Cottonwood Communities 424B3 Prospectus supplement

Filed Pursuant to Rule 424(b)(3)

Registration No. 333-215272

COTTONWOOD COMMUNITIES, INC.

SUPPLEMENT NO. 3 DATED NOVEMBER 18, 2019

TO THE PROSPECTUS DATED OCTOBER 15, 2019

This document supplements, and should be read in conjunction with, the prospectus of Cottonwood Communities, Inc. dated October 15, 2019, supplement no. 1 dated October 15, 2019 and supplement no. 2 dated November 1, 2019. As used herein, the terms “we,” “our” and “us” refer to Cottonwood Communities, Inc. and, as required by context, Cottonwood Communities O.P., LP, which we refer to as our “Operating Partnership,” and to their subsidiaries. Capitalized terms used in this supplement have the same meanings as set forth in the prospectus. The purpose of this supplement is to disclose:

•the status of the offering;

•updated risks related to an investment in us;

•information regarding distributions;

•information regarding a recently designated class of our preferred stock;

•information regarding a private offering;

•"Management’s Discussion and Analysis of Financial Condition and Results of Operations” similar to that filed in our quarterly report on Form 10-Q for the period ended September 30, 2019; and

•our unaudited financial statements and the notes thereto as of and for the period ended September 30, 2019.

Status of the Offering

We commenced this offering of $750.0 million of shares of common stock on August 13, 2018. As of November 12, 2019, we had sold approximately 7,923,000 shares of our Class A common stock for aggregate gross offering proceeds of approximately $78,836,000. Included in these amounts were 33,236 shares of common stock sold pursuant to our distribution reinvestment plan for aggregate gross offering proceeds of $332,360. No shares of our Class T common stock had been sold as of November 12, 2019. As of November 12, 2019, there was approximately $671,164,000 of shares available for sale in this offering.

Risk Factors

The following risk factors supplement the risk factors appearing in the prospectus.

We have paid distributions from offering proceeds. In the future we may continue to fund distributions with offering proceeds. To the extent we fund distributions from sources other than our cash flow from operations, we will have less funds available for investment in multifamily apartment communities and multifamily real estate-related assets and the overall return to our shareholders may be reduced.

Our charter permits us to make distributions from any source, including offering proceeds or borrowings (which may constitute a return of capital), and our charter does not limit the amount of funds we may use from any source to pay such distributions. We intend to make distributions on our common stock on a per share basis with each share receiving the same distribution. If we fund distributions from financings, the proceeds from this or future offerings or other sources, we will have less funds available for investment in multifamily apartment communities and other multifamily real estate-related assets and the number of real estate properties that we invest in and the overall return to our shareholders may be reduced. If we fund distributions from borrowings, our interest expense and other financing costs, as well as the repayment of such borrowings, will reduce our earnings and cash flow from operations available for distribution in future periods. If we fund distributions from the sale of assets or the maturity, payoff or settlement of multifamily real estate-related assets, this will affect our ability to generate cash flows from operations in future periods.

We expect to have little, if any, cash flow from operations available for distribution until we make substantial investments. During the early stages of our operations, it is likely that we will use sources of funds which may constitute a return of capital to fund distributions. During this offering stage, when we may raise capital more quickly than we acquire income-producing assets, and for some period after this offering stage, we may not be able to make distributions solely from our cash flow from operations. Further, because we may receive income from our investments at various times during our fiscal year and because we may need cash flow from operations during a particular period to fund capital expenditures and other expenses, we expect that at least during the early stages of our existence and from time to time during our operational stage, we will declare distributions in anticipation of cash flow that we expect to receive during a later period and we will make these distributions in advance of our actual receipt

of these funds. In addition, to the extent our investments are in development or redevelopment projects or in properties that have significant capital requirements, our ability to make distributions may be negatively impacted, especially during our early periods of operation. In these instances, we expect to look to third party borrowings to fund our distributions. We may also fund such distributions from the sale of assets. To the extent that we pay distributions from sources other than our cash flow from operating activities, we will have less funds available for the acquisition of real estate investments, the overall return to our shareholders may be reduced and subsequent investors will experience dilution. In addition, to the extent distributions exceed cash flow from operating activities, a shareholder's basis in our stock will be reduced and, to the extent distributions exceed a shareholder's basis, the shareholder may recognize capital gain.

For the nine months ended September 30, 2019, we paid aggregate distributions of $1,086,168, including $874,358 distributions paid in cash and $211,810 of distributions reinvested through our distribution reinvestment plan. Our net loss for the nine months ended September 30, 2019 was $2,264,201. Cash flows provided by operating activities for the nine months ended September 30, 2019 was $192,451. We funded our total distributions paid, which includes net cash distributions and distributions reinvestment by shareholders, with $384,310 prior period cash provided by operating activities and $701,858 of offering proceeds. Generally, for purposes of determining the source of our distributions paid, we assume first that we use cash flow from operating activities from the relevant or prior periods to fund distribution payments.

Holders of our preferred stock will have dividend, liquidation and other rights that are senior to the rights of the holders of our common stock.

Our board of directors has the authority to designate and issue preferred stock with liquidation, dividend and other rights that are senior to those of our common stock. On November 8, 2019, we classified and designated 5,000,000 shares of our authorized but unissued preferred stock as shares of non-voting Series 2019 preferred stock which we are offering for sale through a best-efforts private placement offering of up to $50,000,000 to accredited investors only. The Series 2019 preferred stock will be entitled to receive a preferred dividend equal to a 5.5% (subject to an increase to 6.0% in certain circumstances) per annum cumulative but not compounded return on invested capital on the purchase price of $10.00.

Holders of our Series 2019 preferred stock are entitled to cumulative dividends before any dividends may be declared or set aside on our common stock, or the redemption of our common stock. Upon our voluntary or involuntary liquidation, dissolution or winding up, before any payment is made to holders of our common stock, holders of the preferred stock are entitled to receive a liquidation preference of $10.00 per share plus any accrued and unpaid distributions. This will reduce the remaining amount of our assets, if any, available to distribute to holders of our common stock. Because the offering of the Series 2019 preferred stock is being made without a firm commitment for any purchase of the preferred stock, we can provide no assurances as to how many, if any, shares of preferred stock we will issue.

Information Regarding Distributions

On October 3, 2019, we paid distributions of $276,612, which related to distributions declared for daily record dates for each day in the period from September 1, 2019 through September 30, 2019. On November 8, 2019, we paid distributions of $312,628, which related to distributions declared for daily record dates for each day in the period from October 1, 2019 through October 31, 2019.

On November 12, 2019, our board of directors declared cash distributions on the outstanding shares of our common stock based on daily record dates for the period from December 1, 2019 through December 31, 2019, which we expect to pay in January 2020; the period from January 1, 2020 through January 31, 2020, which we expect to pay in February 2020; and the period from February 1, 2020 through February 29, 2020, which we expect to pay in March 2020. Investors may choose to receive cash distributions or purchase additional shares through our distribution reinvestment plan. Distributions for the period from December 1, 2019 through December 31, 2019 and for the period from January 1, 2020 through February 29, 2020 will be calculated based on stockholders of record each day during these periods at a rate of $0.00136986 and $0.00136612, respectively, per share per day. Distributions declared at this daily rate equal an annualized rate of 5.0% based on a $10.00 purchase price per share and assuming distributions are paid every day for a year at the current daily distribution rate.

For more information regarding distributions, see “Management's Discussion and Analysis of Financial Condition and Results of Operations - Distributions” below.

Preferred Stock

On November 8, 2019, we classified and designated 5,000,000 shares of our authorized but unissued preferred stock as shares of non-voting Series 2019 preferred stock. The Series 2019 preferred stock, with respect to dividend rights and rights upon voluntary or involuntary liquidation, dissolution or winding up of the company, ranks senior to the common stock.

Stockholders of Series 2019 preferred stock are entitled to, when and as authorized by our board of directors and declared by us, cash dividends at the rate of 5.5% per annum of $10.00 per share (equivalent to a fixed annual rate of $0.55 per share). If we extend the term of the Series 2019 preferred stock beyond December 31, 2023, such rate will increase to 6.0% per annum of $10.00 per share (equivalent to a fixed annual rate of $0.60 per share). Dividends will accrue and be cumulative from and including the first date on which the Series 2019 preferred stock is issued.

Upon any voluntary or involuntary liquidation, dissolution or winding up of the company, the stockholders of Series 2019 preferred stock will be entitled to receive a liquidation preference of $10.00 (the “Purchase Price”), plus any accrued and unpaid dividends (whether or not authorized or declared) thereon to and including the date of payment, before any payments are made to the holders of the common stock.

