UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q



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

For the quarterly period ended ~~September 30, 2018~~March 31, 2019



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

For the transition period from to

Commission file number ~~333-209128~~333-230565 (1933 Act)

COLE OFFICE & INDUSTRIAL REIT (CCIT III), INC.

(Exact name of registrant as specified in its charter)



Maryland		47-0983661
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

~~2325~~2398 East Camelback Road, ~~10th~~4th Floor Phoenix, Arizona 85016		(602) 778-8700
(Address of principal executive offices; zip code)		(Registrant’s telephone number, including area code)

~~Not Applicable~~2325 East Camelback Road, 10th Floor

Phoenix, Arizona 85016

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	o	Accelerated filer	o	Non-accelerated filer	x

Smaller reporting company	o	Emerging growth company	x

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. x

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

Securities registered pursuant to Section 12(b) of the Act:



Title of Each Class	Trading Symbol	Name of each exchange on which registered
None	None	None

As of ~~November 7, 2018,~~May 6, 2019, there were approximately ~~2.4~~2.5 million shares of Class A common stock and ~~744,000~~739,000 shares of Class T common stock, par value per share of $0.01 each, of Cole Office & Industrial REIT (CCIT III), Inc. outstanding.

Table of Contents

COLE OFFICE & INDUSTRIAL REIT (CCIT III), INC.

INDEX



PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Condensed Consolidated Balance Sheets as of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018	3

Condensed Consolidated Statements of Operations for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~	4

Condensed Consolidated ~~Statement~~Statements of Stockholders’ Equity for the ~~nine~~three months ended ~~September 30,~~March 31, 2019 and 2018	5

Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~	6

Notes to Condensed Consolidated Financial Statements	7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	1819

Item 3. Quantitative and Qualitative Disclosures About Market Risk	26

Item 4. Controls and Procedures	2627

PART II — OTHER INFORMATION

Item 1. Legal Proceedings	2728

Item 1A. Risk Factors	2728

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	2829

Item 3. Defaults Upon Senior Securities	2930

Item 4. Mine Safety Disclosures	2930

Item 5. Other Information	2930

Item 6. Exhibits	3031

Signature	3132

Table of Contents

PART I — FINANCIAL INFORMATION


Item 1.	Financial Statements

COLE OFFICE & INDUSTRIAL REIT (CCIT III), INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


	September 30, 2018			December 31, 2017			March 31, 2019			December 31, 2018
ASSETS
Real estate assets:
Land	$	3,245,003		$	3,245,003		$	3,245,003		$	3,245,003
Buildings and improvements	41,258,770			41,258,770			41,258,770			41,258,770
Intangible lease asset	5,101,432			5,101,432
Intangible lease assets							5,101,432			5,101,432
Total real estate assets, at cost	49,605,205			49,605,205			49,605,205			49,605,205
Less: accumulated depreciation and amortization	(3,345,223		)	(1,911,033		)	(4,301,350		)	(3,823,287		)
Total real estate assets, net	46,259,982			47,694,172			45,303,855			45,781,918
Cash and cash equivalents	198,087			351,461			1,021,115			635,959
Rents and tenant receivables	781,182			1,018,825			1,148,526			943,287
Prepaid expenses	119,808			116,796
Prepaid expenses and other assets							104,644			79,198
Deferred costs, net	543,264			950,978			265,207			407,029
Total assets	$	47,902,323		$	50,132,232		$	47,843,347		$	47,847,391
LIABILITIES AND STOCKHOLDERS’ EQUITY
Credit facility	$	25,175,000		$	31,975,000		$	24,175,000		$	24,175,000
Subordinate promissory note	—			1,600,000
Accrued expenses and accounts payable	486,007			853,388			654,000			683,380
Due to affiliates	202,530			278,394			191,803			188,461
Distributions payable	142,415			100,241			158,972			155,111
Deferred rental income	—			208,716			212,891			—
Total liabilities	26,005,952			35,015,739			25,392,666			25,201,952
Commitments and contingencies
Redeemable common stock	112,006			87,337			140,139			182,158
STOCKHOLDERS’ EQUITY
Preferred stock, $0.01 par value per share; 10,000,000 shares authorized, none issued and outstanding	—			—			—			—
Class A common stock, $0.01 par value per share; 245,000,000 shares authorized, 2,277,352 and 1,436,855 shares issued and outstanding as of September 30, 2018 and December 31, 2017, respectively	22,774			14,369
Class T common stock, $0.01 par value per share; 245,000,000 shares authorized, 732,807 and 631,346 shares issued and outstanding as of September 30, 2018 and December 31, 2017, respectively	7,328			6,313
Class A common stock, $0.01 par value per share; 245,000,000 shares authorized, 2,466,403 and 2,424,682 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively							24,619			24,179
Class T common stock, $0.01 par value per share; 245,000,000 shares authorized, 756,428 and 747,316 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively							7,564			7,473
Capital in excess of par value	26,695,445			18,284,253			28,531,151			28,016,307
Accumulated distributions in excess of earnings	(4,941,182		)	(3,275,779		)	(6,252,792		)	(5,584,678		)
Total stockholders’ equity	21,784,365			15,029,156			22,310,542			22,463,281
Total liabilities, redeemable common stock, and stockholders’ equity	$	47,902,323		$	50,132,232		$	47,843,347		$	47,847,391

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

COLE OFFICE & INDUSTRIAL REIT (CCIT III), INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2018			2017			2018			2017			2019			2018
Revenues:
Rental income	$	972,002		$	674,566		$	2,916,007		$	2,023,699
Tenant reimbursement income	129,664			906,724			389,020			1,041,844
Total revenues	1,101,666			1,581,290			3,305,027			3,065,543
Rental and other property income													$	1,135,875		$	1,101,694
Operating expenses:
General and administrative	247,961			103,507			678,758			410,359			275,775			205,553
Property operating	3,212			2,756			9,913			9,165			5,465			3,489
Real estate tax	126,625			903,968			379,875			1,032,894			158,682			126,625
Advisory fees and expenses	—			—			—			60,565
Depreciation and amortization	478,063			358,286			1,434,190			1,074,858			478,063			478,063
Total operating expenses	855,861			1,368,517			2,502,736			2,587,841			917,985			813,730
Operating income	245,805			212,773			802,291			477,702			217,890			287,964
Other expense:
Interest expense and other, net	(429,149		)	(347,889		)	(1,384,477		)	(1,168,619		)	(427,152		)	(480,302		)
Net loss	$	(183,344	)	$	(135,116	)	$	(582,186	)	$	(690,917	)	$	(209,262	)	$	(192,338	)

Class A Common Stock:
Net loss	$	(127,009	)	$	(106,288	)	$	(390,726	)	$	(600,648	)	$	(147,726	)	$	(124,597	)
Basic and diluted weighted average number of common shares outstanding	2,226,550			1,197,224			1,844,223			859,523			2,456,976			1,545,984
Basic and diluted net loss per common share	$	(0.06	)	$	(0.09	)	$	(0.21	)	$	(0.70	)	$	(0.06	)	$	(0.08	)
Distributions declared per common share	$	0.15		$	0.15		$	0.45		$	0.45

Class T Common Stock:
Net loss	$	(56,335	)	$	(28,828	)	$	(191,460	)	$	(90,269	)	$	(61,536	)	$	(67,741	)
Basic and diluted weighted average number of common shares outstanding	721,678			257,529			685,064			117,531			753,867			652,005
Basic and diluted net loss per common share	$	(0.08	)	$	(0.11	)	$	(0.28	)	$	(0.77	)	$	(0.08	)	$	(0.10	)
Distributions declared per common share	$	0.15		$	0.15		$	0.45		$	0.45

The accompanying notes are an integral part of these condensed consolidated financial statements.

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COLE OFFICE & INDUSTRIAL REIT (CCIT III), INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(Unaudited)


	Class A Common Stock					Class T Common Stock			Capital in Excess of Par Value			Accumulated Distributions in Excess of Earnings			Total Stockholders’ Equity			Class A Common Stock					Class T Common Stock			Capital in Excess of Par Value			Accumulated Distributions in Excess of Earnings			Total Stockholders’ Equity
	Number of Shares		Par Value			Number of Shares	Par Value		Capital in Excess of Par Value			Accumulated Distributions in Excess of Earnings			Total Stockholders’ Equity			Number of Shares		Par Value			Number of Shares	Par Value		Capital in Excess of Par Value			Accumulated Distributions in Excess of Earnings			Total Stockholders’ Equity
Balance, January 1, 2018	1,436,855		$	14,369		631,346	$	6,313	$	18,284,253		$	(3,275,779	)	$	15,029,156
Balance, January 1, 2019																		2,424,682		$	24,179		747,316	$	7,473	$	28,016,307		$	(5,584,678	)	$	22,463,281
Issuance of common stock	845,832		8,458			101,461	1,015		9,256,626			—			9,266,099			47,124		471			9,112	91		538,201			—			538,763
Distributions declared	—		—			—	—		—			(1,083,217		)	(1,083,217		)
Equity-based compensation																		—		23			—	—		20,603			—			20,626
Distributions declared on common stock — $0.15 per common share																		—		—			—	—		—			(458,852		)	(458,852		)
Commissions on stock sales and related dealer manager fees	—		—			—	—		(646,448		)	—			(646,448		)	—		—			—	—		(30,501		)	—			(30,501		)
Other offering costs	—		—			—	—		(93,982		)	—			(93,982		)	—		—			—	—		(5,909		)	—			(5,909		)
Distribution and stockholder servicing fees	—		—			—	—		(32,373		)	—			(32,373		)	—		—			—	—		(1,000		)	—			(1,000		)
Redemptions of common stock	(5,335	)	(53		)	—	—		(47,962		)	—			(48,015		)	(5,403	)	(54		)	—	—		(48,569		)	—			(48,623		)
Changes in redeemable common stock	—		—			—	—		(24,669		)	—			(24,669		)	—		—			—	—		42,019			—			42,019
Net loss	—		—			—	—		—			(582,186		)	(582,186		)	—		—			—	—		—			(209,262		)	(209,262		)
Balance, September 30, 2018	2,277,352		$	22,774		732,807	$	7,328	$	26,695,445		$	(4,941,182	)	$	21,784,365
Balance, March 31, 2019																		2,466,403		$	24,619		756,428	$	7,564	$	28,531,151		$	(6,252,792	)	$	22,310,542



	Class A Common Stock			Class T Common Stock			Capital in Excess of Par Value			Accumulated Distributions in Excess of Earnings			Total Stockholders’ Equity
	Number of Shares	Par Value		Number of Shares	Par Value		Capital in Excess of Par Value			Accumulated Distributions in Excess of Earnings			Total Stockholders’ Equity
Balance, January 1, 2018	1,436,855	$	14,369	631,346	$	6,313	$	18,284,253		$	(3,275,779	)	$	15,029,156
Issuance of common stock	149,839	1,498		37,009	370		1,831,521			—			1,833,389
Distributions declared on common stock — $0.15 per common share	—	—		—	—		—			(310,147		)	(310,147		)
Commissions on stock sales and related dealer manager fees	—	—		—	—		(133,343		)	—			(133,343		)
Other offering costs	—	—		—	—		(18,443		)	—			(18,443		)
Distribution and stockholder servicing fees	—	—		—	—		(12,200		)	—			(12,200		)
Changes in redeemable common stock	—	—		—	—		(18,552		)	—			(18,552		)
Net loss	—	—		—	—		—			(192,338		)	(192,338		)
Balance, March 31, 2018	1,586,694	$	15,867	668,355	$	6,683	$	19,933,236		$	(3,778,264	)	$	16,177,522

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

COLE OFFICE & INDUSTRIAL REIT (CCIT III), INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Nine Months Ended September 30,						Three Months Ended March 31,
	2018			2017			2019			2018
Cash flows from operating activities:
Net loss	$	(582,186	)	$	(690,917	)	$	(209,262	)	$	(192,338	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization, net	1,434,190			1,074,858			478,063			478,063
Amortization of deferred financing costs	421,000			370,396			141,822			140,001
Straight-line rental income	(114,970		)	(161,622		)	(28,341		)	(45,281		)
Equity-based compensation							20,626			—
Changes in assets and liabilities:
Rents and tenant receivables	352,613			(793,476		)	(176,898		)	93,924
Prepaid expenses and other assets	(3,012		)	(60,060		)	(25,446		)	38,252
Accrued expenses and accounts payable	(367,381		)	317,426			(29,380		)	(285,785		)
Deferred rental income	(208,716		)	4,092			212,891			—
Due to affiliates	(60,302		)	(74,293		)	18,540			(60,302		)
Net cash provided by (used in) operating activities	871,236			(13,596		)
Net cash provided by operating activities							402,615			166,534
Cash flows from investing activities:
Net cash used in investing activities	—			—			—			—
Cash flows from financing activities:
Proceeds from issuance of common stock	8,878,331			13,637,650			350,000			1,727,500
Redemptions of common stock	(48,015		)	—			(48,623		)	—
Offering costs on issuance of common stock	(740,430		)	(1,077,033		)	(36,410		)	(151,786		)
Distribution and stockholder servicing fees paid	(47,935		)	(8,344		)	(16,198		)	(15,148		)
Distributions to stockholders	(653,275		)	(275,207		)	(266,228		)	(195,693		)
Repayments of credit facility	(6,800,000		)	(1,725,000		)	—			(2,500,000		)
Proceeds from subordinate promissory note	2,200,000			488,631			—			2,200,000
Repayment of subordinate promissory note	(3,800,000		)	(10,788,631		)	—			(600,000		)
Deferred financing costs paid	(13,286		)	—			—			(13,286		)
Net cash (used in) provided by financing activities	(1,024,610		)	252,066			(17,459		)	451,587
Net (decrease) increase in cash and cash equivalents	(153,374		)	238,470
Net increase in cash and cash equivalents							385,156			618,121
Cash and cash equivalents, beginning of period	351,461			605,049			635,959			351,461
Cash and cash equivalents, end of period	$	198,087		$	843,519		$	1,021,115		$	969,582

Supplemental disclosures of non-cash investing and financing activities:
Distributions declared and unpaid	$	142,415		$	79,064		$	158,972		$	108,806
Change in accrued distribution and stockholder servicing fees due to affiliate	$	32,373		$	160,183		$	1,000		$	12,200
Common stock issued through distribution reinvestment plan	$	387,768		$	92,227		$	188,763		$	105,889
Supplemental Cash Flow Disclosures:
Supplemental cash flow disclosures:
Interest paid	$	980,687		$	800,966		$	222,609		$	336,973
Cash paid for taxes							$	2,061		$	1,928

The accompanying notes are an integral part of these condensed consolidated financial statements.

