Black Creek Diversified Property Fund 10Q 2020 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

⌧ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2020

◻ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to .

Commission File No. 000-52596

BLACK CREEK DIVERSIFIED PROPERTY FUND INC.

(Exact name of registrant as specified in its charter)


Maryland	30-0309068
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

518 Seventeenth Street, 17th Floor Denver, CO	80202
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (303) 228-2200

Securities registered pursuant to Section 12(b) of the Act: None

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 ⌧ 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 ⌧ 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 the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	◻	Accelerated filer	◻	Smaller reporting company	◻
Non-accelerated filer	⌧			Emerging growth company	◻

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. ◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ◻ No ⌧

As of November 4, 2020, there were 9,493,373 shares of the registrant’s Class T common stock, 22,874,214 shares of the registrant’s Class S common stock, 4,019,769 shares of the registrant’s Class D common stock, 44,622,052 shares of the registrant’s Class I common stock and 61,235,175 shares of the registrant’s Class E common stock outstanding.

Table of Contents

BLACK CREEK DIVERSIFIED PROPERTY FUND INC.

TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Condensed Consolidated Balance Sheets as of September 30, 2020 (unaudited) and December 31, 2019	3
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2020 and 2019 (unaudited)	4
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2020 and 2019 (unaudited)	5
	Condensed Consolidated Statements of Equity for the Three and Nine Months Ended September 30, 2020 and 2019 (unaudited)	6
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019 (unaudited)	7
	Notes to Condensed Consolidated Financial Statements (unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38
Item 4.	Controls and Procedures	39
PART II. OTHER INFORMATION
Item 1A.	Risk Factors	39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 5.	Other Information	43
Item 6.	Exhibits	45

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BLACK CREEK DIVERSIFIED PROPERTY FUND INC.

CONDENSED CONSOLIDATED BALANCE SHEETS


	As of
	September 30,		December 31,
(in thousands, except per share data)	2020		2019
	(Unaudited)
ASSETS
Net investment in real estate properties	$	1,777,347	$	1,612,632
Debt-related investments, net		49,007		2,575
Cash and cash equivalents		16,124		97,772
Restricted cash		10,316		10,010
DST Program Loans		42,104		19,404
Other assets		41,848		35,872
Total assets	$	1,936,746	$	1,778,265
LIABILITIES AND EQUITY
Liabilities
Accounts payable and accrued expenses	$	46,341	$	35,226
Debt, net		855,784		846,567
Intangible lease liabilities, net		42,573		43,503
Financing obligations, net		446,048		258,814
Other liabilities		61,287		43,867
Total liabilities		1,452,033		1,227,977
Commitments and contingencies (Note 12)
Redeemable noncontrolling interest		3,791		—
Equity
Stockholders’ equity:
Preferred stock, $0.01 par value—200,000 shares authorized, none issued and outstanding		—		—
Class E common stock, $0.01 par value—500,000 shares authorized, 62,080 shares and 66,804 shares issued and outstanding, respectively		621		668
Class T common stock, $0.01 par value—500,000 shares authorized, 9,141 shares and 5,852 shares issued and outstanding, respectively		91		59
Class S common stock, $0.01 par value—500,000 shares authorized, 22,238 shares and 20,593 shares issued and outstanding, respectively		222		206
Class D common stock, $0.01 par value—500,000 shares authorized, 3,919 shares and 3,499 shares issued and outstanding, respectively		39		35
Class I common stock, $0.01 par value—500,000 shares authorized, 44,430 shares and 43,732 shares issued and outstanding, respectively		444		437
Additional paid-in capital		1,261,886		1,257,147
Distributions in excess of earnings		(833,598)		(775,259)
Accumulated other comprehensive loss		(30,227)		(14,662)
Total stockholders’ equity		399,478		468,631
Noncontrolling interests		81,444		81,657
Total equity		480,922		550,288
Total liabilities and equity	$	1,936,746	$	1,778,265

See accompanying Notes to Condensed Consolidated Financial Statements.

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BLACK CREEK DIVERSIFIED PROPERTY FUND INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
(in thousands, except per share data)	2020		2019		2020		2019
Revenues:
Rental revenues	$	44,129	$	44,195	$	132,995	$	139,651
Debt-related income		981		35		1,181		193
Total revenues		45,110		44,230		134,176		139,844
Operating expenses:
Rental expenses		15,881		15,360		45,792		45,645
Real estate-related depreciation and amortization		15,649		14,473		44,558		43,461
General and administrative expenses		2,217		2,181		6,611		6,325
Advisory fees, related party		5,543		3,523		16,009		9,887
Litigation expense		2,500		—		2,500		—
Impairment of real estate property		—		113		—		113
Total operating expenses		41,790		35,650		115,470		105,431
Other expenses (income):
Interest expense		15,290		11,764		42,930		37,074
Gain on sale of real estate property		—		(10,890)		(2,192)		(96,530)
Gain on extinguishment of debt and financing commitments, net		—		—		—		(1,002)
Other income		(262)		(131)		(619)		(156)
Total other expenses (income)		15,028		743		40,119		(60,614)
Net (loss) income		(11,708)		7,837		(21,413)		95,027
Net loss attributable to redeemable noncontrolling interests		39		—		71		—
Net loss (income) attributable to noncontrolling interests		839		(546)		1,515		(6,735)
Net (loss) income attributable to common stockholders	$	(10,830)	$	7,291	$	(19,827)	$	88,292
Weighted-average shares outstanding—basic		141,682		138,063		142,216		135,877
Weighted-average shares outstanding—diluted		153,166		148,423		153,665		146,299
Net (loss) income attributable to common stockholders per common share—basic and diluted	$	(0.08)	$	0.05	$	(0.14)	$	0.65

See accompanying Notes to Condensed Consolidated Financial Statements.

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BLACK CREEK DIVERSIFIED PROPERTY FUND INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)


	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
(in thousands)	2020		2019		2020		2019
Net (loss) income	$	(11,708)	$	7,837	$	(21,413)	$	95,027
Net unrealized loss from available-for-sale securities		—		(100)		—		(100)
Change from cash flow hedging derivatives		2,278		(3,900)		(16,874)		(19,388)
Comprehensive (loss) income		(9,430)		3,837		(38,287)		75,539
Comprehensive loss attributable to redeemable noncontrolling interests		31		—		126		—
Comprehensive loss (income) attributable to noncontrolling interests		678		(222)		2,769		(5,294)
Comprehensive (loss) income attributable to common stockholders	$	(8,721)	$	3,615	$	(35,392)	$	70,245

See accompanying Notes to Condensed Consolidated Financial Statements.

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BLACK CREEK DIVERSIFIED PROPERTY FUND INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)


	Stockholders’ Equity
								Accumulated
				Additional		Distributions		Other
	Common Stock			Paid-in		in Excess of		Comprehensive		Noncontrolling		Total
(in thousands)	Shares	Amount		Capital		Earnings		Income (Loss)		Interests		Equity
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2019
Balance as of June 30, 2019	136,993	$	1,370	$	1,237,758	$	(811,530)	$	(13,849)	$	79,582	$	493,331
Net income	—		—		—		7,291		—		546		7,837
Net unrealized loss from available-for-sale securities	—		—		—		—		(100)		—		(100)
Unrealized loss from derivative instruments	—		—		—		—		(3,576)		(324)		(3,900)
Issuance of common stock, net of offering costs	5,268		53		35,306		—		—		—		35,359
Share-based compensation, net of forfeitures	4		—		32		—		—		—		32
Redemptions of common stock	(3,670)		(37)		(26,779)		—		—		—		(26,816)
Amortization of share-based compensation	—		—		116		—		—		—		116
Distributions declared on common stock and noncontrolling interests, net of distribution fees	—		—		—		(12,572)		—		(971)		(13,543)
Redemptions of noncontrolling interests	—		—		(370)		—		—		(208)		(578)
Balance as of September 30, 2019	138,595	$	1,386	$	1,246,063	$	(816,811)	$	(17,525)	$	78,625	$	491,738
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2020
Balance as of June 30, 2020	141,775	$	1,418	$	1,263,091	$	(809,999)	$	(32,336)	$	83,166	$	505,340
Net loss (excluding $39 attributable to redeemable noncontrolling interest)	—		—		—		(10,830)		—		(839)		(11,669)
Unrealized gain from derivative instruments (excluding $8 attributable to redeemable noncontrolling interest)	—		—		—		—		2,109		161		2,270
Issuance of common stock, net of offering costs	2,835		27		19,862		—		—		—		19,889
Share-based compensation, net of forfeitures	4		—		32		—		—		—		32
Redemptions of common stock	(2,806)		(28)		(21,025)		—		—		—		(21,053)
Amortization of share-based compensation	—		—		21		—		—		—		21
Distributions declared on common stock and noncontrolling interests, net of distribution fees	—		—		—		(12,769)		—		(1,029)		(13,798)
Redemption value allocation adjustment to redeemable noncontrolling interest	—		—		(88)		—		—		—		(88)
Redemptions of noncontrolling interests	—		—		(7)		—		—		(15)		(22)
Balance as of September 30, 2020	141,808	$	1,417	$	1,261,886	$	(833,598)	$	(30,227)	$	81,444	$	480,922
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019
Balance as of December 31, 2018	130,852	$	1,309	$	1,199,736	$	(867,849)	$	522	$	77,295	$	411,013
Net income	—		—		—		88,292		—		6,735		95,027
Net unrealized loss from available-for-sale securities	—		—		—		—		(100)		—		(100)
Unrealized loss from derivative instruments	—		—		—		—		(17,947)		(1,441)		(19,388)
Issuance of common stock, net of offering costs	18,920		189		128,810		—		—		—		128,999
Share-based compensation, net of forfeitures	86		1		636		—		—		—		637
Redemptions of common stock	(11,263)		(113)		(82,653)		—		—	`	—		(82,766)
Amortization of share-based compensation	—		—		(248)		—		—		—		(248)
Distributions declared on common stock and noncontrolling interests, net of distribution fees	—		—		—		(37,254)		—		(2,938)		(40,192)
Redemptions of noncontrolling interests	—		—		(218)		—		—		(1,026)		(1,244)
Balance as of September 30, 2019	138,595	$	1,386	$	1,246,063	$	(816,811)	$	(17,525)	$	78,625	$	491,738
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020
Balance as of December 31, 2019	140,480	$	1,405	$	1,257,147	$	(775,259)	$	(14,662)	$	81,657	$	550,288
Net loss (excluding $71 attributable to redeemable noncontrolling interest)	—		—		—		(19,827)		—		(1,515)		(21,342)
Unrealized loss from derivative instruments (excluding $55 attributable to redeemable noncontrolling interest)	—		—		—		—		(15,565)		(1,254)		(16,819)
Issuance of common stock, net of offering costs	12,916		128		92,222		—		—		—		92,350
Share-based compensation, net of forfeitures	20		—		150		—		—		—		150
Redemptions of common stock	(11,608)		(116)		(86,949)		—		—		—		(87,065)
Amortization of share-based compensation	—		—		58		—		—		—		58
Issuances of OP Units for DST Interests	—		—		—		—		—		11,233		11,233
Distributions declared on common stock and noncontrolling interests, net of distribution fees	—		—		—		(38,512)		—		(3,079)		(41,591)
Redemption value allocation adjustment to redeemable noncontrolling interest	—		—		(281)		—		—		—		(281)
Redemptions of noncontrolling interests	—		—		(461)		—		—		(5,598)		(6,059)
Balance as of September 30, 2020	141,808	$	1,417	$	1,261,886	$	(833,598)	$	(30,227)	$	81,444	$	480,922

See accompanying Notes to Condensed Consolidated Financial Statements.

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BLACK CREEK DIVERSIFIED PROPERTY FUND INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	For the Nine Months Ended September 30,
(in thousands)	2020		2019
Operating activities:
Net (loss) income	$	(21,413)	$	95,027
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Real estate-related depreciation and amortization		44,558		43,461
Straight-line rent and amortization of above- and below-market leases		(6,177)		(10,252)
Gain on sale of real estate property		(2,192)		(96,530)
Impairment of real estate property		—		113
Gain on extinguishment of debt and financing commitments, net		—		(1,002)
Other		9,220		6,321
Changes in operating assets and liabilities		4,851		(1,485)
Net cash provided by operating activities		28,847		35,653
Investing activities:
Real estate acquisitions		(162,114)		(257,506)
Capital expenditures		(28,659)		(34,963)
Proceeds from disposition of real estate property		2,752		177,997
Principal collections on debt-related investments		129		8,062
Investment in debt related investments		(45,539)		—
Other		(3,355)		(4,624)
Net cash used in investing activities		(236,786)		(111,034)
Financing activities:
Repayments of mortgage notes		(2,223)		(34,401)
Net repayments of line of credit		—		(58,000)
Proceeds from term loan		—		50,000
Redemptions of common stock		(87,065)		(82,766)
Distributions on common stock		(22,527)		(21,737)
Proceeds from issuance of common stock		81,932		125,375
Proceeds from financing obligations		179,592		139,109
Offering costs for issuance of common stock and private placements		(7,331)		(8,524)
Distributions to noncontrolling interest holders		(3,189)		(2,938)
Redemption of OP Unit holder interests		(6,059)		(1,244)
Other		(6,533)		(9,434)
Net cash provided by financing activities		126,597		95,440
Net (decrease) increase in cash, cash equivalents and restricted cash		(81,342)		20,059
Cash, cash equivalents and restricted cash, at beginning of period		107,782		17,038
Cash, cash equivalents and restricted cash, at end of period	$	26,440	$	37,097

See accompanying Notes to Condensed Consolidated Financial Statements.

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BLACK CREEK DIVERSIFIED PROPERTY FUND INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. BASIS OF PRESENTATION

Unless the context otherwise requires, the “Company,” “we,” “our,” or “us” refers to Black Creek Diversified Property Fund Inc. and its consolidated subsidiaries.

The accompanying unaudited condensed consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, certain disclosures normally included in the annual audited financial statements prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) have been omitted. As such, the accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 5, 2020 (“2019 Form 10-K”).

As used herein, the term “commercial” refers to our office, retail and industrial properties or customers, as applicable.

Recently Issued Accounting Standards

In August 2020, the FASB issued ASU 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40)” (“ASU 2020-06”), which updates various codification topics to simplify the accounting guidance for certain financial instruments with characteristics of liabilities and equity, with a specific focus on convertible instruments and the derivative scope exception for contracts in an entity’s own equity. ASU 2020-06 is effective for annual and interim reporting periods beginning after December 15, 2021, with early adoption permitted for annual and interim reporting periods beginning after December 15, 2020. We plan to adopt ASU 2020-06 when it becomes effective for the Company, as of the reporting period beginning January 1, 2021. Our initial analysis indicates that the adoption of this standard will not have a material effect on our condensed consolidated financial statements.

Recently Adopted Accounting Standards

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, “Financial Instruments—Credit Losses (Topic 326)” (“ASU 2016-13”), which introduces a new model for recognizing credit losses for certain financial instruments, including loans, accounts receivable and debt securities. The new model requires an estimate of expected credit losses over the life of exposure to be recorded through the establishment of an allowance account, which is presented as an offset to the related financial asset. The expected credit loss is recorded upon the initial recognition of the financial asset. We adopted this standard when it became effective for us, as of the reporting period beginning January 1, 2020. The adoption did not have a material effect on our condensed consolidated financial statements.

In November 2018, the FASB issued ASU No. 2018-19, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses” (“ASU 2018-19”), which clarifies the scope of the guidance in the amendments in ASU 2016-13. We adopted this standard when it became effective for us, as of the reporting period beginning January 1, 2020. The adoption did not have a material effect on our condensed consolidated financial statements.

In March 2020, the FASB issued ASU No. 2020-03, “Codification Improvements to Financial Instruments” (“ASU 2020-03”), which updates various codification topics related to financial instruments by clarifying or improving the disclosure requirements to align with the SEC’s regulations. We adopted this standard immediately upon its issuance. The adoption did not have a material effect on our condensed consolidated financial statements.

In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848)” (“ASU 2020-04”), which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments only apply to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. ASU 2020-04 is effective for annual and interim reporting periods beginning after March 12, 2020, with early adoption permitted, through December 31, 2022. The expedients and exceptions do not apply to contract modifications made and hedging relationships entered into after December 31, 2022. We adopted this standard immediately upon its issuance. The adoption did not have a material effect on the Company’s condensed consolidated financial statements.

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In April 2020, the FASB issued a Staff Question-and-Answer to clarify whether lease concessions related to the effects of COVID-19 require the application of lease modification guidance under the new lease standard, which we adopted on January 1, 2019. The guidance did not have a material effect on the Company’s condensed consolidated financial statements. However, its future impact to the Company is dependent upon the extent of lease concessions granted to customers as a result of the COVID-19 pandemic in future periods and the elections made by the Company at the time of entering such concessions. It is not possible at this time to accurately project the nature or extent of any such possible future concessions.