We must redeem the Series 2019 preferred stock for cash at a redemption price per share equal to the Purchase Price plus any accrued and unpaid dividends thereon to, and including, the redemption date, to the extent there are funds legally available therefor on December 31, 2023, which date may be extended by two 1-year extension options.

Private Offering

On November 8, 2019, we launched a best-efforts private placement offering exempt from registration pursuant to Rule 506(b) of Regulation D of the Securities Act pursuant to which we are offering shares of our Series 2019 preferred stock to accredited investors only. In connection with the private offering, we entered a managing broker dealer agreement with an unaffiliated third party to act as the managing broker dealer for the private offering. Pursuant to the terms of the managing broker dealer agreement, the managing broker dealer will receive selling commissions in an amount up to 6% of the gross offering proceeds from the private offering, which it will reallow to selling group members, and a placement fee in an amount up to 3% of the gross offering proceeds from the private offering, which it will reallow, in whole or in part, to certain wholesalers which are internal to affiliates of our advisor. We will be responsible for paying all of the expenses associated with the private offering and anticipate that total offering expenses will be approximately $4,750,000 if the maximum offering amount is raised. The managing broker dealer agreement requires us to indemnify the managing broker dealer with respect to liabilities, including certain civil liabilities under the Securities Act, which may arise in connection with the private offering.

Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our financial statements and the related notes included in this supplement.

This discussion contains forward-looking statements that can be identified with the use of forward-looking terminology such as “may,” “will,” “seeks,” “anticipates,” “believes,” “estimates,” “expects,” “plans,” “intends,” “should” or similar expressions. Actual results may differ from those described in forward-looking statements. For a discussion of the factors that could cause actual results to differ from those anticipated, see “Risk Factors” in the prospectus as supplemented to date.

Overview

Cottonwood Communities, Inc. is a Maryland corporation formed on July 27, 2016 to invest primarily in multifamily apartment communities and multifamily real estate-related assets throughout the United States. We seek to invest at least 65% of our assets in stabilized multifamily apartment communities and up to 35% in mortgage loans, preferred equity investments, mezzanine loans or equity investments in a property or land which will be developed into a multifamily apartment community (including, by way of example, an existing multifamily apartment community that may require redevelopment capital for strategic repositioning within its market). We do not expect to be able to achieve the balance of these allocations until we have raised substantial proceeds during our offering stage. Although this is our current target portfolio, we may make adjustments to our target portfolio based on real estate market conditions and investment opportunities. We will not forego what we believe to be a good investment because it does not precisely fit our expected portfolio composition.

Our investment objectives are to:


•	preserve, protect and return invested capital;


•	pay stable cash distributions to stockholders;


•	realize capital appreciation in the value of our investments over the long term; and


•	provide a real estate investment alternative with lower expected volatility relative to public real estate companies whose securities trade daily on a stock exchange.

There is no assurance that we will attain our investment objectives. Our charter places numerous limitations on us with respect to the manner in which we may invest our funds. In most cases these limitations cannot be changed unless our charter is amended, which may require the approval of our common stockholders.

On August 13, 2018, we commenced this best-efforts initial public offering of up to $750,000,000 in shares of our common stock, consisting of up to $675,000,000 in shares of common stock in our primary offering and up to $75,000,000 in shares of common stock pursuant to our distribution reinvestment plan (the "DRP Offering”) at a purchase price of $10.00 per share (with discounts available to certain categories of purchasers) in both the primary and the DRP Offering. Effective October 15, 2019, we amended our registration statement for this offering to offer two classes of our common stock: Class A and Class T. We are offering both classes of our shares for sale in the primary offering at $10.00 per share (with discounts available to certain categories of purchasers of our Class A shares) and shares of both classes in the DRP Offering at $10.00 per share. Shares in this offering are being sold without any upfront costs or expenses charged to the investor. We are offering to sell any combination of our Class A and Class T common stock in this offering, with a dollar value up to the maximum offering amount.

On November 8, 2019, we launched a best-efforts private placement offering exempt from registration pursuant to Rule 506(b) of Regulation D of the Securities Act of 1933, as amended (the “Securities Act”) pursuant to which we are offering a maximum of $50,000,000 in shares of our Series 2019 preferred stock to accredited investors at a purchase price of $10.00 per share.

We operate under the direction of our board of directors. Our board of directors has retained CC Advisors III, LLC to conduct our operations and manage our portfolio of real estate investments, subject to the supervision of the board of directors. Our advisor is an affiliate of our sponsor. We have no paid employees.

We intend to qualify as a real estate investment trust beginning with the taxable year ending December 31, 2019. We utilize an UPREIT organizational structure to hold all or substantially all of our assets through Cottonwood Communities O.P., LP. We are the general partner of the Operating Partnership.

As of September 30, 2019, we have raised approximately $70.6 million and own a multifamily community in West Palm Beach, Florida, a B Note secured by a deed of trust on a multifamily development project in Allen, Texas, and have entered into an agreement to make a preferred equity investment in a multifamily development project in Ybor City, Florida.

Multifamily Real Estate Outlook

We believe that current market dynamics and underlying fundamentals suggest the positive trends in United States multifamily housing will continue. Steady job growth, low unemployment, increased rentership rates, increasing household formation and aligned demographics provide the backdrop for strong renter demand. We believe that other factors impacting the prime United States renter demographic such as delayed major life decisions, increased levels of student debt and tight credit standards in the single-family home mortgage market also support the value proposition for owning multifamily apartment communities.

Our Investments

Cottonwood West Palm

On May 30, 2019, we acquired Cottonwood West Palm, a 245-unit, elevator-serviced, concrete and stucco community in West Palm Beach, Florida. The contract purchase price was approximately $67.0 million, excluding closing costs. Refer to supplement no. 1 for information about the property as well as the purchase and financing arrangement for this investment.

Dolce B Note

On July 31, 2019, we invested in a B note secured by a deed of trust on a development project for an amount of up to $10 million (which commitment could rise to $10.5 million in certain circumstances) (the “Dolce B Note”). The borrower is an unaffiliated third party. The borrower intends to use the proceeds from the Dolce B Note, additional financing in the amount of $45.5 million (the “Dolce A Note”) and $17.9 million in common equity for the development of Dolce Twin Creeks, Phase II, a proposed 366-unit multifamily project and approximately 15,000 square feet of medical office space on a 10.89 acre site located in Allen, Texas, a northern suburb of Dallas (the “Project”).

The Dolce B Note bears interest at a rate of 9.50% plus 1-month LIBOR and is expected to be drawn upon in stages as needed throughout the construction of the Project. As of September 30, 2019, $1.1 million had been drawn. The Dolce B Note includes a 1-month LIBOR floor equal to 2.50%, resulting in an interest rate floor equal to 12.00% and matures on December 31, 2021 with two six-month extension options. Prior to maturity, the borrower is required to make monthly interest only payments with principal due at maturity. Prepayment is permitted in whole but not in part subject to certain prepayment fees. The borrower may obtain a release of the parcel that will contain the medical office space for a minimum release price of $3,960,000 (82.5% of the as-stabilized appraised value of that parcel), which would be applied pro rata, without prepayment fees, to repayment of the Dolce A Note and the Dolce B Note.

Lector85 Investment

On August 15, 2019, we entered into an agreement to make a preferred equity investment of up to $9.9 million in Lector85, a multifamily community in Ybor City, Florida (the “Lector85 Investment”). In connection with our investment we entered a joint venture agreement with Milhaus, LLC (“Milhaus”), the sponsor of the development.

Milhaus intends to use the Lector85 Investment, along with a $34.0 million construction loan and equity of $9.3 million to fund the total development costs of $53.3 million for a 4-story, 254-unit urban-style apartment community that will include over 11,000 square feet of retail. The Lector85 Investment is expected to be drawn upon in stages as needed throughout the construction of the Project. As of September 30, 2019, Milhaus had not drawn on the Lector84 Investment.

Pursuant to the terms of the joint venture agreement, the Lector85 Investment has an annual preferred return of 13% that will be reduced to 10% annually upon the later to occur of (i) the stabilization of the development project, or (ii) the one-year anniversary of the receipt of all temporary certificate of occupancies for the development project, subject to certain financial covenants being satisfied. The investment has a special preferred return of $200,000 to be paid upon redemption and provides a minimum cumulative return upon redemption, sale or similar transaction of 35%. Subject to one twelve-month extension option, the redemption date is no earlier than two years after the receipt of all temporary certificate of occupancies for the development project (the “Redemption Lockout Date”) but no later than the earlier of (i) the payment in full of the construction loan, if the loan is repaid after the Redemption Lockout Date, or (ii) the construction loan maturity date, if the loan is not refinanced prior to the Redemption Lockout Date.