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COLE OFFICE & INDUSTRIAL REIT (CCIT III), INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~September 30, 2018~~March 31, 2019 (Unaudited)

NOTE 1 — ORGANIZATION AND BUSINESS

Cole Office & Industrial REIT (CCIT III), Inc. (the “Company”) is a non-exchange traded real estate investment trust (“REIT”) formed as a Maryland corporation ~~that was incorporated~~ on May 22, 2014, that elected to be taxed, and currently qualifies, as a ~~real estate investment trust (“REIT”)~~REIT for U.S. federal income tax purposes commencing with its taxable year ended December 31, 2017. The Company primarily acquires and operates commercial real estate assets, primarily consisting of single-tenant, income-producing necessity office and industrial properties, which are leased to creditworthy tenants under long-term leases. As of March 31, 2019, the Company owned two office and industrial properties, comprising 391,000 rentable square feet of commercial space located in two states. As of March 31, 2019, the rentable square feet at these properties was 100% leased.

Substantially all of the Company’s business is conducted through Cole Corporate Income Operating Partnership III, LP (“CCI III OP”), a Delaware limited partnership, of which the Company is the sole general partner ~~of,~~ and owns, directly or indirectly, 100% of the partnership ~~interests in~~interests.

The Company is externally managed by Cole Corporate Income ~~Operating Partnership~~Management III, ~~LP,~~LLC, a Delaware limited ~~partnership.~~

~~On November 13, 2017, VEREIT Operating Partnership, L.P.~~liability company (“~~VEREIT OP”~~CCI III Management”), ~~a former affiliated entity of the Company’s sponsor, CCO Group (as defined below), entered into a Purchase and Sale Agreement with CCA Acquisition, LLC (“CCA”), a newly-formed~~an affiliate of CIM Group, LLC (“CIM”), ~~pursuant to which CCA agreed to acquire all~~a vertically-integrated owner and operator of real assets with multidisciplinary expertise and in-house research, acquisition, credit analysis, development, finance, leasing, and asset management capabilities headquartered in Los Angeles, California with offices in Oakland, California; Bethesda, Maryland; Dallas, Texas; New York, New York; Chicago, Illinois; and Phoenix, Arizona.

CCO Group, LLC owns and controls CCI III Management, the ~~issued~~Company’s advisor, and ~~outstanding shares of common stock of Cole Capital Advisors, Inc.,~~is the ~~direct or~~ indirect owner of ~~Cole Corporate Income Advisors III,~~CCO Capital, LLC (“~~CCI III Advisors”~~CCO Capital”), ~~Cole Capital Corporation~~the Company’s dealer manager, and CREI Advisors, LLC (“CREI Advisors”), the Company’s ~~external advisor, dealer manager and~~ property ~~manager, respectively (the “Transaction”).~~

On February 1, 2018, the Transaction was completed. Immediately following the completion of the Transaction, Cole Capital Advisors, Inc. and the Company’s dealer manager were each converted into Delaware limited liability companies, Cole Capital Advisors, Inc.’s name was changed to CCO Group, LLC, and the dealer manager’s name was changed to CCO Capital, LLC (“CCO Capital”). As a result of the Transaction, CIM owns and/or controlsmanager. CCO Group, LLC and its subsidiaries (collectively, “CCO Group”)~~, and CCO Group, LLC owns and controls CCI III Advisors, CCO Capital and CREI Advisors,~~ serve as the Company’s ~~external advisor, dealer manager for the Offering (as defined below)~~sponsor and ~~property manager, respectively.~~

~~In addition,~~ as ~~part of the Transaction, VEREIT OP and CCO Group, LLC entered into~~ a ~~services agreement (the “Services Agreement”) pursuant~~sponsor to ~~which VEREIT OP is obligated to provide certain services to CCO Group and to the Company,~~ Cole Credit Property Trust IV, Inc. (“CCPT IV”), Cole Credit Property Trust V, Inc. (“CCPT V”), Cole Office & Industrial REIT (CCIT II), Inc. (“CCIT II”) and CIM Income NAV, Inc. (formerly known as Cole Real Estate Income Strategy (Daily NAV), Inc.) (“~~Cole~~CIM Income ~~NAV Strategy”~~NAV”) ~~(CCPT IV, CCPT V, CCIT III, Cole Income NAV Strategy and the Company, collectively, the “Cole REITs~~^®”), including operational real estate support. VEREIT OP is obligated to provide such services through March 31, 2019 (or, if later, the date of the last government filing other than a tax filing made by any of the Cole REITs with respect to its 2018 fiscal year) (the “Initial Services Term”) and is obligated to provide consulting and research services through December 31, 2023 as requested by CCO Group, LLC..

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

Pursuant to a Registration Statement on Form S-11 (Registration No. 333-209128) (the “Registration Statement”) under the Securities Act of 1933, as amended (the “Securities Act”), and declared effective by the U.S. Securities and Exchange Commission (the “SEC”) onOn September 22, 2016, the Company commenced its initial public offering on a “best efforts” basis, offering up to a maximum of $3.5 billion in shares of common stock (the “Offering”). Pursuant to the Offering, the Company ~~is offering~~offered up to $2.5 billion in shares of its common stock pursuant to the primary offering, consisting of two classes of shares: Class A common stock (“Class A Shares”) at a price of $10.00 per share (up to $1.25 billion in shares) and Class T common stock (“Class T Shares”) at a price of $9.57 per share (up to $1.25 billion in shares). Pursuant to the Offering, the Company is also ~~offering~~offered up to $1.0 billion in shares of its common stock pursuant to the distribution reinvestment plan (the “DRIP”) at a purchase price during the Offering equal to the per share primary offering prices net of selling commissions and dealer manager fees, or $9.10 per share for both Class A Shares and Class T Shares, assuming a $10.00 per Class A Share primary offering price and a $9.57 per Class T Share primary offering price.

On August 9, 2018, the Company’s board of directors (the “Board”) approved the extension of the Offering until September 22, 2019, unless the ~~Company’s board of directors terminates~~Board terminated the Offering at an earlier date or all shares being offered ~~have~~had been sold, in which case the Offering ~~will~~would be terminated. ~~In no event will~~Effective December 31, 2018, the primary portion of the Offering ~~be extended beyond 180 days after September 22,~~was terminated, but the Company continued to issue Class A Shares and Class T Shares pursuant to the DRIP portion of the Offering. On March 28, 2019, the Company registered an aggregate of $4,300,000 of Class A Shares and Class T Shares at a price equal to the first estimated per share NAV (as defined below) of $8.60 for both Class A Shares and Class T Shares for the DRIP Offering pursuant to a Registration Statement on Form S-3 (Registration No. 333-230565) filed with the U.S. Securities and Exchange Commission (the “SEC”) (the “S-3 Registration Statement”), which was declared effective on April 5, 2019 (the “DRIP Offering” and collectively with the Offering, the “Offerings”). The Company ceased issuing shares in the Offering on April 30, 2019. The unsold Class A Shares and Class T Shares in the Offering of $3.5 billion in the aggregate were subsequently deregistered. The Company began to issue Class A Shares and Class T Shares under the DRIP Offering on May 1, 2019 and will continue to issue shares under the DRIP Offering.

On February 13, 2019, the Board established the Company’s first estimated per share net asset value (“NAV”) of the Company’s common stock, as of December 31, 2018, of $8.60 per share for both Class A Shares and Class T Shares. Distributions are reinvested in shares of the Company’s common stock under the DRIP at the estimated per share NAV as determined by the Board. Additionally, the estimated per share NAV as determined by the Board serves as the per share NAV for the purposes of the share redemption program. Commencing on February 19, 2019, distributions are reinvested under the DRIP at a price of $8.60 per share for both Class A Shares and Class T Shares, the estimated per share NAV as of December 31, 2018, as determined by the Board. Additionally, $8.60 per share serves as the most recent estimated per share NAV for purposes

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of the share redemption program. The Board will establish an updated per share NAV of the Company’s common stock on at least an annual basis for the purposes of assisting broker dealers in meeting their customer account statement reporting obligations under National Association of Securities Dealers Conduct Rule 2340. The Company's estimated per share NAV is not audited or reviewed by its independent registered public accounting firm.

As of ~~September 30, 2018,~~March 31, 2019, the Company had issued approximately ~~3.0~~3.2 million shares of common stock in the Offering, including ~~62,000~~103,000 shares issued pursuant to the DRIP, for gross proceeds of ~~$29.1~~$31.1 million ($~~22.1~~23.9 million in Class A Shares and $~~7.0~~7.2 million in Class T Shares) before organization and offering costs, selling commissions and dealer manager fees of $~~2.1~~2.3 million. In addition, the Company has paid distribution and stockholder servicing fees for Class T Shares sold in the primary portion of the Offering of $~~70,000~~103,000 and accrued an estimated liability for future distribution and stockholder servicing fees payable of $~~202,000~~173,000. The Company intends to use substantially all of the net proceeds from the Offering to acquire and operate a diversified portfolio of commercial real estate assets primarily consisting of single-tenant, income-producing necessity office and industrial properties, which are leased to creditworthy tenants under long-term leases, including distribution facilities, warehouses, manufacturing plants and corporate or regional headquarters in strategic locations. The Company expects that most of its properties will be subject to “net” leases, whereby the tenant will be primarily responsible for the property’s cost of repairs, maintenance, property taxes, utilities, insurance and other operating costs. As of September 30, 2018, the Company owned ~~two~~ ~~office and industrial properties, comprising~~ ~~391,000~~ ~~rentable square feet of commercial space located in~~ ~~two~~ ~~states. As of September 30, 2018, the rentable square feet at these properties was~~ ~~100%~~ ~~leased.~~

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Principles of Consolidation and Basis of Presentation

The condensed consolidated financial statements of the Company have been prepared in accordance with the rules and regulations of the SEC regarding interim financial reporting, including the instructions to Form 10-Q and Article 10 of Regulation S-X, and do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the statements for the interim periods presented include all adjustments, which are of a normal and recurring nature, necessary for a fair presentation of the results for such periods. Results for these interim periods are not necessarily indicative of full year results. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company’s audited consolidated financial statements as of and for the year ended December 31, ~~2017,~~2018, and related notes thereto, set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018. The condensed consolidated financial statements should also be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in this Quarterly Report on Form 10-Q.

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

Reclassifications

Certain amounts in the Company’s prior period condensed consolidated financial statements have been reclassified to conform to the current period presentation. ~~The~~

In connection with the adoption of Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), as defined in “Recent Accounting Pronouncements,” during the first quarter of fiscal year 2019, the Company ~~has chosen to break out distribution~~is now combining rental income of $972,000 and ~~stockholder servicing fees paid~~tenant reimbursement income of ~~$8,000 from offering costs~~$130,000 for the three months ended March 31, 2018 into a single line item, rental and other property income, on ~~issuance of common stock of $1.08 million, which was previously reported in total as $1.09 million in~~ the ~~Company’s~~ condensed consolidated statements of ~~cash flows for the nine months ended September 30, 2017. This reclassification had no effect on previously reported totals or subtotals.~~operations.

Use of Estimates

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

Real Estate Assets

Real estate assets are stated at cost, less accumulated depreciation and amortization. The Company considers the period of future benefit of each respective asset to determine the appropriate useful life. The estimated useful lives of the Company’s real estate assets by class are generally as follows:

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

Recoverability of Real Estate Assets

The Company continually monitors events and changes in circumstances that could indicate that the carrying amounts of its real estate assets may not be recoverable. Impairment indicators that the Company considers include, but are not limited to: bankruptcy or other credit concerns of a property’s major tenant, such as a history of late payments, rental concessions and other factors; a significant decrease in a property’s revenues due to lease terminations; vacancies; co-tenancy clauses; reduced lease rates; changes in anticipated holding periods; or other circumstances. When indicators of potential impairment are present, the Company assesses the recoverability of the assets by determining whether the carrying amount of the assets will be recovered through the undiscounted future cash flows expected from the use of the assets and their eventual disposition. In the event that such expected undiscounted future cash flows do not exceed the carrying amount, the Company will adjust the real estate assets to their respective fair values and recognize an impairment loss. Generally, fair value will be determined using a discounted cash flow analysis and recent comparable sales transactions. No impairment indicators were identified and no impairment losses were recorded during the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 or ~~2017.~~2018.

Assets Held for Sale

When a real estate asset is identified by the Company as held for sale, the Company will cease recording depreciation and amortization of the assets related to the property and estimate its fair value, net of selling costs. If, in management’s opinion, the fair value, net of selling costs, of the asset is less than the carrying amount of the asset, an adjustment to the carrying amount is then recorded to reflect the estimated fair value of the property, net of selling costs. There were no assets identified as held for sale as of ~~September 30, 2018~~March 31, 2019 or December 31, ~~2017.~~2018.

Allocation of Purchase Price of Real Estate Assets

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

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

~~In April 2017, the Company elected to early adopt Accounting Standards Update (“ASU”) No. 2017-01,~~ ~~Business Combinations (Topic 805): Clarifying the Definition of a Business~~ (“ASU 2017-01”), which clarifies the definition of a business by adding guidance to assist entities in evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Beginning in April 2017, all real estate acquisitions qualified as asset acquisitions, and as such, acquisition-relatedAcquisition-related fees and certain acquisition-related expenses related to ~~these~~ asset acquisitions ~~were~~are capitalized and allocated to tangible and intangible assets and liabilities as described above. ~~Prior~~

Leases

The Company has lease agreements with lease and non-lease components. The Company has elected to ~~the adoption~~not separate non-lease components from lease components for all classes of ~~ASU 2017-01 in April 2017, all of the Company’s~~underlying assets (primarily real estate ~~acquisitions were accounted~~assets) and will account for the combined component as ~~business combinations~~rental and other property income. Non-lease components included in rental and other property income include certain tenant reimbursements for maintenance services (including common-area maintenance services or “CAM”), real estate taxes, insurance and utilities paid for by the lessor but consumed by the lessee. As a lessor, the Company has further determined that this policy will be effective only on a lease that has been classified as ~~such, acquisition-related expenses related~~an operating lease and the revenue recognition pattern and timing is the same for both types of components. Therefore, Accounting Standards Codification Topic 842, Leases (“ASC 842”), will be applied to these ~~business combination acquisitions were expensed as incurred. Prior to April 2017, acquisition-related expenses in the Company’s condensed consolidated statements~~lease contracts for both types of ~~operations primarily consisted of legal, deed transfer and other costs related to real estate purchase transactions, including costs incurred for deals that were not consummated.~~components. The Company ~~expects its future acquisitions to qualify as asset acquisitions and, as such,~~does not have material leases where it is the ~~Company will allocate the purchase price to acquired tangible assets and identified intangible assets and liabilities on a relative fair value basis.~~lessee.

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Significant judgments and assumptions are inherent in not only determining if a contract contains a lease but also the lease classification, terms, payments, and, if needed, discount rates. Judgments include the nature of any options with the determination if they will be exercised, evaluation of implicit discount rates and the assessment and consideration of “fixed” payments for straight-line rent revenue calculations.

Lease costs represent the initial direct costs incurred in origination, negotiation and processing of a lease agreement. Such costs include outside broker commissions and other independent third-party costs and are amortized over the life of the lease on a straight-line basis. Costs related to salaries and benefits, supervision, administration, unsuccessful origination efforts and other activities not directly related to completed lease agreements are expensed as incurred. Leasing commissions subsequent to successful lease execution are capitalized.

