x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Maryland | 47-0983661 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | |
2325 East Camelback Road, Suite 1100 Phoenix, Arizona 85016 | (602) 778-8700 | |
(Address of principal executive offices; zip code) | (Registrant’s telephone number, including area code) | |
Large accelerated filer | o | Accelerated filer | o | ||||
Non-accelerated filer | x (Do not check if smaller reporting company) | Smaller reporting company | o | ||||
Item 1. | Financial Statements |
September 30, 2016 | December 31, 2015 | ||||||
ASSETS | |||||||
Investment in real estate assets: | |||||||
Land | $ | 2,307,312 | $ | — | |||
Buildings and improvements | 26,971,327 | — | |||||
Intangible lease assets | 3,471,361 | — | |||||
Total real estate investments, at cost | 32,750,000 | — | |||||
Less: accumulated depreciation and amortization | (59,714 | ) | — | ||||
Total real estate investments, net | 32,690,286 | — | |||||
Cash and cash equivalents | 248,503 | 200,000 | |||||
Rents and tenant receivables | 189,001 | — | |||||
Deferred costs, net | 1,457,368 | — | |||||
Total assets | $ | 34,585,158 | $ | 200,000 | |||
LIABILITIES AND STOCKHOLDER’S EQUITY | |||||||
Credit facility | $ | 22,000,000 | $ | — | |||
Subordinate promissory note due to affiliate | 10,300,000 | — | |||||
Accounts payable and accrued expenses | 237,818 | — | |||||
Due to affiliates | 16,919 | — | |||||
Distributions payable | 3,865 | — | |||||
Deferred rental income and other liabilities | 204,624 | — | |||||
Total liabilities | 32,763,226 | — | |||||
Commitments and contingencies | |||||||
STOCKHOLDER’S 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, 294,725 and 20,000 shares issued and outstanding as of September 30, 2016 and December 31, 2015, respectively | 2,947 | 200 | |||||
Class T common stock, $0.01 par value per share; 245,000,000 shares authorized, none issued and outstanding | — | — | |||||
Capital in excess of par value | 2,669,580 | 199,800 | |||||
Accumulated distributions in excess of earnings | (850,595 | ) | — | ||||
Total stockholder’s equity | 1,821,932 | 200,000 | |||||
Total liabilities and stockholder’s equity | $ | 34,585,158 | $ | 200,000 | |||
Three Months Ended | Nine Months Ended | |||||||
September 30, 2016 | September 30, 2016 | |||||||
Revenues: | ||||||||
Rental income | $ | 59,961 | $ | 59,961 | ||||
Total revenues | 59,961 | 59,961 | ||||||
Operating expenses: | ||||||||
General and administrative | 34,280 | 34,280 | ||||||
Advisory fees and expenses | 5,369 | 5,369 | ||||||
Acquisition-related | 754,531 | 754,531 | ||||||
Depreciation and amortization | 59,714 | 59,714 | ||||||
Total operating expenses | 853,894 | 853,894 | ||||||
Operating loss | (793,933 | ) | (793,933 | ) | ||||
Other expense: | ||||||||
Interest expense and other, net | (52,797 | ) | (52,797 | ) | ||||
Net loss | $ | (846,730 | ) | $ | (846,730 | ) | ||
Weighted average number of common shares outstanding: | ||||||||
Class A common stock - basic and diluted | 43,889 | 28,021 | ||||||
Net loss per common share: | ||||||||
Class A common stock - basic and diluted | $ | (19.29 | ) | $ | (30.22 | ) | ||
Distributions declared per common share: | ||||||||
Class A common stock | $ | 0.09 | $ | 0.14 | ||||
Class A Common Stock | Class T Common Stock | Capital in Excess of Par Value | Accumulated Distributions in Excess of Earnings | Total Stockholder’s Equity | ||||||||||||||||||||||
Number of Shares | Par Value | Number of Shares | Par Value | |||||||||||||||||||||||
Balance, January 1, 2016 | 20,000 | $ | 200 | — | $ | — | $ | 199,800 | $ | — | $ | 200,000 | ||||||||||||||
Issuance of common stock | 274,725 | 2,747 | — | — | 2,497,253 | — | 2,500,000 | |||||||||||||||||||
Distribution to investor | — | — | — | — | — | (3,865 | ) | (3,865 | ) | |||||||||||||||||
Offering costs | — | — | — | — | (27,473 | ) | — | (27,473 | ) | |||||||||||||||||
Net loss | — | — | — | — | — | (846,730 | ) | (846,730 | ) | |||||||||||||||||
Balance, September 30, 2016 | 294,725 | $ | 2,947 | — | $ | — | $ | 2,669,580 | $ | (850,595 | ) | $ | 1,821,932 | |||||||||||||
Nine Months Ended September 30, | |||
2016 | |||
Cash flows from operating activities: | |||
Net loss | $ | (846,730 | ) |
Adjustments to reconcile net income to net cash used in operating activities: | |||
Depreciation and amortization, net | 59,714 | ||
Amortization of deferred financing costs | 20,526 | ||
Straight-line rental income | (5,395 | ) | |
Changes in assets and liabilities: | |||
Rents and tenant receivables | (183,606 | ) | |
Accounts payable and accrued expenses | 237,818 | ||
Deferred rental income and other liabilities | 204,624 | ||
Due to affiliates | 16,919 | ||
Net cash used in operating activities | (496,130 | ) | |
Cash flows from investing activities: | |||
Investment in real estate assets | (32,750,000 | ) | |
Payment of property escrow deposit | (700,000 | ) | |
Refund of property escrow deposit | 700,000 | ||
Net cash used in investing activities | (32,750,000 | ) | |
Cash flows from financing activities: | |||
Proceeds from issuance of common stock | 2,500,000 | ||
Offering costs on issuance of common stock | (27,473 | ) | |
Proceeds from credit facility | 22,000,000 | ||
Proceeds from subordinate promissory note | 10,300,000 | ||
Deferred financing costs paid | (1,477,894 | ) | |
Net cash provided by financing activities | 33,294,633 | ||
Net increase in cash and cash equivalents | 48,503 | ||
Cash and cash equivalents, beginning of period | 200,000 | ||
Cash and cash equivalents, end of period | $ | 248,503 | |
Supplemental Disclosures of Non-Cash Investing and Financing Activities: | |||
Distribution declared and unpaid | $ | 3,865 | |
Buildings | 40 years |
Tenant improvements | Lesser of useful life or lease term |
Intangible lease assets | Lease term |
2016 Acquisition | |||
Land | $ | 2,307,312 | |
Buildings and improvements | 26,971,327 | ||
Acquired in-place lease (1) | 3,471,361 | ||
Total purchase price | $ | 32,750,000 | |
(1) | As of September 30, 2016, the weighted average amortization period for the acquired in-place lease is 9.6 years for the one acquisition completed during the nine months ended September 30, 2016. |
Three months ended September 30, 2016 | Nine months ended September 30, 2016 | ||||||
Pro forma basis: | |||||||
Revenue | $ | 736,581 | $ | 2,168,965 | |||
Net loss | $ | (233,997 | ) | $ | (1,287,028 | ) | |
Three and Nine Months Ended September 30, 2016 | |||
Organization and offering costs | $ | 27,473 | |
Acquisition fees and expenses | $ | 655,000 | |
Advisory fees | $ | 5,369 | |
Financing coordination fees | $ | 220,000 | |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
• | We may be unable to renew leases, lease vacant space or re-lease space as leases expire on favorable terms or at all. |
• | We are subject to risks associated with tenant, geographic and industry concentrations with respect to our properties. |
• | Our properties, intangible assets and other assets may be subject to impairment charges. |
• | We could be subject to unexpected costs or unexpected liabilities that may arise from potential dispositions and may be unable to dispose of properties on advantageous terms. |
• | We are subject to competition in the acquisition and disposition of properties and in the leasing of our properties and we may be unable to acquire, dispose of, or lease properties on advantageous terms. |
• | We could be subject to risks associated with bankruptcies or insolvencies of tenants or from tenant defaults generally. |
• | We have substantial indebtedness, which may affect our ability to pay distributions, and expose us to interest rate fluctuation risk and the risk of default under our debt obligations. |
• | We may be affected by the incurrence of additional secured or unsecured debt. |
• | We may not be able to achieve profitability. |
• | We may not generate cash flows sufficient to pay our distributions to stockholders or meet our debt service obligations. |
• | We may be affected by risks resulting from losses in excess of insured limits. |
• | We may fail to qualify as a REIT for U.S. federal income tax purposes. |
• | Our sponsor may be unable to fully reestablish the financial network which previously participated in offerings sponsored by Cole Capital and/or regain the prior level of transaction and capital raising volume. |
• | We are subject to risks that may affect capital raising volume as a result of increased regulatory changes. |
• | Our advisor has the right to terminate the advisory agreement upon 60 days’ written notice without cause or penalty. |
Payments due by period (1) | ||||||||||||||||||||
Total | Less Than 1 Year | 1-3 Years | 3-5 Years | More Than 5 Years | ||||||||||||||||
Principal payments – credit facility | $ | 22,000,000 | $ | — | $ | 22,000,000 | $ | — | $ | — | ||||||||||
Interest payments – credit facility(2) | 2,170,277 | 728,750 | 1,441,527 | — | — | |||||||||||||||
Principal payments – subordinate promissory note | 10,300,000 | 10,300,000 | — | — | — | |||||||||||||||
Interest payments – subordinate promissory note | 507,324 | 507,324 | — | — | — | |||||||||||||||
Total | $ | 34,977,601 | $ | 11,536,074 | $ | 23,441,527 | $ | — | $ | — | ||||||||||
(1) | The table does not include amounts due to CCI III Advisors or its affiliates pursuant to our advisory agreement because such amounts are not fixed and determinable. |
(2) | Payment obligations for the Revolving Loans are based on the interest rate in effect of 3.3% as of September 30, 2016. |
(3) | Payment obligations for the Subordinate Promissory Note are based on the interest rate in effect of 5.05% as of September 30, 2016, and the maturity date of September 22, 2017. |
• | the borrowings enabled us to purchase an initial property and earn rental income more quickly; |
• | the property acquisition was likely to increase the net offering proceeds from the Offering by allowing us to show potential investors actual acquisitions, thereby improving our ability to meet our objective of acquiring a diversified portfolio of properties to generate current income for investors and preserve investor capital; and |
• | based on expected equity sales, the high leverage is likely to exceed our charter’s guidelines only for a limited period of time. |
Balance as of September 30, 2016 | ||||
Credit facility and subordinate promissory note due to affiliate | $ | 32,300,000 | ||
Less: Cash and cash equivalents | (248,503 | ) | ||
Net debt | $ | 32,051,497 | ||
Gross real estate asset | $ | 32,750,000 | ||
Net debt leverage ratio | 97.9 | % | ||
• | Allocation of Purchase Price of Real Estate Assets; and |
• | Recoverability of Real Estate Assets. |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Item 1. | Legal Proceedings |
Item 1A. | Risk Factors |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
Item 3. | Defaults Upon Senior Securities |
Item 4. | Mine Safety Disclosures |
Item 5. | Other Information |
Item 6. | Exhibits |
Cole Office & Industrial REIT (CCIT III), Inc. | ||
(Registrant) | ||
By: | /s/ Nathan D. DeBacker | |
Name: | Nathan D. DeBacker | |
Title: | Chief Financial Officer and Treasurer | |
(Principal Financial Officer) | ||
Exhibit No. | Description | |
3.1 | Articles of Amendment and Restatement of Cole Office & Industrial REIT (CCIT III), Inc. dated July 15, 2016 (Incorporated by reference to Exhibit 3.1 to the Company’s Pre-effective Amendment No. 2 to Form S-11 (File No. 333-209128), filed on July 18, 2016). | |
3.2 | Bylaws of Cole Office & Industrial REIT (CCIT III), Inc. (Incorporated by reference to Exhibit 3.3 to the Company’s Form S-11 (File No. 333-209128), filed on January 26, 2016). | |
4.1 | Form of Initial Subscription Agreement (Incorporated by reference to Appendix B to Supplement No. 2 to the Company’s Prospectus filed pursuant to Rule 424(b)(3) (File No. 333-209128), filed on October 19, 2016). | |
4.2 | Form of Additional Subscription Agreement (Incorporated by reference to Appendix C to Supplement No. 2 the Company’s Prospectus filed pursuant to Rule 424(b)(3) (File No. 333-209128), filed on October 19, 2016). | |
10.1* | Dealer Manager Agreement between Cole Office & Industrial REIT (CCIT III), Inc. and Cole Capital Corporation. | |
10.2* | Advisory Agreement by and between Cole Office & Industrial REIT (CCIT III), Inc. and Cole Corporate Income Advisors III, LLC. | |
10.3* | Agreement of Limited Partnership of Cole Corporate Income Operating Partnership III, LP, by and between Cole Office & Industrial REIT (CCIT III), Inc. and the limited partners thereto. | |
10.4 | Distribution Reinvestment Plan (Incorporated by reference to Appendix D to the Company’s Prospectus pursuant to Rule 424(b)(3) (File No. 333-209128), filed September 22, 2016). | |
10.5* | Escrow Agreement by and among Cole Office & Industrial REIT (CCIT III), Inc., Cole Capital Corporation and UMB Bank, N.A. dated September 22, 2016. | |
10.6 | Purchase Agreement, as amended, by and between VEREIT Acquisitions, LLC and Acquiport Milford LLC, dated June 27, 2016, pursuant to a separate Assignment of Purchase Agreement dated September 22, 2016 (Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K (File No. 333-209128), filed on September 27, 2016). | |
10.7 | Assignment of Purchase Agreement, by and between VEREIT Acquisitions, LLC and VEREIT OFC Milford OH, LLC dated September 22, 2016 (Incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K (File No. 333-209128), filed on September 27, 2016). | |
10.8 | First Amendment to Purchase Agreement, dated July 15, 2016, by and between VEREIT Acquisitions, LLC and Acquiport Milford LLC (Incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K (File No. 333-209128), filed on September 27, 2016). | |
10.9 | Second Amendment to Purchase Agreement, dated July 19, 2016, by and between VEREIT Acquisitions, LLC and Acquiport Milford LLC (Incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K (File No. 333-209128), filed on September 27, 2016). | |
10.10 | Third Amendment to Purchase Agreement, dated July 20, 2016, by and between VEREIT Acquisitions, LLC and Acquiport Milford LLC (Incorporated by reference to Exhibit 10.5 to the Company’s Form 8-K (File No. 333-209128), filed on September 27, 2016). | |
10.11 | Credit Agreement, dated September 23, 2016, by and between Cole Corporate Income Operating Partnership III, LP, JPMorgan Chase Bank, N.A. as joint lead arranger, bookrunner, administrative agent, letter of credit issuer, and a lender, and KeyBank, National Association as joint lead arranger, syndication agent, and a lender (Incorporated by reference to Exhibit 10.6 to the Company’s Form 8-K (File No. 333-209128), filed on September 27, 2016). | |