In October 2020, the FASB issued ASU 2020-10, “Codification Improvements” (“ASU 2020-10”), which updates various codification topics by clarifying or improving disclosure requirements to align with the SEC’s regulations. We adopted this standard immediately upon its issuance. The adoption did not have a material effect on our condensed consolidated financial statements.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Revenue Recognition

We must make estimates as to collectability of our accounts receivable related to rental income and straight-line rent. Management analyzes accounts receivable by considering customer creditworthiness, current economic trends, including the impact of the outbreak of COVID-19 on customers’ businesses, and customers’ ability to make payments on time and in full when evaluating the adequacy of the allowance for doubtful accounts receivable. As of September 30, 2020, the impact of COVID-19 on customer collectability has been minimal and has not had a material impact on the condensed consolidated financial statements. The allowance for doubtful accounts as of September 30, 2020 and December 31, 2019 was approximately $1.0 million and $0.8 million, respectively.

3. INVESTMENTS IN REAL ESTATE PROPERTIES

The following table summarizes our consolidated investments in real estate properties.


	As of
(in thousands)	September 30, 2020		December 31, 2019
Land	$	449,812	$	418,037
Buildings and improvements		1,535,621		1,375,192
Intangible lease assets		281,275		264,121
Investment in real estate properties		2,266,708		2,057,350
Accumulated depreciation and amortization		(489,361)		(444,718)
Net investment in real estate properties	$	1,777,347	$	1,612,632

Acquisitions

During the nine months ended September 30, 2020, we acquired 100% of the following properties, all of which were determined to be asset acquisitions:


($ in thousands)	Property Type	Acquisition Date	Total Purchase Price (1)
Village at Lee Branch	Retail	1/29/2020	$	41,665
Railhead DC (2)	Industrial	2/4/2020		19,295
Tri-County DC II B	Industrial	2/14/2020		2,884
Sterling IC	Industrial	3/25/2020		5,118
Clayton Commerce Center	Industrial	6/26/2020		59,289
Bay Area Commerce Center	Industrial	8/27/2020		48,807
Total acquisitions			$	177,058

(1)	Total purchase price is equal to the total consideration paid plus any debt assumed at fair value.

(2)	Includes debt assumed at fair value as of the acquisition date of $9.8 million, with a principal amount of $9.2 million.

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During the nine months ended September 30, 2020, we allocated the purchase price of our acquisitions to land, building and intangible lease assets and liabilities as follows:


	For the Nine Months Ended
($ in thousands)	September 30, 2020
Land	$	32,547
Building		128,946
Intangible lease assets		15,510
Above-market lease assets		1,835
Below-market lease liabilities		(1,780)
Total purchase price (1)	$	177,058

(1)	Total purchase price is equal to the total consideration paid plus any debt assumed at fair value.

The weighted-average amortization period for the intangible lease assets and liabilities acquired in connection with our acquisitions during the nine months ended September 30, 2020, as of the respective date of each acquisition, was 10.2 years.

Dispositions

During the nine months ended September 30, 2020, we sold one retail outparcel for net proceeds of approximately $2.8 million. We recorded a net gain on sale of approximately $2.2 million.

During the nine months ended September 30, 2019, we sold three office properties, one retail property and two retail outparcels for net proceeds of approximately $178.0 million, which is net of the property-related debt repayment described in Note 4. We recorded a net gain on sale of approximately $96.5 million.

Intangible Lease Assets and Liabilities

Intangible lease assets and liabilities as of September 30, 2020 and December 31, 2019 include the following:


	As of September 30, 2020						As of December 31, 2019
			Accumulated						Accumulated
(in thousands)	Gross		Amortization		Net		Gross		Amortization		Net
Intangible lease assets	$	258,021	$	(210,595)	$	47,426	$	242,704	$	(200,623)	$	42,081
Above-market lease assets		23,254		(21,134)		2,120		21,417		(20,859)		558
Below-market lease liabilities		(81,403)		38,830		(42,573)		(80,002)		36,499		(43,503)

Rental Revenue Adjustments and Depreciation and Amortization Expense

The following table summarizes straight-line rent adjustments, amortization recognized as an increase (decrease) to rental revenues from above- and below-market lease assets and liabilities, and real estate-related depreciation and amortization expense:


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(in thousands)	2020		2019		2020		2019
Increase (decrease) to rental revenue:
Straight-line rent adjustments	$	1,322	$	855	$	3,947	$	7,763
Above-market lease amortization		(157)		(125)		(275)		(657)
Below-market lease amortization		781		986		2,505		3,146
Real estate-related depreciation and amortization:
Depreciation expense	$	12,406	$	10,416	$	34,660	$	31,036
Intangible lease asset amortization		3,243		4,057		9,898		12,425

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4. DEBT

A summary of our debt is as follows:


	Weighted-Average
	Effective Interest Rate as of					Balance as of
	September 30,		December 31,			September 30,		December 31,
($ in thousands)	2020		2019		Current Maturity Date	2020		2019
Line of credit (1)	1.55	%	3.16	%	January 2023	$	—	$	—
Term loan (2)	3.27		3.04		January 2024		325,000		325,000
Term loan (3)	3.29		3.29		February 2022		200,000		200,000
Fixed-rate mortgage notes (4)	3.53		3.52		September 2021 - December 2029		207,877		200,857
Floating-rate mortgage note (5)	2.40		4.01		January 2021		127,000		127,000
Total principal amount / weighted-average (6)	3.21	%	3.36	%		$	859,877	$	852,857
Less: unamortized debt issuance costs						$	(4,768)	$	(6,535)
Add: mark-to-market adjustment on assumed debt							675		245
Total debt, net						$	855,784	$	846,567
Gross book value of properties encumbered by debt						$	563,755	$	535,196

(1)

The effective interest rate is calculated based on the London Interbank Offered Rate (“LIBOR”), plus a margin ranging from 1.30% to 2.10%, depending on our consolidated leverage ratio. As of September 30, 2020, the unused and available portions under the line of credit were approximately $450.0 million and $219.5 million, respectively. The line of credit is available for general business purposes including, but not limited to, refinancing of existing indebtedness and financing the acquisition of permitted investments, including commercial properties.

(2)

The effective interest rate is calculated based on LIBOR, plus a margin ranging from 1.25% to 2.05%, depending on our consolidated leverage ratio. Total commitments for this term loan are $325.0 million. There are no amounts unused or available under this term loan as of September 30, 2020. The weighted-average interest rate is the all-in interest rate, including the effects of interest rate swap agreements relating to approximately $300.0 million in borrowings under this term loan.

(3)

The effective interest rate is calculated based on LIBOR, plus a margin ranging from 1.25% to 2.05%, depending on our consolidated leverage ratio. Total commitments for this term loan are $200.0 million. There are no amounts unused or available under this term loan as of September 30, 2020. The weighted-average interest rate is the all-in interest rate and is fixed through interest swap agreements.

(4)

The amount outstanding as of September 30, 2020 includes a $50.1 million floating-rate mortgage note that is subject to an interest rate spread of 1.65% over one-month LIBOR, which we have effectively fixed using an interest rate swap at 2.85% until the designated cash flow hedge expires in July 2021. This mortgage note matures in August 2023.

(5)	The effective interest rate is calculated based on LIBOR plus a margin of 2.25%. As of September 30, 2020, and December 31, 2019, our floating-rate mortgage note was subject to a weighted-average interest rate spread of 2.25% and 2.25%, respectively.

(6)	The weighted-average remaining term of our borrowings was approximately 2.8 years as of September 30, 2020, excluding the impact of certain extension options.

As of September 30, 2020, the principal payments due on our outstanding debt during each of the next five years and thereafter were as follows:


(in thousands)	Line of Credit		Term Loans		Mortgage Notes		Total
Remainder of 2020	$	—	$	—	$	776	$	776
2021 (1)		—		—		138,917		138,917
2022 (2)		—		200,000		2,780		202,780
2023 (3)		—		—		48,799		48,799
2024		—		325,000		2,172		327,172
Thereafter		—		—		141,433		141,433
Total principal payments	$	—	$	525,000	$	334,877	$	859,877

(1)	Includes a $127.0 million floating-rate mortgage note with a maturity date of January 2021. The mortgage note may still be extended an additional one year, subject to certain conditions.

(2)	The term of this term loan may be extended pursuant to two one-year extension options, subject to certain conditions.

(3)	The term of the line of credit may be extended pursuant to two six-month extension options, subject to certain conditions.

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In July 2017, the Financial Conduct Authority (“FCA”) that regulates LIBOR announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. As a result, the Federal Reserve Board and the Federal Reserve Bank of New York organized the Alternative Reference Rates Committee ("ARRC"), which identified the Secured Overnight Financing Rate ("SOFR") as its preferred alternative rate for LIBOR in derivatives and other financial contracts. We are not able to predict when LIBOR will cease to be available or when there will be sufficient liquidity in the SOFR markets. Any changes adopted by the FCA or other governing bodies in the method used for determining LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR. If that were to occur, our interest payments could change. In addition, uncertainty about the extent and manner of future changes may result in interest rates and/or payments that are higher or lower than if LIBOR were to remain available in its current form.

As of September 30 2020, our line of credit, term loans and a $50.1 million mortgage note are our only indebtedness with initial maturity dates beyond 2021 that have exposure to LIBOR. The agreements governing the line of credit, term loans and mortgage note provide procedures for determining a replacement or alternative base rate in the event that LIBOR is discontinued. However, there can be no assurances as to whether such replacement or alternative base rate will be more or less favorable than LIBOR. We intend to monitor the developments with respect to the potential phasing out of LIBOR after 2021 and work with our lenders to seek to ensure any transition away from LIBOR will have minimal impact on our financial condition, but can provide no assurances regarding the impact of the discontinuation of LIBOR.

Debt Covenants

Our line of credit, term loans and mortgage note agreements contain various property-level covenants, including customary affirmative and negative covenants. In addition, the line of credit and term loan agreements contain certain corporate-level financial covenants, including leverage ratio, fixed charge coverage ratio, and tangible net worth thresholds. We were in compliance with our debt covenants as of September 30, 2020.

Derivative Instruments

To manage interest rate risk for certain of our variable-rate debt, we use interest rate derivative instruments as part of our risk management strategy. These derivatives are designed to mitigate the risk of future interest rate increases by either providing a fixed interest rate or capping the variable interest rate for a limited, pre-determined period of time. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for us making fixed-rate payments over the life of the interest rate swap agreements without exchange of the underlying notional amount. Interest rate caps involve the receipt of variable amounts from a counterparty at the end of each period in which the interest rate exceeds the agreed fixed price. Interest rate caps are not designated as hedges. Certain of our variable-rate borrowings are not hedged, and therefore, to an extent, we have ongoing exposure to interest rate movements.

For derivative instruments that are designated and qualify as cash flow hedges, the gain or loss is recorded as a component of accumulated other comprehensive income (loss) (“AOCI”) on the condensed consolidated balance sheets and is reclassified into earnings as interest expense for the same period that the hedged transaction affects earnings, which is when the interest expense is recognized on the related debt. During the next 12 months, we estimate that approximately $10.1 million will be reclassified as an increase to interest expense related to active effective hedges of existing floating-rate debt, and we estimate that approximately $0.1 million will be reclassified as an increase to interest expense related to terminated hedges where the likelihood of the originally hedged interest payments remains probable.

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The following table summarizes the location and fair value of our derivative instruments on our condensed consolidated balance sheets:


	Number of			Fair Value
($ in thousands)	Contracts	Notional Amount			Other Assets	Other Liabilities
As of September 30, 2020
Interest rate swaps	14	$	550,143	$	—	$	29,934
Interest rate caps	1		127,000		—		—
Total derivative instruments	15	$	677,143	$	—	$	29,934
As of December 31, 2019
Interest rate swaps (1)	14	$	601,005	$	288	$	13,308
Interest rate caps	1		146,600		—		—
Total derivative instruments	15	$	747,605	$	288	$	13,308

(1)	Includes four interest rate swaps with a combined notional amount of $200.0 million that became effective in January 2020 and three interest rate swaps with a combined notional of $150.0 million that expired in January 2020.

The following table presents the effect of our derivative instruments on our condensed consolidated financial statements:


	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
(in thousands)	2020		2019		2020		2019
Derivative instruments designated as cash flow hedges:
Loss recognized in AOCI	$	(292)	$	(3,438)	$	(22,022)	$	(16,461)
Amount reclassified from AOCI into interest expense		2,570		(462)		5,148		(1,553)
Gain reclassified from AOCI due to hedged transactions becoming probable of not occurring		—		—		—		(1,374)
Total interest expense presented in the condensed consolidated statements of operations in which the effects of cash flow hedges are recorded		15,290		11,764		42,930		37,074
Derivative instruments not designated as cash flow hedges:
Loss recognized in income	$	(1)	$	—	$	(13)	$	(25)

5. DST PROGRAM

We have a program to raise capital through private placement offerings by selling beneficial interests (the “DST Interests”) in specific Delaware statutory trusts holding real properties (the “DST Program”). During the nine months ended September 30, 2020, we sold approximately $202.3 million in gross interests related to the DST Program and incurred rent obligations of approximately $13.7 million under our master lease agreements with investors who are participating in the DST Program. Additionally, during 2020, 1.5 million OP Units were issued for beneficial interests for a net investment of $11.3 million in accordance with our UPREIT structure.

In order to facilitate additional capital raise through the DST Program, we may offer loans (“DST Program Loans”) to finance a portion of the sale of DST Interests to potential investors. As of September 30, 2020, we have made approximately $42.1 million in DST Program Loans to partially finance the sale of DST Interests in the DST Program. Of the $202.3 million of gross interests sold during the nine months ended September 30, 2020, $22.7 million were financed by DST Program Loans. We include our investments in DST Program Loans separately on our consolidated balance sheets in the “DST Program Loans” line item and we include income earned from DST Program Loans in “other income” on our statements of operations. We do not have a significant credit concentration with any individual purchaser as a result of DST Program Loans.

6. FAIR VALUE

We estimate the fair value of our financial instruments using available market information and valuation methodologies we believe to be appropriate for these purposes. Considerable judgment and a high degree of subjectivity are involved in developing these estimates and, accordingly, they are not necessarily indicative of the amounts that we would realize upon disposition.

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Fair Value Measurements on a Recurring Basis

The following table presents our financial instruments measured at fair value on a recurring basis:


							Total
(in thousands)	Level 1		Level 2		Level 3		Fair Value
As of September 30, 2020
Assets:
Derivative instruments	$	—	$	—	$	—	$	—
Total assets measured at fair value	$	—	$	—	$	—	$	—
Liabilities:
Derivative instruments	$	—	$	29,934	$	—	$	29,934
Total liabilities measured at fair value	$	—	$	29,934	$	—	$	29,934
As of December 31, 2019
Assets:
Derivative instruments	$	—	$	288	$	—	$	288
Total assets measured at fair value	$	—	$	288	$	—	$	288
Liabilities:
Derivative instruments	$	—	$	13,308	$	—	$	13,308
Total liabilities measured at fair value	$	—	$	13,308	$	—	$	13,308

The following methods and assumptions were used to estimate the fair value of each class of financial instrument:

Derivative Instruments. The derivative instruments are interest rate swaps and an interest rate cap whose fair value is estimated using market-standard valuation models. Such models involve using market-based observable inputs, including interest rate curves. We incorporate credit valuation adjustments to appropriately reflect both our nonperformance risk and respective counterparty’s nonperformance risk in the fair value measurements, which we have concluded are not material to the valuation. Due to these derivative instruments being unique and not actively traded, the fair value is classified as Level 2. See “Note 4” above for further discussion of our derivative instruments.

Nonrecurring Fair Value Measurements

As of September 30, 2020 and December 31, 2019, the fair values of cash and cash equivalents, restricted cash, tenant receivables, due from/to affiliates, accounts payable and accrued liabilities, and distributions payable approximate their carrying values because of the short-term nature of these instruments. The table below includes fair values for certain of our financial instruments for which it is practicable to estimate fair value. The carrying values and fair values of these financial instruments were as follows:


	As of September 30, 2020				As of December 31, 2019
	Carrying		Fair		Carrying		Fair
(in thousands)	Value (1)		Value		Value (1)		Value
Assets:
Debt-related investments	$	49,329	$	48,969	$	2,578	$	2,604
DST Program Loans		42,104		42,104		19,404		19,404
Liabilities:
Line of credit	$	—	$	—	$	—	$	—
Term loans		525,000		518,942		525,000		525,000
Mortgage notes		334,877		333,124		327,857		326,447

(1)	The carrying value reflects the principal amount outstanding.

