| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
March 31, 2023
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
from____________to____________
RW HOLDINGS NNN REIT,001-40814
Maryland | 47-4156046 | ||||
| (State or other jurisdiction of
| (I.R.S. Employer Identification No.) | ||||
| (Address of principal executive offices) | (Zip Code) | ||||
(855) 742-4862
code)
| Not Applicable | ||
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | ||||||||||||
| Class C Common Stock, $0.001 par value per share | MDV | New York Stock Exchange | ||||||||||||
| 7.375% Series A Cumulative Redeemable Perpetual Preferred Stock, $0.001 par value per share | MDV.PA | New York Stock Exchange | ||||||||||||
Large accelerated filer | Accelerated filer | |||||
| Non-accelerated filer | Smaller reporting company | |||||
| Emerging growth company | ||||||
☐
RW HOLDINGS NNN REIT, INC.
September 30, 2017
ITEM 1 – Unaudited Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets
(Unaudited)
| September 30, 2017 | December 31, 2016 | |||||||
| ASSETS | ||||||||
| Real estate investments: | ||||||||
| Land | $ | 17,410,432 | $ | 5,369,238 | ||||
| Building and improvements | 73,844,326 | 24,243,072 | ||||||
| Tenant origination and absorption costs | 7,326,827 | 3,632,731 | ||||||
| Total investments in real estate property | 98,581,585 | 33,245,041 | ||||||
| Accumulated depreciation and amortization | (2,571,155 | ) | (493,185 | ) | ||||
| Total investments in real estate property, net | 96,010,430 | 32,751,856 | ||||||
| Investments in unconsolidated entities (Note 4) | 14,656,306 | 3,523,809 | ||||||
| Real estate investments, net | 110,666,736 | 36,275,665 | ||||||
| Cash and cash equivalents | 8,490,282 | 3,431,769 | ||||||
| Restricted cash | 1,099,680 | 245,604 | ||||||
| Tenant receivables | 1,151,344 | 114,320 | ||||||
| Above-market leases, net | 705,554 | 148,577 | ||||||
| Due from affiliates (Note 8) | 26,456 | 108,433 | ||||||
| Purchase and other deposits | 44,550 | 500,000 | ||||||
| Prepaid expenses and other assets | 1,067,454 | 478,192 | ||||||
| TOTAL ASSETS | $ | 123,252,056 | $ | 41,302,560 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Mortgage notes payable, net | $ | 42,705,968 | $ | 7,113,701 | ||||
| Unsecured credit facility, net | 7,119,739 | 10,156,685 | ||||||
| Accounts payable, accrued expenses and other liabilities | 2,170,142 | 470,236 | ||||||
| Below-market leases, net | 763,672 | 150,767 | ||||||
| Due to affiliates (Note 8) | 871,189 | 383,422 | ||||||
| Interest rate swap derivatives | 100,006 | - | ||||||
| Investor deposits | - | 582,516 | ||||||
| Share repurchases payable | 194,121 | 17,467 | ||||||
| TOTAL LIABILITIES | 53,924,837 | 18,874,794 | ||||||
| Redeemable common stock | 234,648 | 196,660 | ||||||
| Preferred stock, $0.001 par value, 50,000,000 shares authorized, no shares issued and outstanding | - | - | ||||||
| Class C common stock $0.001 par value, 300,000,000 shares authorized, 7,612,512 and 2,458,881 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively | 7,613 | 2,458 | ||||||
| Class S common stock $0.001 par value, 100,000,000 shares authorized, 3,000 and 0 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively | 3 | - | ||||||
| Additional paid-in-capital | 73,443,478 | 23,643,435 | ||||||
| Cumulative distributions and net losses | (4,358,523 | ) | (1,414,787 | ) | ||||
| TOTAL STOCKHOLDERS' EQUITY | 69,092,571 | 22,231,106 | ||||||
| Commitments and contingencies (Note 9) | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 123,252,056 | $ | 41,302,560 | ||||
See accompanying notes
ITEM
Balance Sheets
| March 31, 2023 | December 31, 2022 | ||||||||||
| Assets | |||||||||||
| Real estate investments: | |||||||||||
| Land | $ | 103,919,101 | $ | 103,657,237 | |||||||
| Buildings and improvements | 338,027,128 | 329,867,099 | |||||||||
| Equipment | 4,429,000 | 4,429,000 | |||||||||
| Tenant origination and absorption costs | 20,085,465 | 19,499,749 | |||||||||
| Total investments in real estate property | 466,460,694 | 457,453,085 | |||||||||
| Accumulated depreciation and amortization | (50,024,383) | (46,752,322) | |||||||||
| Total real estate investments excluding real estate investments held for sale, net | 416,436,311 | 410,700,763 | |||||||||
| Unconsolidated investment in a real estate property | 9,997,292 | 10,007,420 | |||||||||
| Total real estate investments, net | 426,433,603 | 420,708,183 | |||||||||
| Real estate investments held for sale, net | 5,255,725 | 5,255,725 | |||||||||
| Total real estate investments, net | 431,689,328 | 425,963,908 | |||||||||
| Cash and cash equivalents | 13,280,104 | 8,608,649 | |||||||||
| Tenant receivables | 8,653,550 | 7,263,202 | |||||||||
| Above-market lease intangibles, net | 1,808,483 | 1,850,756 | |||||||||
| Prepaid expenses and other assets | 5,904,737 | 6,100,937 | |||||||||
| Interest rate swap derivative | 3,485,684 | 4,629,702 | |||||||||
| Assets related to real estate investments held for sale | 15,939 | 12,765 | |||||||||
| Total assets | $ | 464,837,825 | $ | 454,429,919 | |||||||
| Liabilities and Equity | |||||||||||
| Mortgage notes payable, net | $ | 44,338,481 | $ | 44,435,556 | |||||||
| Credit facility revolver | — | 3,000,000 | |||||||||
| Credit facility term loan, net | 168,140,752 | 148,018,164 | |||||||||
| Accounts payable, accrued and other liabilities | 7,338,674 | 7,649,806 | |||||||||
| Below-market lease intangibles, net | 9,724,717 | 9,675,686 | |||||||||
| Interest rate swap derivatives | 1,327,342 | 498,866 | |||||||||
| Liabilities related to real estate investments held for sale | 51,918 | 117,881 | |||||||||
| Total liabilities | 230,921,884 | 213,395,959 | |||||||||
Commitments and contingencies (Note 10) | |||||||||||
| 7.375% Series A cumulative redeemable perpetual preferred stock, $0.001 par value, 2,000,000 shares authorized, issued and outstanding as of March 31, 2023 and December 31, 2022 | 2,000 | 2,000 | |||||||||
| Class C common stock, $0.001 par value, 300,000,000 shares authorized; 7,822,940 shares issued and 7,568,322 shares outstanding as of March 31, 2023 and 7,762,506 shares issued and 7,512,353 shares outstanding as of December 31, 2022 | 7,823 | 7,762 | |||||||||
| Class S common stock, $0.001 par value, 100,000,000 shares authorized; no shares issued and outstanding as of March 31, 2023 and December 31, 2022 | — | — | |||||||||
| Additional paid-in-capital | 279,565,984 | 278,339,020 | |||||||||
| Treasury stock, at cost, 254,618 shares and 250,153 shares held as of March 31, 2023 and December 31, 2022, respectively | (4,211,300) | (4,161,618) | |||||||||
| Cumulative distributions and net losses | (124,790,431) | (117,938,876) | |||||||||
| Accumulated other comprehensive income | 3,289,446 | 3,502,616 | |||||||||
| Total Modiv Inc. equity | 153,863,522 | 159,750,904 | |||||||||
| Noncontrolling interests in the Operating Partnership | 80,052,419 | 81,283,056 | |||||||||
| Total equity | 233,915,941 | 241,033,960 | |||||||||
| Total liabilities and equity | $ | 464,837,825 | $ | 454,429,919 | |||||||
| Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Revenue: | ||||||||||||||||
| Rental income | $ | 1,926,722 | $ | 286,576 | $ | 3,990,317 | $ | 328,041 | ||||||||
| Tenant recoveries | 389,784 | 72,968 | 915,431 | 72,968 | ||||||||||||
| Total revenue | 2,316,506 | 359,544 | 4,905,748 | 401,009 | ||||||||||||
| Expenses: | ||||||||||||||||
| Property expenses (Note 8) | 413,161 | 91,541 | 968,902 | 91,541 | ||||||||||||
| Fees to affiliates (Note 8) | 264,927 | 46,575 | 573,081 | 528,262 | ||||||||||||
| General and administrative | 904,818 | 584,488 | 2,922,840 | 590,867 | ||||||||||||
| Acquisition costs | - | - | - | 73,028 | ||||||||||||
| Depreciation and amortization | 921,692 | 204,743 | 2,077,970 | 238,232 | ||||||||||||
| Interest expense | 541,282 | 174,271 | 1,111,287 | 214,921 | ||||||||||||
| Total expenses | 3,045,879 | 1,101,618 | 7,654,080 | 1,736,851 | ||||||||||||
| Less: Expenses reimbursed/fees waived by Sponsor or affiliates (Note 8) | (626,715 | ) | (446,130 | ) | (2,064,684 | ) | (446,130 | ) | ||||||||
| Net expenses | 2,419,165 | 655,488 | 5,589,396 | 1,290,721 | ||||||||||||
| Other income (loss): | ||||||||||||||||
| Interest income | 2,988 | 619 | 3,875 | 619 | ||||||||||||
| Equity in earnings (losses) from unconsolidated entities | 688 | (4,300 | ) | 168,043 | (4,300 | ) | ||||||||||
| Total other income (loss) | 3,676 | (3,681 | ) | 171,918 | (3,681 | ) | ||||||||||
| Net loss | $ | (98,983 | ) | $ | (299,625 | ) | $ | (511,730 | ) | $ | (893,393 | ) | ||||
| Net loss per share, basic and diluted | $ | (0.01 | ) | $ | (1.39 | ) | $ | (0.10 | ) | $ | (10.44 | ) | ||||
| Weighted-average number of common shares outstanding, basic and diluted | 6,873,249 | 215,369 | 5,220,371 | 85,598 | ||||||||||||
| Dividends declared per share | $ | 0.175 | $ | 0.14 | $ | 0.525 | $ | 0.14 | ||||||||
| Three Months Ended March 31, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Rental income | $ | 10,311,182 | $ | 9,569,613 | ||||||||||
| Expenses: | ||||||||||||||
| General and administrative | 1,908,055 | 2,106,183 | ||||||||||||
| Stock compensation expense | 660,169 | 511,865 | ||||||||||||
| Depreciation and amortization | 3,272,061 | 3,300,492 | ||||||||||||
| Interest expense | 4,018,792 | 1,568,175 | ||||||||||||
| Property expenses | 1,706,843 | 2,159,865 | ||||||||||||
| Impairment of real estate investment property | 3,499,438 | — | ||||||||||||
| Impairment of goodwill | — | 17,320,857 | ||||||||||||
| Total expenses | 15,065,358 | 26,967,437 | ||||||||||||
| Gain on sale of real estate investments | — | 6,875,086 | ||||||||||||
| Operating loss | (4,754,176) | (10,522,738) | ||||||||||||
| Other income (expense): | ||||||||||||||
| Interest income | 53,695 | 13,435 | ||||||||||||
| Income from unconsolidated investment in a real estate property | 55,567 | 95,464 | ||||||||||||
| Loss on early extinguishment of debt | — | (1,725,318) | ||||||||||||
| Other | 65,993 | 65,993 | ||||||||||||
| Other income (expense), net | 175,255 | (1,550,426) | ||||||||||||
| Net loss | (4,578,921) | (12,073,164) | ||||||||||||
| Less: net loss attributable to noncontrolling interest in Operating Partnership | (816,199) | (1,928,028) | ||||||||||||
| Net loss attributable to Modiv Inc. | (3,762,722) | (10,145,136) | ||||||||||||
| Preferred stock dividends | (921,875) | (921,875) | ||||||||||||
| Net loss attributable to common stockholders | $ | (4,684,597) | $ | (11,067,011) | ||||||||||
| Net loss per share attributable to common stockholders: | ||||||||||||||
| Basic and diluted | $ | (0.62) | $ | (1.47) | ||||||||||
| Weighted-average number of common shares outstanding: | ||||||||||||||
| Basic and diluted | 7,532,452 | 7,533,158 | ||||||||||||
| Distributions declared per common share | $ | 0.2875 | $ | 0.3875 | ||||||||||
PART I – FINANCIAL INFORMATION (continued)
ITEM 1 – Unaudited Condensed Consolidated Financial Statements (continued)
Condensed Consolidated Statement of Stockholders' Equity
For the Nine months ended September 30, 2017
(unaudited)
| Cumulative | ||||||||||||||||||||||||||||
| Common Stock | Additional | Distributions | Total | |||||||||||||||||||||||||
| Class C | Class S | Paid-in | and Net | Stockholders' | ||||||||||||||||||||||||
| Shares | Amounts | Shares | Amounts | Capital | Losses | Equity (Deficit) | ||||||||||||||||||||||
| Balance, December 31, 2016 | 2,458,881 | $ | 2,458 | - | $ | - | $ | 23,643,435 | $ | (1,414,787 | ) | $ | 22,231,106 | |||||||||||||||
| Issuance of common stock | 5,301,994 | 5,302 | 3,000 | 3 | 53,044,638 | - | 53,049,943 | |||||||||||||||||||||
| Offering costs | - | - | - | - | (1,593,899 | ) | - | (1,593,899 | ) | |||||||||||||||||||
| Distributions declared | - | - | - | - | - | (2,432,006 | ) | (2,432,006 | ) | |||||||||||||||||||
| Stock compensation expense | 12,500 | 12 | - | - | 124,988 | - | 125,000 | |||||||||||||||||||||
| Repurchase of common stock | (160,863 | ) | (159 | ) | - | - | (1,561,042 | ) | - | (1,561,201 | ) | |||||||||||||||||
| Net loss | - | - | - | - | - | (511,730 | ) | (511,730 | ) | |||||||||||||||||||
| Reclassification to redeemable common stock | - | - | - | - | (214,642 | ) | - | (214,642 | ) | |||||||||||||||||||
| Balance, September 30, 2017 | 7,612,512 | $ | 7,613 | 3,000 | $ | 3 | $ | 73,443,478 | $ | (4,358,523 | ) | $ | 69,092,571 | |||||||||||||||
Consolidated Statements of Cash Flows initial listed offering (the “Listed Offering”) below). SEC on March 13, 2023. property. The operations. and Hedging Activities loss or net loss per share of the first quarter of 2022 unaudited condensed consolidated statement of operations. ESTATE INVESTMENTS, NET the Sutter Health lease. The property was then leased to OES effective January 4, 2023 for 12 years through December 31, 2034, with a purchase option which OES can exercise any time from May 1, 2024 through December 31, 2026 and an early termination option which OES can exercise any time on or after December 31, 2028. Percentage of As of REAL ESTATE PROPERTY Nine months ended BALANCE SHEETS DETAILS Net March 31, 2023. March 31, 2023: Derivative Number of Notional Amount Reference Rate as Weighted Average Weighted Average increases if the Company's leverage ratio increases above 40%. March 31, 2023 and December 31, 2022: 2021 (discussed below in detail), the Company classified and designated 2,000,000 shares of its authorized preferred stock as authorized shares of Series A Preferred Stock. As of March 31, 2023 and December 31, 2022, 2,000,000 shares of authorized Series A Preferred Stock were issued and outstanding. The Carrying Carrying Quoted Prices in Significant Other Significant Unobservable Company's property located in Saint Paul, Minnesota. The mechanics lien statements refer to construction materials that were delivered and related work that was performed to make this facility operational and amount to $3,405,585 in the aggregate. The Company has been advised that the contractors who have filed such liens are stayed from foreclosing on the Company’s property in Saint Paul, Minnesota under the pending Chapter 11 bankruptcy proceeding (see Significant subsequent events are described below: March 9, 2023. various factors. See “Forward-Looking Statements” above. accompanying unaudited condensed consolidated financial statements for additional information). California. The remaining approximately 27.3% of undivided interest in the Santa Clara property is held by Hagg Lane II, LLC (an approximate 23.4% interest) and Hagg Lane III, LLC (an approximate 3.9% interest). The manager of Hagg Lane II, LLC and Hagg Lane III, LLC was an independent member of our board of directors (“Board”) from December 2019 to December 2021. Objectives Form 10-K filed with the SEC on March 13, 2023. total Term Loan balance outstanding to the total commitment amount of $250,000,000. We used a portion of the proceeds from the draw on the Term Loan to acquire eight properties located in: (i) Gap, Pennsylvania leased to Lindsay Precast, LLC (“Lindsay”); (ii) Reading, Pennsylvania leased to Summit Steel and Manufacturing, LLC (“Summit Steel”); (iii) Roscoe, Illinois leased to Pacific Bearing Company (“PBC Linear”); (iv) Lansing, Michigan leased to Cameron Tool Company, LLC (“Cameron Tool”); (v) Detroit Lakes and Plymouth, Minnesota and Ashland, Ohio leased to S.J. Electro Systems, LLC (“SJE”); and (vi) Alleyton, Texas leased to Titan Production Equipment, LLC (“Titan”), as discussed below. 2016 March 31, 2023 and 2022: subsequent acquisitions; however, there can be no assurance that this expectation will be realized. 6% and 7% for the months ended March 31, 2023 and 2022, respectively, the highest increases since June 1982. As a result, the Federal Reserve is expected to continue raising interest rates to try to rein in inflation, which may lead to a recession and will negatively impact our future results due to higher borrowing costs on any floating rate borrowing. In addition, recent bank failures might tighten market liquidity further through reductions in bank lending and potentially more government regulations. However, as of April 30, 2023, 100% of our outstanding debt is at fixed rates as a result of the swap agreements entered into in May 2022 and October 2022. Furthermore, the prolonged Russia-Ukraine conflict, as well as further retaliatory sanctions from the U.S. and its allies to Russia, may also exacerbate the already high inflation, continue to rattle the global economies and markets and worsen fragile global supply chains. March 31, 2023 and 2022 was $10,311,182 and $9,569,613, respectively. The The $41,780,671. no forfeitures during the quarter ended March 31, 2023. The decrease of $28,431, or 1%, as compared with the first three months of 2022 primarily reflects an increase in amortization of intangible lease assets offset by increases in depreciation of real estate properties during the three months ended March 31, 2023. total investment value of the property. Rate per Share per investments. unaudited condensed consolidated financial statements. three months ended March 31, 2023. discussion of commitment and contingencies). report. recent accounting pronouncements. 2022 and 2021 as previously reported in the consolidated statement of operations. Total number of Total Number of Average Price Dollar Value of Three Months Ended
March 31,2023 2022 Net loss $ (4,578,921) $ (12,073,164) Other comprehensive loss: cash flow adjustment Add: Amortization of unrealized holding gain on interest rate swap 250,311 — Comprehensive loss (4,328,610) (12,073,164) Net loss attributable to noncontrolling interest in Operating Partnership (816,199) (1,928,028) Other comprehensive loss attributable to noncontrolling interest in Operating Partnership: cash flow adjustment Add: Amortization of unrealized holding gain on interest rate swap 37,141 — Comprehensive loss attributable to noncontrolling interest in Operating Partnership (779,058) (1,928,028) Comprehensive loss attributable to Modiv Inc. $ (3,549,552) $ (10,145,136) the condensed consolidated financial statements.Financial Statements
of Equity5PART I – FINANCIAL INFORMATION (continued)ITEM 1 – Unaudited Preferred Stock Class C Additional
Paid-in
CapitalCumulative
Distributions
and Net
LossesAccumulated Other Comprehensive Income (Loss) Total
Modiv Inc.
EquityNoncontrolling Interests in the Operating Partnership Total
EquityCommon Stock Treasury Stock Shares Amounts Shares Amounts Shares Amounts Balance, December 31, 2022 2,000,000 $ 2,000 7,762,506 $ 7,762 $ 278,339,020 (250,153) $ (4,161,618) $ (117,938,876) $ 3,502,616 $ 159,750,904 $ 81,283,056 $ 241,033,960 Issuance of common stock - distribution reinvestments — — 52,673 53 566,803 — — — — 566,856 — 566,856 Stock compensation expense — — 7,761 8 82,492 — — — — 82,500 — 82,500 OP Units compensation expense — — — — 577,669 — — — — 577,669 — 577,669 Repurchase of common stock — — — — — (4,465) (49,682) — — (49,682) — (49,682) Dividends declared, preferred stock — — — — — — — (921,875) — (921,875) — (921,875) Distributions declared, common stock — — — — — — — (2,166,958) — (2,166,958) — (2,166,958) Distributions declared, Class C OP Units — — — — — — — — — — (377,297) (377,297) Net loss — — — — — — — (3,762,722) — (3,762,722) (816,199) (4,578,921) Amortization of unrealized holding gain on interest rate swap — — — — — — — — (213,170) (213,170) (37,141) (250,311) Balance, March 31, 2023 2,000,000 $ 2,000 7,822,940 $ 7,823 $ 279,565,984 (254,618) $ (4,211,300) $ (124,790,431) $ 3,289,446 $ 153,863,522 $ 80,052,419 $ 233,915,941 Preferred Stock Class C Additional
Paid-in
CapitalCumulative
Distributions
and Net
LossesTotal
Modiv Inc.
