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, 2020



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

For the transition period from to

Commission file number 000-55437

COLE CREDIT PROPERTY TRUST V, INC.

(Exact name of registrant as specified in its charter)



Maryland	46-1958593
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

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

Not Applicable

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

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



Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
None	None	None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes 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	¨	Accelerated filer	¨	Non-accelerated filer	x

Smaller reporting company	¨	Emerging growth company	¨

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

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

As of November 5, 2020, there were approximately 15.0 million shares of Class A common stock, par value $0.01 per share, and 2.0 million shares of Class T common stock, par value $0.01 per share, of Cole Credit Property Trust V, Inc. outstanding.

Table of Contents

COLE CREDIT PROPERTY TRUST V, INC.

INDEX




PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019	3

Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2020 and 2019	4

Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2020 and 2019	5

Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2020 and 2019	6

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019	8

Notes to Condensed Consolidated Financial Statements	9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	30

Item 3. Quantitative and Qualitative Disclosures About Market Risk	43

Item 4. Controls and Procedures	44

PART II — OTHER INFORMATION

Item 1. Legal Proceedings	46

Item 1A. Risk Factors	46

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	49

Item 3. Defaults Upon Senior Securities	50

Item 4. Mine Safety Disclosures	50

Item 5. Other Information	50

Item 6. Exhibits	51

Signature	52

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

COLE CREDIT PROPERTY TRUST V, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts) (Unaudited)



	September 30, 2020			December 31, 2019
ASSETS
Real estate assets:
Land	$	155,544		$	153,934
Buildings and improvements	444,240			437,666
Intangible lease assets	92,386			91,935
Total real estate assets, at cost	692,170			683,535
Less: accumulated depreciation and amortization	(90,090		)	(75,980		)
Total real estate assets, net	602,080			607,555
Cash and cash equivalents	19,080			3,485
Restricted cash	392			456
Prepaid expenses, prepaid taxes and other assets	764			431
Rents and tenant receivables, net	12,798			9,668
Deferred costs, net	427			646
Assets held for sale	1,072			—
Total assets	$	636,613		$	622,241
LIABILITIES AND STOCKHOLDERS’ EQUITY
Credit facility and notes payable, net	$	368,144		$	342,511
Accrued expenses and accounts payable	3,482			3,052
Due to affiliates	1,624			1,782
Intangible lease liabilities, net	2,948			3,275
Distributions payable	1,309			1,669
Derivative liabilities, deferred rental income and other liabilities	12,140			7,940
Total liabilities	389,647			360,229
Commitments and contingencies
Redeemable common stock	—			9,526
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, 14,966,753 and 14,997,382 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively	149			149
Class T common stock, $0.01 par value per share; 245,000,000 shares authorized, 1,982,240 and 1,967,581 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively	20			20
Capital in excess of par value	381,248			371,988
Accumulated distributions in excess of earnings	(123,995		)	(114,216		)
Accumulated other comprehensive loss	(10,456		)	(5,455		)
Total stockholders’ equity	246,966			252,486
Total liabilities, redeemable common stock and stockholders’ equity	$	636,613		$	622,241

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

Table of Contents

COLE CREDIT PROPERTY TRUST V, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share amounts) (Unaudited)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
Revenues:
Rental and other property income	$	13,311		$	13,788		$	39,830		$	41,123
Operating expenses:
General and administrative	1,037			814			3,058			2,774
Property operating	925			839			2,323			2,491
Real estate tax	1,046			1,124			3,157			3,221
Advisory fees and expenses	1,643			1,555			4,911			4,635
Merger-related	954			—			954			—
Transaction-related	(15		)	7			78			8
Depreciation and amortization	4,740			4,683			14,106			14,047
Impairment	—			502			52			502
Total operating expenses	10,330			9,524			28,639			27,678
Gain on disposition of real estate, net	—			150			—			685
Operating income	2,981			4,414			11,191			14,130
Other expense:
Interest expense and other, net	(3,745		)	(3,624		)	(11,250		)	(10,857		)
Net (loss) income	$	(764	)	$	790		$	(59	)	$	3,273

Class A Common Stock:
Net (loss) income	$	(598	)	$	780		$	181		$	3,134
Basic and diluted weighted average number of common shares outstanding	14,974,562			14,980,504			14,987,146			14,997,002
Basic and diluted net (loss) income per common share	$	(0.04	)	$	0.05		$	0.01		$	0.21

Class T Common Stock:
Net (loss) income	$	(166	)	$	10		$	(240	)	$	139
Basic and diluted weighted average number of common shares outstanding	1,981,885			1,954,847			1,978,960			1,944,190
Basic and diluted net (loss) income per common share	$	(0.08	)	$	0.01		$	(0.12	)	$	0.07

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

Table of Contents

COLE CREDIT PROPERTY TRUST V, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands) (Unaudited)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
Net (loss) income	$	(764	)	$	790		$	(59	)	$	3,273
Other comprehensive income (loss)
Unrealized gain (loss) on interest rate swaps	55			(1,043		)	(7,979		)	(6,262		)
Amount of loss (gain) reclassified from other comprehensive income into income (loss) as interest expense and other, net	1,379			97			2,978			(269		)
Total other comprehensive income (loss)	1,434			(946		)	(5,001		)	(6,531		)
Total comprehensive income (loss)	$	670		$	(156	)	$	(5,060	)	$	(3,258	)

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

Table of Contents

COLE CREDIT PROPERTY TRUST V, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share amounts) (Unaudited)



	Class A Common Stock					Class T Common Stock				Capital in Excess of Par Value			Accumulated Distributions in Excess of Earnings			Accumulated Other Comprehensive (Loss) Income			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			Accumulated Other Comprehensive (Loss) Income			Total Stockholders’ Equity
Balance as of January 1, 2020	14,997,382		$	149		1,967,581		$	20	$	371,988		$	(114,216	)	$	(5,455	)	$	252,486
Issuance of common stock	85,564		1			12,434		—		1,923			—			—			1,924
Distributions declared on common stock – $0.29 per common share	—		—			—		—		—			(4,890		)	—			(4,890		)
Distribution and stockholder servicing fees	—		—			—		—		2			—			—			2
Redemptions of common stock	(96,257	)	(1		)	(2,109	)	—		(1,935		)	—			—			(1,936		)
Equity-based compensation	—		—			—		—		20			—			—			20
Equity-based payments to advisor	21,784		—			—		—		428			—			—			428
Changes in redeemable common stock	—		—			—		—		5			—			—			5
Comprehensive income (loss)	—		—			—		—		—			1,076			(6,781		)	(5,705		)
Balance as of March 31, 2020	15,008,473		149			1,977,906		20		372,431			(118,030		)	(12,236		)	242,334
Issuance of common stock	39,840		1			4,661		—		868			—			—			869
Distributions declared on common stock – $0.08 per common share	—		—			—		—		—			(1,292		)	—			(1,292		)
Distribution and stockholder servicing fees	—		—			—		—		2			—			—			2
Redemptions of common stock	(94,683	)	(1		)	(2,661	)	—		(1,910		)	—			—			(1,911		)
Equity-based compensation	—		—			—		—		19			—			—			19
Equity-based payments to advisor	22,409		—			—		—		425			—			—			425
Changes in redeemable common stock	—		—			—		—		1,041			—			—			1,041
Comprehensive (loss) income	—		—			—		—		—			(371		)	346			(25		)
Balance as of June 30, 2020	14,976,039		149			1,979,906		20		372,876			(119,693		)	(11,890		)	241,462
Issuance of common stock	27,381		—			3,360		—		572			—			—			572
Distributions declared on common stock – $0.21 per common share	—		—			—		—		—			(3,538		)	—			(3,538		)
Distribution and stockholder servicing fees	—		—			—		—		1			—			—			1
Redemptions of common stock	(44,435	)	—			(1,026	)	—		(845		)	—			—			(845		)
Equity-based compensation	—		—			—		—		20			—			—			20
Equity-based payment to advisor	7,768		—			—		—		144			—			—			144
Changes in redeemable common stock	—		—			—		—		8,480			—			—			8,480
Comprehensive (loss) income	—		—			—		—		—			(764		)	1,434			670
Balance as of September 30, 2020	14,966,753		$	149		1,982,240		$	20	$	381,248		$	(123,995	)	$	(10,456	)	$	246,966

Table of Contents

COLE CREDIT PROPERTY TRUST V, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share amounts) (Unaudited) - (Continued)



	Class A Common Stock					Class T Common Stock				Capital in Excess of Par Value			Accumulated Distributions in Excess of Earnings			Accumulated Other Comprehensive Loss			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			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity
Balance as of January 1, 2019	14,982,055		$	150		1,914,878		$	19	$	369,638		$	(96,485	)	$	(333	)	$	272,989
Issuance of common stock	161,958		2			26,392		—		4,251			—			—			4,253
Distributions declared on common stock – $0.39 per common share	—		—			—		—		—			(6,481		)	—			(6,481		)
Commissions on stock sales and related dealer manager fees	—		—			—		—		(74		)	—			—			(74		)
Other offering costs	—		—			—		—		(94		)	—			—			(94		)
Distribution and stockholder servicing fees	—		—			—		—		(11		)	—			—			(11		)
Redemptions of common stock	(129,182	)	(2		)	(3,063	)	—		(2,920		)	—			—			(2,922		)
Equity-based compensation	—		—			—		—		20			—			—			20
Changes in redeemable common stock	—		—			—		—		(9		)	—			—			(9		)
Comprehensive income (loss)	—		—			—		—		—			1,013			(1,116		)	(103		)
Balance as of March 31, 2019	15,014,831		150			1,938,207		19		370,801			(101,953		)	(1,449		)	267,568
Issuance of common stock	108,657		1			14,990		—		2,426			—			—			2,427
Distributions declared on common stock – $0.29 per common share	—		—			—		—		—			(4,908		)	—			(4,908		)
Other offering costs	—		—			—		—		(20		)	—			—			(20		)
Distribution and stockholder servicing fees	—		—			—		—		11			—			—			11
Redemptions of common stock	(143,513	)	(1		)	(5,574	)	—		(2,918		)	—			—			(2,919		)
Equity-based compensation	—		—			—		—		19			—			—			19
Equity-based payments to advisor	14,244		—			—		—		280			—			—			280
Changes in redeemable common stock	—		—			—		—		491			—			—			491
Comprehensive income (loss)	—		—			—		—		—			1,470			(4,469		)	(2,999		)
Balance as of June 30, 2019	14,994,219		150			1,947,623		19		371,090			(105,391		)	(5,918		)	259,950
Issuance of common stock	90,572		1			12,759		—		2,029			—			—			2,030
Distributions declared on common stock – $0.30 per common share	—		—			—		—		—			(4,946		)	—			(4,946		)
Distribution and stockholder servicing fees	—		—			—		—		1			—			—			1
Redemptions of common stock	(121,927	)	(1		)	(1,640	)	—		(2,420		)	—			—			(2,421		)
Equity-based compensation	—		—			—		—		20			—			—			20
Equity-based payment to advisor	21,712		—			—		—		426			—			—			426
Changes in redeemable common stock	—		—			—		—		392			—			—			392
Comprehensive income (loss)	—		—			—		—		—			790			(946		)	(156		)
Balance as of September 30, 2019	14,984,576		$	150		1,958,742		$	19	$	371,538		$	(109,547	)	$	(6,864	)	$	255,296

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

Table of Contents

COLE CREDIT PROPERTY TRUST V, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands) (Unaudited)



	Nine Months Ended September 30,
	2020			2019
Cash flows from operating activities:
Net (loss) income	$	(59	)	$	3,273
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization, net	14,168			14,054
Straight-line rental income	(1,343		)	(1,271		)
Write-offs (recoveries) for uncollectable lease-related receivables	1,197			(15		)
Amortization of deferred financing costs	640			634
Equity-based compensation	59			59
Equity-based payment to advisor	997			706
Gain on disposition of real estate assets, net	—			(685		)
Impairment of real estate assets	52			502
Changes in assets and liabilities:
Rents and tenant receivables	(2,984		)	82
Prepaid expenses and other assets	(383		)	(329		)
Accrued expenses and accounts payable	534			767
Deferred rental income and other liabilities	(751		)	(612		)
Due to affiliates	110			(223		)
Net cash provided by operating activities	12,237			16,942
Cash flows from investing activities:
Investment in real estate assets and capital expenditures	(10,248		)	(31,346		)
Net proceeds from disposition of real estate assets	—			38,109
Payment of property escrow deposits	(100		)	(50		)
Refund of property escrow deposits	100			200
Net cash (used in) provided by investing activities	(10,248		)	6,913
Cash flows from financing activities:
Proceeds from issuance of common stock	—			1,322
Redemptions of common stock	(4,692		)	(8,262		)
Offering costs on issuance of common stock	—			(188		)
Distribution and stockholder servicing fees paid	(263		)	(281		)
Proceeds from credit facility and notes payable	32,500			39,200
Repayments of credit facility and notes payable	(7,288		)	(46,200		)
Distributions to stockholders	(6,715		)	(9,554		)
Deferred financing costs paid	—			(50		)
Net cash provided by (used in) financing activities	13,542			(24,013		)
Net increase (decrease) in cash and cash equivalents and restricted cash	15,531			(158		)
Cash and cash equivalents and restricted cash, beginning of period	3,941			2,906
Cash and cash equivalents and restricted cash, end of period	$	19,472		$	2,748
Reconciliation of cash and cash equivalents and restricted cash to the condensed consolidated balance sheets:
Cash and cash equivalents	$	19,080		$	2,313
Restricted cash	392			435
Total cash and cash equivalents and restricted cash	$	19,472		$	2,748

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

Table of Contents

COLE CREDIT PROPERTY TRUST V, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020 (Unaudited)

NOTE 1 — ORGANIZATION AND BUSINESS

Cole Credit Property Trust V, Inc. (the “Company”) is a non-exchange traded real estate investment trust (“REIT”) formed as a Maryland corporation on December 12, 2012, that elected to be taxed, and currently qualifies, as a REIT for U.S. federal income tax purposes beginning with its taxable year ended December 31, 2014. The Company operates a diversified portfolio of commercial real estate assets primarily consisting of net leased properties located throughout the United States. As of September 30, 2020, the Company owned 150 properties, comprising 3.4 million rentable square feet of commercial space located in 34 states. As of September 30, 2020, the rentable space at these properties was 98.1% leased, including month-to-month agreements, if any.