Results of Operations

We commenced real estate operations on May 30, 2019 with the acquisition of Cottonwood West Palm and, as a result, do not have nine months of real estate operations for discussion.

During the three months ended September 30, 2019, we completed our first full quarter of operations with our Cottonwood West Palm property, which resulted in rental and other property revenues of $1,180,972 offset by property operations expense of $661,181, depreciation and amortization expenses of $1,270,577, and interest expense of $388,186. During the three months ended September 30, 2019, we also continued our capital raising and deal sourcing efforts, earning interest of $137,543 on cash deposits and interest of $16,699 from our Dolce B Note, while incurring operating expenses owed to related parties of $148,906, asset management fees of $296,126, and general and administrative expenses of $210,700. Asset management fees waived by our Advisor during the period were $310,484. The resulting net loss for the period was $1,329,978. As expected, both revenue and expense amounts increased compared to prior quarter as a result of a full quarter of operations which included our Cottonwood West Palm property, additional proceeds raised in this offering and activities related to the sourcing of real estate investments.

Our advisor is paying all selling commissions, dealer manager fees and organizational and offering expenses related to the Offering on our behalf without reimbursement by us. We are responsible for the payment of selling commissions, dealer manager fees and other offering expenses related to the private offering.

Non-GAAP Financial Measures

Funds from operations, or FFO, is a measure of the operating performance of a REIT and of our company. We compute FFO in accordance with the standards established by the National Association of Real Estate Investment Trusts, or NAREIT, as net income or loss (computed in accordance with GAAP), excluding gains or losses from sales of depreciable properties, the cumulative effect of changes in accounting principles, real estate-related depreciation and amortization, and after adjustments for our share of unconsolidated partnerships and joint ventures.

Our management also uses Core FFO as a measure of our operating performance. Core FFO excludes certain non-cash or non-routine items that we do not believe are reflective of our ongoing operating performance. Core FFO excludes from FFO amortization of debt issuance costs and mark-to-market adjustments on interest rate caps, if any. Debt issuance costs are amortized over the term of the debt as an interest expense. We have excluded the amortization of debt issuance costs in our calculation of Core FFO to more appropriately reflect the impact of these costs on our operating performance as these closing costs are not reflective of charges actually incurred during the period. We believe excluding these items provides investors with a useful supplemental metric that directly addresses our ongoing operating performance.

Our calculation of Core FFO may differ from the methodology used for calculating Core FFO by other REITs and, accordingly, our Core FFO may not be comparable. We utilize FFO and Core FFO as measures of our operating performance, and believe these measures are also useful to investors because they facilitate an understanding of our operating performance after adjusting for non-cash expenses and other items not indicative of ongoing operating performance.

Neither FFO nor Core FFO is equivalent to net income or cash generated from operating activities determined in accordance with U.S. GAAP. Furthermore, FFO and Core FFO do not represent amounts available for management’s discretionary use because of needed capital replacement or expansion, debt service obligations or other commitments or uncertainties. Neither FFO nor Core FFO should be considered as an alternative to net income as an indicator of our operating performance or as an alternative to cash flow from operating activities as a measure of our liquidity.

A reconciliation of FFO and Core FFO to net loss for the three months ended September 30, 2019 (our first full quarter of operations with our Cottonwood West Palm property) is as follows:



(Amounts in thousands, except share data)	Three Months Ended September 30, 2019
Net loss	$	(1,329,978	)
Adjustments:
Depreciation and amortization	1,270,577
FFO	(59,401		)
Adjustments:
Amortization of debt issuance costs	26,677
Core FFO	$	(32,724	)

FFO per share - basic and diluted	$	(0.01	)
Core FFO per share - basic and diluted	$	(0.01	)
Weighted average shares outstanding	6,091,617

Liquidity and Capital Resources

We are dependent upon the proceeds from our offering stage to conduct our proposed operations. We will obtain the capital required to purchase multifamily apartment communities and make investments in multifamily real estate-related assets and conduct our operations from the proceeds of this offering, the private offering, from secured or unsecured financings from banks and other lenders, and from any undistributed funds from our operations. As of September 30, 2019, we owned a multifamily community in West Palm Beach, Florida, a B Note secured by a deed of trust on a multifamily development project in Allen, Texas, and have entered into an agreement to make a preferred equity investment in a multifamily development project in Ybor City, Florida as well as cash and cash equivalents of $36,549,491.

If we are unable to raise substantial funds during our offering stage, we will make fewer investments resulting in less diversification in terms of the type, number, and size of investments we make and the value of an investment in us will fluctuate

with the performance of the specific assets we acquire. Further, we will have certain fixed operating expenses regardless of whether we are able to raise substantial funds. Our inability to raise substantial funds would increase our fixed operating expenses as a percentage of gross income, reducing our net income and limiting our ability to make distributions. We do not expect to establish a permanent reserve from our offering proceeds for maintenance and repairs of real properties. However, to the extent that we have insufficient funds for such purposes, we may establish reserves from gross offering proceeds, out of cash flow from operations, or from net cash proceeds from the sale of properties.

We target an aggregate loan-to-cost or loan-to-value ratio of 45% to 65% at the REIT level; provided, however, that we may obtain financing that is less than or exceeds such ratio in the discretion of our board of directors if the board of directors deems it to be in our best interest to obtain such financing. Although there is no limit on the amount we can borrow to acquire a single real estate investment, we may not leverage our assets with debt financing such that our borrowings are in excess of 300% of our net assets, unless a majority of our conflicts committee finds substantial justification for borrowing a greater amount and such excess borrowings are disclosed in our next quarterly report, along with the conflicts committee’s justification for such excess. Examples of such a substantial justification include obtaining funds for the following: (i) to repay existing obligations, (ii) to pay sufficient distributions to maintain REIT status, or (iii) to buy an asset where an exceptional acquisition opportunity presents itself and the terms of the debt agreement and the nature of the asset are such that the debt does not increase the risk that we would become unable to meet our financial obligations as they became due. We anticipate that all financing obtained to acquire stabilized multifamily apartment communities will be non-recourse to the Operating Partnership and us (however, it is possible that some of these loans will require us to enter into guaranties with respect to certain non-recourse carve-outs). We may obtain recourse debt in connection with certain development transactions. The terms of any financing to be obtained are not currently known and we have not obtained any financing commitments for any multifamily apartment communities.

The Facility agreement with Berkadia entered in connection with our acquisition of Cottonwood West Palm is our only outstanding debt obligation as of September 30, 2019. It has no limit on the amount that we can borrow so long as we maintain the loan-to-value ratio and other requirements set forth in the loan documents. We may obtain additional lines of credit or enter into other financing arrangements that may be secured by one or more of our assets. We may use the proceeds from any line of credit or financing to bridge the acquisition of, or acquire, multifamily apartment communities and multifamily real estate-related assets if our board of directors determines that we require such funds to acquire the multifamily apartment communities or real estate-related assets.

In addition to making investments in accordance with our investment objectives, we expect to use our capital resources to make certain payments in connection with the Private Offering as well as to our advisor and our affiliated property manager pursuant to the terms of our advisory agreement and form of property management agreement.

We intend to make an election to be taxed as a REIT under the Internal Revenue Code commencing with the year ended December 31, 2019. To maintain our qualification as a REIT, we will be required to make aggregate annual distributions to our stockholders of at least 90% of our REIT taxable income (computed without regard to the dividends-paid deduction and excluding net capital gain). Our board of directors may authorize distributions in excess of those required for us to maintain REIT status depending on our financial condition and such other factors as our board of directors deems relevant.

Cash Flows

The following table provides a breakdown of the net change in our cash and cash equivalents and restricted cash:



	Nine Months Ended September 30, 2019
Net cash provided by operating activities	$	192,451
Net cash used in investing activities	(32,364,478		)
Net cash provided by financing activities	65,502,776
Net increase in cash and cash equivalents and restricted cash	$	33,330,749

Cash flows provided by operating activities were $192,451 during the nine months ended September 30, 2019, primarily as a result of four months of real estate income since the acquisition of Cottonwood West Palm combined with the deferral of payment on accounts payable, accrued expenses and other liabilities.

Cash flows used in investing activities were $32,364,478 during the nine months ended September 30, 2019, primarily due to our purchase of Cottonwood West Palm and draws on the Dolce B-Note.

