility. The disruption in the Company's Offerings is expected to have a protracted impact on capital raising, and the recessionary pressures on the economy have resulted in real estate market uncertainty and an approximate 14% decrease in the estimated fair value of the Company’s real estate properties as of April 30, 2020 as compared with the estimated fair value of the Company’s real estate properties as of December 31, 2019 (see discussion of the Company's updated estimated NAV per share approved on May 20, 2020 above in Note 1). Given these circumstances, the Company revised its capital raise projections, its projections of new investment and other factors contributing to the Company's analysis of estimated fair value of its consolidated business operations. Since the Company is a single reporting unit, the Company performed a quantitative analysis to compare the estimated
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RW HOLDINGS NNN REIT, INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
fair value of the Company’s net tangible and intangible assets, including the estimated fair value of the business acquired from its Former Sponsor, to the carrying value of its net tangible and intangible assets as of March 31, 2020. Since the estimated fair value of the Company’s net tangible and intangible assets was less than the carrying amount of its net tangible and intangible assets, the Company recorded a goodwill impairment charge of $33,267,143 for the three months ended March 31, 2020 which is reflected in the Company’s net loss for the nine months ended September 30, 2020.
The net carrying amount of goodwill as of September 30, 2020 and December 31, 2019 is as follows:
September 30,
2020		December 31,
2019
Goodwill$17,320,857 $50,588,000 
Intangible Assets Acquired
The allocation of the purchase price to the net assets acquired in the Self-Management Transaction resulted in the recognition of $7,700,000 of intangible assets as of the December 31, 2019 closing date. The fair values of the acquired investor lists and developed technology assets, primarily the investor online platform, were determined using the adjusted cost approach, which approximates fair value. The useful lives of the intangible assets were determined based on the period of expected cash flows used to measure the fair value of the intangible assets adjusted as appropriate for entity-specific factors including legal, regulatory, contractual, competitive, economic, and/or other factors that may limit the useful life of the respective intangible asset.
Intangible assets, net as of September 30, 2020 and December 31, 2019 and related useful lives were as follows:
Intangible AssetsWeighted-Average Useful LifeSeptember 30,
2020		December 31,
2019
Investor list, net5.0 years$3,494,740 $4,800,000 
Web services technology, domains and licenses3.0 years3,466,102 2,900,000 
6,960,842 7,700,000 
Accumulated amortization(1,372,910)0 
Net$5,587,932 $7,700,000 
During the three and nine months ended September 30, 2020, the Company acquired additional web services technology, domains and licenses intangible assets of $33,061 and $566,102, respectively. Amortization expense for the three and nine months ended September 30, 2020 amounted to $458,371 and $1,372,910, respectively.
As discussed previously, the COVID-19 pandemic has caused significant disruptions in the economy and uncertainties in the investment markets. Based on the impacts on the Company's investors and the economy, the Company evaluated the fair value of intangibles to determine if they exceeded the respective carrying values and determined that a portion of the investor list would no longer be viable and, therefore, an impairment charge of $1,305,260 was recorded for the three months ended March 31, 2020 which is reflected in the Company’s net loss for the nine months ended September 30, 2020.
The estimated amortization expense for the succeeding fiscal years is as follows: October to December 2020, $460,144; 2021, $1,840,576; 2022, $1,840,576; 2023, $749,978; and 2024, $696,658.
NOTE 3. CONDENSED CONSOLIDATED BALANCE SHEETS DETAILS
Tenant Receivables
Tenant receivables consisted of the following:
 September 30,
2019		 December 31,
2018
Straight-line rent$3,222,975
 $2,231,966
Tenant rent78,355
 312,171
Tenant reimbursements1,452,152
 1,019,355
Tenant other216,414
 95,622
Total$4,969,896
 $3,659,114
Other Assets
Other assets as of September 30, 2019 includes $1,626,170 of Merger related costs which are expected to be capitalized and allocated to the assets acquired upon completion of the Merger.
Accounts Payable, Accrued and Other Liabilities
Accounts payable, accrued and other liabilities were comprised of the following:
 September 30,
2019		 December 31,
2018
Accounts payable$270,000
 $227,793
Accrued expenses (a)2,860,798
 1,421,197
Accrued dividends937,864
 749,170
Accrued interest payable424,743
 445,481
Unearned rent601,902
 827,338
Deferred commission payable1,200
 1,650
Tenant improvement obligation104,385
 3,492,084
Total$5,200,892
 $7,164,713

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RW HOLDINGS NNN REIT, INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)

(a) Accrued expenses as of September 30, 2019 include $956,694 for Merger and Self-Management Transaction costs, including financial advisors' fees, legal fees and other costs incurred prior to September 30, 2019.
NOTE 4. REAL ESTATE INVESTMENTS, NET
As of September 30, 2019,2020, the Company’s real estate investment portfolio consisted of 24(i) 39 operating properties located in 14 states (including the 17 operating properties of the original 20 operating properties acquired in connection with the Merger on December 31, 2019) including: 14 retail properties, 14 office properties and one parcel of land in 13 states, consisting of: (i) nine retail, (ii) 10 office and (iii) five11 industrial properties, and (iv) one(ii) 1 parcel of land, which currently serves as an easement to one of the Company’s office properties. The following table provides summary information regarding the Company’s real estate investment portfolioproperties and (iii) a 72.7% undivided TIC Interest in an office property in Santa Clara, CA, as of September 30, 2019:discussed in Note 5.
24
Property Location Acquisition Date Property Type Land, Buildings and Improvements Tenant Origination and Absorption Costs Accumulated Depreciation and Amortization Total Investment in Real Estate Property, Net
Accredo Health Orlando, FL 6/15/2016 Office $9,855,847
 $1,053,637
 $(1,632,554) $9,276,930
Walgreens Stockbridge, GA 6/21/2016 Retail 4,147,948
 705,423
 (1,089,696) 3,763,675
Dollar General Litchfield, ME 11/4/2016 Retail 1,281,812
 116,302
 (115,701) 1,282,413
Dollar General Wilton, ME 11/4/2016 Retail 1,543,776
 140,653
 (148,072) 1,536,357
Dollar General Thompsontown, PA 11/4/2016 Retail 1,199,860
 106,730
 (111,167) 1,195,423
Dollar General Mt. Gilead, OH 11/4/2016 Retail 1,174,188
 111,847
 (106,584) 1,179,451
Dollar General Lakeside, OH 11/4/2016 Retail 1,112,872
 100,857
 (109,389) 1,104,340
Dollar General Castalia, OH 11/4/2016 Retail 1,102,086
 86,408
 (106,282) 1,082,212
Dana Cedar Park, TX 12/27/2016 Industrial 8,392,906
 1,210,874
 (1,369,527) 8,234,253
Northrop Grumman Melbourne, FL 3/7/2017 Office 12,382,991
 1,341,199
 (1,990,199) 11,733,991
exp US Services Maitland, FL 3/27/2017 Office 6,056,668
 388,248
 (552,750) 5,892,166
Harley Bedford, TX 4/13/2017 Retail 13,178,288
 —
 (821,054) 12,357,234
Wyndham Summerlin, NV 6/22/2017 Office 10,406,483
 669,232
 (727,108) 10,348,607
Williams Sonoma Summerlin, NV 6/22/2017 Office 8,079,612
 550,486
 (669,012) 7,961,086
Omnicare Richmond, VA 7/20/2017 Industrial 7,262,747
 281,442
 (526,725) 7,017,464
EMCOR Cincinnati, OH 8/29/2017 Office 5,960,610
 463,488
 (379,936) 6,044,162
Husqvarna Charlotte, NC 11/30/2017 Industrial 11,840,200
 1,013,948
 (667,321) 12,186,827
AvAir Chandler, AZ 12/28/2017 Industrial 27,357,900
 —
 (1,243,545) 26,114,355
3M DeKalb, IL 3/29/2018 Industrial 14,762,819
 2,356,361
 (1,919,910) 15,199,270
Cummins Nashville, TN 4/4/2018 Office 14,465,491
 1,536,998
 (1,158,736) 14,843,753
Northrop Grumman Parcel Melbourne, FL 6/21/2018 Land 329,410
 —
 —
 329,410
24 Hour Fitness Las Vegas, NV 7/27/2018 Retail 11,475,435
 1,204,973
 (540,709) 12,139,699
Texas Health Dallas, TX 9/13/2018 Office 6,976,703
 713,221
 (309,700) 7,380,224
Bon Secours Richmond, VA 10/31/2018 Office 10,042,551
 800,356
 (417,361) 10,425,546
Costco Issaquah, WA 12/20/2018 Office 27,292,418
 2,765,136
 (1,027,342) 29,030,212
        $217,681,621
 $17,717,819
 $(17,740,380) $217,659,060
Current Year Acquisitions and Dispositions
The Company did not acquire or dispose of any property during the nine months ended September 30, 2019. See Note 11 - Subsequent Events regarding a property acquisition that was completed in October 2019.

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RW HOLDINGS NNN REIT, INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)

Prior Year Acquisitions
DuringThe following table provides summary information regarding the nine months endedCompany’s operating properties as of September 30, 2018, the Company acquired the following properties:2020:
PropertyLocationAcquisition DateProperty TypeLand, Buildings and ImprovementsTenant Origination and Absorption CostsAccumulated Depreciation and AmortizationTotal Investment in Real Estate Property, Net
Accredo HealthOrlando, FL6/15/2016Office$9,855,847 $1,269,349 $(2,104,747)$9,020,449 
Dollar GeneralLitchfield, ME11/4/2016Retail1,281,812 116,302 (155,945)1,242,169 
Dollar GeneralWilton, ME11/4/2016Retail1,543,776 140,653 (199,575)1,484,854 
Dollar GeneralThompsontown, PA11/4/2016Retail1,199,860 106,730 (149,835)1,156,755 
Dollar GeneralMt. Gilead, OH11/4/2016Retail1,174,188 111,847 (143,657)1,142,378 
Dollar GeneralLakeside, OH11/4/2016Retail1,112,872 100,857 (147,437)1,066,292 
Dollar GeneralCastalia, OH11/4/2016Retail1,102,086 86,408 (143,250)1,045,244 
Dana (1)Cedar Park, TX12/27/2016Industrial6,802,876 531,439 (1,762,138)5,572,177 
Northrop GrummanMelbourne, FL3/7/2017Office12,382,991 1,341,199 (2,773,228)10,950,962 
exp US ServicesMaitland, FL3/27/2017Office6,056,668 388,248 (777,286)5,667,630 
WyndhamSummerlin, NV6/22/2017Office10,406,483 669,232 (1,081,599)9,994,116 
Williams SonomaSummerlin, NV6/22/2017Office8,079,612 550,486 (980,566)7,649,532 
OmnicareRichmond, VA7/20/2017Industrial7,262,747 281,442 (771,324)6,772,865 
EMCORCincinnati, OH8/29/2017Office5,960,610 463,488 (559,314)5,864,784 
HusqvarnaCharlotte, NC11/30/2017Industrial11,840,200 1,013,948 (1,024,378)11,829,770 
AvAirChandler, AZ12/28/2017Industrial27,357,900 0 (1,937,616)25,420,284 
3MDeKalb, IL3/29/2018Industrial14,762,819 2,356,361 (3,165,253)13,953,927 
CumminsNashville, TN4/4/2018Office14,465,491 1,536,998 (1,953,297)14,049,192 
Northrop Grumman ParcelMelbourne, FL6/21/2018Land329,410 0 0 329,410 
Texas HealthDallas, TX9/13/2018Office6,976,703 713,221 (607,013)7,082,911 
Bon SecoursRichmond, VA10/31/2018Office10,388,751 800,356 (865,130)10,323,977 
CostcoIssaquah, WA12/20/2018Office27,330,797 2,765,136 (2,328,660)27,767,273 
Taylor Fresh FoodsYuma, AZ10/24/2019Industrial34,194,369 2,894,017 (1,266,604)35,821,782 
Chevron Gas StationSan Jose, CA12/31/2019Retail4,054,759 145,577 (45,475)4,154,861 
LevinsSacramento, CA12/31/2019Industrial4,429,390 221,927 (165,456)4,485,861 
Chevron Gas StationRoseville, CA12/31/2019Retail3,648,571 136,415 (89,270)3,695,716 
Dollar GeneralBakersfield, CA12/31/2019Retail4,899,714 261,630 (110,349)5,050,995 
PMI PreclinicalSan Carlos, CA12/31/2019Industrial9,672,174 408,225 (153,241)9,927,158 
EcoThriftSacramento, CA12/31/2019Retail5,550,226 273,846 (223,109)5,600,963 
GSA (MSHA)Vacaville, CA12/31/2019Office3,112,076 243,307 (103,886)3,251,497 
PreK EducationSan Antonio, TX12/31/2019Retail12,447,287 447,927 (449,571)12,445,643 
Dollar TreeMorrow, GA12/31/2019Retail1,320,367 73,298 (53,183)1,340,482 
Solar TurbinesSan Diego, CA12/31/2019Office7,133,241 284,026 (253,605)7,163,662 
Wood GroupSan Diego, CA12/31/2019Industrial9,731,220 392,955 (423,870)9,700,305 
ITW RippeyEl Dorado, CA12/31/2019Industrial7,071,143 304,387 (226,824)7,148,706 
Dollar GeneralBig Spring, TX12/31/2019Retail1,281,683 76,351 (38,227)1,319,807 
GapRocklin, CA12/31/2019Office8,378,276 360,377 (359,480)8,379,173 
L-3 CommunicationsSan Diego, CA12/31/2019Industrial11,631,857 454,035 (353,117)11,732,775 
Sutter HealthRancho Cordova, CA12/31/2019Office29,555,055 1,616,610 (810,261)30,361,404 
WalgreensSanta Maria, CA12/31/2019Retail5,223,442 335,945 (99,720)5,459,667 
$351,009,349 $24,274,555 $(28,856,496)$346,427,408 
(1) See impairment charges discussion below.
25
Property Acquisition Date Land Buildings and Improvements Tenant Origination and Absorption Costs Below- Market Lease Intangibles Total
3M 3/29/2018 $758,780
 $14,004,039
 $2,356,361
 $(1,417,483) $15,701,697
Cummins 4/4/2018 3,347,959
 11,117,531
 1,536,998
 —
 16,002,488
Northrop Grumman Parcel 6/21/2018 329,410
 —
 —
 —
 329,410
24 Hour Fitness 7/27/2018 3,121,985
 8,331,352
 1,204,974
 —
 12,658,311
Texas Health 9/13/2018 1,827,914
 5,148,789
 713,221
 —
 7,689,924
    $9,386,048
 $38,601,711
 $5,811,554
 $(1,417,483) $52,381,830
Purchase price $52,381,830
Acquisition fees to affiliate (1,518,750)
Cash paid for acquisition of real estate investments $50,863,080
The capitalized acquisition fees paid to the Advisor for properties acquired during the nine months ended September 30, 2018 are as follows:
Property Amount
3M $456,000
Cummins 465,000
Northrop Grumman Parcel 9,000
24 Hour Fitness 366,000
Texas Health 222,750
Total $1,518,750
The Company also paid the Advisor capitalized acquisition fees of $22,358 during the nine months ended September 30, 2018 related to additions to real estate investments. During the three and nine months ended September 30, 2018, the Company recognized $1,192,671 and $2,121,798, respectively, of total revenue related to the acquired properties.
The non-cancelable lease terms of the properties acquired during the nine months ended September 30, 2018 are as follows:
PropertyLease Expiration
3M7/31/2022
Cummins2/28/2023
24 Hour Fitness3/31/2030
Texas Health12/31/2025
Prior Year Disposition
The Company did not dispose of any property during the nine months ended September 30, 2018.

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RW HOLDINGS NNN REIT, INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)

Impairment Charges
During late March 2020, the Company learned that there would be a substantial impact on the commercial real estate market and specifically on fitness centers due to the COVID-19 pandemic and the requirement of an indefinite and potentially extended period of store closures. On March 31, 2020, the Company received written notice from 24 Hour Fitness USA, Inc. (“24 Hour Fitness”) that due to circumstances beyond its control, including the response to the COVID-19 pandemic and directives and mandates of various governmental authorities, the Las Vegas, NV 24 Hour Fitness store leased from the Company had been closed on or about March 17, 2020 and remained closed as of the date of the tenant's notice. The tenant's notice stated that it would not make the April 2020 rent payment. The Company's special purpose subsidiary, which owns the property, immediately initiated negotiations with the tenant; however, no further rent payments were received and on June 15, 2020, the Company received written notice that the lease was formally rejected in connection with 24 Hour Fitness' Chapter 11 bankruptcy proceeding and the premises were surrendered to the Company's subsidiary.
On April 1, 2020, the Company’s special purpose subsidiary initiated negotiations with the lender on the property regarding the special purpose subsidiary's request for a deferral of mortgage payments until the tenant resumed paying rent. The lender on this property did not agree to provide any substantial mortgage relief to the Company's special purpose subsidiary, but rather agreed to temporarily reduce its $32,000 monthly mortgage payment by $8,000 from May through August 2020. The Company's special purpose subsidiary determined that if it was unable to secure a replacement tenant, then it would consider allowing the lender to foreclose on, and take possession of, the property. As such, the Company concluded that it was necessary to record an impairment charge to reduce the net book value of the property to its estimated fair value.
In addition, during the first quarter of 2020, the Company determined that the effects of the COVID-19 pandemic on the overall economy and commercial real estate market would also have negative impacts on the Company's ability to re-lease 2 vacant properties, the property formerly leased to Dinan Cars located in Morgan Hill, CA through January 31, 2020 and the property leased to Dana, but currently unoccupied, located in Cedar Park, TX. Based on an evaluation of the value of these 2 properties, the Company determined that impairment charges were required during the three months ended March 31, 2020 to reflect the reduction in value due to the uncertainty regarding leasing or sale prospects.
Effective August 1, 2020, the Company executed an amendment for the early termination of the Dana lease from July 31, 2024 to July 31, 2022 in exchange for an early termination payment of $1,381,767 due on July 31, 2022 and continued rent payments of $65,000 per month from August 1, 2020 through July 1, 2022. In the event that the Company is able to re-lease or sell the Dana property prior to July 31, 2022, Dana would be obligated to continue paying rent of $65,000 per month through July 1, 2022 or may elect to pay a cash lump sum payment to the Company equal to the net present value of the remaining rent payments.
During the three months ended March 31, 2020, the Company recorded impairment charges aggregating $9,157,068 based on the estimated fair value of the real estate properties discussed above, and during the three months ended June 30, 2020, the Company recorded an additional impairment charge of $349,457 related to its property located in Lake Elsinore, CA and leased to Rite Aid through February 29, 2028. This impairment charge represented the excess of the property's carrying value over the property's sale price less estimated selling costs (see below for discussion of the property sale). The first quarter aggregate impairment charges of $9,157,068 represented approximately 2.2% of the Company’s total investments in real estate property before impairments as of March 31, 2020 and the second quarter impairment charge of $349,457 represented approximately 0.1% of the Company’s total investments in real estate property before impairments as of June 30, 2020. There were 0 additional impairment charges during the three months ended September 30, 2020.
The details of the Company's real estate impairment charges for the nine months ended September 30, 2020 were as follows:
PropertyLocationNine Months Ended September 30, 2020
Rite AidLake Elsinore, CA$349,457 
DanaCedar Park, TX2,184,395 
24 Hour FitnessLas Vegas, NV5,664,517 
Dinan CarsMorgan Hill, CA1,308,156 
$9,506,525 
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RW HOLDINGS NNN REIT, INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
Acquisitions:
The Company did 0t acquire any real estate properties during the nine months ended September 30, 2020 or 2019.
Dispositions:
The Company sold the following properties during the nine months ended September 30, 2020:
PropertyLocationDisposition DateProperty TypeRentable Square FeetContract Sale Price(Loss) Gain on Sale
Rite AidLake Elsinore, CA8/3/2020Retail70,960 $7,250,000 $(422)
WalgreensStockbridge, GA8/27/2020Retail15,120 5,538,462 1,306,768 
Island PacificElk Grove, CA9/16/2020Retail27,296 3,155,000 387,296 
113,376 $15,943,462 $1,693,642 
On August 3, 2020, the Company completed the sale of its Lake Elsinore, CA retail property which was leased to Rite Aid for $7,250,000, which generated net proceeds of $3,299,016 after repayment of the existing mortgage, commissions and closing costs. Prior to the sale, the Company evaluated the Rite Aid property for impairment and recognized a $349,457 impairment charge during the three months ended June 30, 2020 in order to reduce the carrying value of the property to its estimated fair value.
On August 27, 2020, the Company completed the sale of its Stockbridge, GA retail property which was leased to Walgreens for $5,538,462, which generated net proceeds of $5,296,356 after payment of commissions and closing costs. The mortgage for this property was previously repaid on August 10, 2020 in connection with the refinancing of the Accredo property as discussed in Note 7.
On September 16, 2020, the Company completed the sale of its Elk Grove, CA retail property which was leased to Island Pacific for $3,155,000, which generated net proceeds of $1,124,016 after repayment of the existing mortgage, commissions and closing costs.
Asset Concentration
The Company holds no real estate property with a net book value that is greater than 10% of its total assets as of September 30, 2020 and December 31, 2019.
Revenue Concentration
No tenants represented the source of 10% of total revenues during the three or nine months ended September 30, 2020. The Company’s revenue concentration based on tenants representing greater than 10% of total revenues for the three and nine months ended September 30, 2019 was as follows:
Three Months Ended
September 30, 2019
Property and LocationRevenuePercentage of Total Revenue
Costco, Issaquah, WA$662,585 10.8 %
AvAir, Chandler, AZ$671,406 11.0 %
Nine Months Ended
September 30, 2019
Property and LocationRevenuePercentage of Total Revenue
Costco, Issaquah, WA$2,038,609 11.4 %
AvAir, Chandler, AZ$2,004,954 11.2 %
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RW HOLDINGS NNN REIT, INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
Operating Leases
The Company’s real estate properties are primarily leased to tenants under triple-net or double net leases for which terms and expirations vary. The Company monitors the credit of all tenants to stay abreast of any material changes in credit quality. The Company monitors tenant credit by (1) reviewing the credit ratings of tenants (or their parent companies or lease guarantors) that are rated by nationalnationally recognized rating agencies; (2) reviewing financial statements and related metrics and information that are publicly available or that are required to be provided pursuant to the lease; (3) monitoring news reports and press releases regarding the tenants (or their parent companies or lease guarantors), and their underlying business and industry; and (4) monitoring the timeliness of rent collections.
During the first four months of 2020, the Company paid an aggregate of $990,000 in lease incentives to cancel certain termination options related to 2 leases with Walgreens for its Santa Maria, California and Stockbridge, Georgia properties, resulting in extension of the leases for approximately 10 years each. The Stockbridge property was sold on August 27, 2020 as discussed above.
As of September 30, 2019,2020, the future minimum contractual rent payments due to the Company under the Company’s non-cancelablenon-cancellable operating leases, excluding any renewal periods,rents due related to real estate investments held for sale, are as follows:
October through December 2020$6,528,690 
202125,681,770 
202223,147,301 
202319,412,451 
202419,229,235 
202515,813,536 
Thereafter42,540,235 
$152,353,218 
October through December 2019 $4,429,061
2020 17,834,035
2021 16,752,518
2022 15,520,338
2023 13,317,933
2024 12,958,858
Thereafter 46,224,833
  $127,037,576
Revenue Concentration
The Company’s revenue concentration based on tenants representing greater than 10% of total revenues for the three and nine months ended September 30, 2019 and 2018 were as follows:
  Three Months Ended
September 30, 2019		 Three Months Ended
September 30, 2018
Property and Location Revenue Percentage of Total Revenue Revenue Percentage of Total Revenue
Costco, Issaquah, WA $662,585
 10.8% $—
 —%
AvAir, Chandler, AZ $671,406
 11.0% $630,095
 13.3%
3M, DeKalb, IL $—
 —% $527,065
 11.2%
  Nine Months Ended
September 30, 2019		 Nine Months Ended
September 30, 2018
Property and Location Revenue Percentage of Total Revenue Revenue Percentage of Total Revenue
Costco, Issaquah, WA $2,038,609
 11.4% $—
 —%
AvAir, Chandler, AZ $2,004,954
 11.2% $1,919,242
 15.3%
Asset ConcentrationIntangibles
As of September 30, 2019 and December 31, 2018,2020, the Company’s portfolio’s asset concentration (greater than 10% of total assets) waslease intangibles were as follows:
  September 30, 2019 December 31, 2018
Property and Location Net Carrying Value Percentage of Total Assets 
Net Carrying
Value
 Percentage of Total Assets
Costco, Issaquah, WA $29,030,212
 11.7% $29,974,716
 11.9%
AvAir, Chandler, AZ $26,114,355
 10.3% $26,634,909
 10.6%

Tenant Origination and Absorption CostsAbove-Market Lease IntangiblesBelow-Market Lease Intangibles
Cost$24,274,555 $1,194,720 $(15,552,554)
Accumulated amortization(8,689,796)(284,219)2,277,721 
Net amount$15,584,759 $910,501 $(13,274,833)
20
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RW HOLDINGS NNN REIT, INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)

Intangibles
As of September 30, 2019, the Company’s lease intangibles were as follows:
 Tenant Origination and Absorption Costs Above-Market Lease Intangibles Below-Market Lease Intangibles
Cost$17,717,819
 $783,115
 $(3,071,253)
Accumulated amortization(5,264,796) (271,651) 831,664
Net amount$12,453,023
 $511,464
 $(2,239,589)
The intangible assets acquired in connection with thesethe acquisitions have a weighted average amortization period of approximately 7.39.3 years as of September 30, 2019. The2020. As of September 30, 2020, the amortization of intangible assets overfor the three months ending December 31, 2020 and for each year of the next five years and thereafter is expected to be as follows:
Tenant Origination and Absorption CostsAbove-Market Lease IntangiblesBelow-Market Lease Intangibles
October through December 2020$1,106,918 $35,445 $(383,344)
20213,698,643 141,779 (1,525,877)
20222,709,134 141,780 (1,280,223)
20231,832,039 139,131 (984,317)
20241,715,028 134,500 (980,897)
20251,316,375 122,383 (980,897)
Thereafter3,206,622 195,483 (7,139,278)
$15,584,759 $910,501 $(13,274,833)
Weighted-average remaining amortization period7.0 years7.3 years12.2 years
Real Estate Investments Held For Sale
As a result of the COVID-19 pandemic discussed in Note 1, during the second quarter of 2020, the Company deemed it necessary to sell certain of its real estate investment properties to generate funds for share repurchases and certain debt obligations. During the three months ended June 30, 2020, the Company identified 4 real estate investment properties as held for sale. These 4 properties consisted of 3 retail properties (the property leased to Island Pacific Supermarket through May 30, 2033 located in Elk Grove, CA, the property leased to Rite Aid through February 29, 2028 located in Lake Elsinore, CA and the property leased to Walgreens through February 28, 2031 located in Stockbridge, GA) and 1 industrial property previously leased to Dinan Cars located in Morgan Hill, CA. These properties were classified as real estate investments held for sale, net in the Company's condensed consolidated balance sheet as of June 30, 2020. As discussed above, the 3 retail properties were subsequently sold during the three months ended September 30, 2020. The industrial property was sold on October 28, 2020 as discussed in Note 11.
During the three months ended September 30, 2020, the Company also determined to sell 2 additional retail properties (the property leased to Harley Davidson through April 12, 2032 located in Bedford, TX and the property formerly leased to 24 Hour Fitness located in Las Vegas, NV) resulting in a total of 3 properties classified as real estate investments held for sale as of September 30, 2020, including the Morgan Hill, CA industrial property that was sold on October 28, 2020.
On September 17, 2020, the Company’s special purpose subsidiary entered into a purchase and sale agreement to sell the Las Vegas property formerly leased to 24 Hour Fitness, subject to a number of contingencies including lender approval of the buyer’s assumption of the existing mortgage. There can be no assurances that all of the contingencies will be satisfied or that the transaction will close. If the Company's special purpose subsidiary does not complete the sale of the Las Vegas property formerly leased to 24 Hour Fitness, then it would consider allowing the lender to foreclose on, and take possession of, the property. The estimated liability of $3,120,678 under a loan guarantee related to the secured mortgage was accrued and included in liabilities related to real estate held for sale on the condensed consolidated balance sheet as of September 30, 2020.
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RW HOLDINGS NNN REIT, INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
 Tenant Origination and Absorption Costs Above-Market Lease Intangibles Below-Market Lease Intangibles
October through December 2019$697,181
 $24,261
 $(118,598)
20202,788,723
 97,045
 (474,391)
20212,372,463
 78,994
 (474,391)
20221,839,880
 63,719
 (306,829)
20231,214,116
 63,719
 (78,369)
20241,066,544
 63,719
 (67,420)
Thereafter2,474,116
 120,007
 (719,591)
 $12,453,023
 $511,464
 $(2,239,589)
      