EquityNoncontrolling Interests in the Operating Partnership Total
EquityCommon Stock Treasury Stock Shares Amounts Shares Amounts Shares Amounts Balance, December 31, 2021 2,000,000 $ 2,000 7,490,404 $ 7,491 $ 273,441,831 — $ — $ (101,624,430) $ 171,826,892 $ 50,603,000 $ 222,429,892 Issuance of common stock -distribution reinvestment — — 66,078 66 1,492,338 — — — 1,492,404 — 1,492,404 Listed offering of common stock, net — — 40,000 40 114,460 — — — 114,500 — 114,500 Issuance of Class C OP Units — — — — — — — — — 32,809,550 32,809,550 Stock compensation expense — — 4,599 4 82,496 — — — 82,500 — 82,500 OP Units compensation expense — — — — 429,365 — — — 429,365 — 429,365 Offering costs — — — — (189,412) — — — (189,412) — (189,412) Repurchase of common stock — — — — — (50,863) (852,721) — (852,721) — (852,721) Dividend declared - preferred stock — — — — — — — (921,875) (921,875) — (921,875) Distributions declared, common stock — — — — — — — (2,907,122) (2,907,122) (251,539) (3,158,661) Distributions declared, Class C OP Units — — — — — — — — — (125,770) (125,770) Net loss — — — — — — — (10,145,136) (10,145,136) (1,928,028) (12,073,164) Balance, March 31, 2022 2,000,000 $ 2,000 7,601,081 $ 7,601 $ 275,371,078 (50,863) $ (852,721) $ (115,598,563) $ 158,929,395 $ 81,107,213 $ 240,036,608 Consolidated Financial Statements (continued) Nine months ended September 30, 2017 September 30, 2016 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (511,730 ) $ (893,393 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 2,077,970 238,232 Stock compensation expense 125,000 68,000 Deferred rents (620,748 ) 15,682 Amortization of deferred financing costs 89,645 10,637 Amortization of above-market lease 59,509 9,720 Amortization of below-market leases (37,213 ) - Unrealized loss on interest rate swap valuation 100,006 - Equity in (earnings) losses from investment in unconsolidated entities (168,043 ) 4,300 Distributions from investment in unconsolidated entities 204,212 - Change in operating assets and liabilities: Tenant receivables (416,277 ) - Due from affiliates 57,411 - Prepaid expenses and other assets (589,261 ) (63,513 ) Accounts payable, accrued expenses and other liabilities 1,697,446 75,942 Due to affiliates 478,445 1,649 Net cash provided by (used in) operating activities 2,546,372 (532,744 ) CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of real estate investments (62,245,697 ) (15,730,500 ) Additions to real estate investments (685,161 ) - Payments of acquisition fees to affiliate (2,772,329 ) - Repayment of amounts due from affiliate 28,571 - Investment in unconsolidated entities (10,542,594 ) (2,000,000 ) Proceeds from acquisition closing payable to unconsolidated entity 363,168 - Refundable purchase deposits and other acquisition costs - (100,000 ) Net cash used in investing activities (75,854,042 ) (17,830,500 ) CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings from unsecured credit facility 43,390,000 11,000,000 Repayments of unsecured credit facility (46,428,064 ) (4,036,500 ) Proceeds from mortgage note payable 36,904,988 7,319,700 Principal payments on mortgage notes payable (218,599 ) (21,316 ) Refundable loan deposits (44,550 ) - Payments of deferred financing costs to third parties (920,699 ) (176,063 ) Payment of financing fees to affiliates (261,950 ) - Proceeds from issuance of common stock and investor deposits 50,500,102 6,646,976 Payments of offering costs (1,675,149 ) (187,101 ) Payments to redeem common stock (1,561,201 ) - Distributions paid to common stockholders (464,619 ) (4,852 ) Net cash provided by financing activities 79,220,259 20,540,844 NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 5,912,589 2,177,600 CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD 3,677,373 200,815 CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD $ 9,589,962 $ 2,378,415 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest $ 756,783 $ 192,327 SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES Transfers to redeemable common stock $ 214,642 $ 33,311 Distributions paid to common stockholders through common stock issuance pursuant to the distribution reinvestment plan $ 1,967,325 $ 7,226 Increase in deferred commissions payable to Class S distributor $ 2,400 $ - Increase in lease incentive obligation $ - $ 535,500 Reinvested distributions to investment in Rich Uncles REIT I $ - $ 2,885 Tax withholding on distributions $ 62 $ - Purchase deposits applied to acquisition of real estate $ 500,000 $ - Increase in share repurchases payable $ 176,654 $ 8,315 Three Months Ended March 31, 2023 2022 Cash Flows from Operating Activities: Net loss $ (4,578,921) $ (12,073,164) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 3,272,061 3,300,492 Stock compensation expense 660,169 511,865 Amortization of deferred rents (1,175,359) (110,505) Amortization of deferred lease incentives 88,570 71,394 Write-offs and amortization of deferred financing costs and premium/discount 195,212 1,266,726 Amortization of (below) above market lease intangibles, net (196,283) (330,618) Impairment of real estate investment property 3,499,438 — Impairment of goodwill — 17,320,857 Gain on sale of real estate investments — (6,875,086) Unrealized loss on interest rate swap valuation 1,722,184 — Write-off of unrealized gain on interest rate swaps — (788,016) Income from unconsolidated investment in a real estate property (55,567) (95,464) Distributions from unconsolidated investment in a real estate property 65,696 95,367 Change in operating assets and liabilities: Increase in tenant receivables (220,251) (634,127) Increase in prepaid and other assets (122,884) (618,439) Decrease in accounts payable, accrued and other liabilities (369,196) (2,124,592) Net cash provided by (used in) operating activities 2,784,869 (1,083,310) Cash Flows from Investing Activities: Acquisitions of real estate investments (11,913,361) (44,714,508) Additions to existing real estate investments (308,547) (749,481) Collection of note receivable from early termination of lease — 195,000 Net proceeds from sale of real estate investments — 38,911,538 Purchase deposits, net 112,200 (500,000) Payment of lease incentives (10,815) (2,000,000) Net cash used in investing activities (12,120,523) (8,857,451) Cash Flows from Financing Activities: Borrowings from credit facility term loan 20,000,000 100,000,000 (Repayments of) borrowings from credit facility revolver, net (3,000,000) 20,775,000 Repayments of prior year credit facility revolver, net — (8,022,000) Principal payments on mortgage notes payable (78,027) (130,277,534) Payments of deferred financing costs — (2,186,468) Proceeds from listed offering of common stock, net — 114,500 Payments of offering costs — (189,412) Repurchases of common stock (49,682) (852,721) Dividends paid to preferred stockholders (921,875) (1,065,278) Distributions paid to common stockholders (1,566,010) (1,167,244) Distributions paid to Class C OP Units holder (377,297) (251,539) Net cash provided by (used in) financing activities 14,007,109 (23,122,696) Net increase (decrease) in cash and cash equivalents 4,671,455 (33,063,457) Cash and cash equivalents, beginning of period 8,608,649 58,407,520 Cash and cash equivalents, end of period $ 13,280,104 $ 25,344,063 Modiv Inc. Condensed Consolidated Statements of Cash Flows (continued) (Unaudited) Three Months Ended March 31, 2023 2022 Supplemental Disclosure of Cash Flow Information: Cash paid for interest $ 1,946,005 $ 1,477,384 Supplemental Schedule of Noncash Investing and Financing Activities: Issuance of Class C OP Units in the acquisition of a real estate investment $ — $ 32,809,550 Reinvested distributions from common stockholders $ 595,585 $ 1,492,404 Unpaid real estate improvements $ — $ 612,403 Reclassification of tenant improvements from other assets to real estate investments $ — $ 73,323 Deferred lease incentive $ — $ 100,000 Accrued distributions and dividends $ 5,363 $ 124,698 Supplemental disclosure related to real estate investments held for sale, net: Real estate investments held for sale, net $ — $ 31,510,762 Other assets related to real estate investments held for sale $ 3,174 $ 788,296 Mortgage notes payable related to real estate investments held for sale, net $ — $ (21,699,912) Other liabilities related to real estate investments held for sale $ (65,963) $ (383,282) thecondensed consolidated financial statements.6PART I – FINANCIAL INFORMATION (continued)ITEM 1 – Unaudited Condensed Consolidated Financial Statements (continued)NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSSeptember 30, 2017(unaudited)RW Holdings NNN REIT,14,15, 2015 as a Maryland corporation. The Company was originally incorporated under the name Rich Uncles Real Estate Investment Trust, Inc., but changed its name on October 19, 2015 to Rich Uncles NNN REIT, Inc. and again on August 14, 2017 to RW Holdings NNN REIT, Inc. As of September 30, 2017, the Company has the authority to issue 450,000,000 shares of stock, consisting of 50,000,000 shares of preferred stock, $0.001 par value per share, of which 2,000,000 shares are designated as 7.375% Series A cumulative redeemable perpetual preferred stock (“Series A Preferred Stock”), 300,000,000 shares of Class C common stock, $0.001 par value per share, and 100,000,000 shares of Class S common stock, $0.001 par value per share. The Company files its reports with the Securities and Exchange Commission (the “SEC”) as a smaller reporting company under Rule 12b-2 of the Securities Exchange Act of 1934, as amended. The Company's Series A Preferred Stock is listed on the New York Stock Exchange (the “NYSE”) under the symbol MDV.PA and has been trading since September 17, 2021. The Company's Class C common stock is listed on the NYSE under the symbol “MDV” and has been trading since February 11, 2022. Prior to that date, there was formed to primarily invest, directly or indirectly through investments in real estate owning entities, in single-tenant income-producing corporate properties located inno public trading market for the United States, which are leased to creditworthy tenants under long-term net leases. The Company’s goal is to generate current income for investors and long-term capital appreciation inCompany's Class C common stock (see details of the value of its properties. wholly owned limited liability companies which are wholly ownedwholly-owned subsidiaries of Rich Uncles NNNModiv Operating Partnership, LP, a Delaware limited partnership (the “Operating Partnership”). The Operating Partnership was formed on January 28, 2016. The Company is the sole general partner of, and owns a 99% partnership interest in, the Operating Partnership. Rich Uncles NNN LP, LLC, a Delaware limited liability company formed on May 13, 2016, owns the remaining 1%owned an approximate 73% partnership interest in, the Operating Partnership as of March 31, 2023 and isDecember 31, 2022. The Operating Partnership's limited partners include holders of several classes of units with various vesting and enhancement terms as further described in Note 11.sole limited partner. Rich Uncles NNN LP, LLC is wholly owned by the Company. The Company had no significant operations prior to its purchaseCompany's portfolio of approximately 3.4 million square feet of aggregate leasable space consisted of investments in 48 real estate properties, comprised of: 29 industrial properties, including an approximate 72.7% tenant-in-common interest in June 2016.The Company is externally managed by its advisor, Rich Uncles NNN REIT Operator, LLCa Santa Clara, California property (the “Advisor”“TIC Interest”), which represent approximately 61% of the portfolio, 12 retail properties, which represent approximately 20% of the portfolio, and seven office properties, which represent approximately 19% of the portfolio (expressed as a Delaware limited liability company wholly owned bypercentage of annual base rent (“ABR”) as of March 31, 2023).sponsor, Rich Uncles, LLC (the “Sponsor”), a Delaware limited liability company whose members include Harold Hofer, Howard Makler, and Ray Wirta. On June 24, 2015 and December 31, 2015, the Company issued 10,000 shares of its common stock to the Sponsor, respectively, for a purchase price of $10.00 per share.On July 15, 2015, the Company filed a registration statement on Form S-11 with the Securities and Exchange Commission (the “SEC”) to register an initial publicregistered offering of its common stock to offer a maximum of $900,000,000 in shares of common stock for sale towas declared effective by the public (the “Primary Offering”). TheSEC in 2016, the Company also registered a maximumhas raised an aggregate of $100,000,000$212,682,267 pursuant to: (i) non-listed offerings of common stock pursuant to the Company’s distribution reinvestment plan (the “Registered DRP Offering” and, together with the Primary Offering, the “Registered Offering”). The SEC declared the Company’s registration statement effective on June 1, 2016 and in July 20, 2016, the Company began offering shares to the public. Pursuant to its securities offering registered with the SEC (collectively, the Company sells shares“Registered Offering”), (ii) offerings of its Class C common stock directlyexempt from registration pursuant to investors at a purchase price of $10.00 per share, with a minimum investment in shares of $500. Commencing in August 2017, the Company began selling shares of its Class C common stock only to U.S. persons as defined under Rule 903 promulgatedRegulation S under the Securities Act of 1933, as amended (the “Securities Act”).On August 11, 2017, the Company began offering up to 100,000,000 shares, (iii) distribution reinvestment plan (“DRP”) offerings of Class S common stock exclusivelyregistered with the SEC, (iv) a private offering of common stock pursuant to non-U.S. Persons as defined under Rule 903 promulgatedRegulation D under the Securities Act, (v) a qualified offering of common stock pursuant to an exemption from the registration requirements ofRegulation A under the Securities Act under and (vi) an offering of common stock listed on the NYSE.accordanceconnection with Regulation Sthe Listed Offering of the Securities Act (the “Class S Offering” and, togetherCompany’s Class C common stock, which became effective on February 10, 2022. The Listed Offering of the Company's Class C common stock closed on February 15, 2022. In connection with the RegisteredListed Offering, the “Offerings”). TheCompany sold 40,000 shares of its Class SC common stock has similar featuresat $25.00 per share to a major stockholder who was formerly a related party (see Note 8 for more details).including with respect to voting and liquidation, exceptchange the purchase price at which the Class C common stock is issued to stockholders who elect to participate in the DRP. The purpose of this change was to reflect the fact that the Company's Class SC common stock offeredis now listed on the NYSE and no longer priced based on net asset value (“NAV”) per share. As more fully described in the Second Amended and Restated DRP, the purchase price for the Class S Offering may be sold through brokers or other persons who may be paid upfront and deferred selling commissions and fees.Through September 30, 2017,C common stock under the DRP depends on whether the Company had sold 7,739,712issues new shares of “Class C”to DRP participants or the Company or any third-party administrator obtains shares to be issued to DRP participants by purchasing them in the open market or in privately negotiated transactions. The purchase price for the Class C common stock issued directly by the Company is 97%, reflecting a 3% discount (or such other discount as may then be in effect) of the Market Price (as defined in the Registered Offering, including 209,232Second Amended and Restated DRP) of the Class C common stock. This discount is subject to change from time to time, in the Company’s sole discretion, but will be between 0% to 5% of the Market Price.sold under its Registeredexcluding any processing fees. The Second Amended and Restated DRP Offering,also reflects the $0.05 per share processing fee that will be paid to the Company's transfer agent by DRP participants for aggregate gross offering proceedseach share of $77,397,120,Class C common stock purchased through the DRP. The Second Amended and 3,000Restated DRP was effective beginning with distributions paid in February 2022. From February 2022 through March 31, 2023, the Company issued 262,984 shares of Class SC common stock under the DRP.S OfferingC common stock for an aggregate gross offering proceedsvalue of $30,000.
$4,161,618 at an average cost of $16.64 per share. Under the 2023 SRP, during the three months ended March 31, 2023, the Company repurchased an aggregate of 4,465 shares of its Class C common stock for an aggregate value of $49,682 at an average cost of $11.13 per share.7PART I – FINANCIAL INFORMATION (continued)ITEM 1 – UnauditedRW HOLDINGS NNN REIT, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)September 30, 2017(unaudited)Condensed Consolidated Financial Statementscondensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles generally accepted in the United States of America (“GAAP”) for interim financial informationstatements as contained inwithin the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“Codification”ASC”), and in conjunction withthe rules and regulations of the SEC, including the instructions to Form 10-Q and Article 10 of Regulation S-X.SEC. Accordingly, the unaudited Condensed Consolidated Financial Statementsthey do not include certaincontain all information and footnote disclosuresfootnotes required by GAAP for auditedannual financial statements. Instatements pursuant to those rules and regulations, although the opinion of management,Company believes that the disclosures made are adequate to make the information not misleading. Such unaudited Condensed Consolidated Financial Statements reflect all adjustments whichcondensed consolidated financial statements and accompanying notes are of a normal and recurring nature, necessary for a fair and consistent presentationthe representations of the Company’s management, which is responsible for their integrity and objectivity. These unaudited condensed consolidated financial position and the results for the interim period presented. Operating results for the three and nine months ended September 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. The accompanying unaudited interim financial informationstatements should be read in conjunction with ourthe audited consolidated financial statements as of December 31, 2022 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 as filed with the SEC.Condensed Consolidated Financial Statements includecondensed consolidated financial statements have been prepared on the accountssame basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which are normal and recurring, necessary to fairly state the Company, the Operating Partnership,Company's financial position, results of operations and directly wholly owned subsidiaries.cash flows. All significant intercompany balances and transactions are eliminated in consolidation.Immaterial CorrectionDuring 2017, The unaudited condensed consolidated balance sheet as of December 31, 2022 included herein was derived from the audited financial statements.identifiedand the limited partner interests not held by the Company are reflected as noncontrolling interests in the accompanying unaudited condensed consolidated balance sheets and statements of equity. Other than the noncontrolling interests related to an immaterial misstatement within“UPREIT” transaction completed in January 2022, as discussed in Note 11, all noncontrolling interests currently represent non-voting, non-distribution accruing interests with no allocation of profits or losses, but have various conversion rights to obtain future rights to distributions and allocation of profits and losses as discussed in Note 11.statementunaudited condensed consolidated financial statements and the accompanying notes thereto in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. These estimates are based on historical experience and, in some cases, assumptions based on current and future market experience. Actual results may differ from those estimates.cash flowsthe date of acquisition. Goodwill represents the excess of consideration transferred over the estimated fair value of the net assets acquired in a business combination.nine months ended September 30, 2016purpose of providing a return in the form of dividends, lower costs, or other economic benefits directly to investors or other owners, members, or participants. To be considered a business, the set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output. ASC 805 provides a practical screen to determine when a set would not be considered a business. If the screen is not met and further assessment determines that the set is not a business, then the set is an asset acquisition. The primary difference between a business combination and an asset acquisition is that an asset acquisition requires cost accumulation and allocation at relative fair value whereas in a business combination the total consideration transferred is allocated among the fair value of the identifiable tangible and intangible assets and liabilities assumed. Acquisition costs are capitalized for an asset acquisition and expensed for a business combination.classificationallocation and recognition of contract consideration earned from lease and non-lease revenue components. Topic 842 impacts the Company's accounting for leases primarily as a lessor. Topic 842 also impacts the Company's accounting as a lessee; however, such impact is considered not material.receivedor a credit against its rent) that is funded is treated as a lease incentive and reportedamortized as investor deposits which understateda reduction of revenue over the net cash usedlease term. Tenant improvement ownership is determined based on various factors including, but not limited to:operating activities and understated net cash provided by financing activities by $485,494. Staff Accounting Bulletin: No. 99 – Materiality was usedexcess of market rates;evaluate the impactimprovements at the end of the misstatement. lease term;misstatement was correctedCompany records tenant reimbursements on a gross basis in instances when its tenants reimburse the Company for lessor costs, including real estate taxes, which the Company incurs. Conversely, the Company records lessor costs on a net basis when these costs are paid directly by the Company's tenants to suppliers and service providers, including taxing authorities, on the Company's behalf. To the extent any tenant responsible for these obligations under the applicable lease defaults on such lease, or if it is deemed probable that the tenant will fail to pay for these obligations, the Company records a liability for such obligations.statementperiod of cash flowsthe change in the collectability determination. In addition, for tenant and deferred rent receivables deemed probable of collection, the Company also may record an allowance under other authoritative GAAP depending upon the Company's evaluation of the individual receivables, specific credit enhancements, current economic conditions, and other relevant factors. Such allowances are recorded as increases or decreases through rental income in the Company's unaudited condensed consolidated statements of operations.nine months ended September 30, 2016 presented herein. Nettenant’s receivable balance and generally will not recognize subsequent rental income until cash usedis received or until the tenant is no longer in operating activitiesbankruptcy and has the ability to make rental payments.nine months ended September 30, 2016 was previously reported as $47,250 as compared to $532,744. Net cash provided by financing activities for the nine months ended September 30, 2016 was increased by $485,494 to $20,540,844. These amounts also include the impact of the early adoption of ASU 2016-18 related to the presentation of changes in restricted cash in the statement of cash flows as described in Note 2 “New Accounting Standards Issued and Adopted”.Company will reflect the correction relating to the classification of the investor deposit liabilities of an additional amount of $97,000 forCompany's real estate property sale transactions during the three months ended DecemberMarch 31, 20162022 met these criteria at closing. When properties are sold, operating results of the properties remain in continuing operations, and any associated gain or loss from the disposition is included in gain or loss on sale of real estate investments in the Company’s annual reportaccompanying unaudited condensed consolidated statements of operations.Form 10-K.ReclassificationsCertain amountsthe analysis, the Company does not believe that it will be able to recover the carrying value of the investments in real estate properties, the Company records an impairment charge to the extent the carrying value exceeds the estimated fair value of the investments in real estate properties.prior periodaccompanying unaudited condensed consolidated financial statements have been reclassified to conform to the current period presentation. These reclassifications have not changed the results of operations of prior periods.Other Comprehensive IncomeFor all periods presented, other comprehensive income (loss) is the same as net income (loss).mortgage notes payable.debt. The Company does not enter into derivatives for speculative purposes. The Company records these derivative instruments at fair value on its unaudited condensed consolidated balance sheets. Derivatives designated and qualifying as a hedge of the exposure to changes in the accompanying Condensed Consolidated Balance Sheets.fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. The Company’s mortgage derivative instruments have not been designated as effective hedges and therefore theaccounting for changes in fair value are recordedof the derivative instrument depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. If the derivative instrument meets the hedge accounting criteria, the change in the fair value of a derivative instrument may be designated as a cash flow hedge where the unrealized holding gain or loss on derivative instrumentsthe interest rate swap is presented in the accompanying Consolidated StatementCompany's unaudited condensed consolidated statements of Operations.Use of EstimatesThe preparationcomprehensive loss and accumulated other comprehensive income in the Company's unaudited condensed consolidated balance sheets. If the derivative instrument does not meet the hedge accounting criteria, the change in the fair value of the derivative is recorded as a gain or loss on the interest rate swap and included in interest expense in the Company's unaudited condensed consolidated statements of operations.and the accompanying notes thereto in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited Condensed Consolidated Financial Statements and accompanying notes. Actual results may differ from those estimates.