Cash flows provided by financing activities were $65,502,776 during the nine months ended September 30, 2019, primarily due to the net proceeds we received from the issuance of our common stock.

There were no operating, investing or financing activities for the nine months ended September 30, 2018.

Distributions

During our offering stage, when we may raise capital more quickly than we acquire income-producing assets, and for some period after our offering stage, we will not be able to make distributions solely from our cash flow from operating activities. Further, because we may receive income from our investments at various times during our fiscal year and because we may need cash flow from operations during a particular period to fund capital expenditures and other expenses, we expect that at least during the early stages of our existence and from time to time during our operational stage, we will declare distributions in anticipation of cash flow that we expect to receive during a later period and we will make these distributions in advance of our actual receipt of these funds.

Distributions declared, distributions paid and cash flow used in operating activities were as follows:



				Distributions Paid⁽³⁾
Period	Distributions Declared⁽¹⁾		Distributions Declared Per Share⁽¹⁾⁽²⁾	Cash		Reinvested (DRP)		Total		Cash Provided By (Used In) Operating Activities
First Quarter 2019	$	117,486	0.06216279	$	40,024	$	18,021	$	58,045	$	(19,449	)
Second Quarter 2019	477,731		0.09442300	271,447		69,565		341,012		384,310
Third Quarter 2019	767,563		0.10825698	562,887		124,224		687,111		(172,410		)
Total	$	1,362,780		$	874,358	$	211,810	$	1,086,168	$	192,451

⁽¹⁾ Distributions for the periods from January 1, 2019 through February 28, 2019 and March 19, 2019 through September 30, 2019 were based on daily record dates and were calculated at a rate of $0.00136986 per share per day. A daily distribution in the amount of 0.02465753 per share was declared for stockholders of record as of March 18, 2019.

⁽²⁾ Assumes share was issued and outstanding each day during the period presented.

⁽³⁾ Distributions are paid on a monthly basis and include distributions declared for daily record dates starting December 18, 2018. In general, distributions for all record dates of a given month are paid on or about the fifth business day of the following month.

For the three months ended September 30, 2019, we paid aggregate distributions of $687,111, including $562,887 distributions paid in cash and $124,224 of distributions reinvested through our distribution reinvestment plan. For the nine months ended September 30, 2019, we paid aggregate distributions of $1,086,168, including $874,358 distributions paid in cash and $211,810 of distributions reinvested through our distribution reinvestment plan. Our net loss for the nine months ended September 30, 2019 was $2,264,201. Cash flows provided by operating activities for the nine months ended September 30, 2019 was $192,451. We funded our total distributions paid, which includes net cash distributions and distributions reinvestment by shareholders, with $384,310 prior period cash provided by operating activities and $701,858 of offering proceeds. Generally, for purposes of determining the source of our distributions paid, we assume first that we use cash flow from operating activities from the relevant or prior periods to fund distribution payments. To the extent that we pay distributions from sources other than our cash flow from operating activities, we will have less funds available for the acquisition of real estate investments, the overall return to our stockholders may be reduced and subsequent investors will experience dilution. In addition, to the extent distributions exceed cash flow from operating activities, a stockholder's basis in our stock will be reduced and, to the extent distributions exceed a stockholder's basis, the stockholder may recognize capital gain.

We expect our board of directors to continue to authorize and declare distributions based on daily record dates and to pay these distributions on a monthly basis. We have not established a minimum distribution level for our common shareholders, and our charter does not require that we make distributions to our common shareholders. See "Subsequent Events" for information on distributions payable to our Series 2019 Preferred Stock. We may also issue stock dividends. The timing and amount of distributions will be determined by our board of directors in its sole discretion and may vary from time to time.

Critical Accounting Policies

A critical accounting policy is one that is both important to our financial condition and results of operations and that involves some degree of uncertainty. The preparation of our financial statements may require 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 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 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. We consider our accounting policy over investments in real estate to be critical. See Note 2 of the consolidated financial statements in this supplement for further description of this policy.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



Consolidated Balance Sheets as of September 30, 2019 (Unaudited) and December 31, 2018	F - 2
Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2019 and 2018 (Unaudited)	F - 3
Consolidated Statements of Stockholders' Equity for the Three and Nine Months Ended September 30, 2019 and 2018 (Unaudited)	F - 4
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018 (Unaudited)	F - 5
Notes to Consolidated Financial Statements (Unaudited)	F - 6

F - 1



Cottonwood Communities, Inc.
Consolidated Balance Sheets

	September 30, 2019			December 31, 2018
Assets	(Unaudited)
Real estate assets, net	$	64,810,011		$	—
Real estate note investment	1,119,994			—
Cash and cash equivalents	36,549,491			3,406,175
Restricted cash	187,433			—
Related party receivables	312,846			—
Other assets	729,058			317,279
Total assets	103,708,833			3,723,454
Liabilities and equity
Liabilities
Credit facility, net	34,963,468			—
Related party payables	431,478			128,617
Accounts payable, accrued expenses and other liabilities	1,485,233			29,146
Total liabilities	36,880,179			157,763
Commitments and contingencies (Note 10)
Stockholders' equity
Preferred stock, $0.01 par value, 100,000,000 shares authorized	—			—
Common stock, $0.01 par value, 1,000,000,000 shares authorized; 7,090,194 shares issued and outstanding at September 30, 2019; 366,654 shares issued and outstanding at December 31, 2018	70,902			3,667
Additional paid-in capital	70,484,942			3,662,233
Accumulated distributions	(1,362,780		)	—
Accumulated deficit	(2,364,410		)	(100,209		)
Total stockholders' equity	66,828,654			3,565,691
Total liabilities and stockholders' equity	$	103,708,833		$	3,723,454

See accompanying notes to consolidated financial statements

F - 2



Cottonwood Communities, Inc.
Consolidated Statements of Operations
(Unaudited)

	Three Months Ended September 30,					Nine Months Ended September 30,
	2019			2018		2019			2018
Revenues
Rental and other property revenues	$	1,180,972		$	—	$	1,548,514		$	—
Real estate note investment interest	16,699			—		16,699			—
Total revenues	1,197,671			—		1,565,213			—
Expenses
Property operations expense	661,181			—		883,822			—
Reimbursable operating expenses to related parties	148,906			—		399,391			—
Asset management fee to related party	296,126			—		453,851			—
Depreciation and amortization	1,270,577			—		1,716,528			—
General and administrative expenses	210,700			—		463,058			2,072
Total operating expenses	2,587,490			—		3,916,650			2,072
Other income (expense)
Interest income	137,543			—		299,574			—
Interest expense	(388,186		)	—		(522,822		)	—
Total other expense	(250,643		)	—		(223,248		)	—
Total expenses before asset management fee waiver	(2,838,133		)	—		(4,139,898		)	(2,072		)
Asset management fee waived by Advisor	310,484			—		310,484			—
Net expenses after asset management fee waiver	(2,527,649		)	—		(3,829,414		)	(2,072		)
Net loss	$	(1,329,978	)	$	—	$	(2,264,201	)	$	(2,072	)

Weighted-average shares outstanding	6,091,617			20,000		3,613,382			20,000
Net loss per common share - basic and diluted	$	(0.22	)	$	—	$	(0.63	)	$	(0.10	)

See accompanying notes to consolidated financial statements

F - 3



Cottonwood Communities, Inc.
Consolidated Statements of Stockholders' Equity
(Unaudited)

	Common Stock
	Shares	Amount		Additional Paid-In Capital		Accumulated Distributions			Accumulated Deficit			Total Equity
Balance at January 1, 2019	366,654	$	3,667	$	3,662,233	$	—		$	(100,209	)	$	3,565,691
Issuance of common stock	1,523,319	15,233		15,186,682		—			—			15,201,915
Distributions to investors	—	—		—		(58,045		)	—			(58,045		)
Net loss	—	—		—		—			(231,511		)	(231,511		)
Balance at March 31, 2019	1,889,973	18,900		18,848,915		(58,045		)	(331,720		)	18,478,050
Issuance of common stock	3,169,474	31,695		31,525,121		—			—			31,556,816
Distributions to investors	—	—		—		(537,172		)	—			(537,172		)
Net loss	—	—		—		—			(702,712		)	(702,712		)
Balance at June 30, 2019	5,059,447	50,595		50,374,036		(595,217		)	(1,034,432		)	48,794,982
Issuance of common stock	2,030,747	20,307		20,110,906		—			—			20,131,213
Distributions to investors	—	—		—		(767,563		)	—			(767,563		)
Net loss	—	—		—		—			(1,329,978		)	(1,329,978		)
Balance at September 30, 2019	7,090,194	$	70,902	$	70,484,942	$	(1,362,780	)	$	(2,364,410	)	$	66,828,654