Weighted-average remaining amortization period6.8 years
 6.6 years
 9.7 years
The following table summarizes the major components of assets and liabilities related to real estate investments held for sale as of September 30, 2020:
September 30, 2020
Assets related to real estate investments held for sale:
Land, buildings and improvements$24,971,754 
Tenant origination and absorption costs176,276 
Accumulated depreciation and amortization(2,114,912)
Real estate investments held for sale, net23,033,118 
Other assets, net864,008 
Total assets related to real estate investments held for sale:$23,897,126 
Liabilities related to real estate investments held for sale:
Mortgage notes payable, net$14,671,370 
Other liabilities, net (a)3,934,795 
Total liabilities related to real estate investments held for sale:$18,606,165 
(a)    Includes the estimated liability for a loan guarantee related to the secured mortgage for the Las Vegas, Nevada property formerly leased to 24 Hour Fitness, as a result of the evaluation of the impact of the COVID-19 pandemic on the tenant's business and the risk that the lender could foreclose on the property if the pending sale described above does not close.
The following table summarizes the major components of rental income, expenses and impairment related to real estate investments held for sale as of September 30, 2020, which were included in continuing operations for the three and nine months ended September 30, 2020 and 2019:
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Total revenues$366,673 $593,981 $2,004,279 $1,750,072 
Expenses:
Interest expense169,871 155,722 554,009 610,583 
Depreciation and amortization145,695 198,785 554,036 594,353 
Other expenses143,173 169,520 414,115 499,998 
Impairment of real estate properties/reserve0 0 10,097,710 0 
Total expenses458,739 524,027 11,619,870 1,704,934 
Net (loss) income$(92,066)$69,954 $(9,615,591)$45,138 
As discussed in Note 3, the property located in Morgan Hill, CA was acquired in the Merger on December 31, 2019 and therefore did not contribute to the Company's rental income or net loss for the three and nine months ended September 30, 2019.
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RW HOLDINGS NNN REIT, INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
NOTE 5. INVESTMENTSINVESTMENT IN UNCONSOLIDATED ENTITIESENTITY
The Company’s investmentsinvestment in unconsolidated entities areentity as of September 30, 2020 and December 31, 2019 is as follows:
September 30,
2020		December 31,
2019
The TIC Interest$10,085,476 $10,388,588 
 September 30,
2019		 December 31,
2018
TIC Interest$10,478,651
 $10,749,332
REIT I3,248,507
 3,526,483
 $13,727,158
 $14,275,815
As discussed in Note 3, REIT I merged with and into the Company on December 31, 2019. The Company’s income (loss) from investments in unconsolidated entities netfor the three and nine months ended September 30, 2020 and 2019, is as follows:
 Three Months Ended
September 30,		 Nine Months Ended
September 30,
 2019 2018 2019 2018
TIC Interest$72,613
 $69,037
 $224,676
 $189,724
REIT I(35,043) 826
 (57,118) (26,376)
 $37,570
 $69,863
 $167,558
 $163,348

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RW HOLDINGS NNN REIT, INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)

Three Months Ended
September 30,		Nine Months Ended
September 30,
2020201920202019
The TIC Interest$92,617 $72,613 $239,028 $224,676 
REIT I0 (35,043)0 (57,118)
$92,617 $37,570 $239,028 $167,558 
TIC Interest
On September 28,During 2017, the Company, through a wholly-owned subsidiary of the Operating Partnership, acquired an approximate 72.7% interest in an office property in San Clara, California. The remaining approximate 27.3% of undivided interest in the Santa Clara property is held by Hagg Lane II, LLC (an approximate 23.4%) interest) and Hagg Lane III, LLC (an approximate 3.9%) interest). The manager of Hagg Lane II, LLC and Hagg Lane III, LLC isbecame a board member of the Sponsor.Company's board of directors in December 2019. The Santa Clara property does not qualify as a variable interest entity and consolidation is not required as the Company’s TIC Interest does not control the property. Therefore, the Company accounts for the TIC Interest using the equity method. The Company receives approximately 72.7% of the cash flow distributions and recognizes approximately 72.7% of the results of operations. During the three months ended September 30, 20192020 and 2018,2019, the Company received $221,739$207,950 and $36,485$221,739 in cash distributions, from its TIC Interest, respectively, and during the nine months ended September 30, 20192020 and 2018,2019, the Company received $542,140 and $495,357 in cash distributions, from the TIC Interest of $495,357 and $353,021, respectively.
The following is summarized financial information for the Santa Clara property:property as of September 30, 2020 and December 31, 2019 and for the three and nine months ended September 30, 2020 and 2019:
September 30,
2020		December 31,
2019
Assets:
Real estate investments, net$30,156,162 $30,858,240 
Cash and cash equivalents356,848 275,760 
Other assets192,251 228,770 
Total assets$30,705,261 $31,362,770 
Liabilities:
Mortgage notes payable$13,555,271 $13,746,635 
Below-market lease, net2,843,570 2,953,360 
Other liabilities129,110 68,587 
Total liabilities16,527,951 16,768,582 
Total equity14,177,310 14,594,188 
Total liabilities and equity$30,705,261 $31,362,770 
31
 September 30,
2019		 December 31,
2018
Assets:   
Real estate investments, net$30,923,892
 $31,668,300
Cash and cash equivalents541,151
 466,379
Other assets207,011
 117,075
Total assets$31,672,054
 $32,251,754
Liabilities:   
Mortgage notes payable$13,810,054
 $13,994,844
Below-market lease, net2,990,965
 3,103,778
Other liabilities151,365
 61,188
Total liabilities16,952,384
 17,159,810
Total equity14,719,670
 15,091,944
Total liabilities and equity$31,672,054
 $32,251,754
 Three Months Ended
September 30,		 Nine Months Ended
September 30,
 2019 2018 2019 2018
Total revenues$672,011
 $643,600
 $2,032,004
 $1,965,612
Expenses:       
Interest expense144,329
 146,861
 430,215
 437,846
Depreciation and amortization248,136
 248,136
 744,408
 743,485
Other expenses179,680
 153,654
 548,378
 523,348
Total expenses572,145
 548,651
 1,723,001
 1,704,679
Net income$99,866
 $94,949
 $309,003
 $260,933

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RW HOLDINGS NNN REIT, INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)

Three Months Ended
September 30,		Nine Months Ended
September 30,
2020201920202019
Total revenues$697,851 $672,011 $2,047,424 $2,032,004 
Expenses:
Interest expense141,935 144,329 424,544 430,215 
Depreciation and amortization250,015 248,136 749,913 744,408 
Other expenses178,522 179,680 544,225 548,378 
Total expenses570,472 572,145 1,718,682 1,723,001 
Net income$127,379 $99,866 $328,742 $309,003 
REIT I
The Company’s investment in REIT I representedPrior to the Merger on December 31, 2019, the Company had an approximate 4.8% ownership interest as of September 30, 2019 and December 31, 2018.in REIT I. The Company recorded its share of income (loss)loss of REIT I based on REIT I’s results of operations for the three and nine months ended September 30, 2019 and 2018.2019. During the three and nine months ended September 30, 2019, and 2018, the Company received $75,746 and $68,316$220,858, respectively, in cash distributions respectively, related to its investmentinterest in REIT II. The following is REIT I's summarized results of operations for the three and nine months ended September 30, 2019:
Three Months Ended
September 30, 2019		Nine Months Ended
September 30, 2019
Total revenues$3,302,347 $9,868,701 
Expenses:
Depreciation and amortization1,450,227 4,336,641 
Interest expense828,987 2,674,383 
Other expenses1,746,989 4,150,881 
Total expenses4,026,203 11,161,905 
Other income:
Other income (1)0 113,773 
Net loss$(723,856)$(1,179,431)
(1)    The gain on disposal of real estate investment property of $113,773 during the nine months ended September 30, 2019 was due to the higher mortgage loan balance and 2018,related interest payable for the Company received cash distributions of $220,858 and $204,947, respectively. The following is summarized financial information for REIT I:Antioch, California Chase property compared to its net book value when it was relinquished in a foreclosure sale on March 13, 2019.
32
 September 30,
2019		 December 31,
2018
Assets:   
Real estate investments, net$119,207,755
 $125,075,537
Cash and cash equivalents and restricted cash2,888,310
 3,376,145
Other assets2,628,518
 3,070,475
Total assets$124,724,583
 $131,522,157
Liabilities:   
Mortgage notes payable, net$61,840,703
 $61,446,068
Below-market lease intangibles, net2,460,720
 3,105,843
Other liabilities2,324,417
 3,359,618
Total liabilities66,625,840
 67,911,529
Redeemable common stock—
 163,572
Total shareholders’ equity58,098,743
 63,447,056
Total liabilities and shareholders’ equity$124,724,583
 $131,522,157
 Three Months Ended
September 30,		 Nine Months Ended
September 30,
 2019 2018 2019 2018
Total revenues$3,302,347
 $3,293,384
 $9,868,701
 $9,889,765
Expenses:       
Depreciation and amortization1,450,227
 1,424,669
 4,336,641
 4,282,006
Interest expense828,987
 714,138
 2,674,383
 1,830,849
Impairment of real estate investment property (1)—
 —
 —
 862,190
Other expenses1,746,989
 1,133,547
 4,150,881
 3,520,467
Total expenses4,026,203
 3,272,354
 11,161,905
 10,495,512
Other income:       
Other income (2)—
 —
 113,773
 —
Net loss$(723,856) $21,030
 $(1,179,431) $(605,747)
(1)During the second quarter of 2018, REIT I recorded an impairment charge of $862,190 related to its investment in a property in Antioch, California due to the expiration of the tenant’s lease term at December 31, 2017 and REIT I’s subsequent difficulties encountered during the first half of 2018 in its efforts to re-lease the property at acceptable rent rates and without incurring substantial tenant improvement costs. The impairment charge was less than 1.0% of REIT I’s total investments in real estate property and the book value of the property after the impairment charge was less than 2.0% of REIT I’s total investments in real estate property when recorded.
(2)The gain on sale of real estate investment property of $113,773 during the nine months ended September 30, 2019 reflects the difference between the mortgage loan balance and related interest payable for the property in Antioch, California compared with its net book value when it was relinquished in a foreclosure sale on March 13, 2019.

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RW HOLDINGS NNN REIT, INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)

NOTE 6. DEBTCONDENSED CONSOLIDATED BALANCE SHEETS DETAILS
Mortgage Notes PayableTenant Receivables, Net
As of September 30, 2019 and December 31, 2018, the Company’s mortgage notes payableTenant receivables consisted of the following:
September 30,
2020		December 31,
2019
Straight-line rent$3,880,016 $3,541,238 
Tenant rent933,626 420,959 
Tenant reimbursements1,811,884 1,854,883 
Tenant other333,085 407,684 
Total$6,958,611 $6,224,764 
Accounts Payable, Accrued and Other Liabilities
Accounts payable, accrued and other liabilities were comprised of the following:
September 30,
2020		December 31,
2019
Accounts payable$533,307 $660,111 
Accrued expenses (a)4,385,071 5,773,214 
Accrued distributions694,554 962,615 
Accrued interest payable647,632 1,690,168 
Unearned rent1,679,277 1,963,896 
Lease incentive obligation5,157 505,157 
Total$7,944,998 $11,555,161 
(a)    Includes accrued Merger expenses of $1,570,622 as of December 31, 2019.
33
Collateral 
Principal Amount
September 30, 2019
 
Principal Amount
December 31, 2018
 
Contractual
Interest
Rate (1)
 
Effective
Interest
Rate (1)
 
Loan
Maturity
Accredo/Walgreen properties $6,889,730
 $6,996,469
 3.95% 3.95% 7/1/2021
Dana property 4,572,030
 4,632,398
 4.56% 4.56% 4/1/2023
Six Dollar General properties 3,834,828
 3,885,334
 4.69% 4.69% 4/1/2022
Wyndham property (2) 5,742,900
 5,820,600
 One-month LIBOR+2.05% 4.34% 6/5/2027
Williams Sonoma property (2) 4,551,900
 4,615,800
 One-month LIBOR+2.05% 4.05% 6/5/2022
Omnicare property 4,293,753
 4,349,963
 4.36% 4.36% 5/1/2026
Harley property 6,778,769
 6,868,254
 4.25% 4.25% 9/1/2024
Northrop Grumman property 5,703,258
 5,809,367
 4.40% 4.40% 3/2/2021
EMCOR property 2,875,046
 2,911,577
 4.35% 4.35% 12/1/2024
exp US Services property 3,400,983
 3,446,493
 (3) 4.25% 11/17/2024
Husqvarna property 6,379,182
 6,379,182
 (4) 4.60% 2/20/2028
AvAir property 14,575,000
 14,575,000
 (5) 4.84% 3/27/2028
3M property 8,320,000
 8,360,000
 One-month LIBOR+2.25% 5.09% 3/29/2023
Cummins property 8,489,200
 8,530,000
 One-month LIBOR+2.25% 5.16% 4/4/2023
24 Hour Fitness property (6) 6,308,926
 8,900,000
 4.64% 4.64% 4/1/2049
Texas Health property (7) —
 4,842,500
 One-month LIBOR+4.30% 6.56% 3/13/2019
Bon Secours property 5,250,000
 5,250,000
 5.41% 5.41% 9/15/2026
Costco property 18,850,000
 18,850,000
 4.85% 4.85% 1/1/2030
Total mortgage notes payable 116,815,505
 125,022,937
      
Less unamortized deferred financing costs (1,990,507) (2,313,629)      
  $114,824,998
 $122,709,308
      
(1)Contractual interest rate represents the interest rate in effect under the mortgage note payable as of September 30, 2019. Effective interest rate is calculated as the actual interest rate in effect as of September 30, 2019 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 7.
(2)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%.
(3)The initial contractual interest rate is 4.25% and starting November 18, 2022, the interest rate is T-Bill index plus 3.25%.
(4)The initial contractual interest rate is 4.60% for the first five years and starting February 21, 2023, the interest rate is the greater of 4.60% or five-year Treasury Constant Maturity ("TCM") plus 2.45% for the second five years.
(5)The initial contractual interest rate is 4.84% for the first five-years and starting March 28, 2023, the interest rate is the greater of 4.60% or five-year TCM plus 2.45% for the second five-years.
(6)The loan refinancing on March 7, 2019 reduced the principal amount outstanding and the interest rate and extended the maturity. The interest rate for the note payable outstanding as of September 30, 2019 adjusts in the 133rd, 253rd and 313th months.
(7)The loan was fully repaid on the March 13, 2019 maturity date.

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RW HOLDINGS NNN REIT, INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)

NOTE 7. DEBT
Mortgage Notes Payable, Net
As of September 30, 2020 and December 31, 2019, the Company’s mortgage notes payable consisted of the following:
Collateral2020 Principal
Amount		2019 Principal
Amount		Contractual Interest
Rate (1)		Effective
Interest Rate (1)		Loan
Maturity
Accredo/Walgreens property (8)(11)$8,538,000 $6,853,442 3.80%3.80%2025-08-01
Six Dollar General properties3,765,883 3,819,264 4.69%4.69%2022-04-01
Dana property4,488,612 4,551,250 4.56%4.56%2023-04-01
Northrop Grumman property5,556,618 5,666,866 4.40%4.40%2021-03-02
exp US Services property3,338,239 3,385,353 (3)4.25%2024-11-17
Harley Davidson property (13)0 6,748,029 4.25%4.25%2024-09-01
Wyndham property (2)5,634,900 5,716,200 One-month LIBOR + 2.05%4.34%2027-06-05
Williams Sonoma property (2)4,461,300 4,530,600 One-month LIBOR + 2.05%4.34%2022-06-05
Omnicare property4,213,726 4,273,552 4.36%4.36%2026-05-01
EMCOR property2,824,657 2,862,484 4.35%4.35%2024-12-01
Husqvarna property6,379,182 6,379,182 (4)4.60%2028-02-20
AvAir property (9)19,950,000 14,575,000 3.80%3.80%2025-08-01
3M property8,197,500 8,290,000 One-month LIBOR + 2.25%5.09%2023-03-29
Cummins property8,364,300 8,458,600 One-month LIBOR + 2.25%5.16%2023-04-04
Former 24 Hour Fitness property (5)(13)0 6,283,898 One-month LIBOR + 4.30%4.64%2049-04-01
Texas Health property4,382,914 4,400,000 4.00%4.00%2024-12-05
Bon Secours property5,198,071 5,250,000 5.41%5.41%2026-09-15
Costco property18,850,000 18,850,000 4.85%4.85%2030-01-01
Taylor Fresh Foods12,350,000 12,350,000 3.85%3.85%2029-11-01
Levins property (6)2,044,473 2,079,793 One-month LIBOR + 1.93%3.74%2021-01-05
Island Pacific Supermarket property (6)(11)0 1,891,225 One-month LIBOR + 1.93%3.74%2033-05-30
Dollar General Bakersfield property (6)2,283,061 2,324,338 One-month LIBOR + 1.48%3.38%2021-03-05
Rite Aid property (6)(11)0 3,659,338 One-month LIBOR + 1.50%3.25%2021-05-05
PMI Preclinical property (6)4,045,472 4,118,613 One-month LIBOR + 1.48%3.38%2021-03-05
EcoThrift property (6)2,590,233 2,639,237 One-month LIBOR + 1.21%2.96%2021-07-05
GSA (MSHA) property (6)1,763,359 1,796,361 One-month LIBOR + 1.25%3.13%2021-08-05
PreK San Antonio property (6)5,064,184 5,140,343 4.25%4.25%2021-12-01
Dinan Cars property (6)(7)(13)0 2,710,834 2.76%2.76%2022-01-05
Solar Turbines, Amec Foster, ITW Rippey properties (6)9,270,830 9,434,692 3.35%3.35%2026-11-01
Dollar General Big Spring property (6)602,617 611,161 4.50%4.50%2022-04-01
Gap property (6)3,588,893 3,643,166 4.15%4.15%2023-08-01
L-3 Communications property (6)5,211,418 5,284,884 4.69%4.69%2022-04-01
Sutter Health property (6)13,950,432 14,161,776 4.50%4.50%2024-03-09
Walgreens property (6)(10)3,198,668 3,000,000 4.25%4.25%2030-07-16
Total mortgage notes payable180,107,542 195,739,481 
Plus unamortized mortgage premium, net (12)470,411 489,664 
Less unamortized deferred financing costs(1,576,836)(2,189,938)
Mortgage notes payable, net$179,001,117 $194,039,207 
(1)Contractual interest rate represents the interest rate in effect under the mortgage note payable as of September 30, 2020. Effective interest rate is calculated as the actual interest rate in effect as of September 30, 2020, consisting of the contractual interest rate and the effect of the interest rate swap, if applicable (see Note 8 for further information regarding the Company’s derivative instruments).
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RW HOLDINGS NNN REIT, INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
(2)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%.
(3)The initial contractual interest rate is 4.25% and starting November 18, 2022, the interest rate is the U.S. Treasury Bill index rate plus 3.25%.
(4)The initial contractual interest rate is 4.60% through February 20, 2023 and then the greater of 4.60% or five-year Treasury Constant Maturity (“TCM”) plus 2.45% through February 20, 2028.
(5)The interest rate adjusts in the 133rd, 253rd and 313th months. As discussed in Note 4, during the three months ended September 30, 2020, the Company recorded an impairment charge of $5,664,517 related to its investment in the 24 Hour Fitness property in Las Vegas, Nevada due to the substantial impact on fitness centers from the COVID-19 pandemic and the requirement of an indefinite and potentially extended period of store closures and the resulting inability of the tenant to make rent payments. On April 1, 2020, the Company’s special purpose subsidiary initiated negotiations with the lender on the 24 Hour Fitness property regarding the special purpose subsidiary's request for a deferral of mortgage payments until the tenant resumes paying rent. The lender on this property did not agree to provide any substantial mortgage relief to the Company's special purpose subsidiary, but rather agreed to temporarily reduce its $32,000 monthly mortgage payment by $8,000 for 4 monthly payments from May through August 2020. On June 15, 2020, the Company received written notice that the lease was formally rejected in connection with 24 Hour Fitness' Chapter 11 bankruptcy proceeding and the premises were surrendered to the Company's subsidiary. As of September 30, 2020, the 24 Hour Fitness property was classified as held for sale (see Note 4).
(6)The loan was acquired through the Merger on December 31, 2019.
(7)The Company negotiated a lease termination with Dinan Cars effective January 31, 2020 in exchange for a termination payment from Dinan Cars of $783,182 which was used to reduce the principal balance of this mortgage by $650,000 and establish a payment reserve with the remaining $133,182. In connection with the principal prepayment, the Company terminated the related swap agreement on February 4, 2020 at a cost of $47,000 (see Note 8 for further discussion of the swap agreement termination and Note 11 for details on the sale of the property on October 28, 2020).
(8)The mortgage note with original principal of $6,800,000 as of June 30, 2020 with an interest rate of 3.95% was refinanced on August 10, 2020 with a new loan for $8,538,000 with an interest rate of 3.80%, secured only by the Accredo property and which will mature on August 1, 2025.
(9)The mortgage note with original principal of $14,545,000 as of June 30, 2020 with an effective interest rate of 4.84% was refinanced on July 29, 2020 with a new loan for $19,950,000 with an interest rate of 3.80% and will mature on August 1, 2025. In connection with this refinancing, the mortgage note balance for the Walgreens, Stockbridge, GA property was fully repaid.
(10)The mortgage note of $3,000,000 as of June 30, 2020 with an interest rate of 7.50% was refinanced on July 22, 2020 for $3,217,500 with an interest rate of 4.25%, which will mature on July 16, 2030.
(11)The property was sold during the three months ended September 30, 2020.
(12)Represents unamortized net mortgage premium acquired through the Merger.
(13)The September 30, 2020 principal amount is included in mortgage notes payable related to investments held for sale, net (see details below).
The following weresummarizes the face value, carrying amount and fair value of the Company’s mortgage notes payable (Level 3 measurement): as of September 30, 2020 and December 31, 2019:
September 30, 2020December 31, 2019
Face ValueCarrying
Value		Fair ValueFace valueCarrying
Value		Fair Value
Mortgage notes payable$180,107,542 $179,001,117 $179,676,613 $195,739,481 $194,039,207 $200,535,334 
35
 September 30, 2019 December 31, 2018
 Face Value 
Carrying
Value
 Fair Value Face value 
Carrying
Value
 Fair Value
Mortgage notes payable$116,815,505
 $114,824,998
 $123,669,045
 $125,022,937
 $122,709,308
 $123,821,490
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RW HOLDINGS NNN REIT, INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
Disclosures of the fair values of financial instruments are based on pertinent information available to the Company as of the period end and require a significant amount of judgment. The actual value could be materially different from the Company’s estimate of fair value.
Mortgage Notes Payable Related to Real Estate Investments Held For Sale, Net
As discussed in detail in Note 4, the Company classified 3 properties as real estate held for sale as of September 30, 2020. The following table summarizes the Company's mortgage notes payable related to real estate investments held for sale as of September 30, 2020:
CollateralSeptember 30, 2020
Harley Davidson property$6,655,415 
24 Hour Fitness property6,241,355 
Dinan Cars property2,019,168 
Total14,915,938 
Plus unamortized mortgage premium2,307 
Less deferred financing costs(246,875)
Mortgage notes payable, net$14,671,370 
Unsecured Credit Facility, Net
The details of the Company's unsecured credit facility as of September 30, 2020 and December 31, 2019 follow:
September 30,
2020		December 31,
2019
Unsecured credit facility$6,000,000 $7,740,000 
Less unamortized deferred financing costs(32,271)(90,139)
Unsecured credit facility, net$5,967,729 $7,649,861 
On December 19, 2019, the Company, together withNNN LP, the Operating Partnership, Merger Sub, BrixInvest and NNN LP ("Borrowers"modiv, LLC (collectively, the “Borrowers”), has entered into a Business Loan and Security Agreement and Promissory Note (the "Unsecured“Unsecured Credit Facility"Facility”) with Pacific Mercantile Bank ("Lender"(“PMB”). The Unsecured Credit Facility wasis a revolving unsecured line of credit for a maximum principal amount of $9,000,000 which was scheduled to mature on January 26,$12,000,000 and as of September 30, 2020 and December 31, 2019, unless earlier terminated. The Borrowers received extensions of the Unsecured Credit Facility through Aprilhad an outstanding balance of $6,000,000 and $7,740,000, respectively.
On March 13, 2020, the Company amended the Unsecured Credit Facility to extend the maturity date of $6,940,000 of outstanding borrowings under the Unsecured Credit Facility from March 31, 2020 to July 31, 2020, and to extend the maturity date of $3,060,000 of the outstanding borrowings under the Unsecured Credit Facility from May 4, 2020 to August 31, 2020.
On August 13, 2020, the Company amended the Unsecured Credit Facility to extend the maturity date of $6,000,000 of the outstanding borrowings under the Unsecured Credit Facility to September 1, 2020 and the maturity date of the remaining $6,000,000 of the outstanding borrowings under the Unsecured Credit Facility to October 15, 2021. The Company repaid $6,000,000 of the $12,000,000 then outstanding borrowings under the Unsecured Credit Facility with proceeds generated by property refinancings and asset sales during the three months ended September 30, 2019.2020. Under the August 13, 2020 amendment, there is a moratorium on new borrowings under the Unsecured Credit Facility until the remaining $6,000,000 is fully repaid. The Company paid PMB $25,000 for loan extension and modification fees in connection with the August 13, 2020 amendment.
In connection with the August 13, 2020 amendment to the Unsecured Credit Facility, the Company's Chairman, Mr. Wirta and the Wirta Trust have guaranteed the Company’s obligations under the Unsecured Credit Facility. On AprilJuly 30, 2019, Borrowers2020, the Company entered into a new Loan Agreement (the "New Credit Facility")an indemnification agreement with Lender which replacedMr. Wirta and the expiring $9,000,000 unsecured lineWirta Trust with respect to their guarantees of credit. The Newthe Company’s $12,000,000 Unsecured Credit Facility is a revolving unsecured linewith PMB pursuant to which the Company agreed to indemnify Mr. Wirta and the Wirta Trust if they are required to make payments to PMB pursuant to such guarantees.
36
Table of credit for a maximum principalContents
RW HOLDINGS NNN REIT, INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
Once the remaining $6,000,000 of outstanding borrowings under the Unsecured Credit Facility are fully repaid, the Unsecured Credit Facility will again be available to fund the Company’s acquisitions of single-tenant, income producing commercial, office, industrial or retail real estate properties, in an amount of $10,000,000 and matures on October 1, 2020, unless earlier terminated.up to 70% of the purchase price of such acquisitions. The NewCompany intends to repay amounts outstanding under the Unsecured Credit Facility has similar terms to the expired facility.
The New Credit Facility is securedfrom proceeds generated by a continuing guaranty executed by the Company’s Sponsorasset sales and Advisor, along with springing guaranties executed by Raymond E. Wirta, Chairman of the Board of the Company, and a trust belonging to Mr. Wirta, each in the amount of $10,000,000. Mr. Wirta’s guaranties become effective upon certain triggering events, including the failure by Borrowers to paymortgage refinancings on one or more subsequent advances within 90 days of disbursementthe properties owned, either directly or an eventindirectly through one or more wholly-owned single member special purpose entities, by the Operating Partnership, along with gross offering proceeds from the sale of default undershares of the New Credit Facility.Company’s common stock.
Under the terms of the NewUnsecured Credit Facility, the Borrowers pay a variable rate of interest on outstanding amounts equal to one (1)1 percentage point over an independent indexthe prime rate published in The Wall Street Journal, basedprovided that the interest rate in effect on the highest rate on corporate loans posted by at least 75% of the largest banks (the "Index").any one day shall not be less than 5.50% per annum. The interest rate was 6.00%5.50% and 6.50%5.75% as of September 30, 20192020 and December 31, 2018,2019, respectively. The current interest rate is 5.75%.5.50%, which is the minimum rate.
To secure the payment and performance of all obligations under the Unsecured Credit Facility, each of modiv, LLC and BrixInvest granted to PMB a security interest in all of their right, title and interest in their accounts, inventory, equipment, deposit accounts, intellectual property, general intangibles, investment property and other property.
The NewUnsecured Credit Facility contains customary representations, warranties and covenants.covenants, which are substantially similar to those in the Company's prior credit facility. The Company’s ability to borrow under the NewUnsecured Credit Facility iswill be subject to its ongoing compliance with various affirmative and negative covenants, including with respect to indebtedness, guaranties, mergers and asset sales, liens, dividends,tangible net worth, corporate existence and financial reporting obligations. The NewUnsecured Credit Facility also contains customary events of default, including, without limitation, nonpayment of principal, interest, fees or other amounts when due, violation of covenants, breaches of representations or warranties and change of ownership. Upon the occurrence of an event of default, LenderPMB may accelerate the repayment of amounts outstanding under the NewUnsecured Credit Facility, take possession of any collateral securing the Unsecured Credit Facility and exercise other remedies subject, in certain instances, to the expiration of an applicable cure period. The August 13, 2020 amendment to the agreement requires the Company to maintain a minimum debt service coverage ratio of 1.25 to 1.00 and tangible net worth of $125,000,000, measured quarterly.
AsShort-term Notes Payable
In connection with the Self-Management Transaction, the Company assumed from BrixInvest its unsecured short-term notes payable (formerly known as “Convertible Promissory Notes”) of September 30, 2019 and$4,800,000 on December 31, 20182019. The notes represented private party notes and bore interest at a fixed rate of 8% with all interest and principal due on the maturity date. Except for six notes from one borrower aggregating $1,024,750 for which the maturity date was extended to April 30, 2020, all notes were repaid prior to March 31, 2020. In exchange for the maturity date extension, the Company had $0agreed to pay 2% of the principal and $9,000,000accrued interest, or $24,845, as an extension fee and agreed to an increase in the interest rate from 8% to 10% per annum during the extension period. The maturity date for the $490,000 of outstanding borrowings, respectively,the extended short-term notes was subsequently accelerated to April 6, 2020 in exchange for a $10,000 reduction in the extension fee to $14,845 and these notes were repaid on April 6, 2020.
Economic Relief Notes Payable
On April 20, 2020, a subsidiary of the Company entered into a loan agreement and promissory note evidencing an unsecured loan in the aggregate amount of $517,000 made to this subsidiary under the New Credit FacilityPaycheck Protection Program (“PPP”) of the Coronavirus Aid, Relief, and Unsecured Credit Facility, as then in effect. See Note 11 - Subsequent Events regarding borrowingsEconomic Security Act ("CARES Act"). The PPP is administered by the U.S. Small Business Administration (the “SBA”). Under the terms of the CARES Act, PPP loan recipients can apply for and be granted forgiveness for all or a portion of the loan granted under the New Credit FacilityPPP. Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds for payment of payroll costs and any payments of mortgage interest, rent, and utilities. Recent modifications to the PPP by the U.S. Treasury and the Paycheck Protection Program Flexibility Act of 2020 have extended the time period for loan forgiveness beyond the original eight-week period to 24 weeks, making it possible for the Company's subsidiary to apply for forgiveness of 100% of its PPP loan prior to December 31, 2020. No assurance can be given that the Company's subsidiary will be successful in October 2019obtaining forgiveness of the loan in connection withwhole or in part.
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RW HOLDINGS NNN REIT, INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
The PPP loan was made through PMB. To the extent that the loan is not forgiven, the subsidiary and PMB may mutually agree to fully amortize any unforgiven principal balance of the loan over a property acquisition.period of up to 10 years from the date on which the subsidiary applies for loan forgiveness. The unamortized deferred financing costsannual interest rate on any unforgiven principal balance of $52,597the PPP loan is 1%. The promissory note evidencing the PPP loan contains customary events of default relating to, among other things, payment defaults, making materially false and misleading representations to the New Credit Facility are includedSBA or PMB, or breaching the terms of the loan documents. The occurrence of an event of default may result in other assetsthe repayment of all amounts outstanding, collection of all amounts owing from the subsidiary, or filing suit and obtaining judgment against the subsidiary.
On May 20, 2020, the Company also obtained a $10,000 Economic Injury Disaster Loan (“EIDL”) from the SBA which is expected to be treated as a grant since the Company has decided not to apply for an EIDL, and will therefore reduce the amount of the PPP loan that can be forgiven by $10,000.
Compliance with All Debt Agreements
On March 27, 2020, the Company's conflicts committee and board of directors approved an increase in the Company's condensed consolidated balance sheet asmaximum leverage from 50% to 55% in order to allow the Company to take advantage of September 30, 2019.the current low interest rate environment, the relative cost of debt and equity capital, and strategic borrowing advantages potentially available to the Company.
All Debt Agreements
Pursuant to the terms of mortgage notes payable secured byon certain of the Company’s properties and the Unsecured Credit Facility, the Company and/or the Borrowers are subject to certain financial loan covenants. The Company and/or the Borrowers were in compliance with all terms and conditions of the applicable loan agreements as of September 30, 2019.2020. Due to the COVID-19 pandemic, the lender to the Company's special purpose subsidiary which owns the property in Las Vegas, Nevada formerly leased to 24 Hour Fitness agreed to accept reduced payments on the related secured mortgage for four months commencing May 1, 2020 through August 1, 2020 (see Note 4 and above discussion). The Company remains in compliance with the loan agreement for this property and resumed paying the full amount of monthly principal and interest starting September 1, 2020. As discussed in Note 4, the Las Vegas, Nevada property is held for sale as of September 30, 2020.