(continued)8PART I – FINANCIAL INFORMATION (continued)ITEM 1 – Unaudited Condensed Consolidated Financial Statements (continued)RW HOLDINGS NNN REIT, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)September 30, 2017(unaudited)Recent Accounting PronouncementsNew Accounting Standards Issued and AdoptedIn January 2017, the FASB issued Accounting Standards Update (“ASU”) No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”) which clarified the definition of a business. The update added further guidance that assists preparers in evaluating whether a transaction will be an acquisition of an asset or a business. expectsdetermines the accounting classification of equity instruments (e.g. restricted stock units) that most of its acquisitions will qualifyare issued as an asset acquisition and therefore acquisition costs are capitalized aspurchase consideration or part of the costpurchase consideration in a business combination, as either liability or equity, by first assessing whether the equity instruments meet liability classification in accordance with ASC 480-10, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (“ASC 480-10”), and then in accordance with ASC 815-40, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock (“ASC 815-40”). Under ASC 480-10, equity instruments are classified as liabilities if the equity instruments are mandatorily redeemable, obligate the issuer to settle the equity instruments or the underlying shares by paying cash or other assets, or must or may require an unconditional obligation that must be settled by issuing a variable number of shares.acquired properties. Thelikelihood of the transaction occurring that triggers the net cash settlement feature. If the equity instruments do not require liability classification under ASC 815-40, in order to conclude equity classification, the Company adoptedassesses whether the standardequity instruments are indexed to its common stock and whether the equity instruments are classified as equity under ASC 815-40 or other applicable GAAP guidance. After all relevant assessments are made, the Company concludes whether the equity instruments are classified as liability or equity. Liability classified equity instruments are required to be accounted for at fair value both on the date of October 1, 2016. For periodsissuance and on subsequent accounting period ending dates, with all changes in fair value after the issuance date recorded in the statements of operations as a gain or loss. Equity classified equity instruments are accounted for at fair value on the issuance date with no changes in fair value recognized after the issuance date.to the adoption of ASU 2017-01, the Company’s financial statements will not be comparable because acquisitionstreatment of property qualified as a business and therefore acquisition costs were expensed.In August 2016, the FASB issued ASU No. 2016-15,Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows. ASU 2016-15 addresses certain issuestaxes in those instances where diversity in practice was identified. It amends existing guidance, which is principles based and often requires judgment to determine the appropriate classification of cash flows as operating, investing or financing activities. In addition, ASU 2016-15 clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows. On January 1, 2017, we early adopted this standard in its entirety on a retrospective basis and determined that the only clarification to significantly impact the Company was responsible for paying property taxes and subsequently seeking tenant reimbursement should be treated differently than those instances where property taxes were paid directly by tenants to taxing authorities. After a thorough review, management determined that property taxes paid directly by tenants to taxing authorities should have not been recorded in the classificationCompany’s unaudited condensed consolidated statement of distributions received from our equity method investment in Rich Uncles REIT I. The update allowsoperations for the electionfirst quarter of 2022 in accordance with ASU 2018-20 “Leases (Topic 842) - Narrow-Scope Improvements for Lessors.” Accordingly, the Company’s unaudited condensed consolidated statement of operations for the first quarter of 2022 reflects an adjustment to classify distributions received from equity method investments based on eitherreduce rental income and a cumulative earnings approachcorresponding reduction in property expenses of $604,727 for such property taxes and the Company's consolidated balance sheet as of December 31, 2022 reflects a reduction in tenant receivables with a corresponding reduction in accounts payable, accrued and other liabilities of $1,596,127. The corrections did not affect net loss or a nature of distribution approach. We have elected the naturenet loss per share of the distribution approach, in which cash flows generated from the operationsfirst quarter of an unconsolidated entity are classified as a return on investment (cash inflow from operating activities) and cash flows that were generated from property sales, debt refinancing or sales of our investments are classified as a return of investment (cash inflow from investing activities). We adopted this approach based on the information available to us to determine the nature of the underlying activity that generated the distributions from unconsolidated entities.In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”). ASU 2016-18 requires that a2022 unaudited condensed consolidated statement of cash flows explainoperations.change during the period in the totalfourth quarter of cash, cash equivalents, and restricted cash. Therefore, amounts generally described as restricted cash2022, management determined that straight-line rents receivable write-offs associated with real estate investments previously sold should be included with cash and cash equivalents when reconciling the beginning of period and end of period total amounts shown on the statement of cash flows, and transfers between cash and cash equivalents and restricted cash are no longer presented within the statement of cash flows. ASU 2016-18 is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. The Company elected to early adopt ASU 2016-18 for the reporting period ended December 31, 2016, and the standard was applied retrospectively for all periods presented. As a result of the adoption of ASU 2016-18, the Company no longer presents the change within restricted cash in the Consolidated Statement of Cash Flows. Therefore, $390,672 of restricted cash at September 30, 2016 has been included as cash, cash equivalents and restricted cash on the September 30, 2016 statement of cash flows and notreclassified as a component of the related gain on sale of the real estate investments rather than as an offset to rental income as previously presented in the Company's statements of operations. Accordingly, the Company’s unaudited condensed consolidated statement of operations for the first quarter of 2022 reflects an increase in rental income and a corresponding reduction in the gain on sale of real estate investments of $525,691. The reclassification did not affect net cash provided by financing activities.and Not Yetor AdoptedIn May 2014,FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). ASU 2014-09 requires an entitythree months ended March 31, 2023 that will materially affect or affected the Company's consolidated financial statements or operations. recognize the revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. ASU 2014-09 supersedes the revenue requirements inRevenue Recognition (Topic 605) and most industry-specific guidance throughout the Industry Topics of the Codification. ASU 2014-09 does not apply to lease contracts within the scope ofLeases (Topic 840). ASU 2014-09 was to be effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and is to be applied retrospectively, with early application not permitted. In August 2015, the FASB issued ASU 2015-14,Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which defers the effective date of ASU 2014-09 by one year. Early adoption is permitted but not before the original effective date. As the primary source of revenue for the Company is generated through leasing arrangements, which are scoped out of this standard, the Company does not expect the adoption of ASU 2014-09 to have a significant impact on its Consolidated Financial Statements.9PART I – FINANCIAL INFORMATION (continued)ITEM 1 – Unaudited Condensed Consolidated Financial Statements (continued)RW HOLDINGS NNN REIT, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)September 30, 2017(unaudited)In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). The amendments in ASU 2016-02 change the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU 2016-02 is effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption of ASU 2016-02 is permitted. The new standard for lease accounting requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The Company is currently evaluating the impact of adopting the new leases standard on its consolidated financial statements.PROPERTYSeptember 30, 2017,March 31, 2023, the Company’s real estate investment portfolio consisted of sixteen48 operating properties located in eight17 states consisting of eightcomprised of: 29 industrial properties (including the Company's approximate 72.7% TIC Interest in a Santa Clara, California industrial property which is not reflected in the table below but discussed in Note 4), 12 retail sixproperties and seven office and two industrial properties. properties (including the one held for sale property not reflected in the table below).real estateoperating properties as of September 30, 2017:Property Location Acquisition
Date Property Type Land,
Buildings and
Improvements Tenant
Origination
and Absorption
Costs Accumulated
Depreciation
and
Amortization Total
Investsment in
Real Estate
Property, Net Accredo Orlando, FL 6/15/2016 Office $ 9,850,052 $ 1,053,637 $ (637,856 ) $ 10,265,833 Walgreens Stockbridge, GA 6/21/2016 Retail 4,147,948 705,423 (423,613 ) 4,429,758 Dollar General Litchfield, ME 11/4/2016 Retail 1,281,812 116,302 (35,213 ) 1,362,901 Dollar General Wilton, ME 11/4/2016 Retail 1,543,776 140,653 (45,065 ) 1,639,364 Dollar General Thompsontown, PA 11/4/2016 Retail 1,199,860 106,730 (33,834 ) 1,272,756 Dollar General Mt. Gilead, OH 11/4/2016 Retail 1,174,188 111,847 (32,439 ) 1,253,596 Dollar General Lakeside, OH 11/4/2016 Retail 1,112,872 100,857 (33,292 ) 1,180,437 Dollar General Castalia, OH 11/4/2016 Retail 1,102,086 86,408 (32,347 ) 1,156,147 Dana Cedar Park, TX 12/27/2016 Industrial 8,392,906 1,210,874 (388,373 ) 9,215,407 Northrop Grumman Melbourne, FL 3/7/2017 Office 12,382,991 1,341,199 (424,141 ) 13,300,049 exp US Services Maitland, FL 3/27/2017 Office 5,920,121 388,248 (117,617 ) 6,190,752 Harley Bedford, TX 4/13/2017 Retail 13,178,286 - (140,939 ) 13,037,347 Wyndham Summerlin, NV 6/22/2017 Office 9,447,270 669,232 (84,742 ) 10,031,760 Williams Sonoma Summerlin, NV 6/22/2017 Office 7,517,050 550,486 (71,732 ) 7,995,804 Omnicare Richmond, VA 7/20/2017 Industrial 7,042,928 281,442 (47,905 ) 7,276,465 EMCOR Cincinnati, OH 8/29/2017 Office 5,960,612 463,489 (22,047 ) 6,402,054 $ 91,254,758 $ 7,326,827 $ (2,571,155 ) $ 96,010,430
March 31, 2023:10Property Location Acquisition Date Property Type Land, Buildings and Improvements Equipment Tenant Origination and Absorption Costs Accumulated Depreciation and Amortization Total Investment in Real Estate Property, Net Northrop Grumman Melbourne, FL 3/7/2017 Industrial $ 13,608,084 $ — $ 1,469,737 $ (4,130,132) $ 10,947,689 Northrop Grumman Parcel Melbourne, FL 6/21/2018 Land 329,410 — — — 329,410 Husqvarna Charlotte, NC 11/30/2017 Industrial 11,840,200 — 1,013,948 (1,917,112) 10,937,036 AvAir Chandler, AZ 12/28/2017 Industrial 27,357,899 — — (3,672,797) 23,685,102 3M DeKalb, IL 3/29/2018 Industrial 14,762,819 — 3,037,057 (5,732,211) 12,067,665 Taylor Fresh Foods Yuma, AZ 10/24/2019 Industrial 34,194,369 — 2,894,017 (4,570,787) 32,517,599 Levins Sacramento, CA 12/31/2019 Industrial 4,429,390 — 221,927 (716,978) 3,934,339 Labcorp San Carlos, CA 12/31/2019 Industrial 9,672,174 — 408,225 (664,043) 9,416,356 WSP USA San Diego, CA 12/31/2019 Industrial 9,869,520 — 539,633 (1,203,450) 9,205,703 ITW Rippey El Dorado, CA 12/31/2019 Industrial 7,071,143 — 304,387 (911,705) 6,463,825 L3Harris San Diego, CA 12/31/2019 Industrial 11,690,952 — 662,101 (1,384,511) 10,968,542 Arrow-TruLine Archbold, OH 12/3/2021 Industrial 11,518,084 — — (535,376) 10,982,708 Kalera Saint Paul, MN 1/31/2022 Industrial 3,690,009 4,429,000 — (410,756) 7,708,253 Lindsay Colorado Springs 1, CO 4/19/2022 Industrial 2,311,934 — — (55,892) 2,256,042 Lindsay Colorado Springs 2, CO 4/19/2022 Industrial 3,314,406 — — (33,262) 3,281,144 Lindsay Dacano, CO 4/19/2022 Industrial 6,561,054 — — (80,636) 6,480,418 Lindsay Alachua, FL 4/19/2022 Industrial 8,518,123 — — (347,502) 8,170,621 Lindsay Franklinton, NC 4/19/2022 Industrial 7,181,113 — — (153,208) 7,027,905 Lindsay Canal Fulton 1, OH 4/19/2022 Industrial 11,345,533 — — (329,518) 11,016,015 Lindsay Canal Fulton 2, OH 4/19/2022 Industrial 10,190,942 — — (301,915) 9,889,027 Lindsay Rock Hill, SC 4/19/2022 Industrial 6,555,983 — — (161,234) 6,394,749 Producto Endicott, NY 7/15/2022 Industrial 2,362,310 — — (55,357) 2,306,953 Producto Jamestown, NY 7/15/2022 Industrial 3,073,686 — — (67,769) 3,005,917 Valtir Centerville, UT 7/26/2022 Industrial 4,685,355 — — (82,954) 4,602,401 Valtir Orangeburg, SC 7/26/2022 Industrial 4,243,308 — — (98,700) 4,144,608 Valtir Fort Worth, TX 7/26/2022 Industrial 3,278,522 — — (44,021) 3,234,501 Valtir Lima, OH 8/4/2022 Industrial 9,921,943 — — (231,092) 9,690,851 Plastic Products Princeton, MN 1/26/2023 Industrial 6,118,411 — 553,780 (122,317) 6,549,874 Stealth Manufacturing Savage, MN 3/31/2023 Industrial 5,526,310 — — (7,068) 5,519,242 Dollar General Litchfield, ME 11/4/2016 Retail 1,281,812 — 116,302 (256,554) 1,141,560 Dollar General Wilton, ME 11/4/2016 Retail 1,543,776 — 140,653 (328,334) 1,356,095 Dollar General Thompsontown, PA 11/4/2016 Retail 1,199,860 — 106,730 (246,502) 1,060,088 Dollar General Mt. Gilead, OH 11/4/2016 Retail 1,174,188 — 111,847 (236,340) 1,049,695 Dollar General Lakeside, OH 11/4/2016 Retail 1,112,872 — 100,856 (242,558) 971,170 Dollar General Castalia, OH 11/4/2016 Retail 1,102,086 — 86,408 (235,669) 952,825 PART I – FINANCIAL INFORMATION (continued)ITEM 1 – UnauditedRW HOLDINGS NNN REIT, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)September 30, 2017(unaudited)Current Acquisitions(Operating properties table continued) Property Location Acquisition Date Property Type Land, Buildings and Improvements Equipment Tenant Origination and Absorption Costs Accumulated Depreciation and Amortization Total Investment in Real Estate Property, Net Dollar General Bakersfield, CA 12/31/2019 Retail 4,899,714 — 261,630 (478,180) 4,683,164 Dollar General Big Spring, TX 12/31/2019 Retail 1,281,683 — 76,351 (165,648) 1,192,386 Dollar Tree Morrow, GA 12/31/2019 Retail 1,320,367 — 73,298 (230,459) 1,163,206 PreK Education San Antonio, TX 12/31/2019 Retail 12,477,027 — 555,767 (1,502,738) 11,530,056 Walgreens Santa Maria, CA 12/31/2019 Retail 5,223,442 — 335,945 (432,122) 5,127,265 KIA/Trophy of Carson Carson, CA 1/18/2022 Retail 69,286,444 — 118,606 (1,283,084) 68,121,966 exp US Services Maitland, FL 3/27/2017 Office 6,283,631 — 388,247 (1,346,851) 5,325,027 Cummins Nashville, TN 4/4/2018 Office 11,047,348 — 1,558,739 (3,922,239) 8,683,848 Costco Issaquah, WA 12/20/2018 Office 27,585,182 — 2,765,136 (5,612,690) 24,737,628 GSA (MSHA) Vacaville, CA 12/31/2019 Office 3,112,076 — 243,307 (445,575) 2,909,808 Solar Turbines San Diego, CA 12/31/2019 Office 7,161,231 — 324,221 (799,378) 6,686,074 OES (1) Rancho Cordova, CA 12/31/2019 Office 29,630,504 — 1,616,610 (4,237,159) 27,009,955 $ 441,946,229 $ 4,429,000 $ 20,085,465 $ (50,024,383) $ 416,436,311 ninethree months ended September 30, 2017,March 31, 2023, the Company acquired the following properties, not including the Company’s investment in a tenant-in-common (“TIC”) ownership interest in the Fujifilm Santa Clara, CA property (“Fujifilm”) see Note 4:Property Acquisition Date Land Buildings and
Improvements Tenant
Origination
and Absorption
Costs Above-Market
Lease Below-Market
Lease Total Northrop Grumman 3/7/2017 $ 1,191,024 $ 11,191,967 $ 1,341,199 $ - $ - $ 13,724,190 exp US Services 3/27/2017 785,801 5,134,320 388,248 616,486 - 6,924,855 Harley 4/13/2017 1,145,196 12,033,090 - - - 13,178,286 Wyndham 6/22/2017 4,144,069 5,303,201 669,232 - - 10,116,502 Williams Sonoma 6/22/2017 3,546,744 3,478,337 550,486 - (364,555 ) 7,211,012 Omnicare 7/20/2017 800,772 6,242,156 281,442 - - 7,324,370 EMCOR 8/29/2017 427,591 5,533,021 463,489 - (285,563 ) 6,138,538 $ 12,041,197 $ 48,916,092 $ 3,694,096 $ 616,486 $ (650,118 ) $ 64,617,753 Purchase price $ 64,617,753 Purchase deposits applied (500,000 ) Acquisition fees to affiliates (1,872,056 ) Cash paid for acquisition of real estate investments $ 62,245,697 The purchase price allocations reflected in the accompanying unaudited Condensed Consolidated Financial Statements is based upon estimates and assumptions that are subject to change that may impact the fair value of the assets and liabilities above (includingindustrial real estate investments, other assets and accrued liabilities). properties:Property Location Acquisition Date Land Buildings and
ImprovementsTenant
Origination
and
Absorption
CostsBelow-
Market
Lease IntangiblesAcquisition Price Plastic Products Princeton, MN 1/26/2023 $ 421,997 $ 5,696,414 $ 553,780 $ (285,139) 6,387,052 Stealth Manufacturing Savage, MN 3/31/2023 770,752 4,755,558 — — 5,526,310 $ 1,192,749 $ 10,451,972 $ 553,780 $ (285,139) $ 11,913,362 ninethree months ended September 30, 2017March 31, 2023 are as follows:PropertyLease ExpirationNorthrop GrummanProperty5/31/2021Lease Expirationexp US ServicesPlastic Products11/30/202610/31/2028HarleyStealth Manufacturing4/12/2042Wyndham2/28/2025Williams Sonoma10/3/31/2022Omnicare5/31/2031EMCOR2/28/20372043The Company recorded these acquisitions as asset acquisitions and capitalized $513,398 and $2,236,649and nine months ended September 30, 2017,March 31, 2022, the Company acquired the following retail and industrial real estate properties:Property Location Acquisition Date Land Buildings and
ImprovementsEquipment Tenant
Origination
and
Absorption
CostsAcquisition Price KIA/Trophy of Carson Carson, CA 1/18/2022 $ 32,741,781 $ 36,544,663 $ — $ 118,606 $ 69,405,050 Kalera St. Paul, MN 1/31/2022 562,356 3,127,653 4,429,000 — 8,119,009 $ 33,304,137 $ 39,672,316 $ 4,429,000 $ 118,606 $ 77,524,059 $1,569,346 and $2,635,398, respectively,$1,378,265 of total revenue related to thesethe above-acquired properties.11Property Lease Expiration KIA/Trophy of Carson 1/17/2047 Kalera 2/28/2042 PART I – FINANCIAL INFORMATION (continued)ITEM 1 – UnauditedProperty Location Disposition Date Property Type Rentable Square Feet Contract Sale Price Gain on Sale Bon Secours Richmond, VA 2/11/2022 Office 72,890 $ 10,200,000 $ 28,595 Omnicare Richmond, VA 2/11/2022 Flex 51,800 8,760,000 1,890,624 Texas Health Dallas, TX 2/11/2022 Office 38,794 7,040,000 87,480 Accredo Orlando, FL 2/24/2022 Office 63,000 14,000,000 4,868,387 226,484 $ 40,000,000 $ 6,875,086 RW HOLDINGS NNN REIT, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)September 30, 2017(unaudited)Operating LeasesSeptember 30, 2017, our portfolio’sMarch 31, 2023 and December 31, 2022, the Company’s real estate portfolio asset concentration (greater than 10% of total assets) was as follows:Property and Location Net Carrying
Value Percentage of
Total Assets Northrop Grumman, FL $ 13,300,049 10.79 % Harley, TX $ 13,037,347 10.58 % At September 30, 2017March 31, 2023 December 31, 2022 Property and Location Net Carrying Value Percentage of
Total AssetsNet Carrying Value Percentage of
Total AssetsKIA, Carson, CA $ 68,121,966 14.7 % $ 68,387,431 15.0 % Lindsay, eight properties acquired in Colorado (three), Ohio (two), North Carolina, South Carolina and Florida 54,515,921 11.7 % 54,661,221 12.0 % Total $ 122,637,887 26.4 % $ 123,048,652 27.0 % Three Months Ended March 31, 2023 2022 Property and Location Rental Income Percentage of
Total Rental IncomeRental Income Percentage of
Total Rental IncomeKIA, Carson, CA $ 1,291,851 12.5 % $ 1,018,245 10.6 % Lindsay, eight properties acquired in Colorado (three), Ohio (two), North Carolina, South Carolina and Florida $ 1,212,864 11.8 % (1) (1) 2016, tenant receivables included $650,7232022, the Company and $29,975, respectively,Sutter Health agreed to the early termination of straight-line rent.September 30, 2017,March 31, 2023, the future minimum contractual rent payments due to the Company under the Company’s non-cancellable operating leases, including lease amendments executed though the date of this report, if any, are as follows:October 1, 2017 through December 31, 2017 $ 1,754,045 2018 7,748,156 2019 7,921,668 2020 7,952,063 2021 6,644,366 2022 5,658,981 Thereafter 24,676,720 $ 62,355,999 Revenue ConcentrationForApril through December 2023 $ 24,711,192 2024 33,286,621 2025 32,081,095 2026 28,487,549 2027 26,908,539 Thereafter 345,488,929 $ 490,963,925 nine months ended September 30, 2017, our portfolio’s revenue concentration (greater than 10% total revenue) was as follows:Property and Location Revenue
Total Revenue Accredo, FL $ 820,420 16.72 % Northrop Grumman, FL $ 793,245 16.17 % Harley, TX $ 646,331 13.17 % Dana, TX $ 686,399 13.99 %
Company's Real Estate12PART I – FINANCIAL INFORMATION (continued)ITEM 1 – Unaudited Condensed Consolidated Financial Statements (continued)RW HOLDINGS NNN REIT, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)September 30, 2017(unaudited)September 30, 2017, our portfolio’s tenant concentration (greater than 10% of annualized base rent) was as follows:Property and Location Effective
Annualized
Base Rent* Percentage of
Annualized
Base Rent Accredo, FL $ 899,010 11.95 % Northrop Grumman, FL $ 1,162,274 15.45 % Harley, TX $ 900,000 11.96 % Wyndham, NV $ 798,827 10.62 % *Effective Annualized Base Rent is calculated based onMarch 31, 2023 and December 31, 2022, intangible assets, net related to the monthly base rent at September 30, 2017 for twelve months.As of September 30, 2017, no other tenant accounted for more than 10% of annualized base rent.IntangiblesAs of September 30, 2017, the Company’s intangiblesCompany's real estate were as follows: Tenant
Origination
and
Absorption
Costs Above-Market
Leases Below-Market
Leases Cost $ 7,326,827 $ 783,114 $ (801,727 ) Accumulated amortization (895,211 ) (77,560 ) 38,055 Net amount $ 6,431,616 $ 705,554 $ (763,672 ) AmortizationMarch 31, 2023 December 31, 2022 Tenant Origination and Absorption Costs Above-Market Lease Intangibles Below-Market Lease Intangibles Tenant Origination and Absorption Costs Above-Market Lease Intangibles Below-Market Lease Intangibles Cost $ 20,085,465 $ 2,485,510 $ (15,092,940) $ 19,499,749 $ 2,485,510 $ (14,378,808) Accumulated amortization (13,096,823) (677,027) 5,368,223 (12,722,558) (634,754) 4,703,122 Net $ 6,988,642 $ 1,808,483 $ (9,724,717) $ 6,777,191 $ 1,850,756 $ (9,675,686) overfor the remaining nine months ending December 31, 2023 and for each of the next five years and thereafter is expected to be as follows: Tenant
Origination
and
Absorption
Costs Above-Market
Leases Below-Market
Leases October 1, 2017 through December 31, 2017 $ 290,635 $ 24,261 $ (26,047 ) 2018 1,162,541 97,045 (104,190 ) 2019 1,162,541 97,045 (104,190 ) 2020 1,162,541 97,045 (104,190 ) 2021 746,281 78,994 (104,190 ) 2022 472,808 63,719 (84,499 ) Thereafter 1,434,269 247,445 (236,366 ) $ 6,431,616 $ 705,554 $ (763,672 ) Weighted-Average Remaining Amortization Period 7.41 years 8.21 years 10.70 years 13Tenant Origination and Absorption Costs Above-Market Lease Intangibles Below-Market Lease Intangibles April through December 2023 $ 962,477 $ 124,171 $ (714,522) 2024 1,234,762 161,813 (952,695) 2025 1,018,968 157,767 (952,695) 2026 649,307 132,836 (947,293) 2027 576,957 76,550 (937,381) Thereafter 2,546,171 1,155,346 (5,220,131) $ 6,988,642 $ 1,808,483 $ (9,724,717) Weighted-average remaining amortization period 8.3 years 19.3 years 10.5 years PART I – FINANCIAL INFORMATION (continued)ITEM 1 – UnauditedRW HOLDINGS NNN REIT, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)September 30, 2017(unaudited)March 31,
2023December 31,
2022Assets related to real estate investments held for sale: Land, buildings and improvements $ 6,357,172 $ 6,357,172 Tenant origination and absorption costs 355,252 355,252 Accumulated depreciation and amortization (1,456,699) (1,456,699) Real estate investments held for sale, net 5,255,725 5,255,725 Other assets, net 15,939 12,765 Total assets related to real estate investments held for sale: $ 5,271,664 $ 5,268,490 Liabilities related to real estate investments held for sale: Other liabilities, net $ 51,918 $ 117,881 Total liabilities related to real estate investments held for sale: $ 51,918 $ 117,881 INVESTMENTSUNCONSOLIDATED INVESTMENT IN UNCONSOLIDATED ENTITIESentitiesentity as of March 31, 2023 and December 31, 2022 is as follows: September 30, 2017 December 31, 2016 Rich Uncles Real Estate Investment Trust I ("REIT I") $ 3,487,639 $ 3,523,809 RU Martin Street Santa Clara ("TIC") (1) 11,168,667 - $ 14,656,306 $ 3,523,809 (1) March 31,
2023December 31,
2022The TIC Interest $ 9,997,292 $ 10,007,420 entities includes $626,073 of acquisition fees to affiliates.REIT IThe Company’s investment in REIT I represented an approximate 4.38% and 4.39% ownership interest as of September 30, 2017 and December 31, 2016, respectively. Through March 31, 2017, the Company had recorded its share of equity in the earnings (losses) of REIT I based on estimates of REIT I’s results of operations. In July 2017, REIT I’s financial statements for the year ended December 31, 2016 were prepared and audited. The Company’s equity in earnings (losses) of REIT I for the year ended December 31, 2016 should have been equity in earnings of $30,038 rather than equity in losses of $79,271 which was recorded. The Company’s equity pick upentity for the three months ended March 31, 2017 should have been equity in earnings of $18,813 rather than the equity in earnings of $7,957 which was recorded. For the three months ended September 30,2023 and 2022 is as follows:Three Months Ended
March 31,2023 2022 The TIC Interest $ 55,567 $ 95,464 recorded equity in earnings from REIT Ithrough a wholly-owned subsidiary of $688. For the nine months ended September 30, 2017, the Company recorded equity in earnings from REIT I of $168,043, which included $109,309 related to periods prior to January 1, 2017 as described above.The following is summarized financial information for REIT I: Three months ended
September 30,
September 30, 2017 2016 2017 2016 Total revenue $ 3,277,854 $ 1,917,889 $ 9,512,071 $ 4,163,249 Net income (loss) $ 10,468 $ (120,874 ) $ 1,342,330 $ (2,521,867 ) TICOn September 28, 2017, the CompanyOperating Partnership, acquired a 72.71% TICan approximate 72.7% interest in a 91,740 square foot industrial property in Santa Clara, California in a tenants-in-common ownership structure which requires a unanimous vote for significant decisions about the Fujifilm property. The remaining 27.29%approximate 27.3% of undivided interest in the FujifilmSanta Clara property is held by Hagg Lane II, LLC (23.37%)(an approximate 23.4% interest) and Hagg Lane III, LLC (3.92%)(an approximate 3.9% interest). The manager of both Hagg Lane II, LLC and Hagg Lane III, LLC iswas a board member of the Sponsor.Company's board of directors from December 2019 to December 2021. The Fujifilm property does not qualify as a VIE and consolidation is not required as the Company does not control the TIC. Therefore, the Company accounts for its interest in the TICSanta Clara property over which we have the ability to exercise significant influence, but for which we do not have financial or operating control is accounted for using the equity method.method of accounting. The Company receives 72.71%approximately 72.7% of the cash flow distributions and recognizes 72.71%approximately 72.7% of the results of operations.At September 30, 2017, Fujifilm had real estate assetsoperations for this property.March 31,