	Common Stock
	Shares	Amount		Additional Paid-In Capital		Accumulated Distributions			Accumulated Deficit			Total Equity
Balance at January 1, 2018	20,000	$	200	$	199,800	$	—		$	—		$	200,000
Net loss	—	—		—		—			(963		)	(963		)
Balance at March 31, 2018	20,000	200		199,800		—			(963		)	199,037
Net loss	—	—		—		—			(1,109		)	(1,109		)
Balance at June 30, 2018	20,000	200		199,800		—			(2,072		)	197,928
Net income	—	—		—		—			—			—
Balance at September 30, 2018	20,000	$	200	$	199,800	$	—		$	(2,072	)	$	197,928

See accompanying notes to consolidated financial statements

F - 4



Cottonwood Communities, Inc.
Consolidated Statements of Cash Flows
(Unaudited)

	Nine Months Ended September 30,
	2019			2018
Cash flows from operating activities:
Net loss	$	(2,264,201	)	$	(2,072	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	1,716,528			—
Amortization of debt issuance costs	35,570			—
Changes in operating assets and liabilities:
Related party receivables	(312,846		)	—
Other assets	1,413			—
Related party payables	302,861			—
Accounts payable, accrued expenses and other liabilities	713,126			2,072
Net cash provided by operating activities	192,451			—
Cash flows from investing activities:
Acquisition of real estate	(31,171,298		)	—
Capital improvements to real estate	(73,186		)	—
Issuance of real estate note investment	(1,119,994		)	—
Net cash used in investing activities	(32,364,478		)	—
Cash flows from financing activities:
Proceeds from issuance of common stock	66,377,134			—
Distributions to common stockholders	(874,358		)	—
Net cash provided by financing activities	65,502,776			—
Net increase in cash and cash equivalents and restricted cash	33,330,749			—
Cash and cash equivalents and restricted cash, beginning of period	3,406,175			200,000
Cash and cash equivalents and restricted cash, end of period	$	36,736,924		$	200,000

Reconciliation of cash and cash equivalents and restricted cash to the consolidated balance sheets:
Cash and cash equivalents	$	36,549,491		$	200,000
Restricted cash	187,433			—
Total cash and cash equivalents and restricted cash	$	36,736,924		$	200,000

Supplemental disclosure of cash flow information:
Cash paid for interest	$	369,368		$	—
Cash paid for income and other taxes	8,627			200

Supplemental disclosure of non-cash investing and financing activities:
Credit facility entered into in conjunction with acquisition of real estate	$	35,995,000		$	—
Assumption of liabilities in connection with acquisition of real estate	452,639			—
Proceeds receivable for issuance of common stock	557,000			—
Issuance of common stock through dividend reinvestment program	211,810			—
Distributions declared but not yet paid	276,612			—

See accompanying notes to consolidated financial statements

F - 5

Cottonwood Communities, Inc.

Notes to Consolidated Financial Statements

(Unaudited)


1.	Organization and Business

Cottonwood Communities, Inc. is a Maryland corporation formed on July 27, 2016 that intends to qualify as a real estate investment trust or REIT beginning with the taxable year ending December 31, 2019. The Company is the sole general partner of Cottonwood Communities O.P., LP, a Delaware limited partnership (the “Operating Partnership”). Cottonwood Communities Investor, LLC, a wholly owned subsidiary of Cottonwood Residential O.P., LP (“CROP”), is the sole limited partner of the Operating Partnership. Unless the context indicates otherwise, the “Company,” “we,” “our” or “us” refers to Cottonwood Communities, Inc. and its consolidated subsidiaries, including the Operating Partnership. We were formed to invest in multifamily apartment communities and real estate related assets located throughout the United States. Substantially all of our business is conducted through the Operating Partnership.

On August 13, 2018, we commenced a best-efforts initial public offering of up to $750,000,000 in shares of our common stock (the "Offering"), consisting of up to $675,000,000 in shares of common stock in our primary offering and up to $75,000,000 in shares of common stock pursuant to our distribution reinvestment plan (the "DRP Offering”) at a purchase price of $10.00 per share (with discounts available to certain categories of purchasers) in both the primary and the DRP Offering. Effective October 15, 2019, we amended our registration statement for the Offering to offer two classes of our common stock: Class A and Class T. We are offering both classes of our shares for sale in the primary offering at $10.00 per share (with discounts available to certain categories of purchasers of our Class A shares) and shares of both classes in the DRP Offering at $10.00 per share. Shares in the Offering are being sold without any upfront costs or expenses charged to the investor. We are offering to sell any combination of our Class A and Class T common stock in the Offering, with a dollar value up to the maximum offering amount.

We are externally managed and have no employees. From August 13, 2018 to March 1, 2019, Cottonwood Communities Management, LLC, an affiliate of CROP, acted as our advisor and our property manager. Effective March 1, 2019, CC Advisors III, LLC (our “advisor”) became our advisor. Cottonwood Communities Management, LLC (our "property manager") continues to act as property manager for our multifamily apartment communities.

As of September 30, 2019, we own a multifamily community in West Palm Beach, Florida, a B Note secured by a deed of trust on a multifamily development project in Allen, Texas, and have entered into an agreement to make a preferred equity investment in a multifamily development project in Ybor City, Florida (see Note 10).


2.	Summary of Significant Accounting Policies

Basis of Presentation

The accompanying interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the accounting and disclosure rules and regulations of the SEC, and reflect all adjustments, consisting only of normal recurring adjustments, which are, in our opinion, necessary for a fair presentation of our financial position as of September 30, 2019 and the results of operations and cash flows for the periods presented.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its consolidated subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of the consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

F - 6

Investments in Real Estate

In accordance with the guidance for business combinations, we determine whether the acquisition of a property qualifies as a business combination, which requires that the assets acquired and liabilities assumed constitute a business. If the property acquired does not constitute a business, we account for the transaction as an asset acquisition. The guidance for business combinations states that when substantially all of the fair value of the gross assets to be acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the asset or set of assets is not a business. All property acquisitions to date have been accounted for as asset acquisitions.

We account for asset acquisitions by allocating the total cost to the individual assets acquired and liabilities assumed on a relative fair value basis. Transaction costs associated with the acquisition of a property are capitalized as incurred and are allocated to land, building, furniture, fixtures and equipment and intangible assets on a relative fair value basis. Real estate assets and liabilities include land, building, furniture, fixtures and equipment, other personal property, in-place lease intangibles and debt. The fair values are determined using methods similar to those used by independent appraisers, and include using replacement cost estimates less depreciation, discounted cash flows, market comparisons, and direct capitalization of net operating income.

Real Estate Assets, Net

We state real estate assets at cost, less accumulated depreciation and amortization. We capitalize costs related to the development, construction, improvement, and significant renovation of properties, which include capital replacements such as scheduled carpet replacement, new roofs, HVAC units, plumbing, concrete, masonry and other paving, pools and various exterior building improvements.

We compute depreciation on a straight-line basis over the estimated useful lives of the related assets. Intangible assets are amortized to depreciation and amortization over the remaining lease term. The useful lives of our real estate assets are as follows (in years):



Land improvements	5-15
Buildings	30
Building improvements	5-15
Furniture, fixtures and equipment	5-15
Intangible assets	Over lease term

We expense ordinary maintenance and repairs to operations as incurred. We capitalize significant renovations and improvements that improve and/or extend the useful life of an asset and amortize over their estimated useful life, generally five to 15 years.

The weighted-average amortization period for the intangible lease assets acquired in connection with our multifamily community, Cottonwood West Palm, was 0.5 years.

Real Estate Note Investment

We carry our real estate note investment at amortized cost with an assessment made for impairment in the event recoverability of the principal amount becomes doubtful. If, upon testing for impairment, the fair value result of the real estate note investment or its collateral is lower than the carrying amount of the note, an allowance is recorded to lower the carrying amount to fair value, with a loss recorded in earnings. The real estate note investment on the consolidated balance sheets consists of drawn amounts on the note. Costs we incurred associated with originating the real estate note investment were not significant and have been expensed.

Interest income on our real estate note investment is recognized on an accrual basis over the life of the note and is being collected monthly.

Cash and Cash Equivalents

We consider all cash on deposit, money market funds and short-term investments with original maturities of three months or less to be cash and cash equivalents. Cash and cash equivalents consist of amounts the Company has on deposit with major commercial financial institutions.