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7. STOCKHOLDERS’ EQUITY

Public Offering

A summary of our public offerings (including shares sold through the primary offering and distribution reinvestment plan (“DRIP”)) for the nine months ended September 30, 2020, is as follows:


(in thousands)	Class T		Class S		Class D		Class I		Class E		Total
Amount of gross proceeds raised:
Primary offering	$	25,769	$	23,400	$	3,800	$	28,963	$	—	$	81,932
DRIP		991		2,650		512		6,030		5,789		15,972
Total offering	$	26,760	$	26,050	$	4,312	$	34,993	$	5,789	$	97,904
Number of shares sold:
Primary offering		3,322		3,083		508		3,869		—		10,782
DRIP		132		353		69		804		776		2,134
Total offering		3,454		3,436		577		4,673		776		12,916

Common Stock

The following table describes the changes in each class of common shares during the periods presented below:


	Class T	Class S	Class D	Class I	Class E	Total
(in thousands)	Shares	Shares	Shares	Shares	Shares	Shares
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2019
Balance as of June 30, 2019	3,902	17,590	3,080	40,498	71,923	136,993
Issuance of common stock:
Primary shares	668	1,932	292	1,658	—	4,550
Distribution reinvestment plan	19	104	20	280	295	718
Share-based compensation	—	—	-	4	—	4
Redemptions of common stock	(25)	(108)	(62)	(351)	(3,124)	(3,670)
Balance as September 30, 2019	4,564	19,518	3,330	42,089	69,094	138,595
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2020
Balance as of June 30, 2020	8,510	21,870	3,783	44,311	63,301	141,775
Issuance of common stock:
Primary shares	602	668	151	709	—	2,130
Distribution reinvestment plan	51	119	23	262	250	705
Share-based compensation	—	—	—	4	—	4
Redemptions of common stock	(22)	(419)	(38)	(856)	(1,471)	(2,806)
Balance as of September 30, 2020	9,141	22,238	3,919	44,430	62,080	141,808
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019
Balance as of December 31, 2018	2,783	10,516	2,778	37,385	77,390	130,852
Issuance of common stock:
Primary shares	2,032	8,870	806	5,132	—	16,840
Distribution reinvestment plan	59	255	59	792	915	2,080
Share-based compensation	—	—	—	86	—	86
Redemptions of common stock	(310)	(123)	(313)	(1,306)	(9,211)	(11,263)
Balance as of September 30, 2019	4,564	19,518	3,330	42,089	69,094	138,595
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020
Balance as of December 31, 2019	5,852	20,593	3,499	43,732	66,804	140,480
Issuance of common stock:
Primary shares	3,322	3,083	508	3,869	—	10,782
Distribution reinvestment plan	132	353	69	804	776	2,134
Share-based compensation	—	—	—	20	—	20
Redemptions of common stock	(165)	(1,791)	(157)	(3,995)	(5,500)	(11,608)
Balance as of September 30, 2020	9,141	22,238	3,919	44,430	62,080	141,808

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Distributions

The following table summarizes our distribution activity (including distributions to noncontrolling interests and distributions reinvested in shares of our common stock) for the periods below:


	Amount
			Common Stock
	Declared per		Distributions		Other Cash			Reinvested in		Total
(in thousands, except per share data)	Common Share (1)		Paid in Cash		Distributions (2)			Shares		Distributions
2020
March 31	$	0.09375	$	7,533	$	1,721		$	5,360	$	14,614
June 30		0.09375		7,539		1,611			5,316		14,466
September 30		0.09375		7,482		1,592			5,282		14,356
Total	$	0.28125	$	22,554	$	4,924		$	15,958	$	43,436
2019
March 31	$	0.09375	$	7,198	$	1,244		$	4,997	$	13,439
June 30		0.09375		7,303		1,312			5,180		13,795
September 30		0.09375		7,302		1,351			5,270		13,923
December 31		0.09375		7,412		1,396	��		5,294		14,102
Total	$	0.37500	$	29,215	$	5,303		$	20,741	$	55,259

(1)	Amount reflects the total quarterly distribution rate, subject to adjustment for class-specific fees.

(2)

Includes other cash distributions consisting of (i) distributions paid to holders of partnership units (“OP Units”) in Black Creek Diversified Property Operating Partnership LP (the “Operating Partnership”); and (ii) ongoing distribution fees paid to Black Creek Capital Markets, LLC (the “Dealer Manager”) with respect to certain classes of our shares. See “Note 8” for further detail regarding the current and historical ongoing distribution fees.

Redemptions and Repurchases

Below is a summary of redemptions and repurchases pursuant to our share redemption program for the nine months ended September 30, 2020 and 2019. Our board of directors may modify, suspend or terminate our current share redemption programs if it deems such action to be in the best interest of our stockholders.


	For the Nine Months Ended September 30,
(in thousands, except for per share data)	2020			2019
Number of shares requested for redemption or repurchase		11,608			11,263
Number of shares redeemed or repurchased		11,608			11,263
% of shares requested that were redeemed or repurchased		100.0	%		100.0	%
Average redemption or repurchase price per share	$	7.50		$	7.35

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8. RELATED PARTY TRANSACTIONS

Summary of Fees and Expenses

The following table summarizes the fees and expenses incurred by us in connection with offering and operation services provided by Black Creek Diversified Property Advisors LLC (the “Advisor”) and its affiliates, and by the Dealer Manager, and any related amounts payable:



	For the Three Months Ended September 30,				For the Nine Months Ended September 30,				Payable as of
(in thousands)	2020		2019		2020		2019		September 30, 2020		December 31, 2019
Upfront selling commissions (1)	$	226	$	449	$	1,216	$	1,556	$	—	$	—
Ongoing distribution fees (1)		515		379		1,482		964		171		147
Advisory fees - fixed component		3,181		3,008		9,597		8,808		891		998
Advisory fees—performance component		1,333		—		3,343		—		3,343		3,776
Other expense reimbursements—Advisor		2,691		2,636		7,271		7,399		1,590		2,240
Other expense reimbursements—Dealer Manager		3		135		213		496		—		—
DST Program advisory fees		1,029		515		3,069		1,079		407		247
DST Program selling commissions (1)		425		588		2,300		1,969		—		—
DST Program dealer manager fees (1)		122		78		744		311		—		—
DST Program other reimbursements—Dealer Manager		42		237		218		609		—		—
DST Program facilitation and loan origination fees		515		815		3,084		2,122		—		—
Total	$	10,082	$	8,840	$	32,537	$	25,313	$	6,402	$	7,408

(1)	All or a portion of these amounts will be retained by, or reallowed (paid) to, participating broker-dealers and servicing broker-dealers.

9. NET INCOME (LOSS) PER COMMON SHARE

The computation of our basic and diluted net income (loss) per share attributable to common stockholders is as follows:



	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(in thousands, except per share data)	2020		2019		2020		2019
Net (loss) income attributable to common stockholders—basic	$	(10,830)	$	7,291	$	(19,827)	$	88,292
Net loss attributable to redeemable OP Units		(39)		—		(71)		—
Net (loss) income attributable to OP Units		(839)		546		(1,515)		6,735
Net (loss) income attributable to common stockholders—diluted	$	(11,708)	$	7,837	$	(21,413)	$	95,027
Weighted-average shares outstanding—basic		141,682		138,063		142,216		135,877
Incremental weighted-average shares effect of conversion of OP Units		11,484		10,360		11,449		10,422
Weighted-average shares outstanding—diluted		153,166		148,423		153,665		146,299
Net (loss) income per share attributable to common stockholders:
Basic	$	(0.08)	$	0.05	$	(0.14)	$	0.65
Diluted	$	(0.08)	$	0.05	$	(0.14)	$	0.65

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10. SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental cash flow information and disclosure of non-cash investing and financing activities is as follows:


	For the Nine Months Ended
	September 30,
(in thousands)	2020		2019
Distributions reinvested in common stock	$	15,972	$	15,310
Change in accrued future ongoing distribution fees		335		5,415
Repayment of property-level loans upon disposition of real estate property		—		83,140
Increase in DST Program Loans receivable through DST Program capital raising		22,700		12,358
Redeemable noncontrolling interest issued as settlement of performance component of the Advisory fee		3,776		—
Redemption value allocation adjustment to redeemable noncontrolling interest		281		—
Mortgage notes assumed on real estate acquisitions at fair value		9,834		—
Issuances of OP Units for DST Interests		11,240		—

Restricted Cash

Restricted cash consists of lender and property-related escrow accounts. The following table presents the components of the beginning of period and end of period cash, cash equivalents and restricted cash reported within the condensed consolidated statements of cash flows:


	For the Nine Months Ended
	September 30,
(in thousands)	2020		2019
Beginning of period:
Cash and cash equivalents	$	97,772	$	10,008
Restricted cash		10,010		7,030
Cash, cash equivalents and restricted cash	$	107,782	$	17,038
End of period:
Cash and cash equivalents	$	16,124	$	26,372
Restricted cash		10,316		10,725
Cash, cash equivalents and restricted cash	$	26,440	$	37,097

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11. SIGNIFICANT RISKS AND UNCERTAINTIES

Significant Risks and Uncertainties

Currently, one of the most significant risks and uncertainties is the adverse effect of the current novel coronavirus (COVID-19) pandemic. A number of our customers previously announced temporary closures of their stores and requested rent deferral or rent abatement during this pandemic. The outbreak has triggered a period of global economic slowdown.

The COVID-19 pandemic could have material and adverse effects on our financial condition, results of operations and cash flows in the near term due to, but not limited to, the following:

●

reduced economic activity severely impacts our customers’ businesses, financial condition and liquidity and may cause customers to be unable to fully meet their obligations to us or to otherwise seek modifications of such obligations, resulting in increases in uncollectible receivables and reductions in rental income;

●

the negative financial impact of the pandemic could impact our future compliance with financial covenants of our credit facility and other debt agreements; and

●

weaker economic conditions could cause us to recognize impairment in value of our tangible or intangible assets.

We are closely monitoring the impact of the COVID-19 pandemic on all aspects of our business, including how it will impact our customers and business partners. While COVID-19 did not have a material effect on our condensed consolidated financial statements, we are unable to predict the impact that the COVID-19 pandemic will have on our future financial condition, results of operations and cash flows due to numerous uncertainties and the impact could be material. The extent to which the COVID-19 pandemic impacts our operations and those of our customers will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others

12. COMMITMENTS AND CONTINGENCIES

During the third quarter of 2020, we recorded an expense of $2.5 million associated with litigation on our condensed consolidated statements of operations and an accrued liability equal to the same amount within the other liabilities section of the condensed consolidated balance sheet as of September 30, 2020.

Environmental Matters

A majority of the properties we acquire are subject to environmental reviews either by us or the previous owners. In addition, we may incur environmental remediation costs associated with certain land parcels we may acquire in connection with the development of the land. We have acquired certain properties in urban and industrial areas that may have been leased to or previously owned by commercial and industrial companies that discharged hazardous materials. We may purchase various environmental insurance policies to mitigate our exposure to environmental liabilities. We are not aware of any environmental liabilities that we believe would have a material adverse effect on our business, financial condition, or results of operations as of September 30, 2020.

13. SEGMENT FINANCIAL INFORMATION

Our four reportable segments are office, retail, multi-family and industrial. Factors used to determine our reportable segments include the physical and economic characteristics of our properties and the related operating activities. Our chief operating decision makers rely on net operating income, among other factors, to make decisions about allocating resources and assessing segment performance. Net operating income is the key performance metric that captures the unique operating characteristics of each segment. Items that are not directly assignable to a segment, such as certain corporate items, are not allocated but reflected as reconciling items.

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The following table reflects our total assets by business segment as of September 30, 2020 and December 31, 2019:


	As of
(in thousands)	September 30, 2020		December 31, 2019
Assets:
Office properties	$	461,993	$	458,583
Retail properties		689,395		652,707
Multi-family properties		287,035		293,498
Industrial properties		338,924		207,844
Corporate		159,399		165,633
Total assets	$	1,936,746	$	1,778,265

The following table sets forth the financial results by segment for the three and nine months ended September 30, 2020 and 2019:


(in thousands)	Office		Retail		Multi-family		Industrial		Consolidated
For the Three Months Ended September 30, 2020
Rental revenues	$	16,237	$	17,310	$	4,351	$	6,231	$	44,129
Rental expenses		(7,748)		(4,535)		(2,282)		(1,316)		(15,881)
Net operating income	$	8,489	$	12,775	$	2,069	$	4,915	$	28,248
Real estate-related depreciation and amortization	$	4,851	$	5,309	$	2,234	$	3,255	$	15,649
For the Three Months Ended September 30, 2019
Rental revenues	$	20,470	$	17,422	$	2,945	$	3,358	$	44,195
Rental expenses		(8,916)		(4,323)		(1,441)		(680)		(15,360)
Net operating income	$	11,554	$	13,099	$	1,504	$	2,678	$	28,835
Real estate-related depreciation and amortization	$	6,281	$	4,547	$	2,008	$	1,637	$	14,473
For the Nine Months Ended September 30, 2020
Rental revenues	$	48,988	$	53,053	$	14,591	$	16,363	$	132,995
Rental expenses		(23,061)		(12,561)		(6,638)		(3,532)		(45,792)
Net operating income	$	25,927	$	40,492	$	7,953	$	12,831	$	87,203
Real estate-related depreciation and amortization	$	14,676	$	14,867	$	6,560	$	8,455	$	44,558
For the Nine Months Ended September 30, 2019
Rental revenues	$	74,383	$	52,938	$	2,945	$	9,385	$	139,651
Rental expenses		(29,174)		(12,986)		(1,441)		(2,044)		(45,645)
Net operating income	$	45,209	$	39,952	$	1,504	$	7,341	$	94,006
Real estate-related depreciation and amortization	$	21,268	$	15,606	$	2,008	$	4,579	$	43,461

We consider net operating income to be an appropriate supplemental performance measure and believe net operating income provides useful information to our investors regarding our financial condition and results of operations because net operating income reflects the operating performance of our properties and excludes certain items that are not considered to be controllable in connection with the management of the properties, such as real estate-related depreciation and amortization, general and administrative expenses, advisory fees, impairment charges, interest expense, gains on sale of properties, other income and expense, gains and losses on the extinguishment of debt and noncontrolling interests. However, net operating income should not be viewed as an alternative measure of our financial performance since it excludes such items, which could materially impact our results of operations. Further, our net operating income may not be comparable to that of other real estate companies, as they may use different methodologies for calculating net operating income. Therefore, we believe net income, as defined by GAAP, to be the most appropriate measure to evaluate our overall financial performance.

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The following table is a reconciliation of our reported net income (loss) attributable to common stockholders to our net operating income for the three and nine months ended September 30, 2020 and 2019:


	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
(in thousands)	2020		2019		2020		2019
Net (loss) income attributable to common stockholders	$	(10,830)	$	7,291	$	(19,827)	$	88,292
Debt-related income		(981)		(35)		(1,181)		(193)
Real estate-related depreciation and amortization		15,649		14,473		44,558		43,461
General and administrative expenses		2,217		2,181		6,611		6,325
Advisory fees, related party		5,543		3,523		16,009		9,887
Litigation expense		2,500		—		2,500		—
Impairment of real estate property		—		113		—		113
Other income		(262)		(131)		(619)		(156)
Interest expense		15,290		11,764		42,930		37,074
Gain on sale of real estate property		—		(10,890)		(2,192)		(96,530)
Gain on extinguishment of debt and financing commitments, net		—		—		—		(1,002)
Net loss attributable to redeemable noncontrolling interests		(39)		—		(71)		—
Net (loss) income attributable to noncontrolling interests		(839)		546		(1,515)		6,735
Net operating income	$	28,248	$	28,835	$	87,203	$	94,006

14. SUBSEQUENT EVENTS

Acquisitions of Real Property

Subsequent to September 30, 2020 we acquired (excluding properties related to our DST Program) one industrial property located in Louisville, Kentucky, and one multi-family property located in Davie, Florida for a total aggregate purchase price of approximately $97.7 million.

Disposition of Real Property

On October 20, 2020, we sold to an unrelated third party a retail property located in Mansfield, Massachusetts (“Mansfield”) for a gross sale price of approximately $25.0 million. Our accounting basis (net of accumulated depreciation and amortization) for this real estate property as of the closing date was approximately $15.2 million.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

References to the terms “we,” “our,” or “us” refer to Black Creek Diversified Property Fund Inc. and its consolidated subsidiaries. The following discussion and analysis should be read together with our unaudited condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes certain statements that may be deemed to be “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the “Securities Act,” and Section 21E of the Securities Exchange Act of 1934, as amended, or the “Exchange Act.” Such forward-looking statements relate to, without limitation, our future capital expenditures, distributions, acquisitions and dispositions (including the amount and nature thereof), other developments and trends of the real estate industry, business strategies, and the expansion and growth of our operations. These statements are based on certain assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions, expected future developments and other factors we believe are appropriate. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act and Section 21E of the Exchange Act. Such statements are subject to a number of assumptions, risks and uncertainties which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by these forward-looking statements. Forward-looking statements are generally identifiable by the use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” “project,” “continue,” or the negative of these words, or other similar words or terms. Readers are cautioned not to place undue reliance on these forward-looking statements.