2023December 31,
2022Assets: Real estate investments, net $ 29,028,589 $ 29,294,081 Cash and cash equivalents 578,939 300,405 Other assets 22,225 43,159 Total assets $ 29,629,753 $ 29,637,645 Liabilities: Mortgage note payable, net $ 12,862,832 $ 12,936,929 Below-market lease, net 2,477,603 2,514,199 Other liabilities 539,776 424,662 Total liabilities 15,880,211 15,875,790 Total equity 13,749,542 13,761,855 Total liabilities and equity $ 29,629,753 $ 29,637,645 Three Months Ended
March 31,2023 2022 Total revenues $ 666,146 $ 714,978 Expenses: Depreciation and amortization 267,052 261,956 Interest expense 131,325 134,294 Other expenses 189,729 187,434 Total expenses 588,106 583,684 Net income $ 78,040 $ 131,294 NOTES TOFINANCIAL STATEMENTS (CONTINUED)September 30, 2017(unaudited)March 31,
2023December 31,
2022Straight-line rent $ 7,785,240 $ 6,607,220 Tenant rent and billed reimbursements 403,806 196,477 Accrued tenant reimbursements 464,504 459,505 Total $ 8,653,550 $ 7,263,202 March 31,
2023December 31,
2022Deferred tenant allowance $ 2,476,235 $ 2,564,806 Miscellaneous receivables 71,360 170,293 Prepaid expenses 1,659,099 1,364,946 Deposits 674,362 885,538 Deferred financing costs on credit facility revolver 1,023,681 1,115,354 Total $ 5,904,737 $ 6,100,937 March 31,
2023December 31,
2022Accounts payable $ 562,211 $ 1,001,411 Accrued expenses 2,421,351 2,163,821 Accrued distributions 1,773,431 1,768,068 Accrued interest payable 348,287 285,392 Unearned rent 1,683,152 1,870,057 Lease incentive obligation 550,242 561,057 Total $ 7,338,674 $ 7,649,806 5.6. DEBTMarch 31,
2023December 31,
2022Mortgage notes payable, net $ 44,338,481 44,435,556 Credit facility: Revolver — 3,000,000 Term loan, net 168,140,752 148,018,164 Total $ 212,479,233 $ 195,453,720 September 30, 2017,March 31, 2023 and December 31, 2022, the Company’s mortgage notes payable consisted of the following:Collateral Principal
Amount Deferred
Loan Costs,
net Net Balance Contractual
Interest Rate (1) Effective
Interest
Rate (1) Loan
MaturityAccredo/Walgreens properties $ 7,167,501 $ (133,762 ) $ 7,033,739 3.95% 3.95 % 7/1/2021 Dana property 4,728,857 (131,129 ) 4,597,728 4.56% 4.56 % 4/1/2023 Six Dollar General properties (2) 3,962,211 (162,403 ) 3,799,808 4.69% 4.69 % 4/1/2022 Wyndham property (3) 5,945,400 (112,374 ) 5,833,026 One-month
LIBOR + 2.05% 4.34 % 6/5/2027 Williams Sonoma property (3) 4,719,600 (90,057 ) 4,629,543 One-month
LIBOR + 2.05% 4.05 % 6/5/2022 Omnicare property 4,440,000 (174,480 ) 4,265,520 4.36% 4.36 % 6/1/2022 Harley property 7,010,000 (207,598 ) 6,802,402 4.25% 4.25 % 9/1/2024 Northrop Grumman property 5,978,965 (234,763 ) 5,744,202 4.40% 4.40 % 3/2/2021 $ 43,952,534 $ (1,246,566 ) $ 42,705,968 (1)Collateral 2023 Principal
Amount2022 Principal
AmountContractual Interest
Rate (1)Effective
Interest Rate (2)Loan
MaturityCostco property $ 18,850,000 $ 18,850,000 4.85% 4.85% 1/01/2030 Taylor Fresh Foods property 12,350,000 12,350,000 3.85% 3.85% 11/01/2029 OES property 13,236,983 13,315,009 4.50% 4.50% 3/09/2024 Total mortgage notes payable 44,436,983 44,515,009 Plus unamortized mortgage premium, net (3) 92,962 119,245 Less unamortized deferred financing costs (191,464) (198,698) Mortgage notes payable, net $ 44,338,481 $ 44,435,556 interest rate in effect under the mortgage note payable as of September 30, 2017. Effective interest rate is calculated as the actual interest rate in effect as of September 30, 2017 (consisting of the contractual interest rate and the effect of the interest rate swap, if applicable). For further information regarding the Company’s derivative instruments, see Note 6.(2)For the three and nine-months ended September 30, 2017, the loan was cross-collateralized with all six Dollar General properties owned by the Company and one Dollar General property owned by REIT I. As of September 30, 2017, the deeds of trust for the Company’s six Dollar General properties and the deed of trust for the REIT I Dollar General property contained cross-collateralization and cross default provisions. At September 30, 2017, the outstanding principal balance of the loan on REIT I’s one Dollar General property was $634,046. The cross-collateralization was removed on October 13, 2017.(3)The loans on each of the Williams Sonoma and Wyndham properties (collectively, the “Property”) located in Summerlin, Nevada were originated by Nevada State Bank (“Bank”). The loans are collateralized by a deed of trust and a security agreement with assignment of rents and fixture filing. In addition, the individual loans are subject to a cross collateralization and cross default agreement whereby any default under, or failure to comply with the terms of any one or both of the loans is an event of default under the terms of both loans. The value of the Property must be in an amount sufficient to maintain a loan to value ratio of no more than 60%. If the loan to value ratio is ever more than 60%, the borrower shall, upon the Bank’s written demand, reduce the principal balance of the loans so that the loan to value ratio is no more than 60%.Unsecured Credit FacilityOn June 7, 2016, the Operating Partnership (defined and discussed below) with KeyBank National Association (“Borrower”KeyBank”) entered into a credit agreement (the “Unsecured Credit Agreement”) with Pacific Mercantile Bank (“Lender”). Pursuant to the Unsecured Credit Agreement, the Borrower has a $12,000,000 unsecured credit facility with anin January 2022 given their prepayment penalties.equal to 1% over an independent index, that is calculated as the highestactual interest rate on corporate loans posted by at least 75%in effect as of March 31, 2023 and December 31, 2022 consisting of the thirty (30) largest banks incontractual interest rate.United States, known as merger with Rich Uncles Real Estate Investment Trust I.Wall Street Journal Prime Rate, as published infollowing summarizes the Wall Street Journal. Payments under the Unsecured Credit Agreement are interest onlyface value, carrying amount and are due on the 15th day of each month. The Unsecured Credit Agreement initially had a maturity date of June 15, 2017. On May 12, 2017, the maturity datefair value of the Unsecured Credit Agreement was extendedCompany’s mortgage notes payable (Level 3 measurement) as of March 31, 2023 and December 31, 2022:March 31, 2023 December 31, 2022 Face Value Carrying
ValueFair Value Face value Carrying
ValueFair Value Mortgage notes payable $ 44,436,983 $ 44,338,481 $ 41,369,328 $ 44,515,009 $ 44,435,556 $ 41,293,644 October 28, 2017. On October 4, 2017, the maturity date of the unsecured credit agreement was extended to January 26, 2018. The effective interest rate for borrowings under the Unsecured Credit Agreement during the nine months ended September 30, 2017 was 5.12%.The Unsecured Credit Agreement is guaranteed in the amount of $12,000,000 by the Company, Rich Uncles NNN LP, LLC, Harold Hofer, Howard Makler and Ray Wirta and trusts affiliated with the aforementioned individuals. The guarantees are to be released once the Company has book equity of $60,000,000.We are negotiating the extension of the maturity date of the Unsecured Credit Agreement and we expect to complete this process prior to its current January 26, 2018 maturity date.15PART I – FINANCIAL INFORMATION (continued)ITEM 1 – Unaudited Condensed Consolidated Financial Statements (continued)RW HOLDINGS NNN REIT,NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)September 30, 2017(unaudited)the mortgage notes payable on certain of the Company’s properties and the Unsecured Credit Agreement,Facility, the Company and/or the Operating Partnershipsubsidiary borrowers are subject to certain financial loan covenants. The Company and/or the Operating Partnership wassubsidiary borrowers were in compliance with allsuch financial covenants of these loan agreementcovenants as of September 30, 2017.repaymentrepayments of the Company’s mortgage notes payable and unsecured credit facilityCredit Facility as of September 30, 2017: Mortgage Note
Payable Unsecured
Credit Facility Total Remaining 2017 $ 190,909 $ 7,119,739 $ 7,310,648 2018 $ 793,487 - 793,487 2019 $ 828,346 - 828,346 2020 $ 861,835 - 861,835 2021 $ 7,452,683 - 7,452,683 2022 $ 13,789,779 - 13,789,779 2023 $ 20,035,495 - 20,035,495 Total Principal 43,952,534 7,119,739 51,072,273 Deferred financing costs, net (1,246,566 ) - (1,246,566 ) Total Principal $ 42,705,968 $ 7,119,739 $ 49,825,707 Mortgage Notes Credit Facility Payable Revolver Term Loan Total April through December 2023 $ 239,292 $ — $ — $ 239,292 2024 13,267,307 — — 13,267,307 2025 543,886 — — 543,886 2026 568,369 — — 568,369 2027 593,972 — 170,000,000 170,593,972 Thereafter 29,224,157 — — 29,224,157 Total principal 44,436,983 — 170,000,000 214,436,983 Plus unamortized mortgage premium, net of unamortized discount 92,962 — — 92,962 Less deferred financing costs (191,464) — (1,859,248) (2,050,712) Net principal $ 44,338,481 $ — $ 168,140,752 $ 212,479,233 and nine months ended SeptemberMarch 31, 2023 and 2022:Three Months Ended
March 31,2023 2022 Mortgage notes payable: Interest expense $ 471,939 $ 812,718 Amortization of deferred financing costs 7,235 7,225 Credit facility: Interest expense 2,388,935 567,997 Unused commitment fees 186,236 22,233 Derivative cash settlements (1) (1,074,085) — Amortization of deferred financing costs 214,261 100,690 Unrealized loss on interest rate swap valuation for first swap (2) 1,144,018 — Amortization of interest rate swap valuation (2) (250,311) — Unrealized loss on interest rate swap valuation for second swap (3) 828,476 — Other 102,088 57,312 Total interest expense $ 4,018,792 $ 1,568,175 20172022, respectively, as described in detail in Note 7.2016: Three Months Ended September 30 Nine Months Ended September 30 2017 2016 2017 2016 Mortgage notes payable Interest expense (1) $ 401,174 $ 48,153 $ 667,011 $ 58,742 Amortization of deferred financing costs 53,141 8,689 88,526 9,845 Unrealized loss (gain) on interest rate swaps (see Note 6) (4,627 ) - 100,006 - Unsecured credit facility Interest expense 81,594 115,707 224,626 144,582 Amortization of deferred financing costs - 762 1,118 792 Forfeited loan fee 10,000 960 30,000 960 Total interest expense $ 541,282 $ 174,271 $ 1,111,287 $ 214,921 (1)Includes $20,831 for the three and nine months ended September 30, 2017, respectively, of monthly payments to settle the Company’s interest rate swaps. Accrued interest payable of $7,172 at September 30, 2017 represented the unsettled portion of the interest rate swaps for the period from origination of the interest rate swap through September 30, 2017. The Company had no swap agreements as of September 30, 2016.
the unrealized gain on interest rate swap derivative previously recorded in accumulated other comprehensive income and noncontrolling interest in operating partnership is being amortized on a straight-line basis as a reduction to interest expense through the maturity date of the loan agreement (see Note 7 for more details).16PART I – FINANCIAL INFORMATION (continued)ITEM 1 – Unaudited Condensed Consolidated Financial Statements (continued)RW HOLDINGS NNN REIT, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)September 30, 2017(unaudited)6.7. INTEREST RATE SWAP DERIVATIVESprimary goal of the Company’s risk management practicesCompany, through its Operating Partnership, entered into a five-year swap agreement on May 10, 2022 to fix SOFR at 2.258% effective May 31, 2022 related to the variable interest rate risk is to prevent changes in interest rates from adversely impacting the Company’s ability to achieveon its investment return objectives.original $150,000,000 Term Loan. The Company does not enter into derivatives for speculative purposes.The Company enters into interest rate swaps as a fixed rate payer to mitigate its exposure to rising interest rates on its variable rate mortgage notes payable. The value of interest rate swaps is primarily impacted by interest rates, market expectations about interest rates, anddesignated the remaining life of the applicable instrument. In general, increases in interest rates, or anticipated increases in interest rates, will increase the value of the fixed rate payer position and decrease the value of the variable rate payer position. As the remaining life of thepay-fixed, receive-floating interest rate swap decreases,with the valueterms described in the table below as of both positions will generally move towards zero.During June 2017,July 1, 2022 as a cash flow hedge. The swap agreement matures on January 15, 2027 and the financial institution counterparty has a one-time option to cancel the swap on December 31, 2024. The Company (or wholly owned limited liability company subsidiaries)granted this cancellation option because it reduced the swap rate by approximately 50 basis points. The derivative instrument failed to qualify as a cash flow hedge for the quarter ended March 31, 2023 as described below.agreements with amortizing notional amounts relatingthe terms described in the table below as of November 30, 2022 as a cash flow hedge. The swap agreement matures on November 30, 2027 and the financial institution counterparty has a one-time option to twocancel the swap on December 31, 2024. The Company granted this cancellation option because it reduced the swap rate by approximately 50 basis points.September 30, 2017. March 31, 2023 and December 31, 2022:March 31, 2023 December 31, 2022 Interest Rate Derivative
InstrumentsNumber of Instruments Notional
Amount (i)Reference
RateWeighted Average Fixed Pay Rate (ii) Weighted
Average
Remaining TermNumber of Instruments Notional
Amount (i)Reference Rate Fixed Pay Rate (ii)
Remaining TermDesignated — $ — — — % 0 years 1 $ 150,000,000 USD - SOFR 3.86 % 4.1 years Non-designated 2 $ 250,000,000 USD - SOFR 4.33 % 3.8 years 1 $ 100,000,000 USD - SOFR 5.04 % 4.1 years is an indication of the extent of the Company’s involvement in each instrumentswaps correspond to the drawable principal balance on the Term Loan. The minimum notional amount (outstanding principal balance at that time, but does not represent exposure to credit, interestthe maturity date) as of March 31, 2023 and December 31, 2022 was $250,000,000.or market risks: September 30, 2017
Instruments
Instruments
(i)
of 6/30/2016
Fixed Pay Rate
Remaining TermInterest Rate
Swap Derivatives 2 $ 10,665,000 One-month LIBOR + applicable spread/Fixed at 4.05%-4.34% 4.21 % 7.5 years (i)The notional amount of the Company’s swaps decrease each month to correspond to the outstanding principal balance on the related mortgage. The minimum notional amount (outstanding principal balance at the maturity date) as of September 30, 2017 was $9,083,700.Condensed Consolidated Balance Sheetsunaudited condensed consolidated balance sheets as of September 30, 2017. September 30, 2017 Derivative Instrument Balance Sheet Location Number of
Instruments Fair Value Interest Rate Swaps Liability – Interest rate swap derivatives, at fair value 2 $ (100,006 ) March 31, 2023 December 31, 2022 Derivative Instrument Balance Sheet Location Number of
InstrumentsFair Value (1) Number of
InstrumentsFair Value Change in Fair Value Interest Rate Swaps Asset - Interest rate swap derivatives, at fair value 1 $ 3,485,684 1 $ 4,629,702 $ (1,144,018) Interest Rate Swaps Liability - Interest rate swap derivatives, at fair value 1 $ (1,327,342) 1 $ (498,866) $ (828,476) instrumentof $4,105,103 as of December 31, 2022 (recorded in the Company's balance sheet as follows: (i) $3,502,616 of accumulated other comprehensive income and (ii) $602,487 of noncontrolling interest in operating partnership) is being amortized on a straight-line basis as a reduction to interest expense through the maturity date of the swap agreement. The amortization of the unrealized gain on interest rate swap derivative for the three months ended March 31, 2023 was $250,311. There is no income tax expense resulting from this amortization.is$764,840 of the remaining unrealized gain on interest rate swap derivative will be reclassified from accumulated other comprehensive income and noncontrolling interest in operating partnership as a reduction to interest expense in the Company's unaudited condensed consolidated statements of operations over the next nine months.isfor financial accounting purposes. The change in its fair value of $828,476 for the three months ended March 31, 2023 was recorded as an unrealized loss on interest rate swap valuation as of March 31, 2023 and reflected as an increase to interest expense in the accompanying Condensed Consolidated StatementsCompany's unaudited condensed consolidated statements of Operations. Noneoperations.30, 2017(unaudited)NOTE 7. FAIR VALUE DISCLOSURESfair value for certain financial instruments is derived using valuation techniques that involve significant management judgment. The price transparency of financial instruments is a key determinantissuance and sale of the degreeshares of judgment involvedSeries A Preferred Stock began trading on the NYSE on September 17, 2021. The gross proceeds from the Preferred Offering were $50,000,000 and the net proceeds were $47,607,309, after deducting the underwriting discount of $1,575,000 and other offering costs of $817,691.determiningexchange for a new class of 7.375% Series A Cumulative Redeemable Perpetual Preferred Units of the fair valueOperating Partnership, which have economic interests that are substantially similar to the designations, preferences and other rights of Series A Preferred Stock.financial instruments. Financial instruments for which actively quoted prices or pricing parameters are available and for which markets contain orderly transactionsClass C common stock. In addition, upon the occurrence of a Delisting Event, the dividend rate will generally have a higher degree of price transparency than financial instruments for which markets are inactive or consist of non-orderly trades. The Company evaluates several factors when determining if a market is inactive or when market transactions are not orderly. The following is a summarybe increased on the day after the occurrence of the methods and assumptions usedDelisting Event by management in estimating the fair value of each class of financial instrument for which it is practicable to estimate the fair value:Cash and cash equivalents, restricted cash, tenant receivables, due from affiliates, purchase and other deposits, prepaid expenses and other assets, accounts payable, accrued expenses and other liabilities and due to affiliates: These balances approximate their fair values due2.00% per annum to the short maturitiesrate of these items.Derivative Instruments: The Company’s derivative instruments are presented at fair value in the accompanying Condensed Consolidated Balance Sheets. The valuation of these instruments is determined using a proprietary model that utilizes observable inputs. As such, the Company classifies these inputs as Level 2 inputs. The proprietary model uses the contractual terms9.375% of the derivatives, including$25.00 liquidation preference per share per annum (equivalent to $2.34375 per share each year) from and after the period to maturity, as well as observable market-based inputs, including interestdate of the Delisting Event. Following the cure of such Delisting Event, the dividend rate curves and volatility. The fair values of interest rate swaps are estimated using the market standard methodology of netting the discounted fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on an expectation of interest rates (forward curves) derived from observable market interest rate curves. In addition, credit valuation adjustments, which consider the impact of any credit riskswill revert to the contracts,rate of 7.375% of the $25.00 liquidation preference per share per annum. The necessary conditions to convert the Series A Preferred Stock into the Company's Class C common stock have not been met as of March 31, 2023.incorporated in arrears, and with respect to voting on amendments to the fair values to account for potential nonperformance risk.Unsecured Credit Facility: The fair valueCompany’s charter (which includes the Articles Supplementary) that materially and adversely affect the rights of the Series A Preferred Stock or create additional classes or series of shares of the Company’s Unsecured Credit Facility approximates its carrying value ascapital stock that are senior to the interest ratesSeries A Preferred Stock. Other than the limited circumstances described above and other terms are comparable to those available in the market place for a similar credit facility.Mortgage notes payable: The fair valueArticles Supplementary, holders of Series A Preferred Stock do not have any voting rights.Company’s mortgage notes$25.00 liquidation preference per share per annum. Dividends on the Series A Preferred Stock are cumulative and payable is estimated usingquarterly in arrears on the 15th day of January, April, July and October of each year (or, if not a discounted cash flow analysis basedbusiness day, the next succeeding business day) to holders of record on management’s estimates of current market interest rates for instrumentsthe applicable record date. Any accrued and unpaid dividends payable with similar characteristics, including remaining loan term, loan-to-value ratio, type of collateral and other credit enhancements. Additionally, when determiningrespect to the fair value of liabilities in circumstances in which a quoted price in an active market for an identical liability is not available, the Company measures fair value using (i) a valuation technique that uses the quoted priceSeries A Preferred Stock become part of the identical liability when traded as an asset or quoted prices for similar liabilities or similar liabilities when traded as assets or (ii) another valuation technique that is consistent with the principles of fair value measurement, such as the income approach or the market approach. The Company classifies these inputs as Level 3 inputs.The following were the face value, carrying amount and fair value ofliquidation preference thereof.mortgage notesboard of directors declared Series A Preferred Stock distributions payable of $1,065,278 for the fourth quarter of 2021, including $143,403 of accrued dividends as of September 30, 2017 and2021, all of which were accrued as of December 31, 2016:September 30, 2017 December 31, 2016 Face value
value Fair value Face Value
Value Fair Value $ 43,952,534 $ 42,705,968 $ 44,152,390 $ 7,266,145 $ 7,113,701 $ 7,266,145 Disclosures2021 and paid on January 18, 2022. On March 18, 2022, June 15, 2022, September 15, 2022 and November 7, 2022 the Company’s board of directors declared Series A Preferred Stock dividends payable of $921,875 for each of the fair valuesfirst, second, third and fourth quarters of financial instruments are based2022, which were paid on pertinent information availableApril 15, 2022, July 15, 2022, October 17, 2022 and January 17, 2023, respectively. On March 9, 2023, the Company’s board of directors declared Series A Preferred Stock dividends payable of $921,875 for the first quarter of 2023. This amount was accrued as of March 31, 2023 and paid on April 17, 2023 (see Company asCompany’s existing stockholders. The shares of September 30, 2017Class C common stock began trading on the NYSE on February 11, 2022.require a significant amount of judgment. The actual value could be materially different from$0.39 for the Company’s estimate of value.18PART I – FINANCIAL INFORMATION (continued)ITEM 1 – Unaudited Condensed Consolidated Financial Statements (continued)RW HOLDINGS NNN REIT, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)September 30, 2017(unaudited)During the ninethree months ended September 30, 2017,March 31, 2023 and 2022, respectively, which reflect an annualized distribution rate of $1.15 per share for both periods, along with a special 13Company measured the following assetsyear ended December 31, 2021, which was declared and liabilities at fair value (in thousands):Recurring Basis Total
Active Markets for
Identical Assets
(Level 1)
Observable Inputs
(Level 2)
Inputs
(Level 3) Interest rate swap liabilities $ 100,006 $ - $ 100,006 $ - 8.9. RELATED PARTY TRANSACTIONShas entered into an agreement (the “Advisory Agreement”) withpays the Advisor. This agreement entitles the Advisormembers of its board of directors who are not executive officers for services rendered through cash payments and by issuing shares of Class C common stock to specifiedthem. Total fees upon the provisionincurred and paid or accrued for board of certain services with regard to the investment of funds in real estate investments, the management of those investments, among other services, and the disposition of investments, as well as entitles the Advisor to reimbursement of organization and offering costs incurred by the Advisor or Sponsor on behalf of the Company, such as expenses related to the Offerings, and certain costs incurred by the Advisor or Sponsor in providingdirectors' services to the Company. In addition, the Advisor is entitled to certain other fees, including an incentive fee upon achieving certain performance goals, as detailed in the Advisory Agreement. The Sponsor also serves as the sponsor for Rich Uncles REIT I. During the nine months ended September 30, 2017 and 2016, no other business transactions occurred between the Company and Rich Uncles REIT I, other than described below or elsewhere herein, and those relating to the Company’s investment in Rich Uncles REIT I.Summarized below are the related party costs incurred by the Company, including those incurred pursuant to the Advisory Agreement, for the three and nine months ended September 30, 2017March 31, 2023 and 2016, respectively: Three months
ended Nine months
ended Three months
ended Nine months
ended September 30, 2017 September 30, 2017 September 30, 2016 December 31, 2016 Incurred Incurred Receivable Payable Incurred Incurred Receivable Payable Expensed Acquisition fees $ - $ - $ - $ - $ - $ 474,121 $ - $ - Asset management fees (2) 264,927 573,081 - 483,135 46,575 54,141 - 29,577 Property management fees 6,996 7,618 - 7,617 - - - - Expense reimbursements from Sponsor (1) (584,230 ) (1,945,160 ) 22,451 - (434,332 ) (434,332 ) 79,862 - Waiver of asset management fees (2) (42,485 ) (119,524 ) - - (11,798 ) (11,798 ) - - Capitalized Acquisition fees 1,014,559 2,498,129 - - - - - 274,200 Financing fees 174,500 261,950 - - - - - - Additional paid-in-capital Reimbursable organizational and offering expenses (3) 453,377 1,591,498 4,005 - 187,101 187,101 - 79,645 Other Costs reimbursable from Rich Uncles REIT I (4) - - - - - - 28,571 - Due to Rich Uncles REIT I (5) 17,269 17,269 - 17,269 - - - - Payable to TIC (6) 363,168 363,168 - 363,168 - - - - $ 26,456 $ 871,189 $ 108,433 $ 383,422 * Property management fees2022, are presented as follows:Three Months Ended
March 31,Board of Directors Compensation 2023 2022 Payments for services rendered $ 67,500 $ 67,500 Value of shares issued for services rendered 82,500 82,500 Total $ 150,000 $ 150,000 Number of shares issued for services rendered 7,761 4,599 operating expenses.