F - 7

Income Taxes

We intend to qualify as a REIT and to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, beginning with the year ending December 31, 2019.

To qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of our taxable income to our stockholders. As a REIT, we generally are not subject to federal corporate income tax on that portion of our taxable income that is currently distributed to stockholders.

If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate income tax rates and generally will not be permitted to qualify for treatment as a REIT for federal income tax purposes for the four taxable years following the year during which qualification is lost unless the Internal Revenue Service grants relief under certain statutory provisions. Such an event could materially and adversely affect our net income and net cash available for distribution to stockholders. However, we intend to organize and operate in such a manner as to qualify for treatment as a REIT.

Organization and Offering Costs

Organization costs include all expenses incurred in connection with our formation, including but not limited to legal fees and other costs to incorporate the Company. Offering costs include all expenses incurred in connection with any offering of our shares, including legal, accounting, printing, mailing and filing fees, escrow charges and transfer agent fees, dealer manager fees and selling commissions. All organization and offering costs in connection with the Offering are paid by our advisor. We will not incur any liability for or reimburse our advisor for any of these organizational and offering costs related to the Offering. As of September 30, 2019, organizational and offering costs incurred by our advisor in connection with the Offering were approximately $7,715,000. We will be responsible for any offering related costs incurred in connection with the Private Offering. See Note 11 for additional information about these expenses.


3.	Real Estate Assets, Net

The following table summarizes the carrying amounts of our consolidated real estate assets:



	September 30, 2019
Building and building improvements	$	52,349,281
Land and land improvements	10,658,155
Furniture, fixtures and equipment	2,015,778
Intangible assets	1,503,325
	66,526,539
Less: Accumulated depreciation and amortization	(1,716,528		)
Real estate assets, net	$	64,810,011

We had no real estate assets as of December 31, 2018.

Asset acquisitions

On May 30, 2019, we acquired 100% of Cottonwood West Palm (formerly "Luma at West Palm Beach"), a multifamily community in West Palm Beach, Florida for $66,923,500. Acquired assets and liabilities were recorded at relative fair value as an asset acquisition (Note 2).

F - 8

The following table summarizes the purchase price allocation of the real estate assets acquired during the nine months ended September 30, 2019:



	Allocated Amounts
Property	Building		Land		Land Improvements		Personal Property		Intangible		Total
Cottonwood West Palm	$	52,276,096	$	9,379,895	$	1,278,260	$	2,015,778	$	1,503,325	$	66,453,354

The weighted-average amortization period for the intangible lease assets acquired in connection with the Cottonwood West Palm acquisition was 0.5 years.


4.	Real Estate Note Investment

We had interest income of $16,699 for the three and nine months ended September 30, 2019. The costs we incurred directly for originating the Dolce B Note were de minimis and have been expensed in the current period. No allowance was recorded on the Dolce B Note for the three and nine months ended September 30, 2019.


5.	Credit Facility

On May 30, 2019, in conjunction with the acquisition of Cottonwood West Palm, we, through a wholly owned subsidiary of the Operating Partnership, entered a Master Credit Facility Agreement with Berkadia Commercial Mortgage, LLC, an unaffiliated lender, under the Fannie Mae credit facility program (the “Credit Facility”). Pursuant to the terms of the Facility, we obtained an advance secured against Cottonwood West Palm in the amount of $35,995,000. The advance carries an interest-only term of 10 years and bears a fixed interest rate of 3.93%. We have the right to prepay all or a portion of the Facility at any time subject to certain fees and conditions contained in the loan documents. The Credit Facility is presented net of the origination fees that were incurred to obtain the financing.

We may finance other future acquisitions through the Credit Facility. The aggregate loan-to-value ratio for all advances made with respect to the Credit Facility cannot exceed 65% at the time any advance is made. There is no limit on the amount that we can borrow under the Credit Facility so long as we maintain the loan-to-value ratio and other requirements set forth in the Facility loan documents. Each advance will be cross-collateralized with the other advances. The Credit Facility permits us to sell the multifamily apartment communities that are secured by the Credit Facility individually, provided that certain debt coverage ratios and other requirements are met. We are in compliance with all debt covenants as of September 30, 2019.


6.	Fair Value of Financial Instruments

We estimate the fair value of our financial instruments using available market information and valuation methodologies we believe to be appropriate. As of September 30, 2019 and December 31, 2018, the fair values of cash and cash equivalents, restricted cash, other assets, related party payables, and accounts payable, accrued expenses and other liabilities approximate their carrying values due to the short-term nature of these instruments.

F - 9

Fair value measurements are determined based on the assumptions that market participants would use in pricing the asset or liability. Fair value measurements are categorized into one of three levels of the fair value hierarchy based on the lowest level of significant input used. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. Considerable judgment and a high degree of subjectivity are involved in developing these estimates. These estimates may differ from the actual amounts that we could realize upon settlement.

The fair value hierarchy is as follows:

Level 1 - Quoted (unadjusted) prices in active markets for identical assets or liabilities.

Level 2 - Other observable inputs, either directly or indirectly, other than quoted prices included in Level 1, including:


•	Quoted prices for similar assets/liabilities in active markets;


•	Quoted prices for identical or similar assets/liabilities in non-active markets (e.g., few transactions, limited information, non-current prices, high variability over time);


•	Inputs other than quoted prices that are observable for the asset/liability (e.g., interest rates, yield curves, volatilities, default rates); and


•	Inputs that are derived principally from or corroborated by other observable market data.

Level 3 - Unobservable inputs that cannot be corroborated by observable market data.

The table below includes the carrying value and fair value for our financial instruments for which it is practicable to estimate fair value:



	As of September 30, 2019				As of December 31, 2018
	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial Asset:
Real estate note investment	$	1,119,994	$	1,119,994	$	—	$	—

Financial Liability:
Credit Facility	$	35,995,000	$	37,140,000	$	—	$	—

Our real estate note investment is categorized as Level 3 in the fair value hierarchy. The Credit Facility is categorized as Level 2 in the fair value hierarchy.


7.	Stockholders' Equity

Our charter authorizes the issuance of up to 1,100,000,000 shares of capital stock, of which 1,000,000,000 shares are designated as common stock at $0.01 par value per share and 100,000,000 are designated as preferred stock at $0.01 par value per share. Effective August 13, 2019, we established two classes of common stock by designating 500,000,000 shares of common stock as Class A and 500,000,000 shares of common stock as Class T. In addition, on August 13, 2019, the currently issued and outstanding shares of common stock were renamed as Class A common stock. Both classes have identical rights and privileges.

Common Stock

Holders of our Class A and Class T common stock are entitled to receive such distributions as may be declared from time to time by our board of directors out of legally available funds, subject to any preferential rights of outstanding preferred stock. With respect to each authorized and declared distribution, each outstanding share of common stock shall be entitled to receive the same amount. The holders of our common stock are also entitled to one vote per share on all matters submitted to a shareholder vote, including the election of directors. As of September 30, 2019, we had outstanding Class A shares of 7,090,194, which includes 20,000 shares owned by CROP and 21,181 issued through our distribution reinvestment program. No Class T shares were issued and outstanding as of September 30, 2019.

F - 10

Preferred Stock

The board of directors is authorized, without approval of common shareholders, to provide for the issuance of preferred stock, in one or more classes or series, with such rights, preferences and privileges as the board of directors approves. No preferred stock was issued and outstanding as of September 30, 2019. Effective November 8, 2019, we classified and designated 5,000,000 shares of our authorized but unissued preferred stock as shares of Series 2019 Preferred Stock. See Note 11 for additional information regarding these shares.

Distributions

Distributions are determined by the board of directors based on the Company’s financial condition and other relevant factors. Investors may choose to receive cash distributions or purchase additional shares through our distribution reinvestment plan. We have paid distributions from offering proceeds and from cash flows from operations, and we may continue to fund distributions with offering proceeds. For the three months ended September 30, 2019, we paid aggregate distributions of $687,111, including $562,887 distributions paid in cash and $124,224 of distributions reinvested through our distribution reinvestment plan. For the nine months ended September 30, 2019, we paid aggregate distributions of $1,086,168, including $874,358 distributions paid in cash and $211,810 of distributions reinvested through our distribution reinvestment plan. Accrued distributions declared but not yet paid as September 30, 2019 were $276,612.

On May 13, 2019, our board of directors declared distributions on the outstanding shares of our common stock based on daily record dates for the period from July 1, 2019 through July 31, 2019; and the period from August 1, 2019 through August 31, 2019. Distributions for these periods are based on stockholders of record each day at a rate of $0.00136986 per share per day.