Revenue Recognition

~~Certain properties have~~Rental and other property income is primarily derived from fixed contractual payments from operating leases ~~where the minimum rental payment increases during~~and, therefore, is generally recognized on a straight-line basis over the term of the ~~lease. The Company records rental income for~~lease, which typically begins the ~~full term~~date the tenant takes control of ~~each lease on a straight-line basis when earned and collectability is reasonably assured.~~the space. When the Company acquires a property, the terms of existing leases are considered to commence as of the acquisition date for the purpose of this calculation. ~~The Company defers the recognition~~Variable rental and other property income consists primarily of ~~contingent rental income, such as percentage rents, until the specific target that triggers the contingent rental income is achieved. Expected~~tenant reimbursements ~~from tenants~~ for recoverable real estate taxes and operating expenses which are included in ~~tenant reimbursement~~rental and other property income in the period when such costs are ~~incurred. Effective January 1, 2018, the Company adopted ASU No. 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606)~~ (“ASU 2014-09”), which supersedes the revenue recognition requirements in Revenue Recognition, Accounting Standards Codification (“ASC”) Topic 605 and requires an entity to recognize revenue in a way that depicts the transfer of 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 or services. The Company records revenue for real estate taxes and insurance reimbursed by its tenants on the leased properties,incurred, with offsetting expenses in real estate taxes and property operating expenses, respectively, within the condensed consolidated statements of ~~operations as the Company has concluded it is the primary obligor.~~operations. The Company ~~has identified its revenue streams~~defers the recognition of variable rental and other property income, such as percentage rents, until the specific target that triggers the contingent rental income ~~from leasing arrangements and tenant reimbursement income, which are outside of the scope of Topic 606. The Company~~ ~~adopted~~ ~~ASU 2014-09 using the modified retrospective approach and determined it did not have a material impact on the Company’s condensed consolidated financial statements.~~is achieved.

The Company continually reviews lease-related receivables, ~~related to rent,~~ including any straight-line rent, and current and future operating expense reimbursements from tenants, and determines their collectability by taking into consideration the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located. InUpon the ~~event~~determination that the collectability of a receivable is ~~uncertain,~~not probable, the Company will record ~~an increase~~a reduction to rental and other property income for amounts previously recorded and a decrease in the ~~allowance for uncollectible accounts. As~~outstanding receivable. Revenue from leases where collection is deemed to be less than probable is recorded on a cash basis until collectability becomes probable. Management’s estimate of ~~September 30, 2018 and December 31, 2017,~~ the ~~Company did not have an allowance for uncollectible accounts.~~ collectability of lease-related receivables is based on the best information available to management at the time of evaluation.

Net Loss and Distributions Per Share

The Company has two classes of common stock. Accordingly, the Company utilizes the two-class method to determine its earnings per share, which can result in different earnings per share for each of the classes. Under the two-class method, earnings per share of each class of common stock are computed by dividing the sum of the distributed earnings to common stockholders and undistributed earnings allocated to common stockholders by the weighted average number of shares for each class of common stock for the respective period. The distributed earnings to Class T Share common stockholders represents distributions declared less the distribution and stockholder servicing fees paid with respect to Class T Shares sold in the primary portion of the Offering. Diluted income per share, when applicable, considers the effect of anyany potentially dilutive share equivalents, of ~~whi~~chwhich the Company had none for e~~ach~~each of the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 or ~~2017.~~ 2018. Distributions per share are calculated based on the authorized daily distribution rate.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by various standard setting bodies that may have an impact on the Company’s accounting and reporting. Except as otherwise stated below, the Company is currently evaluating the effect that certain new accounting requirements may have on the Company’s accounting and related reporting and disclosures in the Company’s condensed consolidated financial statements.

In February 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2016-02, Leases (Topic 842) (“(“ASU 2016-02”). The ~~amendments in this update require that most lease obligations be recognized as a right of use asset with a corresponding liability on~~Company used the balance sheet. The guidance also requires additional qualitative and quantitative disclosures to assess the amount, timing and uncertainty of cash flows arising from leases. ASU 2016-02 and subsequent amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. The guidance, including optional practical expedients, should be implemented for the earliest period presented using a modified retrospective approach. The Company is currently in the process of finalizing its assessment of its inventory of leases that will be impacted byalternative transition method upon adoption of the new ~~guidance.~~standard on January 1, 2019 and used the effective date as the date of initial application. Consequently, financial information was not updated and the disclosures required under the new standard are not provided for dates and periods before January 1, 2019. The Company ~~does~~elected the “package of practical expedients,” which permits the Company to not ~~expect~~reassess under the new standard prior conclusions about lease identification, lease classification and initial direct costs. The adoption ~~to have~~of ASU 2016-02 has not had a material impact on the accounting treatment and disclosure of the Company’s net leases, which are the primary source of the Company’s revenues.

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In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses(Topic 326) (“ASU 2016-13”), which was subsequently amended by ASU No. 2018-19, Codification Improvements to Topic 326,Financial Instruments - Credit Losses (“ASU 2018-19”), in November 2018. ASU 2016-13 is intended to improve financial reporting requiring more timely recognition of credit losses on loans and other financial instruments that are not accounted for at fair value through net income, including loans held for investment, held-to-maturity debt securities, net investment in leases and other such commitments. ASU 2016-13 requires that financial assets measured at amortized cost be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The amendments in ASU 2016-13 require the Company to measure all expected credit losses based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the financial assets and eliminates the “incurred loss” methodology under current GAAP. ASU 2018-19 clarified that receivables arising from operating leases are not within the scope of Topic 326. Instead, impairment of receivables arising from operating leases should be accounted for in accordance with Topic 842, Leases. ASU 2016-13 and ASU 2018-19 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. Early adoption is permitted for fiscal years, and interim periods within those years, beginning after December 15, 2018. The Company is currently evaluating the impact this amendment will have on its condensed consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). This ASU amends and removes several disclosure requirements including the valuation processes for Level 3 fair value measurements. ASU 2018-13 also modifies some disclosure requirements and requires additional disclosures for changes in unrealized gains and losses included in other comprehensive income for recurring Level 3 fair value measurements

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~~September 30, 2018 (Unaudited) – (Continued)~~

and requires the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The provisions of ASU 2018-13 are effective January 1, 2020 using a prospective transition method for amendments effecting changes in unrealized gains and losses, significant unobservable inputs used to develop Level 3 fair value measurements and narrative description on uncertainty of measurements. The remaining provisions of the ASU are to be applied retrospectively, and early adoption is permitted. The Company is evaluating the impact of this ~~ASU's~~ASU’s adoption, and does not believe this ASU will have a material impact on its condensed consolidated financial statements.

In October 2018, the FASB issued ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities. The guidance changes the guidance for determining whether a decision-making fee is a variable interest. Under the new ASU, indirect interests held through related parties under common control will now be considered on a proportional basis when determining whether fees paid to decision makers and service providers are variable interests. Such indirect interests were previously treated the same as direct interests. This ASU is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. The Company is currently assessing the impact that adopting this new standard will have on its condensed consolidated financial statements and footnote disclosures.

NOTE 3 — FAIR VALUE MEASUREMENTS

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

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

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

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

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

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

Credit facility ~~and subordinate promissory note~~ — The fair value is estimated by discounting the expected cash flows based on estimated borrowing rates available to the Company as of the measurement date. These financial instruments are valued using Level 2 inputs. As of ~~September 30,~~March 31, 2019, the estimated fair value of the Company’s debt was $24.24 million, compared to a carrying value of $24.18 million. As of December 31, 2018, the estimated fair value of the Company’s debt was ~~$25.3 million, compared to a carrying value of~~ $~~25.2 million. As of December 31, 2017, the estimated fair value of the Company’s debt was~~ ~~$33.8~~24.3 million, compared to a carrying value of $~~33.6~~24.2 million. The carrying and fair values exclude net deferred financing costs.

Other financial instruments — The Company considers the carrying values of its cash and cash equivalents, tenant receivables, accrued expenses and accounts payable, other liabilities, due to affiliates and distributions payable to approximate their fair values because of the short period of time between their origination and their expected realization as well as their highly-liquid nature. Due to the short-term maturities of these instruments, Level 1 inputs are utilized to estimate the fair value of these financial instruments.

Considerable judgment is necessary to develop estimated fair values of financial assets and liabilities. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize, or be liable for, on disposition of the financial assets and liabilities. As of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, there have been no transfers of financial assets or liabilities between fair value hierarchy levels.

NOTE 4 — REAL ESTATE ASSETS

During the ~~nine~~three months ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ the Company did not acquire any properties.

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~~September 30, 2018 (Unaudited) – (Continued)~~

NOTE 5 — INTANGIBLE LEASE ASSETS

The Company’s intangible lease assets consisted of the following as of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017:~~2018:

September 30, 2018 December 31, 2017
In-place leases, net of accumulated amortization of $827,776 and $480,483, respectively
(with a weighted average life remaining of 10.0 years and 10.8 years, respectively) $ 4,273,656
$ 4,620,949



	March 31, 2019		December 31, 2018
In-place leases, net of accumulated amortization of $1,059,305 and $943,541, respectively
(with a weighted average life remaining of 9.5 years and 9.8 years, respectively)	$	4,042,127	$	4,157,891

Amortization expense for the in-place leases is included in depreciation and amortization in the accompanying condensed consolidated statements of operations. The following table summarizes the amortization expense related to the in-place lease assets for the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 and ~~2017~~2018:

Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 2017
In-place lease amortization $ 115,764
$ 90,558
$ 347,293
$ 271,672



	Three Months Ended March 31,
	2019		2018
In-place lease amortization	$	115,764	$	115,764

As of ~~September 30, 2018,~~March 31, 2019, the estimated amortization expense relating to the intangible lease assets is as follows:


	Amortization Expense		Amortization Expense
	In-Place Lease		In-Place Lease
Remainder of 2018	$	115,765
2019	$	463,058
Remainder of 2019			$	347,294
2020	$	463,058	$	463,058
2021	$	463,058	$	463,058
2022	$	463,058	$	463,058
2023			$	463,058

NOTE 6 — CREDIT FACILITY ~~AND SUBORDINATE PROMISSORY NOTE~~

As of ~~September 30, 2018,~~March 31, 2019, the Company had $~~25.2~~24.2 million of debt outstanding, with a weighted average interest rate of ~~4.4%~~4.7% and a weighted average ~~years~~term to maturity of six months.

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~~1.0~~ ~~years.~~ The following table summarizes the debt balances as of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively, and the debt activity for the ~~nine~~three months ended ~~September 30, 2018:~~March 31, 2019:


			During the Nine Months Ended September 30, 2018									During the Three Months Ended March 31, 2019
	Balance as of December 31, 2017		Debt Issuance		Repayments			Balance as of September 30, 2018		Balance as of December 31, 2018		Debt Issuance		Repayments		Balance as of March 31, 2019
Credit facility	$	31,975,000	$	—	$	(6,800,000	)	$	25,175,000	$	24,175,000	$	—	$	—	$	24,175,000
Subordinate promissory note	1,600,000		2,200,000		(3,800,000		)	—
Total debt	$	33,575,000	$	2,200,000	$	(10,600,000	)	$	25,175,000	$	24,175,000	$	—	$	—	$	24,175,000

Credit Facility

As of ~~September 30, 2018,~~March 31, 2019, the Company had $~~25.2~~24.2 million of debt outstanding under its secured credit facility (the “Credit Facility”) with JPMorgan Chase Bank, N.A. (“JPMorgan Chase”), as administrative agent, and the lenders under the credit agreement (as amended, the “Credit Agreement”), that provides for borrowings of up to $100.0 million in revolving loans (the “Revolving Loans”). ~~The~~During the three months ended March 31, 2019, the Company reduced the borrowing commitment on its Credit Facility from $100.0 million to $35.0 million. With respect to the $24.2 million of Revolving Loans ~~mature~~maturing on September 23, ~~2019; however,~~2019, the Company ~~may elect~~expects to extend the maturity date, ~~of such loans for up to two successive 12-month periods,~~ subject to satisfying certain conditions contained in the Credit Agreement. These conditions include providing notice of the election and paying an extension fee of 0.2% of the maximum amount of the Revolving Loans.

Depending upon the type of loan specified and overall leverage ratio, the Credit Facility bears interest at (i) the one-month, two-month, three-month or six-month London Interbank Offered Rate (“LIBOR”) multiplied by the statutory reserve rate (the “Eurodollar Rate”) plus an interest rate spread ranging from 2.20% to 2.45%; or (ii) a base rate ranging from 1.20% to 1.45%, plus the greater of: (a) JPMorgan Chase’s Prime Rate (as defined in the Credit Agreement); (b) the Federal Funds Effective Rate (as defined in the Credit Agreement) plus 0.50%; or (c) the one-month LIBOR multiplied by the statutory reserve rate plus 1.0%. As of ~~September 30, 2018,~~March 31, 2019, the Revolving Loans outstanding totaled $~~25.2~~24.2 million at a weighted average interest rate of ~~4.4%~~4.7%. The Company had $~~74.8~~10.8 million in unused capacity, subject to borrowing availability, as of ~~September 30, 2018.~~March 31, 2019.

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2018 (Unaudited) – (Continued)~~

The Credit Agreement contains provisions with respect to covenants, events of default and remedies customary for facilities of this nature. In particular, the Credit Agreement requires the Company to maintain a minimum consolidated net worth greater than or equal to 75% of the equity issued from the date of the Credit Agreement, a leverage ratio no greater than 60%, and a fixed charge coverage ratio equal to or greater than 1.50. The Company believes it was in compliance with the financial covenants of the Credit Agreement as of~~September 30, 2018~~.

On September 23, 2016, the Company entered into a $30.0 million subordinate, unsecured, revolving line of credit with VEREIT OP (the “Subordinate Promissory Note”). The Subordinate Promissory Note bore interest at a rate per annum equal to the sum of (a) one-month LIBOR, (b) the Credit Facility Margin (as defined in the Subordinate Promissory Note) and (c) 1.75%, with accrued interest payable monthly in arrears and principal due upon maturity. No amounts were outstanding under the Subordinate Promissory Note, which matured and expired on September 30, 2018. No financing coordination fees were paid to our advisor or its affiliates in connection with the Subordinate Promissory Note.

~~Liquidity and Financial Condition — The Company’s condensed consolidated financial statements as of September 30, 2018 and December~~ March 31, 2017, have been prepared assuming that the Company will continue its operations as a going concern. The Company believes cash on hand, net cash provided by operations and proceeds from the Offering will be sufficient to meet its obligations as they become due in the ordinary course of business for at least 12 months following the date these financial statements are issued. However, this evaluation assumes continued positive cash flows and the ability to extend the maturity of or refinance the Revolving Loans maturing September 23, 2019. ~~The Company expects to extend the maturity date of the Revolving Loans through~~ ~~September 23, 2020, subject to lender approval~~ and payment of an extension fee of 0.2% of the maximum amount of the Revolving Loans. The Company is in its start-up phase and dependent on raising capital to meet its capital requirements, including property acquisitions, stockholder distributions and repayment of maturing debt.