and related equipment leased to Kalera Inc. (“Kalera”) in Saint Paul, Minnesota for $8,079,000. Kalera was introduced to the Company by Curtis B. McWilliams, one of the Company’s independent directors. Since Mr. McWilliams was serving as an executive of Kalera at the time of the acquisition, all of the disinterested members of the Company’s board of directors approved this transaction in January 2022.19PART I – FINANCIAL INFORMATION (continued)ITEM 1 – UnauditedRW HOLDINGS NNN REIT, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)September 30, 2017(unaudited)(1)The Company records payroll costs related to Company employees that answer questions from prospective shareholders. The Sponsor has agreed to reimburse the Company for these investor relations payroll costs which the Sponsor considers to be offering expenses in accordance with the Advisory Agreement. The receivable related to this is reflected in “Due from affiliates” in the Condensed Consolidated Balance Sheets.(2)To the extent the Advisor elects, in its sole discretion to defer all or any portion of its monthly asset management fee, the Advisor will be deemed to have waived, not deferred, that portion up to 0.025% of the total investment value of the Company’s assets. For the three and nine months ended September 30, 2017, the Advisor waived $42,485 and $119,524, respectively, of asset management fees, which are not subject to future recoupment by the Advisor. The Advisor waived $11,798 of asset management fees for the three and nine months ended September 30, 2016.(3)As of September 30, 2017, the Sponsor had incurred $5,844,047 of organizational and offering costs on behalf of the Company. However, the Company is only obligated to reimburse the Sponsor for such organizational and offering expenses to the extent of 3% of gross offering proceeds.(4)The Company incurred $28,571 of costs in conjunction with due diligence for a property acquisition which is owed to the Company from Rich Uncles REIT I as of December 31, 2016 and reflected in “Due from affiliates in the Condensed Consolidated Balance Sheets.(5)The Company incurred $17,269 for the nine months ended September 30, 2017 of interest on its unsecured credit facility. This amount was the result of a bank error. The monthly interest payment that was due on the unsecured credit facility was withdrawn from REIT I’s bank account rather than from the Company’s bank account.(6)After closing the acquisition of the Fujifilm property, the Company received $363,168 from the title company. These proceeds represent cash received by the title company in excess of the amounts needed to acquire the property. At September 30, 2017, these proceeds are payable to the TIC which owns the property.Organizational and Offering ExpensesPursuantAdvisory Agreement, the CompanyCompany’s property in Saint Paul, Minnesota that is obligatedleased to reimburse the Sponsor or its affiliates for organizational and offering expenses (as definedKalera. Filings made by the Sponsor) paid by the Sponsor on behalf of the Company. The Company will reimburse the Sponsor for organizational and offering expenses up to 3.0% of gross offering proceeds. The Sponsor and affiliates will be responsible for any organizational and offering expenses to the extent they exceed 3.0% of gross offering proceeds. As of September 30, 2017, the Sponsor has incurred organizational and offering expenses in excess of 3.0% of the gross offering proceeds received by the Company. To the extent the Company has more gross offering proceeds from future shareholders, the Company will be obligated to reimburse the Sponsor. As the amount of future gross offering proceeds is uncertain, the amount the Company is obligated to reimburse to the Sponsor is uncertain. As of September 30, 2017, the Company has reimbursed the Sponsor $2,332,819 in organizational and offering expenses of which $4,005 was receivable as of September 30, 2017 and is included in “Due from affiliates”Kalera in the Condensed Consolidated Balance Sheet. The Company’s maximum liability for organizationalbankruptcy case indicate that Kalera is conducting an auction of all of its assets, with all bids due on June 9, 2023 and offering costs through September 30, 2017 was $2,328,814Investor relations payroll expense reimbursement from SponsorThe Company employs investor personnel that answer inquiries from potential investors regarding the Company and/or its the Registered Offering. The payroll expense associated with the investor relations personnel is reimbursed by the Sponsor. The Sponsor considers these payroll costsclosing of any asset sales scheduled to be offering expenses. The total amount of such payroll expense reimbursements was $584,230 and $1,945,160 for the three and nine months ended September 30, 2017.Acquisition FeesThe Company shall pay the Advisor a fee in an amount equal to 3.0% of the Company’s contract purchase price of its properties, as defined, as acquisition fees. The total of all acquisition fees and acquisition expenses shall be reasonable, and shall not exceed 6.0% of the contract price of the property. However, a majority of the directors (including a majority of the independent directors) not otherwise interested in the transaction may approve fees in excess of these limits if they determine the transaction to be commercially competitive, fair and reasonable to the Company. Acquisition fees incurred during the three and nine months ended September 30, 2017 were $1,014,559 and $2,498,129.20PART I – FINANCIAL INFORMATION (continued)ITEM 1 – Unaudited Condensed Consolidated Financial Statements (continued)RW HOLDINGS NNN REIT, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)September 30, 2017(unaudited)Asset Management FeeThe Company shall pay to the Advisor as compensation for the advisory services rendered to the Company, a monthly fee in an amount equal to 0.1% of the Company’s total investment value, as defined (the “Asset Management Fee”), as ofcompleted by the end of the preceding month. The Asset Management Fee shall be payable monthly on the last dayJune 2023. A sale of such month, or the firstKalera’s business, day following the last day of such month. The Asset Management Fee, which must be reasonableincluding its interest in the determination of the Company’s independent directors at least annually, may or may not be taken, in whole or in part as to any year, in the sole discretion of the Advisor. All or any portion of the Asset Management Fee not paid as to any fiscal year shall be deferred without interest and may be paid in such other fiscal year as the Advisor shall determine.Additionally, to the extent the Advisor elects, in its sole discretion, to defer all or any portion of its monthly Asset Management Fee, the Advisor will be deemed to have waived, not deferred, that portion of its monthly Asset Management Fee that is up to 0.025% of the total investment value of the Company’s assets. The total amount of Asset Management Fees incurred in the three and nine months ended September 30, 2017 were $264,927 and 573,081, respectively, of which $42,485 and $119,524, respectively, was waived. Asset Management Fees payable at September 30, 2017 were $483,135.Financing Coordination FeeOther than with respect to any mortgage or other financing related to a property concurrent with its acquisition, if the Advisor or an affiliate provides a substantial amount of the services (as determined by a majority of the Company’s independent directors) in connection with the post-acquisition financing or refinancing of any debt that the Company obtains relative to a property, then the Company shall pay to the Advisor or such affiliate a financing coordination fee equal to 1.0% of the amount of such financing. Financing coordination fees incurred during the three and nine months ended September 30, 2017 were $174,500 and $261,950, respectively.Property Management FeesIf the Advisor or any of its affiliates provides a substantial amount of the property management services (as determined by a majority of the Company’s independent directors) for the Company’s properties, then the Company shall pay to the Advisor or such affiliate a property management fee equal to 1.5% of gross revenues from the properties managed. The Company also will reimburse the Advisor and any of its affiliates for property-level expenses that such person pays or incurs on behalf of the Company, including salaries, bonuses and benefits of persons employed by such person, except for the salaries, bonuses and benefits of persons who also serve as one of the Company’s executive officers or as an executive officer of such person. The Advisor or its affiliate may subcontract the performance of its property management duties to third parties and pay all or a portion of its property management fee to the third parties with whom it contracts for these services. For the three and nine months ended September 30, 2017, Property Management Fees were $6,996 and $7,617. There were no property management fees incurred during the three and nine months ended September 30, 2016.Disposition FeesFor substantial assistance in connection with the sale of properties, the Company shall pay to its Advisor or one of its affiliates 3.0% of the contract sales price, as defined, of each property sold; provided, however, that if, in connection with such disposition, commissions are paid to third parties unaffiliated with our Advisor or its affiliates, the disposition fees paid to our Advisor, our Sponsor, their affiliates and unaffiliated third parties may not exceed the lesser of the competitive real estate commission or 6% of the contract sales price. There were no disposition fees incurred during the three and nine months ended September 30, 2017 nor 2016.21PART I – FINANCIAL INFORMATION (continued)ITEM 1 – Unaudited Condensed Consolidated Financial Statements (continued)RW HOLDINGS NNN REIT, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)September 30, 2017(unaudited)Leasing Commission FeesIf a property or properties of the Company becomes unleased and the Advisor or any of its affiliates provides a substantial amount of the services (as determined by a majority of the Company’s independent directors) in connection with the Company’s leasing of the property or properties to unaffiliated third parties, then the Company shall pay to the Advisor or such affiliate leasing commissions equal to 6.0% of the rents due pursuant to suchCompany's lease for the first ten yearsSaint Paul, Minnesota property, could occur in the auction process, or Kalera could decide to reject the Company's lease. In the event of the lease term; provided, however (i) iflatter outcome, the termCompany would seek to find a new tenant or sell the property.lease is less than ten years, such commission percentage will apply to the full termTIC Interest property and earned asset management fees of $65,993 for both of the leasethree months ended March 31, 2023 and (ii) any rents due under a renewal of a lease of an existing tenant upon expiration2022, including the Company's share, which was $47,984 for both of the initial lease agreement (including any extensions provided for thereunder) shall accrue a commission of 3.0% in lieu of the aforementioned 6.0% commission. To the extent that an unaffiliated real estate broker assists in such leasing services, any compensation paid by the Company to the Advisor or any of its affiliates will be reduced by the amount paid to such unaffiliated real estate broker. There were no leasing commission fees incurred during the three and nine months ended September 30, 2017 nor 2016.Other Operating Expense ReimbursementPursuant to the Company’s charter, total operating expenses of the Company are limited to the greater of 2% of average invested assets or 25% of net income for the four most recently completed fiscal quarters (2%/25% Limitation). If the Company exceeds the 2%/25% Limitation, the Advisor must reimburse the Company the amount by which the aggregate total operating expenses exceeds the limitation, or the Company must obtain a waiver from the Company’s conflicts committee. For purposes of determining the 2%/25% Limitation amount, “average invested assets” means the average monthly book value of the Company’s assets invested directly or indirectly in equity interestsMarch 31, 2023 and loans secured by real estate during the 12-month period before deducting depreciation, reserves for bad debts or other non-cash reserves. “Total operating expenses” means all expenses paid or incurred by the Company, as determined by GAAP, that are in any way related to the Company’s operation including Asset Management Fees, but excluding (a) the expenses of raising capital such as organization and offering expenses, legal, audit, accounting, underwriting, brokerage, listing, registration and other fees, printing and other such expenses and taxes incurred in connection with the issuance, distribution, transfer, listing and registration of shares of the Company’s common stock; (b) interest payments; (c) taxes; (d) non-cash expenditures such as depreciation, amortization and bad debt reserves; (e) reasonable incentive fees based upon increases in NAV per share; (f) acquisition fees and acquisition expenses (including expenses, relating to potential investments that the Company does not close); and (h) disposition fees on the sale of real property and other expenses connected with the acquisition, disposition and ownership of real estate interests or other property (other than disposition fees on the sale of assets other than real property), including the costs of insurance premiums, legal services, maintenance, repair and improvement of real property.Operating expense reimbursements for the four fiscal quarters ended September 30, 2017 exceeded the 2%/25% Limitation. The Company’s conflicts committee approved the operating expenses above the 2%/25% Limitation, as they determined that the relationship of the Company’s operating expenses to average invested assets were justified for the four fiscal quarters ended September 30, 2017 given the costs of operating as a public company and the early stage of the Company’s operations.9.10. COMMITMENTS AND CONTINGENCIESEconomic DependencyThe Company depends on its Sponsor and its Advisor for certain services that are essential to the Company, including the sale of the Company’s shares of common stock, the identification, evaluation, negotiation, origination, acquisition and disposition of investments; management of the daily operations of the Company’s investment portfolio; and other general and administrative responsibilities. In the event that these companies are unable to provide the respective services, the Company will be required to obtain such services from other sources.22PART I – FINANCIAL INFORMATION (continued)ITEM 1 – Unaudited Condensed Consolidated Financial Statements (continued)RW HOLDINGS NNN REIT, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)September 30, 2017(unaudited)Environmentalhas an obligationhad obligations to pay $1,776,652 and $1,789,027, respectively, for $1,738,136 in siteon-site and tenant improvements to be incurred at September 30, 2017. At September 30, 2017,by tenants.had $931,697received mechanics lien statements from the general contractor and nine subcontractors who performed work on behalf of restricted cash heldKalera to fundcomplete various interior improvements at the improvements.time to time,time-to-time, the Company may become party to legal proceedings that arise in the ordinary course of its business. Other thanExcept for the below,Kalera bankruptcy proceeding described in Note 9 – Related Party Transactions, the Company, including its subsidiaries, is not a party to any legal proceeding, nor is the Company aware of any pending or threatened litigation that could have a material adverse effect on the Company’s business, operating results, cash flows or financial condition should such litigation be resolved unfavorably.The SEC is conducting an investigation relatedthe advertising and sale of securities byCondensed Consolidated Financial Statements (continued)Registered Offering.Self-Management Transaction and are non-voting, non-dividend accruing, and were not able to be converted or exchanged prior to the one-year anniversary of the Self-Management Transaction. Investors holding units in BrixInvest received Daisho units in a ratio of 1:1 for an aggregate of 657,949.5 Daisho units. During 2020, Daisho distributed the Class M OP Units to its members. The investigationClass M OP Units are convertible into units of Class C limited partnership interest in the Operating Partnership (“Class C OP Units”) at a conversion ratio of 1.6667 Class C OP Units for each one Class M OP Unit, subject to a reduction in the conversion ratio (which reduction will vary depending upon the amount of time held) if the exchange occurs prior to the four-year anniversary of the completion of the Self-Management Transaction.Date of Exchange Early Conversion Rate From December 31, 2020 to December 30, 2021 50% of the Class M conversion ratio From December 31, 2021 to December 30, 2022 60% of the Class M conversion ratio From December 31, 2022 to December 30, 2023 70% of the Class M conversion ratio Hurdles AUM AFFO Class M ($ in billions) Per Share ($) Conversion Ratio Initial Conversion Ratio 1:1.6667 Fiscal Year 2021 $ 0.860 $ 1.77 1:1.9167 Fiscal Year 2022 $ 1.175 $ 1.95 1:2.5000 Fiscal Year 2023 $ 1.551 $ 2.10 1:3.0000 non-public fact-finding inquiry. It is neither an allegationClass M OP Unit would be valued at $17.72. This value does not reflect the early conversion rate or the future conversion enhancement ratio of wrongdoing nor a finding that violationsthe Class M OP Units, as discussed above, and the units of law have occurred. InClass P limited partnership interest in the Operating Partnership (“Class P OP Units”), as discussed below.investigation,Self-Management Transaction. The Class P OP Units are intended to be treated as “profits interests” in the Operating Partnership, which are non-voting, non-dividend accruing, and are not able to be transferred or exchanged prior to the earlier of (1) March 31, 2024, (2) a change of control (as defined in the Third Amended and Restated Limited Partnership Agreement of the Operating Partnership (as amended, the “Operating Partnership Agreement”)), or (3) the date of the recipient's involuntary termination (as defined in the relevant award agreement for the Class P OP Units) (collectively, the “Lockup Period”). Following the expiration of the Lockup Period, the Class P OP Units are convertible into Class C OP Units at a conversion ratio of 1.6667 Class C OP Units for each one Class P OP Unit; provided, however, that the foregoing conversion ratio shall be subject to increase on generally the same terms and conditions as the Class M OP Units, as set forth above.certain affiliates have receivedPresident, and respondedRaymond J. Pacini, the Company’s Chief Financial Officer, including 26,318 Class P OP Units issued in exchange for Messrs. Halfacre's and Pacini's agreements to subpoenasforfeit a similar number of restricted units in BrixInvest in connection with the Self-Management Transaction. The remaining 29,711 Class P OP Units were issued to both executives as signing bonuses and as a portion of their incentive compensation for 2020 in connection with their entry into restrictive covenant agreements. The 29,711 Class P OP Units were valued based on the estimated NAV per share of $30.48 (unaudited) when issued on December 31, 2019 and the expected minimum conversion ratio of 1.6667 Class C OP Units for each one Class P OP Unit, which resulted in a valuation of $1,509,319. This amount is amortized on a straight-line basis over 51 months through March 31, 2024, the expected vesting date of the units, as a periodic charge to stock compensation expense.SEC requesting documentsyear ending December 31, 2023. Given that there are a large number of uncertainties that could impact the Company's funds from operations for the remainder of the year, including, but not limited to, the risks of potential tenant vacancies and/or bankruptcies, inflation, rising interest rates, changes in the value of interest rate swap derivatives, potential dispositions of non-core assets and other informationtightening credit markets, the Company concluded that as of each quarter end, including March 31, 2023, achieving the performance target to trigger the increased conversion ratio for the Class R OP Units is not yet deemed probable. The Company will adjust compensation expense prospectively if achieving the enhancement is deemed probable through the remainder of the vesting period.Three Months Ended March 31, 2023 2022 Class P OP Units $ 88,783 $ 88,783 Class R OP Units 488,886 340,582 82,500 82,500 Total $ 660,169 $ 511,865 Registered Offering. The SEC’s investigation is ongoing. The Company has cooperatedthe option to redeem the units for cash or shares of Class C common stock. The Class C OP Units received $377,298 and intends to continue to cooperate with$251,539 in distributions during the SEC in this matter. The Company is unable to predict the likely outcomethree months ended March 31, 2023 and 2022, respectively, and were allocated $816,199 and $1,928,029 of the investigationnet loss for the three months ended March 31, 2023 and 2022, respectively.Three Months Ended
March 31,2023 2022 Numerator - Basic: Net loss $ (4,578,921) $ (12,073,164) Net loss attributable to noncontrolling interest in Operating Partnership 816,199 1,928,028 Preferred stock dividends (921,875) (921,875) Net loss attributable to common stockholders $ (4,684,597) $ (11,067,011) Numerator - Diluted Net loss $ (4,578,921) $ (12,073,164) Preferred stock dividends (921,875) (921,875) Net loss attributable to common stockholders $ (5,500,796) $ (12,995,039) Denominator: Weighted average shares outstanding - basic and diluted 7,532,452 7,533,158 Loss per share attributable to common stockholders: Basic and diluted $ (0.62) $ (1.47) determine its potential impact, if any, oncommitments to issue common stock that would have a dilutive effect for the Company.periods then ended.10.13. SUBSEQUENT EVENTSup until the date the Condensed Consolidated Financial Statementsunaudited condensed consolidated financial statements are issued.Unsecured Credit FacilityOctober 25, 2017,April 17, 2023, the $7,119,739 outstanding balanceCompany paid its Series A Preferred Stock dividends of $921,875 for the Unsecured Credit Facility was repaid.DistributionsOn October 11, 2017,first quarter of 2023, which were declared by the Company’s board of directors declared distributions based on daily record dates for the period September 1, 2017 through September 30, 2017 at a rate of $0.0019444 per share per day, or $426,429, on the outstanding shares of the Company’s common stock, which the Company paid on October 11, 2017. Of the $426,429 distribution, $343,491 was reinvested through the Company’s dividend reinvestment plans.10, 2017,7, 2022, the Company’s board of directors declaredauthorized monthly distributions basedpayable to common stockholders and the Class C OP Unit holders of record as of March 31, 2023, which were paid on daily record dates for the period October 1, 2017 through October 31, 2017 at aApril 25, 2023. The current monthly distribution amount of $0.09583 per share represents an annualized distribution rate of $0.0018817$1.15 per share of common stock.day, or $457,963, onshare represents an annualized distribution rate of $1.15 per share of common stock.outstandingCompany repurchased an additional 58,850 shares of the Company’s common stock, which the Company paid on November 10, 2017. Of the $457,963 distribution, $371,072 was reinvested through the Company’s dividend reinvestment plans.Offering StatusThrough November 10, 2017, the Company had sold 8,147,894 shares of common stock in the Registered Offering, for aggregate gross offering proceeds of $81,478,943, including 280,757 shares of Class C common stock sold under its Registered DRP Offering for aggregate gross offering proceeds of $2,807,575, and 3,000 shares of common stock in the Class S offering for aggregate offering proceeds of $30,000 including 35 shares of common stock under its Class S dividend reinvestment plan.Redeemable common stockFor the period from October 1, 2017 through November 10, 2017, the Company redeemed 41,630 shares of Class C common stock for $416,300.