The following summarizes the future principal repayments of the Company’s mortgage notes payable, unsecured credit facility and short-term notes payable as of September 30, 2020:
Mortgage Notes
Payable		Unsecured Credit FacilityShort-term Notes Payable (1)Total
October through December 2020$589,782 $0 $527,000 $1,116,782 
202119,665,222 6,000,000 0 25,665,222 
202220,872,760 0 0 20,872,760 
202325,642,334 0 0 25,642,334 
202424,597,822 0 0 24,597,822 
202530,781,081 0 0 30,781,081 
Thereafter57,958,541 0 0 57,958,541 
Total principal180,107,542 6,000,000 527,000 186,634,542 
Plus unamortized mortgage premium, net of unamortized discount470,411 0 0 470,411 
Less deferred financing costs(1,576,836)(32,271)0 (1,609,107)
Net principal$179,001,117 $5,967,729 $527,000 $185,495,846 
(1) The PPP loan is subject to potential forgiveness of up to $517,000 or repayment over an undetermined period of up to 10 years.
25
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RW HOLDINGS NNN REIT, INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)

The following summarizes the future principal repayments of the Company’s mortgage notes payable and New Credit Facility as of September 30, 2019:
 
Mortgage Note
Payable
 New Credit Facility Total
October through December 2019$320,753
 $—
 $320,753
20201,523,095
 —
 1,523,095
20218,223,343
 —
 8,223,343
202214,617,593
 —
 14,617,593
202321,247,852
 —
 21,247,852
202412,966,778
 —
 12,966,778
Thereafter57,916,091
 —
 57,916,091
Total principal116,815,505
 —
 116,815,505
Less: Deferred financing costs, net(1,990,507) —
 (1,990,507)
Net principal$114,824,998
 $—
 $114,824,998
Interest Expense
The following is a reconciliation of the components of interest expense for the three and nine months ended September 30, 20192020 and 2018:2019:
Three Months Ended
September 30,		Nine Months Ended
September 30,
2020201920202019
Mortgage notes payable:
Interest expense$2,135,624 $1,387,785 $6,471,492 $4,232,943 
Amortization of deferred financing costs435,179 120,932 693,810 500,525 
Prepayment penalties138,373 0 138,373 0 
(Gain) loss on interest rate swaps (1)(179,006)218,642 1,263,691 1,109,027 
Unsecured credit facility:
Interest expense128,333 0 449,791 110,060 
Amortization of deferred financing costs42,288 11,432 117,624 23,311 
Other31,737 0 61,280 0 
Total interest expense$2,732,528 $1,738,791 $9,196,061 $5,975,866 
 Three Months Ended
September 30,		 Nine Months Ended
September 30,
 2019 2018 2019 2018
Mortgage notes payable:       
Interest expense$1,387,785
 $1,053,148
 $4,232,943
 $2,875,623
Amortization of deferred financing costs120,932
 127,182
 500,525
 632,717
Loss (gain) on interest rate swaps (1)218,642
 (187,787) 1,109,027
 (401,175)
Unsecured credit facility:       
Interest expense—
 69,745
 110,060
 236,142
Amortization of deferred financing costs11,432
 8,572
 23,311
 21,429
Total interest expense$1,738,791
 $1,070,860
 $5,975,866
 $3,364,736
(1)(1)    Includes unrealized (gain) loss (gain) on interest rate swaps of $221,530 and $(185,452) for the three months ended September 30, 2019 and 2018, respectively, and $1,095,547 and $(406,023) for the nine months ended September 30, 2019 and 2018, respectively, (see Note 7). Accrued interest payable, net of $11,780 and $5,950 at September 30, 2019 and December 31, 2018, respectively, represents the unsettled portion of the interest rate swaps from the last settlement period through the respective balance sheet dates.

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RW HOLDINGS NNN REIT, INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)

NOTE 7. INTEREST RATE SWAP DERIVATIVES
The Company, through its wholly-owned limited liability company subsidiaries, has entered into interest rate swap agreements with amortizing notional amounts relating to four of its mortgage notes payable. The notional amount is an indication of the extent of the Company’s involvement in each instrument at that time, but does not represent exposure to credit, interest rate or market risks.
The following table summarizes the notional amount and other information related to the Company’s interest rate swaps:
  September 30, 2019 December 31, 2018
Derivative
Instruments
 Number of Instruments 
Notional
Amount (i)
 
Reference
Rate (ii)
 Weighted Average Fixed Pay Rate 
Weighted
Average
Remaining
Term
 
Number
of
Instruments
 
Notional
Amount (i)
 
Reference
Rate (iii)
 Weighted Average Fixed Pay Rate 
Weighted
Average
Remaining
Term
Interest Rate Swap Derivatives 4 $27,104,000
 One-month LIBOR + applicable spread/Fixed at 4.05%-5.16% 4.69% 4.3 years 4 $27,346,400
 One-month LIBOR + applicable spread/Fixed at 4.05%-5.16% 4.73% 5.1 years
(i)The notional amount of the Company’s swaps decreases 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, 2019 was $24,967,299.
(ii)The reference rate as of September 30, 2019.
(iii)The reference rate as of December 31, 2018.
The following table sets forth the fair value of the Company’s derivative instruments (Level 2 measurement), as well as their classification in the condensed consolidated balance sheets:
    September 30, 2019 December 31, 2018
Derivative Instrument Balance Sheet Location 
Number of
Instruments
 Fair Value 
Number of
Instruments
 Fair Value
Interest Rate Swaps Asset - Interest rate swap derivatives, at fair value — $—
 2 $151,215
Interest Rate Swaps Liability - Interest rate swap derivatives, at fair value 4 $(1,245,261) 2 $(300,929)
The change in fair value of a derivative instrument that is not designated as a cash flow hedge for financial accounting purposes is recorded as interest expense in the condensed consolidated statements of operations. None of the Company’s derivatives at September 30, 2019 or December 31, 2018 were designated as hedging instruments; therefore, the net unrealized loss (gain) recognized on interest rate swaps of $221,530$(272,912) and $(185,452) was recorded as an increase (decrease) in interest expense$221,530 for the three months ended September 30, 20192020 and 2018,2019, respectively, and $1,095,547$1,019,840 and $(406,023) was recorded as an increase (decrease) in interest expense$1,095,547 for the nine months ended September 30, 20192020 and 2018,2019, respectively (see Note 6)8). Accrued interest payable of $66,322 and $22,282 as of September 30, 2020 and December 31, 2019, respectively, represents the unsettled portion of the interest rate swaps for the period from origination of the interest rate swap through the respective balance sheet dates.
NOTE 8. RELATED PARTY TRANSACTIONSINTEREST RATE SWAP DERIVATIVES
The Company, hasthrough its limited liability company subsidiaries, entered into an agreement (as amended, the "Advisory Agreement")interest rate swap agreements with amortizing notional amounts relating to 4 of its mortgage notes payable and assumed 8 additional swap agreements in conjunction with the Advisor. On August 9, 2019,Merger and terminated 3 swap agreements during the Advisory Agreement was further amended to delete the subordinated participation fee from the agreement. On August 9, 2019, the board of directorsnine months ended September 30, 2020. The notional amount is an indication of the Company, including allextent of the independent directors, also approved renewingCompany’s involvement in each instrument at that time, but does not represent exposure to credit, interest rate or market risks.
The following table summarizes the Advisory Agreement, which was schedulednotional amount and other information related to expire on August 11, 2019 tothe Company’s interest rate swaps as of September 30, 2020 and December 31, 2019. 2019, respectively:
September 30, 2020December 31, 2019
Derivative
Instruments		Number of InstrumentsNotional
Amount (i)		Reference
Rate (ii)		Weighted Average Fixed Pay RateWeighted
Average
Remaining
Term		Number
of
Instruments		Notional
Amount (i)		Reference
Rate (iii)		Weighted Average Fixed Pay RateWeighted
Average
Remaining
Term
Interest Rate Swap Derivatives (iv)9$39,384,598 One-month LIBOR + applicable spread/Fixed at 3.13%-5.16%3.53 %2.4 years12$48,215,139 One-month LIBOR + applicable spread/Fixed at 2.76%-5.16%3.87 %2.9 years
(i)The Advisory Agreement was further amended effective October 1, 2019 in connection withnotional amount of the Company’s new planswaps decreases each month to correspond to the outstanding principal balance on the related mortgage. The minimum notional amounts (outstanding principal balance at the maturity date) as of distribution whereby the Company will offer its shares of Class C Common Stock through a registered broker dealer. September 30, 2020 and December 31, 2019 were $37,528,748 and $45,514,229, respectively.
(ii)The reference rate was September 30, 2020.
(iii)The reference rate was December 31, 2019.
(iv)The Company agreedterminated the swap agreement related to pay all future organizationthe Dinan Cars property mortgage loan on February 4, 2020 at a cost of $47,000 (see Note 7). The Company also terminated the swap agreements related to the Rite Aid property mortgage loan on July 30, 2020 at a cost of $40,700 and offering costs, and to no longer be reimbursed by the Sponsor for the Company’s Investor Relations personnel costs afterIsland Pacific property mortgage loan on September 30, 2019, in exchange for the Sponsor’s agreement to terminate its right to receive 3%16, 2020 at a cost of all offering proceeds received by the Company after September 30, 2019 as reimbursement for organization and offering costs previously paid by the Sponsor.

$11,500 (see Note 7).
27
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RW HOLDINGS NNN REIT, INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)

The Advisory Agreement entitlesfollowing table sets forth the Advisor to specified fees upon the provision of certain services with regard to investments in real estate and the management of those investments, among other services, and the disposition of investments, and, prior to October 1, 2019, entitled the Advisor to reimbursement of organizational and offering costs incurred by the Advisor or Sponsor on behalffair value of the Company, suchCompany’s derivative instruments (Level 2 measurement), as expenses related to the Offerings, and certain costs incurred by the Advisor or Sponsor in providing services to the Company. In addition, the Advisor is entitled to certain other feeswell as detailedtheir classification in the Advisory Agreement. condensed consolidated balance sheets:
September 30, 2020December 31, 2019
Derivative InstrumentBalance Sheet LocationNumber of
Instruments		Fair ValueNumber of
Instruments		Fair Value
Interest Rate SwapsAsset - Interest rate swap derivatives, at fair value0$0 5$34,567 
Interest Rate SwapsLiability - Interest rate swap derivatives, at fair value9$(2,006,997)7$(1,021,724)
The Sponsor also serveschange in fair value of a derivative instrument that is not designated as a cash flow hedge for financial accounting purposes is recorded as interest expense in the sponsor for REIT I and, prior to October 28, 2019, BRIX REIT. Duringcondensed consolidated statements of operations. None of the three and nine months endedCompany’s derivatives at September 30, 2020 or December 31, 2019 were designated as hedging instruments; therefore, the net unrealized (gain) loss recognized on interest rate swaps of $(272,912) and 2018, no business transactions occurred between the Company and REIT I, or BRIX REIT, other than$221,530 was recorded as described below or elsewhere herein, and those relating to the Company’s pending Merger with REIT I describeda (decrease) increase in Note 1 and investment in REIT I described in Note 5.
Summarized below are the related party costs incurred by the Company, including those incurred pursuant to the Advisory Agreement, for the three and nine months ended September 30, 2019 and 2018:
 Three
Months
Ended		 Nine Months Ended     Three
Months
Ended		 Nine Months Ended    
 September 30, 2019 September 30, 2019 September 30, 2018 December 31, 2018
 Incurred Incurred Receivable Payable Incurred Incurred Receivable Payable
Expensed:               
Asset management fees (1)$680,349
 $2,040,386
 $—
 $—
 $532,355
 $1,411,585
 $—
 $—
Subordinated participation fees—
 —
 —
 —
 —
 —
 —
 839,050
Operating expense reimbursements (2)132,000
 396,000
 —
 —
 —
 —
 —
 —
Fees to affiliates812,349
 2,436,386
     532,355
 1,411,585
    
Property management fees*56,322
 168,394
 —
 —
 22,503
 54,654
 —
 96,792
Directors and officers insurance and other reimbursements**64,433
 198,108
 —
 —
 33,118
 70,034
 —
 30,164
Expense reimbursements (from) to Sponsor (3)(96,104) (332,336) 4,090
 —
 (298,645) (952,098) 16,838
 —
Capitalized:               
Acquisition fees5,459
 5,459
 —
 644
 588,750
 1,532,108
 —
 —
Financing coordination fees—
 63,500
 —
 —
 —
 209,550
 —
 —
Reimbursable organizational and offering expenses (4)307,217
 1,207,381
 1,287
 —
 348,466
 1,164,763
 —
 13,168
     $5,377
 $644
     $16,838
 $979,174
*Property management fees are classified within property operating expenses in the condensed consolidated statements of operations.
**Directors and officers insurance and other reimbursements are classified within general and administrative expenses in the condensed consolidated statements of operations.
(1)
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, 2019 and 2018, the Advisor did not waive any of the asset management fees. In addition to amounts presented in this table, the Company also incurred asset management fees to the Advisor of $65,993 and $65,993 related to the TIC Interest during the three months ended September 30, 2019 and 2018, respectively, and $197,978 and $197,978 during the nine months ended September 30, 2019 and 2018, respectively which amounts are reflected as a reduction of income recognized from investments in unconsolidated entities (see Note 5).
(2)
Reflects reimbursement for personnel and overhead costs billed by the Advisor in compliance with the 2%/25% Limitation.

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RW HOLDINGS NNN REIT, INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)

(3)
Includes payroll costs related to Company employees that answer questions from prospective stockholders. See "Investor Relations Payroll Expense Reimbursement from Sponsor" below. The Sponsor 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. Effective October 1, 2019, the Company will no longer be reimbursed for these costs since it will no longer be offering its shares through the Sponsor. Theinterest expense reimbursements from the Sponsor for the three months ended September 30, 2019 and 2018 also include $0 and $125,181, respectively, of employment related legal fees which the Sponsor also agreed to reimburse the Company. For the nine months ended September 30, 2019 and 2018, expense reimbursements also include $(40,915) refunded to the Sponsor of employment related legal fees and $225,126 for employment related legal fees, respectively. The receivables related to these costs are reflected in "Due from affiliates" in the condensed consolidated balance sheets.
(4)As of September 30, 2019, the Sponsor had incurred $9,189,209 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 resulting in a total reimbursement amount of $5,429,105 as of September 30, 2019. The Company ceased reimbursing the Sponsor for these costs effective October 1, 2019 in connection with the change in its plan of distribution whereby the Company will offer its shares of Class C common stock through a registered broker dealer.
Organizational and Offering Expenses
Prior to October 1, 2019, the Company was obligated to reimburse the Sponsor or its affiliates for organizational and offering expenses (as defined in the Advisory Agreement) paid by the Sponsor on behalf of the Company. The Company reimbursed the Sponsor for organizational and offering expenses up to 3% of gross offering proceeds. The Sponsor and affiliates were responsible for any organizational and offering expenses to the extent they exceeded 3% of gross offering proceeds. As of September 30, 2019, the Sponsor has incurred organizational and offering expenses in excess of 3% of the gross offering proceeds received by the Company. As of September 30, 2019, the Company has reimbursed the Sponsor $5,429,105 in organizational and offering costs. The Company’s maximum liability for organizational and offering costs through September 30, 2019 was $5,429,105, of which $0 was payable as of September 30, 2019. The Company ceased reimbursing the Sponsor for these costs effective October 1, 2019 in connection with the change in its plan of distribution whereby the Company will offer its shares of Class C common stock through a registered broker dealer.
Investor Relations Payroll Expense Reimbursement from Sponsor
The Company employs Investor Relations personnel that answer inquiries from potential investors regarding the Company and/or its Registered Offering. The payroll expense associated with the Investor Relations personnel was reimbursed by the Sponsor prior to October 1, 2019 as described above. The Sponsor considered these payroll costs to be offering expenses. The payroll expense reimbursements from the Sponsor for the three months ended September 30, 20192020 and 2018 were $96,104 and $173,464,2019, respectively, and $1,019,840 and $1,095,547 was recorded as an increase in interest expense for the nine months ended September 30, 2020 and 2019, and 2018 were $373,251 and $726,972, respectively. The reduction in reimbursements during the 2019 period reflects a reduction in the number of Investor Relations personnel and related costs.respectively (see Note 7).
Acquisition Fees
The Company pays the Advisor a fee in an amount equal to 3% of the contract purchase price of the Company’s properties plus additions to real estate investments, as defined, as acquisition fees. The total of all acquisition fees and acquisition expenses shall be reasonable and shall not exceed 6% 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.

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RW HOLDINGS NNN REIT, INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)

Asset Management Fees
The Company pays the Advisor, as compensation for the advisory services rendered to the Company, a monthly fee in an amount equal to 0.1% of the total investment value, as defined (the "Asset Management Fee"), as of the end of the preceding month plus the book value of any properties or property improvements acquired during the month pro-rated based on the number of days owned. The Asset Management Fee is payable monthly on the last business 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 is 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 months ended September 30, 2019 and 2018 was $680,349 and $532,355 respectively, none of which was waived. The total amount of Asset Management Fees incurred in the nine months ended September 30, 2019 and 2018 was $2,040,386 and $1,411,585 respectively, of which none was waived. There were no Asset Management Fees payable at September 30, 2019 and December 31, 2018.
Financing Coordination Fees
Other 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 pays to the Advisor or such affiliate a financing coordination fee equal to 1% of the amount of such financing. The Company did not pay any financing coordination fees during the three months ended September 30, 2019 and 2018 as there were no loans obtained during either quarter, and paid $63,500 and $209,550 of financing coordination fees during the nine months ended September 30, 2019 and 2018 related to one and three loans, respectively.
Property Management Fees
If 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 pays the Advisor or such affiliate a property management fee equal to 1.5% of gross revenues from the properties managed. The Company also reimburses the Advisor and any of its affiliates for property-level expenses that such tenant pays or incurs to the Company, including salaries, bonuses and benefits of persons employed by the Advisor, 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.
Disposition Fees
For substantial assistance in connection with the sale of properties, the Company pays the Advisor or one of its affiliates 3% 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 the Advisor or its affiliates, the disposition fees paid to the Advisor, the 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, 2019 and 2018.

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RW HOLDINGS NNN REIT, INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)

Subordinated Participation Fees
For 2017 and 2018, the Company owed the Advisor or an affiliate a subordinated participation fee calculated as of December 31 of each year which was paid in the immediately following January. On August 9, 2019, the Advisory Agreement was amended to delete the subordinated participation fee from the agreement.
The subordinated participation fee was only due if the Preferred Return, as defined, was achieved and was equal to the sum of (using terms as defined in the Advisory Agreement):
(i)30% of the product of (a) the difference of (x) the Preliminary NAV per share minus (y) the Highest Prior NAV per share, multiplied by (b) the number of shares outstanding as of December 31 of the relevant annual period, but only if this results in a positive number, plus
(ii)30% of the product of: (a) the amount by which aggregate distributions to stockholders during the annual period, excluding return of capital distributions, divided by the weighted average number of shares outstanding for the annual period, exceed the Preferred Return, multiplied by (b) the weighted average number of shares outstanding for the annual period calculated on a monthly basis.
The Company calculated subordinated participation fees of $839,050 and $315,802 which were accrued as of December 31, 2018 and 2017, respectively, and paid in cash during the first quarter of 2019 and 2018, respectively.
Leasing Commission Fees
If 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 a property or properties to unaffiliated third parties, then the Company pays the Advisor or such affiliate leasing commissions equal to 6% 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% in lieu of the aforementioned 6% commission. There were no leasing commission fees incurred during the three and nine months ended September 30, 2019 and 2018.
Operating Expenses
Under 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 (the "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.
The Company is in compliance with the 2%/25% Limitation for operating expenses for the four fiscal quarters ended September 30, 2019.

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RW HOLDINGS NNN REIT, INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)