Substantially all of the Company’s business is conducted through Cole Operating Partnership V, LP, a Delaware limited partnership, of which the Company is the sole general partner and owns, directly or indirectly, 100% of the partnership interests.

The Company is externally managed by Cole REIT Management V, LLC, a Delaware limited liability company (“CR V Management”), which is an affiliate of CIM Group, LLC (“CIM”). CIM is a community-focused real estate and infrastructure owner, operator, developer and lender with multi-disciplinary expertise, including in acquisitions, management, development, leasing, research and capital markets. CIM is headquartered in Los Angeles, California, and has offices in Oakland, California; Bethesda, Maryland; Dallas, Texas; New York, New York; Chicago, Illinois; Phoenix, Arizona; Orlando, Florida; Tokyo, Japan; and Atlanta, Georgia.

CCO Group, LLC owns and controls CR V Management, the Company’s advisor, and is the indirect owner of CCO Capital, LLC (“CCO Capital”), the Company’s dealer manager, and CREI Advisors, LLC (“CREI Advisors”), the Company’s property manager. CCO Group, LLC and its subsidiaries (collectively, “CCO Group”) serve as the Company’s sponsor and as a sponsor to CIM Real Estate Finance Trust, Inc. (“CMFT”), Cole Office & Industrial REIT (CCIT II), Inc. (“CCIT II”), Cole Office & Industrial REIT (CCIT III), Inc. (“CCIT III”) and CIM Income NAV, Inc. (“CIM Income NAV”).

On March 17, 2014, the Company commenced its initial public offering (the “Initial Offering”) on a “best efforts” basis of up to a maximum of $2.975 billion in shares of a single class of common stock. The Initial Offering offered up to a maximum of $2.5 billion in shares of a single class of common stock (now referred to as Class A Shares as defined below) in the primary offering, as well as up to $475.0 million in additional shares pursuant to a distribution reinvestment plan (the “Original DRIP”). In March 2016, the Company reclassified a portion of its unissued Class A common stock (“Class A Shares”) as Class T common stock (“Class T Shares”) and commenced sales of Class T Shares thereafter upon receipt of the required regulatory approvals. On March 29, 2016, the Company’s board of directors (the “Board”) adopted an Amended and Restated Distribution Reinvestment Plan (the “First Amended and Restated DRIP”) in connection with the reinvestment of distributions paid on Class A Shares and Class T Shares. Pursuant to the First Amended and Restated DRIP, distributions on Class A Shares are reinvested in Class A Shares and distributions on Class T Shares are reinvested in Class T Shares. The First Amended and Restated DRIP became effective as of May 1, 2016.

On August 1, 2017, the Company commenced a follow-on offering on a “best efforts” basis (the “Follow-on Offering”) of up to an aggregate of $1.2 billion in Class A Shares and Class T Shares in the primary portion of the Follow-on Offering (up to $660.0 million in Class A Shares and up to $540.0 million in Class T Shares) and an additional $300.0 million in shares of common stock pursuant to the Second Amended and Restated Distribution Reinvestment Plan (the “Second Amended and Restated DRIP”). Effective December 31, 2018, the primary portion of the Follow-On Offering was terminated, but the Company continued to issue Class A Shares and Class T Shares pursuant to the Second Amended and Restated DRIP portion of the Follow-on Offering. On March 28, 2019, the Company registered an aggregate of $68,740,000 of Class A Shares and Class T Shares under the Second Amended and Restated DRIP (collectively with the Original DRIP and the First Amended and Restated DRIP, the “DRIP”) pursuant to a Registration Statement on Form S-3 (Registration No. 333-230566) 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 Initial Offering and the Follow-on Offering, the “Offerings”). As of April 30, 2019, the Company ceased issuing shares in the Follow-on Offering and had sold a total of $73.3 million of Class A Shares and Class T Shares, including $53.9 million ($32.9 million in Class A Shares and $21.0 million in Class T Shares) sold to the public pursuant to the primary portion of the Follow-on Offering and $19.4 million ($17.4 million in Class A Shares and $2.0 million in Class T Shares) sold pursuant to the DRIP. The unsold Class A Shares and Class T Shares in the Follow-on Offering of $1.4 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 continued to issue shares under the DRIP Offering until, on August 30,

Table of Contents

COLE CREDIT PROPERTY TRUST V, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020 (Unaudited) – (Continued)

2020, the Board suspended the DRIP Offering in connection with the entry of the Company into the Merger Agreement (as defined below).

The Board establishes an updated estimated per share net asset value (“NAV”) of the Company’s common stock on at least an annual basis for purposes of assisting broker-dealers that participated in the Offering in meeting their customer account reporting obligations under Financial Industry Regulatory Authority Rule 2231. 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 purposes of the share redemption program. As of September 30, 2020, the estimated per share NAV was $18.96 per share for both Class A Shares and Class T Shares, which was established on August 12, 2020 using a valuation date of June 30, 2020. Commencing on August 14, 2020, $18.96 served as the per share NAV for both Class A Shares and Class T Shares under the Second Amended and Restated DRIP. The Board previously established a per share NAV as of February 29, 2016, December 31, 2016, December 31, 2017, December 31, 2018, December 31, 2019, March 31, 2020 and June 30, 2020. The Company’s estimated per share NAVs are not audited or reviewed by its independent registered public accounting firm. Given the relative stability of the Company’s rent collections and the per share NAV for the quarters ended March 31, 2020 and June 30, 2020, the Board determined that it is in the best interests of the Company and its stockholders to cease incurring the additional costs associated with quarterly valuations and return to updating the Company’s per share NAV on an annual basis in accordance with its valuation policies.

Pending Merger with CMFT

On August 30, 2020, the Company, CMFT and Thor V Merger Sub, LLC, a wholly owned subsidiary of CMFT (“Merger Sub”), entered into an Agreement and Plan of Merger (as subsequently amended on each of October 22, 2020, October 24, 2020 and October 29, 2020, the “Merger Agreement”). Subject to the terms and conditions of the Merger Agreement, the Company will merge with and into Merger Sub (the “Merger”), with Merger Sub surviving the Merger, such that following the Merger, the surviving entity will continue as a wholly owned subsidiary of CMFT. In accordance with the applicable provisions of the Maryland General Corporation Law (the “MGCL”), the separate existence of the Company shall cease at the effective time of the Merger.

At the effective time of the Merger and subject to the terms and conditions of the Merger Agreement, each issued and outstanding Class A Share and Class T Share will be converted into the right to receive 2.892 shares of CMFT’s common stock, $0.01 par value per share (the “CMFT Common Stock”), subject to the treatment of fractional shares in accordance with the Merger Agreement (the “Merger Consideration”). At the effective time of the Merger and subject to the terms and conditions of the Merger Agreement, each issued and outstanding Class A Share granted under the Company’s 2018 Equity Incentive Plan, whether vested or unvested, will be cancelled in exchange for an amount equal to the Merger Consideration.

The Merger Agreement contains customary representations, warranties and covenants, including covenants relating to the conduct of the Company’s and CMFT’s respective businesses during the period between the execution of the Merger Agreement and the completion of the Merger, subject to certain exceptions.

Pursuant to the terms of the Merger Agreement, the Company had a “go shop” period that ended on 11:59 p.m. New York City time on October 7, 2020 (the “Go Shop Period End Time”) during which the Company and its subsidiaries and representatives could initiate, solicit, provide information and enter into discussions concerning proposals relating to alternative business combination transactions. Following the Go Shop Period End Time, the Company and its subsidiaries and representatives may not solicit, provide information or enter into discussions concerning proposals relating to alternative business combination transactions, subject to certain limited exceptions set forth in the Merger Agreement.

The Merger Agreement also provides that prior to the Stockholder Approval (as defined below), the Board may, under specified circumstances, make an Adverse Recommendation Change (as defined in the Merger Agreement), including withdrawing its recommendation of the Merger, subject to complying with certain conditions set forth in the Merger Agreement.

The Merger Agreement may be terminated under certain circumstances, including by either the Company or CMFT if the Merger has not been consummated on or before 11:59 p.m. New York time on May 30, 2021 (the “Outside Date”), if a final and non-appealable order is entered permanently restraining or otherwise prohibiting the transactions contemplated by the Merger Agreement, if the Stockholder Approval has not been obtained at the Stockholders Meeting (as defined in the Merger Agreement) or upon a material uncured breach of the respective obligations, covenants or agreements by the other party that would cause the closing conditions in the Merger Agreement not to be satisfied.

Table of Contents

COLE CREDIT PROPERTY TRUST V, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020 (Unaudited) – (Continued)

In addition, the Company may terminate the Merger Agreement in order to enter into an “Alternative Acquisition Agreement” with respect to a “Superior Proposal” (each as defined in the Merger Agreement) at any time prior to receipt by the Company of the Stockholder Approval pursuant to and subject to the terms and conditions of the Merger Agreement.

CMFT may terminate the Merger Agreement at any time prior to the receipt of the Stockholder Approval, in certain limited circumstances, including upon (i) an Adverse Recommendation Change, (ii) a tender offer or exchange offer that is commenced which the Board fails to recommend against or (iii) a breach by the Company, in any material respect, of its obligations under the go shop or no solicitation provisions set forth in the Merger Agreement.

If the Merger Agreement is terminated because the Merger was not consummated before the Outside Date or because the Stockholder Approval was not obtained, and (i) an Acquisition Proposal (as defined in the Merger Agreement) has been publicly announced or otherwise communicated to the Company’s stockholders prior to the Stockholders Meeting and (ii) within 12 months after the date of such termination (A) the Company consummates or enters into an agreement (that is thereafter consummated) in respect of an Acquisition Proposal for 50% or more of the Company’s equity or assets or (B) the Board recommends or fails to recommend against an Acquisition Proposal structured as a tender or exchange offer for 50% or more of the Company’s equity and such Acquisition Proposal is actually consummated, then the Company must pay CMFT a termination fee of $9.85 million and up to $1.79 million as reimbursement for CMFT’s Expenses (as defined in the Merger Agreement).

If the Merger Agreement is terminated in connection with the Company’s acceptance of a Superior Proposal or making an Adverse Recommendation Change, then the Company must pay to CMFT a termination fee of $9.85 million and up to $1.79 million as reimbursement for CMFT’s Expenses, subject to certain exceptions set forth in the Merger Agreement.

The obligation of each party to consummate the Merger is subject to a number of customary conditions, including receipt of the approval of the Merger (and of an amendment to the Company’s charter that is required to consummate the Merger) by holders of a majority of the outstanding shares of the Company’s common stock entitled to vote thereon (the “Stockholder Approval”), delivery of certain documents and legal opinions, the truth and correctness of the representations and warranties of the parties (subject to the materiality standards contained in the Merger Agreement) and the absence of a CCPT V Material Adverse Effect or CMFT Material Adverse Effect (as each term is defined in the Merger Agreement).

On August 30, 2020, CMFT, CCIT III and Thor III Merger Sub, LLC, a wholly owned subsidiary of CMFT (“CCIT III Merger Sub”), entered into an Agreement and Plan of Merger as subsequently amended on November 3, 2020, (as subsequently amended on November 3, 2020, the “CCIT III Merger Agreement”), pursuant to which CCIT III will be merged with and into CCIT III Merger Sub (the “CCIT III Merger”). Neither the Merger nor the CCIT III Merger is contingent upon the completion of the other.