Some of the risks and uncertainties that may cause our actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the following:

●

the impact of macroeconomic trends, such as the unemployment rate, availability of credit, and the COVID-19 pandemic, which may have a negative effect on the following, among other things:

●

the fundamentals of our business, including overall market occupancy, customer space utilization, and rental rates;

●

the financial condition of our customers, some of which are retail, financial, legal and other professional firms, our lenders, and institutions that hold our cash balances and short-term investments, which may expose us to increased risks of breach or default by these parties;

●

customers’ ability to pay rent on their leases or our ability to re-lease space that is or becomes vacant; and

●

the value of our real estate assets, which may limit our ability to dispose of assets at attractive prices or obtain or maintain debt financing secured by our properties or on an unsecured basis;

●

general risks affecting the real estate industry (including, without limitation, the inability to enter into or renew leases, dependence on customers’ financial condition, and competition from other developers, owners and operators of real estate);

●

our ability to effectively raise and deploy proceeds from our ongoing public offerings;

●

risks associated with the demand for liquidity under our share redemption program and our ability to meet such demand;

●

risks associated with the availability and terms of debt and equity financing and the use of debt to fund acquisitions and developments, including the risk associated with interest rates impacting the cost and/or availability of financing;

●

the business opportunities that may be presented to and pursued by us, changes in laws or regulations (including changes to laws governing the taxation of real estate investment trusts (“REITs”));

●

conflicts of interest arising out of our relationships with Black Creek Diversified Property Advisors Group LLC (the “Sponsor”), the Advisor, and their affiliates;

●

changes in accounting principles, policies and guidelines applicable to REITs;

●

environmental, regulatory and/or safety requirements; and

●

the availability and cost of comprehensive insurance, including coverage for terrorist acts.

For further discussion of these and other factors, see Part I, Item 1A, “Risk Factors” in our 2019 Form 10-K, as supplemented by our Quarterly Reports on Form 10-Q. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of future events, new information or otherwise.

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OVERVIEW

General

Black Creek Diversified Property Fund Inc. is a NAV-based perpetual life REIT that was formed on April 11, 2005, as a Maryland corporation. We are primarily focused on investing in and operating a diverse portfolio of real property. As of September 30, 2020, our real property portfolio consisted of 53 properties, which includes 10 properties that are part of the DST Program (as defined below), totaling approximately 10.3 million square feet located in 22 markets throughout the U.S.

We have operated and elected to be treated as a REIT for U.S. federal income tax purposes, commencing with the taxable year ended December 31, 2006, and we intend to continue to operate in accordance with the requirements for qualification as a REIT. We utilize an Umbrella Partnership Real Estate Investment Trust (“UPREIT”) organizational structure to hold all or substantially all of our assets through the Operating Partnership.

As a NAV-based perpetual life REIT, we intend to conduct ongoing public primary offerings of our common stock on a perpetual basis. We also intend to conduct an ongoing distribution reinvestment plan offering for our stockholders to reinvest distributions in our shares. From time to time, we intend to file new registration statements on Form S-11 with the SEC to register additional shares of common stock so that we may continuously offer shares of common stock pursuant to Rule 415 under the Securities Act. During the nine months ended September 30, 2020, we raised $81.9 million of gross proceeds from the sale of common stock in our ongoing public primary offerings and $16.0 million from the sale of common stock under our distribution reinvestment plan. See “Note 7 to the Condensed Consolidated Financial Statements” for more information about our public offerings.

Additionally, we have a program to raise capital through private placement offerings by selling beneficial interests in specific Delaware statutory trusts holding real properties (the “DST Program”). These private placement offerings are exempt from registration requirements pursuant to Section 4(a)(2) of the Securities Act. We anticipate that these interests may serve as replacement properties for investors seeking to complete like-kind exchange transactions under Section 1031 of the Code. Similar to our prior private placement offerings, we expect that the DST Program will give us the opportunity to expand and diversify our capital raise strategies by offering what we believe to be an attractive and unique investment product for investors that may be seeking replacement properties to complete like-kind exchange transactions under Section 1031 of the Code. During the nine months ended September 30, 2020, we sold $202.3 million of gross interests related to the DST Program, $22.7 million of which were financed by DST Program Loans. See “Note 4 to the Condensed Consolidated Financial Statements” for additional detail regarding the DST Program.

We currently operate in four reportable segments: office, retail, multi-family and industrial. The following table summarizes our real property portfolio by segment as of September 30, 2020:


						Average
				% of Total		Effective Annual						% of
($ and square feet in thousands,	Number of	Number of	Rentable	Rentable		Base Rent per		%		Aggregate		Aggregate
except for per square foot data)	Markets (1)	Properties	Square Feet	Square Feet		Square Foot (2)		Leased		Fair Value		Fair Value
Office properties	8	9	2,082	20.1	%	$	32.12	81.1	%	$	749,850	31.6	%
Retail properties	8	27	3,125	30.2			18.80	93.5			928,400	39.2
Multi-family properties	3	3	886	8.6			24.35	88.8			308,400	13.0
Industrial properties	12	14	4,247	41.1			4.86	98.2			382,800	16.2
Total real property portfolio	22	53	10,340	100.0	%	$	15.33	92.5	%	$	2,369,450	100.0	%

(1)	Reflects the number of unique markets by segment and in total. As such, the total number of markets does not equal the sum of the number of markets by segment as certain segments are located in the same market.

(2)	Amount calculated as total annualized base rent, which includes the impact of any contractual tenant concessions (cash basis) per the terms of the lease, divided by total lease square footage as of September 30, 2020.

We will continue to focus our investment activities on expanding a high-quality, diversified real property portfolio throughout the U.S. Although we generally target investments in four primary property categories (office, retail, multi-family and industrial), our charter and bylaws do not preclude us from investing in other types of commercial property, real estate debt, or real estate-related equity securities. Our near-term investment strategy is likely to prioritize new investments in the industrial and multi-family sectors due to relatively attractive fundamental conditions. In 2019, we were focused on selling certain office and retail assets. The disposition of these properties has helped us to increase our current allocation to multi-family and industrial real estate assets and liquidity to pursue new investment opportunities. However, there can be no assurance that we will be successful in our investment strategy, including with respect to any particular asset class. We also intend to continue to hold an allocation of properties in the office and retail sectors, the latter of which is largely grocery-anchored. To a lesser extent we may invest in other types of real estate including, but not limited to, hospitality, medical offices, manufactured housing, student housing and unimproved land, however we have no investments in

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these sectors currently. Additionally, to provide diversification to our portfolio, we may continue to invest in real estate-related debt, which will generally include mortgage loans secured by real estate, mezzanine debt, loans associated with our DST Program and other related investments. While we are not currently investing in real estate-related securities, should we decide to invest in real estate-related securities, any such investments generally will focus on debt or equity issued by public and private real estate companies and certain other securities, with the primary goal of such investments being preservation of liquidity in support of our share redemption program, while also seeking income, potential for capital appreciation and further portfolio diversification.

Net Asset Value

Our board of directors, including a majority of our independent directors, has adopted valuation procedures, as amended from time to time, that contain a comprehensive set of methodologies to be used in connection with the calculation of our NAV. With the approval of our board of directors, including a majority of our independent directors, we have engaged Altus Group U.S., Inc., a third-party valuation firm, to serve as our independent valuation advisor (‘‘Altus Group’’ or the “Independent Valuation Advisor”) with respect to providing monthly real property appraisals, reviewing annual third-party real property appraisals, reviewing the internal valuations of debt-related assets and liabilities performed by our Advisor, helping us administer the valuation process for the real properties in our portfolio, and assisting in the development and review of our valuation procedures. As part of this process, our Advisor reviews the estimates of the values of our real property portfolio, real estate-related assets, and other assets and liabilities within our portfolio for consistency with our valuation guidelines and the overall reasonableness of the valuation conclusions, and informs our board of directors of its conclusions. Although the Independent Valuation Advisor or other pricing sources may consider any comments received from us or our Advisor or other valuation sources for their individual valuations, the final estimated fair values of our real property assets are determined by the Independent Valuation Advisor and real estate-related assets and other assets and liabilities are determined by the applicable pricing source. With respect to the valuation of our real property assets, the Independent Valuation Advisor provides our board of directors with periodic valuation reports and is available to meet with our board of directors to review valuation information, as well as our valuation guidelines and the operation and results of the valuation process generally. All parties engaged by us in connection with the calculation of our NAV, including Altus Group, ALPS Fund Services Inc. (“ALPS”) and our Advisor, are subject to the oversight of our board of directors. Our board of directors has the right to engage additional valuation firms and pricing sources to review the valuation process or valuations, if deemed appropriate. At least once each calendar year our board of directors, including a majority of our independent directors, reviews the appropriateness of our valuation procedures with input from the Independent Valuation Advisor. From time to time our board of directors, including a majority of our independent directors, may adopt changes to the valuation procedures if it: (1) determines that such changes are likely to result in a more accurate reflection of NAV or a more efficient or less costly procedure for the determination of NAV without having a material adverse effect on the accuracy of such determination; or (2) otherwise reasonably believes a change is appropriate for the determination of NAV. We will publicly announce material changes to our valuation procedures or the identity or role of the Independent Valuation Advisor or ALPS. See Exhibit 4.4 of this Quarterly Report on Form 10-Q for a more detailed description of our valuation procedures, including important disclosures regarding real property valuations provided by the Independent Valuation Advisor.

Our valuation procedures, which address specifically each category of our assets and liabilities and are applied separately from the preparation of our financial statements in accordance with GAAP, involve adjustments from historical cost. There are certain factors which cause NAV to be different from net book value on a GAAP basis. Most significantly, the valuation of our real estate assets, which is the largest component of our NAV calculation, is provided to us by the Independent Valuation Advisor on a monthly basis. For GAAP purposes, these assets are generally recorded at depreciated or amortized cost. Other examples that will cause our NAV to differ from our GAAP net book value include the straight-lining of rent, which results in a receivable for GAAP purposes that is not included in the determination of our NAV. Third-party appraisers may value our individual real estate assets using appraisal standards that deviate from fair value standards under GAAP. The use of such appraisal standards may cause our NAV to deviate from GAAP fair value principles. We did not develop our valuation procedures with the intention of complying with fair value concepts under GAAP and, therefore, there could be differences between our fair values and the fair values derived from the principal market or most advantageous market concepts of establishing fair value under GAAP.

As used below, “Fund Interests” means our outstanding shares of common stock, along with the partnership units in our operating partnership (“OP Units”), which may be held directly or indirectly by the Advisor, the Sponsor, and third parties, and “Aggregate Fund NAV” means the NAV of all of the Fund Interests.

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The following table sets forth the components of Aggregate Fund NAV as of September 30, 2020 and December 31, 2019:


	As of
(in thousands)	September 30, 2020		December 31, 2019
Investments in office properties	$	749,850	$	727,450
Investments in retail properties		928,400		866,400
Investments in multi-family properties		308,400		301,850
Investments in industrial properties		382,800		234,450
Total investment in real estate properties		2,369,450		2,130,150
Debt-related investments		48,969		2,603
DST Program Loans		42,104		19,404
Total investments		2,460,523		2,152,157
Cash and cash equivalents		16,124		97,280
Restricted cash		10,316		10,010
Other assets		29,578		28,049
Line of credit, term loans and mortgage notes		(859,877)		(852,857)
Financing obligations associated with our DST Program		(450,128)		(262,692)
Other liabilities		(48,442)		(37,130)
Accrued performance-based fee		(3,343)		(3,776)
Accrued advisory fees		(1,470)		(1,256)
Aggregate Fund NAV	$	1,153,281	$	1,129,785
Total Fund Interests outstanding		153,292		150,766

The following table sets forth the NAV per Fund Interest as of September 30, 2020:


			Class T		Class S		Class D		Class I		Class E		OP
(in thousands, except per Fund Interest data)	Total		Shares		Shares		Shares		Shares		Shares		Units
Monthly NAV	$	1,153,281	$	68,775	$	167,303	$	29,487	$	334,263	$	467,055	$	86,398
Fund Interests outstanding		153,292		9,141		22,238		3,919		44,430		62,080		11,484
NAV Per Fund Interest	$	7.52	$	7.52	$	7.52	$	7.52	$	7.52	$	7.52	$	7.52

The fair value of our assets and certain liabilities are calculated for the purposes of determining our NAV per share using widely accepted methodologies and, as appropriate, the GAAP principles within the FASB Accounting Standards Codification under Topic 820, Fair Value Measurements and Disclosures (“ASC Topic 820”). However, our valuation procedures and our NAV are not subject to GAAP and will not be subject to independent audit.

Under GAAP, we record liabilities for ongoing distribution fees that (i) we currently owe the Dealer Manager under the terms of our Dealer Manager agreement and (ii) we estimate we may pay to the Dealer Manager in future periods for shares of our common stock. As of September 30, 2020, we estimated approximately $14.8 million of ongoing distribution fees were potentially payable to the Dealer Manager. We do not deduct the liability for estimated future distribution fees in our calculation of NAV since we intend for our NAV to reflect our estimated value on the date that we determine our NAV. Accordingly, our estimated NAV at any given time does not include consideration of any estimated future distribution fees that may become payable after such date.

We include no discounts to our NAV for the illiquid nature of our shares, including the limitations on our stockholders’ ability to redeem shares under our share redemption program and our ability to suspend or terminate our share redemption program at any time. Our NAV generally does not consider exit costs (e.g. selling costs and commissions related to the sale of a property) that would likely be incurred if our assets and liabilities were liquidated or sold today. While we may use market pricing concepts to value individual components of our NAV, our per share NAV is not derived from the market pricing information of open-end real estate funds listed on stock exchanges.

Our NAV is not a representation, warranty or guarantee that: (i) we would fully realize our NAV upon a sale of our assets; (ii) shares of our common stock would trade at our per share NAV on a national securities exchange; and (iii) a stockholder would be able to realize the per share NAV if such stockholder attempted to sell his or her shares to a third party.

The valuations of our real property as of September 30, 2020 were provided by the Independent Valuation Advisor in accordance with our valuation procedures. The aggregate real property valuation of $2.37 billion compares to a GAAP basis of real properties (net of intangible lease liabilities and before accumulated amortization and depreciation) of $2.19 billion, representing an increase of

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approximately $180.0 million, or 8.2%. Certain key assumptions that were used by the Independent Valuation Advisor in the discounted cash flow analysis are set forth in the following table based on weighted-averages by property type.


									Weighted-
	Office		Retail		Multi-family		Industrial		Average Basis
Exit capitalization rate	6.31	%	6.26	%	5.40	%	5.68	%	6.07	%
Discount rate / internal rate of return	6.97	%	6.75	%	6.31	%	6.47	%	6.72	%
Average holding period (years)	10.0		10.0		10.0		10.0		10.0

A change in the exit capitalization and discount rates used would impact the calculation of the value of our real properties. For example, assuming all other factors remain constant, the changes listed below would result in the following effects on the value of our real properties:


	Hypothetical									Weighted-
Input	Change	Office		Retail		Multi-family		Industrial		Average Values
Exit capitalization rate (weighted-average)	0.25% decrease	3.00	%	2.51	%	3.02	%	3.09	%	2.83	%
	0.25% increase	(2.77)	%	(2.32)	%	(2.75)	%	(2.82)	%	(2.60)	%
Discount rate (weighted-average)	0.25% decrease	2.11	%	1.92	%	1.96	%	1.99	%	1.99	%
	0.25% increase	(2.06)	%	(1.87)	%	(1.91)	%	(1.94)	%	(1.95)	%

From September 30, 2017 through November 30, 2019, we valued our debt-related investments and real estate-related liabilities generally in accordance with fair value standards under GAAP. Beginning with our valuation for December 31, 2019, our property-level mortgages and corporate-level credit facilities that are intended to be held to maturity (which for fixed rate debt not subject to interest rate hedges may be the date near maturity at which time the debt will be eligible for prepayment at par for purposes herein), including those subject to interest rates hedges, were valued at par (i.e. at their respective outstanding balances). In addition, because we often utilize interest rate hedges to stabilize interest payments (i.e. to fix all-in interest rates through interest rate swaps or to limit interest rate exposure through interest rate caps) on individual loans, each loan and associated interest rate hedge is treated as one financial instrument which is valued at par if intended to be held to maturity. This policy of valuing at par applies regardless of whether any given interest rate hedge is considered as an asset or liability for GAAP purposes. We currently estimate the fair value of our debt (inclusive of associated interest rate hedges) that was intended to be held to maturity as of September 30, 2020 was $22.1 million higher than par for such debt in aggregate, meaning that if we used the fair value of our debt rather than par (and treated the associated hedge as part of the same financial instrument), our NAV would be lower by approximately $22.1 million, or $0.14 per share, as of September 30, 2020. As of September 30, 2020, we classified all of our debt as intended to be held to maturity.