NOTE 9. STOCK COMPENSATION EXPENSE
The Company pays the members of its board of directors who are not executive officers for services rendered by issuing shares of Class C common stock to them. The independent directors earn a quarterly retainer of $12,500 which is paid in arrears and committee chairs receive an additional $2,500 per quarter. During 2019, the members of the Special Committee are being paid an additional $12,500 per quarter, which is also paid in shares of Class C common stock. The total amount paid was $105,000 and $48,240 for the three months ended September 30, 2019 and 2018, respectively, for which the Company issued 10,334 and 4,800 shares, respectively and $210,000 and $129,645 for the nine months ended September 30, 2019 and 2018, respectively, for which the Company issued 20,669 and 12,900 shares, respectively. The Company accrued $71,667 of stock compensation expense for the three and nine months ended September 30, 2019, and such amounts were paid during the fourth quarter of 2019.
NOTE 9. RELATED PARTY TRANSACTIONS
The Company pays the members of its board of directors who are not executive officers for services rendered through cash payments or by issuing shares of Class C common stock to them.
For the three months ended September 30, 2020 and 2019, the total amount of fees incurred for board services was $101,250 and $105,000, respectively. For the three months ended September 30, 2020, $18,750 was paid in cash and the value paid by issuing shares of Class C common stock to directors was $101,250 in July 2020 (issued in arrears for second quarter services) and $82,500 for third quarter services on September 30, 2020, for which the Company issued 14,464 and 11,786 shares, respectively. During the three months ended September 30, 2019, the value paid by issuing shares of Class C common stock was $105,000 for which the Company issued 10,334 shares for the second quarter services, including service on a special committee. For the nine months ended September 30, 2020 and 2019, the total amount of fees incurred for board services was $305,833 and $281,667, respectively, and the value paid during the periods by issuing shares of Class C common stock was $255,833 and $210,000, respectively, for which the Company issued 33,066 and 20,669 shares, respectively.
In conjunction with the Self-Management Transaction effective December 31, 2019, the Advisory Agreement was terminated. The Advisory Agreement entitled the Former Advisor to specified fees upon the provision of certain services with regard to investments in real estate and the management of those investments, among other services, and the disposition of investments, as well as entitled the Former Advisor to reimbursement of organizational and offering costs incurred by the Former Advisor or Former Sponsor on behalf of the Company, such as expenses related to the Offerings, and certain costs incurred by the Former Advisor or Former Sponsor in providing services to the Company. In addition, the Former Advisor was entitled to certain other fees, including an incentive fee upon achieving certain performance goals, as detailed in the Advisory Agreement. The Former Sponsor also served as the sponsor for REIT I and BRIX REIT. Effective February 3, 2020, the Company's indirect subsidiary, modiv Advisors, LLC, became the advisor to BRIX REIT.
During the three and nine months ended September 30, 2020 and 2019, no business transactions occurred between the Company and BRIX REIT other than minor expenses advanced and, during the three and nine months ended September 30, 2019, no business transactions occurred between the Company and REIT I, other than as described below or elsewhere herein, and those relating to the Company’s investment in REIT I before the Merger, as described in Note 5.
On March 2, 2020, the Company borrowed a total of $4,000,000, secured by mortgages on its 2 Chevron properties, from the Company's Chairman, Mr. Wirta. The Company's conflicts committee approved the terms of these mortgages which bore interest at an annual rate of 8% and were scheduled to mature on June 2, 2020. On June 1, 2020, the maturity date of these mortgages was extended to September 1, 2020 on the same terms, along with an option for a further extension to November 30, 2020 at the Company’s election prior to August 18, 2020, which the Company elected not to exercise. On July 31, 2020 and August 28, 2020, the mortgages secured by the Chevron San Jose, CA property and Chevron Roseville, CA property, each for $2,000,000, were repaid along with all related accrued interest.
There were no related party costs, including those incurred pursuant to the Advisory Agreement, for the three and nine months ended September 30, 2020 and no related party receivable and payable as of September 30, 2020. Summarized below are
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RW HOLDINGS NNN REIT, INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
the related party costs incurred by the Company for the three and nine months ended September 30, 2019 and related party receivable and payable as of December 31, 2019:
Three Months EndedNine Months Ended
September 30, 2019December 31, 2019
IncurredIncurredReceivablePayable
Expensed:
Asset management fees (1)$680,349 $2,040,386 $0 $0 
Operating expense reimbursements132,000 396,000 0 0 
Fees to affiliates812,349 2,436,386 
Property management fees*56,122 168,194 0 0 
Directors and officers insurance and other reimbursements**64,433 198,108 0 0 
Expense reimbursements from Former Sponsor (2)(96,104)(332,336)0 0 
Capitalized:
Acquisition fees5,459 5,459 0 0 
Financing coordination fees0 63,500 0 0 
Reimbursable organizational and offering expenses (3)307,217 1,207,080 0 0 
Other:
Due from BRIX REIT (4)0 0 1,378 0 
Due from TIC0 0 954 0 
Notes due to Chairman of the Board0 0 0 630,820 
$2,332 $630,820 
*Property management fees are classified within property operating expenses on the condensed consolidated statements of operations.
**    Directors and officers insurance and other reimbursements are classified within general and administrative expenses on the condensed consolidated statements of operations.
(1)To the extent the Former Advisor elected, in its sole discretion, to defer all or any portion of its monthly asset management fee, the Former Advisor was 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, 2019, the Former Advisor did 0t waive any of the asset management fees. In addition to amounts presented in this table, the Company also incurred asset management fees to the Former Advisor of $47,977 and $143,930 related to the TIC Interest during the three and nine months ended September 30, 2019, respectively, which amounts were reflected as reductions of income recognized from investments in unconsolidated entities (see Note 5).
(2)Includes payroll costs related to Company employees that answered questions from prospective stockholders. See “Investor Relations Payroll Expense Reimbursement from Former Sponsor” below. The Former Sponsor agreed to reimburse the Company for these investor relations compensation costs which the Former Sponsor considered to be offering expenses in accordance with the Advisory Agreement which was terminated effective September 30, 2019. The expense reimbursements from the Former Sponsor for the three and nine months ended September 30, 2019 also included a refund of $0 and $40,915 of employment related legal fees, respectively, which the Former Sponsor agreed to reimburse the Company.
(3)As of September 30, 2019, the Former Sponsor had incurred $9,189,209 of organizational and offering costs on behalf of the Company. However, the Company was only obligated to reimburse the Former Sponsor for such organizational and offering expenses to the extent of 3% of gross offering proceeds.
(4)The receivables represent incidental expenses advanced to BRIX REIT, which included unpaid asset management fees of $242,299 as of December 31, 2019 due from BRIX REIT, which were fully reserved and the Company agreed to waive in May 2020 given the impact of the COVID-19 pandemic on BRIX REIT.
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RW HOLDINGS NNN REIT, INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
Organizational and Offering Expenses
The Company was obligated to reimburse the Former Sponsor or its affiliates for organizational and offering expenses (as defined in the Advisory Agreement) paid by the Former Sponsor on behalf of the Company. The Company reimbursed the Former Sponsor for organizational and offering expenses up to 3% of gross offering proceeds. Pursuant to an amendment to the Advisory Agreement dated October 14, 2019, the Company agreed to pay all future organization and offering costs, and to no longer be reimbursed by the Former Sponsor for investor relations personnel costs after September 30, 2019, in exchange for the Former Sponsor's agreement to terminate its right to receive 3% of all offering proceeds as a reimbursement for organization and offering costs paid by the Former Sponsor.
The Former Sponsor and its affiliates were responsible for any organizational and offering expenses to the extent they exceeded 3% of gross offering proceeds through September 30, 2019. Through September 30, 2019, the Former Sponsor had incurred organizational and offering expenses in excess of 3% of the gross offering proceeds received by the Company. Through September 30, 2019, the Company reimbursed the Former Sponsor $5,429,105 in organization and offering costs, which was the Company's maximum liability for organization and offering costs.
Investor Relations Payroll Expense Reimbursement from Former Sponsor
The Company employs investor relations personnel to answer inquiries from potential and existing investors regarding the Company and/or its Registered Offerings. The payroll expenses associated with the investor relations personnel were reimbursed by the Former Sponsor through September 30, 2019. The Former Sponsor considered these payroll expenses to be offering expenses. The amount of payroll expenses reimbursements from the Former Sponsor for the three and nine months ended September 30, 2019 was $96,104 and $373,251, respectively, which was partially offset by a refund of employment related legal costs of $0 and $40,915, respectively.
Acquisition Fees
The Company paid the Former Advisor an amount equal to 3% of the contract purchase price of the Company’s properties plus additions to real estate investments as acquisition fees. The total of all acquisition fees and acquisition expenses was required to be reasonable and not to exceed 6% 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 had the authority to approve fees in excess of these limits if they determined the transaction to be commercially competitive, fair and reasonable to the Company. Acqusition fees incurred were $5,459 during the three and nine months ended September 30, 2019.
Asset Management Fee
The Company paid the Former Advisor, as compensation for the advisory services rendered to the Company, a monthly fee in an amount equal to 0.1% of the total investment value, as defined in the Advisory Agreement (the “Asset Management Fee”), as of the end of the preceding month plus the book value of any properties acquired during the month, pro-rated based on the number of days owned. The Asset Management Fee was payable monthly on the last business day of such month. The Asset Management Fee, which was required to be reasonable in the determination of the Company’s independent directors at least annually, was to be taken or waived, in whole or in part as to any year, in the sole discretion of the Former Advisor. All or any portion of the Asset Management Fee not paid as to any fiscal year was allowed to be deferred without interest and paid in such other fiscal year as the Former Advisor determined.
Additionally, to the extent the Former Advisor elected, in its sole discretion, to defer all or any portion of its monthly Asset Management Fee, the Former Advisor was deemed to have waived, not deferred, that portion of its monthly Asset Management Fee that was up to 0.025% of the total investment value of the Company’s assets. The total amount of Asset Management Fees incurred during the three and nine months ended September 30, 2019 was $680,349 and $2,040,386, respectively, of which NaN was waived.
Financing Coordination Fee
Other than with respect to any mortgage or other financing related to a property concurrent with its acquisition, if the Former Advisor or an affiliate provided 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 obtained relative to a property, then the Company was to pay the Former Advisor or such affiliate a financing coordination fee equal to 1% of the amount of such financing.
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Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
There were 0 financing coordination fees during the three months ended September 30, 2019 as there were no loans obtained during the quarter but the Company incurred and paid $63,500 of financing coordination fees related to a single loan during the nine months ended September 30, 2019.
Property Management Fees
If the Former Advisor or any of its affiliates provided 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 paid the Former Advisor or such affiliate a property management fee equal to 1.5% of gross revenues from the properties managed. The Company also reimbursed the Former Advisor and any of its affiliates for property-level expenses that such tenant paid or incurred to the Company, including salaries, bonuses and benefits of persons employed by the Former Advisor, except for the salaries, bonuses and benefits of persons who also served as one of the Company’s executive officers. The Former Advisor or its affiliate were entitled to 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 contracted for these services. The Former Advisor provided property management services for 10 properties in the Company's portfolio during the three and nine months ended September 30, 2019. The Company incurred and paid $56,122 and $168,194 of property management fees during the three and nine months ended September 30, 2019, respectively.
Disposition Fees
For substantial assistance in connection with the sale of properties, the Company was to pay the Former Advisor or one of its affiliates 3% of the contract sales price, as defined in the Advisory Agreement, of each property sold; provided, however, that if, in connection with such disposition, commissions were paid to third parties unaffiliated with the Former Advisor or its affiliates, the disposition fees paid to the Former Advisor, the Former Sponsor, their affiliates and unaffiliated third parties could not exceed the lesser of the competitive real estate commission or 6% of the contract sales price. There were 0 disposition fees incurred during the three and nine months ended September 30, 2019.
Subordinated Participation Fees
The Company incurred a subordinated participation fee calculated as of December 31 of each year through 2018, payable to the Former Advisor or an affiliate thereof, which was paid (if owed) in the immediately following January. The subordinated participation fee was only due if the Preferred Return, as defined in the Advisory Agreement, was achieved and was equal to the sum of (using terms as defined in the Advisory Agreement):
(i)30% of the product of (a) the difference of (x) the Preliminary NAV per share minus (y) the Highest Prior NAV per share, multiplied by (b) the number of shares outstanding as of December 31 of the relevant annual period, but only if this resulted in a positive number, plus
(ii)30% of the product of: (a) the amount by which aggregate distributions to stockholders during the annual period, excluding return of capital distributions, divided by the weighted average number of shares outstanding for the annual period, exceeded the Preferred Return, multiplied by (b) the weighted average number of shares outstanding for the annual period calculated on a monthly basis.
The Company calculated a subordinated participation fee of $839,050, which was accrued as of December 31, 2018 and paid in cash during the three months ended March 31, 2019. On August 9, 2019, the Advisory Agreement was amended to eliminate the Subordinated Participation Fee.
Leasing Commission Fees
If a property or properties of the Company became unleased and the Former Advisor or any of its affiliates provided 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 a property or properties to unaffiliated third parties, then the Company paid the Former Advisor or such affiliate leasing commissions equal to 6% 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 was less than ten years, such commission percentage was applied 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) accrued a commission of 3% in lieu of the aforementioned 6% commission. There were 0 leasing commission fees incurred during the three and nine months ended September 30, 2019.
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Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
Other Operating Expense Reimbursements
Under the Company's charter, prior to December 31, 2019, total operating expenses of the Company were limited to the greater of 2% of average invested assets or 25% of net income for the four most recently completed fiscal quarters (the “2%/25% Limitation”). If the Company exceeded the 2%/25% Limitation, the Former Advisor was required to reimburse the Company the amount by which the aggregate total operating expenses exceeded the limitation, or the Company was required to obtain a waiver from the Company's conflicts committee. For purposes of determining the 2%/25% Limitation amount, “average invested assets” meant 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” meant all expenses paid or incurred by the Company, as determined by GAAP, that were 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 related to potential investments that the Company did 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. The total reimbursable operating expenses incurred were $132,000 and $396,000 during the three and nine months ended September 30, 2019, respectively. The Company was in compliance with the 2%/25% Limitation for operating expenses for the four fiscal quarters ended September 30, 2019.
Due to Affiliates
In connection with the Self-Management Transaction, the Company assumed two notes payable aggregating $630,820 on December 31, 2019 owed to Mr. Wirta, the Company's Chairman, which were presented under due to affiliates in the Company's condensed consolidated balance sheets as of December 31, 2019. The notes payable had identical terms including a fixed interest rate of 10% paid semi-monthly and a maturity date of April 23, 2020. The remaining principal amount of $218,931 due for each note, aggregating $437,862, was paid on the maturity date.
Related Party Transactions with Unconsolidated Entities
The Company’s portion of asset management fees paid to the Former Advisor relating to the TIC Interest for the three and nine months ended September 30, 2019 was $47,977 and $143,930, respectively. The advisory agreement with the entity that owns the TIC Interest property was assigned to the Company's taxable REIT subsidiary following the Self-Management Transaction and the Company earns a monthly management fee equal to 0.1% of the total investment value of the property from this entity, which resulted in a fee of $65,993 for the three months ended September 30, 2020, of which the Company's portion was $47,984, and a fee of $197,979 for the nine months ended September 30, 2020, of which the Company's portion was $143,951.
The Company’s portion of asset management fees paid to the Former Advisor relating to REIT I for the three and nine months ended September 30, 2019 was $9,483 and $29,606, respectively.
NOTE 10. COMMITMENTS AND CONTINGENCIES
Economic Dependency
The Company depends on its Advisor for certain services that are essential to the Company, including 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 the Advisor is unable to provide the respective services, the Company will be required to obtain such services from other sources. In the event the Self-Management Transaction is consummated, the Company will become self-managed and its own employees will provide the services. Prior to the suspension of the Offerings on September 18, 2019, the Company depended on its Sponsor for services to sell the Company’s shares of common stock. In connection with the change in its plan of distribution whereby the Company will offer its shares of Class C common stock through a registered broker dealer and effective October 1, 2019 pursuant to an amendment to the Advisory Agreement, the Sponsor no longer provides these services.
The Company generally does not require collateral or other security from tenants, other than security deposits or letters of credit. However, since concentration of rental revenue from certain tenants exists, the inability of those tenants to make their payments could have an adverse effect on the Company.
Environmental
As an owner of real estate, the Company is subject to various environmental laws of federal, state and local governments. Although there can be no assurance, the Company is not aware of any environmental liability that could have a material adverse effect on its financial condition or results of operations. However, changes in applicable environmental laws and regulations, the uses and conditions of properties in the vicinity of the Company’s properties, the activities of its tenants and other environmental conditions of which the Company is unaware with respect to the property could result in future environmental liabilities.
Tenant Improvements
Pursuant to lease agreements, as of September 30, 20192020 and December 31, 2018,2019, the Company had obligations to pay $60,598 and $98,329, respectively, for $401,392 and $3,789,091, respectively, in siteon-site and tenant improvements to be incurred by tenants, including a 72.7% share of the tenant improvements for the Santa Clara, property. During the second quarter of 2019, $3,387,699 of the restricted cash balance as of December 31, 2018 was released to a tenant to reimburse it for tenant improvement costs under the terms of the lease agreement.California TIC Interest. As of both September 30, 20192020 and December 31, 2018,2019, the Company had $100,135 and $3,486,927$92,684 of restricted cash held to fund other tenant improvements.
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Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
Operating Lease
As a result of the Self-Management Transaction, on December 31, 2019, a subsidiary of the Company assumed the operating lease of the corporate office in Costa Mesa, California from BrixInvest. The office lease had a remaining term of four years, ending on June 30, 2024. During the second quarter of 2020, the Company's subsidiary re-evaluated its physical office space requirement given the effect of the COVID-19 pandemic, commenced negotiations with the landlord in May 2020 and vacated the premises to the landlord on June 1, 2020. Effective October 29, 2020, the Company’s subsidiary entered into a lease amendment for early termination of the lease in exchange for a lease termination fee of $1,350,000 and as such the Company derecognized the right of use asset and the corresponding lease liability as of September 30, 2020. The termination fee was paid by the Company's subsidiary releasing its $135,544 security deposit and the Company's cash payment of $1,214,456. As a result of this transaction, the operating lease liability of $2,087,713 and the amount of accrued but unpaid lease payments of $242,216 which were previously included in accounts payable, accrued and other liabilities were partially offset by the elimination of the right of use asset of $2,019,577 and the release of the security deposit, resulting in a lease termination expense of $1,175,192 included in other expense for the three and nine months ended September 30, 2020.
Because the rate implicit in the subsidiary's lease was not readily determinable, the Company used an incremental borrowing rate to account for the lease as of December 31, 2019. In determining the Company's incremental borrowing rate for the lease, the Company considered the rate on its unsecured borrowings, observable risk-free interest rates and credit spreads correlating to the Company's creditworthiness and the term of the subsidiary's lease agreement. The discount rate used was 5.75%.
Redemption of Common Stock
The Company has a share repurchase program that enables qualifying stockholders to sell their stock to the Company in limited circumstances. The maximum amount of common stock that may be repurchased per month is limited to no more than 2% of the Company’s most recently determined aggregate NAV. Repurchases for any calendar quarter will beare limited to no more than 5% of its most recently determined aggregate NAV. The foregoing repurchase limitations are based on "net repurchases"“net repurchases” during a quarter or month, as applicable. Thus, for any given calendar quarter or month, the maximum amount of repurchases during that quarter or month will be equal to (1) 5% or 2% (as applicable) of the Company’s most recently determined aggregate NAV, plus (2) proceeds from sales of new shares in the Registered OfferingOfferings and Class S Offering (including purchases pursuant to its Registered DRP Offering) since the beginning of a current calendar quarter or month, less (3) repurchase proceeds paid since the beginning of the current calendar quarter or month.

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Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)

The Company has the discretion to repurchase fewer shares than have been requested to be repurchased in a particular month or quarter, or to repurchase no shares at all, in the event that it lacks readily available funds to do so due to market conditions beyond the Company’s control, its needit needs to maintain liquidity for its operations, or because the Company determines that investing in real property or other illiquid investments is a better use of its capital than repurchasing its shares. In the event that the Company repurchases some but not all of the shares submitted for repurchase in a given period, shares submitted for repurchase during such period will be repurchased on a pro-rata basis. basis, subject to any Extraordinary Circumstance Repurchase (defined below).
The Company has the discretion, but not the obligation, under extraordinary market or economic circumstances, to make a special repurchase in equal, nominal quantities of shares from all stockholders who have submitted share repurchase requests during the period (“Extraordinary Circumstance Repurchase”). Extraordinary Circumstance Repurchases will precede any pro rata share repurchases that may be made during the period.
During the period July 2020 to October 2020, the Company received share repurchase requests and repurchased shares as follows:
Value of Share Repurchase Requests ReceivedRepurchase DateValue of Shares Repurchased (1)
July 2020$8,359,586 August 5, 2020$995,028 
August 2020$8,002,288 September 3, 2020$1,420,636 
September 2020$6,747,834 October 5, 2020$1,393,275 
October 2020$5,907,195 November 4, 2020$1,537,198 
(1) Included Extraordinary Circumstance Repurchases and after applicable administrative fees for shares held less than three years.
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Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
In addition, the Company’s board of directors may amend, suspend or terminate the share repurchase program without stockholder approval upon 3010 days’ notice if its directors believe such action is in the Company and its stockholders’ best interests. The Company’s board of directors may also amend, suspend or terminate the share repurchase program due to changes in law or regulation, or if the board of directors becomes aware of undisclosed material information that the Company believes should be publicly disclosed before shares are repurchased.
In order to protect the interests of long-term investors, on August 7, 2019, the board of directors amended the share repurchase program for the Class C common stock to require that shares be held for 90 days after they have been issued to the applicable stockholder before the Company will accept requests for repurchase. This policy is being implemented to:
avoid disruption to cash management and real estate investment activity;
reduce the cost burden incurred from short-term share repurchase requests; and
protect the Company, its stockholders and corresponding financial institutions from fraudulent cyber activities.
In accordance with the terms of the share repurchase program, this amendment became effective September 12, 2019, which was 30 days after the Form 10-Q for the quarter ended June 30, 2019 and a related supplement to the prospectus for the Registered Offering were filed with the SEC.
Legal and Regulatory Matters
From time-to-time, the Company may become party to legal proceedings that arise in the ordinary course of its business. Other than as described below, the Company 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.
BeginningOn September 18, 2019, a lawsuit was filed in 2017, the SEC conducted an investigationSuperior Court of the Company's SponsorState of California, County of Los Angeles (the “State Court Action”), against the Former Advisor by “John Doe,” a fictitiously-named individual who was one of the Former Advisor's former employees. The Former Advisor understands that the plaintiff was its former Chief Digital Officer, who along with six other employees was subject to a reduction in force, communicated to all in advance, that was a result of financial constraints of the Former Advisor which necessitated the elimination of numerous job positions in May 2019. In the lawsuit, the former employee claims he was terminated in retaliation for his purported whistleblowing with respect to alleged misleading statements made by the Former Advisor and fraudulently induced arbitration requirements applicable to employees and investors. The complaint seeks to enjoin and rescind the enforcement of the arbitration agreement signed by the former employee and the arbitration requirements related to among other things,this complaint. In September 2020, the advertising and sale of securities in connection with the Registered Offering and compliance with broker-dealer regulations. The Company cooperated with the SEC in this matter. Recently, the Company’s Sponsor, proposed a settlement of the investigationState Court Action was removed to the SEC and, on September 26, 2019, the SEC accepted the settlement and entered an order (the “Order”) instituting proceedings against the Sponsor pursuant to Section 8AUnited States District Court, Central District of the Securities Act and Section 21C of the Exchange Act.California. The Company is not a party to the settlementlawsuit. The Former Advisor has denied all the accusations and allegations in the complaint and the staff of the enforcement division of the SEC did not recommend any actionFormer Advisor intends to vigorously defend against the Company.claims made by the plaintiff.
Under the settlement, the Sponsor, without denying or admitting any substantive findings in the Order, consented to entry of the Order, finding violations by it of Section 5(b)(1) of the Securities Act and Section 15(a) of the Exchange Act. The Order does not find that the Sponsor violated any anti-fraud provisions of the federal securities laws or any other law and does not find any criminal violations or any scienter based violation involving the offer and sale of securities.
Under the terms of the Order, the Sponsor (i) agreed to cease-and-desist from committing or causing any future violations of Section 5(b) of the Securities Act and Section 15(a) of the Exchange Act, (ii) paid to the SEC a civil money penalty in the amount of $300,000, and (iii) agreed to undertake that any real estate investment trust which is or was formed, organized, or advised by it, including the Company, will not distribute securities except through a registered broker-dealer. Although the Company is not a party to the settlement or the Order, the Sponsor’s undertaking in the Order will result in the securities the Company issues in any offering, including its registered public offering, being distributed only through a registered broker-dealer.


NOTE 11. SUBSEQUENT EVENTS
The Company evaluates subsequent events up until the date the condensed consolidated financial statements are issued. Significant subsequent events are described below:
Offering Status
Through October 31, 2019,2020, the Company had sold 17,882,66119,727,497 shares of Class C common stock in the Registered Offering,Offerings, for aggregate gross offering proceeds of $179,035,582,$196,433,674, which included 1,461,8042,262,304 shares of Class C common stock sold under its distribution reinvestment plan for gross proceeds of $14,736,539.$21,556,543. Through October 31, 2019,2020, the Company hashad sold 186,260190,616 shares of Class S common stock in the Class S Offering, for aggregate gross offering proceeds of $1,890,319,$1,928,448, which included 1,9485,652 shares of Class S common stock sold under its dividenddistribution reinvestment plan for gross proceeds of $19,769.$51,284.
Distributions
The Company filed a pre-effective amendment to its Form S-11paid the September 2020 distribution of $688,630 on October 18, 2019, which includes the Company’s updated plan of distribution whereby the Company will offer its Class C common stock through North Capital, a registered broker dealer. On October 23, 2019, North Capital filed an application with the FINRA with respect to the offering of the Company’s Class C common stock. The Registered Offering of the Company's Class C common stock is expected to recommence following receipt of a no objection letter from FINRA, and the SEC declaring the registration statement effective.
Distributions
On August 30, 2019, the Company’s board of directors declared distributions26, 2020, based on the daily record dates for the period September 1 through September 30, 2019 at thedistribution rate of $0.00192740$0.00095890 per share per day on the outstanding shares of itsClass C and Class S common stock, which the Company paid on October 25, 2019.
On August 30, 2019, the Company’s boardreflects an annualized distribution rate of directors also declared distributions$0.35 per share or 5.0% per share based on daily record dates for the period October 1 through October 31, 2019, November 1 through November 30, 2019 and December 1 through December 31, 2019 at the rate of $0.00192740Company's estimated NAV per share per dayof $7.00 (unaudited). The Company generally pays distributions on the outstanding shares25th day following the end of its common stock, whicheach month, or the Company will paynext business day if the 25th day falls on November 25, 2019, December 26, 2019 and January 27, 2020, respectively.a weekend or holiday.
Redeemable Common Stock Redeemed
Subsequent to September 30, 2019,2020, the Company redeemed 255,347419,929 shares of Class C common stock for $2,558,712. There were no$2,926,160 and 616 shares of Class S common stock redeemed subsequentfor $4,313.
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Notes to September 30, 2019.Condensed Consolidated Financial Statements (continued)
Acquisition and Use(Unaudited)
Sale of Non-Refundable Purchase DepositReal Estate Investment
On October 24, 2019,28, 2020, the Company through a wholly-owned subsidiarycompleted the sale of its Morgan Hill, CA industrial property which was leased to Dinan Cars for $6,100,000, which generated net proceeds of $3,811,580 after repayment of the existing mortgage, commissions and closing costs.
Operating Partnership, completed the acquisition of a cold storage warehouse and distribution facility with approximately 216,727 square feet located in Yuma, Arizona. This property is 100% leased to a wholly-owned subsidiary of Taylor Fresh Foods, Inc., an American-based producer of fresh-cut fruits and vegetables. The property’s triple-net lease expires on September 30, 2033. The property is expected to generate $24,124,800 in total rental revenue over the course of its remaining lease term. The contract purchase price for the property was $24,700,000 which was funded with $7,410,000 in net proceeds fromLease
Effective October 29, 2020, the Company’s registered offering of Class C common stock (including the non-refundable purchase deposit of $2,000,000 reflected in the Company’s balance sheet as of September 30, 2019), a mortgage secured by the property for $12,350,000 that provides 10-year financing at a fixed rate of 3.85% with five years of interest only payments and 27.5-year amortization thereafter, and $4,940,000 borrowed under the Company’s line of credit. The seller of the property was not affiliated with the Company or its affiliates. Under the terms of the Advisory Agreement with its Sponsor and its Advisor, the Company paid the Advisor an acquisition fee of $741,000 in connection with this acquisition in October 2019.
Amended and Restated Share Repurchase Program
On October 14, 2019, the Company amended and restated its SRP for its Class C common stock to clarify the requirement that Class C common stock be held for 90 days before the shares will be accepted for redemption, excluding shares acquired pursuant to the Company’s distribution reinvestment plan or automatic investment program if the applicable stockholder has held their initial investment for at least 90 days.


Furthermore, the share repurchase program was amended to allow the Company to repurchase all of the Class C common stock owned by a stockholder if, as a result of a request for repurchase, such stockholder will own shares having a value of less than $500 (based on the Company’s most-recently published offering price per Class C common stock).
As discussed in Note 1, the Company temporarily suspended its share repurchase program effective October 19, 2019 and the share repurchase program will remain suspended until such time, if any, as the Company’s board of directors, in its discretion, may approve the reinstatement of the share repurchase program.
Should the Merger be completed, the Company currently anticipates the reinstatement of the share repurchase program to occur shortly after the closing of the transactions, which is expected to occur in late December 2019 or early January 2020.
Acquisition of Intellectual Property From the Sponsor and Website Hosting Agreement With BRIX REIT, Inc.
Following the announcement of the pending Self-Management Transaction, BRIX REIT suspended its offering in order to assess its advisory agreement with the Sponsor. On October 28, 2019, BRIX REIT terminated its advisory agreement with the Sponsor and became self-managed on an interim basis. BRIX REIT may consider entering into a new advisory agreement with a subsidiary of the Company in the event that the Self-Management Transaction is completed.
Effective October 28, 2019, the Operating Partnership acquired certain software and related assets of the Sponsor in order for the Operating Partnership to develop and operate a new online platform for BRIX REIT, Inc. The Operating Partnership entered into a website hosting services agreement with BRIX REIT effective October 28, 2019 pursuant tolease amendment for early termination of the lease of its former corporate office in Costa Mesa, California in exchange for a lease termination fee of $1,350,000 which the Operating Partnership will host the online platform at www.brix-reit.com for BRIX REIT. In connection with such hosting services, BRIX REIT will pay the Operating Partnership service fees equal to the direct costwas paid by the Operating Partnership to third parties for services related to the Operating Partnership’s hostingrelease of the online platform, plussubsidiary’s $135,544 security deposit and the then-current time and materials rates charged by the Operating PartnershipCompany's cash payment of $1,214,456 (see Note 10 for the servicesfurther details).
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Table of its personnel. The website hosting services agreement has a term of three years following its effective date and will automatically renew for successive one-year periods unless either party notifies the other of termination on or before 90 days prior to the end of the term, or unless the agreement is terminated earlier due to a material breach by either party of the agreement, either party becomes insolvent or the Operating Partnership transfers or assigns all of its right, title and interest in the online platform to a third party that is not a direct or indirect subsidiary of the Operating Partnership.Contents

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition, results of operations and cash flows together with the condensed consolidated financial statements and related 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 financial condition and results of operations for the fiscal year ended December 31, 20182019 included in our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the "SEC"“SEC”) on April 6, 2020, and our Quarterly Reports for the three months ended March 29, 2019.31, 2020 and June 30, 2020 filed with the SEC on June 24, 2020 and August 14, 2020, respectively. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors. See "Forward-Looking Statements"“Forward-Looking Statements” above.
Management’s discussion and analysis of financial condition and results of operations are based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP"(“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.
Overview
We were formed on May 14, 2015 as a Maryland corporation that elected to be treatedtaxed as a real estate investment trust, or REIT, for federal income tax purposes beginning with our taxable year ended December 31, 2016 and we intend to continue to operate so as to remain qualified as a REIT for federal income tax purposes thereafter. We intend to invest primarily in single tenant income-producing properties which are leased to creditworthy tenants under long-term net leases. 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 interests in entities that own and operate real estate. We will make substantially all acquisitions of our real estate investments directly through Rich UnclesRW Holdings NNN REIT Operating Partnership, LP, a Delaware limited liability companypartnership (the "Operating Partnership"“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 arrangements with other owners of properties, affiliatessome of which may be affiliated with us or our Advisor (as defined below)executive officers or other persons.directors.
We consider our Company to be a perpetual-life investment vehicle because we have no finite date for liquidation and no current 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 number of shares forpursuant to the Registered Offering (as defined below),Offerings, 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 offerings exempt from the registration statement requirements of the Securities Act of 1933, as amended (the "Securities Act"), such as our Class S Offering.offerings. 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.
SubjectWe hold our investments in real property through special purpose limited liability companies which are wholly-owned subsidiaries of the Operating Partnership or Katana Merger Sub, LP (“Merger Sub”), which is described below. The Operating Partnership was formed on January 28, 2016. We are the sole general partner of, and owned a 99% partnership interest in, the Operating Partnership prior to certain restrictionsthe completion of the Self-Management Transaction (defined below) on December 31, 2019. Our wholly-owned subsidiary, Rich Uncles NNN LP, LLC, a Delaware limited liability company formed on May 13, 2016 (“NNN LP”), owned the remaining 1% partnership interest in the Operating Partnership and limitations,was the sole limited partner of the Operating Partnership prior to the completion of the Self-Management Transaction on December 31, 2019.
Following the completion of the Self-Management Transaction, we, including NNN LP, own an approximately 87% partnership interest in the Operating Partnership. Daisho OP Holdings, LLC, a formerly wholly-owned subsidiary of BrixInvest (defined below) (“Daisho”) which was spun off from BrixInvest on December 31, 2019, was issued and held 657,949.5 units of Class M limited partnership interest (the “Class M OP Units”), or an approximate 12% limited partnership interest, in the Operating Partnership as of December 31, 2019. The Class M OP Units were distributed to the members of Daisho during 2020. In connection with the Self-Management Transaction, our business is currentlyChief Executive Officer and Chief Financial Officer were issued an aggregate of 56,029 units of Class P limited partnership interest (the “Class P OP Units”) in the Operating Partnership and thereby own the remaining approximate 1% limited partnership interest in the Operating Partnership.
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We were externally managed by our former advisor, Rich Uncles NNN REIT Operator, LLC (our "Advisor"(the “Former Advisor”), a Delaware limited liability company, wholly-owned by our sponsor, BrixInvest, LLC (d/b/a Rich Uncles LLC, our "Sponsor"), pursuant to the Second Amended and Restated Advisory Agreement between us,dated August 11, 2017, as amended (the “Advisory Agreement”), through December 31, 2019. The Former Advisor was wholly-owned by our Advisorformer sponsor, BrixInvest, LLC (f/k/a Rich Uncles, LLC) (“BrixInvest” or the “Former Sponsor”), a Delaware limited liability company whose members included Messrs. Halfacre and Wirta.
On December 31, 2019, pursuant to an Agreement and Plan of Merger dated September 19, 2019 (the “Merger Agreement”), Rich Uncles Real Estate Investment Trust I (“REIT I”) merged with and into Merger Sub, a Delaware limited partnership and our Sponsor (as amended,wholly-owned subsidiary, with Merger Sub surviving as our direct wholly-owned subsidiary (the “Merger”). At such time, the "Advisory Agreement"separate existence of REIT I ceased. As a result, we issued 8,042,221.6 shares of our Class C common stock to former shareholders of REIT I. In addition, on December 31, 2019, a self-management transaction was completed, whereby we, the Operating Partnership, BrixInvest and Daisho effectuated a Contribution Agreement (the “Contribution Agreement”) pursuant to which we acquired substantially all of the assets and assumed certain liabilities of BrixInvest in exchange for 657,949.5 Class M OP Units in the Operating Partnership (the “Self-Management Transaction”). As a result of the completion of the Merger and the Self-Management Transaction, we became self-managed.
Our Former Advisor managesmanaged our operations and will manage our portfolio of core real estate properties and real estate related assets. Our Advisor also providesassets and provided asset-management and other administrative services on our behalf. Our Former Advisor iswas paid certain fees as set forth in Note 8 9 to our unaudited condensed consolidated financial statements.
On June 24, 2015, our Sponsor purchased 10,000 shares of common stock for $100,000 and As discussed above, beginning on January 1, 2020, we 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 90,000,000 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 statement effective on June 1, 2016 and we commenced the sale of our shares to the public on July 20, 2016.