On August 30, 2020, CMFT, CCIT II and Thor II Merger Sub, LLC, a wholly owned subsidiary of CMFT (“CCIT II Merger Sub”), entered into an Agreement and Plan of Merger (the “CCIT II Merger Agreement”), pursuant to which CCIT II would have merged with and into CCIT II Merger Sub, with CCIT II Merger Sub surviving the merger as the surviving entity such that following the merger, the surviving entity would have continued as a wholly owned subsidiary of CMFT. The CCIT II Merger Agreement was subsequently terminated on October 29, 2020 and, as a result, all provisions of the Merger Agreement relating to CCIT II or the CCIT II Merger Agreement are no longer applicable.

Concurrently with the entry into the Merger Agreement, the Company and CR V Management entered into a letter agreement (the “Termination Agreement”). Pursuant to the Termination Agreement, the advisory agreement between the Company and CR V Management (the “Advisory Agreement”) will be terminated at the effective time of the Merger. Also pursuant to the Termination Agreement, CR V Management agreed to waive any subordinated performance fee or disposition fee (as described in Note 10 — Related-Party Transactions and Arrangements) it otherwise would be entitled to pursuant to the Advisory Agreement related to the Merger. In the event the Merger Agreement is terminated in accordance with its terms, the Termination Agreement will be automatically terminated.

In connection with the contemplated Merger, on August 30, 2020, the Board approved the suspension of the DRIP Offering, and, therefore, distributions paid after that date will be paid in cash to all stockholders unless and until the DRIP Offering is reinstated. Additionally, on August 30, 2020, the Board approved the suspension of the Company’s share redemption program, and, therefore, no shares will be redeemed from the Company’s stockholders after that date unless and until the share redemption program is reinstated.

On August 30, 2020, the Board approved and adopted the Amended and Restated Bylaws of the Company (the “Amended and Restated Bylaws”) to provide that (i) the Circuit Court for Baltimore City, Maryland, or, if that court does not have

Table of Contents

COLE CREDIT PROPERTY TRUST V, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020 (Unaudited) – (Continued)

jurisdiction, the United States District Court for the District of Maryland, Baltimore Division, will be the sole and exclusive forum for (A) any derivative action or proceeding brought on behalf of the Company, (B) any action asserting a claim of breach of any duty owed by a director or officer or other employee of the Company to the Company or its stockholders or asserting a claim of breach of any standard of conduct set forth in the MGCL, (C) any action asserting a claim against the Company or any director or officer or other employee of the Company arising pursuant to any provision of the MGCL, the charter of the Company or the bylaws of the Company, or (D) any action asserting a claim against the Company or any director or officer or other employee of the Company that is governed by the internal affairs doctrine and (ii) the United States District Court for the District of Maryland, Baltimore Division, will be the sole and exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act of 1933.

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, 2019, and related notes thereto, set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. 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 reclassification had no effect on previously reported totals or subtotals.

The Company is separately presenting the recoveries for uncollectable lease-related receivables of $15,000 for the nine months ended September 30, 2019, which was previously included in straight-line rental income, net in the condensed consolidated statements of cash flows.

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:

Table of Contents

COLE CREDIT PROPERTY TRUST V, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020 (Unaudited) – (Continued)



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, lease 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. During the nine months ended September 30, 2020, the Company recorded impairment charges of $52,000 related to one retail property, due to the carrying value being greater than the estimated fair value of the property. The Company’s impairment assessment as of September 30, 2020 was based on the most current information available to the Company, including expected holding periods. If the Company’s expected holding periods for assets change, subsequent tests for impairment could result in additional impairment charges in the future. The Company cannot provide any assurance that additional material impairment charges with respect to the Company’s real estate assets will not occur during 2020 or in future periods, particularly with respect to any negative impacts to the Company that may result from the economic disruptions caused by the current novel coronavirus (“COVID-19”) pandemic. If the effects of the COVID-19 pandemic cause economic and market conditions to continue to deteriorate or if the Company’s expected holding periods for assets change, subsequent tests for impairment could result in additional impairment charges in the future. As of September 30, 2020, the Company has not identified any further impairments resulting from the COVID-19 pandemic related impacts, including as a result of tenant requests for rent relief. The Company generally intends to hold its assets for the long-term; therefore, a temporary change in cash flows due to COVID-19 related impacts alone would not be an indicator of impairment. However, the Company has yet to see the long-term effects of the COVID-19 pandemic on the economy and the extent to which it may impact the Company’s tenants in the future. Indications of a tenant’s inability to continue as a going concern, changes in the Company’s view or strategy relative to a tenant’s business or industry as a result of the economic impacts of the COVID-19 pandemic, or changes in the Company’s long-term hold strategies, could be indicative of an impairment indicator. Accordingly, the Company will continue to monitor circumstances and events in future periods to determine whether the carrying value of the Company’s real estate assets are recoverable. The assumptions and uncertainties utilized in the evaluation of the impairment of real estate assets are discussed in detail in Note 3 — Fair Value Measurements. See also Note 4 — Real Estate Assets for further discussion regarding real estate acquisition and disposition activity. During the nine months ended September 30, 2019, the Company recorded impairment charges of $502,000 related to one retail property, due to the carrying value being greater than the estimated fair value of the property.

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. As of September 30, 2020, the Company identified one asset with a carrying value of $1.1 million as held for sale. There were no assets identified as held for sale as of December 31, 2019.

Table of Contents

COLE CREDIT PROPERTY TRUST V, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020 (Unaudited) – (Continued)

Disposition of Real Estate Assets

Gains and losses from dispositions are recognized once the various criteria relating to the terms of sale and any subsequent involvement by the Company with the asset sold are met. A discontinued operation includes only the disposal of a component of an entity and represents a strategic shift that has (or will have) a major effect on an entity’s financial results. There were no property dispositions during the nine months ended September 30, 2020. The disposition of seven properties during the nine months ended September 30, 2019 did not qualify for discontinued operations presentation, and, thus, the results of the properties that were sold will remain in operating income, and the associated gain from the dispositions is included in gain on disposition of real estate, net in the accompanying condensed consolidated statements of operations.

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 relative 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.

Acquisition-related fees and certain acquisition-related expenses related to asset acquisitions are capitalized and allocated to tangible and intangible assets and liabilities, as described above.

Restricted Cash

The Company had $392,000 and $456,000 in restricted cash as of September 30, 2020 and December 31, 2019, respectively. Included in restricted cash was $392,000 and $354,000 held by lenders in escrow accounts in accordance with the associated lender’s loan agreement as of September 30, 2020 and December 31, 2019, respectively. As of December 31, 2019, restricted cash also included $102,000 held by lenders in lockbox accounts. As part of certain debt agreements, rent from certain of the Company’s tenants is deposited directly into a lockbox account, from which the monthly debt service payments are disbursed to the lender and the excess funds are disbursed to the Company.

Leases

The Company has lease agreements with lease and non-lease components. The Company has elected to not separate non-lease components from lease components for all classes of underlying assets (primarily real estate assets) and will account for the combined components as 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 an operating lease and the revenue recognition pattern and timing is the same for both types of components. The Company is not party to any material leases where it is the lessee.

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, including if they will be exercised, evaluation of implicit discount rates and the assessment and consideration of “fixed” payments for straight-line rent revenue calculations.

Table of Contents

COLE CREDIT PROPERTY TRUST V, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020 (Unaudited) – (Continued)

Lease costs represent the initial direct costs incurred in the 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. Upon successful lease execution, leasing commissions are capitalized.

Revenue Recognition

Rental and other property income is primarily derived from fixed contractual payments from operating leases and, therefore, is generally recognized on a straight-line basis over the term of the lease, which typically begins the date the tenant takes control of 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. Variable rental and other property income consists primarily of tenant reimbursements for recoverable real estate taxes and operating expenses which are included in rental and other property income in the period when such costs are incurred, with offsetting expenses in real estate taxes and property operating expenses, respectively, within the condensed consolidated statements of operations. The Company defers the recognition of variable rental and other property income, such as percentage rents, until the specific target that triggers the contingent rental income is achieved.

The Company continually reviews whether collection of lease-related receivables, including any straight-line rent, and current and future operating expense reimbursements from tenants are probable. The determination of whether collectability is probable takes 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. Upon the determination that the collectability of a receivable is not probable, the Company will record a reduction to rental and other property income for amounts previously recorded and a decrease in the outstanding receivable. Revenue from leases where collection is deemed to be not probable is recorded on a cash basis until collectability becomes probable. Management’s estimate of the collectability of lease-related receivables is based on the best information available at the time of estimate. The Company does not use a general reserve approach and lease-related receivables are adjusted and taken against rental and other property income only when collectability becomes not probable.

During the three and nine months ended September 30, 2020, the Company identified certain tenants where collection was no longer considered probable. For these tenants, the Company made the determination to record revenue on a cash basis and wrote off total outstanding receivables of $483,000 and $1.4 million for the three and nine months ended September 30, 2020, which included $88,000 and $195,000 related to certain tenant reimbursements. These write-offs reduced rental and other property income during the three and nine months ended September 30, 2020.

Earnings (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. Diluted income (loss) per share, when applicable, considers the effect of any potentially dilutive share equivalents, of which the Company had none for each of the three and nine months ended September 30, 2020 or 2019. Distributions per share are calculated based on the authorized monthly distribution rate. Prior to April 1, 2020, distributions were 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 June 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“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. Subsequently, the FASB issued ASU No. 2019-04, ASU No. 2019-05, ASU No. 2019-10, ASU No. 2019-11 and ASU No. 2020-02 to provide additional guidance on the credit losses standard. ASU 2016-13 and the related updates are intended to

Table of Contents

COLE CREDIT PROPERTY TRUST V, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020 (Unaudited) – (Continued)

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 ASU No. 2016-02, Leases (Topic 842) (“ASC 842”). ASU 2016-13 and ASU 2018-19 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. The Company adopted ASU 2016-13 during the first quarter of fiscal year 2020 and has concluded there is no material impact 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 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 ASU 2018-13 are to be applied retrospectively, and early adoption is permitted. The Company adopted ASU 2018-13 during the first quarter of fiscal year 2020 and has concluded there is no material impact on its condensed consolidated financial statements.

In October 2018, the FASB issued ASU No. 2018-16, Inclusion of the Secured Overnight Financing Rate (“SOFR”) Overnight Index Swap (“OIS”) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes (“ASU 2018-16”). The amendments in this ASU permit the use of the OIS rate based on SOFR as a U.S. benchmark interest rate for hedge accounting purposes or another acceptable benchmark interest rate. The SOFR is a volume-weighted median interest rate that is calculated daily based on overnight transactions from the prior day’s activity in specified segments of the U.S. Treasury repo market. It has been selected as the preferred replacement for the U.S. dollar London Interbank Offered Rate (“LIBOR”), which will be phased out by the end of 2021. ASU 2018-16 is effective for public entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. ASU 2018-16 is required to be adopted on a prospective basis for qualifying new or redesignated hedging relationships entered into on or after the date of adoption. The Company currently uses LIBOR as its benchmark interest rate in the Company’s interest rate swaps associated with the Company’s LIBOR-based variable rate borrowings, including one interest rate swap agreement entered into since the date of adoption of ASU 2018-16. The Company evaluated the effect of this new benchmark interest rate option, 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 (“ASU 2018-17”). 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. ASU 2018-17 is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. The Company adopted ASU 2018-17 during the first quarter of fiscal year 2020 and has concluded there is no material impact on its condensed consolidated financial statements.

In April 2020, the FASB issued a question and answer document (the “Lease Modification Q&A”) focused on the application of lease accounting guidance to lease concessions provided as a result of the COVID-19 pandemic. Due to the business disruptions and challenges severely affecting the global economy caused by the COVID-19 pandemic, many lessors may be required to provide rent deferrals and other lease concessions to lessees. While the lease modification guidance in ASC 842 addresses routine changes to lease terms resulting from negotiations between the lessee and the lessor, this guidance did not contemplate concessions being so rapidly executed to address the sudden liquidity constraints of some lessees arising from COVID-19 related impacts. Under existing lease guidance, the Company would have to determine, on a lease by lease basis, if a lease concession was the result of a new arrangement reached with the tenant (treated within the lease modification accounting framework) or if a lease concession was under the enforceable rights and obligations within the existing lease agreement (precluded from applying the lease modification accounting framework). The Lease Modification Q&A allows the

Table of Contents

COLE CREDIT PROPERTY TRUST V, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020 (Unaudited) – (Continued)

Company, if certain criteria have been met, to bypass the lease by lease analysis, and instead elect to either apply the lease modification accounting framework or not, with such election applied consistently to leases with similar characteristics and similar circumstances.

The Company has elected to apply this guidance to avoid performing a lease by lease analysis for the lease concessions that (1) were granted as relief due to COVID-19 related impacts and (2) result in the cash flows remaining substantially the same or less than the original contract and will account for these lease concessions as if no changes were made to the leases. During the three and nine months ended September 30, 2020, the Company provided lease concessions, either in the form of rental deferrals or abatements, to certain tenants in response to the impact of the COVID-19 pandemic on those tenants. As of September 30, 2020, the Company had granted rent deferrals of $718,000. The deferral of rental payments affects the timing, but not the amount, of the lease payments and resulted in an increase of $718,000 to the Company’s lease-related receivables balance as of September 30, 2020. Additionally, as of September 30, 2020, the Company had granted rental abatements of $55,000.