Performance

Our NAV increased from $7.49 per share as of December 31, 2019 to $7.52 per share as of September 30, 2020. The increase in NAV was primarily driven by performance of our real property portfolio, including one retail outparcel disposition for net proceeds of approximately $2.8 million, which resulted in an increase to NAV, as well as the acquisition of over $221 million of investments, primarily in the industrial sector, which have been accretive to portfolio returns. Also included within these returns are numerous valuation adjustments that were made since the onset of COVID-19 within the U.S. to account for lower than normal rent collections due to COVID-19, many of which have been deferred until 2021, as well as reduced rent growth and/or delayed lease-up assumptions for certain of our real properties.

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Effective December 31, 2019, our board of directors approved amendments to our valuation procedures which revised the way we value property-level mortgages, corporate-level credit facilities and associated interest rate hedges when loans, including associated interest rate hedges, are intended to be held to maturity, effectively eliminating all mark-to-market adjustments for such loans and hedges from the calculation of our NAV. The following table summarizes the impact of interest rate movements on our Class I share return assuming we continued to include the mark-to-market adjustments for all borrowing-related interest rate hedge and debt instruments beginning with the December 31, 2019 NAV:


					One-Year						Since NAV
	Trailing				(Trailing		Three-Year		Five-Year		Inception
(as of September 30, 2020) (1)	Three-Months		Year-to-Date		12-Months)		Annualized		Annualized		Annualized (2)
Class T Share Total Return (with upfront selling commissions and dealer manager fees) (3)	(2.11)	%	0.06	%	3.07	%	3.39	%	3.73	%	5.28	%
Adjusted Class T Share Total Return (with upfront selling commissions and dealer manager fees) (continued inclusion of mark-to-market adjustments for borrowing-related interest rate hedge and debt instruments) (4)	(1.90)	%	(0.49)	%	1.72	%	2.94	%	3.46	%	5.10	%
Difference	(0.21)	%	0.55	%	1.35	%	0.45	%	0.27	%	0.18	%

Class T Share Total Return (without upfront selling commissions and dealer manager fees) (3)	1.32	%	3.56	%	6.68	%	4.58	%	4.37	%	5.67	%
Adjusted Class T Share Total Return (without upfront selling commissions and dealer manager fees) (continued inclusion of mark-to-market adjustments for borrowing-related interest rate hedge and debt instruments) (4)	1.53	%	2.99	%	5.28	%	4.13	%	4.09	%	5.49	%
Difference	(0.21)	%	0.57	%	1.40	%	0.45	%	0.28	%	0.18	%

Class S Share Total Return (with upfront selling commissions and dealer manager fees) (3)	(2.11)	%	0.06	%	3.07	%	3.39	%	3.73	%	5.28	%
Adjusted Class S Share Total Return (with upfront selling commissions and dealer manager fees) (continued inclusion of mark-to-market adjustments for borrowing-related interest rate hedge and debt instruments) (4)	(1.90)	%	(0.49)	%	1.72	%	2.94	%	3.46	%	5.10	%
Difference	(0.21)	%	0.55	%	1.35	%	0.45	%	0.27	%	0.18	%

Class S Share Total Return (without upfront selling commissions and dealer manager fees) (3)	1.32	%	3.56	%	6.68	%	4.58	%	4.37	%	5.67	%
Adjusted Class S Share Total Return (without upfront selling commissions and dealer manager fees) (continued inclusion of mark-to-market adjustments for borrowing-related interest rate hedge and debt instruments) (4)	1.53	%	2.99	%	5.28	%	4.13	%	4.09	%	5.49	%
Difference	(0.21)	%	0.57	%	1.40	%	0.45	%	0.28	%	0.18	%

Class D Share Total Return (3)	1.47	%	4.02	%	7.32	%	5.21	%	4.95	%	6.23	%
Adjusted Class D Share Total Return (continued inclusion of mark-to-market adjustments for borrowing-related interest rate hedge and debt instruments) (4)	1.68	%	3.46	%	5.91	%	4.75	%	4.68	%	6.05	%
Difference	(0.21)	%	0.56	%	1.41	%	0.46	%	0.27	%	0.18	%

Class I Share Total Return (3)	1.54	%	4.22	%	7.58	%	5.47	%	5.31	%	6.66	%
Adjusted Class I Share Total Return (continued inclusion of mark-to-market adjustments for borrowing-related interest rate hedge and debt instruments) (4)	1.75	%	3.65	%	6.18	%	5.01	%	5.04	%	6.48	%
Difference	(0.21)	%	0.57	%	1.40	%	0.46	%	0.27	%	0.18	%

Class E Share Return Total Return (3)	1.54	%	4.22	%	7.58	%	5.47	%	5.35	%	6.72	%
Adjusted Class E Share Total Return (continued inclusion of mark-to-market adjustments for borrowing-related interest rate hedge and debt instruments) (4)	1.75	%	3.65	%	6.18	%	5.01	%	5.08	%	6.54	%
Difference	(0.21)	%	0.57	%	1.40	%	0.46	%	0.27	%	0.18	%

(1)

Performance is measured by total return, which includes income and appreciation (i.e., distributions and changes in NAV) and is a compound rate of return that assumes reinvestment of all distributions for the respective time period, and excludes upfront selling commissions and dealer manager fees paid by investors, except for returns noted “with upfront selling commissions and dealer

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manager fees” (“Total Return”). Past performance is not a guarantee of future results. Current performance may be higher or lower than the performance data quoted.

(2)	NAV inception was September 30, 2012, which is when we first sold shares of our common stock after converting to an NAV-based REIT on July 12, 2012. Investors in our fixed price offerings prior to NAV inception on September 30, 2012 are likely to have a lower return.

(3)

The Total Returns presented are based on actual NAVs at which shareholders transacted, calculated pursuant to our valuation procedures. From NAV inception to November 30, 2019, these NAVs reflected mark-to-market adjustments on our borrowing-related interest rate hedge positions; and from September 1, 2017 to November 30, 2019, these NAVs also reflected mark-to-market adjustments on our borrowing-related debt instruments. Prior to September 1, 2017, our valuation policies dictated marking borrowing-related debt instruments to par except in certain circumstances; therefore, we did not formally track mark-to-market adjustments on our borrowing-related debt instruments during such time.

(4)

The Adjusted Total Returns presented are based on adjusted NAVs calculated as if we had continued to mark our hedge and debt instruments to market following a policy change to largely exclude borrowing-related interest rate hedge and debt marks to market from our NAV calculations (except in certain circumstances pursuant to our valuation procedures), beginning with our NAV calculated as of December 31, 2019 NAV. Therefore, the NAVs used in the calculation are identical to those presented per Note (3) above from NAV inception through November 30, 2019. The adjusted NAVs include the incremental impacts to advisory fees and performance fees; however, the adjusted NAVs are not assumed to have impacted any share purchase or redemption. For calculation purposes, transactions were assumed to occur at the adjusted NAVs.

Impacts of COVID-19

With respect to COVID-19, we are continuing to assess impacts to our portfolio and commercial real estate more broadly. Our properties have not experienced the same level of stress and valuation declines seen within harder hit sectors in which we are not invested such as hospitality, gaming, student housing, senior housing or shopping malls, nor do we have any investments in real estate securities which have experienced significant volatility. Where appropriate, we have restructured leases and may restructure additional leases to provide temporary rent relief needed by certain customers while positioning ourselves to recapture abated rent over time. This, coupled with various government stimulus efforts designed to help smaller businesses in this environment, should help us recover a significant portion of near-term deferred rent. We can provide no assurances that we will be able to continue to collect rent at the same level that we did prior to the pandemic. Furthermore, we can provide no assurances that we will be able to recover unpaid rent.

Since mid-March, our Independent Valuation Advisor has made certain factual and market based COVID-19 related adjustments to the property valuations of our portfolio, which are reflected in our NAV. Altus Group, our Independent Valuation Advisor, is responsible for overseeing the valuation of over $500 billion of institutional real estate throughout the U.S. We believe these COVID-19 related adjustments such as rent deferment, lengthened lease-up assumptions, reduced market rent growth rates and increased credit loss projections are consistent with the current risk to our portfolio as a result of impacts of COVID-19. Despite dramatic shifts in the economy and certain COVID-19 related impacts to our portfolio, our NAV as of September 30, 2020 is $7.52 per share, up from $7.49 per share as of December 31, 2019.

We remain an active buyer of institutional quality, income-producing and defensive real estate, particularly within the industrial and multifamily sectors which we believe should provide increased appreciation potential for the fund over time and complement our retail and office investment allocations that provide for higher income potential. Accordingly, in the third quarter we acquired a newly constructed, class A industrial building located in the San Francisco Bay Area for $48.5 million, increasing our industrial allocation from 11.0% as of December 31, 2019 to 16.2% as of September 30, 2020.

Q3 rent collections for our industrial and multi-family properties to date are 99.0% and 98.5%, respectively. Rent collections for office have also been strong at 98.8% driven by the relatively long-term nature of our office leases and strong operating history of our customers. To date, Q3 rent collections for retail are 95.6%, largely due to rent deferral agreements that we executed with certain otherwise successful customers which require abated rent to be repaid over 2021. As previously mentioned, we have restructured certain leases and may restructure additional leases to provide temporary rent relief needed by certain customers. We have executed forbearance agreements with approximately 1.5% of our customers (based on third quarter gross rent). After accounting for such agreements, we received or deferred 99.1% of our rent originally payable for the third quarter of 2020, and 97.2% of our contractual rent for October as of November 4, 2020. In addition, with less than 10% of our total portfolio rent coming from non-essential retail customers, our sector diversification and balance sheet strength have positioned us well to weather these short-term cash flow disruptions. We are pleased to report that all of our retail customers were open for business as of the end of Q3 and we are encouraged by the increases in visitor traffic at our retail centers that we have seen over the past six months since our COVID-19 shutdown low in mid-April, even with the recent surge of new COVID-19 cases. In addition, while the market is seeing a rise in retailer bankruptcies,

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we are pleased to report that less than 0.39% of our total portfolio rent payable is associated with customers who have filed for bankruptcy.

RESULTS OF OPERATIONS

Summary of 2020 Activities

During the nine months ended September 30, 2020, we completed the following activities:

●

We acquired five industrial properties comprising 1.3 million square feet for an aggregate contractual purchase price of approximately $135.5 million. Additionally, we acquired one retail property comprising 0.2 million square feet for an aggregate contractual purchase price of approximately $41.6 million and we purchased a senior mortgage loan debt investment for $44.7 million.

●

We sold one retail outparcel for net proceeds of approximately $2.8 million. We recorded a net gain on sale of approximately $2.2 million.

●

We leased approximately 795,000 square feet, which included 131,000 square feet of new leases and 664,000 square feet of renewals. We are currently 92.5% leased as of September 30, 2020, as compared to 93.6% as of December 31, 2019.

●

We decreased our leverage ratio from 40.0% as of December 31, 2019, to 35.6% as of September 30, 2020. Our leverage ratio for reporting purposes is calculated as the outstanding principal balance of our borrowings divided by the fair value of our real property and debt-related investments (determined in accordance with our valuation procedures). By calculating the leverage ratio net of cash and cash equivalents (outstanding principal balance of our borrowings less cash and cash equivalents, divided by the fair value of our real property and debt-related investments not associated with the DST Program (determined in accordance with our valuation procedures)) our leverage ratio decreased from 35.4% as of December 31, 2019, to 34.9% as of September 30, 2020.

●

We raised $81.9 million of gross proceeds from the sale of common stock in our ongoing public primary offerings and $16.0 million from the sale of common stock under our distribution reinvestment plan. Additionally, we raised $202.3 million of gross capital through private placement offerings by selling DST Interests, which excludes $22.7 million of DST Program Loans.

●

We redeemed 11.6 million shares of common stock at a weighted-average purchase price of $7.50 per share for an aggregate amount of $87.1 million.

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Results for the Three and Nine Months Ended September 30, 2020 Compared to the Same Periods in 2019

The following table summarizes our results of operations for the three and nine months ended September 30, 2020, as compared to the same periods in 2019. We evaluate the performance of consolidated operating properties we own and manage using a same store analysis because the population of properties in this analysis is consistent from period to period, thereby eliminating the effects of any material changes in the composition of the aggregate portfolio on performance measures. We have defined the same store portfolio to include consolidated operating properties owned for the entirety of both the current and prior reporting periods for which the operations had been stabilized. Other operating properties not meeting the same store criteria are reflected in the non-same store portfolio. The same store operating portfolio for the three-month periods presented below includes 42 properties totaling 7.1 million square feet owned as of July 1, 2019, which portfolio represented 68.4% of total rentable square feet as of September 30, 2020. The same store operating portfolio for the nine-month periods presented below includes 40 properties totaling approximately 6.6 million square feet owned as of January 1, 2019, which portfolio represented 63.9% of total rentable square feet as of September 30, 2020.


	For the Three Months Ended										For the Nine Months Ended
	September 30,						Change				September 30,						Change
($ in thousands, except per square foot data)	2020			2019			$		%		2020			2019			$		%
Rental revenues:
Same store properties	$	36,113		$	37,657		$	(1,544)	(4.1)	%	$	107,766		$	112,434		$	(4,668)	(4.2)	%
Non-same store properties		8,016			6,538			1,478	22.6			25,229			27,217			(1,988)	(7.3)
Total rental revenues		44,129			44,195			(66)	(0.1)			132,995			139,651			(6,656)	(4.8)
Rental expenses:
Same store properties		(12,768)			(12,477)			(291)	(2.3)			(36,501)			(36,852)			351	1.0
Non-same store properties		(3,113)			(2,883)			(230)	(8.0)			(9,291)			(8,793)			(498)	(5.7)
Total rental expenses		(15,881)			(15,360)			(521)	(3.4)			(45,792)			(45,645)			(147)	(0.3)
Net operating income:
Same store properties		23,345			25,180			(1,835)	(7.3)			71,265			75,582			(4,317)	(5.7)
Non-same store properties		4,903			3,655			1,248	34.1			15,938			18,424			(2,486)	(13.5)
Total net operating income		28,248			28,835			(587)	(2.0)			87,203			94,006			(6,803)	(7.2)
Other income and (expenses):
Debt-related income		981			35			946	NM			1,181			193			988	NM
Real estate-related depreciation and amortization		(15,649)			(14,473)			(1,176)	(8.1)			(44,558)			(43,461)			(1,097)	(2.5)
General and administrative expenses		(2,217)			(2,181)			(36)	(1.7)			(6,611)			(6,325)			(286)	(4.5)
Advisory fees, related party		(5,543)			(3,523)			(2,020)	(57.3)			(16,009)			(9,887)			(6,122)	(61.9)
Litigation expense		(2,500)			—			(2,500)	—			(2,500)			—			(2,500)	—
Impairment of real estate property		—			(113)			113	100.0			—			(113)			113	100.0
Interest expense		(15,290)			(11,764)			(3,526)	(30.0)			(42,930)			(37,074)			(5,856)	(15.8)
Gain on sale of real estate property		—			10,890			(10,890)	(100.0)			2,192			96,530			(94,338)	(97.7)
Gain on extinguishment of debt and financing commitments, net		—			—			—	—			—			1,002			(1,002)	(100.0)
Other income		262			131			131	100.0			619			156			463	NM
Total other (expenses) income		(39,956)			(20,998)			(18,958)	(90.3)			(108,616)			1,021			(109,637)	NM
Net (loss) income		(11,708)			7,837			(19,545)	NM			(21,413)			95,027			(116,440)	NM
Net loss attributable to redeemable noncontrolling interests		39			—			39	—			71			—			71	—
Net loss (income) attributable to noncontrolling interests		839			(546)			1,385	NM			1,515			(6,735)			8,250	NM
Net (loss) income attributable to common stockholders	$	(10,830)		$	7,291		$	(18,121)	NM		$	(19,827)		$	88,292		$	(108,119)	NM
Same store supplemental data:
Same store average percentage leased		92.1	%		92.6	%						91.9	%		91.8	%
Same store average annualized base rent per square foot	$	16.97		$	17.35						$	18.09		$	18.47

NM = Not meaningful

Rental Revenues. Rental revenues are comprised of rental income, straight-line rent, and amortization of above- and below-market lease assets and liabilities. Total rental revenues decreased by $0.1 million and $6.7 million, respectively, for the three and nine months ended September 30, 2020, as compared to the same periods in 2019. For the three and nine months ended September 30, 2020, same store revenues decreased $1.5 million and $4.7 million, respectively, as compared to the same periods in 2019, primarily driven by reduced occupancy at our 1300 Connecticut office property and at our Durgin retail property, as well as a lease termination

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in 2018 that became fully amortized in the second quarter of 2019 that resulted in an increase in rental revenues for the nine months ended September 30, 2019. The lease termination was comprised of $1.2 million of consideration received in November 2018 at our Venture Corporate Center office property, which was amortized in to rental revenues on a straight-line basis through May 2019. Non-same store revenue increased by $1.5 million for the three months ended September 30, 2020, as compared to the same period in 2019, due to acquisition activity, primarily in the industrial and multi-family segments, and decreased by $2.0 million for the nine months ended September 30, 2020, as compared to the same period in 2019, as a result of disposition activity, primarily in the retail and office segments, most notably Campus Road and 655 Montgomery which were disposed of in September 2019 and May 2019, respectively. There was also additional revenue recorded during the nine months ended September 30, 2019 related to a lease termination received in June 2018 of $14.0 million at our Campus Road Office Center property, which was amortized into rental revenues on a straight-line basis through April 2019.