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

Under applicable SEC rules, the current registration statement for the Registered Offering was scheduled to terminate on June 1, 2019, but remained effective because we filed a new registration statement on Form S-11 with the SEC on May 24, 2019 to extend the Registered Offering in accordance with Rule 415 of the Securities Act. Our current registration statement on Form S-11 will terminate when the new registration statement is declared effective by the SEC. On October 18, 2019, we filed a pre-effective amendment to our Form S-11 which includes our updated plan of distribution whereby we will offer our Class C common stock through North Capital Private Securities Corporation (“North Capital”), a registered broker dealer.
We reserve the right to terminate the Registered Offering at any time, and will terminate the Registered Offering if we sell our maximum offering amount of Class C common stock. If we terminate the Registered Offering, we will notify stockholders by filing a prospectus supplement with the Securities and Exchange Commission. The Registered Offering must be registered in every state in which we offer or sell our shares and, as a result, we are also required to renew the registration statement for the Registered Offering annually or file a new registration statement to continue the Registered Offering. Therefore, we may have to stop selling shares in any state in which our registration for the Registered Offering is not renewed or otherwise extended.
On August 11, 2017, we began offering 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 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 reserve the right to terminate the Class S Offering at any time.
On January 11, 2019, our board of directors approved and established an estimated net asset value ("NAV") per share of our common stock in the Offering of $10.16 (unaudited). Effective January 14, 2019, the purchase price per share of our common stock in the Offerings increased from $10.05 (unaudited) to $10.16 (unaudited).self-managed.
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 properties which are leased to creditworthy tenants under long-term net leases. While our current 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 interest in entities that own and operate real estate.
Our investment objectives and policies may be amended or changed at any time by our board of directors. Although we have no plans at this time to change any of our investment objectives and policies, our board of directors may change any and all such investment objectives and policies, including our focus on single tenant commercial properties, if we believeit believes such changes are in the best interestinterests of our stockholders. Rich Uncles NNN REIT Operator, LLC, our Advisor, makes recommendations on
As we accept subscriptions for shares in the Offerings, we transfer substantially all investmentsof the net proceeds of the Offerings to our boardOperating Partnership as a capital contribution in exchange for units of directors.general partnership and/or limited partnership interest; however, we will be deemed to have made capital contributions to the Operating Partnership in the amount of the gross offering proceeds received from investors. All proposed real estate investments must be approved by at least a majorityofferings of our boardcommon stock are made through a registered broker-dealer, and we are directly responsible for all organization and offering costs, including our investor relations personnel.
Because we plan to conduct substantially all of directors.
Pending Merger Transaction
On March 19, 2019,our operations through the Operating Partnership, we announced that we intended to explore a potential acquisition of Rich Unclesare considered an Umbrella Partnership Real Estate Investment Trust, or UPREIT. Using an UPREIT structure may give us an advantage in acquiring properties from persons who might not otherwise sell their properties because of unfavorable tax results. Generally, a sale of property directly to a REIT, or a contribution in exchange for REIT shares, is a taxable transaction to the selling property owner. However, in an UPREIT structure, a seller of a property who desires to defer taxable gain on the sale of property may transfer the property to the Operating Partnership in exchange for partnership interests in the Operating Partnership without recognizing gain for tax purposes.
Although we historically have conducted, and intend to continue to conduct, substantially all of our operations through the Operating Partnership, as a result of the Merger with REIT I, ("we hold the assets acquired from REIT I")I through Merger Sub, our wholly-owned subsidiary.
We present our financial statements on a consolidated basis, including the Operating Partnership and Merger Sub. All items of income, gain, deduction (including depreciation), an affiliated real estate investment trust that is sponsored by our Sponsor or its real estate properties portfolioloss and that we had formed a special committeecredit of the Operating Partnership and Merger Sub flow to us as all independent directors (the "Special Committee") to evaluate the potentialsubsidiary entities are disregarded for federal tax purposes except for a transactiontaxable REIT subsidiary formed on January 15, 2020. These tax items do not generally flow through us to our stockholders. Rather, our net income and net capital gain effectively flow through us to our stockholders as and when we pay distributions.
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Impact of the COVID-19 Pandemic
Due to the current COVID-19 pandemic in the United States and globally, our tenants and operating partners, property locations and the economy as a whole are severely impacted. The magnitude and duration of the COVID-19 pandemic and its impact on our tenants, cash flows and future results of operations could be significant and will largely depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the COVID-19 pandemic, the success of actions taken to contain or treat COVID-19, and reactions by consumers, companies, governmental entities and capital markets. The U.S. and global economies entered into a recession during the first quarter of 2020. Weakness in the U.S. and global economies continues, the severity and duration of which are unpredictable but expected to be significant as evidenced by approximately 12.6 million U.S. workers unemployed as of September 30, 2020. The prolonged duration and impact of the COVID-19 pandemic continues to disrupt our business operations and impact our financial performance. Several tenants have requested rent abatements and one tenant (24 Hour Fitness) has not paid rent since March 2020 and has provided formal notice that it has rejected the lease through its Chapter 11 bankruptcy proceeding and the premises were surrendered to our subsidiary. We have collected approximately 95% of rents due during the third quarter of 2020 and for the month of October 2020; however, there can be no assurance that this rate of collections will continue. In certain cases, we have negotiated with REIT I. The Special Committee engaged UBS Securities LLCtenants and lenders regarding the deferral or resumption of rent payments and the partial deferral of mortgage payments, as appropriate, and further negotiations may occur.

During the second quarter of 2020, our subsidiary re-evaluated its financial advisorphysical office space requirement given the effect of the COVID-19 pandemic, commenced negotiations with the landlord in May 2020 and Morris Manning & Martin, LLP as its legal advisor. REIT I conducted a multi-round bidding process directed by Cushman & Wakefield. The bidding process resulted in a short list of bidders submitting acquisition bidsvacated the premises to a special committee of REIT I's trust managers for review, includingthe landlord on June 1, 2020. Effective October 29, 2020, our bid. On June 21, 2019, we announced that following REIT I's review of all bids, REIT I and our Special Committee commenced an exclusive due diligence process in order to determine whether a potential transaction might result.
On September 20, 2019, we announced that we hadsubsidiary entered into an agreement and plan of merger (the "Merger Agreement") pursuant to which a business combination would be effected by REIT I's merger with our subsidiary (the "Merger") and REIT I's existence would cease. The Merger is subject to certain closing conditions, including the approvallandlord for early termination of the Merger by both our stockholders and REIT I’s shareholders, as discussed below. The Merger is expected to close as soon as practicable following our annual meeting of stockholders, which is scheduled to be held on December 17, 2019 and the satisfaction of the closing conditions. The combined company ("Combined Company") following the Merger will retain our name. The Merger is intended to qualify as a “reorganization” under, and within the meaning of, Section 368(a) of the Internal Revenue Code of 1986, as amended.

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

Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger, each of REIT I's common shares (the “REIT I Common Shares”) issued and outstanding immediately prior to the effective time of the Merger (other than shares we own will be automatically canceled and retired, and converted into the right to receive one share of our Class C common stock, with any fractional REIT I Common Shares converted into a corresponding number of fractional shares of Class C common stock.
On October 22, 2019, we filed a joint proxy statement and prospectus with the SEC relating to our annual meeting of stockholders to be held on December 17, 2019 to vote on the Merger. Stockholders of record on October 21, 2019 are eligible to vote on the proposal to approve the Merger.
Pending Self -Management Transaction
In addition, on September 20, 2019, we announced that we had entered into a contribution agreement (the "Contribution Agreement") with our Sponsor and Daisho OP Holdings, LLC, a wholly-owned subsidiary of our Sponsor (“Daisho"). The Contribution Agreement provides for a series of transactions, agreements, and amendments to our existing agreements and arrangements whereby we will acquire substantially all of the assets of BrixInvestlease in exchange for 657,949.5 unitsa lease termination fee of Class M limited partnership interest (the “Class M OP Units”) in the Operating Partnership (the “Self-Management Transaction”).
Prior to the closing$1,350,000. The termination fee was paid by our subsidiary releasing its $135,544 security deposit and we made a cash payment of the Self-Management Transaction, (i) substantially all of the Sponsor's assets and liabilities will be contributed to Daisho’s wholly-owned subsidiary, modiv, LLC (“modiv”), and (ii) the Sponsor will spin off Daisho to the Sponsor's members (the “Spin Off”). Pursuant to the Self-Management Transaction, Daisho will contribute to the Operating Partnership all of the membership interests in modiv in exchange for the Class M OP Units.$1,214,456. As a result of these transactions and the Self-Management Transaction, the Sponsor, through its subsidiary, Daisho, will transfer allthis transaction, we recorded a lease termination expense of its operating assets, including but not limited to (a) all personal property used$1,175,192 (which was net of previously accrued rent expense) in or necessaryother expense for the conduct of the Sponsor's business, (b) all intellectual property, goodwill, licensesthree and sublicenses granted and obtained with respect thereto and certain domain names, (c) all continuing employees, and (d) certain other assets and liabilities, to modiv, and will distribute 100% of the ownership interests in Daisho to the members of the Sponsor in the Spin Off. The Sponsor is currently engaged in the business of serving directly or indirectly as our sponsor and advisor as well as for REIT I's advisor, and was the sponsor and advisor for BRIX REIT, Inc. ("BRIX REIT") until the BRIX REIT advisory agreement was terminated effective October 28, 2019. We are the sole general partner of the Operating Partnership. Therefore, upon the consummation of the Self-Management Transaction, we will become self-managed, and if the Merger is consummated, the Combined Company would become self-managed.
The terms of the Class M OP Units to be issued in the Self-Management Transaction will be set forth in a Second Amended and Restated Limited Partnership Agreement, which will become effective upon the closing of the Self-Management Transaction (the “Amended OP Agreement”). The Class M OP Units will be non-voting, non-dividend accruing, and will not be able to be transferred or exchanged prior to the one-year anniversary of completing the Self-Management Transaction. Following the one-year anniversary of completing the Self-Management Transaction, the Class M OP Units will be convertible into units of Class C limited partnership interest in the Operating Partnership (“Class C OP Units”) at a conversion ratio of five Class C OP Units for each one Class M OP Unit, subject to a reduction in the conversion ratio (which reduction varies depending upon the amount of time held) if the exchange occurs prior to the four-year anniversary of completing the Self-Management Transaction. Under the Amended OP Agreement, the Class C OP Units will continue to be exchangeable for cash or shares of our Class C Common Stock on a one for one basis, as we determine. The Class M OP Units will be eligible for an increase in the conversion ratio if we achieve the agreed-upon targets for assets under management and adjusted funds from operations in 2021, 2022 and 2023.
As ofnine months ended September 30, 2019, we had incurred $2,426,530 in costs related to the Merger and the Self-Management Transaction. The Merger will be accounted for as an asset acquisition and the related costs will be capitalized and allocated to the assets acquired upon completion of the Merger. The Self-Management Transaction will be accounted for as an acquisition of a business and the related costs are charged to expense. We allocated the costs of the financial and legal advisors between the Merger and the Self-Management Transaction based on the relative value of the transactions, resulting in $1,626,170 of Merger costs recorded in other assets pending completion of the Merger and $800,360 of expenses for the Self-Management Transaction recorded as general and administrative expenses.2020.

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

Amendment to Advisory Agreement
Until September 18, 2019, when the Registered Offering was suspended in connection with the pending Merger, our Sponsor provided organizational and offering services to us to manage our organization and the Registered Offering and reimbursed us for the costs of our Investor Relations personnel. Our Sponsor was entitled to include the reimbursement of such expenses as part of our reimbursement to them of organization and offering costs, but reimbursement did not exceed an amount equal to 3% of gross offering proceeds. The Advisory Agreement was amended effective October 1, 2019 in connection with our new plan of distribution whereby we will offer our shares of Class C Common Stock through a registered broker dealer. We agreed to pay all future organization and offering costs, and to no longer be reimbursed by the Sponsor for our Investor Relations personnel costs after September 30, 2019, in exchange for the Sponsor’s agreement to terminate its right to receive 3% of all offering proceeds received by us after September 30, 2019 as reimbursement for organization and offering costs previously paid by the Sponsor.
Updated Estimated Net Asset Value Per Share, Temporary Suspension of Primary Offerings Distribution Reinvestment Plans and Share Repurchase ProgramsResumption of Primary Offerings
On May 8, 2020, we announced that due to the impacts of the COVID-19 pandemic on our real estate properties, our board of directors authorized the engagement of an independent third-party real estate advisory and consulting firm to perform an independent valuation of our real estate assets and real estate related liabilities associated with our properties for the purpose of assisting the board of directors in updating our estimated net asset value (“NAV”) per share to reflect the impact of the COVID-19 pandemic. Our board of directors announced a new estimated NAV per share of $7.00 (unaudited) on May 22, 2020. Additional information on the determination of our estimated NAV per share, including the process used to determine our estimated NAV per share, can be found in our Current Report on Form 8-K filed with the SEC on May 22, 2020.
In connection with our plan to update the transactions contemplated above, on September 18, 2019, ourestimated NAV per share, the board of directors approved the temporary suspension of the Primary Offering, which is registered with the SEC under the Securities Act,primary offerings of our shares of Class C common stock and the primary offering portion of the Class S Offering, which we offer exclusively to non-U.S. investors. Our automatic investment program was also temporarily suspendedcommon stock, effective as of the close of business on September 18, 2019. We filed a pre-effective amendment toMay 7, 2020. On May 29, 2020, our Form S-11 on October 18, 2019, which includes our updated planboard of distribution whereby we will offer our Class C common stock through North Capital, a registered broker dealer. On October 23, 2019, North Capital filed an application withdirectors approved and directed the Financial Industry Regulatory Authority ("FINRA") with respect toresumption of the primary offerings effective June 1, 2020. The purchase price per share in the primary portion of the offering of our Class C common stock. The Registered Offeringstock was decreased from $10.27 to $7.00, and the purchase price per share in the primary portion of the offering of our Class CS common stock is expectedwas also decreased to recommence following receipt$7.00 plus the amount of a no objection letter from FINRAany applicable upfront commissions and the SEC declaring the registration statement effective. Upon recommencement of the Registered Offering, stockholders enrolled in the automatic investment program will again automatically purchase shares pursuant to such program unless otherwise determined by our board of directors.fees.
Our board of directors has also approved the temporary suspension of the distribution reinvestment program for Class C Common Stock and Class S Common Stock ("DRPs") effective September 18, 2019 and the temporary suspension of the share repurchase program for Class C Common Stock and Class S Common Stock ("SRPs") effective October 19, 2019. Redemption requests submitted prior to 10 a.m. PDT on October 19, 2019 were honored in accordance with the terms of the SRPs. Pursuant to the suspension of the DRPs, beginning September 19, 2019, all future distributions shall be paid to our stockholders in cash. The DRPs and the SRPs will remain suspended until such time, if any, as our board of directors, in its discretion, may approve the reinstatement of the DRPs and SRPs.
Should the Merger be completed, we currently anticipate the reinstatement of the share repurchase program to occur shortly after the closing of the transaction, which is expected to occur in late December 2019 or early January 2020.
The Company
We are a publicly registered, non-exchange traded company dedicated to providing stockholders with dependable monthly dividends.company. We believe we are qualified to operate as a REIT, which requires us to annually distribute at least 90% of our taxable income (excluding net capital gains) in the form of dividendsdistributions to our stockholders. Our monthly dividends 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. See "Distributions" below.
Our primary business consists of acquiring, financing and owning single-tenant retail, office and industrial real estate leased to creditworthy tenants on long-term leases. We primarily generate revenues by leasing properties to tenants pursuant to net leases. As of September 30, 2019, we owned 242020, our real estate investment portfolio, excluding real estate investments held for sale, consisted of (i) 39 properties (including 17 operating properties acquired in 13connection with the Merger on December 31, 2019) located in 14 states consisting of 14 retail properties, 14 office properties and 11 industrial properties, and(ii) one parcel of land, which serves as an easement to one of our operating properties, and (iii) a 72.7% undivided tenant-in-common real estate investmentinterest (the “TIC Interest”) in aan office property located in Santa Clara, CaliforniaCA interest as discussed in which we have an approximate 72.7% interest (the "TIC Interest") and a real estate investment in REIT I, an affiliated REIT, in which we have an approximate 4.8% interest.Note 5 to our unaudited condensed consolidated financial statements. The net book value of these investments at September 30, 20192020 was $231,386,218.$356,512,884. We also owned three properties held for sale (including one property acquired in the Merger) with a net book value of $23,033,118 as of September 30, 2020.

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With respect to our diversified portfolio of 2439 operating properties as of September 30, 2019:2020:
Nine•14 properties are retail properties which represent an approximate 16%12% of the portfolio, 1014 properties are office properties which represent an approximate 52%50% of the portfolio, and five11 properties are industrial properties which represent an approximate 32%38% of the portfolio (expressed as a percentage of annualized base rent)net operating income);
Fully leased with a physical occupancy•Occupancy rate of 97.0%94%;
•Leased to 2433 different commercial tenants doing business in 1114 separate industries;
•Located in 1314 states;
With approximately 1,537,000•Approximately 2,171,191 square feet of aggregate leasable space;
With an•An average leasable space per property of approximately 64,00051,000 square feet; approximately 20,00016,000 square feet per retail property, approximately 62,00057,000 square feet per office property, and approximately 147,000118,000 square feet per industrial property; and
With an outstanding•Outstanding mortgage notesnote payable balance of $114,824,998, net$180,107,542.
As of deferred financing costs of $1,990,507.
Of the 24September 30, 2020, all 39 operating properties in theour portfolio as of September 30, 2019, all are single-tenant properties. At September 30, 2019,properties and all 2439 properties were leased, with a weighted average remaining lease term (excluding rights to extend a lease at the option of the tenant) of approximately 6.65.6 years.
As of September 30, 2019,2020, we also have an approximate 4.8% interest in REIT I andheld an approximate 72.7% TIC Interest in a a 91,740 square feet property located in Santa Clara, California. The remaining approximate 27.3% of undivided interest in the Santa Clara property is held by Hagg Lane II, LLC (an approximate 23.4%) interest) and Hagg Lane III, LLC (an approximate 3.9%) interest). The manager of Hagg Lane II, LLC and Hagg Lane III, LLC isbecame a board member of the Sponsor.our board of directors in December 2019.
On October 24, 2019, we acquired a cold storage warehouse and distribution facility with approximately 216,727 square feet located in Yuma, Arizona as described in Note 11 to our unaudited condensed consolidated financial statements.
Investment Strategy
Our investment strategy isWe seek to acquire single-tenant retail, office,a portfolio consisting primarily of single tenant net leased properties throughout the United States diversified by corporate credit, physical geography, product type, and industriallease duration. Although we have no current intention to do so, we may also invest a portion of the net proceeds from our Offerings in single tenant net leased properties outside the United States. We intend to acquire assets consistent with our single tenant acquisition philosophy by focusing primarily on properties:
•     where construction is substantially complete to reduce risks associated with construction of new buildings;
•     leased on a “net” basis, where the tenant is responsible for the payment, and fluctuations in costs, of real estate and other taxes, insurance, utilities, and property maintenance;
•     located in primary, secondary and certain select tertiary markets;
•     leased to creditworthy tenants on long-term leases. Our ideal portfolio is comprised of 40% office, 40% industrial, and 20% retail, with greater than 50% of our real estate leasedstrong financial statements, including, but not limited to investment grade tenants as determined by one ofcredit quality, at the big three credit rating agencies (Standard & Poor’s, Moody’s or FitchRatings). When identifying new properties for investment,time we generally focus on acquiring high-quality real estate that tenants consider importantacquire them; and
•     subject to the successful operation of their business. We generally seek to acquire real estate that has the following property characteristics:
freestanding and commercially-zonedlong-term leases with a single tenant;
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;
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);
located within and attractive demographic areas relative to the business of our tenants and are generally fungible and have good visibility and easy access to major thoroughfares;
withdefined rental or lease payments that approximate or are lower than market rents; and
can be purchased with the simultaneous execution or assumption of long-term, net lease agreements, offering both current income and the potential for future rentrate increases.
The 20 properties of the REIT I portfolio which are the subject of the Merger are generally aligned with these characteristics.
Our independent directors have approved an allocation of up to $10,000,000 to be invested in properties with less than five years of remaining lease term that can be purchased at a discount, repositioned by negotiating an extended lease term with the tenant and then either sold at a profit or held in our portfolio. Prior to purchasing such properties, our Advisor will assess the expected probability of obtaining an extended lease term from the tenant by evaluating, among other factors, the property’s performance (e.g. store sales and profitability), location, population in the immediate area, current rent in relation to the market, local competition, age of the property and quality of existing tenant improvements.


Liquidity and Capital Resources
Liquidity
Our proceeds from shares sold in the Offerings and secured or unsecured borrowings from banks or other lenders have been, and will continue to be, primarily used to invest in real estate investments or to re-lease and reposition our primary sourceproperties in accordance with our investment strategy and policies, including costs and fees associated with such investments. We also expect to use a portion of liquidity, primarilythe proceeds of the Offerings for (i) property acquisitions; (ii) capital expenditures; (iii) payment of principal on our outstanding indebtedness; and (iv)for payment of feescapital expenditures, tenant improvement costs and leasing costs related to our Advisor. Our cash needs for the purchase of real estate propertiesinvestments; to provide liquidity to our stockholders pursuant to our share repurchase programs; and other real estate investments will be funded primarily from the sale of our shares, including those offered for sale through our dividend reinvestment plan, and from debt proceeds. We have accrued costs of $956,694 related to the Merger and Self-Management transactions as of September 30, 2019 and expect to incur approximately $2,000,000 of additional costs between October 1, 2019 and the closing of these transactions. The costs of the Merger and Self-Management transactions will be funded from proceeds from the Offerings and borrowings under our line of credit.general corporate purposes.
Our aggregate borrowings, secured and unsecured, from financial institutions must be reasonable in relation to our tangible assets. Our charter limits the amount we may borrow to 300% of our net assets, unless any excess borrowing is approved by a majority of our independent directors and disclosed to our stockholders in our next quarterly report, along with a justification for such increase; however, historically we have limited borrowings to 50% of the costvalue of our tangible assets calculated atunless any excess borrowing is approved by a majority of the conflicts committee of our board of directors and is disclosed to our stockholders in our next quarterly report, along with the justification for such excess. On March 27, 2020, our conflicts committee and board of directors approved an increase in our maximum leverage from 50% to 55% in order to allow us to take advantage of the current low interest rate environment, the relative cost before deducting depreciation or other non-cash reserves.of debt and equity capital and strategic borrowing advantages potentially available to us. Our borrowings on one or more individual properties may exceed 50%55% of their individual cost, so long as our overall leverage does not exceed 50%.55% of the aggregate value of our tangible assets. We may exceed this limit only if any excess borrowing is approved by a majority of our conflicts committee and is disclosed to our stockholders in our next quarterly report, along with the justification
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for such excess. When calculating our use of leverage, we will not include borrowings relating to the initial acquisition of properties and that are outstanding under a revolving credit facility (or similar agreement). There is no limitation on the amount we may borrow for the purchase of any single asset. As of September 30, 2019,2020, our leverage ratio was 46%48%.
We may borrow amounts from our Advisor or Sponsoraffiliates including directors and executive officers if such loan is approved by a majority of our directors, including a majority of our conflicts committee, not otherwise interested in the transaction, as being fair, competitive, commercially reasonable and no less favorable to us than comparable loans between unaffiliated parties under the circumstances. Any such loan will be included in determining whether we have complied with the borrowing limit in our charter. NeitherOn March 2, 2020, we borrowed a total of $4,000,000, secured by mortgages on our Advisor nortwo Chevron properties, from our Sponsor has any obligationChairman, Mr. Wirta (see Notes 7 and 9 to make any loansour unaudited condensed consolidated financial statements). Our conflicts committee approved the terms of these mortgages, which bore interest at an annual rate of 8% and were scheduled to us.mature on June 2, 2020. On June 1, 2020, the maturity date of these mortgages was extended to September 1, 2020 on the same terms, along with an option for a further extension to November 30, 2020 at our election prior to August 18, 2020, which we elected not to exercise. On July 31, 2020 and August 28, 2020, the mortgages secured by the Chevron San Jose, CA property and Chevron Roseville, CA property, each for $2,000,000, were repaid along with all related accrued interest with a portion of the proceeds from the refinancing of the AvAir Chandler, Arizona property and sale of the Walgreens Stockbridge, Georgia property.
Debt financing for acquisitions and investments may be obtained at the time an asset is acquired or an investment is made or at such later time as determined to be appropriate. In addition, debt financing may be used from time-to-time for property improvements, lease inducements, tenant improvements and other working capital needs.
As of September 30, 2019,2020, the outstanding principal balancesface value of our mortgage notes payable on our operating properties and the unsecured revolving credit facility before unamortized deferred financing costs, were $116,815,505$180,107,542 and $0,$6,000,000, respectively. TheOn August 13, 2020, we amended the unsecured revolving credit facility which was scheduled to mature on January 26, 2019, was extended to aextend the maturity date of April 30, 2019. On April 30, 2019, we entered into a loan agreement for a new revolving$6,000,000 of outstanding borrowings under the unsecured credit facility for a maximum principal amount of $10,000,000, maturing on Octoberto September 1, 2020 on similar termsand the maturity date of the remaining $6,000,000 of outstanding borrowings under the unsecured credit facility to the expired facility.October 15, 2021. As of September 30, 2019, our pro-rata share (approximately 4.8%) of REIT I’s mortgage notes payable was $3,019,868 and2020, our pro-rata share (approximately 72.7%) of the TIC Interest’s mortgage note payable was $10,181,117. $9,975,781, which is not included in our condensed consolidated balance sheets.
Pursuant to the Self-Management Transaction, we assumed short-term notes aggregating $4,800,000 with maturity dates during the first quarter of 2020. On March 4, 2020, the repayment schedule for $1,024,750 of these short-term notes was extended from March 9, 2020 to April 30, 2020 in exchange for payment of an extension fee of 2% of the outstanding principal and accrued interest, or $24,845, and an increase in the interest rate from 8% to 10% per annum for the period of the extension. The maturity date for $490,000 of the extended short-term notes was subsequently accelerated to April 6, 2020 in exchange for a $10,000 reduction of the extension fee to $14,845. The remainder of these short-term notes was fully repaid on March 9, 2020 and the extended short-term notes were fully repaid on April 30, 2020.
Sale of Real Estate Investments and Refinancing Transactions
During the three months ended September 30, 2020, we sold the following real estate investments:
PropertyLocationDisposition DateProperty TypeRentable Square FeetContract Sales PriceNet Proceeds After Debt Repayment
Rite AidLake Elsinore, CA8/3/2020Retail70,960 $7,250,000 $3,299,016 
Walgreens (1)Stockbridge, GA8/27/2020Retail15,120 5,538,462 5,296,356 
Island PacificElk Grove, CA9/16/2020Retail27,296 3,155,000 1,124,016 
113,376 $15,943,462 $9,719,388 
(1) The mortgage for this property was previously repaid on August 10, 2020 in connection with the refinancing of the Accredo property as discussed below and in Note7 to our unaudited condensed consolidated financial statements.
Subsequent to September 30, 2020, on October 28, 2020, we completed the sale of our Morgan Hill, CA industrial property which was previously leased to Dinan Cars for $6,100,000, which generated net proceeds of $3,811,580 after repayment of the existing mortgage, commissions and closing costs.
In addition, two additional properties (the Las Vegas property formerly leased to 24 Hour Fitness and the Bedford, TX property leased to Harley Davidson) are held for sale as of September 30, 2020 and we are working to complete sales for these properties during the fourth quarter of 2020 and early 2021, respectively.
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In July and August 2020, we refinanced the following mortgage notes.
June 30, 2020New
PropertiesPrincipal AmountPrincipal AmountPrior Interest RateNew Interest RatePrior Maturity DateNew Maturity Date
Accredo/Walgreens properties$6,779,786 $8,538,000 3.95 %3.80 %2021-07-012025-08-01
AvAir property14,539,619 19,950,000 4.84 %3.80 %2028-03-272025-08-01
Walgreens property3,000,000 3,217,500 7.50 %4.25 %2020-08-062030-07-16
As a result of the refinancings above, we generated total net proceeds of $6,904,178, a portion of which was used to repay a $2,000,000 mortgage note on one of our Chevron properties discussed above. We used the balance of these proceeds to repay a portion of our $6,000,000 in outstanding borrowings under the Unsecured Credit Facility which was due by September 1, 2020 as described above.
See Notes 6 and 11 Note 7 to our unaudited condensed consolidated financial statements for additional information regarding our outstanding indebtedness.
Capital Resources
Generally, our cash requirements for property acquisitions, debt payments, capital expenditures, and other investments will be funded by the Offerings and borrowings from financial institutions and mortgage indebtedness on our properties, and to a lesser extent, by loans from affiliates or internally generated funds. Our cash requirements for operating and interest expenses repurchases of common stock and dividend distributions will generally be funded by internally generated fundsfunds. Offering proceeds and to some extent, the waiver or deferral of asset management fees by our Sponsor. Proceeds from the Offeringsdebt financings may also be used to fund repurchases of common stock and, in limited circumstances, dividend distributions.stock. If available, future sources of capital include proceeds from the Offerings, secured or unsecured borrowings from banks or other lenders and proceeds from the sale of properties, as well as any undistributed funds from operations.