a total of $661,971 under its 2023 SRP and these shares are held as treasury stock.23PART I – FINANCIAL INFORMATIONITEMThe“Management’s Discussiondiscussion and Analysisanalysis of Financial Conditionour financial condition, results of operations and Results of Operations” should be read in conjunctioncash flows together with the Company’s Condensed Consolidated Financial Statementsunaudited condensed consolidated financial statements and the Notes thereto contained in Part I of this Quarterly Report on Form 10-Q. See also “Forward Looking Statements” below. As used herein, “we,” “us,” and “our” refer to RW Holdings NNN REIT, Inc.Forward-Looking StatementsCertain statements containedrelated notes that are included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and notes thereto and management’s discussion and analysis of RW Holdings NNN REIT, Inc. (the “Company”), other than historical facts, may be considered forward-looking statements withinfinancial condition and results of operations for the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We intend for all such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements containedfiscal year ended December 31, 2022 included in Section 27A of the Securities Act and Section 21E of the Exchange Act, as applicable by law. Such statements include, in particular, statements about our plans, strategies, and prospects and are subject to certain risks and uncertainties, as well as known and unknown risks, which could cause actual results to differ materially from those projected or anticipated. Therefore, such statements are not intended to be a guarantee of our performance in future periods. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as “may,” “would,” “could,” “should,” “expect,” “intend,” “anticipate,” “estimate,” “believe,” “continue,” or other similar words. Forward-looking statements that were true at the time made may ultimately prove to be incorrect or false. We caution readers not to place undue reliance on forward-looking statements, which reflect our management’s view only as of the date this QuarterlyAnnual Report on Form 10-Q is10-K filed with the U.S. Securities and Exchange Commission (the “SEC”). Additionally, we undertake no obligation to update or revise on March 13, 2023. This discussion contains forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results.The following are some, but not all, of the assumptions,based upon current expectations that involve risks uncertainties and other factors that could cause ouruncertainties. Our actual results tomay differ materially from those presentedanticipated in our forward-looking statements:24PART I – FINANCIAL INFORMATION (continued)ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)The following are some, but not all, of the assumptions, risks, uncertainties and other factors that could cause our actual results to differ materially from those presented in our forward-looking statements:•We may be unable to renew leases, lease vacant space or re-lease space as leases expire on favorable terms or at all.•We are subject to risks associated with tenant, geographic and industry concentrations with respect to our properties.•Our properties, intangible assets and other assets may be subject to impairment charges.•We could be subject to unexpected costs or unexpected liabilities that may arise from potential dispositions and may be unable to dispose of properties on advantageous terms.•We are subject to competition in the acquisition and disposition of properties and in the leasing of our properties and we may be unable to acquire, dispose of, or lease properties on advantageous terms.•We could be subject to risks associated with bankruptcies or insolvencies of tenants or from tenant defaults generally.•We have substantial indebtedness, which may affect our ability to pay distributions, and expose us to interest rate fluctuation risk and the risk of default under our debt obligations.•We may be affected by the incurrence of additional secured or unsecured debt.•We may not be able to attain profitability.•Cash for distributions to investors will be from net rental income (including sales of properties) or waiver or deferral of reimbursements to our Sponsor or fees paid to our Advisor.•We may not generate cash flows sufficient to pay our distributions to stockholders or meet our debt service obligations.•We may be affected by risks resulting from losses in excess of insured limits.•We may fail to qualify as a REIT for U.S. federal income tax purposes.•Our business, financial condition and results of operations may be adversely affected by an ongoing investigation by the U.S. Securities and Exchange Commission (“SEC”).•We are dependent upon our Advisor which has the right to terminate the advisory agreement upon 60 days’ written notice without cause or penalty.Thethese forward-looking statements contained in this Quarterly Report on Form 10-Q should be read in lightas a result of the risk factors identified above and the additional risks and uncertainties described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 and Item IA of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017.isare based upon our accompanying unaudited Condensed Consolidated Financial Statements,condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these financial statements requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On a regular basis, we evaluate these estimates. These estimates are based on management’s historical industry experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.Management’s 14,15, 2015 as a Maryland corporation. We believe that we were organizedcorporation and have operated in a manner that enabled uselected to qualifybe taxed as a REIT for federal income tax purposes beginning with our taxable year ended December 31, 2016 and we2016. We intend to continue to operate so as to remain qualified as a REIT for federal income tax purposes thereafter. If we meetpurposes.REIT qualification requirements, we generally will not be subject to federal income tax on the income that we distribute to our stockholders each year. If we fail to qualify for taxation as a REIT in any year after electing REIT status, our income will be taxed at regular corporate rates, and we may be precluded from qualifying for treatment as a REIT for the four-year period following our failure to qualify. Such an event could materially and adversely affect our net income and cash available for distributions to our stockholders.We consider our Company to be a perpetual-life investment vehicle because we have no finite date for liquidation and no intention to list our shares of common stock for trading on a national securities exchange or over-the-counter trading market. Although we have registered a fixed amount of shares for the Registered Offering (as defined below), we intend to effectively conduct a continuous offering of an unlimited amount of our shares of common stock over an unlimited time period by conducting an uninterrupted series of additional public offerings, subject to regulatory approval of our filings for such additional offerings, and one or more private offerings of shares of our common stock. This perpetual-life structure is alignedmerger with our overall objective of investing in real estate assets with a long-term view towards making regular cash distributions and generating capital appreciation.25PART I – FINANCIAL INFORMATION (continued)ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)Subject to certain restrictions and limitations, our business is externally managed by our advisor, Rich Uncles NNN Real Estate Investment Trust I (“REIT Operator, LLC (our “Advisor”I”), a limited liability company wholly owned by our sponsor, Rich Uncles LLC (our “Sponsor”), pursuant to the Amended and Restated Advisory Agreement between us, our Advisor and our Sponsor (the “Advisory Agreement”). Our Advisor manages our operations and will manage our portfolio of core real estate properties and real estate related assets. Our Advisor also provides asset-management and other administrative services on our behalf. Our Advisor is paid certain fees as set forth in Note 8 to the Condensed Consolidated Financial Statements.We have investor relations personnel, but all expenses are reimbursed by our Sponsor as part of the organizational and offering services they provide to us to manage our organization and the securities offerings and to provide administrative investor relations. However, our Sponsor is then entitled to include the reimbursement of such expenses as part of our reimbursement to them of organization and offering costs, but reimbursement shall not exceed an amount equal to 3% of gross offering proceeds.On June 24, 2015, our Sponsor purchased 10,000 shares of common stock for $100,000 and became the initial stockholder. Our Sponsor purchased another 10,000 shares of common stock on December 31, 2015 for $100,000.On July 15, 2015,2019 and subsequent acquisitions, we filed a registration statementcreated one of the largest non-listed real estate investment funds to be raised via crowdfunding technology and the first real estate crowdfunding platform to be completely investor-owned prior to our Listed Offering described below.Form S-11 with the SEC to register an initial public offering to offer a maximum of 90 million in shares ofNew York Stock Exchange (the “NYSE”) under the symbol “MDV.PA” and has been trading since September 17, 2021. Our Class C common stock for saleis listed on the NYSE under the symbol “MDV” and has been trading since February 11, 2022. Prior to thethat date, there was no public (the “Primary Offering”). We also registered a maximum of 10,000,000 shares of common stock pursuant to our distribution reinvestment plan (the “Registered DRP Offering” and together with the Primary Offering, the “Registered Offering”). The SEC declared our registration effective on June 1, 2016 and we commenced the sale of our shares to the public on July 20, 2016 at an initial offering price of $10.00 per shares. On August 11, 2017, our Board of Directors approved amendments to our charter to rename and redesignate our common stock as “Class C” common stock, which we will offer and sell in the Registered Offering. Commencing in August 2017, we began selling shares oftrading market for our Class C common stock in(see details of the RegisteredListed Offering only to U.S. Persons as defined under Rule 903 promulgated underbelow).Securities Actauthority to issue 450,000,000 shares of 1933 (the “Securities Act”). We do not retain a broker-dealer to offer ourstock, consisting of 50,000,000 shares of preferred stock, $0.001 par value per share, 300,000,000 shares of Class C common stock. Rather, we offer these shares directly to the public.Also on August 11, 2017, our Board of Directors approved amendments to our charter to reclassifystock, $0.001 par value per share (“Class C common stock”), and designate a portion of the shares of common stock as “Class S” common stock. This reclassification of the Company’s common stock is intended to facilitate an offering by us of up to 100,000,000 shares of Class S common stock, exclusively to non-U.S. Persons$0.001 par value per share (“Class S common stock”). We file our reports with the SEC as defineda smaller reporting company under Rule 903 promulgated under the Securities Act pursuant to an exemption from the registration requirements12b-2 of the Securities Exchange Act under and in accordance with Regulation S of the Securities Act1934, as amended (the “Class S Offering” and, together with the Registered Offering, the “Offerings”“Exchange Act”). The Class S common stock has similar features and rights as the Class C common stock, including with respect to voting and liquidation, except that the Class S common stock offered in the Class S Offering may be sold through brokers or other persons who may be paid upfront and deferred selling commissions and fees.We expect to use substantially all of the net proceeds from the Offerings to acquire and manage a portfolio of real estate investments. We intend to invest primarily in single tenant income-producing corporate properties which are leased to creditworthy tenants under long-term net leases. While our focus is on single tenant net leased properties, we plan to diversify our portfolio by geography, investment size and investment risk with the goal of acquiring a portfolio of income-producing real estate investments that provides attractive and stable returns to our stockholders. interestinterests in entities that own and operate real estate. We will make substantially all acquisitions of our real estate investments directly through Rich Uncles NNNModiv Operating Partnership, LP, a Delaware limited liability companypartnership (the “Operating Partnership”), or indirectly through limited liability companies or limited partnerships, including through other REITs, or through investments in joint ventures, partnerships, tenants-in-common, co-tenancies or other co-ownership agreementsarrangements with other owners of properties, affiliatessome of which may be affiliated with us or our executive officers or directors. The Operating Partnership was formed on January 28, 2016. We are the sole general partner of, and owned an approximate 73% partnership interest in the Operating Partnership as of March 31, 2023 and December 31, 2022. The Operating Partnership's limited partners include holders of several classes of units with various vesting and enhancement terms as further described in Note 11 to our accompanying unaudited condensed consolidated financial statements.advisor or other persons.Our investment objectivesClass C common stock, which became effective on February 10, 2022 (the “Listed Offering”). The Listed Offering of our Class C common stock closed on February 15, 2022. In connection with the Listed Offering, we sold 40,000 shares of our Class C common stock at $25.00 per share to a major stockholder who was formerly a related party.policies may be amended or changed at any time by our board of directors. Althoughon May 27, 2022, we have no plans at thisfiled Amendment No. 1 to the Registration Statement on Form S-3, to issue and sell from time to change anytime, together or separately, the following securities at an aggregate public offering price that will not exceed $200,000,000: Class C common stock, preferred stock, warrants, rights and units. The Form S-3, as amended, became effective on June 2, 2022 and we filed a prospectus supplement for our at-the-market offering of up to $50,000,000 of our investment objectives,Class C common stock (the “ATM Offering”) on June 6, 2022. As of March 31, 2023, no shares were issued in connection with our boardATM Offering.directors may change anythe underwriters listed on Schedule I thereto (collectively, the “Underwriters”), pursuant to which we agreed to issue and all such investment objectives, including our focus on single tenant properties, if it believes such changes are in the best interestsell 1,800,000 shares of our stockholders.Our Advisor will make recommendations7.375% Series A Cumulative Redeemable Perpetual Preferred Stock, $0.001 par value per share (the “Series A Preferred Stock”), in an underwritten public offering (the “Preferred Offering”) at a price per share of $25.00. In addition, we granted the Underwriters a 30-day option to purchase up to an additional 200,000 shares of the Series A Preferred Stock, which the Underwriters exercised in full on all investmentsSeptember 16, 2021. The issuance and sale of the shares of Series A Preferred Stock, including the Underwriters’ full exercise of their option to purchase additional shares, closed on September 17, 2021 (see board of directors. All proposed real estate investments must be approved by at least a majority of our board of directors.As of September 30, 2017, the Company owned (i) 16 properties in 8 states consisting of retail, office and industrial properties, (ii) an approximate 4.38% interest in an affiliated REIT, and (iii) a 72.2% interest in a tenant-in-common entity that owns an office property. The net book value of these investments at September 30, 2017 was $110,666,736.are a publicly registered, non-exchange traded company dedicatedbelieve we continue to providing stockholders with dependable monthly distributions. The Company believes it is qualifiedqualify and operatesoperate as a real estate investment trust, or REIT, which requires itus to annually distribute at least 90% of itsour taxable income (excluding net capital gains) in the form of distributions to itsour stockholders. The Company’s monthly distributions are supportedthe cash flow generated fromleasing properties to tenants pursuant to net leases. As of March 31, 2023, our real estate owned under long-term,investment portfolio consisted of 48 properties as further described below. The net lease agreements with local, regional,book value of our real estate investments as of March 31, 2023 was $431,689,328.nationalseven office properties (including one held for sale property) which represent approximately 19% of the portfolio (expressed as a percentage of annualized base rent (“ABR”) as of March 31, 2023);to some extent, the waiver or deferralapproximately 57,000 square feet per office property; andasset management fees by our Sponsor$44,436,983 for three properties and offering proceeds. See “Distributions” below.
credit facility term loan balance of $170,000,000.26PART I – FINANCIAL INFORMATION (continued)ITEM 2. Management’s Discussion and AnalysisAs of Financial Condition and Results of Operations (continued)At November 13, 2017, we have a diversified portfolio that is wholly owned. This wholly-owned portfolio is:·Composed of sixteen properties, of which eight properties are retail properties that represent 31.06% of the portfolio, six properties are office properties that represent 52.84% of the portfolio, and two properties are industrial properties that represent 16.10% of the portfolio (expressed as a percentage of annualized rental revenue);·Fully leased with an occupancy rate of 100.0%;·Leased to eleven different commercial tenants doing business in nine separate industries;·Located in ten states;·Composed of approximately 556,844 square feet of aggregate leasable space; with an average leasable space per property of approximately 34,803 square feet; approximately 23,410 square feet per retail property, approximately 45,383 square feet per office property, and 48,633 square feet per industrial property; and·Subject to a balance of outstanding debt of approximately $49.8 million.Of the sixteenMarch 31, 2023, all 48 operating properties in the wholly-ownedour portfolio all, or 100.0%, are single-tenant properties. At November 13, 2017,net-lease properties and all sixteen properties were leased, except the property held for sale and formerly leased to Gap, with a weighted average remaining lease term (excluding(“WALT”), excluding rights to extend a lease at the option of the tenant, but including below market lease renewals) of approximately 9.811.7 years.based on annualized rental income.We also have investedand located in a 72.71%18 states.interestInterest in a 91,740 square foot officeindustrial property located in Santa Clara, CA.Strategystrategy is objectives are:acquire single-tenant retail,provide attractive growth in adjusted funds from operations (“AFFO”) and sustainable cash distributions;industrial real estate leasedretail properties, and cash on hand. In the long term, we expect to creditworthy tenants onsell additional shares of our Class C common stock, subject to market conditions and a recovery in the trading price of our Class C common stock. We are targeting leverage, over the long-term leases. Our ideal portfolio is comprisedonce we achieve scale, of 40% office, 40% industrial, and 20% retail, with greater than 50%or lower of the aggregate fair value of our real estate leasedproperties plus our cash and cash equivalents; however, we will consider incurring higher leverage in the near-term if we identify attractive acquisition opportunities in advance of completing dispositions or raising additional equity. The acquisitions completed during the second quarter of 2023 are expected to increase consolidated leverage to approximately 48% as of June 30, 2023. We expect the trend of onshoring manufacturing to accelerate and we are executing our plan to focus acquisitions on industrial manufacturing properties while reducing the number of office and retail properties we own, subject to market conditions and prices that we consider attractive. We can provide no assurance that we will achieve our investment grade tenants as determined by oneobjectives. See the Part I, Item 1A. Risk Factors section of our Annual Report on Form 10-K filed with the big three credit rating agencies (Standard & Poor’s, Moody’s or Fitch Group). When identifying new properties forSEC on March 13, 2023. generally focus on acquiring high-quality real estate that tenants consider important to the successful operation of their business. We generally seek to acquire a portfolio of income-generating commercial real estate investments in industrial manufacturing properties throughout the United States diversified by industry, corporate credit, physical geography and lease duration. While we are primarily focused on acquiring industrial manufacturing properties, we may also acquire other assets, including, without limitation, other industrial properties. We intend to acquire assets consistent with our acquisition philosophy by focusing primarily on properties leased to tenants at the time we acquire them, with strong financial statements and typically subject to long-term leases with defined rental rate increases.hasrequire some amount of capital investment in order to be renovated or repositioned. We generally will limit investment in new developments on a standalone basis, but may consider development that is ancillary to an overall investment. Given our focus on industrial manufacturing, we do not designate specific geography or industry allocations for the following characteristics:·Properties that are freestanding, and commercially-zoned with a single tenant;·Properties that are located in significant markets, which markets are identified and ranked based on several key demographic and real estate specific metrics such as population growth, income, unemployment, job growth, GDP growth, rent growth, and vacancy rates;·Properties that are located in strategic locations critical to generating revenue for the tenants that occupy them (i.e., the tenants need the properties in which they operate in order to conduct their businesses);·Properties that are located within attractive demographic areas relative to the business of our tenants and are generally fungible and have good visibility and easy access to major thoroughfares;·Properties with rental or lease payments that approximate or are lower than market rents; and·Properties that can be purchased with the simultaneous execution or assumption of long-term, net lease agreements, offering both current income and the potential for future rent increases.
portfolio; rather we intend to invest in industrial manufacturing properties where we see27PART I – FINANCIAL INFORMATION (continued)ITEM 2. Management’s Discussion and AnalysisFinancial Condition and Results of Operations (continued)See Note 1increasing our asset allocation to the Condensed Consolidated Financial Statements for further informationindustrial sector and decreasing our allocation to the office and retail sectors. Since December 31, 2021, our industrial properties have increased from 41% to 61% of our portfolio and office properties have declined from 50% to 19% of our portfolio as of March 31, 2023.our business and organization.The Company’s proceeds from shares sold have been,will continue to be, primarily for (i) property acquisitions; (ii)refinancings, capital expenditures;expenditures and (iii) payment of principal on its outstanding indebtedness. Our cash needs for the purchase of real estate properties and other real estate investments will be funded primarilyby bank borrowings through our Credit Facility, mortgage indebtedness on our properties, real estate property sales and internally generated funds, or offerings of shares of Class C common stock. Our cash requirements for operating expenses and dividends on our Series A Preferred Stock and distributions on our Class C common stock will be funded by internally generated funds.saleLenders. On December 20, 2022, the Credit Agreement was amended to allow us to draw on the additional $100,000,000 Term Loan commitment up to five times between December 20, 2022 and April 19, 2023 in exchange for a quarterly unused fee, which amounted to $92,569 during the quarter ended March 31, 2023. We drew $20,000,000 of the delayed draw Term Loan during the first quarter of 2023 as described below and drew the remaining $80,000,000 during April 2023.The maturities for our sharesRevolver and Term Loan remain unchanged with the Revolver’s maturity in January 2026 with options to extend for a total of 12 months, and the Term Loan’s maturity in January 2027.debt proceeds.At September 30, 2017,time-to-time for property improvements, lease inducements, tenant improvements and other working capital needs.the Company’sour mortgage notes payable was $43,952,534 and the Company’s outstanding balance on the Company’s unsecured credit facility with Pacific Mercantile Bankoperating properties was $7,119,739. This unsecured credit agreement initially had a maturity date$44,436,983 and $44,515,009, respectively, our Revolver outstanding principal balance was zero and $3,000,000, respectively, and Term Loan outstanding principal balance was $170,000,000 and $150,000,000, respectively. As of June 15, 2017. On May 12, 2017, the maturity dateMarch 31, 2023 and December 31, 2022, our approximately 72.7% pro-rata share of the unsecured credit agreement was extended to October 28, 2017. On October 4, 2017, the maturity date of the unsecured credit agreement was extended to January 26, 2018. We are negotiating the extension of the maturity date of the unsecured credit agreement and we expect to complete this process prior to its current January 26, 2018 maturity date. See Note 5 to the Condensed Consolidated Financial Statements for additional information regarding our outstanding indebtedness. The Company’s pro rata share (4.38%) of REIT I’s mortgage notes payable was $2,807,401 at September 30, 2017. The Company’s pro rata share (72.71%) of the TIC’sTIC Interest’s mortgage note payable was $10,542,950 at September 30, 2017.Portfolio InformationOur wholly owned real estate investments were as follows: As of September 30, 2017 December 31, 2016 September 30, 2016 Number of Properties: Retail 8 7 1 Office 6 1 1 Industrial 2 1 - Total 16 9 2 Leasable Square Feet: Retail 187,283 68,443 15,120 Office 272,296 63,000 63,000 Industrial 97,265 45,465 - Total 556,844 176,908 78,120 Our 72.71% interest in a tenant-in-common entity owns a 91,740 square feet of office property$9,429,343 and $9,487,515, respectively, which is not included in our accompanying unaudited condensed consolidated balance sheets.table above.Property Location Acquisition Date Land Buildings and
ImprovementsTenant
Origination
and
Absorption
CostsAbove-
Market
Lease IntangiblesAcquisition Price Plastic Products Princeton, MN 1/26/2023 $ 421,997 $ 5,696,414 $ 553,780 $ (285,139) 6,387,052 Stealth Manufacturing Savage, MN 3/31/2023 770,752 4,755,558 — — 5,526,310 $ 1,192,749 $ 10,451,972 $ 553,780 $ (285,139) $ 11,913,362 ninethree months ended September 30: 2017 Net cash provided by (used in) operating
activities $ 2,546,372 $ (532,744 ) Net cash used in investing activities $ (75,854,042 ) $ (17,830,500 ) Net cash provided by financing activities $ 79,220,259 $ 20,540,844 Three Months Ended March 31, 2023 2022 Net cash provided by (used in) operating activities $ 2,784,869 $ (1,083,310) Net cash used in investing activities $ (12,120,523) $ (8,857,451) Net cash provided by (used in) financing activities $ 14,007,109 $ (23,122,696) As of September 30, 2017, we owned sixteen properties and an investment in an affiliated REIT and a 72.71% interest in a TIC. During the nine months ended September 30, 2017, netwas $2,546,372. We expect thatof $2,784,869 during the three months ended March 31, 2023 primarily reflects adjustments to our cash flows from operating activities will increase in future periods as a resultnet loss of anticipated future acquisitions$4,578,921 to exclude net non-cash charges of $8,010,425 related to depreciation and amortization, impairment of real estate investment property, unrealized loss on interest rate swaps valuation, stock compensation expense, amortization of deferred financing costs and the related operationspremium, amortization of deferred lease incentives, which were partially offset by deferred rents, amortization of (below) above market lease intangibles, net, and undistributed income from such investments.As of September 30, 2016, we owned two properties and anour unconsolidated investment in an affiliated REIT. Duringa real estate property. Cash provided by operations also included distributions from our unconsolidated investment in a real estate property of $65,696. Cash provided by operating activities was offset in part by cash used to fund changes in operating assets and liabilities of $712,331 during the ninethree months ended September 30, 2016, netMarch 31, 2023 due to increases in tenant receivables and prepaid and other assets and a decrease in accounts payable, accrued and other liabilities.was $532,744.