The following table presents the components of our consolidated rental revenues:


	For the Three Months Ended September 30,				Change				For the Nine Months Ended September 30,				Change
(in thousands)	2020		2019		$		%		2020		2019		$		%
Rental income	$	42,183	$	42,479	$	(296)	(0.7)	%	$	126,818	$	129,399	$	(2,581)	(2.0)	%
Straight-line rent		1,322		855		467	54.6			3,947		7,763		(3,816)	(49.2)
Amortization of above- and below-market intangibles		624		861		(237)	(27.5)			2,230		2,489		(259)	(10.4)
Total rental revenues	$	44,129	$	44,195	$	(66)	(0.1)	%	$	132,995	$	139,651	$	(6,656)	(4.8)	%

Rental Expenses. Rental expenses include certain property operating expenses typically reimbursed by our customers, such as real estate taxes, property insurance, property management fees, repair and maintenance, and include certain non-recoverable expenses, such as consulting services and roof repairs. Total rental expenses for the three and nine months ended September 30, 2020 were generally consistent with the same periods in 2019, with minor increases in other expenses generally resulting from bad debt expense related to COVID-19 and the expenses associated with our multi-family properties, which are generally higher than for other property types.

The following table presents the various components of our rental expenses:


	For the Three Months Ended								For the Nine Months Ended
	September 30,				Change				September 30,				Change
(in thousands)	2020		2019		$		%		2020		2019		$		%
Real estate taxes	$	5,966	$	5,907	$	59	1.0	%	$	18,234	$	17,748	$	486	2.7	%
Repairs and maintenance		4,030		4,528		(498)	(11.0)			11,520		14,162		(2,642)	(18.7)
Utilities		1,696		1,729		(33)	(1.9)			4,585		4,927		(342)	(6.9)
Property management fees		1,104		1,082		22	2.0			3,159		3,213		(54)	(1.7)
Insurance		483		443		40	9.0			1,360		1,115		245	22.0
Other		2,602		1,671		931	55.7			6,934		4,480		2,454	54.8
Total rental expenses	$	15,881	$	15,360	$	521	3.4	%	$	45,792	$	45,645	$	147	0.3	%

Other Income and Expenses. The net amount of other expenses increased by $19.0 million and $109.6 million, respectively, for the three and nine months ended September 30, 2020, as compared to the same periods in 2019, primarily as a result of larger gains on 2019 dispositions, an increase in advisory fees related to performance-based fees during 2020, an increase in interest expense driven by higher interest expense on financing obligations associated with an increase in the sale of interests related to our DST Program, and litigation expense incurred during 2020.

Segment Summary for the Three and Nine Months Ended September 30, 2020 Compared to the Same Periods in 2019

Our segments are based on our internal reporting of operating results used to assess performance based on the type of our properties. Our markets are aggregated into four reportable segments: office, retail, multi-family and industrial. These segments are comprised of the markets by which management and its operating teams conduct and monitor business. See “Note 13 to the Condensed Consolidated Financial Statements” for further information on our segments. Management considers rental revenues and net operating income (“NOI”) aggregated by segment to be the appropriate way to analyze performance. See “Additional Measures of Performance”

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below for detail regarding the use of NOI. The following table summarizes certain operating trends in our consolidated properties by segment:


	For the Three Months Ended										For the Nine Months Ended
	September 30,						Change				September 30,						Change
($in thousands, except per square foot data)	2020			2019				$	%		2020			2019			$		%
Rental revenues:
Office	$	16,260		$	17,271		$	(1,011)	(5.9)	%	$	48,939		$	52,818		$	(3,879)	(7.3)	%
Retail		16,386			17,049			(663)	(3.9)			50,585			51,731			(1,146)	(2.2)
Multi-family		—			—			—	—			—			—			—	—
Industrial		3,467			3,337			130	3.9			8,242			7,885			357	4.5
Total same store rental revenues		36,113			37,657			(1,544)	(4.1)			107,766			112,434			(4,668)	(4.2)
Non-same store properties		8,016			6,538			1,478	22.6			25,229			27,217			(1,988)	(7.3)
Total rental revenues	$	44,129		$	44,195		$	(66)	(0.1)	%	$	132,995		$	139,651		$	(6,656)	(4.8)	%
NOI:
Office	$	8,534		$	9,648		$	(1,114)	(11.5)	%	$	26,133		$	30,110		$	(3,977)	(13.2)	%
Retail		12,123			12,872			(749)	(5.8)			38,698			39,308			(610)	(1.6)
Multi-family		—			—			—	—			—			—			—	—
Industrial		2,688			2,660			28	1.1			6,434			6,164			270	4.4
Total same store NOI		23,345			25,180			(1,835)	(7.3)			71,265			75,582			(4,317)	(5.7)
Non-same store properties		4,903			3,655			1,248	34.1			15,938			18,424			(2,486)	(13.5)
Total NOI	$	28,248		$	28,835		$	(587)	(2.0)	%	$	87,203		$	94,006		$	(6,803)	(7.2)	%
Same store average percentage leased:
Office		81.7	%		83.3	%						82.1	%		82.6	%
Retail		94.0			94.0							94.6			94.0
Multi-family		—			—							—			—
Industrial		100.0			99.9							100.0			99.6
Same store average annualized base rent per square foot:
Office	$	29.24		$	30.41						$	29.55		$	30.74
Retail		18.14			18.37							18.37			18.56
Multi-family		—			—							—			—
Industrial		5.27			4.93							5.32			5.02

Office Segment. For the three and nine months ended September 30, 2020, our office segment same store NOI decreased by $1.1 million and $4.0 million, respectively, as compared to the same periods in 2019, primarily due to (i) a vacancy at our 1300 Connecticut property; (ii) reduced straight-line rent amortization due to early termination fees at our Venture Corporate Center property which were fully amortized in 2019; and (iii) increased operating expenses at certain properties during the third quarter of 2020.

Retail Segment. For the three and nine months ended September 30, 2020, our retail segment same store NOI decreased by $0.7 million and $0.6 million, respectively, as compared to the same periods in 2019, primarily due to (i) a termination fee received during the third quarter of 2019 at our Wareham property; (ii) reduced occupancy at our Durgin and Yale properties in 2020; and (iii) increased operating expenses specifically related to bad debt at certain of our retail properties largely due to COVID-19. These decreases were offset by a termination fee received during the second quarter of 2020 at our Chester property and increased occupancy at our Braintree and Bandera properties in 2020.

Multi-family Segment. Same store information is not provided for our multi-family segment as our first multi-family property was acquired in July 2019.

Industrial Segment. For the three months ended September 30, 2020, our industrial segment same store NOI remained relatively consistent as compared to the same period in 2019. For the nine months ended September 30, 2020, our industrial segment same store NOI increased $0.3 million compared to the same period in 2019 primarily due to an increase in occupancy.

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ADDITIONAL MEASURES OF PERFORMANCE

Net Income and NOI

We define NOI as GAAP rental revenues less GAAP rental expenses. We consider NOI to be an appropriate supplemental performance measure and believe NOI provides useful information to our investors regarding our results of operations because NOI reflects the operating performance of our properties and excludes certain items that are not considered to be controllable in connection with the management of the properties, such as real estate-related depreciation and amortization, general and administrative expenses, advisory fees, impairment charges, interest expense, gains on sale of properties, other income and expense, gains and losses on the extinguishment of debt and noncontrolling interests. However, NOI should not be viewed as an alternative measure of our financial performance since it excludes such items, which could materially impact our results of operations. Further, our NOI may not be comparable to that of other real estate companies, as they may use different methodologies for calculating NOI. Therefore, we believe net income (loss), as defined by GAAP, to be the most appropriate measure to evaluate our overall financial performance. Refer to “Results of Operations—Results for the Three and Nine Months Ended September 30, 2020 Compared to the Same Periods in 2019” above for a reconciliation of our GAAP net income (loss) to NOI for the three and nine months ended September 30, 2020 and 2019.

Funds From Operations (“FFO”)

We believe that FFO, in addition to net income (loss) and cash flows from operating activities as defined by GAAP, are useful supplemental performance measures that our management uses to evaluate our consolidated operating performance. However, this supplemental, non-GAAP measure should not be considered as an alternative to net income (loss) or to cash flows from operating activities as an indication of our performance and is not intended to be used as a liquidity measure indicative of cash flow available to fund our cash needs, including our ability to make distributions to our stockholders. No single measure can provide users of financial information with sufficient information and only our disclosures read as a whole can be relied upon to adequately portray our financial position, liquidity, and results of operations. In addition, other REITs may define FFO and similar measures differently and choose to treat certain accounting line items in a manner different from us due to specific differences in investment and operating strategy or for other reasons.

FFO. As defined by the National Association of Real Estate Investment Trusts (“NAREIT”), FFO is a non-GAAP measure that excludes certain items such as real estate-related depreciation and amortization. We believe FFO is a meaningful supplemental measure of our operating performance that is useful to investors because depreciation and amortization in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. By excluding gains or losses on the sale of assets, we believe FFO provides a helpful additional measure of our consolidated operating performance on a comparative basis. We use FFO as an indication of our consolidated operating performance and as a guide to making decisions about future investments.

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The following unaudited table presents a reconciliation of GAAP net income (loss) to NAREIT FFO:


	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
(in thousands, except per share data)	2020		2019		2020		2019
GAAP net (loss) income attributable to common stockholders	$	(10,830)	$	7,291	$	(19,827)	$	88,292
GAAP net (loss) income per common share—basic and diluted	$	(0.08)	$	0.05	$	(0.14)	$	0.65
Reconciliation of GAAP net (loss) income to NAREIT FFO:
GAAP net (loss) income attributable to common stockholders	$	(10,830)	$	7,291	$	(19,827)	$	88,292
Real estate-related depreciation and amortization		15,649		14,473		44,558		43,461
Impairment of real estate property		—		113		—		113
Gain on sale of real estate property		—		(10,890)		(2,192)		(96,530)
Noncontrolling interests’ share of net (loss) income		(839)		546		(1,515)		6,735
Redeemable noncontrolling interests' share of net (loss) income		(39)		—		(71)		—
Noncontrolling interests’ share of NAREIT FFO		(282)		(805)		(1,467)		(3,008)
Redeemable noncontrolling interests' share of NAREIT FFO		(13)		—		(69)		—
NAREIT FFO attributable to common stockholders—basic		3,646		10,728		19,417		39,063
NAREIT FFO attributable to OP Units		295		804		1,536		3,007
NAREIT FFO	$	3,941	$	11,532	$	20,953	$	42,070
Weighted-average shares outstanding—basic		141,682		138,063		142,216		135,877
Weighted-average shares outstanding—diluted		153,166		148,423		153,665		146,299
NAREIT FFO per common share—basic and diluted	$	0.03	$	0.08	$	0.14	$	0.29

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

Our primary sources of capital for meeting our cash requirements include debt financings, cash generated from operating activities, net proceeds from our public and private offerings, and asset sales. Our principal uses of funds are distributions to our stockholders, payments under our debt obligations, redemption payments, acquisition of properties and other investments, and capital expenditures. Over time, we intend to fund a majority of our cash needs, including the repayment of debt and capital expenditures, from operating cash flows and refinancings. As of September 30, 2020, we had approximately $139.0 million of borrowings maturing in the next 12 months, including scheduled amortization payments. Of this amount, $127.0 million relates to a mortgage note secured by our 3 Second Street office property, which may be extended an additional one year, subject to certain conditions. We expect to be able to repay our principal obligations over the next 12 months from operating cash flows and through borrowings and/or disposition proceeds.

The Advisor, subject to the oversight of our board of directors and, under certain circumstances, the investment committee or other committees established by our board of directors, will evaluate potential acquisitions or dispositions and will engage in negotiations with buyers, sellers and lenders on our behalf. Pending investment in property, debt, or other investments, we may decide to temporarily invest any unused proceeds from our public offerings in certain investments that are expected to yield lower returns than those earned on real estate assets. These lower returns may affect our ability to make distributions to our stockholders. Potential future sources of capital include proceeds from secured or unsecured financings from banks or other lenders, proceeds from our public and private offerings, proceeds from the sale of assets, and undistributed funds from operations.

The global pandemic and resulting shut down of large parts of the U.S. economy has created significant uncertainty and enhanced investment risk across many asset classes, including real estate. The COVID-19 pandemic could have a material adverse effect on our financial condition, results of operations and cash flows as the reduced economic activity severely impacts certain of our customers’ businesses, financial condition and liquidity and may cause certain customers to be unable to meet their obligations to us in full. However, to date we have collected approximately 97.6% of our rental revenues for the third quarter of 2020 (based on gross rent) across the portfolio, compared to average annual collections of over 99% prior to the pandemic. As previously mentioned, we have restructured certain leases and may restructure additional leases to provide temporary rent relief needed by certain customers. We have executed forbearance agreements with approximately 1.5% of our customers (based on third quarter gross rent). After accounting for such agreements, we received or deferred 99.1% of our rent originally payable for the third quarter of 2020, and 97.2% of our contractual rent for October as of November 4, 2020. We are pleased with these collections given the pandemic’s significant impacts on the broader economy, thus reflecting the relatively defensive nature of our assets.

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As of September 30, 2020, our financial position was strong with 35.6% leverage, or 34.9% leverage net of cash and cash equivalents, and over $16.1 million of cash and cash equivalents as of September 30, 2020. In addition, our portfolio was 92.5% leased as of September 30, 2020 and is diversified across 53 properties totaling 10.3 million square feet. Our properties contain a diverse roster of 450 commercial customers, large and small, and has an allocation based on fair value of real estate properties as determined by our NAV calculation of 31.6% office, 13.0% Class A multi-family, 16.2% industrial and 39.2% retail which is primarily grocery-anchored.

We believe that our cash on-hand, anticipated net offering proceeds, proceeds from our line of credit, and other financing and disposition activities should be sufficient to meet our anticipated future acquisition, operating, debt service, distribution and redemption requirements.

Cash Flows. The following table summarizes our cash flows for the following periods:


	For the Nine Months Ended September 30,
(in thousands)	2020		2019		$ Change
Total cash provided by (used in):
Operating activities	$	28,847	$	35,653	$	(6,806)
Investing activities		(236,786)		(111,034)		(125,752)
Financing activities		126,597		95,440		31,157
Net (decrease) increase in cash, cash equivalents and restricted cash	$	(81,342)	$	20,059	$	(101,401)

Net cash provided by operating activities decreased by approximately $6.8 million for the nine months ended September 30, 2020, compared to the same period in 2019, primarily due to an increase in interest expense due to our increasing rent obligations resulting from our DST Program, and a decrease in net operating income from our properties as a result of our 2019 disposition activity. These were partially offset by lower other interest expense.

Net cash used in investing activities increased by approximately $125.8 million for the nine months ended September 30, 2020, compared to the same period in 2019, primarily due to (i) a decrease in net disposition proceeds of $175.2 million due to proceeds received in 2019 related to the sale of three office properties, one retail property and two retail outparcels, as compared to the sale of one retail outparcel in 2020; and (ii) cash paid to acquire a debt-related investment during 2020 of $45.5 million. These were partially offset by a decrease in acquisition activity during 2020 of $95.4 million.

Net cash provided by financing activities increased by approximately $31.2 million for the nine months ended September 30, 2020, compared to the same period in 2019, primarily due to the repayment of a mortgage note in 2019 of $34.4 million, as compared to only $2.2 million in 2020.

Capital Resources and Uses of Liquidity

In addition to our cash and cash equivalents balances available, our capital resources and uses of liquidity are as follows:

Line of Credit and Term Loans. As of September 30, 2020, we had an aggregate of $975.0 million of commitments under our credit agreements, including $450.0 million under our line of credit and $525.0 million under our two term loans. As of that date, we had: (i) no amounts outstanding under our line of credit; and (ii) $525.0 million outstanding under our term loans with a weighted-average effective interest rate of 3.28%, which includes the effect of the interest rate swap agreements related to $500.0 million in borrowings under our term loans.