In addition, the Company entered into lease amendments during the three and nine months ended September 30, 2020 that provided for lease concessions, through rent abatements or rent deferrals, that represented substantive changes to the consideration in the original lease. These lease amendments extended the lease periods ranging from five months to 60 months. For these leases, the Company applied the lease modification accounting framework pursuant to ASC 842. As of September 30, 2020, these lease amendments resulted in rent abatements of $302,000 and deferred rental income of $118,000.

As of November 5, 2020, the Company has collected approximately 92% of rental payments billed to tenants during the three months ended September 30, 2020.

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.

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

Credit facility and notes payable — 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. Current and prior period liabilities’ carrying and fair values exclude net deferred financing costs. These financial instruments are valued using Level 2 inputs. As of September 30, 2020, the estimated fair value of the Company’s debt was $368.6 million, compared to a carrying value of $369.3 million. The estimated fair value of the Company’s debt was $343.4 million as of December 31, 2019, compared to a carrying value on that date of $344.1 million.

Derivative instruments — The Company’s derivative instruments are comprised of interest rate swaps. All derivative instruments are carried at fair value and are valued using Level 2 inputs. The fair value of these instruments is determined using

Table of Contents

COLE CREDIT PROPERTY TRUST V, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020 (Unaudited) – (Continued)

interest rate market pricing models. In addition, credit valuation adjustments are incorporated into the fair values to account for the Company’s potential nonperformance risk and the performance risk of the respective counterparties.

Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with those derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by the Company and its counterparties. However, as of September 30, 2020 and December 31, 2019, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and determined that the credit valuation adjustments are not significant to the overall valuation of the Company’s derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

Other financial instruments — The Company considers the carrying values of its cash and cash equivalents, restricted cash, 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, upon disposition of the financial assets and liabilities. As of September 30, 2020 and December 31, 2019, there have been no transfers of financial assets or liabilities between fair value hierarchy levels.

Items Measured at Fair Value on a Recurring Basis

In accordance with the fair value hierarchy described above, the following tables show the fair value of the Company’s financial assets and liabilities that are required to be measured at fair value on a recurring basis as of September 30, 2020 and December 31, 2019 (in thousands):



	Balance as of			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs			Significant Unobservable Inputs
	September 30, 2020			(Level 1)		(Level 2)			(Level 3)
Financial liabilities:
Interest rate swaps	$	(10,456	)	$	—	$	(10,456	)	$	—

	Balance as of			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs			Significant Unobservable Inputs
	December 31, 2019			(Level 1)		(Level 2)			(Level 3)
Financial asset:
Interest rate swap	$	50		$	—	$	50		$	—
Financial liabilities:
Interest rate swaps	$	(5,505	)	$	—	$	(5,505	)	$	—

Items Measured at Fair Value on a Non-Recurring Basis (Including Impairment Charges)

Certain financial and nonfinancial assets and liabilities are measured at fair value on a nonrecurring basis and are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment. The Company’s process for identifying and recording impairment related to real estate assets and intangible assets is discussed in Note 2 — Summary of Significant Accounting Policies.

As discussed in Note 4 — Real Estate Assets, during the nine months ended September 30, 2020, real estate assets related to one retail property was deemed to be impaired, due to the carrying value being greater than the estimated fair value of the property, net of selling costs. The carrying value was reduced to an estimated fair value of $876,000 as a result of updated estimated selling costs, resulting in impairment charges of $52,000. During the nine months ended September 30, 2019, real estate assets related to one retail property were deemed to be impaired and their carrying values were reduced to an estimated fair value of $1.1 million, resulting in impairment charges of $502,000. The Company determined that the selling prices used to determine the fair values were Level 2 inputs.

Table of Contents

COLE CREDIT PROPERTY TRUST V, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020 (Unaudited) – (Continued)

The following table presents the impairment charges by asset class recorded during the nine months ended September 30, 2020 and 2019 (in thousands):



	Nine Months Ended September 30,
	2020		2019
Asset class impaired:
Land	$	16	$	86
Buildings and improvements	36		195
Intangible lease assets	—		221
Total impairment loss	$	52	$	502

NOTE 4 — REAL ESTATE ASSETS

2020 Property Acquisitions

During the nine months ended September 30, 2020, the Company acquired two commercial properties for an aggregate purchase price of $9.7 million (the “2020 Asset Acquisitions”), which includes $308,000 of acquisition-related expenses that were capitalized. The Company funded the 2020 Asset Acquisitions with proceeds from borrowings during the nine months ended September 30, 2020.

The following table summarizes the purchase price allocation for the 2020 Asset Acquisitions purchased during the nine months ended September 30, 2020 (in thousands):



	2020 Asset Acquisitions
Land	$	1,884
Buildings and improvements	7,098
Acquired in-place leases and other intangibles ⁽¹⁾	736
Total purchase price	$	9,718

______________________


(1)	The weighted average amortization period for acquired in-place leases and other intangibles was 14.8 years.

2020 Impairment

The Company performs quarterly impairment review procedures, primarily through continuous monitoring of events and changes in circumstances that could indicate that the carrying value of certain of its real estate assets may not be recoverable. See Note 2 — Summary of Significant Accounting Policies for a discussion on the Company’s accounting policies regarding impairment of real estate assets.

During the nine months ended September 30, 2020, one property with a carrying value of $928,000 was deemed to be impaired and its carrying value was reduced to an estimated fair value of $876,000, resulting in impairment charges of $52,000, which were recorded in the condensed consolidated statements of operations. See Note 3 — Fair Value Measurements for a further discussion on these impairment charges.

2019 Property Acquisitions

During the nine months ended September 30, 2019, the Company acquired 14 commercial properties for an aggregate purchase price of $30.6 million (the “2019 Asset Acquisitions”), which includes $941,000 of acquisition-related expenses that were capitalized. The Company funded the 2019 Asset Acquisitions with proceeds from real estate dispositions during the nine months ended September 30, 2019.

Table of Contents

COLE CREDIT PROPERTY TRUST V, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020 (Unaudited) – (Continued)

The following table summarizes the purchase price allocation for the 2019 Asset Acquisitions purchased during the nine months ended September 30, 2019 (in thousands):



	2019 Asset Acquisitions
Land	$	5,454
Buildings and improvements	14,037
Acquired in-place leases and other intangibles ⁽¹⁾	11,465
Intangible lease liability⁽²⁾	(316		)
Total purchase price	$	30,640

______________________


(1)	The weighted average amortization period for acquired in-place leases and other intangibles was 19.8 years.


(2)	The weighted average amortization period for acquired in-place leases and other intangibles was 14.9 years.

2019 Property Dispositions

During the nine months ended September 30, 2019, the Company disposed of six retail properties and one anchored shopping center for an aggregate gross sales price of $39.2 million, resulting in net proceeds of $38.1 million after closing costs and disposition fees due to CR V Management or its affiliates and a net gain of $685,000. The Company has no continuing involvement with these properties. The gain on sale of real estate is included in gain on disposition of real estate, net in the condensed consolidated statements of operations. The disposition of these properties does not qualify to be reported as discontinued operations since the dispositions do not represent a strategic shift that had a major effect on the Company’s operations and financial results. Accordingly, the operating results of these disposed properties are reflected in the Company’s results from continuing operations for all periods presented through their respective dates of disposition. During the nine months ended September 30, 2020, the Company did not dispose of any properties.

2019 Impairment

During the nine months ended September 30, 2019, one property with a carrying value of $1.6 million was deemed to be impaired and its carrying value was reduced to an estimated fair value of $1.1 million, resulting in impairment charges of $502,000, which were recorded in the condensed consolidated statements of operations. See Note 3 — Fair Value Measurements for a further discussion on these impairment charges.

NOTE 5 — INTANGIBLE LEASE ASSETS AND LIABILITIES

Intangible lease assets and liabilities consisted of the following as of September 30, 2020 and December 31, 2019 (in thousands, except weighted average life remaining):



	September 30, 2020		December 31, 2019
Intangible lease assets:
In-place leases and other intangibles, net of accumulated amortization of $27,323 and $23,013 respectively (with a weighted average life remaining of 11.1 years and 11.5 years, respectively)	$	57,176	$	61,035
Acquired above-market leases, net of accumulated amortization of $3,361 and $2,973, respectively (with a weighted average life remaining of 10.5 years and 10.8 years, respectively)	4,526		4,914
Total intangible lease assets, net	$	61,702	$	65,949
Intangible lease liabilities:
Acquired below-market leases, net of accumulated amortization of $2,618 and $2,359, respectively (with a weighted average life remaining of 8.2 years and 8.7 years, respectively)	$	2,948	$	3,275

Amortization of the above-market leases is recorded as a reduction to rental and other property income, and amortization expense for the in-place leases and other intangibles is included in depreciation and amortization in the accompanying condensed consolidated statements of operations. Amortization of below-market leases is recorded as an increase to rental and other property income in the accompanying condensed consolidated statements of operations.

Table of Contents

COLE CREDIT PROPERTY TRUST V, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020 (Unaudited) – (Continued)

The following table summarizes the amortization related to the intangible lease assets and liabilities for the three and nine months ended September 30, 2020 and 2019 (in thousands):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
In-place lease and other intangible amortization	$	1,534	$	1,542	$	4,548	$	4,574
Above-market lease amortization	$	127	$	139	$	388	$	429
Below-market lease amortization	$	107	$	124	$	326	$	422

The following table summarizes the estimated amortization relating to the intangible lease assets and liabilities subsequent to September 30, 2020 (in thousands):



	Amortization
	In-Place Leases and Other Intangibles		Above-Market Leases		Below-Market Leases
Remainder of 2020	$	1,494	$	127	$	106
2021	5,946		499		414
2022	5,762		488		333
2023	5,460		478		321
2024	5,048		388		287
Thereafter	33,466		2,546		1,487
Total	$	57,176	$	4,526	$	2,948

NOTE 6 — DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

In the normal course of business, the Company uses certain types of derivative instruments for the purpose of managing or hedging its interest rate risk. As of September 30, 2020, the Company had three interest rate swap agreements. The following table summarizes the terms of the Company’s interest rate swap agreements designated as hedging instruments as of September 30, 2020 and December 31, 2019 (dollar amounts in thousands):

Balance Sheet Location

Outstanding Notional Amount as of

Interest Rate⁽¹⁾

Effective Date

Maturity Date

Fair Value of Liabilities as of

September 30, 2020

December 31, 2019

Interest Rate Swaps

(2)

Derivative liabilities, deferred rental income and other liabilities

241,100

3.49% to 4.50%

1/15/2016 to 4/25/2019

2/1/2021 to 3/27/2023

(10,456

)

(5,505

)

______________________

(1) The interest rates consist of the underlying index swapped to a fixed rate and the applicable interest rate spread as of September 30, 2020.

(2) As of December 31, 2019, one of the interest rate swaps with an aggregate outstanding notional amount of $21.1 million was in an asset position with an aggregate fair value of $50,000 and is included in prepaid expenses and other assets in the accompanying condensed consolidated balance sheets.

Additional disclosures related to the fair value of the Company’s derivative instruments are included in Note 3 — Fair Value Measurements. The notional amount under the interest rate swap agreements is an indication of the extent of the Company’s involvement in each instrument, but does not represent exposure to credit, interest rate or market risks.

Accounting for changes in the fair value of a derivative instrument depends on the intended use and designation of the derivative instrument. The Company designated the interest rate swaps as cash flow hedges in order to hedge the variability of the anticipated cash flows on its variable rate debt. The change in fair value of the derivative instruments that are designated as hedges is recorded in other comprehensive income (loss), with a portion of the amount subsequently reclassified to interest expense as interest payments are made on the Company’s variable rate debt. For the three and nine months ended September 30, 2020, the amount of losses reclassified from other comprehensive income (loss) as an increase to interest expense was $1.4 million and $3.0 million, respectively. For the three months ended September 30, 2019, the amount of loss reclassified from other comprehensive income (loss) as an increase to interest expense was $97,000. For the nine months ended September 30, 2019 the amount of gain reclassified from other comprehensive income (loss) as a decrease to interest expense

Table of Contents

COLE CREDIT PROPERTY TRUST V, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020 (Unaudited) – (Continued)

was $269,000. The total unrealized loss on interest rate swaps of $10.5 million and $5.5 million as of September 30, 2020 and December 31, 2019, respectively, is included in accumulated other comprehensive (loss) income in the accompanying condensed consolidated statement of stockholders’ equity. During the next 12 months, the Company estimates that $5.3 million will be reclassified from other comprehensive income (loss) as an increase to interest expense. The Company includes cash flows from interest rate swap agreements in cash flows provided by operating activities on its condensed consolidated statements of cash flows, as the Company’s accounting policy is to present cash flows from hedging instruments in the same category in its condensed consolidated statements of cash flows as the category for cash flows from the hedged items.