Maturities

The following table summarizes the scheduled aggregate principal repayments for the Company’s outstanding debt as of ~~September 30, 2018:~~

March 31, 2019:


		Principal Repayments			Principal Repayments
Remainder of 2018		$	—
2019		25,175,000
Remainder of 2019				Remainder of 2019	$	24,175,000
2020	2020	—		2020	—
2021	2021	—		2021	—
2022	2022	—		2022	—
2023				2023	—
Thereafter	Thereafter	—		Thereafter	—
Total	Total	$	25,175,000	Total	$	24,175,000

NOTE 7 — COMMITMENTS AND CONTINGENCIES

Litigation

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

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March 31, 2019 (Unaudited) – (Continued)

Environmental Matters

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

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~~COLE OFFICE & INDUSTRIAL REIT (CCIT III), INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2018 (Unaudited) – (Continued)~~

NOTE 8 — RELATED-PARTY TRANSACTIONS AND ARRANGEMENTS

The Company has incurred, and will continue to incur, commissions, fees and expenses payable to CCI III ~~Advisors~~Management and certain of its affiliates in connection with the Offering and the acquisition, management and disposition of its assets.

Selling commissions and dealer manager fees

In connection with the primary portion of the Offering, which was terminated on December 31, 2018, CCO Capital, the Company’s dealer manager, which is affiliated with CCI III ~~Advisors, receives~~Management, received selling commissions of up to 7.0% and 3.0% of gross offering proceeds from the primary portion of the Offering for Class A Shares and Class T Shares, respectively. CCO Capital ~~reallows~~reallowed 100% of selling commissions earned to participating broker-dealers. In addition, ~~CCO Capital receives~~ 2.0% of gross offering proceeds from the primary portion of the Offering for both Class A Shares and Class T Shares was paid to CCO Capital as a dealer manager fee. CCO Capital, in its sole discretion, ~~may reallow~~reallowed all or a portion of its dealer manager fee to participating broker-dealers. No selling commissions or dealer manager fees are paid to CCO Capital or other participating broker-dealers with respect to shares sold pursuant to the DRIP.

Organization and offering expenses

All other organization and offering expenses associated with the sale of the Company’s common stock (excluding selling commissions, dealer manager fees and distribution and stockholder servicing fees) ~~are~~were paid by CCI III ~~Advisors~~Management or its affiliates and ~~are~~were reimbursed by the Company up to 1.0% of aggregate gross offering proceeds, including proceeds from sales of shares under the DRIP. ~~A portion of the other organization and offering expenses may be considered to be underwriting compensation.~~ As of ~~September 30, 2018,~~March 31, 2019, CCI III ~~Advisors~~Management had paid organization and offering expenses in excess of the 1.0% of aggregate gross offering proceeds in connection with the Offering. These excess amounts were not included in the condensed consolidated financial statements of the Company because such amounts were not a liability of the Company as they exceeded 1.0% of gross proceeds from the Offering. ~~As the Company raises additional proceeds from~~Since the Offering has been terminated, these excess amounts ~~may become payable.~~will not be paid.

Distribution and stockholder servicing fees

The Company pays CCO Capital a distribution and stockholder servicing fee for Class T Shares that, isprior to the Board’s determination of the estimated per share NAV, was calculated on a daily basis in an amount equal to 1/365th of 1.0% of the purchase price per share ~~(or, once reported, the amount of the Company’s estimated per share net asset value)~~ of the Class T Shares sold in the primary portion of the Offering. Commencing on February 19, 2019, the distribution and stockholder servicing fee for Class T Shares is calculated on a daily basis in an amount equal to 1/365th of 1.0% of the per share NAV. The distribution and stockholder servicing fee is paid monthly in arrears from cash flow from operations or, if the Company’s cash flow from operations is not sufficient to pay the distribution and stockholder servicing fee, from borrowings in anticipation of future cash flow. An estimated liability for future distribution and stockholder servicing fees payable to CCO Capital iswas recognized at the time each Class T Share iswas sold and included in due to affiliates in the condensed consolidated balance sheets with a corresponding decrease to capital in excess of par value. The Company will cease paying the distribution and stockholder servicing fee with respect to Class T Shares at the earliest of (i) the end of the month in which the total distribution and stockholder servicing fees paid by a stockholder within his or her individual account would be equal to 4.0% of the stockholder’s total gross investment amount at the time of the purchase of the primary Class T Shares held in such account, or a lower limit agreed upon between the Company’s dealer manager and the participating broker-dealer at the time such Class T Shares were sold; (ii) the date on which the aggregate underwriting compensation from all sources equals 10.0% of the gross proceeds from the aggregate sale of the Class A Shares and Class T Shares in the Offering, excluding proceeds from sales pursuant to the DRIP; (iii) the fourth anniversary of the last day of the month in which the Offering (excluding the offering of shares pursuant to the DRIP) terminates; (iv) the date such Class T Share is no longer outstanding; and (v) the date the Company effects a liquidity event. CCO Capital may, in its discretion, reallow to participating broker-dealers all or a portion of the distribution and stockholder servicing fee for services that such participating broker-dealers

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019 (Unaudited) – (Continued)

perform in connection with the distribution of Class T Shares. At the time the Company ceases paying the distribution and stockholder servicing fee with respect to an outstanding Class T Share pursuant to the provisions above, such Class T Share will convert into a number of Class A Shares (including any fractional shares) with an equivalent net asset value as such Class T Share. The Company cannot predict when this will occur. No distribution and stockholder servicing fees are paid to CCO Capital or other participating broker-dealers with respect to shares sold pursuant to the DRIP.

~~Acquisition-related fees and expenses~~

The Company pays CCI III Advisors or its affiliates acquisition fees of up to 2.0% of: (i) the contract purchase price of each property or asset the Company acquires; (ii) the amount paid in respect of the development, construction or improvement of each asset the Company acquires; (iii) the purchase price of any loan the Company acquires; and (iv) the principal amount of any loan the Company originates. In addition, the Company reimburses CCI III Advisors or its affiliates for acquisition-related expenses incurred in the process of acquiring a property or the origination or acquisition of a loan, so long as the total

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~~COLE OFFICE & INDUSTRIAL REIT (CCIT III), INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2018 (Unaudited) – (Continued)~~

acquisition fees and expenses relating to the transaction do not exceed 6.0% of the contract purchase price, unless otherwise approved by a majority of the Company’s board of directors, including a majority of the independent directors, as commercially competitive, fair and reasonable to the Company. During the three and nine months ended September 30, 2018 and 2017, no~~acquisition fees or expenses were incurred for any such services provided by CCI III Advisors or its affiliates.~~

Advisory fees and expenses

Pursuant to the advisory agreement, the Company pays CCI III ~~Advisors~~Management a monthly advisory fee based upon the Company’s monthly average asset value, which is equal to the following amounts: (i) an annualized rate of 0.75% paid on the Company’s average asset value that is between $0 and $2.0 billion; (ii) an annualized rate of 0.70% paid on the Company’s average asset value that is between $2.0 billion and $4.0 billion; and (iii) an annualized rate of 0.65% paid on the Company’s average asset value that is over $4.0 billion. During the three ~~and nine~~ months ended ~~September 30, 2018,~~March 31, 2019, these advisory fees exceeded the expense limit of the greater of 2.0% of the average invested assets or 25.0% of net income (see operating expenses below) and were not recognized in the condensed consolidated financial statements of the Company because such amounts were not contractually payable by the Company. As of ~~September 30, 2018, $482,000~~March 31, 2019, $671,000 of advisory fees exceeded such expense limit. AsDuring the ~~Company raises additional proceeds from the Offering and acquires additional properties,~~three months ended March 31, 2019, CCI III Management waived its right to receive these amounts, ~~may become payable~~even if future operating expenses are below the expense limits. Accordingly, the Company did not reimburse CCI III Management for any such expenses for the years ended December 31, 2018, 2017 and 2016. Additionally, CCI III Management waived its right to receive a monthly advisory fee during the remainder of the year ending December 31, 2019.

Operating expenses

The Company reimburses CCI III ~~Advisors~~Management or its affiliates for the operating expenses they paid or incurred in connection with advisory and administrative services provided to the Company, subject to the limitation that the Company will not reimburse CCI III ~~Advisors~~Management or its affiliates for any amount by which the operating expenses (including the advisory fee) at the end of the four preceding fiscal quarters exceed the greater of (i) 2.0% of average invested assets, or (ii) 25.0% of net income, excluding any additions to reserves for depreciation ~~bad debts~~ or other similar non-cash reserves and excluding any gain from the sale of assets for that period. The Company will not reimburse CCI III ~~Advisors~~Management or its affiliates for compensation paid to the Company’s executive officers or employees of CCI III ~~Advisors~~Management in connection with the services for which CCI III ~~Advisors~~Management or its affiliates receive an acquisition fee, financing coordination fee or disposition fee. During the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ no operating expenses were reimbursed by the Company. During the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ CCI III ~~Advisors~~Management paid or reimbursed the Company for operating expenses in excess of the greater of 2.0% of average invested assets or 25.0% of net income, which were not recognized in the condensed consolidated financial statements of the Company because such amounts were not contractually payable by the Company. As of ~~September 30, 2018, $1.4~~March 31, 2019, $1.7 million of operating expenses exceeded such expense limit. AsAccordingly, the Company ~~raises additional proceeds from~~did not reimburse CCI III Management for any such expenses for the ~~Offering~~three months ended March 31, 2019 and ~~acquires additional properties,~~2018. However, these amounts may become ~~payable.~~payable if future operating expenses are below the expense limits.

Financing coordination fees

If CCI III ~~Advisors~~Management provides services in connection with the origination, assumption or refinancing of any debt to acquire properties or to make other permitted investments, the Company will pay CCI III ~~Advisors~~Management a financing coordination fee equal to 1.0% of the amount available and/or outstanding under such financing. However, CCI III ~~Advisors~~Management will not be entitled to a financing coordination fee on any debt where CCI III ~~Advisors~~Management previously received a fee unless (i) the maturity date of the refinanced debt was scheduled to occur less than one year after the date of the refinancing and the new loan has a term of at least five years or (ii) the new loan is approved by a majority of the independent directors; and provided, further, that no financing coordination fee will be paid in connection with loans advanced by an affiliate of CCI III ~~Advisors.~~Management. During the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ no financing coordination fees were incurred for any such services provided by CCI III ~~Advisors~~ Management or its affiliates.

Disposition fees

If CCI III ~~Advisors~~Management or its affiliates provide a substantial amount of services (as determined by a majority of the Company’s independent directors) in connection with the sale of one or more properties (or the Company’s entire portfolio), the Company will pay CCI III ~~Advisors~~Management or its affiliates a disposition fee in an amount equal to up to one-half of the real estate or brokerage commission paid by the Company to third parties on the sale of such properties, not to exceed 1.0% of the contract price of the properties sold; provided, however, in no event may the total disposition fees paid to CCI III ~~Advisors,~~Management, its affiliates, and unaffiliated third parties, exceed the lesser of the customary competitive real estate commission or an amount equal to 6.0% of the contract sales price. In addition, if CCI III ~~Advisors~~Management or its affiliates provides a substantial amount of

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COLE OFFICE & INDUSTRIAL REIT (CCIT III), INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019 (Unaudited) – (Continued)

services (as determined by a majority of the Company’s independent directors) in connection with the sale of one or more assets other than properties, the Company may separately compensate CCI III ~~Advisors~~Management or its affiliates at such rates and in such amounts as the ~~Company’s board of directors,~~Board, including a majority of the independent directors, and CCI III ~~Advisors~~Management agree upon, not to exceed an amount

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~~COLE OFFICE & INDUSTRIAL REIT (CCIT III), INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2018 (Unaudited) – (Continued)~~

equal to 1.0% of the contract price of the assets sold. During the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ no disposition fees were incurred for any such services provided by CCI III ~~Advisors~~ Management or its affiliates.

Subordinated performance fees

The Company will pay a subordinated performance fee under one of the following alternative events: (1) if the Company’s shares are listed on a national securities exchange, CCI III ~~Advisors,~~Management, or its affiliates, will be entitled to a subordinated performance fee equal to 15.0% of the amount, if any, by which (i) the market value of the Company’s outstanding stock plus distributions paid by the Company prior to listing, exceeds (ii) the sum of the total amount of capital raised from stockholders and the amount of distributions necessary to generate a 6.0% annual cumulative, non-compounded return to stockholders; (2) if the Company is sold or its assets are liquidated, CCI III ~~Advisors~~Management will be entitled to a subordinated performance fee equal to 15.0% of the net sale proceeds remaining after stockholders have received, from regular distributions plus special distributions paid from proceeds of such sale, a return of their net capital invested and a 6.0% annual cumulative, non-compounded return; or (3) upon termination of the advisory agreement, CCI III ~~Advisors~~Management may be entitled to a subordinated performance fee similar to the fee to which it would have been entitled had the portfolio been liquidated (based on an independent appraised value of the portfolio) on the date of termination. During the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 and ~~2017,~~2018, no subordinated performance fees were incurred related to any such events.

The Company incurred commissions, fees and expense reimbursements as shown in the table below for services provided by CCI III ~~Advisors~~Management and its affiliates related to the services described above during the periods indicated:


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2018		2017		2018		2017		2019		2018
Selling commissions	$	155,630	$	224,114	$	466,239	$	667,858	$	23,501	$	98,575
Dealer manager fees	$	73,795	$	106,715	$	180,209	$	270,510	$	7,000	$	34,768
Distribution and stockholder servicing fees⁽¹⁾	$	16,914	$	6,162	$	47,935	$	8,344	$	16,198	$	15,148
Organization and offering costs	$	38,497	$	54,095	$	93,982	$	138,665	$	5,909	$	18,443
Advisory fees	$	—	$	—	$	—	$	60,565

______________________

(1)

Amounts are calculated for the respective ~~period~~periods in accordance with the dealer manager agreement and exclude the estimated liability for future distribution and stockholder servicing fees payable to CCO Capital of $~~202,000~~173,000, and $214,000 for the three months ended March 31, 2019 and 2018, respectively, which is included in due to affiliates in the condensed consolidated balance sheets with a corresponding decrease to capital in excess of par value.

~~Services Agreement~~

~~Pursuant~~Due to the Services Agreement, VEREIT OP, which is affiliated with one of the Company’s directors, is obligated to provide certain services to CCO Group and to the Company, including operational real estate support. The Company is not a party to the Services Agreement. See Note 9 — ~~Economic Dependency for a discussion of the Services Agreement.~~

~~Due to/from~~ Affiliates

As of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, $~~203,000~~192,000 and $~~278,000~~188,000, respectively, was recorded for services and expenses incurred, but not yet reimbursed to CCI III ~~Advisors~~Management or its affiliates. The amounts are primarily for future distribution and stockholder servicing fees and for operating expenses. ~~The Company incurred $53,000 and $262,000, respectively, of interest expense related to the Subordinate Promissory Note during the~~ ~~nine months ended~~ September 30, 2018 and the year ended December 31, 2017, of which $10,000 in interest had been incurred but not yet paid as of December 31, 2017. This amount was included in due to affiliates as of December 31, 2017 in the condensed consolidated balance sheet for such period.