The unused and available portions under our line of credit were $450.0 million and $219.5 million, respectively. Our $450.0 million line of credit matures in January 2023, and may be extended pursuant to two six-month extension options, subject to certain conditions, including the payment of extension fees. Our $325.0 million term loan matures in January 2024, with no extension option available. Our $200.0 million term loan matures in February 2022, and may be extended pursuant to two one-year extension options, subject to certain conditions, including the payment of an extension fee. Our line of credit borrowings are available for general corporate purposes, including but not limited to the refinancing of other debt, payment of redemptions, acquisition and operation of permitted investments. Refer to “Note 4 to the Condensed Consolidated Financial Statements” for additional information regarding our line of credit and term loans.

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organized the Alternative Reference Rates Committee (“ARRC”), which identified the Secured Overnight Financing Rate ("SOFR") as its preferred alternative rate for LIBOR in derivatives and other financial contracts. We are not able to predict when LIBOR will cease to be available or when there will be sufficient liquidity in the SOFR markets. Any changes adopted by the FCA or other governing bodies in the method used for determining LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR. If that were to occur, our interest payments could change. In addition, uncertainty about the extent and manner of future changes may result in interest rates and/or payments that are higher or lower than if LIBOR were to remain available in its current form.

As of September 30, 2020, our line of credit, term loans and a $50.1 million mortgage note are our only indebtedness with initial maturity dates beyond 2021 that have exposure to LIBOR. The agreements governing the line of credit, term loans and a mortgage note provide procedures for determining a replacement or alternative base rate in the event that LIBOR is discontinued. However, there can be no assurances as to whether such replacement or alternative base rate will be more or less favorable than LIBOR. We intend to monitor the developments with respect to the potential phasing out of LIBOR after 2021 and work with our lenders to seek to ensure any transition away from LIBOR will have minimal impact on our financial condition, but can provide no assurances regarding the impact of the discontinuation of LIBOR.

Mortgage Notes. As of September 30, 2020, we had property-level borrowings of approximately $334.9 million outstanding with a weighted-average remaining term of approximately 3.2 years. These borrowings are secured by mortgages or deeds of trust and related assignments and security interests in the collateralized properties, and had a weighted-average interest rate of 3.10%, which includes the effects of interest rate swap agreements related to a $50.1 million variable-rate mortgage note. Refer to “Note 4 to the Condensed Consolidated Financial Statements” for additional information regarding the mortgage notes.

Debt Covenants. Our line of credit, term loan and mortgage note agreements contain various property-level covenants, including customary affirmative and negative covenants. In addition, our line of credit and term loan agreements contain certain corporate level financial covenants, including leverage ratio, fixed charge coverage ratio, and tangible net worth thresholds. These covenants may limit our ability to incur additional debt, or to pay distributions. We were in compliance with our debt covenants as of September 30, 2020.

Offering Proceeds. For the nine months ended September 30, 2020, the amount of aggregate gross proceeds raised from our public offerings (including shares issued pursuant to the distribution reinvestment plan) was $97.9 million ($92.4 million net of direct selling costs).

Distributions. To obtain the favorable tax treatment accorded to REITs, we normally will be required each year to distribute to our stockholders at least 90% of our real estate investment trust taxable income, determined without regard to the deduction for distributions paid and by excluding net capital gains. The payment of distributions is determined by our board of directors and may be adjusted at its discretion at any time. Distribution levels are set by our board of directors at a level it believes to be appropriate and sustainable based upon a review of a variety of factors including the current and anticipated market conditions, current and anticipated future performance and make-up of our investments, our overall financial projections and expected future cash needs. We intend to continue to make distributions on a monthly basis.

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The following table outlines sources used, as determined on a GAAP basis, to pay total gross distributions (which are paid in cash or reinvested in shares of our common stock through our distribution reinvestment plan) for the periods indicated below:


	Amount														Source of Distributions Paid in Cash
	Declared												Total Cash
	per												Flows from		Cash Flows from
(in thousands, except per share	Common						Reinvested in				Total		Operating		Operating
data)	Share (1)		Paid in Cash (2)				Shares				Distributions		Activities		Activities				Borrowings
2020
March 31	$	0.09375	$	9,254	63.3	%	$	5,360	36.7	%	$	14,614	$	7,455	$	7,455	80.6	%	$	1,799	19.4	%
June 30		0.09375		9,150	63.3			5,316	36.7			14,466		11,384		9,150	100.0			—	—
September 30		0.09375		9,074	63.2			5,282	36.8			14,356		10,008		9,074	100.0			—	—
Total	$	0.28125	$	27,478	63.3	%	$	15,958	36.7	%	$	43,436	$	28,847	$	25,679	93.5	%	$	1,799	6.5	%
2019
March 31	$	0.09375	$	8,442	62.8	%	$	4,997	37.2	%	$	13,439	$	5,624	$	5,624	66.6	%	$	2,818	33.4	%
June 30		0.09375		8,615	62.5			5,180	37.5			13,795		14,819		8,615	100.0			—	—
September 30		0.09375		8,653	62.1			5,270	37.9			13,923		15,210		8,653	100.0			—	—
December 31		0.09375		8,808	62.5			5,294	37.5			14,102		13,695		8,808	100.0			—	—
Total	$	0.37500	$	34,518	62.5	%	$	20,741	37.5	%	$	55,259	$	49,348	$	31,700	91.8	%	$	2,818	8.2	%

(1)	Amount reflects the total quarterly distribution rate, subject to adjustment for class-specific fees. Distributions were declared and paid as of monthly record dates. These monthly distributions have been aggregated and presented on a quarterly basis.

(2)	Includes other cash distributions consisting of (i) distributions paid to OP Unit holders; and (ii) ongoing distribution fees paid to the Dealer Manager with respect to Class T, Class S and Class D shares.

For the three months ended September 30, 2020 and 2019, our FFO was $3.9 million, or 27.5% of our total distributions, and $11.5 million, or 82.8% of our total distributions, respectively. For the nine months ended September 30, 2020 and 2019, our FFO was $21.0 million, or 48.2% of our total distributions, and $42.1 million, or 102.2% of our total distributions, respectively. FFO is a non-GAAP operating metric and should not be used as a liquidity measure. However, management believes the relationship between FFO and distributions may be meaningful for investors to better understand the sustainability of our operating performance compared to distributions made. Refer to “Additional Measures of Performance” above for the definition of FFO, as well as a detailed reconciliation of our GAAP net income (loss) to FFO.

Redemptions. Below is a summary of redemptions and repurchases pursuant to our share redemption program for the nine months ended September 30, 2020 and 2019. Our board of directors may modify, suspend or terminate our current share redemption programs if it deems such action to be in the best interest of our stockholders. Refer to Part II, Item 2. “Unregistered Sales of Equity Securities and Use of Proceeds—Share Redemption Program” for detail regarding our share redemption program.


	For the Nine Months Ended September 30,
(in thousands, except for per share data)	2020			2019
Number of shares requested for redemption or repurchase		11,608			11,263
Number of shares redeemed or repurchased		11,608			11,263
% of shares requested that were redeemed or repurchased		100.0	%		100.0	%
Average redemption or repurchase price per share	$	7.50		$	7.35

We funded these redemptions from a variety of sources including: operating cash flows in excess of our distributions paid in cash, cash on hand, proceeds from our public and private offerings, and proceeds from the disposition of properties.

SUBSEQUENT EVENTS

Acquisitions of Real Property

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Disposition of Real Property

CONTRACTUAL OBLIGATIONS

A summary of future obligations as of December 31, 2019 was disclosed in our 2019 Form 10-K. Except as otherwise disclosed in “Note 4 to the Condensed Consolidated Financial Statements” relating to our debt obligations, there were no material changes outside the ordinary course of business.

OFF-BALANCE SHEET ARRANGEMENTS

As of September 30, 2020, we had no material off-balance sheet arrangements that have or are reasonably likely to have a material effect on our financial condition, changes in our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.

RECENTLY ISSUED ACCOUNTING STANDARDS

CRITICAL ACCOUNTING ESTIMATES

Our unaudited condensed consolidated financial statements have been prepared in accordance with GAAP and in conjunction with the rules and regulations of the SEC. The preparation of our unaudited condensed consolidated financial statements requires significant management judgments, assumptions, and estimates about matters that are inherently uncertain. These judgments affect the reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities at the dates of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. With different estimates or assumptions, materially different amounts could be reported in our condensed consolidated financial statements. Additionally, other companies may utilize different estimates that may impact the comparability of our results of operations to those of companies in similar businesses. For a detailed description of our critical accounting estimates, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2019 Form 10-K. As of September 30, 2020, our critical accounting estimates have not changed from those described in our 2019 Form 10-K.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

We are exposed to the impact of interest rate changes. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows, and optimize overall borrowing costs. To achieve these objectives, we plan to borrow on a fixed interest rate basis for longer-term debt and utilize interest rate swap agreements on certain variable interest rate debt in order to limit the effects of changes in interest rates on our results of operations. As of September 30, 2020, our debt instruments consisted of borrowings under our term loans and mortgage notes.

Fixed Interest Rate Debt. As of September 30, 2020, our fixed interest rate debt consisted of $207.9 million under our mortgage notes, which included a $50.1 million variable-rate mortgage note that we effectively fixed through the use of an interest rate swap until the designated cash flow hedge expires in July 2021; and $500.0 million of borrowings under our term loans that were effectively fixed through the use of interest rate swaps. In total, our fixed interest rate debt represented 82.3% of our total consolidated debt as of September 30, 2020. Interest rate fluctuations will generally not affect our future earnings or cash flows on our fixed interest rate debt unless such instruments mature or are otherwise terminated. However, interest rate changes could affect the fair value of our fixed

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interest rate debt. As of September 30, 2020, the fair value and the carrying value of our fixed interest rate debt, excluding the values of hedges, was $700.4 million and $707.9 million, respectively. The fair value estimate of our fixed interest rate debt was estimated using a discounted cash flow analysis utilizing rates we would expect to pay for debt of a similar type and remaining maturity if the loans were originated on September 30, 2020. Given we generally expect to hold our fixed interest rate debt instruments to maturity or when they otherwise open up for prepayment at par, and the amounts due under such debt instruments should be limited to the outstanding principal balance and any accrued and unpaid interest at such time, we do not expect that the resulting change in fair value of our fixed interest rate debt instruments due to market fluctuations in interest rates, would have a significant impact on our operating cash flows.

Variable Interest Rate Debt. As of September 30, 2020, our consolidated variable interest rate debt consisted of $25.0 million of borrowings under our term loans and $127.0 million under our mortgage notes, which represented 17.7% of our total consolidated debt. Interest rate changes on the variable portion of our variable-rate debt could impact our future earnings and cash flows, but would not necessarily affect the fair value of such debt. As of September 30, 2020, we were exposed to market risks related to fluctuations in interest rates on $152.0 million of consolidated borrowings. A hypothetical 25 basis points increase in the all-in rate on the outstanding balance of our variable interest rate debt as of September 30, 2020, would increase our annual interest expense by approximately $0.4 million.

Derivative Instruments. As of September 30, 2020, we had 15 outstanding derivative instruments with a total notional amount of $677.1 million. These derivative instruments were comprised of interest rate swaps and interest rate caps that were designed to mitigate the risk of future interest rate increases by either providing a fixed interest rate or capping the variable interest rate for a limited, pre-determined period of time. See “Note 4 to the Condensed Consolidated Financial Statements” for further detail on our derivative instruments. We are exposed to credit risk of the counterparty to our interest rate cap and swap agreements in the event of non-performance under the terms of the agreements. If we were not able to replace these caps or swaps in the event of non-performance by the counterparty, we would be subject to variability of the interest rate on the amount outstanding under our debt that is fixed or capped through the use of the swaps or caps, respectively.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the direction of our principal executive officer and principal financial officer, we evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of September 30, 2020. Based on this evaluation, our principal executive officer and principal financial officer have concluded that, as of September 30, 2020, our disclosure controls and procedures were effective.

Internal Control Over Financial Reporting

There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended September 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any material impact to our internal control over financial reporting to date as a result of many of the employees of our Advisor and its affiliates working remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 pandemic on our internal controls to minimize the impact to their design and operating effectiveness.

PART II. OTHER INFORMATION

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in Part I, Item 1A, “Risk Factors” of our 2019 Form 10-K, as supplemented by our Quarterly Reports on Form 10-Q, which could materially affect our business, financial condition, and/or future results. The risks described in our 2019 Form 10-K, as supplemented by our Quarterly Reports on Form 10-Q, are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and/or operating results.

With the exception of the risk factors set forth below, which updates the risk factors disclosed in our 2019 Form 10-K, as supplemented by our Quarterly Reports on Form 10-Q, there have been no material changes to the risk factors disclosed in our 2019 Form 10-K, as supplemented by our Quarterly Reports on Form 10-Q.

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The current outbreak of the novel coronavirus, or COVID-19, has caused severe disruptions in the U.S. and global economy and will likely have an adverse impact on our financial condition and results of operations. This impact could be materially adverse to the extent the current COVID-19 outbreak, or future pandemics, cause customers to be unable to pay their rent or reduce the demand for commercial real estate, or cause other impacts described below.

In December 2019, a novel strain of coronavirus (COVID-19) was reported to have surfaced in Wuhan, China. COVID-19 has since spread to over 100 countries, including the United States. COVID-19 has also spread to every state in the United States. On March 11, 2020 the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020 the United States declared a national emergency with respect to COVID-19.

The outbreak of COVID-19 in many countries, including the United States, continues to adversely impact global economic activity and has contributed to significant volatility and negative pressure in financial markets. The global impact of the outbreak has been rapidly evolving and, as cases of the virus have continued to be identified in additional countries, many countries, including the United States, have reacted by instituting quarantines and restrictions on travel.

Between March and May 2020, nearly all U.S. cities and states, including cities and states where our properties are located, reacted by instituting quarantines, restrictions on travel, “shelter in place” rules, restrictions on types of business that may continue to operate, and/or restrictions on types of construction projects that may continue. Beginning in early May 2020, parts of the U.S. began to ease the lockdown restrictions and allow for the reopening of businesses. The gradual reopening of retail, manufacturing, and office facilities came with required or recommended safety protocols. However, due to the recent increases in COVID-19 cases, these lockdown restrictions have or may be reinstated in certain areas to varying degrees in the future. Additionally, there is no assurance that the reopening of businesses, even if those businesses adhere to recommended safety protocols, will enable us or many of our customers to avoid adverse effects on our and our customers’ operations and businesses. The COVID-19 outbreak has had, and future pandemics could have, a significant adverse impact on economic and market conditions of economies around the world, including the United States, and has triggered a period of global economic slowdown or global recession.

The effects of COVID-19 or another pandemic could adversely affect us and/or our customers due to, among other factors:

•

the unavailability of personnel, including executive officers and other leaders that are part of the management team and the inability to recruit, attract and retain skilled personnel-to the extent management or personnel are impacted in significant numbers by the outbreak of pandemic or epidemic disease and are not available or allowed to conduct work—business and operating results may be negatively impacted;

•

difficulty accessing debt and equity capital on attractive terms, or at all—a severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions may affect our and our customers’ ability to access capital necessary to fund business operations or replace or renew maturing liabilities on a timely basis, and may adversely affect the valuation of financial assets and liabilities, any of which could affect our ability to meet liquidity and capital expenditure requirements or have a material adverse effect on our business, financial condition, results of operations and cash flows;

•

an inability to operate in affected areas, or delays in the supply of products or services from the vendors that are needed to operate effectively;

•

customers’ inability to pay rent on their leases or our inability to re-lease space that is or becomes vacant, which inability, if extreme, could cause us to: (i) no longer be able to pay distributions at our current rates or at all in order to preserve liquidity and (ii) be unable to meet our debt obligations to lenders, which could cause us to lose title to the properties securing such debt, trigger cross-default provisions, or could cause us to be unable to meet debt covenants, which could cause us to have to sell properties or refinance debt on unattractive terms;

•

uncertainty related to whether the U.S. Congress or state legislatures will pass additional laws providing for additional economic stimulus packages, government funding, or other relief programs, whether such measures will be enacted, whether our customers will be eligible or will apply for any such funds, whether the funds, if available, could be used by our customers to pay rent, and whether such funds will be sufficient to supplement our customers’ rent and other obligations to us;

•

an inability to ensure business continuity in the event our continuity of operations plan is not effective or improperly implemented or deployed during a disruption;

•

our inability to raise capital in our ongoing public offerings, if investors are reluctant to purchase our shares;

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•

our inability to deploy capital due to slower transaction volume which may be dilutive to shareholders; and

•

our inability to satisfy redemption requests and preserve liquidity, if demand for redemptions exceeds the limits of our share redemption program or ability to fund redemptions.

Because our property investments are located in the United States, COVID-19 will continue to impact our properties and operating results given its continued spread within the United States reduces occupancy, increases the cost of operation, results in limited hours or necessitates the closure of such properties. In addition, quarantines, states of emergencies and other measures taken to curb the spread of COVID-19 may negatively impact the ability of such properties to continue to obtain necessary goods and services or provide adequate staffing, which may also adversely affect our properties and operating results.