Effect of the COVID-19 Pandemic on Our Capital Resources

Our tenants and operating partners, property locations and the economy as a whole are severely impacted by the current COVID-19 pandemic in the United States and globally. The magnitude and duration of the COVID-19 pandemic and its impact on our tenants, our cash flows and our future results of operations will largely depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the pandemic, the success of actions taken to contain or treat COVID-19, and reactions by consumers, companies, governmental entities and capital markets. The U.S. and global economies entered into a recession during the first quarter of 2020. While the U.S. economy experienced a significant quarter over quarter increase in gross domestic product (“GDP”) during the third quarter of 2020, GDP was still below GDP for the third quarter of 2019. Weakness in the U.S. and global economies continues, the severity and duration of which are unpredictable but expected to be significant, particularly given the rising number of COVID-19 cases reported in the U.S. and the world. The prolonged duration and impact of the COVID-19 pandemic could continue to disrupt our business operations and impact our financial performance. Several tenants have requested rent abatements and one tenant (24 Hour Fitness) has not paid rent since March 2020 and provided formal notice that it has rejected the lease in connection with its Chapter 11 bankruptcy proceeding and the premises were surrendered to our subsidiary as further described below. We have collected approximately 95% of rents due during the third quarter of 2020 and for the month of October 2020; however, there can be no assurance that this rate of collections will continue. In certain cases, we have negotiated with tenants and lenders regarding the deferral or resumption of rent payments and the partial deferral of mortgage payments, as appropriate and further negotiations may occur.
As discussednoted above, one of our existing properties, a 45,000-square-foot gym located in Note 1, onLas Vegas, Nevada, was formerly leased to 24 Hour Fitness. This property was purchased by our subsidiary approximately two years ago for $12,658,311 and secures a $6,241,355 mortgage as of September 18, 2019, our board of directors approved the temporary suspension30, 2020 which includes a mortgage repayment guarantee for 50% of the Primary Offering, which is registeredbalance outstanding, or $3,120,678 as of September 30, 2020. In early 2018, before we purchased the property, 24 Hour Fitness negotiated a 12-year lease extension. The lease had just under 10 years of term remaining prior to being rejected by 24 Hour Fitness in connection with its bankruptcy proceeding.
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From the SEC underdate of purchase until March 2020, we were collecting approximately $76,000 per month in rent from 24 Hour Fitness. At the Securities Act,end of March 2020, 24 Hour Fitness sent us written notice stating that it would not be paying rent due to government-mandated shutdowns as a result of the COVID-19 pandemic. During the first quarter of 2020, 24 Hour Fitness engaged a third-party restructuring agent to handle negotiations with landlords and creditors, and our subsidiary began active negotiations with this restructuring agent in hopes that we might be able to retain 24 Hour Fitness as our tenant. However, on June 15, 2020, our subsidiary received written notice that the lease was formally rejected through 24 Hour Fitness' Chapter 11 bankruptcy proceeding and the primary offering portionpremises were surrendered to our subsidiary. Furthermore, the lender on this property did not agree to provide any substantial mortgage relief to us, but rather agreed to only temporarily reduce our $32,000 monthly mortgage payment by $8,000 for four monthly payments from May through August 2020.
On September 17, 2020 our special purpose subsidiary entered into a purchase and sale agreement to sell the property formerly leased to 24 Hour Fitness, subject to a number of contingencies including lender approval of the Class S Offering. Our automatic investment programbuyer’s assumption of the existing mortgage. There can be no assurances that all of the contingencies will be satisfied or that the transaction will close. If our special purpose subsidiary cannot complete this transaction, then it would consider allowing the lender to foreclose on, and take possession of, the property. The estimated liability of $3,120,678 under a loan guarantee related to the secured mortgage was also temporarily suspended effectiveaccrued and included in liabilities related to real estate investments held for sale on the condensed consolidated balance sheet as of September 30, 2020.
The COVID-19 pandemic has also severely impacted our ability to raise capital through our Offerings. From January 2, 2020 through October 31, 2020, we raised approximately $16,200,000 through our Offerings, including our distribution reinvestment plans, a 57% decrease compared with approximately $40,200,000 raised during the closefirst ten months of business2019. In addition, share repurchases increased from approximately $12,146,000 during the ten months of 2019 to approximately $14,547,000 in the first ten months of 2020, and we were unable to repurchase an additional approximately $4,363,000 in repurchase requests received during October 2020.
A subsidiary of ours was successful in obtaining a $517,000 loan through the Small Business Administration’s Paycheck Protection Program (“PPP”), which was funded by Pacific Mercantile Bank on September 18, 2019. We filed a pre-effective amendment to our Form S-11 on October 18, 2019, which includes our updated plan of distribution whereby we will offer our Class C common stock through North Capital, a registered broker dealer. On October 23, 2019, North Capital filed an application with the FINRA with respectApril 20, 2020. Recent modifications to the offeringPPP by the U.S. Treasury and Congress have extended the time period for loan forgiveness beyond the original eight-week period, making it possible for our subsidiary to apply for forgiveness of our Class C common stock. The Registered Offering100% of our Class C common stock is expected to recommence following receipt of a no objection letter from FINRA, and the SEC declaring the registration statement effective. Upon recommencement of the Registered Offering, stockholders enrolled in the automatic investment program will again automatically purchase shares pursuant to such program unless otherwise determined by our board of directors.its PPP loan.
Cash Flow Summary
The following table summarizes our cash flow activity for the nine months ended September 30, 20192020 and 2018:
2019:
 2019 2018
Net cash provided by operating activities$4,563,195
 $2,555,989
Net cash used in investing activities$(6,480,653) $(53,653,282)
Net cash provided by financing activities$5,454,232
 $52,264,654
Nine Months Ended September 30,
20202019
Net cash provided by operating activities$3,811,648 $4,563,195 
Net cash provided by (used in) investing activities$13,207,680 $(6,480,653)
Net cash (used in) provided by financing activities$(14,945,552)$5,454,232 
Cash Flows from Operating Activities
For the nine months ended September 30, 20192020 and 2018,2019, net cash provided by operating activities was $3,811,648 and $4,563,195, respectively.
The cash provided by operating activities during the nine months ended September 30, 2020 primarily reflects adjustments to our net loss of $52,097,300 for distributions from investment in unconsolidated entity of $542,140; non-cash charges for impairment of goodwill, intangible assets and $2,555,989, respectively.impairment of real estate investment property aggregating $44,078,928 due to the COVID-19 pandemic; and net other non-cash charges of $11,820,920 related to depreciation and amortization, unrealized loss on interest rate swap valuation, stock compensation expense, amortization of deferred financing costs and above-market leases, partially offset by amortization of deferred rents, amortization of below-market leases, gain on sale of real estate investments and undistributed income from investment in an unconsolidated entity. In addition, the net non-cash charges were partially offset by a net use of cash due to changes in operating assets and liabilities of $533,040 during the nine months ended September 30, 2020 primarily due to increases in tenant receivables and prepaid and other assets and decrease in due to affiliates, offset in part by an increase in accounts payable, accrued and other liabilities.
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The cash provided by operating activities during the nine months ended September 30, 2019 primarily reflects adjustments to our net loss of $2,973,765 for distributions from investmentsinvestment in unconsolidated entities of $716,215 and net non-cash charges of $7,669,593 primarily related to depreciation and amortization, unrealized loss on interest rate swap valuation, amortization of deferred financing costs and stock compensation expense, partially offset by amortization of deferred rents, amortization of below-market lease intangibles and income from investments in unconsolidated entities. In addition, the net non-cash charges were partially offset by a net use of cash resulting from a net changedue to changes in operating assets and liabilities of $848,848 during the nine months ended September 30, 2019 primarily due to increases in tenant receivables, prepaid and other assets and a decrease in due to affiliates, net which were partially offset by an increase in accounts payable, accrued and other liabilities.
The cash provided by operating activities during the nine months ended September 30, 2018 primarily reflects our net income of $16,145 adjusted for distributions from investments in unconsolidated entities of $557,968 and net non-cash charges of$3,977,476 primarily relatedWe continue to depreciation and amortization, amortization of deferred financing costs, distributions from investments in unconsolidated entities, stock compensation expense and amortization of above-market lease intangibles, partially offset by amortization of deferred rents, unrealized gain on interest rate swap valuation, amortization of below-market lease intangibles and income from investments in unconsolidated entities. In the addition, the net non-cash charges were also partially offset by a use of cash resulting from a net change in operating assets and liabilities of $1,995,600 during the nine months ended September 30, 2018 due to an increase in tenant receivables and other assets and decreases in accounts payable, accrued and other liabilities and due to affiliates.
We expect that our cash flows from operating activities before changes in operating assets and liabilities will continue to be positive in the next twelve months as a result of anticipated future acquisitionsa full year of real estateoperations for the properties which we acquired during 2019; however, there can be no assurance that this expectation will be realized given the uncertain impacts of the COVID-19 pandemic on our tenants and the relatedour operating contributions from such investments.results.
Cash Flows from Investing Activities
Net cash provided by investing activities was $13,207,680 for the nine months ended September 30, 2020 and consisted primarily of the following:
• $15,364,073 for proceeds from sale of real estate investments, partially offset by
•$600,291 for additions to existing real estate properties, including transaction costs for assets acquired in the Merger;
•$566,102 for additions to intangible assets; and
•$990,000 for additions to lease incentives.
Net cash used in investing activities was $6,480,653 for the nine months ended September 30, 2019 and consisted primarily of the following:
•$3,387,699 payment of an obligation related to a previously recorded tenant improvement;
•$1,005,523 of costs related to pending acquisitions including pending merger with REIT I;the then-pending Merger;
•$2,000,000 of non-refundablefor a refundable real estate purchase deposit; and
•$181,972 of additions to existing real estate investments; partially offset by
•$100,000 of refund of a real estate purchase deposit.


Cash Flows from Financing Activities
Net cash used in investingfinancing activities was $53,653,282$14,945,552 for the nine months ended September 30, 20182020 and consisted of the following:
•$50,863,08010,378,762 of proceeds from issuance of common stock, partially offset by payments for offering costs and commissions of $979,832;
•$35,705,500 of proceeds from mortgage notes payable; partially offset by principal payments of $36,421,500 and deferred financing cost payments of $389,662 to third parties;
•$527,000 of proceeds from economic relief notes payable, more than offset by full repayments of principal of $4,800,000 on short-term notes payable; and
•$4,260,000 of proceeds from borrowings on our unsecured credit facility; these proceeds were more than offset by $13,154,123 used for repurchases of shares under the acquisitionsshare repurchase plan and $4,071,697 of four operating properties and a parcel of land;
$749,094 of additionsdistributions paid to existing real estate investments;
$1,541,108 for the payment of acquisition fees to affiliate; and
$500,000 of refundable deposit for the Bon Secours property.
Cash Flows from Financing Activitiescommon stockholders.
Net cash provided by financing activities was $5,454,232 for the nine months ended September 30, 2019 and consisted primarily of the following:
•$34,559,949 of proceeds from issuance of common stock and investor deposits, partially offset by payments for offering costs and commissions of $1,207,562; and
•$6,350,000 of proceeds from mortgage notes payable;payable, more than offset by principal payments of $14,557,433 and deferred financing cost payments of $175,311 to third parties and deferred financing fees of $63,500 paid to an affiliate; and
•$4,869,000 of proceeds from borrowings on our unsecured credit facility; which wasfacility, more than offset by $13,869,000payments on our former unsecured credit facility of repayments under both our New Credit Facility and Unsecured Credit Facility, as then in effect. Such$13,869,000; these proceeds were furtheralso more than offset in part by
$8,379,336 $8,379,336 used for repurchases of shares under the share repurchase plan;plan and
$1,901,575 $1,901,575 of distributions paid to common stockholders.
Net cash provided by financing activities was $52,264,654 for the nine months ended September 30, 2018 and consisted of the following:
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$34,616,876 of proceeds from issuance of common stock, partially offset by payments for offering costs and commissions of $1,177,728; and
$51,587,500 of proceeds from mortgage notes payable, partially offset by principal payments of $12,664,740 and deferred financing cost payments of $996,010 to third parties and $209,550 to affiliates;

$18,450,000 of proceeds from borrowings on our unsecured credit facility obtained in 2018, which were used to repay our former unsecured credit facility along with additional repayments during the period for an aggregate of $30,450,000 in repayments; further offset in part by
$5,719,152 used for repurchases of shares under the share repurchase plan; and
$1,172,542 of distributions paid to stockholders.
Results of Operations
As of September 30, 2019,2020, we owned (i) 2439 operating properties, including 17 operating properties which we acquired through the Merger with REIT I on December 31, 2019 and one property acquired on October 24, 2019, (ii) one parcel of land, usedwhich currently serves as an easement to one of our operatingoffice properties, and (iii) an approximate 72.7% TIC Interest and (iv) an approximate 4.8% interest in REIT I, an affiliated REIT.Interest. We did not acquire any operating propertyproperties during the first nine months of 2019 compared to four2020 or 2019. We sold three properties during the third quarter of 2020 and have classified three properties as held for sale as of September 30, 2020. The operating property acquisitionsresults of the three properties that were classified in the nine months ended September 30, 2018 (acquired March 29, 2018, April 4, 2018, July 27, 2018 and September 13, 2018). During 2018, we acquired a totalordinary course of six operating properties.business as held for sale are included in our continuing results of operations.
We expect that rental income, tenant reimbursements, depreciation and amortization expense, and interest expense and asset management fees to affiliates will eachall increase in the next twelve monthsremainder of 2020 as compared with 2019 as a result of the 2018December 31, 2019 acquisitions discussed above, our October 24, 2019 property acquisition discussed in Note 11, the Merger, and our anticipated future acquisitions of real estate investments.partially offset by results from properties sold. Our results of operations for the three and nine months ended September 30, 2019 are2020 may not be indicative of those expected in future periods as we expectperiods. However, due to the current COVID-19 pandemic in the United States and globally, our tenants and operating partners continue to raise capital through the Offerings and expect to acquire additional properties.
Upon completionbe impacted. The impact of the Merger, we would have approximately $445,000,000COVID-19 pandemic on our future results will largely depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of assets under management with 46 single-tenant, net leased properties consistingthe pandemic, the success of 19 retail properties, 15 office properties (including the TIC Interest)action taken to contain or treat COVID-19, and 12 industrial properties (including the property acquired in October 2019). The 20 additional properties acquired in the Merger would increase our revenuesreactions by approximately 55% with a corresponding increase in expected cash to be generated by operating activities. The increased cash flow from the merged properties will be partially offset by an increase in generalconsumers, companies, governmental entities and administrative costs resulting from the Self-Management Transaction since the personnel and other administrative costs of our advisor’s business are greater than the asset management fees, property management fees, and cost reimbursements that we will no longer be paying, and the acquisition fees that we previously paid were capitalized in accordance with GAAP, rather than expensed as personnel costs. In addition, we will no longer be reimbursed for our Investor Relations personnel costs.


capital markets.
Comparison of the Three Months Ended September 30, 20192020 to the Three Months Ended September 30, 20182019
Rental Income
Rental income, including tenant reimbursements, for the three months ended September 30, 2020 and 2019 was $9,557,191 and 2018 was $6,125,957, and $4,725,279, respectively. The significant increase of $1,400,678$3,431,234, or 29.6%56%, quarter-over-quarter primarily reflects rental income from the four20 operating properties acquired subsequentthrough the Merger with REIT I on December 31, 2019 (see Note 4 to June 30, 2018 (two eachour unaudited condensed consolidated financial statements regarding the sale of three properties during the current year quarter, as well as one tenant which filed for bankruptcy during the second quarter of 2020) and one additional operating property acquired in the third and fourth quarters of 2018).October 2019. Pursuant to most of our lease agreements, tenants are required to pay or reimburse all or a portion of the property operating expenses. The annualized base rental income of the operating properties owned as of September 30, 20192020 was $17,562,000.$26,625,527 excluding annualized base rental income for real estate properties held for sale.
Fees to Affiliates
Fees to affiliates, or asset management fees to affiliate,affiliates, were $812,349$0 and $532,355,$812,349, respectively, for the three months ended September 30, 2020 and 2019 and 2018.for our investments in operating properties. The fee iswas equal to 0.1% of the total investment value of our properties on a monthly basis.basis through December 31, 2019, when the Advisory Agreement was terminated in connection with the Self-Management Transaction. The significant increase of $279,994 or 52.6% quarter-over-quarter was primarily duefees for the three months ended September 30, 2019 correspond to the increase in the number of24 operating properties owned from 20 properties as of June 30, 2018 to 24 properties as of September 30, 2019 (two properties each were acquired in the third and fourth quarters of 2018). In addition, we incurred $132,000 of operating expense reimbursement in the current year quarter which reflects the portion of the operating expenses incurred by our Advisor allocated to us. We did not incur a similar operating expense reimbursement in the prior year quarter as such reimbursement would have caused us to exceed the 2%/25% Limitation for operating expenses for the four fiscal quarters ended September 30, 2018.during that quarter. In addition, we incurred asset management fees to the Former Advisor of $65,993$47,977 related to our approximate 72.7% TIC Interest during the each of the three months ended September 30, 2019, and 2018, which amounts are reflected as a reduction of income recognized from investments in unconsolidated entities. The Advisory Agreement with the entities that own the TIC Interest property was assigned to our taxable REIT subsidiary following the Self-Management Transaction and we earn a monthly management fee equal to 0.1% of the total investment value of the property from this entity, which resulted in a management fee of $65,993 for the three months ended September 30, 2020, of which our portion of expense relating to the TIC Interest was $47,984.
General and Administrative
General and administrative expenses were $918,636$2,522,719 and $598,578$918,636 for the three months ended September 30, 20192020 and 2018,2019, respectively. The significant increase of $320,058 and 53.5%$1,604,083, or 175%, quarter-over-quarter primarily reflects $800,360the costs of expenses incurred in connectionself-management of all 39 operating properties owned and three properties held for sale during the current year quarter, including personnel, occupancy and technology services costs, compared with the pending Self-Management Transaction, partially offset by decreasescosts of the Advisory Agreement for the 24 operating properties owned during the prior year quarter, along with increases in the cost of Investor Relations personnel due to a reduction in the number of employeesdirectors and legal costsofficers insurance, and post-closing accounting fees related to employment matters. The expenses for the Self-Management Transaction primarily reflect an allocation of the fees of the financial advisor to the Special Committee, along with legal fees for the Special Committee's legal counsel. Costs related to our pending Merger with REIT I are included in other assets and are expected to be capitalized and allocated to the assets acquired upon completion of the Merger.Transaction.
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Depreciation and Amortization
Depreciation and amortization expense was $2,393,725$4,304,470 and $1,861,649$2,393,725 for the three months ended September 30, 2020 and 2019, respectively. The purchase price of properties acquired, including properties acquired in the Merger, is allocated to tangible assets, identifiable intangibles and assumed liabilities and depreciated or amortized over their estimated useful lives. The significant increase of $1,910,745, or 80%, quarter-over-quarter primarily reflects the expenses of all 39 operating properties owned and three properties held for sale during the current year quarter, including 17 of the 20 operating properties acquired on December 31, 2019 in the Merger, and the amortization of intangibles primarily acquired in the Self-Management Transaction of $458,371, as compared with expenses for the 24 operating properties owned during the prior year quarter.
Interest Expense
Interest expense was $2,732,528 and $1,738,791 for the three months ended September 30, 2020 and 2019, respectively (see Note 7 to our unaudited condensed consolidated financial statements for the detail of the components of interest expense). The significant increase of $993,737, or 57%, quarter-over-quarter was primarily due to the increase in the average principal balance of mortgage notes payable from approximately $116,974,000 during the third quarter of 2019 to approximately $196,378,000 during the third quarter of 2020. Average unsecured credit facility borrowings were approximately $9,065,000 during the third quarter of 2020 compared to zero unsecured credit facility borrowings during the third quarter of 2019.
Property Expenses
Property expenses were $1,677,055 and $1,362,661 for the three months ended September 30, 2020 and 2019, respectively. These expenses primarily relate to property taxes and repairs and maintenance expenses. The significant increase of $314,394, or 23%, quarter-over-quarter primarily reflects the expenses of all 39 operating properties owned, three properties sold and three properties held for sale during the current year quarter, including 17 of the 20 operating properties acquired on December 31, 2019 in the Merger, as compared with expenses for the 24 operating properties owned during the prior year quarter.
Expenses Reimbursed by Former Sponsor or Affiliates
Expenses reimbursed by our Former Sponsor or affiliates thereof were $0 and $96,104 for the three months ended September 30, 2020 and 2019, respectively. For the quarter ended September 30, 2019, the amounts reimbursed by the Former Sponsor were for investor relations payroll costs. Concurrent with the closing of the Self-Management Transaction on December 31, 2019, the Advisory Agreement was terminated.
Gain on Sale of Real Estate Investments
The gain on sale of investments of $1,693,642 for the three months ended September 30, 2020 relates to the sale of three retail properties during the current year quarter (see Note 4 to our unaudited condensed consolidated financial statements for more details).
Other (Expense) Income, Net
The lease termination expense of $(1,175,192) for the three months ended September 30, 2020 reflects the fee for early termination of our Costa Mesa office lease following the surrender of the leased premises to the lessor during the second quarter of 2020 (see Note 10 to our unaudited condensed consolidated financial statements for more details).
Interest income was $51 and $45,940 for the three months ended September 30, 2020 and 2019, respectively.
Income from investments in unconsolidated entities was $92,617 and $37,570 for the three months ended September 30, 2020 and 2019, respectively. This represents our approximate 72.7% TIC Interest in the Santa Clara property's results of operations for the third quarter of 2020 and 2019, respectively, and includes the results of our approximate 4.8% interest in REIT I's results of operations for the third quarter of 2019. We acquired REIT I in the Merger on December 31, 2019.
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Comparison of the Nine Months Ended September 30, 2020 to the Nine Months Ended September 30, 2019
Rental Income
Rental income, including tenant reimbursements, for the nine months ended September 30, 2020 and 2019 was $29,888,620 and $17,907,668, respectively. The significant increase of $11,980,952, or 67%, period-over-period primarily reflects rental income from the 20 operating properties acquired through the Merger with REIT I on December 31, 2019 and 2018,one additional operating property acquired in October 2019. Three of the operating properties acquired through the Merger were sold during the current year quarter. No rental income was recorded for one tenant, which filed for bankruptcy, for the period since April 1, 2020 (see Note 4 to our unaudited condensed consolidated financial statements for more details). Pursuant to most of our lease agreements, tenants are required to pay or reimburse all or a portion of the property operating expenses. The annualized base rental income of the operating properties owned as of September 30, 2020 was $26,625,527, excluding annualized base rental income for real estate properties held for sale.
Fees to Affiliates
Fees to affiliates, or asset management fees to affiliates, were $0 and $2,436,386, respectively, for the nine months ended September 30, 2020 and 2019 for our investments in operating properties. The fee was equal to 0.1% of the total investment value of our properties on a monthly basis through December 31, 2019, when the Advisory Agreement was terminated in connection with the Self-Management Transaction. The fees for the nine months ended September 30, 2019 correspond to the 24 operating properties owned during that period. In addition, we incurred asset management fees to the Former Advisor of $143,951 related to our approximate 72.7% TIC Interest during the nine months ended September 30, 2019, which amounts are reflected as a reduction of income recognized from investments in unconsolidated entities. The Advisory Agreement with the entities that own the TIC Interest property was assigned to our taxable REIT subsidiary following the Self-Management Transaction and we earn a monthly management fee equal to 0.1% of the total investment value of the property from this entity, which resulted in a management fee of $197,979 for the nine months ended September 30, 2020, of which our portion of expense relating to the TIC Interest was $143,951.
General and Administrative
General and administrative expenses were $7,447,082 and $2,312,081 for the nine months ended September 30, 2020 and 2019, respectively. The significant increase of $5,135,001, or 222%, period-over-period primarily reflects the costs of self-management of all 39 operating properties owned and three properties held for sale during the current year period, including personnel, occupancy and technology services costs, compared with the costs of the Advisory Agreement for the 24 operating properties owned during the prior year period, along with increases in directors and officers insurance, audit fees, third party consulting costs and post-closing legal costs related to the Self-Management Transaction of $201,920.
Depreciation and Amortization
Depreciation and amortization expense was $13,420,256 and $7,176,716 for the nine months ended September 30, 2020 and 2019, respectively. The purchase price of the acquired properties is allocated to tangible assets, identifiable intangibles and assumed liabilities and depreciated or amortized over their estimated useful lives. The significant increase of $532,076$6,243,540, or 87%, period-over-period primarily reflects the expenses of all 39 operating properties owned, three properties sold and 28.6% quarter-over-quarter was primarily due tothree properties held for sale during the four additionalcurrent year period, including the 20 operating properties acquired on December 31, 2019 in the second halfMerger, and the amortization of 2018.intangibles primarily acquired in the Self-Management Transaction of $1,372,910, as compared with expenses for the 24 operating properties owned during the prior year period.
Interest Expense
Interest expense was $1,738,791$9,196,061 and $1,070,860$5,975,866 for the threenine months ended September 30, 20192020 and 2018,2019, respectively (see Note 6 7 to our unaudited condensed consolidated financial statements for the detail of the components of interest expense). The significant increase of $667,931$3,220,195, or 62.4% quarter-over-quarter54%, period-over-period was primarily due to increased mortgage notes payable outstanding and unrealized lossthe increase in the current period as compared with unrealized gain in the prior year period. The average principal balance of mortgage notes payable increased from approximately $94,390,000$118,483,000 during the threefirst nine months ended September 30, 2018of 2019 to approximately $116,974,000$197,182,000 during the threefirst nine months ended September 30, 2019. There were no borrowings under ourof 2020. Average unsecured credit facility borrowings were approximately $2,856,000 during the threefirst nine months ended September 30,of 2019 and 2018.increased to an average of $10,290,000 during the first nine months of 2020.
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Property Expenses
Property expenses were $1,362,661$5,480,411 and $772,394$3,537,249 for the threenine months ended September 30, 20192020 and 2018,2019, respectively. These expenses primarily relate to property taxes and repairs and maintenance expenses. The significant increase of $590,267$1,943,162, or 76.4% quarter-over-quarter was55%, period-over-period primarily reflects the expenses of all 39 operating properties owned, three properties sold and three properties held for sale during the current year period, including the 20 operating properties acquired on December 31, 2019 in the Merger, as compared with expenses for the 24 operating properties owned during the prior year period.
Impairment of Investments in Real Estate Properties
Impairment charges aggregating $9,506,525 recorded in the first nine months of 2020, which were approximately 2% of our total investments in real estate property, relates to the impairments of the three vacant properties located in Las Vegas, Nevada, Morgan Hill, California and Cedar Park, Texas and the sale of our property in Lake Elsinore, California. These impairment charges are due to the four additional operatingnegative impacts of the COVID-19 pandemic including the government mandated closure of the 24 Hour Fitness store in Las Vegas, Nevada and the subsequent receipt on June 15, 2020 of written notice that the lease was formally rejected in connection with 24 Hour Fitness' Chapter 11 bankruptcy proceeding and the surrender of the premises to our subsidiary, as well as uncertainty regarding our ability to re-lease the other two vacant properties acquiredon the same or better terms, or at all (see Note 4 to our unaudited condensed consolidated financial statements for impairment details). The Lake Elsinore property was sold on August 3, 2020 and the Morgan Hill property was sold on October 28, 2020. We have negotiated an early termination of the Dana lease in Cedar Park, Texas as discussed in Note 4 to our unaudited condensed consolidated financial statements and have engaged brokers to identify a potential new tenant for the property.
Impairment of Goodwill and Intangible Assets
Impairment charges of $34,572,403 recorded in the second half 2018.first nine months of 2020 consisted of goodwill impairment of $33,267,143 (approximates 66% of goodwill) and intangible assets impairment of $1,305,260 (approximates 16% of intangible assets) related to our investor list. These impairments were recorded in the first quarter of 2020 and reflect the negative impacts of the COVID-19 pandemic to the carrying values of goodwill and intangible assets (see Note 3 to our unaudited condensed consolidated financial statements for impairment details).

Reserve for Loan Guarantee

The reserve for our estimated liability under a loan guarantee amounted to $3,120,678 for the nine months ended September 30, 2020. This represents the estimated liability for a loan guarantee related to our subsidiary's secured mortgage for the Las Vegas, Nevada property, as a result of the evaluation of the impact of the COVID-19 pandemic on the tenant's business and the risk that the lender could foreclose on the property (see “Effect of the COVID-19 Pandemic on Our Capital Resources”above and Note 6 to our unaudited condensed consolidated financial statements).
On September 17, 2020 our special purpose subsidiary entered into a purchase and sale agreement to sell the Las Vegas, Nevada property, subject to a number of contingencies including lender approval of the buyer’s assumption of the existing mortgage. There can be no assurances that all of the contingencies will be satisfied or that the transaction will close. If our special purpose subsidiary cannot complete this transaction, then it would consider allowing the lender to foreclose on, and take possession of, the property.
Expenses Reimbursed by Former Sponsor or Affiliates
Expenses reimbursed by our Former Sponsor or affiliates were $96,104$0 and $298,645$332,336 for the threenine months ended September 30, 2020 and 2019, respectively. For the nine months ended September 30, 2019, and 2018, respectively. For the three months ended September 30, 2019 and 2018, the amounts reimbursed by the Former Sponsor for Investor Relationsinvestor relations payroll costs were $96,104 and $173,464, respectively. The 2018 quarter also includes $125,181of $332,336 reflect $373,251 of costs, partially offset by a $40,915 refund to the Former Sponsor of employment related legal fees which were reimbursed byfees. Concurrent with the Sponsor. closing of the Self-Management Transaction on December 31, 2019, the Advisory Agreement was terminated.
Gain on Sale of Real Estate Investments
The significant decreasegain on sale of $202,541 or 67.8% in reimbursements corresponds primarilyreal estate investments of $1,693,642 for the nine months ended September 30, 2020 reflects the gain on sale of three retail properties during the current period (see Note 4 to our unaudited condensed consolidated financial statements for more details).
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Other (Expense) Income, Net
The lease termination expense of $(1,175,192) for the nine months ended September 30, 2020 reflects the fee for early termination of our Costa Mesa office lease following the surrender of the leased premises to the reduced numberlessor during the second quarter of Investor Relations personnel and related costs. Reimbursement2020 (see Note 10 to our unaudited condensed consolidated financial statements for organization and offering costs was discontinued effective October 1, 2019 as described under “Organizational and Offering Costs” below.
Other Incomemore details).
Interest income was $45,940$4,873 and $4,648$56,971 for the threenine months ended September 30, 2020 and 2019, respectively, and 2018, respectively.other expense was $4,855 for the nine months ended September 30, 2020.
Income from investments in unconsolidated entities was $37,570$239,028 and $69,863$167,558 for the threenine months ended September 30, 20192020 and 2018,2019, respectively. This represents our approximate 4.8% and 4.4% interest, respectively, in REIT I's results of operations and our approximate 72.7% TIC Interest in the Santa Clara property's results of operations for the three months ended September 30, 2019 and 2018, respectively.
Comparison of the Nine Months Ended September 30, 2019 to the Nine Months Ended September 30, 2018
Rental Income
Rental income, including tenant reimbursements for the nine months ended September 30, 2019 and 2018 was $17,907,668 and $12,567,223, respectively. The significant increase of $5,340,445 or 42.5% period-over-period primarily reflects rental income from the six operating properties acquired in 2018. Pursuant to most of our lease agreements, tenants are required to pay all or a portion of the property operating expenses. The annualized base rental income of the operating properties owned as of September 30, 2019 was $17,562,000.
Fees to Affiliates
Fees to affiliates, or asset management fees to affiliate, were $2,436,386 and $1,411,585, respectively, for the nine months ended September 30, 2019 and 2018. The fee is equal to 0.1% of the total investment value of our properties on a monthly basis. The significant increase of $1,024,801 or 72.6% period-over-period was primarily due to the increase in the number of operating properties owned from 18 properties on January 1, 2018 to 24 properties as of September 30, 2019. In addition, we incurred asset management fees to the Advisor of $197,978 related to our approximate 72.7% TIC Interest during each of the nine months ended September 30, 2019 and 2018, which amounts are reflected as a reduction of income recognized from investments in unconsolidated entities. In addition, we incurred $396,000 of operating expense reimbursements in the current year period which reflects the portion of the operating expenses incurred by our Advisor allocated to us. We did not incur a similar operating expense reimbursement in the prior year period as such reimbursement would have caused us to exceed the 2%/25% Limitation for operating expenses for the four fiscal quarters ended September 30, 2018.
General and Administrative
General and administrative expenses were $2,312,081 and $2,047,761 for the nine months ended September 30, 2019 and 2018, respectively. The increase of $264,320 or 12.9% period-over-period was primarily reflects $800,360 of expenses incurred in connection with the pending Self-Management Transaction, partially offset by decreases in the cost of Investor Relations personnel due to a reduction in the number of employees and legal costs related to employment matters. The expenses for the Self-Management Transaction primarily reflect an allocation of the fees of the financial advisor to the Special Committee, along with legal fees for the Special Committee's legal counsel. Costs related to our pending Merger with REIT I are included in other assets and are expected to be capitalized and allocated to the assets acquired upon completion of the Merger.
Depreciation and Amortization
Depreciation and amortization expense was $7,176,716 and $4,888,394 for the nine months ended September 30, 2019 and 2018, respectively. The purchase price of the acquired properties is allocated to tangible assets, identifiable intangibles and assumed liabilities and depreciated or amortized over their estimated useful lives. The significant increase of $2,288,322 or 46.8% period-over-period was primarily due to the six additional operating properties acquired in 2018.