As of December 31, 2017, $1,000 was due from CCI III Advisors or its affiliates related to amounts received by affiliates of the advisor which were due to the Company. No such amounts were due from CCI III Advisors or its affiliates as of September 30, 2018.

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~~COLE OFFICE & INDUSTRIAL REIT (CCIT III), INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~September 30, 2018 (Unaudited) – (Continued)~~

NOTE 9 — ECONOMIC DEPENDENCY

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

Services Agreement

~~Pursuant to~~VEREIT Operating Partnership, L.P. (“VEREIT OP”), a former affiliated entity of the ~~Services Agreement, VEREIT OP is~~Company’s sponsor, was obligated to provide certain services to CCO Group and to the Company ~~including operational real estate support. VEREIT OP is obligated to provide such services~~(the “Services Agreement”) through March 31, 2019 (or, if later, the date of the last government filing other than a tax filing made by ~~any of~~ the ~~Cole REITs~~Company, CCPT IV, CCPT V, CCIT II and/or CIM Income NAV with respect to its 2018 fiscal year) (the “Initial Services Term”), and is obligated to provide consulting and

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COLE OFFICE & INDUSTRIAL REIT (CCIT III), INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019 (Unaudited) – (Continued)

research services through December 31, 2023 as requested by CCO Group, LLC.

~~Despite the indirect change of ownership and control~~ Prior to March 31, 2019, substantially all of the ~~Company’s advisor, dealer manager, property manager and sponsor, the Company expects~~services that were provided by VEREIT OP during the Initial Services Term, ~~of the Services Agreement, the~~including but not limited to any advisory, dealer manager and property management services, were transitioned to, and are provided directly by, our sponsor, advisor, dealer manager or an affiliate thereof.

NOTE 10 — STOCKHOLDERS’ EQUITY

Equity-Based Compensation

On August 9, 2018, the Board approved the adoption of the Cole Office & Industrial REIT (CCIT III), Inc. 2018 Equity Incentive Plan (the “Plan”), under which 400,000 of the Company’s common shares were reserved for issuance and share awards of 391,000 are available for future grant as of March 31, 2019. On October 1, 2018, the Company ~~receives will continue without any material changes in personnel (except as supplemented by the management oversight~~granted awards of ~~CIM personnel) or material change in service procedures. During the Initial Services Term~~approximately 3,000 restricted Class A Shares to each of the ~~Services Agreement, CCO Group, LLC intends to evaluate and effectuate an appropriate transition~~independent members of ~~VEREIT OP’s services~~the Board (approximately 9,000 restricted shares in aggregate) under the ~~Services Agreement~~Plan, which fully vest on October 1, 2019 based on one year of continuous service. As of March 31, 2019 and December 31, 2018, none of the restricted Class A Shares had vested or been forfeited. The fair value of the Company’s share awards is determined using the Company’s NAV per share on the date of grant. Compensation expense related to ~~other CIM affiliates or third parties with~~these restricted Class A Shares is recognized over the ~~goal~~vesting period. The Company recorded compensation expense of ~~ensuring continuity~~$21,000 for the three months ended March 31, 2019 related to these restricted Class A Shares included in general and ~~minimizing disruption.~~administrative expenses on the accompanying condensed consolidated statements of operations. As of March 31, 2019, there was $41,000 of total unrecognized compensation expense related to these restricted Class A Shares, which will be recognized ratably over the remaining period of service prior to October 1, 2019.

NOTE 1011 — ~~OPERATING~~ LEASES

The Company’s real estate assets are leased to tenants under operating leases for which the terms, expirations and ~~expirations~~extension options vary. The Company’s operating leases do not convey to the lessee the right to purchase the underlying asset upon expiration of the lease period. To determine whether a contract contains a lease, the Company carefully reviews contracts to determine if the agreement conveys the right to control the use of an asset. The Company elected to apply the practical expedient for all of the Company’s leases to account for the lease and non-lease components as a single, combined operating lease component under ASC 842. Non-lease components primarily consist of maintenance services, including CAM, real estate taxes, insurance and utilities paid for by the lessor but consumed by the lessee. Non-lease components are considered to be variable rental and other property income and are recognized in the period incurred.

As of ~~September 30, 2018,~~March 31, 2019, the leases had a ~~remaining~~ weighted-average ~~lease~~remaining term of ~~9.9~~9.4 years. ~~The~~Certain leases include provisions to extend the lease ~~term,~~agreements, options for early termination after paying a specified penalty, rights of first refusal to purchase the property at competitive market rates, and other negotiated terms and conditions. The Company retains substantially all of the risks and benefits of ownership of the real estate assets leased to ~~the~~ tenants. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

~~The~~As of March 31, 2019, the future minimum rental income from the Company’s real estate assets under ~~the~~ non-cancelable operating leases, assuming no exercise of renewal options ~~as of September 30, 2018,~~for the succeeding five fiscal years and thereafter, was as follows:


	Future Minimum Rental Income		Future Minimum Rental Income
Remainder of 2018	$	1,083,691
2019	3,808,708
Remainder of 2019			$	2,865,047
2020	3,878,462		3,878,462
2021	3,756,969		3,756,969
2022	3,829,450		3,829,450
2023			3,903,333
Thereafter	22,784,446		18,881,113
Total	$	39,141,726	$	37,114,374

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COLE OFFICE & INDUSTRIAL REIT (CCIT III), INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019 (Unaudited) – (Continued)

As previously disclosed in our 2018 Annual Report on Form 10-K and under the previous lease accounting standard, Topic 840, the following table summarizes the future minimum rental income from the Company’s real estate assets under non-cancelable operating leases, assuming no exercise of renewal options for the succeeding five fiscal years and thereafter, as of December 31, 2018:



Year Ending December 31,	Future Minimum Rental Income
2019	$	3,808,708
2020	3,878,462
2021	3,756,969
2022	3,829,450
2023	3,903,333
Thereafter	18,881,112
Total	$	38,058,034

Rental and other property income during the three months ended March 31, 2019 consisted of the following:



	Three Months Ended March 31,
	2019		2018
Fixed rental and other property income	$	972,002	$	972,002
Variable rental and other property income	163,873		129,692
Total rental and other property income	$	1,135,875	$	1,101,694

NOTE 1112 — SUBSEQUENT EVENTS

The following events occurred subsequent to March 31, 2019:

Redemption of Shares of Common Stock

Subsequent to March 31, 2019, the Company redeemed approximately 21,000 shares pursuant to the Company’s share redemption program for $184,000 (at an average price per share of $8.60).

Deregistration of the Offering

On March 28, 2019, the Company registered an aggregate of $4,300,000 in shares of its common stock for the DRIP Offering pursuant to a Registration Statement on Form S-3 filed with the SEC, which was declared effective on April 5, 2019. The Company ~~evaluated events subsequent to September 30, 2018, and concluded that no subsequent events have occurred that would require recognition or disclosure~~ceased issuing shares in the ~~condensed consolidated unaudited financial statements.~~Offering on April 30, 2019. The unsold Class A Shares and Class T Shares in the Offering of $3.5 billion in the aggregate were subsequently deregistered. The Company continues to issue Class A Shares and Class T Shares pursuant to the DRIP Offering.

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

The following discussion and analysis should be read in conjunction with the accompanying condensed consolidated financial statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q. We make statements in this section that are forward-looking statements within the meaning of the federal securities laws. Certain risks may cause our actual results, performance or achievements to differ materially from those expressed or implied by the following discussion. For a complete discussion of such risk factors, see Item 1A — Risk Factors of this Quarterly Report on Form 10-Q and the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018. Capitalized terms used herein, but not otherwise defined, shall have the meaning ascribed to those terms in “Part I — Financial Information” of this Quarterly Report on Form 10-Q, including the notes to the condensed consolidated financial statements contained therein, and the terms “we,” “us,” “our” and the “Company” refer to Cole Office & Industrial REIT (CCIT III), Inc.

Forward-Looking Statements

This Quarterly Report on Form 10-Q includes “forward-looking statements” (within the meaning of the federal securities laws, Section 27A of the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that reflect our expectations and projections about our future results, performance, prospects and opportunities. We have attempted to identify these forward-looking statements by the use of words such as “may,” “will,” “seek,” “expects,” “anticipates,” “believes,” “targets,” “intends,” “should,” “estimates,” “could,” “continue,” “assume,” “projects,” “plans” or similar expressions. These forward-looking statements are based on information currently available to us and are subject to a number of known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. These factors include, among other things, those discussed below. We intend for all such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act and Section 21E of the Exchange Act, as applicable by law. We do not undertake to publicly update or revise any forward-looking statements, whether as a result of changes in underlying assumptions or new information, future events or otherwise, except as may be required to satisfy our obligations under federal securities law. The forward-looking statements should be read in light of the risk factors identified in Item 1A — Risk Factors of this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

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 of properties.~~dispositions.

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 achieve profitability.

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 remain qualified as a REIT for U.S. federal income tax purposes.

Our sponsor may be unable to fully reestablish the financial network which previously supported real estate investment trusts sponsored by our sponsor, and/or regain the prior level of transaction and capital raising volume achieved by such real estate investment trusts.

~~We are subject to risks that may affect capital raising volume as a result of increased regulatory changes.~~

~~Our~~ advisor has the right to terminate the advisory agreement upon 60 days’ written notice without cause or penalty.

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Definitions

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

The phrase “annualized rental income” refers to the straight-line rental revenue under our leases on operating properties owned as of the respective reporting date, which includes the effect of rent escalations and any tenant concessions, such as free rent, and excludes ~~any bad debt allowances and~~ any contingent rent, such as percentage rent. Management uses annualized rental income as a basis for tenant, industry and geographic concentrations and other metrics within the portfolio. Annualized rental income is not indicative of future performance.

Under a “net lease,” the tenant occupying the leased property (usually as a single tenant) does so in much the same manner as if the tenant were the owner of the property. The tenant generally agrees that it will either have no ability or only limited ability to terminate the lease or abate rent prior to the expiration of the term of the lease as a result of real estate driven events such as casualty, condemnation or failure by the landlord to fulfill its obligations under the lease. There are various forms of net leases, most typically classified as either triple-net or double-net. Triple-net leases typically require the tenant to pay all expenses associated with the property (e.g., real estate taxes, insurance, maintenance and repairs, including roof, structure and parking lot). Double-net leases typically hold the landlord responsible for the capital expenditures for the roof and structure, while the tenant is responsible for all lease payments and remaining operating expenses associated with the property (e.g., real estate taxes, insurance and maintenance).

Overview

We were formed on May 22, 2014, and we elected to be taxed, and currently qualify, as a REIT for federal income tax purposes commencing with our taxable year ended December 31, 2017. We commenced our principal operations on September 22, 2016 when we satisfied the conditions of the escrow agreement regarding the minimum offering requirement and issued approximately 275,000 shares of common stock in the Offering. We have no paid employees and are externally advised and ~~managed~~operated by CCI III Advisors. On February 1, 2018, the Transaction, as discussed in Note 1 — Organization and Business to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q, was completed. As a result of the Transaction,Management. CIM indirectly owns and/or controls CCI III ~~Advisors;~~Management; our dealer manager, CCO Capital; our property manager, CREI Advisors; and CCO Group.

~~As part~~Following the acquisition of ~~the Transaction, pursuant~~CCO Group, LLC in February 2018, pursuant to the Services Agreement, VEREIT OP iswas obligated to provide certain services to CCO Group and to us ~~including operational real estate support. VEREIT OP is obligated to provide such services~~ through March 31, 2019 (or, if later, the date of the last government filing other than a tax filing made by ~~any of the Cole REITs~~us, CCPT IV, CCPT V, CCIT II and/or CIM Income NAV with respect to its 2018 fiscal year) and is obligated to provide consulting and research services through December 31, 2023 as requested by CCO Group, LLC.

~~Despite~~ Prior to March 31, 2019, substantially all of the ~~indirect change of ownership and control of our advisor, dealer manager, property manager and sponsor, we expect that,~~services provided by VEREIT OP during the Initial Services Term, ~~of the Services Agreement, the~~including but not limited to any advisory, dealer manager and property management services, were transitioned to, and are provided directly by, our sponsor, advisor, dealer manager or an affiliate thereof.

Effective December 31, 2018, the primary portion of the Offering was terminated, but we ~~receive~~continued to issue Class A Shares and Class T Shares pursuant to the DRIP portion of the Offering. On March 28, 2019, we registered an aggregate of $4,300,000 of Class A Shares and Class T Shares for the DRIP Offering pursuant to the S-3 Registration Statement filed with the SEC, which was declared effective on April 5, 2019. We ceased issuing shares in the Offering on April 30, 2019. The unsold Class A Shares and Class T Shares in the Offering of $3.5 billion in the aggregate were subsequently deregistered. We began to issue Class A Shares and Class T Shares under the DRIP Offering on May 1, 2019 and will continue without any material changes in personnel (except as supplemented by the management oversight of CIM personnel) or material change in service procedures. During the Initial Services Term of the Services Agreement, CCO Group, LLC intends to ~~evaluate and effectuate an appropriate transition of VEREIT OP’s services~~issue shares under the ~~Services Agreement to other CIM affiliates or third parties with the goal of ensuring continuity and minimizing disruption.~~

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

Our operating results and cash flows are primarily influenced by rental and other property income from our commercial properties, interest expense on our indebtedness, and acquisition and operating expenses. ~~Rental income accounted for~~ ~~88%~~ ~~of total revenue for both the three and nine months ended September 30, 2018, and 43% and 66% of total revenue for the three and nine months ended September 30, 2017, respectively.~~ As 100% of our rentable square feet was under lease as of ~~September 30, 2018,~~March 31, 2019, with a weighted average remaining lease term of ~~9.9~~9.4 years, we believe our exposure to changes in commercial rental rates on our portfolio is substantially mitigated, except for vacancies caused by tenant bankruptcies or other factors. Our advisor regularly

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monitors the creditworthiness of each of our tenants by reviewing each tenant’s financial results, any available credit rating agency reports on the tenant or guarantor, the operating history of the property with such tenant, the tenant’s market share and track record within its industry segment, the general health and outlook of the tenant’s industry segment, and other information for changes and possible trends. If our advisor identifies significant changes or trends that may adversely affect the creditworthiness of a tenant, it will gather a more in-depth knowledge of the tenant’s financial condition and, if necessary, attempt to mitigate the tenant credit risk by evaluating the possible sale of the property, or identifying a possible replacement tenant should the current tenant fail to perform on the lease.