The Company has agreements with each of its derivative counterparties that contain provisions whereby, if the Company defaults on certain of its unsecured indebtedness, the Company could also be declared in default on its derivative obligations, resulting in an acceleration of payment. If the Company had breached any of these provisions, it could have been required to settle its obligations under the agreements at an aggregate termination value, inclusive of interest payments, of $10.5 million, which includes accrued interest, at September 30, 2020. In addition, the Company is exposed to credit risk in the event of non-performance by its derivative counterparties. The Company believes it mitigates its credit risk by entering into agreements with creditworthy counterparties. The Company records credit risk valuation adjustments on its interest rate swaps based on the credit quality of the Company and the respective counterparty. There were no termination events or events of default related to the interest rate swaps as of September 30, 2020.

NOTE 7 — CREDIT FACILITY AND NOTES PAYABLE

As of September 30, 2020, the Company had $368.1 million of debt outstanding, including net deferred financing costs, with a weighted average years to maturity of 2.1 years and a weighted average interest rate of 3.8%. The weighted average years to maturity is computed using the scheduled repayment date as specified in each loan agreement where applicable. The weighted average interest rate is computed using the interest rate in effect until the scheduled repayment date. Should a loan not be repaid by its scheduled repayment date, the applicable interest rate will increase as specified in the respective loan agreement until the extended maturity date.

The following table summarizes the debt balances as of September 30, 2020 and December 31, 2019, and the debt activity for the nine months ended September 30, 2020 (in thousands):



				During the Nine Months Ended September 30, 2020
	Balance as of December 31, 2019			Debt Issuance, Net ⁽¹⁾		Repayments and Modifications			Accretion		Balance as of September 30, 2020
Credit facility	$	251,500		$	32,500	$	(7,000	)	$	—	$	277,000
Fixed rate debt	92,600			—		(288		)	—		92,312
Total debt	344,100			32,500		(7,288		)	—		369,312
Deferred costs – credit facility ⁽²⁾	(1,302		)	—		—			305		(997		)
Deferred costs – fixed rate debt	(287		)	—		—			116		(171		)
Total debt, net	$	342,511		$	32,500	$	(7,288	)	$	421	$	368,144

______________________

(1) Includes deferred financing costs incurred during the period.

(2) Deferred costs related to the term portion of the Credit Facility, as defined below.

Notes Payable

As of September 30, 2020, the fixed rate debt outstanding of $92.3 million included $21.1 million of variable rate debt that is fixed through interest rate swap agreements, which has the effect of fixing the variable interest rate per annum through the maturity date of the variable rate debt. The fixed rate debt has interest rates ranging from 3.5% to 4.5% per annum. The fixed rate debt outstanding matures on various dates from February 2021 to December 2024. With respect to the remaining $67.6 million of debt maturing within the next 12 months following the date these financial statements are issued, the Company believes cash on hand, net cash provided by operations, borrowings available under the Credit Facility or the entry into new financing arrangements will be sufficient in order to meet its debt obligations as they become due. The aggregate balance of gross real estate assets, net of gross intangible lease liabilities, securing the fixed rate debt outstanding was $157.2 million as of September 30, 2020. Each of the mortgage notes payable comprising the fixed rate debt is secured by the respective properties on which the debt was placed.

Table of Contents

COLE CREDIT PROPERTY TRUST V, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020 (Unaudited) – (Continued)

Credit Facility

The Company has a credit agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A. (“JPMorgan Chase”), as administrative agent, and the other lenders party thereto. The Credit Agreement allows for borrowings of up to $350.0 million (the “Credit Facility”). The Credit Facility includes $220.0 million in term loans (the “Term Loans”) and up to $130.0 million in revolving loans (the “Revolving Loans”). The Term Loans mature on March 27, 2023 and the Revolving Loans mature on March 28, 2022; however, the Company may elect to extend the maturity date of the Revolving Loans to March 28, 2023 subject to satisfying certain conditions described in the Credit Agreement.

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 LIBOR multiplied by the statutory reserve rate (the “Adjusted LIBO Rate”) for the interest period plus an applicable rate ranging from 1.30% to 1.70%; or (ii) a base rate ranging from 0.30% to 0.70%, plus the greater of: (a) JPMorgan Chase’s Prime Rate (as defined in the Credit Agreement); (b) the NYFRB Rate (as defined in the Credit Agreement) plus 0.50%; or (c) the Adjusted LIBO Rate for a period of one month plus 1.0%. As of September 30, 2020, the amounts outstanding under the Revolving Loans totaled $57.0 million at a weighted average interest rate of 1.9%. As of September 30, 2020, the amounts outstanding under the Term Loans totaled $220.0 million, all of which was subject to interest rate swap agreements (the “Swapped Term Loan”). The interest rate swap agreements had the effect of fixing the Adjusted LIBO Rate per annum of the Swapped Term Loan at an all-in rate of 4.2%. The Company had $277.0 million of debt outstanding under the Credit Facility as of September 30, 2020 at a weighted average interest rate of 3.7% and $73.0 million in unused capacity, subject to borrowing availability. The Company had available borrowings of $1.5 million as of September 30, 2020.

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 not less than $225.0 million plus 75% of the equity interests issued by the Company, a net leverage ratio less than or equal to 60%, a fixed charge coverage ratio equal to or greater than 1.50, an unsecured debt to unencumbered asset value ratio equal to or less than 60%, an unsecured debt service coverage ratio greater than 1.75, a secured debt ratio equal to or less than 40% and recourse debt not greater than 15% of total asset value. The Company believes it was in compliance with the financial covenants of the Credit Agreement, as well as the financial covenants under the Company’s various fixed and variable rate debt agreements, as of September 30, 2020.

Maturities

The following table summarizes the scheduled aggregate principal repayments for the Company’s outstanding debt subsequent to September 30, 2020 (in thousands):



	Principal Repayments
Remainder of 2020	$	100
2021	68,009
2022	57,428
2023	220,448
2024	23,327
Thereafter	—
Total	$	369,312

Table of Contents

COLE CREDIT PROPERTY TRUST V, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020 (Unaudited) – (Continued)

NOTE 8 — SUPPLEMENTAL CASH FLOW DISCLOSURES

Supplemental cash flow disclosures for the nine months ended September 30, 2020 and 2019 are as follows (in thousands):



	Nine Months Ended September 30,
	2020			2019
Supplemental Disclosures of Non-Cash Investing and Financing Activities:
Common stock issued through distribution reinvestment plan	$	3,365		$	7,388
Distributions declared and unpaid	$	1,309		$	1,613
Change in accrued distribution and stockholder servicing fees	$	(5	)	$	(1	)
Accrued capital expenditures	$	10		$	—
Change in fair value of interest rate swaps	$	(5,001	)	$	(6,531	)
Supplemental Cash Flow Disclosures:
Interest paid	$	10,607		$	10,443
Cash paid for taxes	$	141		$	154

NOTE 9 — 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.

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.

Merger Agreement

On August 30, 2020, the Company announced it had entered into the Merger Agreement with CMFT and Merger Sub. In the event the Merger Agreement is terminated in connection with the Company’s acceptance of a Superior Proposal or making an Adverse Recommendation Change, as defined in the Merger Agreement, the Company must pay to CMFT a termination fee of $9.85 million and up to $1.79 million as reimbursement for CMFT’s Expenses, subject to certain exceptions set forth in the Merger Agreement. If the Merger Agreement is terminated because the Merger was not consummated before the Outside Date or because the Stockholder Approval was not obtained, and (i) an Acquisition Proposal has been publicly announced or otherwise communicated to the Company’s stockholders prior to the Stockholders Meeting and (ii) within 12 months after the date of such termination (A) the Company consummates or enters into an agreement (that is thereafter consummated) in respect of an Acquisition Proposal for 50% or more of the Company’s equity or assets or (B) the Board recommends or fails to recommend against an Acquisition Proposal structured as a tender or exchange offer for 50% or more of the Company’s equity and such Acquisition Proposal is actually consummated, then the Company must pay CMFT a termination fee of $9.85 million and up to $1.79 million as reimbursement for CMFT’s Expenses. No such fees were paid as of September 30, 2020.

NOTE 10 — RELATED-PARTY TRANSACTIONS AND ARRANGEMENTS

The Company has incurred, and will continue to incur, commissions, fees and expenses payable to CR V Management and certain of its affiliates in connection with the Offerings and the acquisition, management and disposition of its assets.

Table of Contents

COLE CREDIT PROPERTY TRUST V, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020 (Unaudited) – (Continued)

Selling commissions and dealer manager fees

In connection with the primary portion of the Follow-on Offering, which was terminated on December 31, 2018, CCO Capital, the Company’s dealer manager, which is affiliated with CR V Management, received selling commissions of up to 7.0% and 3.0% of gross offering proceeds from the primary portion of the Offerings for Class A Shares and Class T Shares, respectively, and before reallowance of selling commissions earned by participating broker-dealers. The Company has been advised that CCO Capital reallowed 100% of selling commissions earned to participating broker-dealers. In addition, CCO Capital received 2.0% of gross offering proceeds from the primary portion of the Offerings for both Class A Shares and Class T Shares as a dealer manager fee. CCO Capital, in its sole discretion, 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.

Other 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) were paid by CR V Management or its affiliates and were reimbursed by the Company up to 2.0% of aggregate gross offering proceeds. A portion of the other organization and offering expenses may be considered to be underwriting compensation. As of September 30, 2020, CR V Management had paid organization and offering expenses in excess of 2.0% of aggregate gross offering proceeds in connection with the Offerings. 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 2.0% of gross proceeds from the Offerings. Since the Follow-on Offering has been terminated, these excess amounts will not be paid.

Distribution and stockholder servicing fees

Through October 4, 2016, the Company paid CCO Capital a distribution and stockholder servicing fee for Class T Shares that was calculated on a daily basis in the amount of 1/365th of 0.8% of the most recent estimated per share NAV of the Class T Shares sold in the primary portion of the Initial Offering. Beginning on October 5, 2016, the distribution and stockholder servicing fee is calculated on a daily basis in an amount equal to 1/365th of 1.0% of the most recent estimated per share NAV of the Class T Shares sold in the primary portion of the Offerings. The distribution and stockholder servicing fee is paid monthly in arrears from cash flows from operations or, if the Company’s cash flows from operations are not sufficient to pay the distribution and stockholder servicing fee, from borrowings in anticipation of future cash flows. An estimated liability for future distribution and stockholder servicing fees payable to CCO Capital was recognized at the time each Class T Share was 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 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 sale of the Company’s shares, excluding shares sold pursuant to the DRIP; (iii) the fourth anniversary of the last day of the month in which the offering in which such Class T Shares were purchased (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 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 fees and expenses

The Company pays CR V Management or its affiliates acquisition fees of up to 2.0% of: (1) the contract purchase price of each property or asset the Company acquires; (2) the amount paid in respect of the development, construction or improvement of each asset the Company acquires; (3) the purchase price of any loan the Company acquires; and (4) the principal amount of any loan the Company originates. In addition, the Company reimburses CR V Management or its affiliates for insourced expenses incurred in the process of acquiring a property or the origination or acquisition of a loan, which are fixed on an annual basis at 0.5% of the contract purchase price of each property and 0.5% of the amount advanced for a loan or other investment,

Table of Contents

COLE CREDIT PROPERTY TRUST V, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020 (Unaudited) – (Continued)

which will be prorated for any partial calendar year; provided, that acquisition expenses are not included in the contract purchase price of the property. Additionally, CR V Management or its affiliates are reimbursed for third-party acquisition-related expenses incurred in the process of acquiring properties, so long as the total 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 Board, including a majority of the Company’s independent directors, as commercially competitive, fair and reasonable to the Company. Other transaction-related expenses, such as advisor reimbursements for disposition activities, are expensed as incurred and are included in transaction-related expenses in the condensed consolidated statements of operations.

Advisory fees and expenses

Pursuant to the Advisory Agreement, the Company pays CR V Management a monthly advisory fee based upon the Company’s monthly average asset value, which, effective July 1, 2020, is based on the estimated market value of such assets used to determine the Company’s estimated per share NAV as of June 30, 2020, as discussed in Note 1 — Organization and Business, and for those assets acquired subsequent to June 30, 2020, is based on the purchase price. The monthly advisory fee is equal to the following amounts: (1) an annualized rate of 0.75% paid on the Company’s average asset value that is between $0 and $2.0 billion; (2) 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 (3) an annualized rate of 0.65% paid on the Company’s average asset value that is over $4.0 billion. Starting in May 2019, one-third of this fee is paid to CR V Management in Class A Shares, which are issued at the most recently established NAV price. During the three and nine months ended September 30, 2020, approximately 8,000 and 52,000 Class A Shares, respectively, were issued for payment of advisory fees, which vested upon issuance, totaling $144,000 and $997,000, respectively, for the three and nine months ended September 30, 2020 in equity-based payments included in advisory fees and expenses in the condensed consolidated statements of operations. The Board has approved the payment of one-third of the monthly advisory fee in Class A Shares through December 2020.