Interest Expense
Interest expense was $5,975,866 and $3,364,736 for the nine months ended September 30, 2019 and 2018, respectively (see Note 6 to our unaudited condensed consolidated financial statements for the detail of the components of interest expense). The significant increase of $2,611,130 or 77.6% period-over-period was primarily due to the increase in the average principal balance of mortgage notes payable and unrealized loss in the current period as compared with unrealized gain in the prior year period (see Note 7 to our unaudited condensed consolidated financial statements). The average principal balance of mortgage notes payable increased from approximately $82,879,000 during the nine months ended September 30, 2018 to approximately $118,483,000 during the nine months ended September 30, 2019, (see Note 6 to our unaudited condensed consolidated financial statements). Average unsecured credit facility borrowings were approximately $5,000,000 during the nine months ended September 30, 2018 compared to $2,856,000 during the nine months ended September 30, 2019.
Property Expenses
Property expenses were $3,537,249 and $1,966,616 for the nine months ended September 30, 2019 and 2018, respectively. These expenses primarily relate to property taxes and repairs and maintenance expenses. The significant increase of $1,570,633 or 79.9% period-over-period was primarily due to the six additional operating properties acquired in 2018.
Expenses Reimbursed by Sponsor or Affiliates
Expenses reimbursed by our Sponsor or affiliates were $332,336 and $952,098 for the nine months ended September 30, 2019 and 2018, respectively. For the first nine months ended September 30,of 2020 and 2019, respectively, and 2018,includes the amounts reimbursed by the Sponsor for Investor Relations payroll costs were $373,251 and $726,972, respectively. The expense reimbursements from the Sponsor during the nine months ended September 30, 2019 and 2018 also include $(40,915)results of refund to the Sponsor and $225,126 of employment related legal fees, respectively, which the Sponsor agreed to reimburse. The significant decrease of $619,762 or 65.1% in reimbursements corresponds primarily to the reduced number of Investor Relations personnel and related costs as described above under general and administrative expenses. Reimbursement for organization and offering costs was discontinued effective October 1, 2019 as described under “Organizational and Offering Costs” below.
Other Income
Interest income was $56,971 and $12,568 for the nine months ended September 30, 2019 and 2018, respectively.
Income from investments in unconsolidated entities was $167,558 and $163,348 for the nine months ended September 30, 2019 and 2018, respectively. This represents our approximate 4.8% and 4.4% interest respectively, in REIT I's results of operations and our approximate 72.7% TIC Interestfor the first nine months of September 30, 2019. We acquired REIT I in the Santa Clara property's results of operations for the nine months ended September 30, 2019 and 2018, respectively.Merger on December 31, 2019.
Organizational and Offering Costs
Prior to October 1, 2019, our organizational and offering costs were paid by our Sponsor on our behalf. Offering costs include all expenses incurred in connection with the Offerings, including Investor Relationsinvestor relations payroll 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.
During Our organizational and offering costs were paid by our Former Sponsor on our behalf through September 30, 2019, after which we agreed to pay all future organization and offering costs pursuant to an amendment to the primary Offerings,Advisory Agreement in October 2019 and to no longer be reimbursed by our Former Sponsor for investor relations personnel costs after September 30, 2019, in exchange for our Former Sponsor's agreement to terminate its right to receive 3% of gross offering proceeds as reimbursement for organization and offering costs paid by our Former Sponsor. Prior to September 30, 2019, we were obligated to reimburse our Former Sponsor for organizational and offering costs related to the Offerings paid by themit on our behalf, provided such reimbursement did not exceed 3% of gross offering proceeds raised in the Offerings as of the date of the reimbursement.
The Advisory Agreement was amended effective October 1, 2019 in connection with our new plan We recorded $5,429,105 of distribution whereby we will offer our shares of Class C Common Stock through a registered broker dealer. We agreed to pay all future organization and offering costs, and to no longer be reimbursed by the Sponsor for our Investor Relations personnel costs after September 30, 2019, in exchange for the Sponsor’s agreement to terminate its right to receive 3% of all offering proceeds received by us after September 30, 2019 as reimbursement for organization and offering costs previously paid by the Sponsor.


As of September 30, 2019, we had not directly incurred any organizational and offering costs relatedpaid to the Offerings as all such costs had been funded by our Sponsor. As a result, these organizational and offering costs relatedFormer Sponsor or affiliates through September 30, 2019. See Note 9 to the Offerings are not recorded in our unaudited condensed consolidated financial statements as of September 30, 2019 other than to the extent of 3% of the gross offering proceeds.for additional information. Through September 30, 2019, our Former Sponsor had incurred organizational and offering costs on our behalf in connection with ourthe Offerings in excess of $9,189,209. Through3.0% of the gross offering proceeds received by us. From October 1, 2019 through December 31, 2019, we incurred $509,739 of direct organizational and offering costs related to the Offerings.
For the nine months ended September 30, 2019,2020, we incurred organizational and offering costs including primarily legal fees, FINRA, SEC and blue sky filing costs and personnel costs for investor relations personnel of $981,748 related to the Offerings, which are recorded in our financial statements as of September 30, 2020 as an offset to equity. As of September 30, 2020, we had recorded $5,429,105 of organizational and offering costs of which $0 was payable$5,429,105 paid to theour Former Sponsor or affiliates. See Note 8 to our unaudited condensed consolidated financial statementsaffiliates and $1,491,487 which we incurred directly, for additional information.an aggregate of $6,920,592 of organizational and offering costs.
Distributions
We intend to pay distributions on a monthly basis, and we paid our first distribution on July 11, 2016. The rate is determined by our board of directors based on our financial condition and such other factors as our board of directors deems relevant. Our board of directors has not pre-established a percentage range of return for distributions to stockholders. We have not established a minimum distribution level, and our charter does not require that we make distributions to our stockholders other than as necessary to meet REIT qualification requirements.
During our offering stage, when we may raise capital more quickly than we acquire income producing assets,
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Distributions declared, distributions paid and from time-to-timecash flows provided by operating activities were as follows:
Total DistributionsDistributions DeclaredDistributions PaidCash Flows Provided by Operating
Period (1)DeclaredPer ShareCashReinvestedActivities
First Quarter 2020 (2)$4,189,102 $0.175875 $1,379,751 $2,360,514 $1,947,505 *
Second Quarter 2020 (3)3,270,291 0.136000 1,710,514 2,304,199 (774,533)*
Third Quarter 2020 (4)2,135,815 0.136000 981,432 1,150,452 2,638,676 
2020 Totals$9,595,208 $0.447875 $4,071,697 $5,815,165 $3,811,648 
First Quarter 2019 (5)$2,388,694 $0.175875 $552,134 $1,763,630 $773,736 
Second Quarter 2019 (6)2,605,268 0.175875 630,184 1,900,893 2,112,395 
Third Quarter 2019 (7)2,784,235 0.175875 719,257 2,020,768 1,677,064 *
Fourth Quarter 2019 (8)2,807,322 0.175875 2,116,411 667,391 185,709 *
2019 Totals$10,585,519 $0.703500 $4,017,986 $6,352,682 $4,748,904 *
*    Includes non-recurring Merger costs of $201,920 during our operational state, we may not pay distributions from operations. In these cases, distributions may bethe nine months ended September 30, 2020 ($193,460 during the quarter ended March 31, 2020 and $8,460 during the quarter ended June 30, 2020) and $1,468,913 for the year ended December 31, 2019 ($800,359 during the quarter ended September 30, 2019 and $668,554 during the quarter ended December 31, 2019).
(1)The distribution paid per share of Class S common stock is net of deferred selling commissions.
(2)The distribution of $1,415,328 for the month of March 2020 was declared in whole orJanuary 2020 and paid on April 27, 2020. The amount was recorded as a liability as of March 31, 2020.
(3)The distribution of $691,443 for the month of June 2020 was declared in part fromMay 2020 and paid on July 27, 2020. The amount was recorded as a liability as of June 30, 2020.
(4)The distribution of $674,837 for the waiver or deferralmonth of fees otherwise due to our Advisor, if so elected by our Advisor. Historically,September 2020 was declared in May 2020 and paid on October 26, 2020. The amount was recorded as a liability as of September 30, 2020 in the accompanying unaudited condensed consolidated balance sheets.
(5)The distribution of $821,300 for the month of March 2019 was declared in February 2019 and paid on April 25, 2019. The amount was recorded as a liability as of March 31, 2019.
(6)The distribution of $896,291 for the month of June 2019 was declared in February 2019 and paid on July 25, 2019. The amount was recorded as a liability as of June 30, 2019.
(7)The distribution of $937,863 for the month of September 2019 was declared in August 30, 2019 and paid on October 25, 2019. The amount was recorded as a liability as of September 30, 2019.
(8)The distribution of $966,491 for the month of December 2019 was declared in August 30, 2019 and paid on January 25, 2020. The amount was recorded as a liability as of December 31, 2019 in the accompanying consolidated balance sheets.
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Our sources of cash used to pay our distributions have been from net rental income received, along with the waiver and deferral of management fees and, to a limited extent, offering proceeds. 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. distribution payments were as follows:
PeriodNet
Rental
Income
Received		Waived
Advisor
Asset
Management
Fees		Deferred
Advisor
Asset
Management
Fees		Offering
Proceeds (1)
2020
First Quarter 2020$4,189,102 (2)(2)$— 
Second Quarter 20203,270,291 (2)(2)— 
Third Quarter 20202,135,815 (2)(2)— 
2020 Totals$9,595,208 $— 
2019
First Quarter 2019$2,388,694 $— $— $— 
Second Quarter 20192,605,268 — — — 
Third Quarter 20192,784,235 — — — 
Fourth Quarter 20192,807,322 — — — 
2019 Totals$10,585,519 $— $— $— 
(1)In connection with the acquisition of some properties, we may be able to negotiate a reduced purchase price for the acquired property in an amount that equals the previouslyan agreed-upon rent abatement. During 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 deferralsreceived. In connection with the extension of Advisor asset management fees.the lease term of some existing properties, we may agree to pay a lease extension fee. In that event,those events, we may expand the sources of cash used to fund our stockholder distributions to include proceeds from the sale of our common stock, but only during the periods, and up to the amounts, of any rent abatements where we are able to negotiate a reduced purchase price.price or the amounts extend a lease term by payment of an extension fee.
Distributions declared, distributions paid and cash flows provided by operating activities were as follows:
  Total Distributions Distributions Declared Distributions Paid Cash Flows Provided by Operating
Period (1)(2) Declared Per Share Cash Reinvested * Activities
First Quarter 2018 (3) $2,173,195
 $0.17588
 $335,216
 $1,260,232
 $38,144
Second Quarter 2018 (4) 1,864,493
 0.17588
 392,014
 1,408,441
 1,279,870
Third Quarter 2018 (5) 2,041,912
 0.17588
 445,312
 1,539,893
 1,237,975
Fourth Quarter 2018 (6) 2,203,622
 0.17588
 483,531
 1,669,538
 3,295,899
2018 Totals $8,283,222
 $0.70352
 $1,656,073
 $5,878,104
 $5,851,888
           
First Quarter 2019 (7) $2,388,694
 $0.17588
 $552,134
 $1,763,630
 $773,736
Second Quarter 2019 (8) 2,605,268
 0.17588
 630,184
 1,900,893
 2,112,395
Third Quarter 2019 (9) 2,784,235
 0.17588
 719,257
 2,020,768
 1,677,064
2019 Totals $7,778,197
 $0.52764
 $1,901,575
 $5,685,291
 $4,563,195
*We temporarily suspended our DRP on October 19, 2019 and the DRP will remain suspended until such time, if any, as our board of directors, in its discretion, may approve the reinstatement of the DRP.
(1)The distribution paid per share of Class S common stock is net of deferred selling commissions.
(2)Our board of directors declared distributions for four months (December 2017 through March 2018) beginning in the first quarter of 2018. To transition to a process of declaring dividends prior to the beginning of each month, dividends declared per share of common stock in succeeding quarters reflects four rather than three months of dividends.
(3)The distribution of $577,747 for the month of March 2018 was declared in March 2018 and paid on April 25, 2018. The amount was recorded as a liability as of March 31, 2018.
(4)The distribution of $641,785 for the month of June 2018 was declared in June 2018 and paid on July 25, 2018. The amount was recorded as a liability as of June 30, 2018.

(2)Subsequent to the Self-Management Transaction on December 31, 2019, asset management fees are not applicable.

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(5)The distribution of $698,492 for the month of September 2018 was declared in September 2018 and paid on October 25, 2018. The amount was recorded as a liability as of September 30, 2018.
(6)The distribution of $749,170 for the month of December 2018 was declared in December 2018 and paid on January 25, 2019. The amount was recorded as a liability as of December 31, 2018.
(7)The distribution of $821,300 for the month of March 2019 was declared in February 2019 and paid on April 25, 2019. The amount was recorded as a liability as of March 31, 2019.
(8)The distribution of $896,291 for the month of June 2019 was declared in February 2019 and paid on July 25, 2019. The amount was recorded as a liability as of June 30, 2019.
(9)The distribution of $937,863 for the month of September 2019 was declared in August 30, 2019 and paid on October 25, 2019. The amount was recorded as a liability as of September 30, 2019 in the accompanying unaudited condensed consolidated balance sheets.
Our sources of distribution payments were as follows:

Period Total Sources of Distributions 
Net
Rental
Income
Received
 
Waived
Advisor
Asset
Management
Fees
 
Deferred
Advisor
Asset
Management
Fees
 
Offering
Proceeds (1)
First Quarter 2018 $2,173,195
 $2,173,195
 $—
 $—
 $—
Second Quarter 2018 1,864,493
 1,864,493
 —
 —
 —
Third Quarter 2018 2,041,912
 2,041,912
 —
 —
 —
Fourth Quarter 2018 2,203,622
 2,203,622
 —
 —
 —
2018 Totals $8,283,222
 $8,283,222
 $—
 $—
 $—
           
First Quarter 2019 $2,388,694
 $2,388,694
 $—
 $—
 $—
Second Quarter 2019 2,605,268
 2,605,268
 —
 —
 —
Third Quarter 2019 2,784,235
 2,784,235
 —
 —
 —
2019 Totals $7,778,197
 $7,778,197
 $—
 $—
 $—
For the period January 1, 2018 through September 30, 2019, distributionsDistributions to stockholders were declared and paid based on daily record dates at rates per share per day. However, distributions to stockholders for the period March 1, 2019 through June 30, 2019 were declared on February 28, 2019 and for the period September 1, 2019 through December 31, 2019 were declared on August 30, 2019. The distribution details are as follows:
Distribution Period Rate Per Share Per Day Declaration Date Payment DateDistribution PeriodRate Per Share Per Day (1)Declaration DatePayment Date
2018  
    
20202020
January 1-31January 1-31$0.00192210 December 18, 2019February 25, 2020
February 1-29February 1-29$0.00191257 January 24, 2020March 25, 2020
March 1-31March 1-31$0.00191257 January 24, 2020April 27, 2020
April 1-30April 1-30$0.00191257 January 24, 2020May 26, 2020
May 1-31May 1-31$0.00160493 (2)May 20, 2020June 25, 2020
June 1-30June 1-30$0.00095890 May 20, 2020July 27, 2020
July 1-31July 1-31$0.00095890 May 20, 2020August 26, 2020
August 1-31August 1-31$0.00095890 May 20, 2020September 28, 2020
September 1-30September 1-30$0.00095890 May 20, 2020October 26, 2020
October 1-31October 1-31$0.00095890 September 30, 2020(3)
November 1-30November 1-30$0.00095890 September 30, 2020(3)
December 1-31December 1-31$0.00095890 September 30, 2020(3)
20192019   
January 1-31 $0.00189113
 February 1, 2018 February 26, 2018January 1-31$0.00191183 December 26, 2018February 25, 2019
February 1-28 $0.00209375
 February 1, 2018 March 26, 2018February 1-28$0.00209375 January 31, 2019March 25, 2019
March 1-31 $0.00189113
 March 20, 2018 April 25, 2018March 1-31$0.00192740 February 28, 2019April 25, 2019
April 1-30 $0.00195417
 April 3, 2018 May 25, 2018April 1-30$0.00192740 February 28, 2019May 28, 2019
May 1-31 $0.00189113
 May 1, 2018 June 26, 2018May 1-31$0.00192740 February 28, 2019June 25, 2019
June 1-30 $0.00195417
 June 1, 2018 July 25, 2018June 1-30$0.00192740 February 28, 2019July 25, 2019
July 1-31 $0.00189113
 July 1, 2018 August 27, 2018July 1-31$0.00189113 June 25, 2019August 26, 2019
August 1-31 $0.00189113
 August 1, 2018 September 25, 2018August 1-31$0.00189113 July 31, 2019September 25, 2019
September 1-30 $0.00195417
 September 1, 2018 October 25, 2018September 1-30$0.00192740 August 30, 2019October 25, 2019
October 1-31 $0.00189113
 September 27, 2018 November 26, 2018October 1-31$0.00192740 August 30, 2019November 25, 2019
November 1-30 $0.00195417
 October 29, 2018 December 26, 2018November 1-30$0.00192740 August 30, 2019December 26, 2019
December 1-31 $0.00189113
 November 28, 2018 January 25, 2019December 1-31$0.00192740 August 30, 2019January 25, 2020


Distribution Period Rate Per Share Per Day Declaration Date Payment Date
2019  
    
January 1-31 $0.00191183
 December 26, 2018 February 25, 2019
February 1-28 $0.00209375
 January 31, 2019 March 25, 2019
March 1-31 $0.00192740
 February 28, 2019 April 25, 2019
April 1-30 $0.00192740
 February 28, 2019 May 28, 2019
May 1-31 $0.00192740
 February 28, 2019 June 25, 2019
June 1-30 $0.00192740
 February 28, 2019 July 25, 2019
July 1-31 $0.00189113
 June 25, 2019 August 26, 2019
August 1-31 $0.00189113
 July 31, 2019 September 25, 2019
September 1-30 $0.00912740
��August 30, 2019 October 25, 2019
October 1-31 $0.00912740
 August 30, 2019 November 25, 2019 *
November 1-30 $0.00912740
 August 30, 2019 December 26, 2019 *
December 1-31 $0.00912740
 August 30, 2019 January 27, 2020 *
*Projected payment date.
(1)    Distributions paid per share of Class S common stock are net of deferred selling commissions.
(2)    Rate per share per day reflects $0.00191257 per day through May 21, 2020 and $0.00095890 per day thereafter.
(3)    Distribution has not been paid as of the filing date of this Quarterly Report on Form 10-Q.
Going forward, we expect our board of directors to continue to declare cash distributions based on daily record dates and to pay these distributions on a monthly basis, and after the completion of our Offerings to continue to declare distributions based on a single record date as of the end of the month, and to pay these distributions on a monthly basis. Cash distributions will be determined by our board of directors based on our financial condition, projected cash flows and such other factors as our board of directors deems relevant. 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.
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Properties
Portfolio Information
Our wholly-owned investments in real estate investmentsproperties as of September 30, 2020, December 31, 2019 and September 30, 2019 were as follows:
As ofAs of
September 30, 2019 December 31, 2018 September 30, 2018September 30,
2020		December 31, 2019September 30,
2019
Number of properties:     Number of properties:(1)(2)(2)
Retail9
 9
 9
Retail1419 9 
Office10
 10
 8
Office1414 10 
Industrial5
 5
 5
Industrial1112 5 
Total operating properties24
 24
 22
Total operating properties and properties held for saleTotal operating properties and properties held for sale3945 24 
Land1
 1
 1
Land11 1 
Total properties25
 25
 23
Total properties404625
     
Leasable square feet:     Leasable square feet:
Retail185,384
 185,384
 185,384
Retail200,449 362,764 185,384 
Office616,284
 616,284
 446,203
Office904,499 904,499 616,284 
Industrial735,016
 735,016
 735,016
Industrial1,066,243 1,093,539 735,016 
Total1,536,684
 1,536,684
 1,366,603
Total2,171,191 2,360,802 1,536,684 
(1)    Excludes two retail properties and one industrial property held for sale as of September 30, 2020 and three retail properties that were sold during the third quarter of 2020.
(2)    Includes 17 and 20 properties for September 30, 2020 and December 31, 2019, respectively, acquired through the Merger with REIT I on December 31, 2019 as follows: (i) 11 retail properties with an aggregate leasable square feet of 177,380; (ii) six office properties with an aggregate leasable square feet of 183,752 and (iii) three industrial properties with an aggregate leasable square feet of 246,259.
The above table does not include an approximate 72.7% TIC interest in a 91,740 square feet office property located in Santa Clara, California and an approximate 4.8%, 4.8% and 4.4% interest, respectively, in REIT I, an affiliated REIT, as of September 30, 2019, December 31, 2018 and September 30, 2018, respectively. If the pending Merger with REIT I is completed, we will own a total of 46 operating properties including the property acquired in October 2019 discussed in Note 11 as follows:


19 retail, 15 office and 12 industrial properties.California.
We have a very limited operating history. As of September 30, 2019,2020, we had onlyhave acquired: (i) 2445 operating properties; (ii) one parcel of land, which currently serves as an easement to one of our office properties; and (iii) the TIC Interest and (iv) an approximate 4.8% interest in REIT I, an affiliated REIT. We acquired an additional industrial property in October 2019 as described in Note 11 to our unaudited condensed consolidated financial statements. Therefore, we have limited operations.Interest. In evaluating these properties as potential acquisitions, including the determination of an appropriate purchase price to be paid for the properties, we considered a variety of factors, including the condition and financial performance of the properties, the terms of the existing leases and the creditworthiness of the tenants, property location, visibility and access, age of the properties, physical condition and curb appeal, neighboring property uses, local market conditions, including vacancy rates, area demographics, including trade area population and average household income and neighborhood growth patterns and economic conditions.
During December 2019 and January 2020, we amended lease agreements to extend the lease terms for three of our properties. In December 2019, the lease for the Walgreens property in Stockbridge, GA was extended for 10 years to February 28, 2031 in exchange for an incentive payment of $500,000 payable in four installments of $125,000 each, commencing January 10, 2020 with the final installment paid April 1, 2020. In January 2020, the lease for the Walgreens property in Santa Maria, CA was extended for 10 years to March 31, 2032 in exchange for an incentive payment of $490,000 payable in four installments of $122,500 each, commencing January 15, 2020 with the final installment paid April 1, 2020. In January 2020, the lease for the Accredo property in Orlando, FL was extended for 3 1/2 years to December 31, 2024 and we paid a leasing commission of $215,713 to the tenant’s broker in February 2020. In October 2020, the lease for the Wood Group (f/k/a AMEC Foster Wheeler) property in Carlsbad, CA was extended for five years to February 28, 2026 and we agreed to repair and replace the existing heating, air conditioning and ventilation systems and will pay a leasing commission of $146,680 to the tenant’s broker in two equal installments of $73,340 due in December 2020 and April 2021. We are continuing to explore potential lease extensions for many of our properties.
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Effective August 1, 2020, we executed an amendment for the early termination of the Dana lease from July 31, 2024 to July 31, 2022 in exchange for an early termination payment of $1,381,767 due on July 31, 2022 and continued rent payments of $65,000 per month from August 1, 2020 through July 1, 2022. In the event that we are able to re-lease or sell the Dana property prior to July 31, 2022, Dana would be obligated to continue paying rent of $65,000 per month through July 1, 2022 or may elect to pay a cash lump sum payment to us equal to the net present value of the remaining rent payments.
On August 3, 2020, we completed the sale of our Lake Elsinore retail property which was leased to Rite Aid for $6,100,000, which generated net proceeds of $3,299,016 after payment of the existing mortgage, commissions and closing costs.
On August 27, 2020, we completed the sale of our Stockbridge, GA retail property which was leased to Walgreens for $5,538,462, which generated net proceeds of $5,296,356 after repayment of commissions and closing costs. The mortgage for this property was previously repaid on August 10, 2020 in connection with the refinancing of the Accredo property as discussed above in “Liquidity and Capital Resources” and in Note 7 to our unaudited condensed consolidated financial statements.
On September 16, 2020, we completed the sale of our Elk Grove, CA retail property which was leased to Island Pacific for $3,155,000, which generated net proceeds of $1,124,016 after repayment of the existing mortgage, commissions and closing costs.
On October 28, 2020, we completed the sale of our Morgan Hill, CA industrial property which was previously leased to Dinan Cars for $6,100,000, which generated net proceeds of $3,811,580 after repayment of the existing mortgage, commissions and closing costs. In addition, the property in Las Vegas, Nevada formerly leased to 24 Hour Fitness and the property leased to Harley Davidson through April 12, 2032 located in Bedford, Texas are held for sale.
Other than as discussed below, we do not have other plans to incur any significant costs to renovate, improve or develop the properties. We believe that the properties are adequately insured. We have one tenant with a lease that providedprovides for a tenant improvement allowance totaling $3,486,927. The majoritywhich has a remaining balance of $60,598 that will be funded from operating cash flow or proceeds from our Offerings. We expect that the related improvements werewill be completed by June 30, 2019 and $3,387,699 was released to reimburse the tenant for these tenant improvements during the first nine months of 2019 under the terms of the lease agreement.2020 calendar year. As of September 30, 2019,2020, there wasis a restricted cash deposit of $100,135$92,684 that is available to reimburse the tenantbe used to pay for the remaining tenant improvement under the termsa portion of the lease agreement.other improvements.
In addition, we have identified approximately $855,000$1,188,000 of roof replacement, exterior painting and sealing and parking lot repairs/restriping that are expected to be completed in 2019.the next 12 months. Approximately $177,000$867,000 of these improvements are expected to be recoverable from the tenant through their operating expense reimbursements. There are no restricted cash deposits that are available to be used to pay for these improvements. We will be required to pay for the improvements, and the reimbursements from tenants will be billed over an extended period of time per the terms of the leases. The remaining costs of approximately $678,000 that$321,000 are not recoverable from tenants are expected to be capitalized.tenants. These improvements will be funded from operating cash flows or offering proceeds.proceeds from the Offerings.
Recent Market Conditions
Currently, bothWe face significant uncertainties due to the COVID-19 pandemic as described above in “Liquidity and Capital Resources -Effect of the COVID-19 Pandemic on Our Capital Resources.” Both the investing and leasing environments are highly competitive. While there has been an increase inEven before the amount of capital flowing into the U.S. real estate markets, which resulted in an increase in real estate values in certain markets, theCOVID-19 pandemic, uncertainty regarding the economic and political environment hashad made businesses reluctant to make long-term commitments or changes in their business plans. The COVID-19 pandemic has resulted in significant disruptions in financial markets, business shutdowns and uncertainty about how the U.S. and global economy will perform over the next several months. The ongoing trade war between the U.S. and China has also increased the level of uncertainty and resulted in reductions in business investmentsinvestments.
Possible future declines in rental rates and expectations of future rental concessions, including free rent to renew tenants early, to retain tenants who are up for renewal or to attract new tenants, or rent abatements for tenants severely impacted by the COVID-19 pandemic, may result in decreases in cash flows from investment properties. We have two leases scheduled to expire during 2021 for one office property and one retail property, which comprise an aggregate of 157,419 square feet and approximately 7.5% of projected 2020 net operating income from properties. The tenants for both of these properties could ultimately leadreevaluate their use of such properties in light of the impacts of the COVID-19 pandemic, including their ability to recession.have workers succeed from working at home, and determine not to renew these leases or to seek rent or other concessions as a condition of renewing their leases. We have eight other leases scheduled to expire in either 2022 or 2023. Potential declines in economic conditions could negatively impact commercial real estate fundamentals and result 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 pay dividendsmake distributions or meet our debt service obligations on debt financing.obligations.
Volatility in global markets and changing political environments can cause fluctuations
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Uncertainties in the performance of the U.S. commercial real estate markets. Economic slowdowns in Europe, China and Japan are likely to negatively impact growth of the U.S. economy. Political uncertainties both home and abroad may discourage business investment in real estate and other capital spending. Possible future declines in rental rates and expectations of future rental concessions, including free rent to renew tenants early, to retain tenants who are up for renewal or to attract new tenants, may result in decreases in cash flows from investment properties. Increases in the cost of financing due to higher interest ratesmarkets may cause difficulty in refinancing debt obligations prior to maturity at terms as favorable as the terms of existing indebtedness. Market conditions can change quickly, potentially negatively impacting the value of real estate investments. Management continuously reviews our investment and debt financing strategies to optimize our portfolio and the cost of our debt exposure.
Recent financial conditions affecting commercialWe plan to rely on debt financing to finance our real estate properties and we may have been stable with low treasury ratesdifficulty refinancing some of our debt obligations prior to or at maturity, or we may not be able to refinance these obligations at terms as favorable as the terms of our initial indebtedness and increased lending from banks, insurance companies and commercial mortgage backed securities ("CMBS") conduits. Nevertheless,we also may be unable to obtain additional debt financing on attractive terms or at all. If we are not able to refinance our initial indebtedness on attractive terms at the various maturity dates, we may be forced to dispose of some of our assets.
The debt market remains sensitive to the macro environment, such as impacts of the COVID-19 pandemic, Federal Reserve policy, market sentiment or regulatory factors affecting the banking and CMBScommercial mortgage-backed securities industries. While we currently expect that financialhave been able to successfully refinance three of our properties as described above, economic conditions will remain favorablehave deteriorated rapidly during 2019, if they were to deteriorate,the last eight months as a result of the COVID-19 pandemic and we may experience more stringent lending criteria in the future, 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 onseeking a new 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.