Portfolio Information

As of ~~September 30, 2018,~~March 31, 2019, we owned two properties comprising approximately 391,000 rentable square feet of income-producing necessity corporate office and industrial space located in two states, which were 100% leased and had a weighted

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average remaining lease term of ~~9.9~~9.4 years. As we have only acquired two properties, a discussion of same store sales is not considered meaningful and as such is not included in the results of operations.

Results of Operations

We are not aware of any material trends or uncertainties, other than national economic conditions affecting real estate in general, that may reasonably be expected to have a material impact on our results from the acquisition, management and operations of properties other than those listed in the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2018.

Our results of operations are influenced by the timing of our acquisitions and the operating performance of our real estate assets. The following table provides summary information about our results of operations for the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 and ~~2017:~~2018:


	Three Months Ended September 30,						2018 vs 2017 Increase (Decrease)				Nine Months Ended September 30,							2018 vs 2017 Increase (Decrease)				Three Months Ended March 31,							2019 vs 2018 Increase (Decrease)
	2018			2017						2018				2017				2018 vs 2017 Increase (Decrease)			2019				2018				2019 vs 2018 Increase (Decrease)
Total revenues	$	1,101,666		$	1,581,290		2018 vs 2017 Increase (Decrease)	$	(479,624	)		$	3,305,027			$	3,065,543		$	239,484
Rental and other property income																						$	1,135,875			$	1,101,694		$	34,181
General and administrative expenses	$	247,961		$	103,507		$	144,454			$	678,758			$	410,359		$	268,399			275,775				205,553			70,222
Property operating expenses	$	3,212		$	2,756		$	456			$	9,913			$	9,165		$	748			5,465				3,489			1,976
Real estate tax expenses	$	126,625		$	903,968		$	(777,343	)		$	379,875			$	1,032,894		$	(653,019	)		158,682				126,625			32,057
Advisory fees and expenses	$	—		$	—		$	—			$	—			$	60,565		$	(60,565	)
Depreciation and amortization	$	478,063		$	358,286		$	119,777			$	1,434,190			$	1,074,858		$	359,332			478,063				478,063			—
Operating income	$	245,805		$	212,773		$	33,032			$	802,291			$	477,702		$	324,589			217,890				287,964			(70,074		)
Interest expense and other, net	$	429,149		$	347,889		$	81,260			$	1,384,477			$	1,168,619		$	215,858			(427,152		)		(480,302		)	(53,150		)
Net loss	$	(183,344	)	$	(135,116	)	$	48,228			$	(582,186	)		$	(690,917	)	$	(108,731	)		(209,262		)		(192,338		)	16,924

Revenues

Our revenue consists primarily of rental and other property income from net leased commercial properties. We also incur certain operating expenses that are subject to reimbursement by our tenants, which results in ~~tenant reimbursement~~additional rental and other property income.

The ~~decrease~~increase in revenue of $~~480,000~~34,000 during the three months ended ~~September 30, 2018,~~March 31, 2019, as compared to the same period in ~~2017,~~2018, was primarily due to ~~a decrease~~an increase in certain operating expenses subject to reimbursement by our ~~tenants, resulting in $130,000 and $907,000 in tenant reimbursement income during the three months ended September 30, 2018 and 2017, respectively. This~~ tenants.~~decrease~~ was partially offset by an increase in rental income due to the acquisition of one additional rental income-producing property acquired subsequent to September 30, 2017. Rental and other property income from net leased commercial properties accounted for ~~88%~~ ~~and 43% of total revenue for the three months endedSeptember 30, 2018 and 2017, respectively.~~

The increase in revenue of $239,000 during the nine months ended September 30, 2018, as compared to the same period in 2017, was primarily due to the acquisition of one additional rental income-producing property acquired subsequent to September 30, 2017. Rental and other property income from net leased commercial properties accounted for 88% and 66% of our total revenues for the nine months ended September 30, 2018 and 2017, respectively. This increase in rental income was partially offset by a decrease in certain operating expenses subject to reimbursement by our tenants resulting in $389,000 in tenant reimbursement income during the nine months ended September 30, 2018, compared to $1.0 million during the same period in 2017.

General and Administrative Expenses

The primary general and administrative expense items are board of directors costs, legal and accounting fees, unused fees on the Credit Facility, ~~board of directors costs, accounting and legal fees~~bank services charges and professional fees.

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The increase in general and administrative expenses of $~~144,000~~70,000 ~~and $268,000~~ during the three ~~and nine~~ months ended ~~September 30, 2018, respectively,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2017,~~2018, was primarily due to an increase in ~~advisor operating expense reimbursements, coupled with increases in bank fees and~~ board of directors costs.

Property Operating Expenses

Property operating expenses such as property repairs, maintenance and property-related insurance include both reimbursable and non-reimbursable property expenses. We are reimbursed by tenants for certain property operating expenses in accordance with the respective lease agreements.

Property operating expenses remained consistent for the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 compared to the same ~~periods~~period in ~~2017.~~2018.

Real Estate Tax Expenses

The ~~decrease~~increase in real estate tax expenses of $~~777,000~~ ~~and $653,000 during the three and nine months ended September 30, 2018, respectively, as compared to the same periods in 2017, was primarily~~ ~~due to decreased tax assessments on one property~~32,000 during the three ~~and nine~~ months ended ~~September 30, 2018.~~

~~Advisory Fees and Expenses~~

Pursuant to the advisory agreement with CCI III Advisors and based upon the amount of our current invested assets, we are required to pay to CCI III Advisors a monthly advisory fee equal to one-twelfth of 0.75% of the average asset value up to $2.0 billion, one-twelfth of 0.70% of the average asset value over $2.0 billion up to $4.0 billion and one-twelfth of 0.65% of the average asset value over $4.0 billion. Additionally, we may be required to reimburse certain expenses incurred by CCI III Advisors in providing such advisory services, subject to limitations as set forth in the advisory agreement.

~~The~~ ~~decrease~~ ~~in advisory fees and expenses of $61,000 during the nine months ended September 30, 2018,~~March 31, 2019, as compared to the same period in ~~2017,~~2018, was primarily due to ~~our~~increased tax assessments on one property during the three months ended March 31, 2019. These tax assessments are reimbursed by the tenant.

Depreciation and Amortization

Depreciation and amortization expenses exceeding the greater of 2.0% of our average invested assets or 25.0% of net income and therefore such excess amount was not recognized and payable; see Note 8 — Related-Party Transactions and Arrangements to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q.

~~There were no advisory fees and expenses paid~~remained consistent for the three months ended September 30, 2018 and 2017 as our expenses exceeded the greater of 2.0% of our average invested assets or 25.0% of net income and therefore such excess amount was not recognized and payable; see Note 8 — Related-Party Transactions and Arrangements to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q.

~~Depreciation and Amortization~~

~~The~~ ~~increase~~ ~~in depreciation and amortization expenses of~~ ~~$120,000~~ ~~and $360,000 during the three and nine months ended September 30, 2018, respectively, as~~March 31, 2019 compared to the same ~~periods~~period in ~~2017, was primarily due~~ ~~to the acquisition of one additional rental income-producing property subsequent to~~ ~~September 30, 2017.~~

~~Interest Expense and Other, Net~~

~~The~~ ~~increase~~ ~~in interest expense and other, net of $81,000 and $216,000 during the three and nine months ended September 30, 2018, respectively, as compared to the same periods in 2017, was primarily due to~~ ~~an increase in the weighted average interest rate to 4.4% as of~~ ~~September 30, 2018, from 3.7% as of September 30, 2017, coupled with an increase in the~~ ~~average aggregate amount of debt outstanding to~~ ~~$25.7 million~~ ~~and $29.7 million during~~ the three and nine months ended September��30, 2018, respectively, compared to an average outstanding debt balance of $22.0 million and $26.3 million for the three and nine months ended September 30, 2017, respectively.

~~Distributions~~

Our board of directors authorized a daily distribution, based on 365 days in the calendar year, of $0.001643836 per Class A Share for stockholders of record of such class of shares as of the close of business on each day of the period commencing on January 1, 2018 and ending on March 31, 2019. Our board of directors authorized a daily distribution on Class T Shares for stockholders of record of such class of shares as of the close of business on each day of the period commencing on January 1, 2018 and ending on March 31, 2019 equal to $0.001643836 per Class T Share, less the per share distribution and stockholder servicing fees that are payable with respect to the Class T Shares (as calculated on a daily basis). As of September 30, 2018, the Company had distributions payable of ~~$142,000~~.2018.

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Interest Expense and Other, Net

The decrease in interest expense and other, net of $53,000 during the three months ended March 31, 2019, as compared to the same period in 2018, was primarily due to a decrease in the average aggregate amount of debt outstanding to $24.2 million during the three months ended March 31, 2019, compared to an average outstanding debt balance of $32.8 million for the three months ended March 31, 2018, respectively. This decrease was partially offset by an increase in the weighted average interest rate to 4.7% as of March 31, 2019, from 4.3% as of March 31, 2018.

Distributions

On a quarterly basis, our Board authorizes a daily distribution for the succeeding quarter. Our Board authorized the following daily distribution amounts per share for the periods indicated below:



Period Commencing	Period Ending	Daily Distribution Amount ⁽¹⁾
September 23, 2016	December 31, 2016	$0.001639344
January 1, 2017	March 31, 2019	$0.001643836
April 1, 2019	September 30, 2019	$0.001369863

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(1)	Less the per share distribution and stockholder servicing fees that are payable with respect to Class T Shares (as calculated on a daily basis).

As of March 31, 2019, we had distributions payable of $159,000.

The following table presents distributions and sources of distributions for the periods ~~indicated below:~~indicated:



	Three Months Ended March 31,
	2019				2018
	Amount		Percent		Amount		Percent
Distributions paid in cash	$	266,228	59	%	$	195,693	65	%
Distributions reinvested	188,763		41	%	105,889		35	%
Total distributions	$	454,991	100	%	$	301,582	100	%
Sources of distributions:
Net cash provided by operating activities ⁽¹⁾	$	402,615	88	%	$	166,534	55	%
Proceeds from issuance of common stock ⁽²⁾	52,376		12	%	135,048		45	%
	$	454,991	100	%	$	301,582	100	%

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Nine Months Ended September 30,
2018 2017
Amount Percent Amount Percent
Distributions paid in cash $ 653,275
63 % $ 275,207
75 %
Distributions reinvested 387,768
37 % 92,227
25 %
Total distributions $ 1,041,043
100 % $ 367,434
100 %
Sources of distributions:
Net cash provided by operating activities ⁽¹⁾
$ 871,236
84 % $ —
— %
Proceeds from issuance of common stock ⁽²⁾
169,807
16 % 367,434
100 %
$ 1,041,043
100 % $ 367,434
100 %


(1)	Net cash provided by operating activities for the ~~nine~~three months ended ~~September 30,~~March 31, 2019 and 2018 was ~~$871,236~~$402,615 and ~~net cash used in operating activities for the nine months ended September 30, 2017 was $13,596.~~$166,534, respectively.

(2)

Prior to the adoption of ASU No. 2017-01,Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”), in April 2017, which clarifies the definition of a business by adding guidance to assist entities in evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses, we treated our real estate acquisition-related fees and expenses as funded by proceeds from the ~~Initial~~ Offering, including proceeds from the DRIP. Therefore, for consistency, proceeds from the issuance of common stock used as a source of distributions for the ~~nine~~three months ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~ includes the amount by which real estate acquisition-related fees and expenses have reduced net cash flows from operating activities in prior periods.

Share Redemptions

Our share redemption program permits our stockholders to sell their shares back to us after they have held them for at least one year, subject to certain conditions and limitations. We may waive the one-year holding period requirement upon request due to a stockholder’s death or bankruptcy or other exigent circumstances as determined by our advisor. In addition, ~~our board of directors~~the Board may choose to amend the terms of, suspend or terminate our share redemption program at any time upon 30 days’ notice. Funding for the redemption of shares will generally be limited to the net proceeds we receive from the sale of shares under the DRIP, net of shares redeemed to date. We will not redeem in excess of 5.0% of the weighted average number of shares outstanding during the trailing 12 months prior to the end of the fiscal quarter for which the redemptions are being paid. In addition, we will generally limit quarterly redemptions to approximately 1.25% of the weighted average number of shares outstanding during the trailing 12-month period ending on the last day of the fiscal quarter for which the redemptions are being paid, and to the net proceeds we receive from the sale of shares in the respective quarter under the DRIP. In addition, ~~our board~~the Board

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may choose to amend the terms of, suspend or terminate our share redemption program at any time upon 30 days’ notice. We will not redeem in excess of 5.0% of the weighted average number of shares outstanding during the trailing 12 months prior to the end of the fiscal quarter for which the redemptions are being paid. Any of the foregoing limits might prevent us from accommodating all redemption requests made in any fiscal quarter or in any 12-month period. During the ~~nine~~three months ended ~~September 30, 2018,~~March 31, 2019, we received valid redemption requests under our share redemption program totaling approximately ~~5,300~~21,000 shares, all of which we redeemed ~~as of September 30, 2018~~subsequent to March 31, 2019 for ~~$48,000~~$184,000 at a redemption price of ~~$9.00~~$8.60 per share. A valid redemption request is one that complies with the applicable requirements and guidelines of our share redemption program then in effect.

Liquidity and Capital Resources

General

We expect to utilize funds from the ~~Offering~~Offerings and future proceeds from secured or unsecured financing to complete future property acquisitions and for general corporate uses. Our operating cash flows will primarily be provided by the rental and other property income received from leased properties. As of ~~September 30, 2018,~~March 31, 2019, we had raised $~~29.1~~31.1 million of gross proceeds from the Offering before organization and offering costs, selling commissions and dealer manager fees of $~~2.1~~2.3 million.

On March 28, 2019, we registered an aggregate of $4,300,000 in shares of its common stock for the DRIP Offering pursuant to a Registration Statement on Form S-3 filed with the SEC, which was declared effective on April 5, 2019. We ceased issuing shares in the Offering on April 30, 2019. The unsold Class A Shares and Class T Shares in the Offering of $3.5 billion in the aggregate were subsequently deregistered. We began to issue Class A Shares and Class T Shares under the DRIP Offering on May 1, 2019 and will continue to issue shares under the DRIP Offering.

~~Our~~During the three months ended March 31, 2019, the Company reduced the borrowing commitment on its Credit Facility ~~provides for aggregate borrowings of up~~from $100.0 million to ~~$100.0~~$35.0 million. As of ~~September 30, 2018,~~March 31, 2019, we had ~~$74.8~~$10.8 million in unused capacity, subject to borrowing availability. As of ~~September 30, 2018,~~March 31, 2019, we also had cash and cash equivalents of $~~198,000~~1.0 million.