10.12 | Subordinate Promissory Note, dated September 23, 2016, by and between VEREIT Operating Partnership, LP and Cole Corporate Income Operating Partnership III, LP (Incorporated by reference to Exhibit 10.7 to the Company’s Form 8-K (File No. 333-209128), filed on September 27, 2016). | |
31.1* | Certifications of the Principal Executive Officer of the Company pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2* | Certifications of the Principal Financial Officer of the Company pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1** | Certifications of the Principal Executive Officer and Principal Financial Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
Exhibit No. | Description | |
101.INS* | XBRL Instance Document. | |
101.SCH* | XBRL Taxonomy Extension Schema Document. | |
101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document. | |
101.DEF* | XBRL Taxonomy Extension Definition Linkbase Document. | |
101.LAB* | XBRL Taxonomy Extension Label Linkbase Document. | |
101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document. | |
* | Filed herewith. |
** | In accordance with Item 601(b)(32) of Regulation S-K, this Exhibit is not deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section. Such certifications will not be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference. |
(a) | there has been a successful adjudication on the merits of each count involving alleged securities law violations; |
(b) | such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction; or |
(c) | a court of competent jurisdiction approves a settlement of the claims against the indemnitee and finds that indemnification of the settlement and the related costs should be made, and the court considering the request for indemnification has been advised of the position of the SEC and of the published position of any state securities regulatory authority in which the securities were offered as to indemnification for violations of securities laws. |
(a) | the legal action relates to acts or omissions with respect to the performance of duties or services on behalf of the Company; |
(b) | the legal action is initiated by a third party who is not a stockholder of the Company or the legal action is initiated by a stockholder of the Company acting in his or her capacity as such and a court of competent jurisdiction specifically approves such advancement; and |
(c) | the Dealer Manager or the Dealer Manager Affiliate undertakes to repay the advanced funds to the Company, together with the applicable legal rate of interest thereon, in cases in which the Dealer Manager or the Dealer Manager Affiliate is found not to be entitled to indemnification. |
(a) | there has been a successful adjudication on the merits of each count involving alleged securities law violations; |
(b) | such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction; or |
(c) | a court of competent jurisdiction approves a settlement of the claims against the indemnitee and finds that indemnification of the settlement and the related costs should be made, and the court considering the request for indemnification has been advised of the position of the SEC and of the published position of any state securities regulatory authority in which the securities were offered as to indemnification for violations of securities laws. |
(a) | If a Dealer conducts its internal supervisory procedures at the location where subscription documents and checks are initially received, the Dealer shall conduct its suitability review of the transaction and if the transaction is suitable and the paperwork is in good order forward (i) the subscription documents to the Dealer Manager and (ii) the checks to the Escrow Agent by the end of the next business day following receipt of the subscription documents and the checks, prior to the completion of the Minimum Offering. After completion of the Minimum Offering, the Company may instruct the Dealer to forward paperwork in good order and the checks directly to the Company. |
(b) | If a Dealer’s internal supervisory procedures are to be performed at a different location (the “Final Review Office”), the subscription documents and check must be transmitted to the Final Review Office by the end of the next business day following receipt by the Dealer of the subscription documents and check. The Final Review Office will, by the end of the next business day following receipt by the Final Review Office of the subscription documents and check, conduct its suitability review of the transaction and if the transaction is suitable and the paperwork is in good order forward (i) the subscription documents to the Dealer Manager and (ii) the checks to the Escrow Agent by the end of the next business day following receipt of the subscription documents and the checks, prior to the completion of the Minimum Offering. After completion of the Minimum Offering, the Company may instruct the Dealer to forward paperwork in good order and the checks directly to the Company. |
If to the Company: | Cole Office & Industrial REIT (CCIT III), Inc. | |
2325 East Camelback Road, Suite 1100 | ||
Phoenix, Arizona 85016 | ||
Attention: President | ||
If to the Dealer Manager: | Cole Capital Corporation | |
2325 East Camelback Road, Suite 1100 | ||
Phoenix, Arizona 85016 | ||
Attention: President | ||
Very truly yours, | ||
COLE OFFICE & INDUSTRIAL REIT (CCIT III), INC. | ||
By: | /s/ Nathan D. DeBacker | |
Name: | Nathan D. DeBacker | |
Title: | Chief Financial Officer and Treasurer | |
Accepted and agreed as of the date first above written. | |||
COLE CAPITAL CORPORATION | |||
By: | /s/ William C. Miller, Jr. | ||
Name: | William C. Miller, Jr. | ||
Title: | President | ||
(a) | serve as the Company’s investment and financial advisor and provide research and economic and statistical data in connection with the Assets and the Company’s investment policies; |
(b) | provide the daily management of the Company and perform and supervise the various administrative functions reasonably necessary for the management and operations of the Company; |
(c) | provide property management and leasing services; |
(d) | maintain and preserve the books and records of the Company, including stock books and records reflecting a record of the Stockholders and their ownership of the Company’s Shares; |
(e) | investigate, select, and, on behalf of the Company, engage and conduct business with such Persons as the Advisor deems necessary to the proper performance of its obligations hereunder, including but not limited to consultants, accountants, correspondents, lenders, technical advisors, attorneys, brokers, underwriters, corporate fiduciaries, escrow agents, depositaries, custodians, agents for collection, insurers, insurance agents, banks, builders, developers, property owners, mortgagors, property management companies, transfer agents and any and all agents for any of the foregoing, including Affiliates of the Advisor, and Persons acting in any other capacity deemed by the Advisor necessary or desirable for the performance of any of the foregoing services, including but not limited to entering into contracts in the name of the Company with any of the foregoing; |
(f) | consult with, and provide information to, the officers of the Company and the Board and assist the Board in the formulation and implementation of the Company’s financial policies, and, as necessary, furnish the Board with advice and recommendations with respect to the making of investments consistent with the investment objectives and policies of the Company and in connection with any borrowings proposed to be undertaken by the Company; |
(g) | subject to the provisions of Sections 2.01(i), 2.02(j) and 2.03 hereof, (i) locate, analyze and select potential investments in Assets, (ii) structure and negotiate the terms and conditions of transactions pursuant to which investment in Assets will be made; (iii) make investments in Assets on behalf of the Company or the |
(h) | provide the Board with periodic reports regarding prospective investments in Assets; |
(i) | if a transaction requires approval by the Board or the Independent Directors, deliver to the Board or the Independent Directors, as applicable, all documents required by them to properly evaluate the proposed transaction; |
(j) | obtain the prior approval of a majority of the Independent Directors and a majority of the Board not otherwise interested in any transaction with the Advisor or its Affiliates; |
(k) | negotiate on behalf of the Company with banks or lenders for loans to be made to the Company, negotiate on behalf of the Company with investment banking firms and broker-dealers, and negotiate private sales of Shares and other securities of the Company or obtain loans for the Company, as and when appropriate, but in no event in such a way so that the Advisor shall be acting as broker-dealer or underwriter; and provided, further, that any fees and costs payable to third parties incurred by the Advisor in connection with the foregoing shall be the responsibility of the Company; |
(l) | obtain reports (which may be prepared by or for the Advisor or its Affiliates), where appropriate, concerning the value of investments or contemplated investments of the Company in Assets; |
(m) | from time to time, or at any time reasonably requested by the Board, make reports to the Board of its performance of services to the Company under this Agreement; |
(n) | provide the Company with, or assist the Company in arranging for, all necessary cash management services; |
(o) | deliver to or maintain on behalf of the Company copies of all appraisals obtained in connection with the investments in Assets; |
(p) | upon request of the Company, act, or obtain the services of others to act, as attorney-in-fact or agent of the Company in making, requiring and disposing of Assets, disbursing, and collecting the funds, paying the debts and fulfilling the obligations of the Company and handling, prosecuting and settling any claims of the Company, including foreclosing and otherwise enforcing mortgage and other liens and security interests comprising any of the Assets; |
(q) | arrange for the disposal of Properties on the Company’s behalf in compliance with the Company’s investment objectives and policies as stated in the Company’s most recent Prospectus for Shares and advise the Board in connection with liquidity opportunities; |
(r) | supervise the preparation and filing and distribution of returns and reports to governmental agencies and to Stockholders and other investors and act on behalf of the Company in connection with investor relations; |
(s) | oversee recruitment and hiring of Persons who will have direct responsibility for the operations of each Property, which may include, but is not limited to, on-site managers and building and maintenance personnel, and direct and establish policies for such Persons; |
(t) | provide office space, equipment and supplies as required for the performance of the foregoing services as Advisor; |
(u) | assist the Company in preparing all reports and returns required by the U.S. Securities and Exchange Commission, Internal Revenue Service and other state or federal governmental agencies; |
(v) | advise the Board on the timing and method of providing liquidity opportunities to the Stockholders; and |
(w) | do all things necessary to assure its ability to render the services described in this Agreement. |
(a) | Advisory Fee. On the last day of each month, the Company shall pay to the Advisor a monthly Advisory Fee based upon the monthly Average Invested Assets. The Advisory Fee shall be calculated according to the following schedule: |
Monthly Average Invested Assets | Annual Fee Rate for Assets in Each Range | ||
$0 — $2 billion | 0.75 | % | |
Over $2 billion — $4 billion | 0.70 | % | |
Over $4 billion | 0.65 | % | |
(b) | Acquisition Fees. The Company shall pay the Advisor, or an Affiliate of the Advisor, a fee in the amount of 2.0% of the Contract Purchase Price of each Asset as Acquisition Fees. The total of all Acquisition Fees and any Acquisition Expenses shall be limited in accordance with the Articles of Incorporation. Acquisition Fees shall be paid as follows: (1) for real property (including properties where development/redevelopment is expected), at the time of acquisition, (2) for development/redevelopment projects (other than the initial acquisition of the real property), at the time a final budget is approved, and (3) for loans and similar assets (including without limitation mezzanine loans), quarterly based on the value of loans made or acquired. In the case of a development/redevelopment project subject to clause (2) above, upon completion of the development/redevelopment project, the Advisor shall determine the actual amounts paid. To the extent the amounts actually paid vary from the budgeted amounts on which the Acquisition Fee was initially based, the Advisor will pay or invoice the Company for 2.0% of the budget variance such that the Acquisition Fee is ultimately 2.0% of amounts expended on such development/redevelopment project. Any portion of the Acquisition Fee may be deferred and paid in a subsequent period upon the mutual agreement of the parties hereto. |
(c) | Subordinated Performance Fee. The Company shall pay the Advisor a Subordinated Performance Fee in connection with any one of the following events: |
(1) | Upon Listing, the Advisor shall be entitled to a Subordinated Performance Fee in an amount equal to 15.0% of the amount by which (i) the Market Value of the Company’s outstanding Shares plus distributions paid by the Company prior to Listing, exceeds (ii) the sum of (A) 100% of Invested Capital and (B) the total Distributions required to be paid to the Stockholders in order to pay the Stockholders’ 6.0% Return from inception through the date that Market Value is determined. The Company shall have the option to pay such fee in the form of cash, Shares, a non-interest bearing promissory note, or any combination of the foregoing. If the Company pays such fee with a non-interest bearing promissory note, payment in full shall be made from the Net Sales Proceeds of the |
(2) | Upon a Sale of the Company or all of, or substantially all of, the Company’s Assets, the Advisor shall be entitled to the Subordinated Performance Fee in an amount equal to 15.0% of Net Sale Proceeds remaining after the Stockholders have received Distributions equal to the sum of the Stockholders’ 6.0% Return and 100% of Invested Capital. The Company shall have the option to pay such fee in the form of cash, Shares, a non-interest bearing promissory note, or any combination of the foregoing. |