Commercial real estate fundamentals continue to remain stable, as 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. However, future increases in interest rates or a downturn in the economy could have a negative impact on property values.
Election as a REIT
We elected to be taxed as a REIT for federal income tax purposes under the Internal Revenue Code of 1986, as amended, beginning with the taxable year ended December 31, 2016. We believe we will continue to qualify as a REIT. 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).
If we fail to qualify as a REIT for 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 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 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 condensed consolidated financial statements.
Critical Accounting Policies and Estimates
Our accounting policies have been established to conform with GAAP. The preparation of financial statements in conformity with GAAP requires us to use judgment in the application of accounting policies, including making estimates and assumptions. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. If our judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied, thus resulting in a different presentation of the financial statements. Additionally, other companies may utilize different estimates that may impact comparability of our results of operations to those of companies in similar businesses. A discussion of the accounting policies that management considers critical in that they involve significant management judgments, assumptions and estimates is included under "“Critical Accounting Policies"Policies” in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K, filed with the SEC on March 29, 2019.April 6, 2020. There have been no significant changes to our policies during the three months ended September 30, 2019.2020.
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Commitments and Contingencies
We may be subject to certain commitments and contingencies with regard to certain transactions (see Note 10 to our unaudited condensed consolidated financial statements for discussion of commitment and contingencies).
Related-Party Transactions and Agreements
We have entered intoThrough December 31, 2019 we had contracted for advisory services through an Advisory Agreement with our Former Advisor whereby we have agreed to paypaid certain fees to, or reimbursereimbursed certain expenses of, our Former Advisor or our affiliates, such as acquisition fees and expenses, organization and offering costs, asset management fees, and reimbursement of certain operating costs and, until October 1, 2019, organization and offering costs (see Note 8 9 to our unaudited condensed consolidated financial statements for additional details of the various related-party transactions and agreements).
Subsequent Events
See Note 11 to our unaudited condensed consolidated financial statements for events that occurred subsequent to September 30, 20192020 through the filing date of this report.
Recent Accounting Pronouncements
See Note 2 to our unaudited condensed consolidated financial statements for recent accounting pronouncements.


Off-Balance Sheet Arrangements
We have no 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 as of September 30, 2019.2020.
Item 3.Quantitative and Qualitative Disclosure about Market Risk
Not requiredapplicable as we are a Smaller Reporting Company.smaller reporting company.
Item 4.Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, have evaluated the effectiveness of ourWe maintain disclosure controls and procedures as of the end of the period covered by this quarterly report. 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 is (i)recorded, processed, recorded, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii)that such information is accumulated and communicated to our management,us, including our principal executive officerChief Executive Officer and our principal financial officerChief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based onIn designing and evaluating the 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 required to apply our judgment in evaluating whether the benefits of the controls and procedures that we adopt outweigh their costs.
As required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act, an evaluation as of December 31, 2019 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 principal executive officerChief Executive Officer and principal financial officerChief Financial Officer concluded that our disclosure controls and procedures, as of September 30, 2020, were effective as ofat the end of the period covered by this quarterly report.reasonable assurance level.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) that occurred during the three months ended September 30, 20192020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness Most of Controls and Procedures
Our disclosure controls and procedures andour employees are working remotely due to the COVID-19 pandemic. However, we have not experienced any changes to our internal control arising from the COVID-19 pandemic that have materially affected or that are reasonably likely to materially affect our internal control over financial reportingreporting. We are designed to provide reasonable assurancecontinually monitoring and assessing the COVID-19 pandemic and the impact it may have on our operations, including our internal control.
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Table of achieving the desired control objectives. Our management recognizes that any control system, no matter how well designed and operated, is based upon certain judgments and assumptions and cannot provide absolute assurance that our objectives will be met. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs. Similarly, an evaluation of controls cannot provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected.Contents
PART II – OTHER INFORMATION
Item 1.Legal Proceedings
The information disclosed under Legal and Regulatory Matters in Note 10 to our unaudited condensed consolidated financial statements is incorporated herein by reference.


Item 1A.Risk Factors
We are includingOther than as disclosed below, there have been no material changes to the following additional risk factors which should be read in conjunction with our description of risk factors providedset forth under “Risk Factors” in Part I, Item 1A "Risk Factors"of our 2018 Annual Report on Form 10-K, for the year ended December 31, 2019, as filed with the SEC on March 29, 2019. See also the “Risk Factors” sectionApril 6, 2020 and in Part II, Item 1A of our joint proxy statementQuarterly Reports on Form 10-Q for the quarters ended March 31, 2020 and prospectusJune 30, 2020, as filed with the SEC on October 22, 2019.June 24, 2020 and August 14, 2020, respectively.
CompletionRisks Related to the Impact of the Merger is subjectCOVID-19 Pandemic on Our Business
The recent outbreak of COVID-19 has and may continue to a numberadversely affect our business and/or operations, our tenants’ financial condition and the profitability of conditions,our retail properties.
Our business and/or operations and if these conditions are not satisfiedthe businesses of our tenants have been, and may continue to be, materially and adversely affected by the risks, or waived, the Merger will not be completed, which could result inpublic perception of the requirement that we or REIT I pay certain termination fees or, in certain circumstances, that we or REIT I pay expensesrisks, related to the other party.
recent outbreak of COVID-19. The Merger Agreement is subjectprofitability of our retail properties depends, in part, on the willingness of customers to many conditions which must be satisfiedvisit our tenants’ businesses. The risk, or waived in order to complete the Merger. The mutual conditionspublic perception of the parties include, among others: (i) the approvalrisk, of COVID-19 has caused, and could continue to cause, employees or customers to avoid our properties, which adversely affects foot traffic to our tenants’ businesses and our tenants’ ability to adequately staff their businesses. Most of the Merger bystates where we operate issued orders to close fitness centers and other retail establishments for a period of time and have put restrictions on the holders of a majority ofability to re-open those businesses. Such events have adversely impacted tenants’ sales and/or caused the outstanding common stocktemporary closure or slowdown of our company; (ii) the approval of the Merger by the REIT I shareholders;tenants’ businesses, which has severely disrupted their operations and (iii) the absence of any law, order or other legal restraint or prohibition that would prohibit, make illegal, enjoin, or otherwise restrict, prevent, or prohibit the Merger or any of the transactions contemplated by the Merger Agreement. In addition, each party’s obligation to consummate the Merger is subject to certain other conditions, including, among others: (a) the accuracy of the other party’s representations and warranties (subject to customary materiality qualifiers and other customary exceptions); (b) the other party’s compliance with its covenants and agreements contained in the Merger Agreement; and (c) the absence of any event, change, or occurrence arising during the period from the date of the Merger Agreement until the effective time of the Merger that, individually or in the aggregate, has had or would reasonably be expectedcould continue to have a material adverse effect on our business, financial condition and results of operations. Similarly, the other party.
There can be no assurance that the conditions to closingpotential effects of the Merger will be satisfied or waived or that the Merger will be completed. Failure to consummate the Mergerquarantined employees of office tenants may adversely impact their businesses and affect the Company’s or REIT I’s results of operations and business prospects for the following reasons, among others: (i) each of the Company and REIT I will incur certain transaction costs, regardless of whether the proposed Merger closes, which could adversely affect each company’s respective financial condition, results of operations andtheir ability to make distributionspay rent on a timely basis.
Measures intended to its stockholders; and (ii)prevent the proposed Merger, whether or not it closes, will divert the attentionspread of certain management and other key employees of affiliates of the Company and REIT I from ongoing business activities, including the pursuit of other opportunities that could be beneficialCOVID-19 have disrupted our ability to operate our business.
In response to the Company or REIT I, respectively. In addition, the Company or REIT I may terminate the Merger Agreement under certain circumstances, including, among other reasons, if the Merger is not completed by March 31, 2020 and if the Merger Agreement is terminated under certain circumstances specified in the Merger Agreement, REIT I may be required to pay the Company a termination feeoutbreak of $2,540,000. The Merger Agreement also provides that one party may be required to reimburse the other party’s transaction expenses, not to exceed $1,000,000, if the Merger Agreement is terminated under certain circumstances.
The pendency of the Merger could adversely affect the business and operations of REIT ICOVID-19 and the Company.
Priorfederal and state mandates implemented to the effective date of the Merger, some tenants, prospective tenants or vendors of each of REIT I and the Company may delay or defer decisions, which could negatively affect the revenues, earnings, cash flows and expenses of REIT I and the Company, regardless of whether the Merger is completed. Similarly, current and prospective employees of affiliates of REIT I and the Company may experience uncertainty about their future roles with the Combined Company following the Merger, which may materially adversely affect the ability of such affiliates to attract and retain key personnel during the pendency of the Merger. In addition, due to operating restrictions in the Merger Agreement, each of REIT I and the Company may be unable during the pendency of the Merger subject to certain exclusions, to pursue strategic transactions, undertake significant capital projects, undertake certain significant financing transactions and otherwise pursue other actions, even if such actions would prove beneficial.
There may be unexpected delays in the consummation of the Merger.
The Merger is expected to close in late December 2019 or early January 2020 assuming that all of the conditions in the Merger Agreement are satisfied or waived. The Merger Agreement provides that either we or REIT I may terminate the Merger Agreement if the Merger has not occurred by March 31, 2020. Certain events may delay the consummation of the Merger. Some of the events that could delay the consummation of the Merger include difficulties in obtaining the approvalcontrol its spread, most of our stockholders and REIT I shareholders, or satisfying the other closing conditionsemployees are working remotely. If our employees are unable to which the Merger is subject.


Failure to complete the pending Merger could negatively affect us.
It is possible that the pending Merger will not be approved which would prevent the transaction from being completed. If the pending Merger transaction is not completed, we may be subject to a number of material risks, including the following:
we have incurred and expect to incur substantial costs and expenses payable by us that are related to the potential Merger, such as legal and financial advisor fees.
Combined Company net income may decrease in the near termwork effectively as a result of the Self-Management Transaction.
The Combined Company will expense all cash and non-cash costs involved in self-management. As a result, statementsCOVID-19 pandemic, including because of illness, quarantines, office closures, ineffective remote work arrangements or technology failures or limitations, our operations would be adversely impacted. Further, remote work arrangements may increase the risk of the Combined Company may be negatively impacted, driven predominately by the non-cash charges related to the issuance of units of limited partnership in the Operating Partnership as consideration in the Self-Management Transaction and, to a lesser extent, other transaction-related costs. In addition, while the Combined Company will no longer effectively bear the costs of the various fees and expense reimbursements previously paid to the Company and REIT I advisors after the Combined Company becomes internally managed, the Combined Company expenses will include the compensation and benefits of executive officers and the employees and consultants of the previous advisors, as well as overhead previously paid by the advisorscybersecurity incidents, data breaches or their affiliates in managing the Company’s and REIT I’s businesses and operations. Furthermore, these employees and consultants will be providing us services historically provided by the advisors. If these expenses are higher than the fees that are currently paid to the advisors or otherwise higher than currently anticipated, the Combined Company may not realize the anticipated cost savings and other benefits from the Self-Management Transaction and Combined Company net income could decrease further,cyber-attacks, which could have a material adverse effect on the Combined Company’sour business financial condition and results of operations.
The Self-Management Transaction may not be accretiveoperations, due to, Combined Company stockholders.
The Self-Management Transaction may not be accretive to Combined Company stockholders. While it is intended that the Self-Management Transaction will be accretive to Combined Company net income and earnings, there can be no assurance that this will be the case, as, among other things, the expensesloss of proprietary data, interruptions or delays in the operation of our business, damage to our reputation and any government imposed penalty.
The current COVID-19 pandemic, and any future outbreak of other highly infectious or contagious diseases, could materially and adversely impact or disrupt our financial condition, results of operations, cash flows and performance.
The COVID-19 pandemic has had, and any other pandemics in the future could have, repercussions across regional, national and global economies and financial markets. The outbreak of COVID-19 in the United States and in many countries has adversely impacted global economic activity and has contributed to significant volatility and negative pressure in the financial markets. The impact of the COVID-19 outbreak has been rapidly evolving and has continued to affect more countries. Many countries, including the United States, have responded by instituting quarantines for some period of time, mandating business and school closures and restrictions on their re-openings, banning group gatherings and restricting travel, among others.
Certain states and cities, including where we own properties, have also reacted by instituting quarantines, restrictions on travel, “shelter in place” rules and restrictions to only essential businesses that may continue to operate. As a result, the COVID-19 pandemic is negatively impacting almost every industry directly or indirectly, including the real estate industry in which we and our tenants operate.
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Many of our tenants have announced temporary closures of their stores or facilities and various tenants have requested rent deferral or rent abatement during this pandemic. In addition, in response to state and local government orders, all of our company personnel are currently working remotely. The effects of the state and local government orders, including an extended period of remote work arrangements, could strain our business continuity plans, introduce operational risk and impair our ability to manage our business. The COVID-19 pandemic may have a material adverse effect on our financial position, results of operations and cash flows, including among other factors:
•a partial or complete closure of, or other operational issues at, some or all of our properties resulting from government or tenant action;
•reduced economic activity severely impacts our tenants' business operations, financial condition and liquidity and may cause one or more of our tenants to be unable to meet their obligations to us in full, or at all, or to otherwise seek modifications of such obligations;
•reduced economic activity could result in a prolonged recession, which could negatively impact consumer discretionary spending and in return could severely impact our tenants' business operations, financial condition and liquidity;
•difficulty accessing debt and equity on attractive terms, or at all, impacts to our credit ratings, and a severe disruption and instability in the Self-Management Transactionglobal financial markets or deteriorations in credit and financing conditions may affect our access to capital necessary to fund our business operations or address maturing liabilities on a timely basis and our tenants' ability to fund their business operations and meet their obligations to us;
•the COVID-19 pandemic could negatively impact our future compliance with financial covenants of our mortgage notes payable and credit facilities and could result in a default or potential acceleration of payment of our debt obligations, which non-compliance could negatively impact our ability to make additional future borrowings;
•significant impairment in the value of our intangible assets as a result of weaker economic conditions;
•general decline in business activity and demand for real estate transactions has adversely affected our ability to grow our portfolio of properties;
•broad acceptance and success of working from home could negatively impact the demand for office space;
•the deterioration in our or our tenants' ability to operate in affected areas or delays in the supply of products or services to us or our tenants from vendors that are needed for our or our tenants' efficient operations has adversely affected our operations and those of our tenants; and
•potential negative impact on the health of our personnel and staff, particularly if a significant number of them are impacted, could result in a deterioration in our ability to ensure business continuity during this disruption.
The extent to which the COVID-19 pandemic impacts our business operations and those of our tenants will depend on future developments, which are highly uncertain and cannot be higher than currently anticipatedpredicted with confidence; including the scope, severity and duration of the pandemic; the success of actions or measures taken to contain or treat COVID-19, or mitigate its impact; and the Combined Company may not achieve cost savingsdirect and indirect economic effects of the pandemic, among others. Extended closures by our tenants of their stores and any early terminations by our tenants of their leases could reduce our cash flows, which could impact our ability to continue paying distributions to our stockholders at expected levels, or at all.
The rapid development and fluidity of the COVID-19 pandemic precludes us from making any prediction as to the Self-Management Transaction.full adverse impact of the pandemic. Nevertheless, the pandemic presents material uncertainty and risk with respect to our financial condition, results of operations, cash flows and performance. Risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2019 and additional filings with the SEC should be interpreted with heightened caution as a result of the impact of and uncertainty surrounding the COVID-19 pandemic.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
During July 2019,the three months ended September 30, 2020, we issued a total of 4,92126,250 shares of Class C common stock to five members of the four independentboard of directors for their service as board members during the second and issued an additional 492 sharesthird quarters of Class C common stock to two of the independent directors for their service as committee chairs.2020. Such issuances were made in reliance on the exemption from registration under Section 4(a)(2) of the Securities Act. In addition, during August 2019, we issued an additional 4,921 shares of Class C common stock to the four independent directors for their services as members of the Special Committee to evaluate the potential for a merger transaction with REIT I.
During the three months ended September 30, 2019,2020, we also issued 19,812776 shares of Class S common stock in the Class S Offering for aggregate gross offering proceeds of $201,290. Of such$5,669. Such issuances 794 shares for gross offering proceeds of $8,067 were made pursuant to the dividenddistribution reinvestment plan applicable to our Class S common stock in reliance on an exemption from the registration requirements of the Securities Act under and in accordance with Regulation S of the Securities Act.
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Use of Proceeds from Sales of Registered Securities
On June 1, 2016, ourthe Registered Offering (SEC Registration Statement on Form S-11 (File No. 333-205684) (the "Registration Statement"), covering an initial publicwas declared effective by the SEC, and on July 20, 2016, we began offering to offer a maximum of 90,000,000 shares of common stock for sale to the publicpublic. Pursuant to the Registered Offering, we sold shares of our Class C common stock directly to investors. Commencing in the Primary Offering was declared effectiveAugust 2017, we began selling shares of Class C common stock to U.S. persons only, as defined under the Securities Act. PursuantAct, as a result of the commencement of the Class S Offering to the Registration Statement, we also registered a maximum of 10,000,000 shares of common stock pursuant to our Registered DRP Offering. The shares of common stock covered by the Registration Statement were renamed and re-designated as Class C shares of common stock pursuant to amendments to our charter that became effective in August 2017.

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PART II – OTHER INFORMATION (continued)

The Registered Offering commenced on July 20, 2016.non-U.S. Persons. Under applicable SEC rules, the current registration statement for the Registered Offering was scheduled to terminate on June 1, 2019, but remained effective because the Companywe filed a new registration statement on Form S-11 for the Follow-on Offering with the SEC on May 24, 2019 (SEC Registration No. 333-231724) to extend the Registered Offering in accordance with Rule 415 ofunder the Securities Act. The Company’s currentOur initial registration statement on Form S-11 will terminateterminated when the new registration statement isFollow-on Offering was declared effective by the SEC.SEC on December 23, 2019. As required by some states, the Company iswe are also required to renew the registration statement for the Registered Offering annually or file a new registration statement to continue the Registered Offering Our board of directorsannually. We may terminate the RegisteredFollow-on Offering at any time. Our board of directors will adjust the offering price of the shares of Class C common stock sold in the Follow-on Offering and the Registered DRP Offering sharesannually in the first quarter of each year during the course of the RegisteredFollow-on Offering as described in the registration statement, as amended, for the Registered Offering.connection with updated determinations of our NAV per share by our board of directors.
Through September 30, 2019,2020, we had sold 17,823,024an aggregate of 19,645,508 shares of Class C common stock in the Registered Offering,Offerings, including 1,461,8042,208,870 shares of Class C common stock sold under our Registered DRP Offering, for aggregate gross offering proceeds of $179,039,271.$195,859,756.
Through September 30, 2019,2020, we have paid $5,429,105 to our Sponsor as reimbursement$6,920,592 for organizational and offering costs related to our Registered Offerings, including $5,429,105 to our Former Sponsor as reimbursement through September 30, 2019, which reimbursement iswas subject to thea 3% of gross offering proceeds limitation.
From the commencement of the Registered Offering through September 30, 2019,2020, the net offering proceeds to us, after deducting the reimbursable organizational and offering expenses incurred as described above, were approximately $173,662,273,$187,069,811, including net offering proceeds from our Registered DRP Offering of $14,736,539.$20,385,113. Substantially all of these proceeds, along with proceeds from the Class S Offering and debt financing, were used to make approximately $253,347,000$287,732,000 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. Of the use of the offering proceeds described in the prior statement, $6,919,631$7,666,690 and $652,150$696,150 were used to pay acquisition fees and financing coordination fees to our Former Advisor, respectively. Our Former Sponsor was reimbursed for $5,429,105 of organizational and offering costs. See costs in connection with the Offerings (see Note 8 of9 to our unaudited condensed consolidated financial statements for details aboutregarding fees paid to affiliates.affiliates through December 31, 2019). In addition, throughwe incurred $1,491,487 of organization and offering costs directly. For the three months ended September 30, 2019, $288,370 of2020, no proceeds from the Offerings were used to fund stockholder distributions in connection with rent abatements as described above. See Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations —Distributions— Distributions for a description of the sources that have been used to fund our distributions.
Issuer Redemptions of Equity Securities
The following table summarizes our repurchase activity under ourWe have adopted a share repurchase program that enables qualifying stockholders to sell their stock to us in limited circumstances. The maximum amount of common stock that may be repurchased per month is limited to no more than 2% of our most recently determined aggregate NAV. Repurchases for any calendar quarter are limited to no more than 5% of our most recently determined aggregate NAV. The foregoing repurchase limitations are based on “net repurchases” during a quarter or month, as applicable. Thus, for any given calendar quarter or month, the maximum amount of repurchases during that quarter or month will be equal to (1) 5% or 2% (as applicable) of our most recently determined aggregate NAV, plus (2) proceeds from sales of new shares in the Registered Offerings and Class S Offering (including purchases pursuant to our Registered DRP Offering) since the beginning of a current calendar quarter or month, less (3) repurchase proceeds paid since the beginning of the current calendar quarter or month.
We have the discretion to repurchase fewer shares than have been requested to be repurchased in a particular month or quarter, or to repurchase no shares at all, in the event that we lack readily available funds to do so due to market conditions beyond our control, our need to maintain liquidity for our Class C common stock for the three months ended September 30, 2019. As of September 30, 2019,operations or because we have not repurchased any sharesdetermine that investing in real property or other illiquid investments is a better use of our Class S common stock.
 
Total Number of
Shares
Repurchased
During the
Quarter
 
Average Price
Paid per Share
 
Dollar Value of
Shares Available
That May
Be Repurchased
Under the
Program (2)
July 2019178,005
 $9.94
 $1,769,231
August 2019134,369
 $10.00
 1,343,729
September 2019 (1)255,347
 $10.02
 2,558,712
Totals567,721
   $5,671,672
(1)During the three months ended September 30, 2019, we agreed to repurchase 100% of all shares of Class C common stock requested for repurchase. The shares of Class C common stock requested for repurchase in September 2019 were repurchased in October 2019. We generally repurchase shares approximately three business days following the end of the applicable month in which requests were received. We temporarily suspended our share repurchase program ("SRP") on October 19, 2019 and the SRP will remain suspended until such time, if any, as our board of directors, in its discretion, may approve the reinstatement of the SRP.

capital than repurchasing our shares. In the event that we repurchase some but not all of the shares submitted for repurchase in a given period, shares submitted for repurchase during such period will be repurchased on a pro-rata basis, subject to any Extraordinary Circumstance Repurchase.
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PART II – OTHER INFORMATION (continued)

We have the discretion, but not the obligation, under extraordinary market or economic circumstances, to make a special repurchase in equal, nominal quantities of shares from all stockholders who have submitted share repurchase requests during the period. These Extraordinary Circumstance Repurchases will precede any pro rata share repurchases that may be made during the period.
(2)
During the period July 2020 to October 2020, we received share repurchase requests as follows:
Value of Share Repurchase Requests ReceivedRepurchase DateValue of Shares Repurchased (1)
July 2020$8,359,586 August 5, 2020$995,028 
August 2020$8,002,288 September 3, 2020$1,420,636 
September 2020$6,747,834 October 5, 2020$1,393,275 
October 2020$5,907,195 November 4, 2020$1,537,198 
(1) Included Extraordinary Circumstance Repurchases and after applicable administrative fees for shares held less than three years.
Following our calculation of NAV and NAV per share of $10.16 (unaudited), which our board approved on January 11, 2019 and calculated as of December 31, 2018, we repurchase shares based on NAV per share. Share repurchases for any 12-month period will not exceed 2% of our aggregate NAV per month, 5% of our aggregate NAV per quarter, or 20% of our aggregate NAV per year. These repurchase limits are described in greater detail under Share Repurchase Program - Limitations on Repurchase in Part II, Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities of our Annual Report on Form 10-K for the year ended December 31, 2018, as filed with the SEC on March 29, 2019. However, we will only repurchase Class C or Class S shares if, among other conditions, in the opinion of our Advisor, we have sufficient reserves with which to repurchase such shares and at the same time maintain our then-current plan of operations.
Our board may amend, suspend or terminate our Class C share repurchase program or Class S share repurchase program upon 3010 days’ notice to Class C stockholders or Class S stockholders, respectively, if the board believes such action is in our and such stockholders’ best interests, including because share repurchases place an undue burden on our liquidity, adversely affect our operations, adversely affect stockholders whose shares are not repurchased, or if the board determines that the funds otherwise available to fund our share repurchases are needed for other purposes. Our board may also amend, suspend or terminate our Class C share repurchase program or Class S share repurchase program due to changes in law or regulation, or if the board becomes aware of undisclosed material information that it believes should be publicly disclosed before shares are repurchased. For more information about the program, see Part II,Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities-Share Repurchase Program of
The following table summarizes our Annual Report as discussed above. See also Part II, Item 5. Other Information below in this report for information about an amendment torepurchase activity under our share repurchase program.program for our Class C common stock for the three months ended September 30, 2020. For the three months ended September 30, 2020, no shares of our Class S common stock were repurchased.
 Total Number of
Shares
Repurchased
During the
Quarter (1)		Average Price Paid Per Share (2)Total Number of Shares Purchased As Part of Publicly Announced Plan or ProgramDollar Value of
Shares Available
That May
Be Repurchased
Under the
Program
July 1-31, 2020 (1)107,853 $6.96 107,853 (3)
August 1-31, 2020142,857 $6.97 142,857 (3)
September 1-30, 2020203,990 $6.96 203,990 (3)
Total454,700 454,700 
(1)We generally repurchase shares approximately three business days following the end of the applicable month in which requests were received.
(2)Following our calculation of our estimated NAV per share of $7.00 (unaudited), which our board of directors approved on May 20, 2020 and calculated as of April 30, 2020, any future share repurchases will be based on the estimated NAV per share of $7.00 (unaudited).
(3)A description of the maximum number of shares that may be purchased under our share repurchase program is included in the narrative preceding this table.
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Item 6.Exhibits
The exhibits listed on the Exhibit Index below are included herewith or incorporated herein by reference.

EXHIBIT INDEX
The following exhibits are included, or incorporated by reference, in this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 20192020 (and are numbered in accordance with Item 601 of Regulation S-K).
ExhibitDescription
2.1
2.2
2.33.1
2.4
Purchase Agreement, dated December 18, 2017, between Reasons Aviation, LLC and Rich Uncles NNN Operating Partnership, LP (incorporated by reference to Exhibit 2.13.1 to our Current Report on Form 8-K/A8-K (File No. 000-55776) filed with the Securities and Exchange Commission on January 8, 2018)December 31, 2019)
3.13.2
3.2
Articles of Amendment to the Articles of Incorporation of RW Holdings NNN REIT, Inc. to increase the authorized number of shares of our stock (incorporated by reference to Exhibit 3.2 to our Quarterly Report on Form 10-Q (File No. 000-55776) filed with the Securities and Exchange Commission on August 15, 2017)
3.3
Articles of Amendment to the Articles of Incorporation of RW Holdings NNN REIT, Inc. to change the name and designation of our stock (incorporated by reference to Exhibit 3.3 to our Quarterly Report on Form 10-Q (File No. 000-55776) filed with the Securities and Exchange Commission on August 15, 2017)
3.4
Articles of Amendment to the Articles of Incorporation of RW Holdings NNN REIT, Inc. to change our name to RW Holdings NNN REIT, Inc. (incorporated by reference to Exhibit 3.4 to our Quarterly Report on Form 10-Q (File No. 000-55776) filed with the Securities and Exchange Commission on August 15, 2017)
3.5
Articles Supplementary of RW Holdings NNN REIT, Inc. reclassifying 100,000,000 unissued shares of Class C common stock as Class S common stock (incorporated by reference to Exhibit 3.5 to our Quarterly Report on Form 10-Q (File No. 000-55776) filed with the Securities and Exchange Commission on August 15, 2017)
3.6
Certificate of Notice, dated August 11, 2017 (incorporated by reference to Exhibit 3.4 to our Current Report on Form 8-K (File No. 000-55776), filed August 17, 2017)
3.7
Restated Bylaws of RW Holdings NNN REIT, Inc. (incorporated by reference to Exhibit 3.2 to our Registration StatementCurrent Report on Form S-118-K (File No. 333-205684)000-55776) filed with the Securities and Exchange Commission on July 15, 2015)December 31, 2019)
4.1
4.2
4.3
4.4
10.14.5
10.2*4.6
31.1*4.7
10.1
31.1*
31.2*
32.1**
101.INSXBRL INSTANCE DOCUMENT
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101.SCHXBRL TAXONOMY EXTENSION SCHEMA DOCUMENT
101.CALXBRL TAXONOMY EXTENSION CALCULATION LINKBASE
101.DEFXBRL TAXONOMY EXTENSION DEFINITION LINKBASE

101.LAB
101.LABXBRL TAXONOMY EXTENSION LABELS LINKBASE
101.PREXBRL TAXONOMY EXTENSION PRESENTATION LINKBASE
*Filed herewith.
**In accordance with Item 601(b)(32) of Regulation S-K, this Exhibit is not deemed "filed"“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.

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SIGNATURES
Pursuant to the requirements 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)
RW Holdings NNN REIT, Inc.
By:(Registrant)
By:/s/ AARON S. HALFACRE
Name:Aaron S. Halfacre
Title:Chief Executive Officer (principal executive officer)
By:/s/ RAYMOND J. PACINI
Name:Raymond J. Pacini
Title:Chief Financial Officer (principal financial officer)
Date: November 12, 2019


13, 2020
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