Operating expenses

The Company reimburses CR V Management, or its affiliates, for the expenses they paid or incurred in connection with the advisory and administrative services provided to the Company, subject to the limitation that the Company will not reimburse CR V 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: (1) 2.0% of average invested assets, or (2) 25.0% of net income excluding any additions to reserves for depreciation or other similar non-cash reserves and excluding any gain from the sale of assets for that period. The Company will not reimburse CR V Management or its affiliates for the salaries and benefits paid to personnel in connection with the services for which CR V Management or its affiliates receive acquisition fees, and the Company will not reimburse CR V Management for salaries and benefits paid to the Company’s executive officers.

Disposition fees

If CR V 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 CR V 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 property, not to exceed 1.0% of the contract price of the property sold; provided, however, in no event may the total disposition fees paid to CR V 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 CR V Management or its affiliates provides 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 assets other than properties, the Company may separately compensate CR V Management or its affiliates at such rates and in such amounts as the Board, including a majority of the Company’s independent directors, and CR V Management agree upon, not to exceed an amount equal to 1.0% of the contract price of the assets sold.

Subordinated performance fees

The Company will pay a subordinated performance fee in connection with one of the following alternative events: (1) if the Company’s shares are listed on a national securities exchange, CR V 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, CR V 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

Table of Contents

COLE CREDIT PROPERTY TRUST V, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020 (Unaudited) – (Continued)

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 with CR V Management, CR V 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, 2020 and 2019, 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 CR V Management and its affiliates related to the services described above during the periods indicated (in thousands):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Selling commissions	$	—	$	—	$	—	$	47
Dealer manager fees	$	—	$	—	$	—	$	27
Other organization and offering expenses	$	—	$	—	$	—	$	114
Distribution and stockholder servicing fees ⁽¹⁾	$	87	$	91	$	263	$	281
Acquisition fees and expenses	$	—	$	128	$	235	$	742
Disposition fees	$	—	$	44	$	—	$	326
Advisory fees and expenses	$	1,643	$	1,555	$	4,911	$	4,635
Operating expenses	$	392	$	247	$	1,179	$	966

______________________

(1)

Amounts are calculated for the respective period in accordance with the dealer manager agreement and exclude the estimated liability for future distribution and stockholder servicing fees payable to CCO Capital of $601,000 and $962,000 as of September 30, 2020 and 2019, 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.

Due to Affiliates

As of September 30, 2020 and December 31, 2019, $1.6 million and $1.8 million, respectively, were recorded for services and expenses incurred, but not yet reimbursed to CR V Management or its affiliates. The amounts are primarily for operating fees and expenses, and distribution and stockholder servicing fees payable to CCO Capital. These amounts were included in due to affiliates in the condensed consolidated balance sheets for such periods.

Termination Agreement

Concurrently with the entry into the Merger Agreement, the Company and CR V Management entered into the Termination Agreement, effective as of August 30, 2020. Pursuant to the Termination Agreement, the current Advisory Agreement will be terminated at the effective time of the Merger. Also pursuant to the Termination Agreement, CR V Management waived any subordinated performance fee or disposition fee it otherwise would be entitled to pursuant to the Advisory Agreement related to the Merger. In the event the Merger Agreement is terminated in accordance with its terms, the Termination Agreement will be automatically terminated.

NOTE 11 — ECONOMIC DEPENDENCY

Under various agreements, the Company has engaged and may in the future engage CR V 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, 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 CR V 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.

Table of Contents

COLE CREDIT PROPERTY TRUST V, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020 (Unaudited) – (Continued)

NOTE 12 — STOCKHOLDERS’ EQUITY

Equity-Based Compensation

On August 10, 2018, the Board approved the adoption of the Company’s 2018 Equity Incentive Plan (the “Plan”), under which 400,000 of the Company’s shares of common stock were reserved for issuance and awards of 392,000 shares of common stock are available for future grant as of September 30, 2020.

As of September 30, 2020, the Company has granted awards of approximately 2,500 restricted Class A Shares to each of the independent members of the Board (approximately 7,600 restricted shares in aggregate) under the Plan. As of September 30, 2020, 3,600 of the restricted Class A Shares had vested based on one year of continuous service. The remaining 4,000 shares issued fully vested on October 1, 2020. The fair value of the Company’s share awards is determined using the Company’s per share NAV on the date of grant. Compensation expense related to these restricted Class A Shares is recognized over the vesting period. The Company recorded compensation expense of $20,000 and $59,000 for the three and nine months ended September 30, 2020 and 2019, respectively, related to these restricted Class A Shares, which is included in general and administrative expenses in the accompanying condensed consolidated statements of operations. All of the total compensation expense related to these restricted Class A Shares was recognized ratably over the period of service prior to October 1, 2020.

NOTE 13 — LEASES

The Company’s real estate assets are leased to tenants under operating leases for which the terms, expirations and 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 reviews contracts to determine if the agreement conveys the right to control the use of an asset. The Company accounts for lease and non-lease components as a single, combined operating lease component. 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, 2020, the leases had a weighted-average remaining term of 9.8 years. Certain leases include provisions to extend the lease 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 tenants. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

As of September 30, 2020, 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, was as follows (in thousands):



	Future Minimum Rental Income
Remainder of 2020	$	13,661
2021	47,121
2022	45,919
2023	44,527
2024	41,931
Thereafter	295,923
Total	$	489,082

A certain amount of the Company’s rental and other property income is from tenants with leases which are subject to contingent rent provisions. These contingent rents are subject to the tenant achieving periodic revenues in excess of specified levels. For the three and nine months ended September 30, 2020 and 2019, the amount of the contingent rent earned by the Company was not significant.

Table of Contents

COLE CREDIT PROPERTY TRUST V, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020 (Unaudited) – (Continued)

Rental and other property income during the three and nine months ended September 30, 2020 and 2019 consisted of the following (in thousands):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Fixed rental and other property income ⁽¹⁾	$	11,708	$	12,045	$	34,916	$	36,036
Variable rental and other property income ⁽²⁾	1,603		1,743		4,914		5,087
Total rental and other property income	$	13,311	$	13,788	$	39,830	$	41,123

______________________


(1)	Consists primarily of fixed contractual payments from operating leases with tenants recognized on a straight-line basis over the lease term, including amortization of acquired above- and below-market leases, and is net of uncollectible lease-related receivables.


(2)	Consists primarily of tenant reimbursements for recoverable real estate taxes and property operating expenses, and percentage rent.

NOTE 14 — SUBSEQUENT EVENTS

The following events occurred subsequent to September 30, 2020:

Property Dispositions

Subsequent to September 30, 2020, the Company disposed of two retail properties for a gross sales price of $2.3 million, resulting in net proceeds of $2.2 million after closing costs and disposition fees due to CR V Management or its affiliates, and a gain of approximately $203,000. The Company has no continuing involvement with these properties.

Amendments to Merger Agreement

On October 22, 2020, the parties to the Merger Agreement entered into the First Amendment to Agreement and Plan of Merger, pursuant to which the Company was granted an extension under limited circumstances to timely deliver a CCPT V Change Notice (as defined in the Merger Agreement) in order for the Go Shop Termination Payment (as defined in the Merger Agreement) to be applicable in those circumstances.

On October 24, 2020, the parties to the Merger Agreement entered into the Second Amendment to Agreement and Plan of Merger, pursuant to which the Company was granted another extension under limited circumstances to timely deliver a CCPT V Change Notice in order for the Go Shop Termination Payment to be applicable in those circumstances.

On October 29, 2020, the parties to the Merger Agreement entered into Amendment No. 3 to Agreement and Plan of Merger, pursuant to which the Merger Agreement was amended to (i) increase the Exchange Ratio from 2.691 to 2.892 shares of CMFT Common Stock (as defined in the Merger Agreement) for each share of the Company’s common stock (with such ratio subject to adjustments in accordance with the terms and conditions of the Merger Agreement), (ii) increase the amount of the Full Termination Payment (as defined in the Merger Agreement) from $9.17 million to $9.85 million and (iii) increase the maximum amount of Expenses (as defined in the Merger Agreement) payable by either CMFT or the Company to the other in connection with certain terminations of the Merger Agreement from $1.67 million to $1.79 million.

Registration Statement on Form S-4

In connection with the Merger, CMFT filed a registration statement on Form S-4 (File No. 333-249294), declared effective by the SEC on November 10, 2020, that includes a proxy statement of the Company and that also constitutes a prospectus of CMFT. The Merger is currently anticipated to close by year end 2020.

Table of Contents


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, 2019. 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 Credit Property Trust V, Inc.

Certain statements regarding future estimates and expectations may not be applicable to the extent the Merger (as defined herein) is completed.

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 of 1933, as amended (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. In addition, these risks and uncertainties include those associated with (i) the scope, severity and duration of the current pandemic of COVID‑19 and actions taken to contain the pandemic or mitigate its impact, (ii) the potential adverse effect of the COVID-19 pandemic on the financial condition, results of operations, cash flows and performance of the Company and its tenants, the real estate market and the global economy and financial markets, among others, and (iii) general economic, market and other conditions. 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, 2019.

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 dispositions.


•	We are subject to competition in the acquisition and disposition of properties and in the leasing of our properties and we may suffer delays or be unable to acquire, dispose of, or lease properties on advantageous terms.


•	We are 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 are subject to risks associated with the incurrence of additional secured or unsecured debt.


•	We may not be able to maintain profitability.


•	We may not generate cash flows sufficient to pay our distributions to stockholders or meet our debt service obligations.

Table of Contents


•	Our continued compliance with debt covenants depends on many factors and could be impacted by current or future economic conditions associated with the COVID-19 pandemic.


•	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 advisor has the right to terminate the Advisory Agreement upon 60 days’ written notice without cause or penalty.

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 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 December 12, 2012 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, 2014. We commenced our principal operations on March 18, 2014, when we satisfied the minimum offering conditions of our escrow agreement and issued approximately 110,000 shares of our common stock in the Initial Offering. We have no paid employees and are externally advised and managed by CR V Management. CIM indirectly owns and/or controls CR V Management; our dealer manager, CCO Capital; our property manager, CREI Advisors; and CCO Group.

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 Second Amended and Restated DRIP portion of the Follow-on Offering. On March 28, 2019, we registered an aggregate of $68,740,000 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 Follow-on Offering on April 30, 2019. The unsold Class A Shares and Class T Shares in the Follow-on Offering of $1.4 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 continued to issue shares under the DRIP Offering until, on August 30, 2020, the Board suspended the DRIP Offering in connection with the entry of the Company into the Merger Agreement.

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. As 98.1% of our rentable square feet was under lease as of September 30, 2020 (including any month-to-month agreements) with a weighted average remaining lease term of 9.8 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, including due to circumstances related to the COVID-19 pandemic. Our advisor regularly monitors the creditworthiness 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.

Table of Contents

COVID-19

The COVID-19 outbreak and the associated “shelter-in-place” or “stay-at-home” orders or other quarantine mandates or public health guidance issued by local, state or federal authorities has adversely affected a number of our tenants’ businesses. The extent to which the COVID-19 pandemic continues to impact our operations and those of our tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others.

During the three and nine months ended September 30, 2020, we provided lease concessions, either in the form of rental deferrals or abatements, to certain tenants in response to the impact of the COVID-19 pandemic. As of September 30, 2020, we granted total rent deferrals with an aggregate deferral amount of $836,000. Additionally, as of September 30, 2020, we granted rent abatements to tenants with an abatement amount of $357,000.

As of November 5, 2020, we have collected approximately 92% of rental payments billed to tenants during the three months ended September 30, 2020. Additionally, as of November 5, 2020, we have collected 95% of October 2020 rental payments billed to tenants.

We are actively managing our response to the COVID-19 pandemic in collaboration with our tenants and business partners and are assessing potential impacts to our financial position and operating results, as well as potential adverse developments in our business. Given the relative stability of the Company’s rent collections and the per share NAV for the quarters ended March 31, 2020 and June 30, 2020, the Board determined that it is in the best interests of the Company and its stockholders to cease incurring the additional costs associated with quarterly valuations and return to updating the Company’s per share NAV on an annual basis in accordance with its valuation policies. Further, in order to manage the financial health of the Company, our Board is making its determinations with respect to the declaration of distributions on a monthly, instead of quarterly basis, and has approved and adopted an amended and restated distribution reinvestment plan (the “Amended DRIP”) and an amended and restated share redemption program (the “Amended Share Redemption Program”) that, among other changes, provides that the Amended DRIP and the Amended Share Redemption Program may be suspended at any time by majority vote of the Board without prior notice if the Board believes such action is in the best interest of the Company and its stockholders. In connection with the contemplated Merger, on August 30, 2020, the Board approved the suspension of the Amended DRIP and the Amended Share Redemption Program.

For further information regarding the impact of the COVID-19 pandemic on the Company, see Part II, Item 1A titled “Risk Factors.”