(3) | Upon termination of this Agreement, unless such termination is by the Company because of a material breach of this Agreement by the Advisor or occurs upon a Change of Control, the Advisor shall be entitled to receive a payment of the Subordinated Performance Fee equal to 15.0% of the amount, if any, by which (i) the Appraised Value of the Assets, including any applicable portfolio premium or discount, on the Termination Date, less the amount of all indebtedness secured by the Assets, plus the total Distributions paid to Stockholders from the Company’s inception through the Termination Date, exceeds (ii) Invested Capital plus an amount equal to the Stockholders’ 6.0% Return from inception through the Termination Date. The Company shall pay such Subordinated Performance Fee at such time as the Company completes the first Sale after the Termination Date. Payment shall be made from the Net Sales Proceeds of such Sale. The Company shall have the option to pay such fee in the form of cash, Shares, a non-interest bearing promissory note, or any combination of the foregoing. If the Net Sales Proceeds from the first Sale after the Termination Date are insufficient to pay the Subordinated Performance Fee in full, then the Subordinated Performance Fee shall be paid in part with such Net Sales Proceeds, and in part from the Net Sales Proceeds from the next successive Sale until the Subordinated Performance Fee is paid in full. If the Subordinated Performance Fee has not been paid in full within five years from the Termination Date, then the Advisor, its successors or assigns, may elect to convert the balance of the fee into Shares at a price per Share equal to the average closing price of the Shares over the ten trading days immediately preceding the date of such election if the Shares are Listed at such time. If the Shares are not Listed at such time, the Advisor, its successors or assigns, may elect to convert the balance of the fee into Shares at a price per Share equal to the fair market value for the Shares as reasonably determined by the Board. Notwithstanding the foregoing, if termination occurs upon a Change of Control, the Advisor shall be entitled to payment of the Subordinated Performance Fee equal to 15.0% of the amount, if any, by which (i) the value of the Assets on the Termination Date as determined in good faith by the Board, including a majority of the Independent Directors, based upon such factors as the consideration paid in connection with the Change of Control and the most recent Appraised Value of the Assets, including any applicable portfolio premium or discount, less the amount of all indebtedness secured by the Assets, plus the total Distributions paid to Stockholders from the Company’s inception through the Termination Date, exceeds (ii) Invested Capital plus an amount equal to the Stockholders’ 6.0% Return from inception through the Termination Date. No deferral of payment of the Subordinated Performance Fee may be made under this paragraph of this Section 3.01(c). In the event that the Advisor disagrees with the valuation of Shares pursuant to this Section 3.01(c) where the Shares are not Listed for purposes of determining the number of Shares to be issued to the Advisor following the Advisor’s election to convert the balance of the Subordinated Performance Fee owed to the Advisor, then the fair market value of such Shares shall be determined by an Independent Expert of equity value selected by the Advisor. |
(d) | Disposition Fee. If the Advisor or an Affiliate of the Advisor provides a substantial amount of the services (as determined by a majority of the Independent Directors) in connection with the Sale of one or more Properties (or the Company’s entire portfolio), the Advisor or such Affiliate shall receive a Disposition Fee equal to up to one-half of the real estate or brokerage commission paid to the Company by Persons not affiliated with the Advisor on the Sale of the Property, not to exceed 1% of the Contract Sales Price of each Property sold; provided, however, in no event may the total Disposition Fee paid to the Advisor or an Affiliate of the Advisor, and any Persons not affiliated with the Advisor, exceed the lesser of (i) the Competitive Real Estate Commission or (ii) 6.0% of the Contract Sales Price of a Property. |
(e) | Financing Coordination Fee. For services provided by the Advisor in connection with any Financing to acquire Property, the Company shall pay the Advisor a Financing Coordination Fee in the amount of 1% of the amount available and/or outstanding under such Financing; provided, however, (i) the Advisor shall not be entitled to such fee on any refinanced indebtedness or obligation where the Advisor previously received such a fee on the original indebtedness or obligation unless (1) the maturity date of the original indebtedness or obligation is scheduled to occur less than one year after the date of the refinanced indebtedness or obligation and the refinanced indebtedness or obligation has a term of at least five years or (2) the refinanced indebtedness or obligation is approved by a majority of the Independent Directors, and (ii) no such fee will be paid in connection with any loans advanced by an Affiliate of the Advisor. No Financing Coordination Fees will be paid on loan proceeds from any line of credit unless all net offering proceeds received as of the date proceeds from the line of credit are drawn for the purpose of acquiring properties or other permitted investments (other than reasonable working capital reserves) have been invested. In addition, with respect to any revolving line of credit, the Advisor shall receive Financing Coordination Fees only in connection with amounts being drawn for the first time and not upon any re-drawing of amounts that previously had been repaid by the Company. |
(a) | In addition to the compensation paid to the Advisor pursuant to Section 3.01 hereof, the Company shall pay directly or reimburse the Advisor, as applicable, for all of the expenses paid or incurred by the Advisor in connection with the services it provides to the Company pursuant to this Agreement, including, but not limited to: |
(b) | Expenses incurred by the Advisor on behalf of the Company and payable pursuant to this Section 3.02 shall be reimbursed no less than quarterly to the Advisor within 60 days after the end of each quarter. The Advisor shall prepare a statement documenting the expenses of the Company during each quarter, and shall deliver such statement to the Company within 45 days after the end of each quarter. |
(a) | After the Termination Date, the Advisor shall not be entitled to compensation for further services hereunder except it shall be entitled to and receive from the Company within 30 days after the effective date of such termination all unpaid reimbursements of expenses, subject to the provisions of Section 3.04 hereof, and all contingent liabilities related to fees payable to the Advisor prior to termination of this Agreement, provided that the Subordinated Performance Fee, if any, shall be paid in accordance with the provisions of Section 3.01(c). |
(b) | The Advisor shall promptly upon termination: |
(a) | The Company shall indemnify and hold harmless the Advisor and its Affiliates, including their respective officers, directors, partners and employees, from all liability, claims, damages or losses arising in the performance of their duties hereunder, and related expenses, including reasonable attorneys’ fees, to the extent such liability, claims, damages or losses and related expenses are not fully reimbursed by insurance, subject to any limitations imposed by the laws of the State of Maryland, the Articles of Incorporation and the NASAA Guidelines under the Articles of Incorporation. The Company shall not indemnify or hold harmless the Advisor or its Affiliates, including their respective officers, directors, partners and employees, for any liability or loss suffered by the Advisor or its Affiliates, including their respective officers, directors, partners and employees, nor shall it provide that the Advisor or its Affiliates, including their respective officers, directors, partners and employees, be held harmless for any loss or liability suffered by the Company, unless all of the following conditions are met: (i) the Advisor or its Affiliates, including their respective officers, directors, partners and employees, have determined, in good faith, that the course of conduct which caused the loss or liability was in the best interests of the Company; (ii) the Advisor or its Affiliates, including their respective officers, directors, partners and employees, were acting on behalf of or performing services of the Company; (iii) such liability or loss was not the result of negligence or misconduct by the Advisor or its Affiliates, including their respective officers, directors, partners and employees; and (iv) such indemnification or agreement to hold harmless is recoverable only out of the Company’s net assets and not from Stockholders. Notwithstanding the foregoing, the Advisor and its Affiliates, including their respective officers, directors, partners and employees, shall not be indemnified by the Company for any losses, liability or expenses arising from or out of an alleged violation of federal or state securities laws by such party unless one or more of the following conditions are met: (i) there has been a successful adjudication on the merits of each count involving alleged securities law violations as to the particular indemnitee; (ii) such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction as to the particular indemnitee; and (iii) a court of competent jurisdiction approves a settlement of the claims against a particular indemnitee and finds that indemnification of the settlement and the related costs should be made, and the court considering the request for indemnification has been advised of the position of the Securities and Exchange Commission and of the published position of any state securities regulatory authority in which securities of the Company were offered or sold as to indemnification for violations of securities laws. |
(b) | The Articles of Incorporation provide that the advancement of Company funds to the Advisor or its Affiliates, including their respective officers, directors, partners and employees, for legal expenses and other costs incurred as a result of any legal action for which indemnification is being sought is permissible only if all of the following conditions are satisfied: (i) the legal action relates to acts or omissions with respect to the performance of duties or services on behalf of the Company; (ii) the legal action is initiated by a third-party who is not a Stockholder or the legal action is initiated by a Stockholder acting in his or her capacity as such and a court of competent jurisdiction specifically approves such advancement; (iii) the Advisor or its Affiliates, including their respective officers, directors, partners and employees, undertake to repay the advanced funds to the Company together with the applicable legal rate of interest thereon, in cases in which such Advisor or its Affiliates, including their respective officers, directors, partners and employees, are found not to be entitled to indemnification. |
(c) | Notwithstanding the provisions of this Section 5.01, the Advisor shall not be entitled to indemnification or be held harmless pursuant to this Section 5.01 for any activity which the Advisor shall be required to indemnify or hold harmless the Company pursuant to Section 5.02. |
To the Directors and to the Company: | Cole Office & Industrial REIT (CCIT III), Inc. | |
2325 E. Camelback Road, Suite 1100 | ||
Phoenix, Arizona 85016 | ||
Attention: Chief Executive Officer and President | ||
To the Advisor: | Cole Corporate Income Advisors III, LLC | |
2325 E. Camelback Road, Suite 1100 | ||
Phoenix, Arizona 85016 | ||
Attention: President | ||
COLE OFFICE & INDUSTRIAL REIT (CCIT III), INC. | |||
By: | /s/ Nathan D. DeBacker | ||
Name: Nathan D. DeBacker | |||
Title: Chief Financial Officer and Treasurer | |||
COLE CORPORATE INCOME ADVISORS III, LLC | |||
By: | /s/ Michael J. Bartolotta | ||
Name: Michael J. Bartolotta | |||
Title: Executive Vice President, Chief Financial Officer | |||
Page | |||
Article I. Defined Terms | 1 | ||
Article II. Partnership Formation and Identification | 11 | ||
2.1 | Formation | 11 | |
2.2 | Name, Office and Registered Agent | 11 | |
2.3 | Partners | 11 | |
2.4 | Term and Dissolution | 11 | |
2.5 | Filing of Certificate and Perfection of Limited Partnership | 12 | |
2.6 | Certificates Describing Partnership Units | 12 | |
Article III. Business of the Partnership | 13 | ||
Article IV. Capital Contributions and Accounts | 13 | ||
4.1 | Capital Contributions | 13 | |
4.2 | Additional Capital Contributions and Issuances of Additional Partnership Interests | 13 | |
4.3 | Additional Funding | 17 | |
4.4 | Capital Accounts | 17 | |
4.5 | Percentage Interests | 17 | |
4.6 | No Interest on Contributions | 18 | |
4.7 | Return of Capital Contributions | 18 | |
4.8 | No Third-Party Beneficiary | 18 | |
Article V. Profit and Loss; Distributions | 18 | ||
5.1 | Allocation of Profit and Loss | 18 | |
5.2 | Distributions of Cash | 22 | |
5.3 | REIT Distribution Requirements | 24 | |
5.4 | No Right to Distributions in Kind | 24 | |
5.5 | Limitations on Return of Capital Contributions | 24 | |
5.6 | Distributions Upon Liquidation | 25 | |
5.7 | Substantial Economic Effect | 25 | |
Article VI. Rights, Obligations and Powers of the General Partner | 26 | ||
6.1 | Management of the Partnership | 26 | |
6.2 | Delegation of Authority | 29 | |
6.3 | Indemnification of Indemnitees | 29 | |
Page | |||
6.4 | Liability of the General Partner | 31 | |
6.5 | Reimbursement of General Partner | 33 | |
6.6 | Outside Activities | 33 | |
6.7 | Employment or Retention of Affiliates | 33 | |
6.8 | Title to Partnership Assets | 34 | |
6.9 | Miscellaneous | 34 | |
6.10 | Reliance by Third Parties | 35 | |
Article VII. Changes in General Partner | 35 | ||
7.1 | Transfer of the General Partner’s Partnership Interest | 35 | |
7.2 | Admission of a Substitute or Additional General Partner | 37 | |
7.3 | Effect of Bankruptcy, Withdrawal, Death or Dissolution of a General Partner | 38 | |