On August 6, 2019, our board of directors declared distributions on the outstanding shares of our common stock based on daily record dates for the period from September 1, 2019 through September 30, 2019; the period from October 1, 2019 through October 31, 2019; and the period from November 1, 2019 through November 30, 2019. Distributions for these periods are based on stockholders of record each day at a rate of $0.00136986 per share per day.


8.	Related-Party Transactions

Advisory Agreement

Our advisor is responsible for making decisions related to the structuring, acquisition, management, financing and disposition of our assets in accordance with our investment objectives, guidelines, policies and limitations. Our advisor also manages day-to-day operations, retains property managers, and performs other duties. These activities are all subject to oversight by our board of directors. Per the terms of our advisory agreement, our advisor is entitled to receive the fees for these services which are mentioned below.

Asset Management Fee

Our advisor receives an annual asset management fee, paid monthly, in an amount equal to 1.25% of gross assets, as defined in the advisory agreement, as of the last day of the prior month. We incurred asset management fees of $296,126 and $453,851 for the three and nine months ended September 30, 2019, respectively. No asset management fees were incurred for the three and nine months ended September 30, 2018. Our advisor has agreed to waive its asset management fee each month in an amount equivalent to the 6.0% discount provided to purchasers of our Class A shares who purchase their shares through certain distribution channels as specified in the prospectus for the Offering. As a result, the asset management fee waived by our advisor for the three and nine months ended September 30, 2019 was $310,484. A receivable for this amount was included within the related party receivables balance on the consolidated balance sheet as of September 30, 2019.

Contingent Acquisition Fee

After common stockholders have received, or are deemed to have received (with respect to a merger or a listing), together as a collective group, aggregate distributions sufficient to provide a return of their invested capital, plus a cumulative, noncompounded annual return on their investment (a “Required Return”), our advisor will receive a contingent acquisition fee from us that is a percentage of the cost of investments acquired or originated by us, or the amount to be funded by us to acquire or originate loans, including acquisition and origination expenses and any debt attributable to such investments plus significant capital expenditures related to the development, construction or improvement of the investment as follows: 1% contingent acquisition fee if stockholders receive a 6% Required Return; and 2% additional contingent acquisition fee if stockholders receive

F - 11

a 13% Required Return. The contingent acquisition fee is immediately payable when each Required Return has been met. The fee is based on all assets we have acquired even if no longer in our portfolio. To the extent we acquire any assets after satisfying the return threshold, the contingent acquisition fee will be immediately payable at the closing of the acquisition.

If our advisory agreement is terminated before August 13, 2028 for any reason other than our advisor’s fraud, willful misconduct or gross negligence, our advisor will receive a 3% contingent acquisition fee less the amount of any prior payments of contingent acquisition fees to our advisor. No contingent acquisition fees were incurred for the three and nine months ended September 30, 2019 and 2018.

Contingent Financing Fee

After our common stockholders have received, or are deemed to have received (with respect to a merger or a listing), together as a collective group, aggregate distributions sufficient to provide a return of their invested capital, plus a Required Return of 13%, our advisor will receive from us a contingent financing fee of 1% of the original principal amount of any financing obtained or assumed by us.

The contingent financing fee is payable upon satisfying the return threshold with respect to any financing obtained or assumed by us prior to satisfaction of the return threshold and at the closing of new financing following satisfaction of the return threshold. If our advisor agreement is terminated before August 13, 2028 for any reason other than the advisor’s fraud, willful misconduct or gross negligence, the payment of the contingent financing fee will be immediately due and payable. No contingent financing fees were incurred for the three and nine months ended September 30, 2019 and 2018.

Acquisition Expense Reimbursement

Subject to the limitations contained in our charter, our advisor receives reimbursement from us for all out-of-pocket expenses incurred in connection with the selection and acquisition or origination of investments, whether or not we ultimately acquire the property or other real estate-related investment. Acquisition expenses reimbursed to our advisor during the three and nine months ended September 30, 2019 were not significant, as we have generally incurred and paid such expenses directly.

Reimbursable Operating Expenses

We reimburse our advisor or its affiliates for all actual expenses paid or incurred by our advisor or its affiliates in connection with the services provided to us, including our allocable share of our advisor’s or its affiliates’ overhead, such as rent, personnel costs, utilities, cybersecurity and IT costs; provided, however, that we will not reimburse our advisor or its affiliates for salaries, wages and related benefits of personnel who perform investment advisory services for us or serve as our executive officers. In addition, subject to the approval of our board of directors we may reimburse our advisor or its affiliates for costs and fees associated with providing services to us that we would otherwise engage a third party to provide. Reimbursable company operating expenses were $148,906 and $399,391 for the three and nine months ended September 30, 2019, respectively. There were no reimbursable company operating expenses for the three and nine months ended September 30, 2018.

Commencing with the quarter ending June 30, 2020, our advisor must reimburse us the amount by which our aggregate total operating expenses for the four fiscal quarters then ended exceed the greater of 2% of our average invested assets or 25% of our net income, unless the conflicts committee has determined that such excess expenses were justified based on unusual and non-recurring factors.

Property Management Fee

Our property manager operates under the terms of separate property management agreements for each community. Our property manager receives from us a property management fee in an amount up to 3.5% of the annual gross revenues of the multifamily apartment communities that it manages. We incurred property management fees of $38,753 and $53,297 for the three and nine months ended September 30, 2019. No property management fees were incurred in 2018. Property management fees are presented within property operations expense on the consolidated statements of operations.

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Promotional Interest

Cottonwood Communities Advisors Promote, LLC, an affiliated entity, will receive from the Operating Partnership a promotional interest equal to 15% of net income and cash distributions, but only after our common stockholders, together as a collective group, receive in the aggregate, cumulative distributions from us sufficient to provide a return of their invested capital plus a 6% cumulative, non-compounded annual return on their invested capital. Cottonwood Communities Advisors Promote, LLC, will not be required to make any capital contributions to our Operating Partnership in order to obtain the promotional interest.

In addition, Cottonwood Communities Advisors Promote, LLC will be entitled to a separate one-time payment upon (1) the listing of our common stock on a national securities exchange or (2) the occurrence of certain events that result in the termination or non-renewal of our advisory agreement, in each case for an amount that Cottonwood Communities Advisors Promote, LLC would have been entitled to receive as if our Operating Partnership had disposed of all of its assets at the market value of our shares of common stock as of the date of the event triggering the payment.

A separate one-time payment following the termination or non-renewal of our advisory agreement for reasons unrelated to a liquidity event for our common stockholders will be in the form of an interest-bearing promissory note that is payable only after our common stockholders have actually received distributions in the amount required before Cottonwood Communities Advisors Promote, LLC can receive the promotional interest. Provided, however, if the promissory note has not been repaid prior to a liquidity event for our common stockholders, the promissory note shall be paid in full on the date of or immediately prior to the liquidity event.

Independent Director Compensation

We pay each of our independent directors an annual retainer of $10,000. We also pay our independent directors for attending meetings as follows: (i) $500 for each board meeting attended and (ii) $500 for each committee meeting attended (if held at a different time or place than a board meeting). All directors receive reimbursement of reasonable out of pocket expenses incurred in connection with attendance at meetings of the board of directors.


9.	Economic Dependency

Under various agreements, we have engaged or will engage our advisor or its affiliates to provide certain services that are essential to us, including asset management services and other administrative responsibilities for the Company including accounting services and investor relations. Because of these relationships, we are dependent upon our advisor. If these companies were unable to provide us with the respective services, we would be required to find alternative providers of these services.


10.	Commitments and Contingencies

Lector85 Investment

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Litigation

As of September 30, 2019, we were not subject to any material litigation nor were we aware of any material litigation threatened against us.

Distribution Reinvestment Plan

We have adopted a distribution reinvestment plan whereby stockholders may elect to have us apply their dividends and other distributions to the purchase of additional shares of common stock. Participants in the plan will acquire common stock at the per share price effective on the date of purchase (initially $10.00).

Share Repurchase Program

We have a share repurchase program whereby, on a quarterly basis, stockholders may request that we repurchase all or any portion of their shares. We may choose to repurchase all, some or none of the shares that have been requested to be repurchased at our discretion, subject to limitations in the share repurchase plan. The total amount of aggregate repurchases shares will be limited to 5% of the weighted average number of shares of common stock outstanding during the prior calendar year. In addition, during any calendar year, we may redeem only the number of shares that we could purchase with the amount of net proceeds from the sale of shares under our distribution reinvestment plan during the prior calendar year.

