REAL ESTATE INVESTMENTS, NET

9 Months Ended

Sep. 30, 2020

REAL ESTATE INVESTMENTS, NETAs of September 30, 2020, the Company’s real estate investment portfolio consisted of (i) 39 operating properties located in 14 states (including the 17 operating properties of the original 20 operating properties acquired in connection with the Merger on December 31, 2019) including: 14 retail properties, 14 office properties and 11 industrial properties, (ii) one parcel of land, which currently serves as an easement to one of the Company’s office properties and (iii) a 72.7% undivided TIC Interest in an office property in Santa Clara, CA, as discussed in Note 5.

The following table provides summary information regarding the Company’s operating properties as of September 30, 2020:


Property	Location	Acquisition Date	Property Type	Land, Buildings and Improvements		Tenant Origination and Absorption Costs		Accumulated Depreciation and Amortization		Total Investment in Real Estate Property, Net
Accredo Health	Orlando, FL	6/15/2016	Office	$	9,855,847	$	1,269,349	$	(2,104,747)	$	9,020,449
Dollar General	Litchfield, ME	11/4/2016	Retail	1,281,812		116,302		(155,945)		1,242,169
Dollar General	Wilton, ME	11/4/2016	Retail	1,543,776		140,653		(199,575)		1,484,854
Dollar General	Thompsontown, PA	11/4/2016	Retail	1,199,860		106,730		(149,835)		1,156,755
Dollar General	Mt. Gilead, OH	11/4/2016	Retail	1,174,188		111,847		(143,657)		1,142,378
Dollar General	Lakeside, OH	11/4/2016	Retail	1,112,872		100,857		(147,437)		1,066,292
Dollar General	Castalia, OH	11/4/2016	Retail	1,102,086		86,408		(143,250)		1,045,244
Dana (1)	Cedar Park, TX	12/27/2016	Industrial	6,802,876		531,439		(1,762,138)		5,572,177
Northrop Grumman	Melbourne, FL	3/7/2017	Office	12,382,991		1,341,199		(2,773,228)		10,950,962
exp US Services	Maitland, FL	3/27/2017	Office	6,056,668		388,248		(777,286)		5,667,630
Wyndham	Summerlin, NV	6/22/2017	Office	10,406,483		669,232		(1,081,599)		9,994,116
Williams Sonoma	Summerlin, NV	6/22/2017	Office	8,079,612		550,486		(980,566)		7,649,532
Omnicare	Richmond, VA	7/20/2017	Industrial	7,262,747		281,442		(771,324)		6,772,865
EMCOR	Cincinnati, OH	8/29/2017	Office	5,960,610		463,488		(559,314)		5,864,784
Husqvarna	Charlotte, NC	11/30/2017	Industrial	11,840,200		1,013,948		(1,024,378)		11,829,770
AvAir	Chandler, AZ	12/28/2017	Industrial	27,357,900		—		(1,937,616)		25,420,284
3M	DeKalb, IL	3/29/2018	Industrial	14,762,819		2,356,361		(3,165,253)		13,953,927
Cummins	Nashville, TN	4/4/2018	Office	14,465,491		1,536,998		(1,953,297)		14,049,192
Northrop Grumman Parcel	Melbourne, FL	6/21/2018	Land	329,410		—		—		329,410
Texas Health	Dallas, TX	9/13/2018	Office	6,976,703		713,221		(607,013)		7,082,911
Bon Secours	Richmond, VA	10/31/2018	Office	10,388,751		800,356		(865,130)		10,323,977
Costco	Issaquah, WA	12/20/2018	Office	27,330,797		2,765,136		(2,328,660)		27,767,273
Taylor Fresh Foods	Yuma, AZ	10/24/2019	Industrial	34,194,369		2,894,017		(1,266,604)		35,821,782
Chevron Gas Station	San Jose, CA	12/31/2019	Retail	4,054,759		145,577		(45,475)		4,154,861
Levins	Sacramento, CA	12/31/2019	Industrial	4,429,390		221,927		(165,456)		4,485,861
Chevron Gas Station	Roseville, CA	12/31/2019	Retail	3,648,571		136,415		(89,270)		3,695,716
Dollar General	Bakersfield, CA	12/31/2019	Retail	4,899,714		261,630		(110,349)		5,050,995
PMI Preclinical	San Carlos, CA	12/31/2019	Industrial	9,672,174		408,225		(153,241)		9,927,158
EcoThrift	Sacramento, CA	12/31/2019	Retail	5,550,226		273,846		(223,109)		5,600,963
GSA (MSHA)	Vacaville, CA	12/31/2019	Office	3,112,076		243,307		(103,886)		3,251,497
PreK Education	San Antonio, TX	12/31/2019	Retail	12,447,287		447,927		(449,571)		12,445,643
Dollar Tree	Morrow, GA	12/31/2019	Retail	1,320,367		73,298		(53,183)		1,340,482
Solar Turbines	San Diego, CA	12/31/2019	Office	7,133,241		284,026		(253,605)		7,163,662
Wood Group	San Diego, CA	12/31/2019	Industrial	9,731,220		392,955		(423,870)		9,700,305
ITW Rippey	El Dorado, CA	12/31/2019	Industrial	7,071,143		304,387		(226,824)		7,148,706
Dollar General	Big Spring, TX	12/31/2019	Retail	1,281,683		76,351		(38,227)		1,319,807
Gap	Rocklin, CA	12/31/2019	Office	8,378,276		360,377		(359,480)		8,379,173
L-3 Communications	San Diego, CA	12/31/2019	Industrial	11,631,857		454,035		(353,117)		11,732,775
Sutter Health	Rancho Cordova, CA	12/31/2019	Office	29,555,055		1,616,610		(810,261)		30,361,404
Walgreens	Santa Maria, CA	12/31/2019	Retail	5,223,442		335,945		(99,720)		5,459,667
				$	351,009,349	$	24,274,555	$	(28,856,496)	$	346,427,408