7.4 | Removal of a General Partner | 38 | |
Article VIII. Rights and Obligations of the Limited Partners | 39 | ||
8.1 | Management of the Partnership | 39 | |
8.2 | Power of Attorney | 40 | |
8.3 | Limitation on Liability of Limited Partners | 40 | |
8.4 | Ownership by Limited Partner of Corporate General Partner or Affiliate | 40 | |
8.5 | Exchange Right | 40 | |
8.6 | Duties and Conflicts | 42 | |
Article IX. Transfers of Limited Partnership Interests | 43 | ||
9.1 | Purchase for Investment | 43 | |
9.2 | Restrictions on Transfer of Limited Partnership Interests | 43 | |
9.3 | Admission of Substitute Limited Partner | 44 | |
9.4 | Rights of Assignees of Limited Partnership Interests | 45 | |
9.5 | Effect of Bankruptcy, Death, Incompetence or Termination of a Limited Partner | 46 | |
9.6 | Joint Ownership of Interests | 46 | |
Article X. Books and Records; Accounting; Tax Matters | 46 | ||
10.1 | Books and Records | 46 | |
10.2 | Custody of Partnership Funds; Bank Accounts | 47 | |
10.3 | Fiscal and Taxable Year | 47 | |
10.4 | Annual Tax Information and Report | 47 | |
10.5 | Tax Matters Partner; Partnership Representative; Tax Elections; Special Basis Adjustments | 47 | |
10.6 | Reports to Limited Partners | 49 | |
Page | |||
Article XI. Amendment of Agreement; Meetings | 50 | ||
11.1. | Amendment | 50 | |
11.2. | Meetings of Partners | 50 | |
Article XII. Merger, Exchange or Conversion | 52 | ||
12.1. | Merger, Exchange or Conversion of Partnership | 52 | |
12.2. | Approval of Plan of Merger, Exchange or Conversion | 53 | |
12.3. | Rights of Dissenting Limited Partners | 54 | |
Article XIII. General Provisions | 56 | ||
13.1. | Notices | 56 | |
13.2. | Survival of Rights | 56 | |
13.3. | Additional Documents | 56 | |
13.4. | Severability | 56 | |
13.5. | Entire Agreement | 56 | |
13.6. | Pronouns and Plurals | 56 | |
13.7. | Headings | 57 | |
13.8. | Counterparts | 57 | |
13.9. | Governing Law | 57 | |
13.10. | Arbitration | 57 | |
13.11. | Acknowledgement as to Exculpation and Indemnification | 58 | |
GENERAL PARTNER: | ||
COLE OFFICE & INDUSTRIAL REIT (CCIT III), INC., a Maryland corporation | ||
By: | /s/ Nathan D. DeBacker | |
Name: | Nathan D. DeBacker | |
Title: | Chief Financial Officer and Treasurer | |
ORIGINAL LIMITED PARTNER: | ||
CRI CCIT III, LLC, a Delaware limited liability company | ||
By: | /s/ Michael J. Bartolotta | |
Name: | Michael J. Bartolotta | |
Title: | Executive Vice President, Chief Financial OFficer | |
Re: | Cole Office & Industrial REIT (CCIT III), Inc. | ||
(a) | money market funds; |
(b) | corporate equity or debt securities; |
(c) | repurchase agreements; |
(d) | bankers’ acceptances; |
(e) | commercial paper; and |
(f) | municipal securities. |
(a) | if to the Company: |
(b) | if to the Dealer Manager: |
(c) | if to the Escrow Agent: |
COLE OFFICE & INDUSTRIAL REIT (CCIT III), INC. | |||
By: | /s/ Nathan D. DeBacker | ||
Name: Nathan D. DeBacker | |||
Title: Chief Financial Officer and Treasurer | |||
COLE CAPITAL CORPORATION | |||
By: | /s/ William C. Miller | ||
Name: William C. Miller | |||
Title: President | |||
UMB Bank, N.A. as Escrow Agent | |||
By: | /s/ Lara L. Stevens | ||
Name: | Lara L. Stevens | ||
Title: | Vice President | ||
1. | I have reviewed this Quarterly Report on Form 10-Q of Cole Office & Industrial REIT (CCIT III), Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | [Reserved]; |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: | November 10, 2016 | /s/ Glenn J. Rufrano | ||
Name: | Glenn J. Rufrano | |||
Title: | Chief Executive Officer and President (Principal Executive Officer) | |||
1. | I have reviewed this Quarterly Report on Form 10-Q of Cole Office & Industrial REIT (CCIT III), Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | [Reserved]; |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: | November 10, 2016 | /s/ Nathan D. DeBacker | |||
Name: | Nathan D. DeBacker | ||||
Title: | Chief Financial Officer and Treasurer (Principal Financial Officer) | ||||
(i) | the accompanying Quarterly Report on Form 10-Q of the Company for the period ended September 30, 2016 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended, and |
(ii) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ Glenn J. Rufrano | |||||
Name: | Glenn J. Rufrano | ||||
Title: | Chief Executive Officer and President (Principal Executive Officer) | ||||
/s/ Nathan D. DeBacker | |||||
Name: | Nathan D. DeBacker | ||||
Date: | November 10, 2016 | Title: | Chief Financial Officer and Treasurer (Principal Financial Officer) | ||
Document and Entity Information - shares |
9 Months Ended | |
|---|---|---|
Sep. 30, 2016 |
Nov. 07, 2016 |
|
| Entity Information [Line Items] | ||
| Entity Registrant Name | Cole Office & Industrial REIT (CCIT III), Inc. | |
| Entity Central Index Key | 0001614976 | |
| Document Type | 10-Q | |
| Document Period End Date | Sep. 30, 2016 | |
| Amendment Flag | false | |
| Document Fiscal Year Focus | 2016 | |
| Document Fiscal Period Focus | Q3 | |
| Current Fiscal Year End Date | --12-31 | |
| Entity Filer Category | Non-accelerated Filer | |
| Class A Common Stock | ||
| Entity Information [Line Items] | ||
| Entity Common Stock, Shares Outstanding | 294,725 | |
| Class T Common Stock | ||
| Entity Information [Line Items] | ||
| Entity Common Stock, Shares Outstanding | 0 |
Condensed Consolidated Unaudited Balance Sheets (Parenthetical) - $ / shares |
Sep. 30, 2016 |
Dec. 31, 2015 |
|---|---|---|
| Preferred stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
| Preferred stock, shares authorized (in shares) | 10,000,000 | 10,000,000 |
| Preferred stock, shares issued (in shares) | 0 | 0 |
| Preferred stock, shares outstanding (in shares) | 0 | 0 |
| Class A Common Stock | ||
| Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
| Common stock, shares authorized (in shares) | 245,000,000 | 245,000,000 |
| Common stock, shares issued (in shares) | 294,725 | 20,000 |
| Common stock, shares outstanding (in shares) | 294,725 | 20,000 |
| Class T Common Stock | ||
| Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
| Common stock, shares authorized (in shares) | 245,000,000 | 245,000,000 |
| Common stock, shares issued (in shares) | 0 | 0 |
| Common stock, shares outstanding (in shares) | 0 | 0 |
Condensed Consolidated Unaudited Statements of Operations - USD ($) |
3 Months Ended | 9 Months Ended |
|---|---|---|
Sep. 30, 2016 |
Sep. 30, 2016 |
|
| Revenues: | ||
| Rental income | $ 59,961 | $ 59,961 |
| Total revenues | 59,961 | 59,961 |
| Operating expenses: | ||
| General and administrative | 34,280 | 34,280 |
| Advisory fees and expenses | 5,369 | 5,369 |
| Acquisition-related | 754,531 | 754,531 |
| Depreciation and amortization | 59,714 | 59,714 |
| Total operating expenses | 853,894 | 853,894 |
| Operating loss | (793,933) | (793,933) |
| Other expense: | ||
| Interest expense and other, net | (52,797) | (52,797) |
| Net loss | $ (846,730) | $ (846,730) |
| Class A Common Stock | ||
| Weighted average number of common shares outstanding: | ||
| Basic and diluted (in shares) | 43,889 | 28,021 |
| Net loss per common share: | ||
| Basic and diluted (in dollars per share) | $ (19.29) | $ (30.22) |
| Distributions declared per common share (in dollars per share) | $ 0.09 | $ 0.14 |
Condensed Consolidated Unaudited Statement of Stockholder's Equity - 9 months ended Sep. 30, 2016 - USD ($) |
Total |
Class A Common Stock |
Class T Common Stock |
Common Stock
Class A Common Stock
|
Common Stock
Class T Common Stock
|
Capital in Excess of Par Value |
Accumulated Distributions in Excess of Earnings |
|---|---|---|---|---|---|---|---|
| Balance (in shares) at Dec. 31, 2015 | 20,000 | 0 | 20,000 | 0 | |||
| Balance at Dec. 31, 2015 | $ 200,000 | $ 200 | $ 0 | $ 199,800 | $ 0 | ||
| Increase (Decrease) in Stockholders' Equity [Roll Forward] | |||||||
| Issuance of common stock (in shares) | 274,725 | 0 | |||||
| Issuance of common stock | 2,500,000 | $ 2,747 | $ 0 | 2,497,253 | |||
| Distribution to investor | (3,865) | (3,865) | |||||
| Offering costs | (27,473) | (27,473) | |||||
| Net loss | (846,730) | (846,730) | |||||
| Balance (in shares) at Sep. 30, 2016 | 294,725 | 0 | 294,725 | 0 | |||
| Balance at Sep. 30, 2016 | $ 1,821,932 | $ 2,947 | $ 0 | $ 2,669,580 | $ (850,595) |
Organization and Business |
9 Months Ended |
|---|---|
Sep. 30, 2016 | |
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
| ORGANIZATION AND BUSINESS | ORGANIZATION AND BUSINESS Cole Office & Industrial REIT (CCIT III), Inc. (the “Company”) is a Maryland corporation that was incorporated on May 22, 2014, and which intends to qualify and elect to be taxed as a real estate investment trust (“REIT”) for U.S. federal income tax purposes beginning in its taxable year ending December 31, 2016, as it did not commence principal operations until September 22, 2016. The Company is the sole general partner of, and owns, directly or indirectly, 100% of the partnership interests in Cole Corporate Income Operating Partnership III, LP, a Delaware limited partnership. The Company is externally managed by Cole Corporate Income Advisors III, LLC (“CCI III Advisors”), a Delaware limited liability company and an affiliate of the Company’s sponsor, Cole Capital®, which is a trade name used to refer to a group of affiliated entities directly or indirectly controlled by VEREIT, Inc. (“VEREIT”), a widely-held public company whose shares of common stock are listed on the New York Stock Exchange (NYSE: VER). VEREIT indirectly owns and/or controls the Company’s external advisor, CCI III Advisors, the Company’s dealer manager, Cole Capital Corporation (“CCC”), the Company’s property manager, CREI Advisors, LLC (“CREI Advisors”), and the Company’s sponsor, Cole Capital. Pursuant to a Registration Statement on Form S-11 (Registration No. 333-209128) (the “Registration Statement”) under the Securities Act of 1933, as amended (the “Securities Act”), and declared effective by the U.S. Securities and Exchange Commission (the “SEC”) on September 22, 2016, the Company commenced its initial public offering on a “best efforts” basis, offering up to a maximum of $3.5 billion in shares of common stock (the “Offering”). Pursuant to the Offering, the Company is offering up to $2.5 billion in shares of its common stock pursuant to the primary offering, consisting of two classes of shares: Class A common stock (“Class A Shares”) at a price of $10.00 per share (up to $1.25 billion in shares) and Class T common stock (“Class T Shares”) at a price of $9.57 per share (up to $1.25 billion in shares). Pursuant to the Offering, the Company is also offering up to $1.0 billion in shares of its common stock pursuant to the distribution reinvestment plan (the “DRIP”) at a purchase price during the Offering equal to the per share primary offering price net of selling commissions and dealer manager fees, or $9.10 per share for both Class A Shares and Class T Shares, assuming a $10.00 per Class A Share primary offering price and a $9.57 per Class T Share primary offering price. On September 22, 2016, the Company satisfied the conditions of the escrow agreement regarding the minimum offering amount under the Offering and issued 274,725 Class A Shares to VEREIT Operating Partnership, L.P. (“VEREIT OP”), an affiliate of Cole Capital and the operating partnership of VEREIT, resulting in gross proceeds of $2.5 million, and commenced principal operations. As of September 30, 2016, the Company had issued 274,725 Class A Shares in the Offering for gross proceeds of $2.5 million. The Company intends to use substantially all of the net proceeds from the Offering to acquire and operate a diversified portfolio of commercial real estate investments primarily consisting of single-tenant, income-producing necessity office and industrial properties, which are leased to creditworthy tenants under long-term leases, including distribution facilities, warehouses, manufacturing plants and corporate or regional headquarters in strategic locations. The Company expects that most of its properties will be subject to “net” leases, whereby the tenant will be primarily responsible for the property’s cost of repairs, maintenance, property taxes, utilities, insurance and other operating costs. As of September 30, 2016, the Company owned one office property, located in Ohio and leased to Siemens Corporation, comprising approximately 221,000 rentable square feet of income-producing necessity corporate office property, which was 100% leased. |
Summary of Significant Accounting Policies |
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Sep. 30, 2016 | |||||||||||
| Accounting Policies [Abstract] | |||||||||||
| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The summary of significant accounting policies presented below is designed to assist in understanding the Company’s condensed consolidated unaudited 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 unaudited financial statements. Principles of Consolidation and Basis of Presentation The condensed consolidated unaudited 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 balance sheet and related notes thereto included in the Registration Statement as declared effective by the SEC on September 22, 2016. Consolidated results of operations for the periods ended September 30, 2015 have not been presented because the Company had not commenced its principal operations during such periods. The condensed consolidated unaudited 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 unaudited financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. 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 unaudited financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Real Estate Investments Real estate assets are stated at cost, less accumulated depreciation and amortization. Amounts capitalized to real estate assets consist of the cost of acquisition, construction and any tenant improvements, major improvements and betterments that extend the useful life of the real estate assets and leasing costs. All acquisition-related expenses, repairs and maintenance are expensed as incurred. 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:
Recoverability of Real Estate Assets The Company continually monitors events and changes in circumstances that could indicate that the carrying amounts of its real estate assets may not be recoverable. Impairment indicators that the Company considers include, but are not limited to, bankruptcy or other credit concerns of a property’s major tenant, such as a history of late payments, rental concessions and other factors, a significant decrease in a property’s revenues due to lease terminations, vacancies, co-tenancy clauses, reduced lease rates, or other circumstances. When indicators of potential impairment are present, the Company assesses the recoverability of the assets by determining whether the carrying amount of the assets will be recovered through the undiscounted future cash flows expected from the use of the assets and their eventual disposition. In the event that such expected undiscounted future cash flows do not exceed the carrying amount, the Company will adjust the real estate assets to their respective fair values and recognize an impairment loss. Generally, fair value will be determined using a discounted cash flow analysis and recent comparable sales transactions. No impairment indicators were identified and no impairment losses were recorded during the nine months ended September 30, 2016. 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, based in each case on their respective fair values. Acquisition-related expenses are expensed as incurred. 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. Deferred Financing Costs Debt issuance costs related to securing the Company’s revolving line of credit are presented as an asset and amortized ratably over the term of the line of credit arrangement. The Company’s total deferred financing costs, net in the accompanying condensed consolidated unaudited balance sheets relate only to the revolving loan portion of the Credit Facility (as defined in Note 5 — Credit Facility and Subordinate Promissory Note). As of September 30, 2016, the Company had $1.5 million of deferred financing costs, net of accumulated amortization, related to the revolving loan portion of the Credit Facility. Due to Affiliates Certain affiliates of CCI III Advisors received fees, reimbursements, and compensation in connection with services provided relating to the Offering and the acquisition, management, financing, and leasing of the Company’s property. As of September 30, 2016, $17,000 was due to CCI III Advisors and its affiliates for such services, as discussed in Note 7 — Related-Party Transactions and Arrangements. Distribution and Stockholder Servicing Fees The Company will pay CCC a distribution and stockholder servicing fee for Class T Shares which are calculated on a daily basis in the amount of 1/365th of 1.0% of the purchase price per share (or, once reported, the amount of the Company’s estimated per share net asset value) of Class T Shares sold in the primary portion of the Offering. The distribution and stockholder servicing fee will be paid monthly in arrears. An estimated liability for future distribution and stockholder servicing fees payable to CCC will be recognized at the time each Class T Share is sold and included in due to affiliates in the condensed consolidated unaudited balance sheets with a corresponding decrease to capital in excess of par value. Redeemable Common Stock Under the Company’s share redemption program, the Company’s ability to redeem shares of its outstanding common stock is limited, among other things, to the net proceeds received by the Company from the sale of shares under the DRIP, net of shares redeemed to date. The Company records amounts that are redeemable under the share redemption program as redeemable common stock outside of permanent equity in its condensed consolidated unaudited balance sheets. Changes in the amount of redeemable common stock from period to period will be recorded as an adjustment to capital in excess of par value. Revenue Recognition The Company’s property has a lease where minimum rental payments increase during the term of the lease. The Company records rental income for the full term of the lease on a straight-line basis when earned and collectability is reasonably assured. When the Company acquires a property, the terms of existing leases are considered to commence as of the acquisition date for the purpose of this calculation. The Company defers the recognition of contingent rental income, such as percentage rents, until the specific target that triggers the contingent rental income is achieved. Expected reimbursements from tenants for recoverable real estate taxes and operating expenses are included in tenant reimbursement income in the period when such costs are incurred. The Company continually reviews receivables related to rent, including any unbilled straight-line rent, and determines collectability by taking into consideration the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located. In the event that the collectability of a receivable is in doubt, the Company will record an increase in the allowance for uncollectible accounts. As of September 30, 2016, the Company did not have an allowance for uncollectible accounts. Income Taxes The Company intends to qualify and elect to be taxed as a REIT for federal income tax purposes under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”), commencing with its taxable year ending December 31, 2016, as it did not commence principal operations until September 22, 2016. If the Company qualifies for taxation as a REIT, the Company will generally not be subject to federal corporate income tax to the extent it distributes its taxable income to its stockholders, and so long as it, among other things, distributes at least 90% of its annual taxable income (computed without regard to the dividends paid deduction and excluding net capital gains). REITs are subject to a number of other organizational and operational requirements. Even if the Company qualifies for taxation as a REIT, it or its subsidiaries may be subject to certain state and local taxes on its income and property, and federal income and excise taxes on its undistributed income. Net Loss Per Common Share We have two classes of common stock. Accordingly, we will utilize the two-class method to determine our earnings per share, which results in different earnings per share for each of the classes. Under the two-class method, earnings per class of common share 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 common shares for each class of common stock for the respective period. The distributed earnings to Class T Share common stockholders will represent distributions declared less the distribution and stockholder servicing fees. Diluted income (loss) per share 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, 2016. Organization and Offering Expenses CCI III Advisors funds all of the organization and offering costs on the Company’s behalf (excluding selling commissions, the dealer manager fees and the distribution and stockholder servicing fees) and may be reimbursed up to 1.0% of the gross proceeds from the Offering. As of September 30, 2016, CCI III Advisors had paid organization and offering costs in excess of 1.0% of the gross proceeds from the Offering. These excess costs were not included in the financial statements of the Company because such costs are not a liability of the Company as they exceeded 1.0% of the gross proceeds from the Offering. As the Company raises additional proceeds from the Offering, these excess costs may become payable. The Company expenses organization costs as incurred and records offering costs, which include items such as legal and accounting fees, marketing, personnel, promotional and printing costs, as a reduction of capital in excess of par value along with selling commissions, dealer manager fees and distribution and stockholder servicing fees in the period in which they become payable. Recent Accounting Pronouncements Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers — The requirements were amended to remove inconsistencies in revenue requirements and to provide a more complete framework for addressing revenue issues across a broad range of industries and transaction types. The revised standard’s core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The revised standard also clarifies that an entity should evaluate whether it is the principal or the agent for each specified good or service promised in a contract to a customer. These provisions are effective January 1, 2018, and are to be applied retrospectively, with early adoption permitted for periods beginning after December 15, 2016 and interim periods thereafter. The Company has identified its revenue streams and is in the process of evaluating the impact on its consolidated financial statements and internal accounting processes; however, as the majority of the Company’s revenue is derived from real estate lease contracts, as discussed in relation to ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”), the Company does not expect that the adoption of ASU 2014-09 or related amendments and modifications issued by the Financial Accounting Standards Board (the “FASB”) will have a material impact on its consolidated financial statements. 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. The Company is currently evaluating the effect that certain of these new accounting requirements may have on the Company’s accounting and related reporting and disclosures in the Company’s consolidated financial statements: ASU No. 2016-01, Financial Instruments (Subtopic 825-10) — The amendments in this update require all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under the equity method of accounting or those that result in consolidation of the investee). The amendments in this update also require an entity to present separately in other comprehensive income (loss), the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. In addition, the amendments in this update require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the consolidated balance sheets or the accompanying notes to the consolidated financial statements. The amendments in this update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. In February 2016, the FASB issued ASU 2016-02, which replaces the existing guidance in Accounting Standards Codification 840, Leases (Topic 842). ASU 2016-02 requires a dual approach for lessee accounting under which a lessee would account for leases as either finance leases or operating leases. Both finance leases and operating leases will result in the lessee recognizing a right-of-use (“ROU”) asset and a corresponding lease liability. For finance leases, the lessee would recognize interest expense and amortization of the ROU asset, and for operating leases, the lessee would recognize a straight-line total lease expense. The provisions of ASU 2016-02 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2018 and are required to be applied on a modified retrospective approach. Early adoption is permitted. ASU No. 2016-05, Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships — The amendments in this update clarify that a change in the counterparty to a derivative instrument that has been designated as a hedging instrument does not, in and of itself, require de-designation of that hedging relationship, provided that all other hedge accounting criteria continue to be met. These provisions are effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years, with early adoption permitted. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326) (“ASU 2016-13”). ASU 2016-13 requires more timely recording 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, trade and other receivables, 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 in current GAAP. ASU 2016-13 is effective for fiscal years, and interim periods within, beginning after December 15, 2019. Early adoption is permitted for fiscal years, and interim periods within those years, beginning after December 15, 2018. In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which is intended to address diversity in practice related to how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments in ASU 2016-15 address eight specific cash flow issues as well as application of the predominance principle (dependence on predominant source or use of receipt or payment) and are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. |
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Fair Value Measurements |
9 Months Ended |
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Sep. 30, 2016 | |
| Fair Value Disclosures [Abstract] | |
| FAIR VALUE MEASUREMENTS | 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 subordinate promissory note — The fair value is estimated by discounting the expected cash flows based on estimated borrowing rates available to the Company as of the measurement date. These financial instruments are valued using Level 2 inputs. As of September 30, 2016, the estimated fair value of the Company’s debt was $33.1 million, which approximated the carrying value on that date. The carrying and fair values exclude net deferred financing costs. Other financial instruments — The Company considers the carrying values of its cash and cash equivalents, tenant and other receivables, accounts payable and accrued expenses, other liabilities, and due to affiliates in order to approximate their fair values because of the short period of time between their origination and their expected realization as well as their highly-liquid nature. Due to the short-term maturities of these instruments, Level 1 inputs are utilized to estimate the fair value of these financial instruments. Considerable judgment is necessary to develop estimated fair values of financial assets and liabilities. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize, or be liable for, on disposition of the financial assets and liabilities. As of September 30, 2016, there have been no transfers of financial assets or liabilities between fair value hierarchy levels. |
Real Estate Investment |
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| Business Combinations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| REAL ESTATE INVESTMENT | REAL ESTATE INVESTMENT 2016 Property Acquisition During the nine months ended September 30, 2016, the Company acquired one office property for a purchase price of $32.8 million (the “2016 Acquisition”). The Company purchased the 2016 Acquisition with net proceeds from the Offering and available borrowings. The purchase price allocation for the 2016 Acquisition is preliminary and subject to change as the Company finalizes the allocation, which the Company expects will be prior to the end of the current fiscal year. The Company preliminarily allocated the purchase price of the 2016 Acquisition to the fair value of the assets acquired, as summarized in the table below.