Customers and potential customers of the properties we own operate in industries that are being adversely affected by the disruption to business caused by this global outbreak. Customers or operators have been, and may in the future be, required to suspend operations at our properties for what could be an extended period of time. For example, with respect to our retail properties, individual non-essential stores have been, and may be closed for an extended period of time or only open certain hours of the day. Certain of our office and industrial properties have been negatively impacted by similar impacts on our customers’ businesses. Our multi-family properties have been impacted by declining household incomes and wealth, which may result in delinquencies or vacancies. Whereas a number of our customers requested rent deferrals in the second quarter of 2020, these requests significantly decreased in the third quarter. However, more customers may request rent concessions or may not pay rent in the future. This could lead to increased customer delinquencies, rent deferrals and/or defaults under leases, a lower demand for rentable space leading to increased concessions or lower occupancy, and/or tenant improvement expenditures, or reduced rental rates to maintain occupancies. Our operations could be materially negatively affected if the economic downturn is prolonged, which could adversely affect our operating results, ability to pay our distributions, our ability to repay or refinance our debt, and the value of our shares.

The rapid development and fluidity of this situation precludes any prediction as to the ultimate impact of COVID-19. The full extent of the impact and effects of COVID-19 on our future financial performance, as a whole, and, specifically, on our real estate property holdings are uncertain at this time. The impact will depend on future developments, including, among other factors, the duration and spread of the outbreak, along with related travel advisories and restrictions, the recovery time of the disrupted supply chains, the consequential staff shortages, and production delays, and the uncertainty with respect to the duration of the global economic slowdown. COVID-19 and the current financial, economic and capital markets environment, and future developments in these and other areas present uncertainty and risk with respect to our performance, financial condition, results of operations, cash flows, and value of our shares.

The current outbreak of COVID-19 and resulting impacts on the U.S. economy and financial markets has created extreme uncertainty and volatility with respect to the current and future values of real estate, and therefore our NAV per share, as well as the market value of our debt (including associated interest rate hedges). As a result, our NAV per share may not reflect the actual realizable value of our underlying properties at any given time or the market value of our debt (including associated interest rate hedges).

The current outbreak of COVID-19 and resulting impacts on the U.S. economy and financial markets have created extreme uncertainty and volatility with respect to the current and future values of real estate and real estate-related assets, borrowings and hedges. The recent COVID-19 pandemic is expected to continue to have a significant impact on local, national and global economies and has resulted in a world-wide economic slowdown. The fallout from the ongoing pandemic on our investments is uncertain; however, it has had a negative impact on certain sectors of real estate, with a particularly adverse impact on certain sectors, including hospitality, shopping malls, gaming, and student living. In addition, slower transaction volume may result in less data for assessing real estate values. This increases the risk that our NAV per share may not reflect the actual realizable value of our underlying properties at any given time, as valuations and appraisals of our properties and real estate-related assets are only estimates of market value as of the end of the prior month and may not reflect the changes in values resulting from the COVID-19 pandemic, as this impact is occurring rapidly and is not immediately quantifiable. To the extent real estate values decline after the date we disclose our NAV, whether due to the COVID-19 pandemic or otherwise, (i) we may overpay to redeem our shares, which would adversely affect the investment of non-redeeming stockholders, and (ii) new investors may overpay for their investment in our common stock, which would heighten their risk of loss. Furthermore, because we generally do not mark to market our property-level mortgages and corporate-level credit facilities that are intended to be held to maturity, or our associated interest rate hedges that are intended to be held to maturity, the realizable value of our company or our assets that are encumbered by debt may be higher or lower than the value used in the calculation of our NAV. This risk may be exacerbated by the current market volatility, which can lead to large and sudden swings in the fair value of our assets and liabilities. We currently estimate the fair value of our debt (inclusive of associated interest rate hedges) that was intended to be held to maturity as of September 30, 2020 was $22.1 million higher than par for such debt in aggregate, meaning that if we used the fair value of our debt rather than par (and treated the associated hedge as part of the same financial instrument), our NAV would be lower by approximately $22.1 million, or $0.14 per share, as of September 30, 2020.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Share Redemption Program

While stockholders may request on a monthly basis that we redeem all or any portion of their shares pursuant to our share redemption program, we are not obligated to redeem any shares and may choose to redeem only some, or even none, of the shares that have been requested to be redeemed in any particular month, in our discretion. In addition, our ability to fulfill redemption requests is subject to a number of limitations. As a result, share redemptions may not be available each month. Under our share redemption program, to the extent we choose to redeem shares in any particular month, we will only redeem shares as of the last calendar day of that month (each such date, a “Redemption Date”). Shares redeemed on the Redemption Date remain outstanding on the Redemption Date and are no longer outstanding on the day following the Redemption Date. Redemptions will be made at the transaction price in effect on the Redemption Date, except that shares that have not been outstanding for at least one year will be redeemed at 95% of the transaction price (an “Early Redemption Deduction”). The Early Redemption Deduction may be waived in certain circumstances including: (i) in the case of redemption requests arising from the death or qualified disability of the holder; (ii) in the event that a stockholder’s shares are redeemed because the stockholder has failed to maintain the $2,000 minimum account balance or (iii) with respect to shares purchased through our distribution reinvestment plan. To have his or her shares redeemed, a stockholder’s redemption request and required documentation must be received in good order by 4:00 p.m. (Eastern time) on the second to last business day of the applicable month. Settlements of share redemptions will be made within three business days of the Redemption Date. An investor may withdraw its redemption request by notifying the transfer agent before 4:00 p.m. (Eastern time) on the last business day of the applicable month.

The total amount of aggregate redemptions of Class T, Class S, Class D, Class I and Class E shares (based on the price at which the shares are redeemed) will be limited during each calendar month to 2% of the aggregate NAV of all classes as of the last calendar day of the previous quarter and in each calendar quarter will be limited to 5% of the aggregate NAV of all classes of shares as of the last calendar day of the previous calendar quarter; provided, however, that every month and quarter each class of our common stock will be allocated capacity within such aggregate limit to allow stockholders in such class to either (a) redeem shares (based on the price at which the shares are redeemed) equal to at least 2% of the aggregate NAV of such share class as of the last calendar day of the previous quarter, or, if more limiting, (b) redeem shares (based on the price at which the shares are redeemed) over the course of a given quarter equal to at least 5% of the aggregate NAV of such share class as of the last calendar day of the previous quarter (collectively referred to herein as the “2% and 5% limits”), which in the second and third months of a quarter could be less than 2% of the NAV of such share class. In the event that we determine to redeem some but not all of the shares submitted for redemption during any month, shares redeemed at the end of the month will be redeemed on a pro rata basis. Even if the class-specific allocations are exceeded for a class, the program may offer such class additional capacity under the aggregate program limits. Redemptions and pro rata treatment, if necessary, will first be applied within the class-specific allocated capacity and then applied on an aggregate basis to the extent there is remaining capacity. All unsatisfied redemption requests must be resubmitted after the start of the next month or quarter, or upon the recommencement of the share redemption program, as applicable.

For both the aggregate and class-specific allocations described above, (i) provided that the share redemption program has been operating and not suspended for the first month of a given quarter and that all properly submitted redemption requests were satisfied, any unused capacity for that month will carry over to the second month and (ii) provided that the share redemption program has been operating and not suspended for the first two months of a given quarter and that all properly submitted redemption requests were satisfied, any unused capacity for those two months will carry over to the third month. In no event will such carry-over capacity permit the redemption of shares with aggregate value (based on the redemption price per share for the month the redemption is effected) in excess of 5% of the combined NAV of all classes of shares as of the last calendar day of the previous calendar quarter (provided that for these purposes redemptions may be measured on a net basis as described in the paragraph below).

We currently measure the foregoing redemption allocations and limitations based on net redemptions during a month or quarter, as applicable. The term “net redemptions” means, during the applicable period, the excess of our share redemptions (capital outflows) over the proceeds from the sale of our shares (capital inflows). Net redemptions for the class-specific allocations will be based only on the capital inflows and outflows of that class, while net redemptions for the overall program limits would be based on capital inflows and outflows of all classes. Thus, for any given calendar quarter, the maximum amount of redemptions during that quarter will be equal to (i) 5% of the combined NAV of all classes of shares as of the last calendar day of the previous calendar quarter, plus (ii) proceeds from sales of new shares in this offering (including purchases pursuant to our distribution reinvestment plan) and the Class E distribution reinvestment plan offering since the beginning of the current calendar quarter. The same would apply for a given month, except that redemptions in a month would be subject to the 2% limit described above (subject to potential carry-over capacity), and netting would be measured on a monthly basis. With respect to future periods, our board of directors may choose whether the allocations and limitations will be applied to “gross redemptions,” i.e., without netting against capital inflows, rather than

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to net redemptions. If redemptions for a given month or quarter are measured on a gross basis rather than on a net basis, the redemption limitations could limit the amount of shares redeemed in a given month or quarter despite our receiving a net capital inflow for that month or quarter. In order for our board of directors to change the application of the allocations and limitations from net redemptions to gross redemptions or vice versa, we will provide notice to stockholders in a prospectus supplement or special or periodic report filed by us, as well as in a press release or on our website, at least 10 days before the first business day of the quarter for which the new test will apply. The determination to measure redemptions on a gross basis, or vice versa, will only be made for an entire quarter, and not particular months within a quarter.

Although the vast majority of our assets consist of properties that cannot generally be readily liquidated on short notice without impacting our ability to realize full value upon their disposition, we intend to maintain a number of sources of liquidity including (i) cash equivalents (e.g. money market funds), other short-term investments, U.S. government securities, agency securities and liquid real estate-related securities and (ii) one or more borrowing facilities. We may fund redemptions from any available source of funds, including operating cash flows, borrowings, proceeds from this offering and/or sales of our assets.

Should redemption requests, in our judgment, place an undue burden on our liquidity, adversely affect our operations or risk having an adverse impact on the company as a whole, or should we otherwise determine that investing our liquid assets in real properties or other illiquid investments rather than redeeming our shares is in the best interests of the company as a whole, then we may choose to redeem fewer shares than have been requested to be redeemed, or none at all. Further, our board of directors may modify, suspend or terminate our share redemption program if it deems such action to be in our best interest and the best interest of our stockholders. If the transaction price for the applicable month is not made available by the tenth business day prior to the last business day of the month (or is changed after such date), then no redemption requests will be accepted for such month and stockholders who wish to have their shares redeemed the following month must resubmit their redemption requests. The above description of the share redemption program is a summary of certain of the terms of the share redemption program. Please see the full text of the share redemption program, which is incorporated by reference as Exhibit 4.2 to this Quarterly Report on Form 10-Q, for all the terms and conditions.

The table below summarizes the redemption activity for the three months ended September 30, 2020:


				Total Number of Shares	Maximum Number of
				Redeemed as Part of	Shares That May Yet Be
	Total Number of	Average Price		Publicly Announced	Redeemed Pursuant
(shares in thousands)	Shares Redeemed	Paid Per Share (1)		Plans or Programs	to the Program (2)
For the Month Ended:
July 31, 2020	888	$	7.49	888	—
August 31, 2020	846		7.50	846	—
September 30, 2020 (3)	1,072		7.51	1,072	—
Total	2,806	$	7.50	2,806	—

(1)	Amount represents the average price paid to investors upon redemption.

(2)	We limit the number of shares that may be redeemed under the share redemption program as described above.

(3)	Redemption requests accepted in September 2020 are considered redeemed on October 1, 2020 and are not included in the table above.

ITEM 5. OTHER INFORMATION

Distribution Reinvestment Plan Suitability Requirement

Pursuant to the terms of our distribution reinvestment plan (“DRP”), participants in the DRP must promptly notify us if at any time they fail to meet the current suitability requirements for making an investment in us.

The current suitability standards require that Class E stockholders participating in the DRP other than investors in Arizona, California, Ohio and Oregon have either:

●

a net worth (exclusive of home, home furnishings and automobiles) of $150,000 or more; or

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a net worth (exclusive of home, home furnishings and automobiles) of at least $45,000 and had during the last tax year, or estimate that such investor will have during the current tax year, a minimum of $45,000 annual gross income.

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The current suitability standards require that Class E stockholders participating in the DRP in Arizona, California, Ohio and Oregon have either:

●

a net worth (exclusive of home, home furnishings and automobiles) of $250,000 or more; or

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a net worth (exclusive of home, home furnishings and automobiles) of at least $70,000 and had during the last tax year, or estimate that such investor will have during the current tax year, a minimum of $70,000 annual gross income.

In addition, Class E stockholders participating in the DRP in Ohio and Oregon must have a net worth of at least 10 times their investment in us and any of our affiliates. The current suitability standards for Class T, Class S, Class D and Class I stockholders participating in the DRP are listed in the section entitled “Suitability Standards” in our current Class T, Class S, Class D and Class I public offering prospectus on file at www.sec.gov and on our website at www.blackcreekdiversified.com.

Stockholders can notify us of any changes to their ability to meet the suitability requirements or change their DRP election by contacting us at Black Creek Diversified Property Fund Inc., Investor Relations, 518 17th Street, Suite 1700, Denver, Colorado 80202, Telephone: (303) 228-2200.

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ITEM 6. EXHIBITS

Exhibit Number		Description

3.1		Articles of Restatement. Incorporated by reference to Exhibit 3.1 to the Annual Report on Form 10-K filed with the SEC on March 21, 2012.

3.2		Articles of Amendment (name change). Incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the SEC on July 12, 2012.

3.3		Articles Supplementary (Class A shares). Incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K filed with the SEC on July 12, 2012.

3.4		Articles Supplementary (Class W shares). Incorporated by reference to Exhibit 3.3 to the Current Report on Form 8-K filed with the SEC on July 12, 2012.

3.5		Articles Supplementary (Class I shares). Incorporated by reference to Exhibit 3.4 to the Current Report on Form 8-K filed with the SEC on July 12, 2012.

3.6		Certificate of Correction to Articles of Restatement. Incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the SEC on March 26, 2014.

3.7		Certificate of Correction to Articles of Restatement. Incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the SEC on August 30, 2016.

3.8		Articles of Amendment (revised terms of share classes). Incorporated by reference to Exhibit 3.8 to the Post-Effective Amendment No. 10 to Registration Statement on Form S-11 (File No. 333-197767) filed with the SEC on September 1, 2017.

3.9		Articles of Amendment (name change). Incorporated by reference to Exhibit 3.9 to the Post-Effective Amendment No. 10 to Registration Statement on Form S-11 (File No. 333-197767) filed with the SEC on September 1, 2017.

3.10		Eighth Amended and Restated Bylaws. Incorporated by reference to Exhibit 3.10 to the Annual Report on Form 10-K filed with the SEC on March 5, 2020.

3.11		Amendment No. 1 to Bylaws. Incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the SEC on April 1, 2020.

4.1		Fifth Amended and Restated Distribution Reinvestment Plan. Incorporated by reference to Appendix B to the Pre-Effective Amendment No. 1 to Registration Statement on Form S-11 (File No. 333-222630) filed with the SEC on August 17, 2018.

4.2		Second Amended and Restated Share Redemption Program effective as of December 10, 2018. Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed with the SEC on December 14, 2018.

4.3		Statement regarding transfer restrictions, preferences, limitations and rights of holders of shares of common stock (to appear on stock certificate or to be sent upon request and without charge to stockholders issued shares without certificates). Incorporated by reference to Exhibit 4.5 to the Post-Effective Amendment No. 10 to Registration Statement on Form S-11 (File No. 333-197767) filed with the SEC on September 1, 2017.

4.4		Valuation Procedures. Incorporated by reference to Exhibit 99.3 to the Current Report on Form 8-K filed with the SEC on July 15, 2020.

4.5		Multiple Class Plan. Incorporated by reference to Exhibit 4.5 to the Quarterly Report on Form 10-Q filed with the SEC on August 12, 2019.

31.1*		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*		Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

99.1*		Consent of Altus Group U.S., Inc.

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Exhibit Number		Description

101.1		The following materials from Black Creek Diversified Property Fund Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020, filed on November 10, 2020, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets; (ii) Condensed Consolidated Statements of Operations; (iii) Condensed Consolidated Statements of Comprehensive Income (Loss); (iv) Condensed Consolidated Statements of Equity; (v) Condensed Consolidated Statements of Cash Flows; and (vi) Notes to Condensed Consolidated Financial Statements.

*	Filed or furnished herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		BLACK CREEK DIVERSIFIED PROPERTY FUND INC.

November 10, 2020	By:	/s/ JEFFREY W. TAYLOR
		Jeffrey W. Taylor Managing Director, Co-President (Principal Executive Officer)

November 10, 2020	By:	/s/ LAINIE P. MINNICK
		Lainie P. Minnick Managing Director, Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer)

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Black Creek Diversified Property Fund 10-Q2020 Q3 Quarterly report

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