Except for Exceptional Repurchases (as defined in the share repurchase program), the repurchase price is subject to the following discounts, depending on how long a redeeming stockholder has held each share:



Share Purchase Anniversary	Repurchase Price as a Percentage of Estimated Value ⁽¹⁾
Less than 1 year	No repurchase allowed
1 year - 2 years	85	%
3 years - 4 years	90	%
5 years and thereafter	95	%
A stockholder’s death or complete disability, less than 2 years	95	%
A stockholder’s death or complete disability, 2 years or more	100	%



⁽¹⁾	For the purposes of the share repurchase program, the “estimated value per share” will initially be equal to the purchase price per share at which the original purchaser or purchasers of the shares bought its shares from us, and the purchase price per share will be adjusted to reflect any stock dividends, combinations, splits, recapitalizations or any similar transaction with respect to the shares outstanding. We plan to establish an estimated net asset value (“NAV”) per share of its common stock based on valuations of its assets and liabilities no later than May 17, 2021 and annually thereafter. Upon our establishment of an estimated NAV per share, the estimated NAV per share will be the estimated value per share pursuant to the share repurchase program.

No shares were redeemed during the three and nine months ended September 30, 2019 and 2018.

Our board of directors may, in its sole discretion, amend, suspend or terminate our share repurchase program for any reason upon 15 days’ notice to our stockholders.


11.	Subsequent Events

We evaluate subsequent events up until the date the consolidated financial statements are issued and have determined there are none to be reported or disclosed in the consolidated financial statements other than those mentioned below.

Status of the Offering

We commenced the Offering on August 13, 2018. As of November 12, 2019, we had sold approximately 7,923,000 shares of our Class A common stock for aggregate gross offering proceeds of approximately $78,836,000. Included in these amounts were 33,236 shares of common stock sold pursuant to the DRP Offering for aggregate gross offering proceeds of $332,360. No shares of our Class T common stock had been sold as of November 12, 2019.

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Distributions Paid

Distributions paid to holders of our common stock subsequent to September 30, 2019 are as follows:



Period	Date Paid	Daily Distribution Rate		Annualized Rate ⁽¹⁾	Amount
September 1, 2019 - September 30, 2019	October 3, 2019	$	0.00136986	5.0%	$	276,612
October 1, 2019 - October 31, 2019	November 8, 2019	$	0.00136986	5.0%	$	312,628
⁽¹⁾ Annualized rate is based on the $10.00 purchase price and assumes distributions are paid every day for a year at the daily distribution rate.

Distributions Declared

Our board of directors have declared cash distributions to holders of our common stock as follows:



Period	Declaration Date	Daily Distribution Rate		Annualized Rate ⁽¹⁾	Expected Payment
November 1, 2019 - November 30, 2019	August 6, 2019	$	0.00136986	5.0%	December 2019
December 1, 2019 - December 31, 2019	November 12, 2019	$	0.00136986	5.0%	January 2020
January 1, 2020 - January 31, 2020	November 12, 2019	$	0.00136612	5.0%	February 2020
February 1, 2020 - February 29, 2020	November 12, 2019	$	0.00136612	5.0%	March 2020
⁽¹⁾ Annualized rate is based on the $10.00 purchase price and assumes distributions are paid every day for a year at the daily distribution rate.

Holders of our common stock may choose to receive cash distributions or purchase additional shares through our distribution reinvestment plan.

Pursuant to the terms of the preferred stock, our board of directors have declared cash distributions to holders of our preferred stock as follows:



Period	Declaration Date	Daily Distribution Rate		Annualized Rate ⁽¹⁾	Expected Payment
November 12, 2019 - November 30, 2019	November 12, 2019	$	0.00150685	5.5%	December 2019
December 1, 2019 - December 31, 2019	November 12, 2019	$	0.00150685	5.5%	January 2020
January 1, 2020 - January 31, 2020	November 12, 2019	$	0.00150273	5.5%	February 2020
February 1, 2020 - February 29, 2020	November 12, 2019	$	0.00150273	5.5%	March 2020
⁽¹⁾ Annualized rate is based on the $10.00 purchase price and assumes distributions are paid every day for a year at the daily distribution rate.

2980 Huron Investment

On October 25, 2019, we entered a limited liability company agreement (the “Huron Joint Venture Agreement”) with respect to a preferred equity investment (the "2980 Huron Investment") in an entity (the “2980 Huron Owner”) that has purchased and intends to develop a parcel of land commonly known as 2980 Huron Street in Denver, Colorado (the "2980 Huron Project"). The 2980 Huron Project is a proposed 13-story, 299-unit high-rise multifamily apartment community located on 0.84 acres in the Union Station North neighborhood in downtown Denver, Colorado. Upon completion, the 2980 Huron Project is expected to feature several amenities, including a pool deck, fitness center, aqua lounge and a co-working space and lounge. We expect construction on the 2980 Huron Project to commence in the first quarter of 2020 and to be completed in 2022.

We, through our wholly owned subsidiary, and an affiliate of CA Residential, a real estate investment and development firm, (the “Huron Developer”) are the sole members of the joint venture that is the sole member and owner of the 2980 Huron Owner. The Huron Developer is the managing member of the 2980 Huron Owner; however, we have approval rights with respect to major decisions involving the 2980 Huron Project. We expect the Huron Developer or its affiliates to provide services to the 2980 Huron Project for which they will earn fees separate and in addition to any payments associated with their equity interest.

Pursuant to the Huron Joint Venture Agreement we will contribute up to $20.0 million for our preferred membership interest in the 2980 Huron Owner with additional funding for the 2980 Huron Project to come from a $17.5 million common equity contribution from the Huron Developer and a $65.4 million secured construction loan (the “Huron Secured Loan”), with total

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development costs estimated at $102.9 million. Our contributions to the 2980 Huron Owner will only be made following the contribution of the full $17.5 million of equity from the Huron Developer and then will be made as project costs are incurred.

Pursuant to the terms of the Huron Joint Venture Agreement, the 2980 Huron Investment has a preferred return of 12% annually, compounded monthly, and matures on the earlier of: (i) the sale of the 2980 Huron Project (ii) the maturity of the Huron Secured Loan; and (iii) such earlier date as may be provided in the transaction documents, all subject to a one-year extension provided certain conditions are satisfied. In addition, we will receive an underwriting fee in the amount of 1% of our preferred equity investment at origination and will receive an exit fee in the amount of 0.5% of the investment amount on repayment.

Series 2019 Preferred Stock

On November 8, 2019, we filed Articles Supplementary with the State Department of Assessments and Taxation of the State of Maryland to classify and designate 5,000,000 shares of our authorized but unissued preferred stock as shares of non-voting Series 2019 preferred stock, par value $0.01. As set forth in the Articles Supplementary, the Series 2019 preferred stock will be entitled to receive a preferred dividend equal to a 5.5% (subject to an increase to 6.0% in certain circumstances) per annum cumulative but not compounded return on invested capital on the purchase price, which will have a priority over our common stock but which may become subordinate to certain other series of preferred stock and indebtedness of the Company. The Series 2019 preferred stock must be redeemed by December 31, 2023, which date may be extended by two 1-year extension options. The Series 2019 preferred stock is redeemable by us for cash beginning on January 1, 2022 or upon the occurrence of certain special events.

Operating Partnership Amendment

Effective November 8, 2019, we, as general partner of the Operating Partnership, amended the Limited Partnership Agreement of Operating Partnership, to create a series of preferred units that mirrors the rights and preferences of the Series 2019 preferred stock. We will contribute the proceeds from the sale of Series 2019 preferred stock to the Operating Partnership in exchange for preferred units.

Private Placement Offering

On November 8, 2019, we launched a private placement offering exempt from registration pursuant to Rule 506(b) of Regulation D of the Securities Act pursuant to which we are offering a maximum of $50,000,000 in shares of our Series 2019 preferred stock to accredited investors at a purchase price of $10.00 per share (the "Private Offering"). In connection with the launch of the Private Offering, on November 8, 2019, we entered a managing broker dealer agreement (the "Managing Broker Dealer Agreement") with an unaffiliated third party to act as the managing broker dealer for the Private Offering. Pursuant to the terms of the Managing Broker Dealer Agreement, the managing broker dealer will receive selling commissions in an amount up to 6% of the gross offering proceeds from the Private Offering, which it will reallow to selling group members, and a placement fee in an amount up to 3% of the gross offering proceeds from the Private Offering, which it will reallow, in whole or in part, to certain wholesalers which are internal to affiliates of our advisor. We will be responsible for paying all of the expenses associated with the Private Offering.

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Cottonwood Communities 424B3Prospectus supplement