As the 2016 Acquisition was acquired during the three months ended September 30, 2016, the Company recorded revenue for both the three and nine months ended September 30, 2016 of $60,000 and a net loss of $755,000 related to the 2016 Acquisition. In addition, the Company recorded $755,000 of acquisition-related expenses for the three and nine months ended September 30, 2016, respectively, which is included in acquisition-related expenses on the condensed consolidated unaudited statements of operations. The following table summarizes selected financial information of the Company as if the 2016 Acquisition was completed on January 1, 2016 for each period presented below. The table below presents the Company’s estimated revenue and net loss, on a pro forma basis, for the three and nine months ended September 30, 2016:
The pro forma information for the three months ended September 30, 2016 was adjusted to exclude $755,000 of acquisition-related expenses recorded during such period related to the 2016 Acquisition. No such adjustment was made for the nine months ended September 30, 2016. The pro forma information is presented for informational purposes only and may not be indicative of what actual results of operations would have been had the transaction occurred at the beginning of the period, nor does it purport to represent the results of future operations. |
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Credit Facility and Subordinate Promissory Note |
9 Months Ended |
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Sep. 30, 2016 | |
| Debt Disclosure [Abstract] | |
| CREDIT FACILITY AND SUBORDINATE PROMISSORY NOTE | CREDIT FACILITY AND SUBORDINATE PROMISSORY NOTE As of September 30, 2016, the Company had $32.3 million of debt outstanding, with a weighted average interest rate of 3.9% and weighted average years to maturity of 2.3 years. On September 23, 2016, the Company entered into a secured credit facility (the “Credit Facility”) with JPMorgan Chase, Bank N.A. (“JPMorgan Chase”), as administrative agent and a lender, and KeyBank, National Association (“KeyBank”) as a lender under the credit agreement (the “Credit Agreement”), that provides for borrowings of up to $100.0 million in revolving loans (the “Revolving Loans”). The Revolving Loans mature on September 23, 2019; however, the Company may elect to extend the maturity dates of such loans to September 23, 2021, 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 London Interbank Offered Rate (“LIBOR”), as elected by the Company, multiplied by the statutory reserve rate (as defined in the Credit Agreement), plus the applicable rate (the “Eurodollar Applicable Rate”), ranging from 2.20% to 2.75%, and the Company’s leverage ratio (as defined in the Credit Agreement). For base rate committed loans, the interest rate will be equal to a rate ranging from 1.20% to 1.75%, depending on the Company’s leverage ratio, plus a per annum amount equal to the greater of: (i) JPMorgan Chase’s Prime Rate (as defined in the Credit Agreement); (ii) the Federal Funds Effective Rate (as defined in the Credit Agreement) plus 0.50%; and (iii) one-month LIBOR multiplied by the statutory reserve rate plus 1.0%. As of September 30, 2016, the amount outstanding under the Revolving Loans totaled $22.0 million at an interest rate of 3.31%. The Company had $78.0 million in unused capacity, subject to borrowing availability, as of September 30, 2016. The Credit Agreement contains customary representations, warranties, borrowing conditions and affirmative, negative and financial covenants, including minimum net worth, debt service coverage and leverage ratio requirements and dividend payout and REIT status requirements. In particular, the Credit Agreement requires the Company to maintain a minimum consolidated net worth greater than or equal to 75% of the issuance of equity from the date of the Credit Agreement, a leverage ratio no greater than 70% and a fixed charge coverage ratio greater than 1.50. The Company believes it was in compliance with the covenants of the Credit Agreement as of September 30, 2016. In addition, during the three months ended September 30, 2016, the Company entered into a $30.0 million subordinate loan with an affiliate of the Company’s advisor (the “Subordinate Promissory Note”). The Subordinate Promissory Note bears interest at a rate per annum equal to the sum of (a) one-month LIBOR, (b) the Credit Facility Margin (as defined in the Subordinate Promissory Note) and (c) 1.75%, with accrued interest payable monthly in arrears and principal due upon maturity on September 22, 2017. The Subordinate Promissory Note had an interest rate of 5.05% as of September 30, 2016. In the event the Subordinate Promissory Note is not paid off on the maturity date, the loan includes default provisions. The Subordinate Promissory Note has been approved by a majority of the Company’s board of directors (including a majority of the independent directors) not otherwise interested in the transaction as fair, competitive and commercially reasonable and no less favorable to the Company than a comparable loan between unaffiliated parties under the same circumstances. As of September 30, 2016, the Company had $10.3 million of debt outstanding and $19.7 million available for borrowing under the Subordinate Promissory Note. |
Commitments and Contingencies |
9 Months Ended |
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Sep. 30, 2016 | |
| Commitments and Contingencies Disclosure [Abstract] | |
| COMMITMENTS AND CONTINGENCIES | 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 may become a party or of which the Company’s properties may become 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. |
Related-Party Transactions and Arrangements |
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| Related Party Transactions [Abstract] | |||||||||||||||||||||||||||||||||
| RELATED-PARTY TRANSACTIONS AND ARRANGEMENTS | RELATED-PARTY TRANSACTIONS AND ARRANGEMENTS The Company has incurred, and will continue to incur, commissions, fees and expenses payable to CCI III Advisors and certain of its affiliates in connection with the Offering and the acquisition, management and disposition of its assets. Selling commissions and dealer manager fees In connection with the Offering, CCC, the Company’s dealer manager, which is affiliated with CCI III Advisors, receives selling commissions of up to 7.0% and 3.0% of gross offering proceeds from the primary portion of the Offering for Class A Shares and Class T Shares, respectively, and before reallowance of selling commissions earned by participating broker-dealers. The Company has been advised that CCC intends to reallow 100% of selling commissions earned to participating broker-dealers. In addition, up to 2.0% of gross offering proceeds from the primary portion of the Offering for both Class A Shares and Class T Shares before reallowance to participating broker-dealers will be paid to CCC as a dealer manager fee. CCC, in its sole discretion, may reallow all or a portion of its dealer manager fee to participating broker-dealers. No selling commissions or dealer manager fees are paid to CCC or other participating broker-dealers with respect to shares sold pursuant to the DRIP. No selling commissions and dealer manager fees were paid during the three and nine months ended September 30, 2016. Distribution and stockholder servicing fees The Company will pay CCC a distribution and stockholder servicing fee for Class T Shares that is calculated on a daily basis in the amount of 1/365th of 1.0% of the purchase price per share (or, once reported, the amount of the Company’s estimated per share net asset value) of the Class T Shares sold in the primary portion of the Offering. The distribution and stockholder servicing fee will be paid monthly in arrears from cash flow from operations or, if the Company’s cash flow from operations is not sufficient to pay the distribution and stockholder servicing fee, from borrowings in anticipation of future cash flow. An estimated liability for future distribution and stockholder servicing fees payable to CCC is recognized at the time each Class T Share is sold and included in due to affiliates in the condensed consolidated unaudited 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 transfer agent, on behalf of the Company, determines that 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; (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 in the Offering, excluding shares sold pursuant to the DRIP; (iii) the fourth anniversary of the last day of the month in which the Offering (excluding the offering of shares pursuant to the DRIP) terminates; (iv) the date such Class T Share is no longer outstanding; and (v) the date the Company effects a liquidity event. CCC 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. No distribution and stockholder servicing fees are paid to CCC or other participating broker-dealers with respect to shares sold pursuant to the DRIP. During the three and nine months ended September 30, 2016, no distribution and stockholder servicing fees had been paid, as no Class T Shares had been sold as of September 30, 2016. Organization and offering expenses All other organization and offering expenses associated with the sale of the Company’s common stock (excluding selling commissions, dealer manager fees and distribution and stockholder servicing fees) are paid by CCI III Advisors or its affiliates and are reimbursed by the Company up to 1.0% 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, 2016, CCI III Advisors had paid organization and offering expenses in excess of the 1.0% of aggregate gross offering proceeds in connection with the Offering. These excess amounts were not included in the condensed consolidated unaudited financial statements of the Company because such amounts were not a liability of the Company as they exceeded 1.0% of gross proceeds from the Offering. As the Company raises additional proceeds from the Offering, these amounts may become payable. Acquisition fees and expenses The Company pays CCI III Advisors or its affiliates acquisition fees of up to 2.0% of: (i) the contract purchase price of each property or asset the Company acquires; (ii) the amount paid in respect of the development, construction or improvement of each asset the Company acquires; (iii) the purchase price of any loan the Company acquires; and (iv) the principal amount of any loan the Company originates. In addition, the Company reimburses CCI III Advisors or its affiliates for acquisition-related expenses incurred in the process of acquiring a property or the origination or acquisition of a loan, so long as the total acquisition fees and expenses relating to the transaction do not exceed 6.0% of the contract purchase price. Advisory fees Pursuant to the advisory agreement, the Company pays CCI III Advisors a monthly advisory fee based upon the Company’s monthly average invested assets, which is equal to the following amounts: (i) an annualized rate of 0.75% paid on the Company’s average invested assets that are between $0 to $2.0 billion; (ii) an annualized rate of 0.70% paid on the Company’s average invested assets that are between $2.0 billion and $4.0 billion; and (iii) an annualized rate of 0.65% paid on the Company’s average invested assets that are over $4.0 billion. Operating expenses The Company reimburses CCI III Advisors or its affiliates for the operating expenses they paid or incurred in connection with the services provided to the Company, subject to the limitation that the Company will not reimburse CCI III Advisors or its affiliates for any amount by which the operating expenses (including the advisory fee) at the end of the four preceding fiscal quarters exceed the greater of (i) 2.0% of average invested assets, or (ii) 25.0% of net income, other than any additions to reserves for depreciation, bad debts or other similar non-cash reserves and excluding any gain from the sale of assets for that period. The Company will not reimburse CCI III Advisors or its affiliates for personnel costs in connection with the services for which CCI III Advisors or its affiliates receive an acquisition fee, financing coordination fee or disposition fee. No operating expenses were reimbursed during the three and nine months ended September 30, 2016. Financing coordination fees If CCI III Advisors provides services in connection with the origination, assumption or refinancing of any debt to acquire properties or to make other permitted investments, the Company will pay CCI III Advisors a financing coordination fee equal to 1.0% of the amount available and/or outstanding under such financing. However, CCI III Advisors will not be entitled to a financing coordination fee on any debt where a fee was previously received unless (i) the maturity date of the refinanced debt was scheduled to occur less than one year after the date of the refinancing and the new loan has a term of at least five years or (ii) the new loan is approved by a majority of our independent directors; and provided, further, that no financing coordination fee will be paid in connection with loans advanced by an affiliate of CCI III Advisors. Disposition fees If CCI III Advisors or its affiliates provide a substantial amount of services (as determined by a majority of the Company’s independent directors) in connection with the sale of one or more properties (or the Company’s entire portfolio), the Company will pay CCI III Advisors or its affiliates a disposition fee in an amount equal to up to one-half of the real estate or brokerage commission paid by the Company to third parties on the sale of such properties, not to exceed 1.0% of the contract price of the properties sold; provided, however, in no event may the total disposition fees paid to CCI III Advisors, its affiliates, and unaffiliated third parties, exceed the lesser of the customary competitive real estate commission or an amount equal to 6.0% of the contract sales price. In addition, if CCI III Advisors 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 CCI III Advisors or its affiliates at such rates and in such amounts as the Company’s board of directors, including a majority of the independent directors, and CCI III Advisors agree upon, not to exceed an amount equal to 1.0% of the contract price of the assets sold. During the three and nine months ended September 30, 2016 no disposition fees were incurred for any such services provided by CCI III Advisors or its affiliates. Subordinated performance fees The Company will pay a subordinated performance fee under one of the following alternative events: (1) if the Company’s shares are listed on a national securities exchange, CCI III Advisors, 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 investors and the amount of distributions necessary to generate a 6.0% annual cumulative, non-compounded return to investors; (2) if the Company is sold or its assets are liquidated, CCI III Advisors will be entitled to a subordinated performance fee equal to 15.0% of the net sale proceeds remaining after investors have received, from regular distributions plus special distributions paid from proceeds of such sale, a return of their net capital invested and a 6.0% annual cumulative, non-compounded return; or (3) upon termination of the advisory agreement, CCI III Advisors 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, 2016, no subordinated performance fees were incurred related to any such events. The Company incurred commissions, fees and expense reimbursements as shown in the table below for services provided by CCI III Advisors and its affiliates related to the services described above during the periods indicated:
Due to Affiliates As of September 30, 2016, $16,919 was recorded for services and expenses incurred, but not yet reimbursed to CCI III Advisors, or its affiliates. The amount is primarily for interest expense and advisory fees and expenses. The Company incurred $11,550 of interest expense related to the Subordinate Promissory Note during the nine months ended September 30, 2016. These amounts were included in due to affiliates in the condensed consolidated unaudited balance sheets of such periods. |
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Economic Dependency |
9 Months Ended |
|---|---|
Sep. 30, 2016 | |
| Economic Dependency [Abstract] | |
| ECONOMIC DEPENDENCY | ECONOMIC DEPENDENCY Under various agreements, the Company has engaged or will engage CCI III Advisors or its affiliates to provide certain services that are essential to the Company, including asset management services, supervision of the management and leasing of properties owned by the Company, asset acquisition and disposition decisions, the sale of shares of the Company’s common stock available for issuance, as well as other administrative responsibilities for the Company including accounting services and investor relations. As a result of these relationships, the Company is dependent upon CCI III Advisors 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. |
Subsequent Events |
9 Months Ended |
|---|---|
Sep. 30, 2016 | |
| Subsequent Events [Abstract] | |
| SUBSEQUENT EVENTS | SUBSEQUENT EVENTS The Company evaluated subsequent events from October 1, 2016 through November 7, 2016, and concluded that no subsequent events have occurred that would require recognition or disclosure in the consolidated financial statements. |
Summary of Significant Accounting Policies (Policies) |
9 Months Ended | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2016 | |||||||||||
| Accounting Policies [Abstract] | |||||||||||
| Basis of Presentation | The condensed consolidated unaudited 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 balance sheet and related notes thereto included in the Registration Statement as declared effective by the SEC on September 22, 2016. Consolidated results of operations for the periods ended September 30, 2015 have not been presented because the Company had not commenced its principal operations during such periods. The condensed consolidated unaudited 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. |
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| Principles of Consolidation | The condensed consolidated unaudited financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. |
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| 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 unaudited financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. |
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| Real Estate Investments and Recoverability of Real Estate Assets | Real estate assets are stated at cost, less accumulated depreciation and amortization. Amounts capitalized to real estate assets consist of the cost of acquisition, construction and any tenant improvements, major improvements and betterments that extend the useful life of the real estate assets and leasing costs. All acquisition-related expenses, repairs and maintenance are expensed as incurred. 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:
Recoverability of Real Estate Assets The Company continually monitors events and changes in circumstances that could indicate that the carrying amounts of its real estate assets may not be recoverable. Impairment indicators that the Company considers include, but are not limited to, bankruptcy or other credit concerns of a property’s major tenant, such as a history of late payments, rental concessions and other factors, a significant decrease in a property’s revenues due to lease terminations, vacancies, co-tenancy clauses, reduced lease rates, 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. |
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| 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, based in each case on their respective fair values. Acquisition-related expenses are expensed as incurred. 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. |
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| Deferred Financing Costs | Debt issuance costs related to securing the Company’s revolving line of credit are presented as an asset and amortized ratably over the term of the line of credit arrangement. The Company’s total deferred financing costs, net in the accompanying condensed consolidated unaudited balance sheets relate only to the revolving loan portion of the Credit Facility (as defined in Note 5 — Credit Facility and Subordinate Promissory Note). |
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| Due to Affiliates | Certain affiliates of CCI III Advisors received fees, reimbursements, and compensation in connection with services provided relating to the Offering and the acquisition, management, financing, and leasing of the Company’s property. |
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| Distribution and Stockholder Servicing Fees | The Company will pay CCC a distribution and stockholder servicing fee for Class T Shares which are calculated on a daily basis in the amount of 1/365th of 1.0% of the purchase price per share (or, once reported, the amount of the Company’s estimated per share net asset value) of Class T Shares sold in the primary portion of the Offering. The distribution and stockholder servicing fee will be paid monthly in arrears. An estimated liability for future distribution and stockholder servicing fees payable to CCC will be recognized at the time each Class T Share is sold and included in due to affiliates in the condensed consolidated unaudited balance sheets with a corresponding decrease to capital in excess of par value. |
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| Redeemable Common Stock | Under the Company’s share redemption program, the Company’s ability to redeem shares of its outstanding common stock is limited, among other things, to the net proceeds received by the Company from the sale of shares under the DRIP, net of shares redeemed to date. The Company records amounts that are redeemable under the share redemption program as redeemable common stock outside of permanent equity in its condensed consolidated unaudited balance sheets. Changes in the amount of redeemable common stock from period to period will be recorded as an adjustment to capital in excess of par value. |
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| Revenue Recognition | The Company’s property has a lease where minimum rental payments increase during the term of the lease. The Company records rental income for the full term of the lease on a straight-line basis when earned and collectability is reasonably assured. When the Company acquires a property, the terms of existing leases are considered to commence as of the acquisition date for the purpose of this calculation. The Company defers the recognition of contingent rental income, such as percentage rents, until the specific target that triggers the contingent rental income is achieved. Expected reimbursements from tenants for recoverable real estate taxes and operating expenses are included in tenant reimbursement income in the period when such costs are incurred. The Company continually reviews receivables related to rent, including any unbilled straight-line rent, and determines collectability by taking into consideration the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located. In the event that the collectability of a receivable is in doubt, the Company will record an increase in the allowance for uncollectible accounts. As of September 30, 2016, the Company did not have an allowance for uncollectible accounts. |
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| Income Taxes | The Company intends to qualify and elect to be taxed as a REIT for federal income tax purposes under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”), commencing with its taxable year ending December 31, 2016, as it did not commence principal operations until September 22, 2016. If the Company qualifies for taxation as a REIT, the Company will generally not be subject to federal corporate income tax to the extent it distributes its taxable income to its stockholders, and so long as it, among other things, distributes at least 90% of its annual taxable income (computed without regard to the dividends paid deduction and excluding net capital gains). REITs are subject to a number of other organizational and operational requirements. Even if the Company qualifies for taxation as a REIT, it or its subsidiaries may be subject to certain state and local taxes on its income and property, and federal income and excise taxes on its undistributed income. |
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| Net Loss Per Common Share | We have two classes of common stock. Accordingly, we will utilize the two-class method to determine our earnings per share, which results in different earnings per share for each of the classes. Under the two-class method, earnings per class of common share 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 common shares for each class of common stock for the respective period. The distributed earnings to Class T Share common stockholders will represent distributions declared less the distribution and stockholder servicing fees. Diluted income (loss) per share 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, 2016. |
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| Organization and Offering Expenses | CCI III Advisors funds all of the organization and offering costs on the Company’s behalf (excluding selling commissions, the dealer manager fees and the distribution and stockholder servicing fees) and may be reimbursed up to 1.0% of the gross proceeds from the Offering. As of September 30, 2016, CCI III Advisors had paid organization and offering costs in excess of 1.0% of the gross proceeds from the Offering. These excess costs were not included in the financial statements of the Company because such costs are not a liability of the Company as they exceeded 1.0% of the gross proceeds from the Offering. As the Company raises additional proceeds from the Offering, these excess costs may become payable. The Company expenses organization costs as incurred and records offering costs, which include items such as legal and accounting fees, marketing, personnel, promotional and printing costs, as a reduction of capital in excess of par value along with selling commissions, dealer manager fees and distribution and stockholder servicing fees in the period in which they become payable. |
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| Recent Accounting Pronouncements | Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers — The requirements were amended to remove inconsistencies in revenue requirements and to provide a more complete framework for addressing revenue issues across a broad range of industries and transaction types. The revised standard’s core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The revised standard also clarifies that an entity should evaluate whether it is the principal or the agent for each specified good or service promised in a contract to a customer. These provisions are effective January 1, 2018, and are to be applied retrospectively, with early adoption permitted for periods beginning after December 15, 2016 and interim periods thereafter. The Company has identified its revenue streams and is in the process of evaluating the impact on its consolidated financial statements and internal accounting processes; however, as the majority of the Company’s revenue is derived from real estate lease contracts, as discussed in relation to ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”), the Company does not expect that the adoption of ASU 2014-09 or related amendments and modifications issued by the Financial Accounting Standards Board (the “FASB”) will have a material impact on its consolidated financial statements. 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. The Company is currently evaluating the effect that certain of these new accounting requirements may have on the Company’s accounting and related reporting and disclosures in the Company’s consolidated financial statements: ASU No. 2016-01, Financial Instruments (Subtopic 825-10) — The amendments in this update require all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under the equity method of accounting or those that result in consolidation of the investee). The amendments in this update also require an entity to present separately in other comprehensive income (loss), the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. In addition, the amendments in this update require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the consolidated balance sheets or the accompanying notes to the consolidated financial statements. The amendments in this update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. In February 2016, the FASB issued ASU 2016-02, which replaces the existing guidance in Accounting Standards Codification 840, Leases (Topic 842). ASU 2016-02 requires a dual approach for lessee accounting under which a lessee would account for leases as either finance leases or operating leases. Both finance leases and operating leases will result in the lessee recognizing a right-of-use (“ROU”) asset and a corresponding lease liability. For finance leases, the lessee would recognize interest expense and amortization of the ROU asset, and for operating leases, the lessee would recognize a straight-line total lease expense. The provisions of ASU 2016-02 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2018 and are required to be applied on a modified retrospective approach. Early adoption is permitted. ASU No. 2016-05, Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships — The amendments in this update clarify that a change in the counterparty to a derivative instrument that has been designated as a hedging instrument does not, in and of itself, require de-designation of that hedging relationship, provided that all other hedge accounting criteria continue to be met. These provisions are effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years, with early adoption permitted. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326) (“ASU 2016-13”). ASU 2016-13 requires more timely recording 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, trade and other receivables, 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 in current GAAP. ASU 2016-13 is effective for fiscal years, and interim periods within, beginning after December 15, 2019. Early adoption is permitted for fiscal years, and interim periods within those years, beginning after December 15, 2018. In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which is intended to address diversity in practice related to how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments in ASU 2016-15 address eight specific cash flow issues as well as application of the predominance principle (dependence on predominant source or use of receipt or payment) and are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. |
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Summary of Significant Accounting Policies (Tables) |
9 Months Ended | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2016 | |||||||||||
| Accounting Policies [Abstract] | |||||||||||
| Investment in and valuation of real estate and related assets | The estimated useful lives of the Company’s real estate assets by class are generally as follows:
|
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Real Estate Investment (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Business Combinations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of preliminary purchase price allocation | The Company preliminarily allocated the purchase price of the 2016 Acquisition to the fair value of the assets acquired, as summarized in the table below.