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Short-term Liquidity and Capital Resources

~~We expect our operating cash flows to increase as we continue to acquire properties.~~ On a short-term basis, our principal demands for funds will be for the ~~acquisition of real estate assets and the~~ payment of ~~acquisition-related fees and expenses,~~ operating expenses, distributions to stockholders and interest and principal on current and any future debt financings, including principal repayments of $~~25.2~~24.2 million due September 23, 2019. ~~We expect~~Pursuant to ~~meet our short-term liquidity requirements through net cash flows provided by operations~~the Credit Agreement (as defined in Note 6 — Credit Facility), we may elect to extend the maturity date of such loans for up to two successive 12-month periods, subject to satisfying certain conditions, including providing notice of the election and ~~proceeds from~~paying an extension fee of 0.2% of the ~~Offering, as well as secured or unsecured borrowings from banks and other lenders to finance our future acquisitions.~~maximum amount of the Revolving Loans (the “Extension Fee”). We expect to extend the maturity date of the Revolving Loans through September 23, 2020, subject to ~~lender approval~~ ~~and~~ payment of ~~an extension fee of 0.2% of~~ the ~~maximum amount of the Revolving Loans.~~Extension Fee. We believe our cash on hand, net cash provided by operations and proceeds from the ~~Offering~~Offerings will be sufficient to meet our obligations as they become due in the ordinary course of business for at least 12 months following the date these financial statements are issued. However, this evaluation assumes continued positive cash flows and the ability to extend the maturity of or refinance the Revolving Loans maturing September 23, 2019, and sufficient proceeds from the Offering. We are in our start-up phase and are dependent on raising capital to meet our capital requirements, including for property acquisitions, stockholder distributions and repayment of maturing debt.2019.

Long-term Liquidity and Capital Resources

On a long-term basis, our principal demands for funds will be for the ~~acquisition of real estate and real estate-related assets and the~~ payment of tenant improvements, ~~acquisition-related fees and expenses,~~ operating expenses, distributions and redemptions to stockholders and interest and principal on any current and future indebtedness. Generally, we expect to meet our long-term liquidity requirements through proceeds from net cash flows provided by operations, proceeds from the ~~sale of our common stock~~DRIP Offering, and secured or unsecured borrowings from banks and other lenders.

We expect that substantially all net cash flows from operations will be used to pay distributions to our stockholders after certain capital expenditures, including tenant improvements and leasing commissions, are paid; however, we may use other sources to fund distributions, as necessary, including proceeds from the ~~Offering,~~Offerings, borrowings on our Credit Facility and/or future borrowings on unencumbered assets. To the extent that cash flows from operations are lower due to ~~fewer properties being acquired or~~ lower than expected returns on the properties, distributions paid to our stockholders may be lower. We expect that substantially all net cash flows from the ~~Offering~~Offerings or debt financings will be used to fund acquisitions, certain capital expenditures, repayments of outstanding debt or distributions to our stockholders.

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Contractual Obligations

As of ~~September 30, 2018,~~March 31, 2019, we had debt outstanding with a carrying value of $~~25.2~~24.2 million ~~of debt outstanding,~~, with a weighted average interest rate of ~~4.4%~~4.7%. See Note 6 — Credit Facility ~~and Subordinate Promissory Note~~ to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q for certain terms of our debt outstanding.

Our contractual obligations as of ~~September 30, 2018~~March 31, 2019 were as follows:


		Payments due by period ⁽¹⁾											Payments due by period ⁽¹⁾
		Total		Less Than 1 Year		1-3 Years		3-5 Years		More Than 5 Years			Total		Less Than 1 Year		1-3 Years		3-5 Years		More Than 5 Years
Principal payments – Credit Facility	Principal payments – Credit Facility	$	25,175,000	$	25,175,000	$	—	$	—	$	—	Principal payments – Credit Facility	$	24,175,000	$	24,175,000	$	—	$	—	$	—
Interest payments – Credit Facility ⁽²⁾	Interest payments – Credit Facility ⁽²⁾	1,083,422		1,083,422		—		—		—		Interest payments – Credit Facility ⁽²⁾	550,444		550,444		—		—		—
Total		$	26,258,422	$	26,258,422	$	—	$	—	$	—		$	24,725,444	$	24,725,444	$	—	$	—	$	—

______________________


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


(2)	Payment obligations for the Revolving Loans are based on a weighted average interest rate of ~~4.4%~~4.7% as of March 31, 2019 and reflect a maturity date of September ~~30, 2018.~~23, 2019.

We expect to incur additional borrowings in the future to acquire additional properties and other real estate-related assets. There is no limitation on the amount we may borrow against any single improved property. Our borrowings will not exceed 75% of the cost of our gross assets (or 300% of net assets) as of the date of any borrowing, which is the maximum level of indebtedness permitted under the North American Securities Administrators Association Statement of Policy Regarding Real Estate Investment Trusts; however, we may exceed that limit if approved by a majority of our independent directors and disclosed to our stockholders in the next quarterly report along with justification for such excess borrowing. AsConsistent with CCI III Management’s approach toward the moderate use of

~~Table~~ leverage, our Board has adopted a policy to further limit our borrowings to 60% of ~~Contents~~

~~September 30, 2018, our ratio~~the greater of ~~debt to the~~ cost (before deducting depreciation or other non-cash reserves) or fair market value of our gross assets, unless excess borrowing is approved by a majority of the independent directors and disclosed to our stockholders in the next quarterly report along with a justification for such excess borrowing. As of March 31, 2019, our ratio of debt to total gross assets net of gross intangible lease liabilities was 48.7% and our ratio of debt to the fair market value of our gross assets net of gross intangible lease liabilities was 45.1%. Fair market value is based on the estimated market value of our real estate assets ~~was~~ ~~50.8%.~~as of December 31, 2018 that were used to determine our estimated per share NAV.

Our management reviews net debt as part of its management of our overall liquidity, financial flexibility, capital structure and leverage, and we therefore believe that the presentation of net debt provides useful information to stockholders. Net debt is a non-GAAP measure used to show our outstanding principal debt balance, excluding certain GAAP adjustments, such as premiums or discounts, less all cash and cash equivalents. As of ~~September 30, 2018,~~March 31, 2019, our net debt leverage ratio, which is the ratio of net debt to total gross real estate assets net of gross intangible lease liabilities, if applicable, was ~~50.4%~~46.7%.

The following table provides a reconciliation of the Credit Facility ~~and Subordinate Promissory Note~~ balance, as reported on our condensed consolidated balance sheet, to net debt as of ~~September 30, 2018:~~March 31, 2019:


	Balance as of September 30, 2018			Balance as of March 31, 2019
Credit facility and subordinate promissory note	$	25,175,000
Credit facility				$	24,175,000
Less: Cash and cash equivalents	(198,087		)	(1,021,115		)
Net debt	$	24,976,913		$	23,153,885
Gross real estate assets	$	49,605,205		$	49,605,205
Net debt leverage ratio	50.4		%	46.7		%

Cash Flow Analysis

Operating Activities. Net cash provided by operating activities increased by ~~$885,000~~$236,000 for the ~~nine~~three months ended ~~September 30, 2018,~~March 31, 2019, compared to the same period in ~~2017.~~2018. The increase was primarily due to the ~~acquisition~~timing of ~~one additional~~ rental ~~income-producing~~and other property ~~subsequent to September 30, 2017,~~ ~~resulting in increases in net~~ income ~~before non-cash adjustments for depreciation, amortization of intangibles, amortization of deferred financing costs, as well as a decrease in straight-line rental income~~received and ~~a net increase in~~accrued expenses paid during the ~~changes in working capital~~.three months ended March 31, 2019. See “ — Results of Operations” for a more complete discussion of the factors impacting our operating performance.

Financing Activities. Net cash used in financing activities was ~~$1.0 million~~$17,000 for the ~~nine~~three months ended ~~September 30, 2018,~~March 31, 2019, compared to net cash provided by financing activities of ~~$252,000~~$452,000 for the ~~nine~~three months ended ~~September 30, 2017.~~March 31, 2018. The change was primarily due to a decrease in our net proceeds from issuance of common stock and increases in distributions to stockholders

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and deferred financing costs paid, offset by a decrease in net repayments on the ~~Subordinate Promissory Note~~Credit Facility and ~~Credit Facility~~a subordinate, unsecured line of credit.

Election as a REIT

We elected to be taxed, and currently qualify, as a REIT for federal income tax purposes commencing with our taxable year ended December 31, 2017. To maintain our qualification as a REIT, we must continue to 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 are not 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 dividends paid deduction and excluding certain non-cash items and net capital gains).

If we fail to maintain our qualification as a REIT for any reason in a taxable year and applicable relief provisions do not apply, we will be subject to 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 maintain our qualification as a REIT. We also will be disqualified for the four taxable years following the year during which qualification was lost, unless we are entitled to relief under specific statutory provisions. Such an event could materially adversely affect our net income and net cash available for distribution to stockholders. However, we believe that we are organized and operate in such a manner as to maintain our qualification as a REIT for federal income tax purposes. No provision for federal income taxes has been made in our accompanying condensed consolidated financial statements. 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.

Critical Accounting Policies and Estimates

Our accounting policies have been established to conform with GAAP. The preparation of financial statements in conformity with GAAP requires us to use judgment in the application of accounting policies, including making estimates and assumptions. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Management believes that we have made these estimates and assumptions in an appropriate manner and in a way that

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accurately reflects our financial condition. We continually test and evaluate these estimates and assumptions using our historical knowledge of the business, as well as other factors, to ensure that they are reasonable for reporting purposes. However, actual results may differ from these estimates and assumptions. If our judgment or interpretation of the facts and circumstances relating to the various transactions had been different, it is possible that different accounting policies would have been applied, thus resulting in a different presentation of the financial statements. Additionally, other companies may utilize different estimates that may impact comparability of our results of operations to those of companies in similar businesses. We believe the following critical accounting policies govern the significant judgments and estimates used in the preparation of our financial statements, which should be read in conjunction with the more complete discussion of our accounting policies and procedures included in Note 2 — Summary of Significant Accounting ~~Policies.~~Policies to our audited consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2018. We consider our critical accounting policies to be the following:

Allocation of Purchase Price of Real Estate Assets; and

Recoverability of Real Estate Assets.

A complete description of such policies and our considerations is contained in our Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with our audited consolidated financial statements as of and for the year ended December 31, ~~2017~~2018 and related notes thereto.

Related-Party Transactions and Agreements

We have entered into agreements with CCI III ~~Advisors~~Management and its affiliates, whereby we agree to pay certain fees to, or reimburse certain expenses of, CCI III ~~Advisors~~Management or its affiliates, such as acquisition and advisory fees and expenses, organization and offering costs, selling commissions, dealer manager fees and expenses, distribution and stockholder servicing fees, leasing fees and reimbursement of certain operating costs. In addition, pursuant to the Services Agreement, VEREIT OP, which is affiliated with one of our directors, is obligated to provide certain services to CCO Group and to us, including operational real estate support. We are not a party to the Services Agreement. See Note 8 — Related-Party Transactions and Arrangements to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q for a discussion of the various related-party transactions, agreements and fees.

Conflicts of Interest

Richard S. Ressler, ~~our chief executive officer, president and~~ the chairman of our ~~board of directors,~~Board, chief executive officer and president, who is also a founder and principal of CIM ~~as well~~and is an officer/director of certain of its affiliates, is the chairman of the board, chief executive officer and president of

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CCPT IV and CIM Income NAV, a director of CCIT II and CCPT V, and vice president of CCI III Management. One of our directors, Avraham Shemesh, who is also a founder and principal of CIM and is an officer/director of certain of its affiliates, serves as a director of CCPT IV and ~~Cole~~CIM Income NAV, ~~Strategy, and Nathan D. DeBacker, our~~is the chairman of the board, chief ~~financial~~executive officer and president of CCIT II and CCPT V, and is president and treasurer ~~act as executive officers and/or a director~~ of ~~one or more other programs sponsored by CCO Group.~~CCI III Management. One of our independent directors, W. Brian Kretzmer, also serves as a director of CCPT IV and ~~Cole~~CIM Income ~~NAV Strategy. Similarly, Glenn J. Rufrano, one of our directors, serves as a director of CCPT V, CCIT II and Cole Income NAV Strategy, as well as~~NAV. Our chief ~~executive~~financial officer and ~~a director~~treasurer, Nathan D. DeBacker, who is also an officer of ~~VEREIT, Inc., the parent company~~other real estate programs sponsored by CCO Group, is vice president of ~~VEREIT OP, who provides~~CCI III Management and is an officer of certain ~~services to us and our advisor through the Services Agreement.~~of its affiliates. In addition, ~~certain~~ affiliates of CCI III ~~Advisors~~Management act as ~~advisors~~an advisor to CCPT IV, CCPT V, CCIT II ~~Cole~~and CIM Income NAV, ~~Strategy and/or other real estate offerings in registration,~~ all of which are ~~or intend to be~~ public, non-listed REITs ~~offered, distributed and/~~sponsored or ~~sponsored~~operated by ~~affiliates of CCI III Advisors.~~CCO Group. As such, there ~~may be~~are conflicts of interest where CCI III ~~Advisors~~Management or its affiliates, while serving in the capacity as sponsor, general partner, officer, director, key personnel and/or advisor for ~~VEREIT~~CIM or another real estate program sponsored or operated by CIM or CCO Group, including other real estate offerings in registration, may be in conflict with us in connection with providing services to other real estate-related programs related to property acquisitions, property dispositions, and property management among others. The compensation arrangements between affiliates of CCI III ~~Advisors~~Management and these other real estate programs sponsored or operated by CCO Group could influence the advice provided to us. See Part I, Item 1. Business — Conflicts of Interest in our Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

Off-Balance Sheet Arrangements

As of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, we had no material off-balance sheet arrangements that had or are reasonably likely to have a current or future effect on our financial condition, results of operations, liquidity or capital resources.

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Item 3.	Quantitative and Qualitative Disclosures About Market Risk

Market Risk

The market risk associated with financial instruments and derivative financial instruments is the risk of loss from adverse changes in market prices or interest rates. Our market risk arises primarily from interest rate risk relating to variable rate borrowings. To meet our short and long-term liquidity requirements, we borrow funds at a combination of fixed and variable rates. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows and to manage our overall borrowing costs. To achieve these objectives, from time to time, we may enter into interest rate hedge contracts such as swaps, collars and treasury lock agreements in order to mitigate our interest rate risk with respect to various debt instruments. We do not intend to hold or issue these derivative contracts for trading or speculative purposes. As of ~~September 30, 2018,~~March 31, 2019, we had no interest rate hedge contracts. We do not have any foreign operations and thus we are not exposed to foreign currency fluctuations.

Interest Rate Risk

In connection with the acquisition of our properties, we have obtained variable rate debt financing and are therefore exposed to changes in LIBOR. As of ~~September 30, 2018,~~March 31, 2019, we had an aggregate of $~~25.2~~24.2 million of variable rate debt outstanding under the Credit Facility, and a change of 50 basis points in interest rates would result in a change in interest expense of $~~126,000~~121,000 per annum. In the future, we may obtain additional variable rate debt financing to fund certain property acquisitions and may be further exposed to interest rate changes. Our objectives in managing interest rate risks will be to limit the impact of interest rate changes on operations and cash flows and to lower overall borrowing costs. To achieve these objectives, we expect to borrow primarily at interest rates with the lowest margins available and, in some cases, with the ability to convert variable rates to fixed rates.