Pending Merger with CMFT

On August 30, 2020, we, CMFT and Merger Sub entered into the Merger Agreement. Subject to the terms and conditions of the Merger Agreement, we will merge with and into Merger Sub with Merger Sub surviving the Merger, such that following the Merger, the surviving entity will continue as a wholly owned subsidiary of CMFT. In accordance with the applicable provisions of the MGCL, our separate existence shall cease at the effective time of the Merger.

At the effective time of the Merger and subject to the terms and conditions of the Merger Agreement, each issued and outstanding share of our common stock, $0.01 par value per share, will be converted into the right to receive 2.892 shares of CMFT’s common stock, $0.01 par value per share, subject to the treatment of fractional shares in accordance with the Merger Agreement.

On August 30, 2020, CMFT, CCIT III and CCIT III Merger Sub entered into the CCIT III Merger Agreement, pursuant to which CCIT III will be merged with and into CCIT III Merger Sub. Neither the Merger nor the CCIT III Merger is contingent upon the completion of the other.

The combined company after the Merger and the CCIT III Merger will retain the name CIM Real Estate Finance Trust, Inc. Each of the Merger and the CCIT III Merger is intended to qualify as a “reorganization” under, and within the meaning of, Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”).

For additional information on the Merger, see Note 1 — Organization and Business to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q and our Current Reports on Form 8-K filed with the SEC on August 31, 2020, October 28, 2020 and November 2, 2020.

Table of Contents

Operating Highlights and Key Performance Indicators

2020 Activity


•	Acquired two commercial properties for an aggregate purchase price of $9.7 million.


•	Increased total debt by $25.2 million, from $344.1 million to $369.3 million.

Portfolio Information

As of September 30, 2020, we owned 150 properties, comprising approximately 3.4 million rentable square feet of commercial space located in 34 states, which were 98.1% leased, including any month-to-month agreements, with a weighted average remaining lease term of 9.8 years. As of September 30, 2020, one of our tenants, Walgreens, accounted for 10% of our 2020 annualized rental income. As of September 30, 2020, we had certain geographic concentrations in our property holdings. In particular, as of September 30, 2020, 23 of our properties were located in Texas, accounting for 14% of our 2020 annualized rental income. In addition, we had tenants in the discount store, grocery, sporting goods and pharmacy industries, which accounted for 13%, 13%, 11%, and 11% respectively, of our 2020 annualized rental income. The following table shows the property statistics of our real estate assets as of September 30, 2020 and 2019:



	As of September 30,
	2020		2019
Number of commercial properties	150		148
Rentable square feet (in thousands) ⁽¹⁾	3,449		3,415
Percentage of rentable square feet leased	98.1	%	98.5	%
Percentage of investment-grade tenants ⁽²⁾	34.1	%	34.3	%

______________________


(1)	Includes square feet of buildings on land parcels subject to ground leases.

(2)

Investment-grade tenants are those with a credit rating of BBB- or higher by Standard & Poor’s Financial Services LLC (“Standard & Poor’s”) or a credit rating of Baa3 or higher by Moody’s Investor Service, Inc. (“Moody’s”). The ratings may reflect those assigned by Standard & Poor’s or Moody’s to the lease guarantor or the parent company, as applicable. The weighted average credit rating is weighted based on annualized rental income, and is for only those tenants rated by Standard & Poor’s.

The following table summarizes our real estate acquisition activity during the three and nine months ended September 30, 2020 and 2019:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Commercial properties acquired	—		1		2		14
Purchase price of acquired properties (in thousands)	$	—	$	5,308	$	9,718	$	30,640
Rentable square feet of acquired properties (in thousands) ⁽¹⁾	—		16		33		110

______________________


(1)	Includes square feet of buildings on land parcels subject to ground leases.

Results of Operations

Overview

We are not aware of any material trends or uncertainties, other than those listed in the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2019 and this Quarterly Report on Form 10-Q, the effects of the recent outbreak of COVID-19, and 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 operation of properties. Currently, we are unable to predict the impact that the COVID-19 pandemic will have on our financial condition, results of operations and cash flows in future periods due to numerous uncertainties.

Same Store Analysis

Our results of operations are influenced by the timing of acquisitions and the operating performance of our real estate assets. We review our stabilized operating results, measured by net operating income, from properties that we owned for the

Table of Contents

entirety of both the current and prior year reporting periods, referred to as “same store” properties, and we believe that the presentation of operating results for same store properties provides useful information to stockholders. Net operating income is a supplemental non-GAAP financial measure of a real estate company’s operating performance. Net operating income is considered by management to be a helpful supplemental performance measure, as it enables management to evaluate the impact of occupancy, rents, leasing activity, and other controllable property operating results at our real estate properties, and it provides a consistent method for the comparison of our properties. We define net operating income as operating revenues less operating expenses, which exclude (i) depreciation and amortization, (ii) interest expense and other non-property related revenue and expense items such as (a) general and administrative expenses, (b) advisory fees, and (c) transaction-related expenses. Our net operating income may not be comparable to that of other REITs and should not be considered to be more relevant or accurate in evaluating our operating performance than the current GAAP methodology used in calculating net income (loss). In determining the same store property pool, we include all properties that were owned for the entirety of both the current and prior reporting periods, except for properties during the current or prior year that were under development or redevelopment.

Comparison of the Three Months Ended September 30, 2020 and 2019

The following table reconciles net income, calculated in accordance with GAAP, to net operating income (dollar amounts in thousands):



	For the Three Months Ended September 30,
	2020			2019			Change
Net (loss) income	$	(764	)	$	790		$	(1,554	)
Interest expense and other, net	3,745			3,624			121
Operating income	2,981			4,414			(1,433		)

Gain on disposition of real estate, net	—			(150		)	150
Impairment	—			502			(502		)
Depreciation and amortization	4,740			4,683			57
Transaction-related	(15		)	7			(22		)
Merger-related expenses	954			—			954
Advisory fees and expenses	1,643			1,555			88
General and administrative expenses	1,037			814			223
Net operating income	$	11,340		$	11,825		$	(485	)

A total of 147 properties were acquired before July 1, 2019 and represent our “same store” properties during the three months ended September 30, 2020 and 2019. “Non-same store” properties, for purposes of the table below, includes properties acquired or disposed of on or after July 1, 2019. The following table details the components of net operating income broken out between same store and non-same store properties (dollar amounts in thousands):



	Total							Same Store							Non-Same Store
	For the Three Months Ended September 30,							For the Three Months Ended September 30,							For the Three Months Ended September 30,
	2020		2019		Change			2020		2019		Change			2020		2019		Change
Rental and other property income	$	13,311	$	13,788	$	(477	)	$	13,040	$	13,694	$	(654	)	$	271	$	94	$	177

Property operating expenses	925		839		86			895		839		56			30		—		30
Real estate tax expenses	1,046		1,124		(78		)	1,041		1,124		(83		)	5		—		5
Total property operating expenses	1,971		1,963		8			1,936		1,963		(27		)	35		—		35

Net operating income	$	11,340	$	11,825	$	(485	)	$	11,104	$	11,731	$	(627	)	$	236	$	94	$	142

Interest Expense and Other, Net

The increase in interest expense and other, net of $121,000 during the three months ended September 30, 2020, as compared to the same period in 2019, was primarily due to an increase in the average aggregate amount of debt outstanding from $343.1 million as of September 30, 2019, as compared to $369.3 million as of September 30, 2020.

Table of Contents

Gain on Disposition of Real Estate, Net

Gain on disposition of real estate, net was $150,000 for the three months ended September 30, 2019. The gain recorded was due to the disposition of one retail property during the three months ended September 30, 2019. No dispositions occurred during the three months ended September 30, 2020.

Impairments

The decrease in impairment charges of $502,000 during the three months ended September 30, 2020, as compared to the same period in 2019, was primarily due to management identifying one retail property with a carrying value greater than the estimated fair value, net of selling costs, during the three months ended September 30, 2019. There were no assets impaired during the three months ended September 30, 2020.

Depreciation and Amortization

The increase in depreciation and amortization expenses of $57,000 for the three months ended September 30, 2020, compared to the same period in 2019, was primarily due to the acquisition and management of two additional properties subsequent to September 30, 2019.

Transaction-Related

We pay CR V Management or its affiliates acquisition fees of up to 2.0% of: (1) the contract purchase price of each property or asset we acquire; (2) the amount paid in respect of the development, construction or improvement of each asset we acquire; (3) the purchase price of any loan we acquire; and (4) the principal amount of any loan we originate. We also reimburse CR V Management or its affiliates for transaction-related expenses incurred in the process of acquiring a property or the origination or acquisition of a loan, so long as the total fees and expenses relating to the transaction do not exceed 6.0% of the contract purchase price, unless otherwise approved by a majority of our Board, including a majority of our independent directors, as commercially competitive, fair and reasonable to us. We also reimburse CR V Management or its affiliates for insourced expenses incurred in the process of acquiring a property or the origination or acquisition of a loan, which are fixed on an annual basis to 0.5% of the contract purchase price of each property and 0.5% of the amount advanced for a loan or other investment, which will be prorated for any partial calendar year; provided, however, that acquisition expenses are not included in the contract purchase price of the property.

Transaction-related remained generally consistent for the three months ended September 30, 2020, compared to the same period in 2019.

Merger-Related Expenses

In connection with the contemplated Merger, we incurred consulting fees of $954,000 during the three months ended September 30, 2020. No such fees were incurred during the three months ended September 30, 2019.

Advisory Fees and Expenses

Pursuant to the advisory agreement with CR V Management and based upon the amount of our current invested assets, we are required to pay to CR V Management a monthly advisory fee equal to one-twelfth of 0.75% of the average asset value. Additionally, we may be required to reimburse certain expenses incurred by CR V Management in providing advisory services, subject to limitations as set forth in the advisory agreement.

Advisory fees and expenses remained generally consistent for the three months ended September 30, 2020, compared to the same period in 2019.

General and Administrative Expenses

The primary general and administrative expense items are certain expense reimbursements to our advisor, accounting and other professional fees, transfer agent fees and Board costs.

The increase in general and administrative expenses of $223,000 during the three months ended September 30, 2020, as compared to the same period in 2019, was primarily due to increases in expense reimbursements to our advisor during the three months ended September 30, 2020.

Table of Contents

Net Operating Income

Same store property net operating income decreased $627,000 during the three months ended September 30, 2020, as compared to the same period in 2019. Due to the impact of the COVID-19 pandemic, there was a reduction in rental and other property income for amounts deemed not probable of collection at seven properties, which totaled $689,000 for three months ended September 30, 2020, as compared to the same period in 2019.

Non-same store property net operating income increased $142,000 during the three months ended September 30, 2020, as compared to the same period in 2019. The increase was primarily due to the acquisition and management of two additional income-producing properties subsequent to September 30, 2019.

Comparison of the Nine Months Ended September 30, 2020 and 2019

The following table reconciles net income, calculated in accordance with GAAP, to net operating income (dollar amounts in thousands):



	For the Nine Months Ended September 30,
	2020			2019			Change
Net (loss) income	$	(59	)	$	3,273		$	(3,332	)
Interest expense and other, net	11,250			10,857			393
Operating income	11,191			14,130			(2,939		)

Gain on disposition of real estate, net	—			(685		)	685
Impairment	52			502			(450		)
Depreciation and amortization	14,106			14,047			59
Transaction-related	78			8			70
Merger-related expenses	954			—			954
Advisory fees and expenses	4,911			4,635			276
General and administrative expenses	3,058			2,774			284
Net operating income	$	34,350		$	35,411		$	(1,061	)

A total of 134 properties were acquired before January 1, 2019 and represent our “same store” properties during the nine months ended September 30, 2020 and 2019. “Non-same store” properties, for purposes of the table below, includes properties acquired on or disposed of after January 1, 2019.

The following table details the components of net operating income broken out between same store and non-same store properties (dollar amounts in thousands):



	Total							Same Store							Non-Same Store
	For the Nine Months Ended September 30,							For the Nine Months Ended September 30,							For the Nine Months Ended September 30,
	2020		2019		Change			2020		2019		Change			2020		2019		Change
Rental and other property income	$	39,830	$	41,123	$	(1,293	)	$	37,635	$	39,266	$	(1,631	)	$	2,195	$	1,857	$	338

Property operating expenses	2,323		2,491		(168		)	2,279		2,429		(150		)	44		62		(18		)
Real estate tax expenses	3,157		3,221		(64		)	3,143		3,180		(37		)	14		41		(27		)
Total property operating expenses	5,480		5,712		(232		)	5,422		5,609		(187		)	58		103		(45		)

Net operating income	$	34,350	$	35,411	$	(1,061	)	$	32,213	$	33,657	$	(1,444	)	$	2,137	$	1,754	$	383

Interest Expense and Other, Net

The increase in interest expense and other, net of $393,000 during the nine months ended September 30, 2020, as compared to the same period in 2019, was primarily due to an increase in the average outstanding debt balance from $343.1 million as of September 30, 2019, as compared to $361.9 million as of September 30, 2020.

Table of Contents

Gain on Disposition of Real Estate, Net

Gain on disposition of real estate, net was $685,000 for the nine months ended September 30, 2019. The gain recorded was due to the disposition of six retail properties and one anchored shopping center during the nine months ended September 30, 2019. No dispositions occurred during the nine months ended September 30, 2020.