of $1,083,310 during the three months ended March 31, 2022 primarily reflects adjustments to our net loss of $12,073,164 to exclude net non-cash charges of $14,271,645 related to depreciation and amortization, impairment of goodwill, stock compensation expense, amortization of deferred financing costs and premium/discount, and amortization of deferred lease incentives, which were partially offset by gain on sale of real estate investments, unrealized gain on interest rate swap valuation, amortization of (below) above market lease intangibles, net, deferred rents and undistributed income from our unconsolidated investment in a real estate property. The cash used in operations included cash used to fund changes in operating assets and liabilities of $3,377,158 during the three months ended March 31, 2022 due to increases in tenant receivables and prepaid and other assets and a decrease in accounts payable, accrued and other liabilities. These cash uses were partially offset by distributions received from our unconsolidated investment in real estate property of $95,367.28PART I – FINANCIAL INFORMATION (continued)ITEM 2. Management’s DiscussionAnalysis of Financial Condition and Results of Operations (continued)$75,854,042$12,120,523 for the ninethree months ended September 30, 2017March 31, 2023 and consisted primarily consisted of the following:·$62,245,697 for the acquisition of seven properties;·$685,161 for additions to real estate investments;·$2,772,329 for payment of acquisition fees to affiliate;·$28,571 payments received due from affiliate;·$363,168 proceeds from acquisition closing payable to unconsolidated entity;·$10,542,594 for a TIC investment in a property located in Santa Clara, CA; and·$363,168 proceeds from acquisition closing of the Fujifilm property payable to TIC.$17,830,500$8,857,451 for the ninethree months ended September 30, 2016March 31, 2022 and consisted primarily consisted of the following:·$15,730,500 for the acquisition of two properties;·$2,000,000 for investment in Rich Uncles REIT I; and·$100,000 for refundable purchase deposits and other acquisition costs.$79,220,259$14,007,109 for the ninethree months ended September 30, 2017March 31, 2023 and primarily consisted of the following:·$43,390,000 from borrowings from our unsecured credit facility and payments on our unsecured credit facility of $46,428,064;·$50,500,102 of proceeds from issuance of common stock and investor deposits offset by payments of offering costs of $1,675,149;·Proceeds from mortgage notes payable of $36,904,988, offset by principal payments of $218,599 and deferred financing costs and fees of $1,182,649;·$1,561,201 used to repurchase shares of common stock under the share repurchase plan; and·$464,619 of cash distributions ($2,432,006 of total distributions of which $1,967,325 was reinvested through the Company’s dividend reinvestment programs and $62 was tax withholding).provided byused in financing activities was $20,540,844$23,122,696 for the ninethree months ended September 30, 2016March 31, 2022 and consisted primarily consisted of the following:·$11,000,000 from borrowings from our unsecured credit facility offset by $4,036,500 principal payments;·Proceeds from mortgage notes payable $7,319,700 offset by $21,316 principal payments and deferred financing costs of $176,063; and·$6,646,976 of proceeds from issuance of common stock and investor deposits offset by payments of offering costs of $187,101.Capital ResourcesGenerally, cash needsdividends paid to preferred stockholders;property acquisitions, debtrepurchases of common stock; andcapital expenditures,of offering costs. other investments will be funded by the Offerings and bank borrowings, and to a lesser extent, by internally generated funds. Cash needs for operating and interest expenses and distributions will generally be funded by internally generated funds. If available, future sources of capital includeOfferings, securedissuance of common stock in the Listed Offering.unsecured borrowingsloss computed in accordance with GAAP, excluding extraordinary items, as defined by GAAP, and gains and losses from bankssales of depreciable operating property, plus real estate-related depreciation and amortization (excluding amortization of deferred financing costs and depreciation of non-real estate assets), and after adjustment for unconsolidated partnerships, joint ventures, preferred dividends and real estate impairments. Because FFO calculations adjust for such items as depreciation and amortization of real estate assets and gains and losses from sales of operating real estate assets (which can vary among owners of identical assets in similar conditions based on historical cost accounting and useful-life estimates), they facilitate comparisons of operating performance between periods and between other REITs. As a result, we believe that the use of FFO, together with the required GAAP presentations, provides a more complete understanding of our performance relative to our competitors and a more informed and appropriate basis on which to make decisions involving operating, financing, and investing activities. It should be noted, however, that other REITs may not define FFO in accordance with the current Nareit definition or other lenders, proceedsmay interpret the current Nareit definition differently than we do, making comparisons less meaningful.saleextinguishment of properties, as well as undistributed funds from operations.Resultsdebt, unrealized gains (losses) on derivative instruments, and write-offs of OperationsOurdue diligence expenses for abandoned pursuits. We also believe that AFFO is a recognized measure of sustainable operating performance of the REIT industry. Further, we believe AFFO is useful in comparing the sustainability of our operating performance with the sustainability of the operating performance of other real estate companies. Management believes that AFFO is a beneficial indicator of our ongoing portfolio performance and ability to sustain our current distribution level. More specifically, AFFO isolates the financial results of our operations. AFFO, however, is not considered an appropriate measure of historical earnings as it excludes certain significant costs that are otherwise included in reported earnings. Further, since the measure is based on historical financial information, AFFO for the period presented may not be indicative of future results or our future ability to pay our dividends. By providing FFO and AFFO, we present information that assists investors in aligning their analysis with management’s analysis of long-term operating activities.through September 30, 2017net income or loss and cash flows from operating activities, as defined by GAAP, are helpful supplemental performance measures and useful to investors in evaluating the performance of our real estate portfolio. However, a material limitation associated with FFO and AFFO is that they are not indicative of those expectedour cash available to fund distributions since other uses of cash, such as capital expenditures at our properties and principal payments of debt, are not deducted when calculating FFO and AFFO. AFFO is useful in assisting management and investors in assessing our ongoing ability to generate cash flow from operations and continue as a going concern in future periodsoperating periods. However, FFO and AFFO are not useful measures in evaluating net asset value (“NAV”) because impairments are taken into account in determining NAV but not in determining FFO and AFFO. Therefore, FFO and AFFO should not be viewed as a more prominent measure of performance than income or loss from operations, net income or loss or cash flows from operating activities and each should be reviewed in connection with GAAP measurements.are continuingmay have to raise capital throughadjust the Offeringscalculation and acquire additional properties.The Company owned nine properties and an approximate 4.36%characterization of this non-GAAP measure. Furthermore, as described inan affiliated REIT at December 31, 2016. the Operating Partnership (“Class M OP Units”), units of Class P limited partnership interest in the Operating Partnership (“Class P OP Units”) and units of Class R limited partnership interest in the Operating Partnership (“Class R OP Units”) can increase if the specified performance hurdles are achieved, which would increase the fully-diluted weighted average shares outstanding.Company acquired seven additional properties in 2017 with twofollowing are the calculations of those withinFFO and AFFO for the three months ended September 30, 2017. In additionMarch 31, 2023 and 2022:Three Months Ended
March 31,2023 2022 Net loss (in accordance with GAAP) $ (4,578,921) $ (12,073,164) Preferred stock dividends (921,875) (921,875) Net loss attributable to common stockholders and Class C OP Unit holders (5,500,796) (12,995,039) FFO adjustments: Depreciation and amortization of real estate properties 3,272,061 3,300,492 Amortization of lease incentives 88,570 71,394 Depreciation and amortization for unconsolidated investment in a real estate property 194,173 190,468 Impairment of real estate investment property 3,499,438 — Gain on sale of real estate investments, net — (6,875,086) FFO attributable to common stockholders and Class C OP Unit holders 1,553,446 (16,307,771) AFFO adjustments: Impairment of goodwill — 17,320,857 Stock compensation 660,169 511,865 Deferred financing costs 195,212 1,266,725 Non-recurring loan prepayment penalties — 615,336 Swap termination costs — 733,000 Due diligence expenses, including abandoned pursuit costs 342,542 586,669 Deferred rents (1,175,359) (636,196) Unrealized loss (gain) on interest rate swap valuation 1,722,184 (788,016) Amortization of (below) above market lease intangibles, net (196,283) (330,618) Other adjustments for unconsolidated investment in a real estate property 11,819 (188) AFFO attributable to common stockholders and Class C OP Unit holders $ 3,113,730 $ 2,971,663 Weighted average shares outstanding: Basic 7,532,452 7,533,158 Fully diluted (1) 10,351,141 10,193,498 FFO Per Share: Basic $ 0.21 $ (2.16) Fully Diluted $ 0.15 $ (2.16) AFFO Per Share: Basic $ 0.41 $ 0.39 Fully Diluted $ 0.30 $ 0.29 Company acquiredClass C, Class M, Class P and Class R OP Units to compute the weighted average number of shares.72.71% interestsingle segment for financial reporting purposes, given our strategic initiative to focus solely on acquiring and operating industrial manufacturing properties, we are presenting the following information regarding our property portfolio to help investors better understand our strategic direction:Three Months Ended March 31, 2023 Industrial Core Tactical Non-Core (1) Other Non-Core (2) Non-Property & Other (3) Consolidated Net income (loss) (in accordance with GAAP) $ 1,459,256 $ 708,467 $ (3,650,009) $ (3,096,635) $ (4,578,921) Preferred stock dividends — �� — (921,875) (921,875) Net income (loss) attributable to common stockholders and Class C OP Unit holders 1,459,256 708,467 (3,650,009) (4,018,510) (5,500,796) FFO adjustments: Depreciation and amortization of real estate properties 1,924,868 806,415 540,778 — 3,272,061 Amortization of lease incentives 17,177 — 71,393 — 88,570 Depreciation and amortization for unconsolidated investment in a real estate property 194,173 — — — 194,173 Impairment of real estate investment property — — 3,499,438 — 3,499,438 FFO attributable to common stockholders and Class C OP Unit holders 3,595,474 1,514,882 461,600 (4,018,510) 1,553,446 AFFO adjustments: Stock compensation — — — 660,169 660,169 Deferred financing costs 144,269 14,519 36,424 — 195,212 Due diligence expenses, including abandoned pursuit costs 13,673 83 328,786 — 342,542 Deferred rents (579,161) (604,781) 8,583 — (1,175,359) Unrealized loss on interest rate swap valuation — — — 1,722,184 1,722,184 Amortization of (below) above market lease intangibles, net (207,712) — 11,429 — (196,283) Other adjustments for unconsolidated investment in a real estate property 11,819 — — — 11,819 AFFO attributable to common stockholders and Class C OP Unit holders $ 2,978,362 $ 924,703 $ 846,822 $ (1,636,157) $ 3,113,730 FFO and AFFO by property type continued Three Months Ended March 31, 2023 Industrial Core Tactical Non-Core (1) Other Non-Core (2) Non-Property & Other (3) Consolidated Weighted average shares outstanding: Basic 7,532,452 7,532,452 7,532,452 7,532,452 7,532,452 Fully diluted (4) 10,351,141 10,351,141 10,351,141 10,351,141 10,351,141 FFO Per Share: Basic $ 0.48 $ 0.20 $ 0.06 $ (0.53) $ 0.21 Fully Diluted (5) $ 0.35 $ 0.15 $ 0.04 $ (0.39) $ 0.15 AFFO Per Share: Basic $ 0.40 $ 0.12 $ 0.11 $ (0.22) $ 0.41 Fully Diluted (5) $ 0.29 $ 0.09 $ 0.08 $ (0.16) $ 0.30 Three Months Ended March 31, 2023 Industrial Core Tactical Non-Core (1) Other Non-Core (2) Non-Property & Other (3) Consolidated Rental income $ 5,756,815 $ 2,778,344 $ 1,776,023 $ — $ 10,311,182 Expenses: General and administrative — — — 1,908,055 1,908,055 Stock compensation expense — — — 660,169 660,169 Depreciation and amortization 1,924,868 806,415 540,778 — 3,272,061 Interest expense (4) 2,003,879 875,509 491,305 648,099 4,018,792 Property expenses 424,379 387,953 894,511 — 1,706,843 Impairment of real estate investment property — — 3,499,438 — 3,499,438 Total expenses 4,353,126 2,069,877 5,426,032 3,216,323 15,065,358 Operating income (loss) 1,403,689 708,467 (3,650,009) (3,216,323) (4,754,176) Other income: Interest income — — — 53,695 53,695 Income from unconsolidated investment in a real estate property 55,567 — — — 55,567 Other (5) — — — 65,993 65,993 Total other income 55,567 — — 119,688 175,255 Net income (loss) 1,459,256 708,467 (3,650,009) (3,096,635) (4,578,921) Less: net loss attributable to noncontrolling interest in Operating Partnership — — — (816,199) (816,199) Net income (loss) attributable to Modiv Inc. 1,459,256 708,467 (3,650,009) (2,280,436) (3,762,722) Preferred stock dividends — — — (921,875) (921,875) Net income (loss) attributable to common stockholders $ 1,459,256 $ 708,467 $ (3,650,009) $ (3,202,311) $ (4,684,597) March 31, 2023 Industrial Core Tactical Non-Core (1) Other Non-Core (2) Non-Property & Other (3) Consolidated Assets Real estate investments: Land $ 48,979,265 $ 43,387,936 $ 11,551,900 $ — $ 103,919,101 Buildings and improvements 206,243,721 83,114,194 48,669,213 — 338,027,128 Equipment 4,429,000 — — — 4,429,000 Tenant origination and absorption costs 11,104,811 4,500,352 4,480,302 — 20,085,465 Total investments in real estate property 270,756,797 131,002,482 64,701,415 — 466,460,694 Accumulated depreciation and amortization (28,022,301) (11,132,934) (10,869,148) — (50,024,383) Total investments in real estate property excluding real estate investments held for sale, net 242,734,496 119,869,548 53,832,267 — 416,436,311 Unconsolidated investment in a real estate property 9,997,292 — — — 9,997,292 Total real estate investments, net 252,731,788 119,869,548 53,832,267 — 426,433,603 Real estate investments held for sale, net — — 5,255,725 — 5,255,725 Total real estate investments, net 252,731,788 119,869,548 59,087,992 — 431,689,328 Cash and cash equivalents — — — 13,280,104 13,280,104 Tenant receivables 5,672,664 2,261,779 719,107 — 8,653,550 Above-market lease intangibles, net 1,372,269 — 436,214 — 1,808,483 Prepaid expenses and other assets (4) 1,673,671 39,652 2,011,993 2,179,421 5,904,737 Interest rate swap derivative — — — 3,485,684 3,485,684 Assets related to real estate investments held for sale — — 15,939 — 15,939 Total assets $ 261,450,392 $ 122,170,979 $ 62,271,245 $ 18,945,209 $ 464,837,825 Liabilities and Equity Mortgage notes payable, net $ 12,218,789 $ 32,119,692 $ — $ — $ 44,338,481 Credit facility term loan 109,291,489 30,265,335 28,583,928 — 168,140,752 Accounts payable, accrued and other liabilities 1,860,919 980,213 743,011 3,754,531 7,338,674 Below-market lease intangibles, net 9,558,900 — 165,817 — 9,724,717 Interest rate swap derivatives — — — 1,327,342 1,327,342 Liabilities related to real estate investments held for sale — — 51,918 — 51,918 Total liabilities 132,930,097 63,365,240 29,544,674 5,081,873 230,921,884 Commitments and contingencies Total Modiv Inc. equity, net of due to affiliates 128,520,295 58,805,739 32,726,571 (66,189,083) 153,863,522 Noncontrolling interests in the Operating Partnership — — — 80,052,419 80,052,419 Total equity 128,520,295 58,805,739 32,726,571 13,863,336 233,915,941 Total liabilities and equity $ 261,450,392 $ 122,170,979 $ 62,271,245 $ 18,945,209 $ 464,837,825 September 30, 2017.March 31, 2022, were included in our continuing results of operations. We expect that rental income, tenant reimbursements, depreciation and amortization expense and interest expense and asset management fees to affiliates to each increase in future periods as a result of owning the seven properties acquired in 2017 for an entire period and anticipated future acquisitions of real estate investments. The Company expects that its equity in earnings from unconsolidated entities will increase in future periodsfor the full year of 2023 as compared with the full year of 2022, as a result of the TIC investment$100,642,000 of industrial manufacturing property acquisitions during the first half of 2023, which may be offset by any sales of our office and retail properties. Our results of operations for the three months ended March 31, 2023 may not be indicative of those expected for the full year of 2023 or in future periods.made during September 2017.and Nine months ended September 30, 2017Months Ended March 31, 2023 to the Three and NineMonths Ended March 31, 2022September 30, 2016increasesincrease in rental income tenant recoveries, generalof $741,569, or 8%, as compared with the first three months of 2022 primarily reflects the rental income contribution from our acquisitions of eight industrial properties leased to Lindsay on April 19, 2022, which contributed approximately 11.8% of our total rental income during the first three months of 2023 (see Note 3 to our accompanying unaudited condensed consolidated financial statements for more details). This increase, together with the rental income contributions from nine other property acquisitions (one industrial property acquired on January 31, 2022, five industrial properties acquired in July 2022, one industrial property acquired in August 2022 and administrative expenses, depreciation and amortization, interest expense and property expensetwo industrial properties acquired during the first quarter of 2023), were partially offset by the decrease in rental income from the applicable prior-year periods were primarily due tosale of eight properties acquired after September 30, 2016.Rental IncomeRental income forover the last 14 months including four properties sold in February 2022 (one flex and three office), one office property sold in June 2022, two office properties sold in the third quarter of 2022 and nine months ended September 30, 2017 was $1,926,722 and $3,990,317, respectively, and $286,576 and $328,041 forone retail property sold in the three and nine months ended September 30, 2016, respectively. The annualized rental incomefourth quarter of the properties owned as of September 30, 2017 was $7,523,748.29PART I – FINANCIAL INFORMATION (continued)ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)Tenant RecoveriesTenant recoveries were $389,784 and $915,431 for the three and nine months ended September 30, 2017, respectively, and $72,968 for the three and nine months ended September 30, 2016.2022. Pursuant to most of our lease agreements, tenants are required to pay or reimburse all or a portion of the property operating expenses.Fees to AffiliateExpensed acquisition fees Rental income includes tenant reimbursements of $940,539 and management fees to affiliate$1,446,644 for the three and nine months ended September 30, 2017 were $264,927March 31, 2023 and $573,081, respectively, and $46,575 and $528,262 for the three and nine months ended September 30, 2016,2022, respectively. Upon adopting ASU 2017-01 on October 1, 2016, acquisition fees have been capitalized as the Company’s investments have represented asset acquisitions. Therefore, the 2017 acquisition fees totaling $1,014,559 and $2,498,129 were capitalized for the three and nine months ended September 30, 2017, respectively.asset management fees are equal to 1.2% per annumABR of the Company’s total investment value. Ofoperating properties owned as of March 31, 2023 was $34,951,199. Following the asset management fees, $42,485acquisition of eight industrial manufacturing properties during April and $119,524May 2023 as described above, our pro forma ABR as of such fees were waived for the three and nine months ended September 30, 2017, respectively, and $11,798 for the three and nine months ended September 30, 2016. Therefore, the September 2017 asset management fee of $94,986March 31, 2023 was paid. In previous months, 75% of the monthly asset management fee had been deferred and 25% had been waived. As of September 30, 2017, the cumulative amount of deferred asset management fees was $483,135.There were no disposition fees to affiliate in the three and nine months ended September 30, 2017 or 2016.Property management fees to affiliates for the three and nine months ended September 30, 2017 were $6,996 and $7,617, respectively. There were no property management fees to affiliate in the three and nine months ended September 30, 2016.and nine months ended September 30, 2017 were $904,818March 31, 2023 and $2,922,840 respectively2022, respectively. The decrease of $198,128, or 9%, as compared with the first three months of 2022 reflects decreases in compensation to employees due to personnel reductions during 2022, directors and officers insurance and costs for technology services, offset in part by an increase in costs for professional services during the first three months of 2023.and nine months ended September 30, 2016March 31, 2023 and 2022, respectively. The increase of $148,304, or 29%, as compared with the first three months of 2022 is primarily due to a forfeiture related to an employee termination during the first quarter of 2022. There were $584,488 and $590,867, respectively.and nine months ended September 30, 2017 was $921,692March 31, 2023 and $2,077,970, respectively, and for the three and nine months ended September 30, 2016, was $204,743 and $238,232,2022, respectively. The purchase price of theproperties acquired properties is allocated to tangible assets, identifiable intangibles and assumed liabilities, if any, and depreciated or amortized over their estimated useful lives.and nine months ended September 30, 2017 was $541,282March 31, 2023 and $1,111,287,2022, respectively and(see Note 6 to our accompanying unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2016 was $174,271 and $214,921, respectively. See Note 5 for the detaildetails of the components of interest expense.Property ExpensesProperty expensesexpense). The increase of $2,450,617, or 156%, as compared with the first three months of 2022 primarily reflects the unrealized loss on swap valuation, net of related amortization of $1,722,183, which is described below, and an increase of approximately $746,853 in interest expense incurred, net of derivative cash settlements received on our Credit Facility.and nine months ended September 30, 2017March 31, 2023. If there is a significant drop in interest rates in the future, this interest rate swap derivative could potentially qualify again as a cash flow hedge.$413,161offset in part by derivative cash settlements received of $1,074,085 on both swaps and $968,902, respectively,$250,311 of amortization of the unrealized gain on interest rate swap in accumulated other comprehensive income and noncontrolling interest in operating partnership on the $150,000,000 swap which was designated as a cash flow hedge during the second half of 2022.and nine months ended September 30, 2016, were $91,541.March 31, 2023 and 2022, respectively. These expenses primarily relate to property taxes insurance and repairs and maintenance expenses.Other IncomeInterest incomeexpenses, the majority of which are reimbursed by tenants. The decrease of $453,022, or 21%, as compared with the first three months of 2022 primarily reflects a decrease in due diligence expenses on abandoned pursuits of $244,127 and decreases in property taxes related to assets sold, offset in part by increases in repairs and maintenance and property management fees during the first three months of 2023.and nine months ended September 30, 2017March 31, 2023. We determined that the impairment charge was $2,988 and $3,875, respectively. Interest incomerequired based on the plan to sell our property in Nashville, Tennessee which is leased to Cummins until February 29, 2024. The impairment charge represents the excess of the property's carrying value over the property's estimated sale price less estimated selling costs for the potential sale. We did not incur any impairment of real estate property charges for the first three months of 2022.and nine months ended September 30, 2016March 31, 2022 reflects the significant decline in the market value of our common stock since it began trading on the NYSE in February 2022. For the quarter ended March 31, 2022, management considered the fact that the trading price of our common stock caused our market capitalization to be below the book value of our equity as of March 31, 2022. Our stock price was $619.
evaluated to be materially below both our historical net asset value and the book value of our equity, reflecting the negative impacts of rising inflation and interest rates, declining office occupancy rates affecting owners of real estate properties and fears of a potential recession. We, therefore, reduced the carrying value of goodwill to zero as of March 31, 2022.30PART I – FINANCIAL INFORMATION (continued)ITEM 2. Management’s Discussion and AnalysisGain on Sale of Financial Condition and ResultsReal Estate InvestmentsOperations (continued)Equity in earnings from unconsolidated entitiesreal estate investments of $6,875,086 for the three and nine months ended September 30, 2017March 31, 2022 relates to the gain on sale of four properties (three office and one flex) during the first three months of 2022 (see $688$53,695 and $168,043, respectively. This represents the Company’s 4.38% interest in the operations of Rich Uncles REIT I and includes the recognition of certain amounts related to previous periods as described in Note 2. See Note 2. Equity in loss from Rich Uncles REIT 1$13,435 for the three and nine months ended September 30, 2016March 31, 2023 and 2022, respectively.$4,300.$55,567 and $95,464 for the three months ended March 31, 2023 and 2022, respectively. The decrease primarily reflects changes in the timing of common area maintenance recoveries. This reflects our approximate 72.7% TIC was formed on September 28, 2017 andInterest in the Santa Clara property's results of operations for the first three months of 2023 and 2022, respectively.September 30, 2017 were immaterial.New Accounting PronouncementsSee Note 2March 31, 2022 reflects non-cash charges of $1,164,998 for deferred financing costs and prepayment penalties of $615,336 upon repayment of 20 mortgages on 27 properties with borrowings on our Credit Facility in January 2022, full repayment of our prior credit facility and mortgage repayments related to four asset sales in February 2022, as well as $733,000 of swap termination fees related to four of the Notesmortgage refinancings and the related recognition of termination gains of $788,016.Condensed Consolidated Financial Statements.Our organizationalare paid by our Sponsor on our behalf. Offering costs include all expensescosts incurred in connection with the Offerings,offerings prior to the Listed Offering, including investor relationsrelations' payroll expenses. Other organizationalcosts and offeringother costs include all expenses incurred in connection with the offerings of our formation,stock, including, but not limited to legal fees, federal and state filing fees and other costs to incorporate.During the Offerings,costs.are obligated to reimburse our Sponsor forincurred organizational and offering costs related to the Offerings paid by them on our behalf provided such reimbursement would not exceed 3% of gross offering proceeds raised in the Offerings asaggregate of $885,500 in the datefirst quarter of the reimbursement.As of September 30, 2017, the Company had not2022. We also incurred anyadditional organizational and offering costs of $1,108,221 during the year ended December 31, 2022 related to the Offering as all such costs had been funded by our Sponsor. As a result, these organizationalRegistration Statement on Form S-3 (File No. 333-263985) that we filed on March 30, 2022, and offering costs relatedAmendment No. 1 to the Offering are not recorded in our financial statements as of September 30, 2017 other thanRegistration Statement on Form S-3 that we filed on May 27, 2022, to the extent of 3% of the gross offering proceeds. As of September 30, 2017, the Sponsor had incurred $5,844,047 of organizationalissue and offering costs on behalf of the Company and the Company has reimbursed the Sponsor $2,332,819 in organizational and offering expenses of which $4,005 was receivable as of September 30, 2017 and is included in “Due from Affiliates” in the Condensed Consolidated Balance Sheet. The Company’s maximum liability for organizational and offering costs through September 30, 2017 was $2,328,814. See Note 8 to the Condensed Consolidated Financial Statements for additional information.DistributionsDuring our offering stage, when we may raise capital more quickly than we acquire income producing assets, andsell from time to time, duringtogether or separately, the following securities at an aggregate public offering price that will not exceed $200,000,000: Class C common stock, preferred stock, warrants, rights and units. The Form S-3, as amended, became effective on June 2, 2022 and we filed a prospectus supplement for our operational state, we way not pay distributions from operations. In these cases, distributions may be paid$50,000,000 ATM Offering on June 6, 2022. As of March 31, 2023, no shares were issued in whole or in part from the waiver or deferral of fees otherwise due to our Advisor, if so elected by our Advisor. Historically, the sources of cash used to pay our distributions have been from net rental income received and the waiver and deferral of management fees. The leases for certain of our real estate acquisitions may provide for rent abatements. These abatements are an inducement for the tenant to enter into or extend the term of its lease. In connection with our ATM Offering.acquisitionfirst quarters of some properties, we may be able to negotiate a reduced purchase price for the acquired property in an amount that equals the previously agreed-upon rent abatement. During the period of any rent abatement on properties that we acquire, we may be unable to fully fund our distributions from net rental income received2023 and waivers or deferrals of advisor asset management fees. In that event, we may expand the sources of cash used to fund our stockholder distributions to include proceeds for the sale of our common stock, but only during the periods, and up to the amounts, of any rent abatements where we able to negotiate a reduced purchase price. During the quarter ended September 30, 2017, $288,370 of offering proceeds was used to fund a portion of stockholder distributions, including the distribution for the period September 1, 2017 through September 30, 20172022, which were paid on October 10, 2017,April 17, 2023 and $127,455 of asset management fees were deferred and $42,485 of asset management fees were waived.Distributions declared, distributions paid and cash flow used in operations were as follows: Cash flows Total provided by Total distributions (used in) distributions declared per Distributions paid Operating Period declared share Cash Reinvested Activities First Quarter 2016 $ - $ - $ - $ - $ (91 ) Second Quarter 2016 - - - - 56,531 Third Quarter 2016 12,078 0.175 4,852 7,226 (589,184 )(2) Fourth Quarter 2016 (1) 159,083 0.175 41,313 117,770 (176,942 )(2) First Quarter 2017 486,862 0.175 100,126 386,736 182,764 Second Quarter 2017 824,641 0.175 152,193 672,448 1,248,798 Third Quarter 2017 1,120,503 0.175 212,300 908,203 1,114,810 Totals $ 2,603,167 $ 0.875 $ 510,784 $ 2,092,383 $ 1,836,686 (1)Includes the reclassification of $37,554 of distributions received in the fourth quarter of 2016 from our investment in Rich Uncles REIT I as a result of retroactively adopting ASU 2016-15.(2)Updated for immaterial correction.