Credit Risk

Concentrations of credit risk arise when a number of tenants are engaged in similar business activities, or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations, including those to us, to be similarly affected by changes in economic conditions. We are subject to tenant, geographic and industry concentrations. Any downturn of the economic conditions in one or more of these future tenants, states or industries could result in a material reduction of our cash flows or material losses to us.

The factors considered in determining the credit risk of our tenants include, but are not limited to: payment history; credit status and change in status (credit ratings for public companies are used as a primary metric); change in tenant space needs (i.e., expansion/downsize); tenant financial performance; economic conditions in a specific geographic region; and industry specific credit considerations. We believe that the credit risk of our portfolio is reduced by the high quality of our existing tenants, reviews of prospective tenants’ risk profiles prior to lease execution and consistent monitoring of our portfolio to identify potential problem tenants and mitigation options.

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Item 4.Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms, and that such information is accumulated and communicated to us, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, we recognize that no controls and procedures, no matter how well designed and operated, can provide absolute assurance of achieving the desired control objectives.

As required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act, an evaluation as of ~~September 30, 2018~~March 31, 2019 was conducted under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures, as of ~~September 30, 2018,~~March 31, 2019, were effective at a reasonable assurance level.

Changes in Internal Control Over Financial Reporting

No change occurred in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the three months ended ~~September 30, 2018~~March 31, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION


Item 1.	Legal Proceedings

In the ordinary course of business, we may become subject to litigation or claims. We are not aware of any material pending legal proceedings, other than ordinary routine litigation incidental to our business, to which we are a party or to which our properties are the subject.


Item 1A.	Risk Factors

Except as set forth below, there have been no material changes from the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

We have paid, and may continue to pay, some or all of our distributions from sources other than cash ~~flows~~flow from operations, including borrowings, proceeds from asset sales or the sale of our securities, which may reduce the amount of capital we ultimately deploy in our real estate operations and may negatively impact the value of our common stock.

To the extent that cash ~~flows~~flow from operations has been or is insufficient to fully cover our distributions to our stockholders, we have paid, and may in the future pay, some or all of our distributions from sources other than cash ~~flows~~flow from operations. Such sources may include borrowings, proceeds from asset sales or the sale of our securities. We have no limits on the amounts we may use to pay distributions from sources other than cash flow from operations. The payment of distributions from sources other than cash provided by operating activities may reduce the amount of proceeds available for acquisitions and operations or cause us to incur additional interest expense as a result of borrowed funds, and may cause subsequent holders of our common stock to experience dilution. This may negatively impact the value of our common stock.

The following table presents distributions and sources of distributions for the periods indicated below:


	Nine Months Ended				Year Ended				Three Months Ended				Year Ended
	September 30, 2018				December 31, 2017				March 31, 2019				December 31, 2018
	Amount		Percent		Amount		Percent		Amount		Percent		Amount		Percent
Distributions paid in cash	$	653,275	63	%	$	448,362	71	%	$	266,228	59	%	$	912,391	62	%
Distributions reinvested	387,768		37	%	179,564		29	%	188,763		41	%	569,926		38	%
Total distributions	$	1,041,043	100	%	$	627,926	100	%	$	454,991	100	%	$	1,482,317	100	%
Sources of distributions:
Net cash provided by operating activities ⁽¹⁾	$	871,236	84	%	$	533,676	85	%	$	402,615	88	%	$	1,396,989	94	%
Proceeds from issuance of common stock⁽²⁾	169,807		16	%	94,250		15	%	52,376		12	%	85,328		6	%
	$	1,041,043	100	%	$	627,926	100	%	$	454,991	100	%	$	1,482,317	100	%

______________________


(1)	Net cash provided by operating activities for the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 and for the year ended December 31, ~~2017~~2018 was ~~$871,236~~$402,615 and ~~$533,676,~~$1.4 million, respectively.

(2)

Prior to the adoption of ASU 2017-01 in April 2017, we treated our real estate acquisition-related fees and expenses as funded by proceeds from the Offering, including proceeds from the DRIP. Therefore, for consistency, proceeds from the issuance of common stock used as a source of distributions for the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 and for the year ended December 31, ~~2017~~2018 includes the amount by which real estate acquisition-related fees and expenses have reduced net cash flows from operating activities in prior periods.

~~The proposed SEC standard of conduct for investment professionals could impact our ability to raise capital.~~

On April 18, 2018, the SEC proposed “Regulation Best Interest,” a new standard of conduct for broker-dealers under the Exchange Act that includes: (i) the requirement that broker-dealers refrain from putting the financial or other interests of the broker-dealer ahead of the retail customer, (ii) a new disclosure document, the consumer or client relationship summary, or Form CRS, which would require both investment advisers and broker-dealers to provide disclosure highlighting details about their services and fee structures and (iii) proposed interpretative guidance that would establish a federal fiduciary standard for investment advisers. The public comment period on Regulation Best Interest ended on August 7, 2018.

Proposed Regulation Best Interest is complex and may be subject to revision or withdrawal. Plan fiduciaries and the beneficial owners of IRAs are urged to consult with their own advisors regarding the impact that proposed Regulation Best Interest may have on purchasing and holding interests in our company. Proposed Regulation Best Interest or any other

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legislation or regulations that may be introduced or become law in the future could have negative implications on our ability to raise capital from potential investors, including those investing through IRAs.


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

On September 22, 2016, our Registration Statement on Form S-11 (Registration No. 333-209128) for the offering of up to $2.5 billion in shares of common stock in the primary portion of the Offering, consisting of two classes of shares, Class A Shares at a price of $10.00 per share (up to $1.25 billion in shares) and Class T Shares at a price of $9.57 per share (up to $1.25 billion in shares), subject to reduction in certain circumstances, was declared effective under the Securities Act. The ~~Registration Statement~~registration statement also ~~covers~~covered the offering of up to $1.0 billion in shares of common stock pursuant to our DRIP, under which stockholders may elect to have distributions reinvested in additional shares at a price of $9.10 per share for both Class A Shares and Class T Shares, assuming a $10.00 per Class A Share primary offering price and a $9.57 per Class T Share primary offering price. Additionally, as of ~~September 30, 2018,~~March 31, 2019, we were authorized to issue 10.0 million shares of preferred stock, but had none issued or outstanding.

Effective December 31, 2018, the primary portion of the Offering was terminated, but we continued to issue Class A Shares and Class T Shares pursuant to the DRIP portion of the Offering. On March 28, 2019, we registered an aggregate of $4,300,000 of Class A Shares and Class T Shares for the DRIP Offering pursuant to the S-3 Registration Statement filed with the SEC, which was declared effective on April 5, 2019. We ceased issuing shares in the Offering on April 30, 2019. The unsold Class A Shares and Class T Shares in the Offering of $3.5 billion in the aggregate were subsequently deregistered. We began to issue Class A Shares and Class T Shares under the DRIP Offering on May 1, 2019 and will continue to issue shares under the DRIP Offering at the estimated per share NAV as determined by our Board on February 13, 2019 using a valuation date of December 31, 2018 and effective on February 19, 2019.

As of ~~September 30, 2018,~~March 31, 2019, we had issued approximately ~~3.0~~3.2 million shares of common stock in the Offering, including 103,000 shares issued pursuant to the DRIP, for gross ~~offering~~ proceeds of $~~29.1~~31.1 million ($~~22.1~~23.9 million in Class A Shares and $~~7.0~~7.2 million in Class T Shares) before organization and offering costs, selling commissions and dealer manager fees of $~~2.1~~2.3 million, out of which we paid $~~1.8~~1.9 million in selling commissions and dealer manager fees and $~~296,000~~316,000 in organization and offering costs to CCI III ~~Advisors~~Management or its affiliates. In addition, we pay CCO Capital a distribution and stockholder servicing fee for Class T Shares sold in the primary portion of the Offering. Pursuant to the dealer manager agreement, prior to our Board’s determination of our estimated per share NAV, the distribution and stockholder servicing fee iswas calculated on a daily basis in an amount equal to 1/365th of 1.0% of the purchase price per share ~~(or, once reported, the amount of the Company’s estimated per share net asset value)~~ of the Class T Shares sold in the primary portion of the Offering. Commencing on February 19, 2019, the distribution and stockholder servicing fee for Class T Shares is calculated on a daily basis in an amount equal to 1/365th of 1.0% of the per share NAV. The aggregate distribution and stockholder servicing fee for Class T Shares will not exceed an amount equal to 4.0% of the total gross offering proceeds of Class T Shares sold in the primary portion of the ~~Offering, or a lower limit agreed upon between the Company’s dealer manager and the participating broker-dealer at the time such Class T Shares were sold.~~Offering. We pay the distribution and stockholder servicing fee from cash flow from operations or, if our cash flow from operations is not sufficient to pay the distribution and stockholder servicing fee, from borrowings in anticipation of future cash flow. With the net offering proceeds and indebtedness, we acquired $49.6 million in real estate and related assets, inclusive of capitalized acquisition costs, and incurred acquisition costs of $1.2 million, including costs of $995,000 in acquisition fees and expense reimbursements to CCI III Advisors. As of November 7, 2018, we have sold 2.3 million Class A Shares and 744,000 Class T Shares in the Offering for gross offering proceeds of $30.0 million ($22.9 million in Class A Shares and $7.1 million in Class T Shares).Management.

Our ~~board of directors~~Board has adopted a share redemption program that permits our stockholders to sell their shares back to us after they have held them for at least one year, subject to the significant conditions and limitations described in the Registration Statement. We may waive the one-year holding period upon request due to a stockholder’s death, bankruptcy or other exigent circumstances as determined by our advisor. In addition, our ~~board of directors~~Board may choose to amend the terms of, suspend or terminate our share redemption program at any time upon 30 days’ notice. Funding for the redemption of shares will generally be limited to the cumulative net proceeds we receive from the sale of shares under the DRIP, net of shares redeemed to date. Under our share redemption program, we will not redeem in excess of 5.0% of the weighted average number of shares outstanding during the trailing 12 months prior to the end of the fiscal quarter for which the redemptions are being paid. In addition, we will generally limit quarterly redemptions to approximately 1.25% of the weighted average number of shares outstanding during the trailing 12-month period ending on the last day of the fiscal quarter for which the redemptions are being paid, and to the net proceeds we receive from the sale of shares in the respective quarter under the DRIP. Any of the foregoing limits might prevent us from accommodating all redemption requests made in any fiscal quarter or in any 12-month period.

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In general, we redeem shares on a quarterly basis. During the three months ended ~~September 30, 2018,~~March 31, 2019, we redeemed shares, including those redeemable due to death, as follows:



Period		Total Number of Shares Redeemed	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
January 1, 2019 – January 31, 2019
	Class A Shares	—	$	—	—	(1)
	Class T Shares	—	$	—	—	(1)
February 1, 2019 – February 28, 2019
	Class A Shares	5,403	$	9.00	5,403	(1)
	Class T Shares	—	$	—	—	(1)
March 1, 2019 – March 31, 2019
	Class A Shares	—	$	—	—	(1)
	Class T Shares	—	$	—	—	(1)
Total		5,403			5,403	(1)

Period
Total Number
of Shares
Redeemed

Average Price
Paid per Share

Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs

Maximum Number of
Shares that May Yet Be
Purchased Under the
Plans or Programs
July 1, 2018 – July 31, 2018
Class A Shares —
$ —
—
(1)
Class T Shares —
$ —
—
(1)
August 1, 2018 – August 31, 2018
Class A Shares 5,335
$ 9.00
5,335
(1)
Class T Shares —
$ —
—
(1)
September 1, 2018 – September 30, 2018
Class A Shares —
$ —
—
(1)
Class T Shares —
$ —
—
(1)
Total 5,335
5,335
(1)

______________________


(1)	A description of the maximum number of shares that may be purchased under our share redemption program is included in the narrative preceding this table.

Unregistered Sales of Equity Securities

None.


Item 3.	Defaults Upon Senior Securities

None.


Item 4.	Mine Safety Disclosures

Not applicable.


Item 5.	Other Information

None.

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Item 6.	Exhibits

The following exhibits are included, or incorporated by reference, in this Quarterly Report on Form 10-Q for the quarterly period ended ~~September 30, 2018~~March 31, 2019 (and are numbered in accordance with Item 601 of Regulation S-K).



Exhibit No.		Description

3.1		Articles of Amendment and Restatement of Cole Office & Industrial REIT (CCIT III), Inc. dated July 15, 2016 (Incorporated by reference to Exhibit 3.1 to Pre-effective Amendment No. 2 to the Company’s Form S-11 (File No. 333-209128), filed on July 18, 2016).
3.2		Articles of Amendment to the Articles of Amendment and Restatement of Cole Office & Industrial REIT (CCIT III), Inc. dated June 22, 2017 (Incorporated by reference to Exhibit 3.3 to Post-effective Amendment No. 3 to the Company’s Form S-11 (File No. 333-209128), filed on June 29, 2017).
3.3		Bylaws of Cole Office & Industrial REIT (CCIT III), Inc. (Incorporated by reference to Exhibit 3.3 to the Company’s Form S-11 (File No. 333-209128), filed on January 26, 2016).
~~4.1~~		~~Form of Initial Subscription Agreement (Incorporated by reference to Exhibit 4.1 to Post-effective Amendment No. 7 to the Company’s Form S-11 (File No. 333-209128), filed on September 21, 2018).~~
~~4.2~~		~~Form of Additional Subscription Agreement (Incorporated by reference to Exhibit 4.2 to Post-effective Amendment No. 7 to the Company’s Form S-11 (File No. 333-209128), filed on September 21, 2018).~~
4.3		Distribution Reinvestment Plan (Incorporated by reference to Exhibit ~~10.3 to Post-effective Amendment No. 7~~4.5 to the Company’s Registration Statement on Form ~~S-11~~S-3 (File No. ~~333-209128)~~333-230565), filed on ~~September 21, 2018).~~
~~10.1~~		Cole Office & Industrial REIT (CCIT III), Inc. 2018 Equity Incentive Plan (Incorporated by reference to Exhibit 10.17 to Post-effective Amendment No. 7 to the Company’s Form S-11 (File No. 333-209128), filed on September 21, 2018)March 28, 2019).
31.1*		Certifications of the Principal Executive Officer of the Company pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certifications of the Principal Financial Officer of the Company pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**		Certifications of the Principal Executive Officer and Principal Financial Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*		XBRL Instance Document.
101.SCH*		XBRL Taxonomy Extension Schema Document.
101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*		XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document.

______________________



*	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.

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Table of Contents

SIGNATURE

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



		Cole Office & Industrial REIT (CCIT III), Inc.
		(Registrant)

	By:	/s/ Nathan D. DeBacker
	Name:	Nathan D. DeBacker
	Title:	Chief Financial Officer and Treasurer
		(Principal Financial Officer)

Date: ~~November 13, 2018~~May 10, 2019

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