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| Schedule of estimated revenue and net loss, on a pro forma basis | The following table summarizes selected financial information of the Company as if the 2016 Acquisition was completed on January 1, 2016 for each period presented below. The table below presents the Company’s estimated revenue and net loss, on a pro forma basis, for the three and nine months ended September 30, 2016:
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Related-Party Transactions and Arrangements (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2016 | |||||||||||||||||||||||||||||||||
| Related Party Transactions [Abstract] | |||||||||||||||||||||||||||||||||
| Schedule of related party transactions | The Company incurred commissions, fees and expense reimbursements as shown in the table below for services provided by CCI III Advisors and its affiliates related to the services described above during the periods indicated:
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Summary of Significant Accounting Policies (Details) |
3 Months Ended | 9 Months Ended | |
|---|---|---|---|
|
Sep. 30, 2016
USD ($)
class_of_stock
shares
|
Sep. 30, 2016
USD ($)
class_of_stock
shares
|
Dec. 31, 2015
USD ($)
|
|
| Class of Stock [Line Items] | |||
| Impairment | $ 0 | ||
| Deferred finance costs, net | $ 1,457,368 | 1,457,368 | $ 0 |
| Due to related parties | 17,000 | 17,000 | |
| Allowance for doubtful accounts | $ 0 | $ 0 | $ 0 |
| Classes of common stock | class_of_stock | 2 | 2 | |
| Weighted average number diluted shares outstanding adjustment (in shares) | shares | 0 | 0 | |
| Advisors | Other organization and offering costs | Maximum | |||
| Class of Stock [Line Items] | |||
| Organization and offering expense limit percentage | 1.00% | 1.00% | |
| Class T Common Stock | Advisors | |||
| Class of Stock [Line Items] | |||
| Distribution and servicing fee, percentage of NAV per share | 0.00274% | ||
| Building | |||
| Class of Stock [Line Items] | |||
| Acquired real estate asset, useful life (in years) | 40 years |
Fair Value Measurements (Details) - Significant Other Observable Inputs (Level 2) - Affiliated entity $ in Millions |
Sep. 30, 2016
USD ($)
|
|---|---|
| Estimate of fair value | |
| Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |
| Debt, fair value | $ 33.1 |
| Carrying (reported) amount, fair value disclosure | |
| Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |
| Debt, fair value | $ 33.1 |
Real Estate Investment - Narrative (Details) |
3 Months Ended | 9 Months Ended |
|---|---|---|
|
Sep. 30, 2016
USD ($)
|
Sep. 30, 2016
USD ($)
property
|
|
| Business Acquisition [Line Items] | ||
| Acquisition-related | $ 754,531 | $ 754,531 |
| Property Acquisitions, 2016 | ||
| Business Acquisition [Line Items] | ||
| Number of businesses acquired (in properties) | property | 1 | |
| Aggregate purchase price | $ 32,800,000 | |
| Weighted average amortization period (in years) | 9 years 7 months 6 days | |
| Revenue recorded | 60,000 | $ 60,000 |
| Loss recorded | (755,000) | (755,000) |
| Acquisition-related | 755,000 | |
| Acquisition related expenses excluded from proforma information | $ 755,000 | $ 0 |
Real Estate Investment - Schedule of Preliminary Purchase Price Allocation (Details) - Property Acquisitions, 2016 |
Sep. 30, 2016
USD ($)
|
|---|---|
| Business Acquisition [Line Items] | |
| Land | $ 2,307,312 |
| Buildings and improvements | 26,971,327 |
| Total purchase price | 32,750,000 |
| Acquired in-place leases | |
| Business Acquisition [Line Items] | |
| Acquired in-place leases | $ 3,471,361 |
Real Estate Investment - Schedule of Pro Forma Revenue and Losses (Details) - Property Acquisitions, 2016 - USD ($) |
3 Months Ended | 9 Months Ended |
|---|---|---|
Sep. 30, 2016 |
Sep. 30, 2016 |
|
| Business Acquisition [Line Items] | ||
| Revenue | $ 736,581,000 | $ 2,168,965,000 |
| Net loss | $ (233,997,000) | $ (1,287,028,000) |
Credit Facility and Subordinate Promissory Note (Subordinate Promissory Note) (Details) - USD ($) |
Sep. 30, 2016 |
Dec. 31, 2015 |
|---|---|---|
| Line of Credit Facility [Line Items] | ||
| Line of credit outstanding | $ 22,000,000 | $ 0 |
| Affiliated entity | Line of credit | Subordinated Promissory Note | ||
| Line of Credit Facility [Line Items] | ||
| Line of credit facility, borrowing capacity (up to) | $ 30,000,000 | |
| Interest rate (percent) | 1.75% | |
| Interest rate, effective percentage | 5.05% | |
| Line of credit outstanding | $ 10,300,000 | |
| Line of credit facility, remaining borrowing capacity | $ 19,700,000 |
Related-Party Transactions and Arrangements (Distribution and stockholder servicing fees) (Details) - Advisors |
3 Months Ended | 9 Months Ended |
|---|---|---|
|
Sep. 30, 2016
USD ($)
|
Sep. 30, 2016
USD ($)
|
|
| Distribution and stockholder servicing fees | ||
| Related Party Transaction [Line Items] | ||
| Distribution and servicing fee, termination of payments threshold, percentage of total gross investment | 4.00% | 4.00% |
| Distribution and servicing fee, termination of payments threshold, percentage gross proceeds from shares in offering | 10.00% | 10.00% |
| Related party transaction, expenses from transactions with related party | $ 0 | $ 0 |
| Class T Common Stock | ||
| Related Party Transaction [Line Items] | ||
| Distribution and servicing fee, percentage of NAV per share | 0.00274% |
Related-Party Transactions and Arrangements (Organization and offering expenses) (Details) |
Sep. 30, 2016 |
|---|---|
| Maximum | Advisors | Other organization and offering costs | |
| Related Party Transaction [Line Items] | |
| Organization and offering expense limit percentage | 1.00% |
Related-Party Transactions and Arrangements (Acquisition fees and expenses) (Details) - Maximum - Advisors - Acquisition fees and expenses |
Sep. 30, 2016 |
|---|---|
| Related Party Transaction [Line Items] | |
| Acquisition and advisory fee (percentage) | 2.00% |
| Expense Reimbursement (Percent) | 6.00% |
Related-Party Transactions and Arrangements (Operating expenses) (Details) - Advisors |
9 Months Ended |
|---|---|
|
Sep. 30, 2016
USD ($)
| |
| Operating expenses | |
| Related Party Transaction [Line Items] | |
| Related party transaction, expenses from transactions with related party | $ 0 |
| Minimum | |
| Related Party Transaction [Line Items] | |
| Operating expense reimbursement percentage of average invested assets | 2.00% |
| Operating expense reimbursement percentage of net income | 25.00% |
Related-Party Transactions and Arrangements (Financing coordination fees) (Details) |
Sep. 30, 2016 |
|---|---|
| Advisors | Financing coordination fee | |
| Related Party Transaction [Line Items] | |
| Financing coordination fee (percent) | 1.00% |
Related-Party Transactions and Arrangements (Dispositions fees) (Details) - Advisors |
3 Months Ended | 9 Months Ended |
|---|---|---|
|
Sep. 30, 2016
USD ($)
|
Sep. 30, 2016
USD ($)
|
|
| Property sales commission | ||
| Related Party Transaction [Line Items] | ||
| Commissions performance and other fees percent | 1.00% | 1.00% |
| Related party transaction, expenses from transactions with related party | $ 0 | $ 0 |
| Maximum | Brokerage Commission Fee | ||
| Related Party Transaction [Line Items] | ||
| Commissions performance and other fees percent | 50.00% | 50.00% |
| Maximum | Property portfolio | ||
| Related Party Transaction [Line Items] | ||
| Commissions performance and other fees percent | 6.00% | 6.00% |
Related-Party Transactions and Arrangements (Subordinated Performance Fees) (Details) - Advisors |
3 Months Ended | 9 Months Ended |
|---|---|---|
|
Sep. 30, 2016
USD ($)
|
Sep. 30, 2016
USD ($)
|
|
| Related Party Transaction [Line Items] | ||
| Cumulative Noncompounded Annual Return | 6.00% | 6.00% |
| Performance fee | ||
| Related Party Transaction [Line Items] | ||
| Related party transaction, expenses from transactions with related party | $ 0 | $ 0 |
| Subordinate performance fee on event of sale of company | ||
| Related Party Transaction [Line Items] | ||
| Commissions performance and other fees percent | 15.00% | 15.00% |
| Subordinate performance fees for listing | ||
| Related Party Transaction [Line Items] | ||
| Commissions performance and other fees percent | 15.00% | 15.00% |
Related-Party Transactions and Arrangements (Schedule of Related Party Transaction) (Details) - Advisors - USD ($) |
3 Months Ended | 9 Months Ended |
|---|---|---|
Sep. 30, 2016 |
Sep. 30, 2016 |
|
| Other organization and offering costs | ||
| Related Party Transaction [Line Items] | ||
| Related party transaction, expenses from transactions with related party | $ 27,473 | $ 27,473 |
| Acquisition fees and expenses | ||
| Related Party Transaction [Line Items] | ||
| Related party transaction, expenses from transactions with related party | 655,000 | 655,000,000 |
| Advisory fees | ||
| Related Party Transaction [Line Items] | ||
| Related party transaction, expenses from transactions with related party | 5,369 | 5,369,000 |
| Financing coordination fees | ||
| Related Party Transaction [Line Items] | ||
| Related party transaction, expenses from transactions with related party | $ 220,000 | $ 220,000 |
Related-Party Transactions and Arrangements (Due to Affiliates) (Details) - USD ($) |
Sep. 30, 2016 |
Dec. 31, 2015 |
|---|---|---|
| Related Party Transaction [Line Items] | ||
| Due to affiliates | $ 16,919 | $ 0 |
| Line of credit | Subordinated Promissory Note | Affiliated entity | ||
| Related Party Transaction [Line Items] | ||
| Interest expense | $ 11,550 |