April 15, 2022, respectively.31PART I – FINANCIAL INFORMATION (continued)ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)Distributions are paid on a monthly basis. In general, distributions for record dates as of the end of a given month are paid on or about the 10th of the following month. Distributions were declared and paid based on daily record dates at rates per share per day as follows:Distribution Period
Day Declaration Date Payment Date June 15 (date of purchase of first property)-30 $ 0.00180556 July 5, 2016 July 11, 2016 July 1-31 $ 0.00174731 August 10, 2016 August 11, 2016 August 1-31 $ 0.00174731 September 7, 2016 September 12, 2016 September 1-30 $ 0.00194440 October 7, 2016 October 11, 2016 October 1-31 $ 0.00188170 November 9, 2016 November 10, 2016 November 1-30 $ 0.00194440 December 12, 2016 December 12, 2016 December 1-31 $ 0.00188170 January 10, 2017 January 10, 2017 January 1-31 $ 0.00188170 February 10, 2017 February 10, 2017 February 1-28 $ 0.00208333 March 10, 2017 March 10, 2017 March 1-31 $ 0.00188170 April 10, 2017 April 10, 2017 April 1-30 $ 0.00194440 May 10, 2017 May 10, 2017 May 1-31 $ 0.00188170 June 10, 2017 June 10, 2017 June 1-30 $ 0.00194440 July 11, 2017 July 11, 2017 July 1-31 $ 0.00188170 August 10, 2017 August 10, 2017 August 1-31 $ 0.00188170 September 11, 2017 September 11, 2017 September 1-30 $ 0.00194440 October 10, 2017 October 10, 2017 Going forward, we expect our board of directors to continue to declare cash distributions based on daily record dates and these distributions on a monthly basis, and afterwe paid our offering stage to continue to declare distributions basedfirst distribution on a single record date as of the end of the month, and to pay these distributions on a monthly basis. Cash distributions will beAugust 10, 2016. The distribution rate is determined by our board of directorsthe Board based on our financial condition and such other factors as our boardthe Board deems relevant. The Board has not pre-established a percentage range of directors deems relevant.return for distributions to stockholders. We have not established a minimum dividend or distribution level, and our charter does not require that we make dividends or distributions to our stockholders other than as necessary to meet REIT qualification requirements.PropertiesAsSeptember 30, 2017, we owned sixteendistribution payments were as follows for the first quarter of 2023 and the four quarters of 2022:Cash Flows Provided by (Used in) Operating Activities Period Total Distributions Declared Distributions Declared Per Share Distributions Paid Net Rental Income Received Offering Proceeds Quarter End Accrued Distribution Cash Reinvested 2023 First Quarter $ 2,544,255 $ 0.287500 $ 1,943,307 $ 595,585 $ 2,784,869 $ 2,544,255 $ — $ 851,794 2022 First Quarter (1) $ 3,284,431 $ 0.387499 $ 1,418,783 $ 1,492,404 $ (1,083,310) $ 3,284,431 $ — $ 854,599 Second Quarter 2,519,371 0.287500 2,070,570 711,223 6,159,782 2,519,371 — 844,183 Third Quarter 2,520,740 0.287500 1,856,735 663,219 4,250,291 2,520,740 — 841,510 Fourth Quarter 2,523,067 0.287500 1,895,194 623,313 7,322,058 2,523,067 — 846,070 2022 Totals $ 10,847,609 $ 1.249999 $ 7,241,282 $ 3,490,159 $ 16,648,821 $ 10,847,609 $ — Distribution Period Rate Per Share Per Month Declaration Date Payment Date 2022 January 1-31 $ 0.095833 January 27, 2022 February 25, 2022 February 1-28 $ 0.095833 February 17, 2022 March 25, 2022 March 1-31 $ 0.095833 February 17, 2022 April 25, 2022 April 1-30 $ 0.095833 March 18, 2022 May 25, 2022 May 1-31 $ 0.095833 March 18, 2022 June 27, 2022 June 1-30 $ 0.095833 March 18, 2022 July 25, 2022 July 1-31 $ 0.095833 June 15, 2022 August 25, 2022 August 1-31 $ 0.095833 June 15, 2022 September 26, 2022 September 1-30 $ 0.095833 June 15, 2022 October 25, 2022 October 1-31 $ 0.095833 August 18, 2022 November 23, 2022 November 1-30 $ 0.095833 August 18, 2022 December 23, 2022 December 1-31 $ 0.095833 August 18, 2022 January 25, 2023 2023 January 1-31 $ 0.095833 November 7, 2022 February 24, 2023 February 1-28 $ 0.095833 November 7, 2022 March 24, 2023 March 1-31 $ 0.095833 November 7, 2022 April 25, 2023 April 1-30 $ 0.095833 March 9, 2023 May 25, 2023 (1) May 1-31 $ 0.095833 March 9, 2023 June 26, 2023 (1) June 1-30 $ 0.095833 March 9, 2023 July 25, 2023 (1) encompassing 556,844 rentable square feet in eight states, a 4.38% interest in an affiliated REITas of March 31, 2023, December 31, 2022 and a 72.71% TIC interest in aMarch 31, 2022, and the 91,740 square foot industrial property underlying the TIC Interest for all balance sheet dates presented were as follows:As of March 31,
2023December 31, 2022 March 31,
2022Number of properties: (1) (1) Industrial, including TIC Interest 29 27 12 Retail 12 12 13 Office 7 7 11 Total operating properties and properties held for sale 48 46 36 Leasable square feet: Industrial 2,744,979 2,541,792 1,450,193 Retail 230,176 230,176 234,029 Office 401,291 401,291 625,352 Total 3,376,446 3,173,259 2,309,574 Property Location Property Type Area (Square Feet) Lease Term (Years) Annual Rent Increase Acquisition Price Initial Cap Rate 2023 Plastic Products Princeton, MN Industrial 148,012 5.8 3.0 % $ 6,368,776 7.5 % Stealth Manufacturing Savage, MN Industrial 55,988 20 2.5 % 5,500,000 7.7 % 204,000 $ 11,868,776 2022 KIA/Trophy of Carson Carson, CA Retail 72,623 25 2.0 % $ 69,275,000 5.7 % Kalera Saint Paul, MN Industrial 78,857 20 2.5 % 8,079,000 7.0 % 151,480 $ 77,354,000 Property Location Disposition Date Property Type Rentable Square Feet Contract Sales Price Net Proceeds 2022 Bon Secours Richmond, VA 2/11/2022 Office 72,890 $ 10,200,000 $ — (1) Omnicare Richmond, VA 2/11/2022 Flex 51,800 8,760,000 — (1) Texas Health Dallas, TX 2/11/2022 Office 38,794 7,040,000 11,892,305 (1) Accredo Orlando, FL 2/24/2022 Office 63,000 14,000,000 5,012,724 226,484 $ 40,000,000 $ 16,905,029 Santa Clara, CA. San Diego, California since 2008.offering staterapid rise in yields on U.S. Treasury securities during 2022, and the ripple effect of the recent bank failures, may negatively impact our life cycleoperating results, liquidity and will continuesources of borrowings.acquire assets that adhere to our investment criteria with proceeds fromhave diminished and the sale of our shares and financing proceeds. More detail about our properties can be found in Note 3 to the Condensed Consolidated Financial Statements.Recent Market ConditionsBeginning in late 2007, domestic and international financial markets experienced significant disruptions that severely impacted the availability of credit and contributed to rising costs associated with obtaining credit. Financial conditions affectinggeneral commercial real estate have improvedmarket appears to be recovering from such impacts, the COVID-19 pandemic has resulted in significant disruptions in utilization of office properties and continueexpected negative impacts regarding how tenants of office properties will respond when their leases are scheduled to improve, as low treasuryexpire.increased lendingexpectations of future rental concessions, including free rent to renew tenants early, to retain tenants who are up for renewal or to attract new tenants, may result in decreases in cash flows from banks, insurance companiesinvestment properties. We have one office lease scheduled to expire in the next 12 months, with 87,230 leasable square feet and representing approximately 4.0% of ABR as of March 31, 2023. As tenants, particularly in office properties, reevaluate their use of such properties in light of the impacts of the COVID-19 pandemic, including their ability to have workers succeed in working at home, they may determine not to renew these leases or to seek rent or other concessions as a condition of renewing their leases.mortgage backed securities (“CMBS”) conduitsreal estate fundamentals and result in lower occupancy, lower rental rates and declining values in our real estate portfolio, which could have increased lending activity. Nevertheless, the following negative effects on us: the values of our investments in commercial properties could decrease below the amounts paid for such investments; and/or revenues from our properties could decrease due to fewer tenants and/or lower rental rates, making it more difficult for us to make distributions or meet our debt service obligations. We successfully negotiated lease extensions for five properties during 2022 and the first four months of 2023; however, changing circumstances may make future lease extensions more difficult.CMBScommercial mortgage-backed securities industries. WhileIn January 2022, we expectrefinanced all but four of our properties (including the TIC Interest) with proceeds from our Credit Facility which includes floating rates based on SOFR and our leverage ratio as described above. The mortgage on our Rancho Cordova, California property which is leased to OES does not mature until March 9, 2024 and the other three mortgages do not mature until after September 2027. All four of these mortgages are at fixed rates. As a result of the interest rate swap agreements entered into during 2022, 100% of our indebtedness as of April 30, 2023 holds a fixed interest rate. The weighted average interest rate on the total debt outstanding of $294.4 million as of April 30, 2023 was 4.4% based on our 40% leverage ratio as of March 31, 2023.The acquisitions completed during the second quarter of 2023 are expected to increase consolidated leverage to approximately 48% as of June 30, 2023, which would increase the weighted average interest rate to 4.5%. Our Revolver does not mature until January 18, 2026 and can be extended for an additional 12 months thereafter, and our Term Loan does not mature until January 18, 2027. On October 21, 2022, our Credit Facility was increased to $400,000,000 and is now comprised of a $150,000,000 Revolver and a $250,000,000 Term Loan. Our Credit Facility includes an updated accordion option that financial conditions will remainallows us to request additional Revolver and Term Loan lender commitments up to a total of $750,000,000.if they wereas the terms of existing indebtedness. If we are not able to deterioraterefinance our indebtedness on attractive terms, or at all, at the various maturity dates, we may experience more stringent lending criteria, which may affectbe forced to dispose of some of our ability to finance certain property acquisitions or refinance any debt at maturity. Additionally, for properties for which we are able to obtain financing,assets. Market conditions can change quickly, potentially negatively impacting the interest rates and other terms on such loans may be unacceptable. We expect to manage the current mortgage lending environment by considering alternative lending sources, including securitized debt, fixed rate loans, borrowings on a linevalue of credit, short-term variable rate loans, assumed mortgage loans in connection with property acquisitions, interest rate lock or swap agreements, or any combination of the foregoing.32PART I – FINANCIAL INFORMATION (continued)ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)Commercial real estate fundamentals continue to strengthen, as a moderate pace of job creation has supported gains in office absorption, retail sales and warehouse distribution. Although commercial property construction activity has increased, it remains near historic lows; as a result, incremental demand growth has helped to reduce vacancy rates and support modest rental growth. Improving fundamentals have resulted in gains in property values.beginning with the taxable year ended December 31, 2016.of 1986, as amended. We believe we willintend to continue to qualify as a REIT. To continue to qualify and maintain status as a REIT, we must meet certain requirements relating to our organization, sources of income, nature of assets, distributions of income to our stockholders and recordkeeping. As a REIT, we generally would not be subject to federal income tax on taxable income that we distribute to our stockholders so long as we distribute at least 90% of our annual taxable income (computed without regard to the dividendsdistributions paid deduction and excluding net capital gains).qualifymaintain our qualification as a REIT forin any reason in a taxable year, and applicable relief provisions do not apply, we will be subject to tax, including any applicable alternative minimum tax, on our taxable income at regular corporate rates. We will not be able to deduct distributions paid to our stockholders in any year in which we fail to qualify as a REIT. We also will be disqualified for the four taxable years following the year during which qualification is lost, unless we are entitled to relief under specific statutory provisions. Such an event could materially adversely affect our net income or loss and net cash available for distribution to stockholders. However, we believe that we are organized and operate in such a manner as to continue to qualify for treatment as a REIT for federal income tax purposes. No provision for federal income taxes has been made in our accompanying Condensed Consolidated Financial Statements.unaudited condensed consolidated financial statements. We will be subject to certain state and local taxes related to the operations of properties in certain locations. We are subject to certain state and local taxes related to the operations of properties in certain locations, which have been provided for in our accompanying Condensed Consolidated Financial Statements.for the year ended December 31, 2016 filed with the SEC.SEC on March 13, 2023. There have been no significant changes to our policies during 2017, except as disclosed in Note 2 of the Notes to the Condensed Consolidated Financial Statements.transactions. See transactions (see Note 910 to the Condensed Consolidated Financial Statementsour accompanying unaudited condensed consolidated financial statements for further detail.We have entered into an agreement withAdvisor whereby we have agreed to pay certain fees to, or reimburse certain expenses of, our Advisor or its affiliates, such as acquisition fees and expenses, organization and offering costs, asset management fees, and reimbursement of certain operating costs. See Note 8 to the Condensed Consolidated Financial Statements and the Company’s 2016 Annual Report on Form 10-Kaccompanying unaudited condensed consolidated financial statements for a further explanationdetails of the various related-party transactions agreements and fees.
agreements.33PART I – FINANCIAL INFORMATION (continued)ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)CertainSeptember 30, 2017March 31, 2023 through the filing date of this Quarterly Report on Form 10-Q. See Note 10 to the Condensed Consolidated Financial Statements for further explanation.the Condensed Consolidated Financial Statementsour accompanying unaudited condensed consolidated financial statements for further explanation.As of September 30, 2017, we had material off-balance sheet arrangements that had or are reasonably likely to have a material current or future effect on our financial condition, results of operations, liquidity, or capital resources.resources as of March 31, 2023.ITEMaboutAbout Market RiskWeexposed to the effects of interest rate changes as a result of borrowings used to maintain liquidity and to fund the acquisition and refinancing of our real estate investment portfolio and operations. Our profitability and the value of our real estate investments may be adversely affected during any period as a result of interest rate changes. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings, prepayment penalties and cash flows and to lower overall borrowing costs. We may manage interest rate risk by maintaining a ratio of fixed rate, long-term debt such that variable rate exposure is kept at an acceptable level or we may utilize a variety of financial instruments, including interest rate caps, floors, and swap agreements, in order to limit the effects of changes in interest rates on our operations. When we use these types of derivatives to hedge the risk of interest-earning assets or interest-bearing liabilities, we may be subject to certain risks, including the risk that losses on a hedge position will reduce the funds available for the payment of distributions to our stockholders and that the losses may exceed the amount we invested in the instruments.As of September 30, 2017, the fair value of our mortgage notes payable was $44,152,390 and the outstanding principal balance was $43,952,534. The fair value estimate of our mortgage notes payable is calculated using a discounted cash flow analysis utilizing rates we would expect to pay for debt of a similar type and remaining maturity if the loans were originated as of September 30, 2017. With respect to our fixed rate instruments, we do not expect that fluctuations in interest rates, and the resulting change in fair value of our fixed rate instruments, would have a significant impact on our ongoing operations.Conversely, movements in interest rates on our variable rate debt would change our future earnings and cash flows, but not significantly affect the fair value of those instruments. However, changes in required risk premium would result in changes in the fair value of variable rate instruments. As of September 30, 2017, we were exposed to market risks related to fluctuations in interest rates on $10,665,000 of variable rate debt outstanding, after giving consideration to the impact of interest rate swap agreements on approximately $10,665,000 of our variable rate debt. Based on interest rates as of September 30, 2017, if interest rates were 100 basis points higher during the 12 months ended September 30, 2017, interest expense on our variable rate debt would increase by $106,650. As of September 30, 2017, one-month LIBOR was 1.23% and if this index was reduced to 0% during the 12 months ended September 30, 2017, interest expense on our variable rate debt would decrease by $131,180.The weighted average interest rates of our fixed rate debt and variable rate debt as of September 30, 2017 was 3.26% and 4.21%, respectively. The weighted-average interest rate represents the actual interest rate in effect as of September 30, 2017 (consisting of the contractual interest rate and the effect of interest rate swaps and floors, if applicable), using interest rate indices as of September 30, 2017, were applicable.
smaller reporting company.34PART I – FINANCIAL INFORMATION (continued)ITEMAs of the end of the period covered by this report, management, including our principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of ourprocedures. Disclosure controls and procedures include, without limitation, controls and proceduresthat are designed to ensure that information required to be disclosed by us in theour reports we file and submit under the Exchange Act is recorded, processed, recorded, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management,us, including our principal executive officerChief Executive Officer and our principal financial officer,Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based upon,In designing and as ofevaluating the date of, the evaluation, our principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and we necessarily were required to apply our judgment in evaluating whether the benefits of the controls and procedures that we adopt outweigh their costs.as of September 30, 2017 because of the material weaknessesweakness in our internal control over financial reporting described below.Item 9A of our Annualthis Quarterly Report on Form 10-K10-Q are fairly stated in all material respects in accordance with GAAP for each of the periods presented.yearyears ended December 31, 2016 that had not been remediated as2022 and 2021, inclusive of September 30, 2017. The Company corrected a misstatement in its statementthe interim periods therein, and (ii) corrections made during the fourth quarter of cash flows2022 related to the classification of straight-line rent receivable write-offs associated with real estate investment sales for the nine monthsyears ended September 30, 2016. ManagementDecember 31, 2022 and 2021, inclusive of the interim periods therein, we concluded that the misstatement resulted fromcombination of the sametwo immaterial error corrections constituted a material weaknesses that were disclosedweakness as of December 31, 2022 in Item 9A of our Annual Report on form 10-K for the yearCompany’s ability to properly identify and evaluate applicable accounting standards involved with non-recurring transactions and recent accounting pronouncements.2016.September 30, 2017March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.The Company will implement the Remediation PlanIn connection with the audit of our consolidated financial statements for the year ended December 31, 2016, material weaknesses in our internal control over financial reporting were identified as previously disclosed in Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2016. The material weaknesses identified related to (1) the lack of sufficient qualified resources to be able to produce accurate and complete financial statements and disclosures in a timely manner and (2) lack of established processes relating to the preparation and review of analyses and reconciliations necessary to execute a timely financial close resulting in accurate financial information. Management and our Board of Directors, are committed to remediatingcorrect the material weaknesses through hiring additional qualified resources, continued trainingcontrol weakness described above.910 to the Condensed Consolidated Financial Statementsour accompanying unaudited condensed consolidated financial statements is incorporated herein by reference.“Risk Factors”“Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2016, and Part II, Item 1A in our Quarterly Report2022 as filed with the SEC on Form 10-Q for the quarter ended March 31, 2017.
13, 2023.35PART II – OTHER INFORMATION (continued)September 30, 2017,March 31, 2023, we issued 3,000an aggregate of 7,761 shares of Class C common stock to non-employee members of the Company’s directorsBoard for their servicesservice as board members.Board members during the third quarter of 2023. Such issuance wasissuances were made in reliance on the exemption from registration under RuleSection 4(a)(2) of the Securities Act.During the three months ended September 30, 2017, we also issued 3,000 sharesClass S common stock in the Class S Offering for aggregate gross offering proceeds of $30,000. Such issuances were made in reliance of an exemption from the registration requirements of the Securities Act under and in accordance with Regulation S of the Securities Act.Use of Proceeds from Registered SecuritiesOn June 1, 2016, our Registration Statement on Form S-11 (File No. 333-205684) (the “Registration Statement”), covering an initial public offering to offer a maximum of 90,000,000 shares of common stock for sale to the public in the primary offering was declared effective under the Securities Act. Pursuant to the Registration Statement, we also registered a maximum of 10,000,000 shares of common stock pursuant to our distribution reinvestment plan Registered DRP Offering. The shares of common stock covered by the Registration Statement were renamed and redesignated as Class C shares of common stock pursuant to amendments to the Company’s charter that became effective in August 2017.The Registered Offering commenced on July 20, 2016 and will terminate on June 29, 2018. We expect to sell theoutstanding shares of Class C common stock offeredand Series A Preferred Stock from January 1, 2023 through December 31, 2023. Repurchases made pursuant to the 2023 SRP will be made from time-to-time in the Registered Offering over this two-year period. We intend to continue to offer shares beyond June 29, 2018open market, in privately negotiated transactions or in any other manner as permitted by federal securities laws and in order to do so itother legal requirements. The timing, manner, price and amount of any repurchases will be necessarydetermined by us in our discretion and will be subject to file a new registration statement with the SEC to continue offering shares. We will also need to renew the Registration Statementeconomic and market conditions, stock price, applicable legal requirements and other factors. The 2023 SRP may be suspended or file a new registration statement in many states to continue the Registered Offering. We may terminate the Registered Offeringdiscontinued at any time. Our boardFrom January 1, 2023 to March 31, 2023, we repurchased a total of directors will adjust the $10.00 per share initial offering price of the shares of Class C common stock offered and sold pursuant to the Registered Offering during the course of the Registered Offering as described in the Registration Statement, as amended.As of September 30, 2017, we had sold 7,739,712 shares of Class C common stock in the Registered Offering for gross proceeds of $77,397,120, including 209,232 shares of common stock sold under our Registered DRP Offering.Net proceeds available for investment after the payment of the organizational and offering costs described above were approximately $75,268,306. A portion of these proceeds, along with proceeds from the Class S Offering and debt financing, were used to make approximately $109.4 million of investments in real estate properties, including the purchase price of our investments, deposits paid for future acquisitions, acquisition fees and expenses, and costs of leveraging each real estate investment. In addition, during the three months ended September 30, 2017, $288,370 of proceeds from the Registered Offering were used to fund stockholder distributions.See Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations —Distributions for a description of the sources that have been used to fund our distributions.Issuer Redemptions of Equity SecuritiesClass C Common StockDuring the three months ended September 30, 2017, we fulfilled repurchase requests and repurchased4,465 shares of our Class C common stock pursuant tofor a total of $49,682 under this share repurchase program for an average cost of $11.13 per share.share repurchase program as follows:
Shares
Requested to be
Repurchased (1)
Shares
Repurchased
During the
Month
Paid per Share (2)
Shares Available
That May
Be Repurchased
Under the
Program (2) July 2017 18,366 32,028 $ 9.70 $ 583,163 August 2017 35,839 18,366 $ 9.70 $ 852,453 September 2017 19,979 35,839 $ 9.72 $ 234,648 (1)We generally repurchase shares approximately 5 days following the end of the applicable month in which requests were received.36PART II – OTHER INFORMATION (continued)(2)Maximum amount that may be repurchased is limited to 5% of the weighted average outstanding shares of Class C common stock in the prior 12 months less the actual shares repurchased during same twelve month period. The dollar value is as of the last day of the month presented. The dollar value is calculated as (1) the maximum number of shares that can be repurchased (5% of the weighted average number of shares outstanding during the prior twelve months (or a shorter period if the Company has not been selling shares for twelve months) reduced by the number of shares already repurchased multiplied by (2) the repurchase price (which is 97% of the $10.00 per share offering price for shares of Class C common stock held by the stockholder for less than a year (which would be most of the shares through September 30, 2017)( which is 98% of the $10.00 per share offering price for shares of Class C common stock held by the stockholder for more than a year and less than two years))). Repurchase price is increased if the shares have been held for a year or more, two years or more and three years or more. Furthermore, once the Company has published its NAV, the NAV per share is used in the calculation in place of the per share offering price. If the Company determines that sufficient funds aren’t available to fund the Class C the share repurchase program, it has the ability to repurchase the number of shares that it believes it has sufficient funds to repurchase. In addition, the Company’s board of directors may amend, suspend or terminate the Class C share repurchase program without stockholder approval upon 30 days’ notice. The Company’s board of directors may amend, suspend or terminate the Class C share repurchase program due to changes in law or regulation, or if the board of directors becomes aware of undisclosed material information that it believes should be publicly disclosed before shares are repurchased.Class S Common StockDuring the three months ended September 30, 2017, we did not repurchase any shares of our Class S common stock pursuant to our Class S share repurchase program. Stockholders are required to hold their Class S shares for a minimum of one year before they can participate in the program. We will repurchase Class S shares based on then-applicable NAV per share and repurchase of Class S shares of common stock will be limited to a 2% of our aggregate NAV per month for our Class S shares and up to 5% of our aggregate NAV per quarter for our Class S shares.We currently intend to determine our NAV and NAV per share annually in January of each year as of DecemberMarch 31, of the prior year, beginning in January 2018 and calculated as of December 31, 2017. In addition, we may update our NAV at any time between our annual calculations of NAV to reflect significant events that we have determined have had a material impact on NAV. We will report the NAV per share of our common stock (a) in a Current Report on Form 8-K or in our annual or quarterly reports, all publicly filed with the SEC, or (b) in a separate written notice to the stockholders. During our primary offering stage, we would also include this information in a prospectus supplement or post-effective amendment to the Registration Statement for the Registered Offering, as required under federal securities laws. We will also provide information about our NAV per share on our website (such information may be provided by means of a link to our public filings on the SEC’s website, www.sec.gov) and on our toll-free information line: (1-855-742-4862). In the event that our NAV and NAV per share change during the year, we will publish our new NAV per share no later than ten business days prior to the second-to-last business day of the month in which such adjustment occurs.Item 3.Defaults Upon Senior SecuritiesNo events occurred during the nine months ended September 30, 2017 that would require a response to this item.Item 4.Mine Safety DisclosuresNot applicable.No events occurred during the nine months ended September 30, 2017 that would require a response to this item.Period Total Number of
Shares
Repurchased
During the
QuarterAverage Price Paid Per Share Total Number of Shares Repurchased as Part of Publicly Announced Plans or Programs Maximum Number (or Approximate Dollar Value) of Shares That May Yet be Repurchased Under the Plans or Programs January 1-31, 2023 699 $ 12.34 699 $ 14,991,373 February 1-28, 2023 — $ — — $ 14,991,373 March 1-31, 2023 3,766 $ 10.90 3,766 $ 14,950,317 Total 4,465 $ 11.13 4,465 (following the signatures section of this Quarterly Report on Form 10-Q)below are included herewith or incorporated herein by reference.37Exhibit Description 3.1 3.2 3.3 4.1 31.1* 31.2* 32.1** 101.INS* INLINE XBRL INSTANCE DOCUMENT 101.SCH* INLINE XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT 101.CAL* INLINE XBRL TAXONOMY EXTENSION CALCULATION LINKBASE 101.DEF* INLINE XBRL TAXONOMY EXTENSION DEFINITION LINKBASE 101.LAB* INLINE XBRL TAXONOMY EXTENSION LABELS LINKBASE 101.PRE* INLINE XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE 104* COVER PAGE INTERACTIVE DATA FILE (FORMATTED AS INLINE XBRL AND CONTAINED IN EXHIBIT 101) * Filed herewith. ** In accordance with Item 601(b)(32) of Regulation S-K, this Exhibit is not deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section. Such certifications will not be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference. Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.RW Holdings NNN REIT, Inc. (Registrant)Modiv Inc.(Registrant) By:/s/ HAROLD HOFERName: By:Harold Hofer/s/ AARON S. HALFACRETitle:Name:Aaron S. Halfacre Title: Chief Executive Officer (principal executive officer) By: /s/ JEAN HORAYMOND J. PACININame: Jean HoRaymond J. PaciniTitle: Chief Financial Officer (principal financial officer and accounting officer)Date: November 13, 201738The following exhibits are included, or incorporated by reference, in this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2017 (and are numbered in accordance with Item 601 of Regulation S-K).39