Impairments

The decrease in impairment charges of $450,000 during the nine months ended September 30, 2020, as compared to the same period in 2019, was primarily due to management identifying one retail property with a carrying value greater than the estimated fair value, net of selling costs, which resulted in impairment charges of $502,000 during the nine months ended September 30, 2019, compared to management identifying one retail property with a carrying value greater than the estimated fair value, net of selling costs, which resulted in impairment charges of $52,000 during the nine months ended September 30, 2020.

Depreciation and Amortization

The increase in depreciation and amortization expenses of $59,000 for the nine months ended September 30, 2020, compared to the same period in 2019, was primarily due to the acquisition and management of two additional properties subsequent to September 30, 2019, as well as recognizing a full period of depreciation expense on the 14 properties acquired during the nine months ended September 30, 2019.

Transaction-Related

The increase in transaction-related of $70,000 during the nine months ended September 30, 2020, as compared to the same period in 2019, was primarily due to an increase in expenses related to terminated transactions.

Merger-Related Expenses

In connection with the contemplated Merger, we incurred consulting fees of $954,000 during the nine months ended September 30, 2020. No such fees were incurred during the nine months ended September 30, 2019.

Advisory Fees and Expenses

The increase in advisory fees and expenses of $276,000 for the nine months ended September 30, 2020, compared to the same period in 2019, was primarily due to an increase in average invested assets to $682.3 million for the nine months ended September 30, 2020, as compared to $678.2 million for the nine months ended September 30, 2019.

General and Administrative Expenses

The increase in general and administrative expenses of $284,000 during the nine months ended September 30, 2020, as compared to the same period in 2019, was primarily due to increases in expense reimbursements to our advisor during the nine months ended September 30, 2020.

Net Operating Income

Same store property net operating income decreased $1.4 million during the nine months ended September 30, 2020, as compared to the same period in 2019. Due to the impact of the COVID-19 pandemic, there was a reduction in rental and other property income for amounts deemed not probable of collection at nine properties, which accounted for $1.2 million of the net decrease in net operating income for nine months ended September 30, 2020, as compared to the same period in 2019.

Non-same store property net operating income increased $383,000 during the nine months ended September 30, 2020, as compared to the same period in 2019. The increase is primarily due to the acquisition and management of two additional income-producing properties subsequent to September 30, 2019, as well as recognizing a full period of net operating income on the 14 properties acquired during the nine months ended September 30, 2019.

Table of Contents

Distributions

Prior to April 1, 2020, on a quarterly basis, our Board authorized 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⁾
March 18, 2014	December 31, 2015	$0.0043150685
January 1, 2016	December 31, 2016	$0.0043032787
January 1, 2017	March 31, 2019	$0.004315068
April 1, 2019	December 31, 2019	$0.003232877
January 1, 2020	March 31, 2020	$0.003224044

______________________

(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).

On April 20, 2020, our Board decided to make a determination as to the amount and timing of distributions on a monthly, instead of quarterly, basis until such time that we have greater visibility into the impact that the COVID-19 pandemic will have on our tenants’ ability to continue to pay rent on their leases on a timely basis or at all, the degree to which federal, state or local governmental authorities grant rent relief or other relief or amnesty programs applicable to our tenants, our ability to access the capital markets, and on the United States and worldwide financial markets and economy.

After April 1, 2020, on a monthly basis, our Board has authorized a monthly distribution amount. On August 30, 2020, in connection with the Merger, our Board suspended the DRIP Offering, and, therefore, further distributions will be paid in cash to all stockholders unless and until we reinstate the DRIP Offering. Our Board authorized the following monthly distribution amounts per share for the periods indicated below:



Record Date		Distribution Amount ⁽¹⁾
April 30, 2020		$0.0200
May 31, 2020		$0.0200
June 30, 2020		$0.0413
July 30, 2020		$0.0560
August 28, 2020		$0.0789
September 29, 2020		$0.0789
October 29, 2020		$0.0789
November 27, 2020		$0.0789

______________________


(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 September 30, 2020, we had distributions payable of $1.3 million.

The following table presents distributions and sources of distributions for the periods indicated below (dollar amounts in thousands):



	Nine Months Ended September 30,
	2020				2019
	Amount		Percent		Amount		Percent
Distributions paid in cash	$	6,715	67	%	$	9,554	56	%
Distributions reinvested	3,365		33	%	7,388		44	%
Total distributions	$	10,080	100	%	$	16,942	100	%

Sources of distributions:
Net cash provided by operating activities ⁽¹⁾	$	10,080	100	%	$	16,942	100	%
Total sources	$	10,080	100	%	$	16,942	100	%

Table of Contents

(1) Net cash provided by operating activities was $12.2 million and $16.9 million for the nine months ended September 30, 2020 and 2019, respectively.

Share Redemptions

Our share redemption program permits our stockholders to sell their shares of common stock back to us, subject to certain conditions and limitations. Funding for the redemption of shares will be limited to the cumulative net proceeds we receive from the sale of shares under the DRIP, net of shares redeemed to date. 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 may choose to amend the terms of, suspend or terminate our share redemption program at any time in its sole discretion if it believes that such action is in the best interest of us and our stockholders. Any material modifications or suspension of the share redemption program will be disclosed to our stockholders as promptly as practicable in our reports filed with the SEC and via our website. Any of the foregoing limits might prevent us from accommodating all redemption requests made in any fiscal quarter or in any 12-month period. In connection with the Merger, on August 30, 2020, our Board suspended our share redemption program, and therefore, no shares will be redeemed from our stockholders after that date unless and until the share redemption program is reinstated. Management, in its discretion, limited the amount of shares redeemed for the nine months ended September 30, 2020 to an amount equal to the proceeds we received from the sale of shares pursuant to the DRIP during the respective period. During the nine months ended September 30, 2020, we received valid redemption requests under our share redemption program totaling approximately 2.3 million shares, of which we redeemed approximately 143,000 shares as of September 30, 2020 for $2.8 million (at an average redemption price of $19.29 per share). The remaining redemption requests relating to approximately 2.2 million shares went unfulfilled. A valid redemption request is one that complies with the applicable requirements and guidelines of our current share redemption program then in effect. The share redemptions were funded with proceeds from the DRIP.

Liquidity and Capital Resources

General

We are continuing to closely monitor the outbreak of COVID-19 and its impact on our business, tenants, operating partners and the economy as a whole. The COVID-19 pandemic has not had a material impact on our operations; however, we cannot estimate the ultimate magnitude and duration of the pandemic and its impact on our future operations and liquidity as of the filing date of our report. If the outbreak continues on its current trajectory, such impacts could be material.

We expect to utilize proceeds from real estate dispositions, cash flows from operations and future proceeds from secured or unsecured financing to complete future property acquisitions and for general corporate uses. The sources of our operating cash flows will primarily be provided by the rental and other property income received from current and future leased properties. Our Credit Facility provides for borrowings of up to $350.0 million, which is comprised of $220.0 million in Term Loans and up to $130.0 million in Revolving Loans. As of September 30, 2020, we had $73.0 million in unused capacity under the Credit Facility, subject to borrowing availability. We had available borrowings of $1.5 million as of September 30, 2020. As of September 30, 2020, we also had cash and cash equivalents of $19.1 million.

Subject to potential credit losses in the remainder of 2020 due to tenants that default on their leases, file bankruptcy and/or otherwise experience significant financial difficulty as a result of the COVID-19 pandemic, we expect to meet our short-term liquidity requirements through available cash, cash provided by property operations, proceeds from the DRIP Offering and borrowings from the Credit Facility or other sources. Additionally, given the impact of the COVID-19 pandemic, our Board has decided to make a determination as to the amount and timing of distributions on a monthly, instead of a quarterly, basis until such time that we have greater visibility into the impact that the COVID-19 pandemic will have on our property valuations. During the nine months ended September 30, 2020, our Board approved and adopted the Amended DRIP and the Amended Share Redemption Program that, among other changes, respectively provide that the Amended DRIP and the Amended Share Redemption Program may be suspended at any time by majority vote of the Board without prior notice if the Board believes such action is in the best interest of the Company and its stockholders. As discussed above, in connection with the contemplated Merger, on August 30, 2020, the Board approved the suspension of the Amended DRIP and the Amended Share Redemption Program.

As of September 30, 2020, we believe that we were in compliance with the financial covenants of the Credit Agreement, as well as the financial covenants under our various fixed and variable rate debt agreements. However, our continued compliance with these debt covenants depends on many factors and is impacted by the current and future economic conditions related to the COVID-19 pandemic and current tenant requests for rent relief.

Table of Contents

On March 28, 2019, we registered an aggregate of $68,740,000 in shares of our 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 $1.4 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 continued to issue shares under the DRIP Offering, until, on August 30, 2020, the Board suspended the DRIP Offering in connection with the entry of the Company into the Merger Agreement.

Short-term Liquidity and Capital Resources

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 expenses, operating expenses, distributions to, and redemptions by, stockholders, and interest and principal on current and any future debt financings, including principal repayments of $21.5 million due within the next 12 months. We expect to meet our short-term liquidity requirements through net cash flows provided by operations, as well as secured or unsecured borrowings from banks and other lenders to finance our future acquisitions. We believe that the resources stated above will be sufficient to satisfy our operating requirements for the foreseeable future, and we do not anticipate a need to raise funds from sources other than those described above within the next 12 months.

Long-term Liquidity and Capital Resources

On a long-term basis, our principal demands for funds will be for the acquisition of real estate assets and the payment of tenant improvements, acquisition-related expenses, operating expenses, distributions to, and redemptions by, stockholders and interest and principal on current and any future indebtedness. Generally, we expect to meet our long-term liquidity requirements through proceeds from net cash flows provided by operations, proceeds from the DRIP Offering, and from 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 have used, and may continue to use, other sources to fund distributions, as necessary, including proceeds from the Offerings, borrowings on our Credit Facility and/or future borrowings on our 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 DRIP Offering or debt financings will be used to fund acquisitions, certain capital expenditures, repayments of outstanding debt or distributions to, and redemptions by, our stockholders.

Contractual Obligations

As of September 30, 2020, we had $369.3 million of debt outstanding with a weighted average interest rate of 3.8%. See Note 7 — Credit Facility And Notes Payable 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, 2020 were as follows (in thousands):



	Payments due by period ⁽¹⁾
	Total		Less Than 1 Year		1-3 Years		3-5 Years		More Than 5 Years
Principal payments – credit facility	$	277,000	$	—	$	277,000	$	—	$	—
Interest payments – credit facility⁽²⁾	24,572		10,295		14,277		—		—
Principal payments – fixed rate debt ⁽³⁾	92,312		21,505		47,366		23,441		—
Interest payments – fixed rate debt ⁽⁴⁾	6,624		3,233		2,154		1,237		—
Total	$	400,508	$	35,033	$	340,797	$	24,678	$	—

______________________


(1)	The table does not include amounts due to CR V Management or its affiliates pursuant to our Advisory Agreement because such amounts are not fixed and determinable.


(2)	As of September 30, 2020, the Term Loans outstanding totaled $220.0 million, all of which is subject to interest rate swap agreements. As of September 30, 2020, the weighted average interest rate for the Swapped Term Loan was 4.2%. The remaining $57.0 million outstanding under the Credit Facility had a weighted average interest rate of 1.9% as of September 30, 2020.


(3)	Principal payment amounts reflect actual payments based on the face amount of notes payable that are secured by our wholly-owned properties.

Table of Contents


(4)	As of September 30, 2020, we had $21.1 million of variable rate debt effectively fixed through the use of interest rate swap agreements. We used the effective interest rates fixed under our interest rate swap agreements to calculate the debt payment obligations in future periods.

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 a justification for such excess borrowing. Consistent with CR V Management’s approach toward the moderate use of leverage, our Board has adopted a policy to further limit our borrowings to 60% of the greater of 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 September 30, 2020, our ratio of debt to total gross assets net of gross intangible lease liabilities was 53.7% and our ratio of debt to the fair market value of our gross assets net of gross intangible lease liabilities was 53.8%. Fair market value is based on the estimated market value of our real estate assets as of June 30, 2020 that were used to determine our estimated per share NAV, and for those assets acquired from July 1, 2020 through September 30, 2020 is based on the purchase price.

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, 2020, our net debt leverage ratio, which is the ratio of net debt to total gross real estate assets net of gross intangible lease liabilities, was 50.9%.

The following table provides a reconciliation of the credit facility and notes payable, net balance, as reported in our condensed consolidated balance sheet, to net debt as of September 30, 2020 (dollar amounts in thousands):



	Balance as of September 30, 2020
Credit facility and notes payable, net	$	368,144
Deferred costs and net premiums ⁽¹⁾	1,168
Less: Cash and cash equivalents	(19,080		)
Net debt	$	350,232
Gross real estate assets, net ⁽²⁾

Cole Credit Property Trust V, Inc. 10-Q