(1) See impairment charges discussion below.

Impairment Charges

During late March 2020, the Company learned that there would be a substantial impact on the commercial real estate market and specifically on fitness centers due to the COVID-19 pandemic and the requirement of an indefinite and potentially extended period of store closures. On March 31, 2020, the Company received written notice from 24 Hour Fitness USA, Inc. (“24 Hour Fitness”) that due to circumstances beyond its control, including the response to the COVID-19 pandemic and directives and mandates of various governmental authorities, the Las Vegas, NV 24 Hour Fitness store leased from the Company had been closed on or about March 17, 2020 and remained closed as of the date of the tenant's notice. The tenant's notice stated that it would not make the April 2020 rent payment. The Company's special purpose subsidiary, which owns the property, immediately initiated negotiations with the tenant; however, no further rent payments were received and on June 15, 2020, the Company received written notice that the lease was formally rejected in connection with 24 Hour Fitness' Chapter 11 bankruptcy proceeding and the premises were surrendered to the Company's subsidiary.

On April 1, 2020, the Company’s special purpose subsidiary initiated negotiations with the lender on the property regarding the special purpose subsidiary's request for a deferral of mortgage payments until the tenant resumed paying rent. The lender on this property did not agree to provide any substantial mortgage relief to the Company's special purpose subsidiary, but rather agreed to temporarily reduce its $32,000 monthly mortgage payment by $8,000 from May through August 2020. The Company's special purpose subsidiary determined that if it was unable to secure a replacement tenant, then it would consider allowing the lender to foreclose on, and take possession of, the property. As such, the Company concluded that it was necessary to record an impairment charge to reduce the net book value of the property to its estimated fair value.

In addition, during the first quarter of 2020, the Company determined that the effects of the COVID-19 pandemic on the overall economy and commercial real estate market would also have negative impacts on the Company's ability to re-lease two vacant properties, the property formerly leased to Dinan Cars located in Morgan Hill, CA through January 31, 2020 and the property leased to Dana, but currently unoccupied, located in Cedar Park, TX. Based on an evaluation of the value of these two properties, the Company determined that impairment charges were required during the three months ended March 31, 2020 to reflect the reduction in value due to the uncertainty regarding leasing or sale prospects.

Effective August 1, 2020, the Company executed an amendment for the early termination of the Dana lease from July 31, 2024 to July 31, 2022 in exchange for an early termination payment of $1,381,767 due on July 31, 2022 and continued rent payments of $65,000 per month from August 1, 2020 through July 1, 2022. In the event that the Company is able to re-lease or sell the Dana property prior to July 31, 2022, Dana would be obligated to continue paying rent of $65,000 per month through July 1, 2022 or may elect to pay a cash lump sum payment to the Company equal to the net present value of the remaining rent payments.

During the three months ended March 31, 2020, the Company recorded impairment charges aggregating $9,157,068 based on the estimated fair value of the real estate properties discussed above, and during the three months ended June 30, 2020, the Company recorded an additional impairment charge of $349,457 related to its property located in Lake Elsinore, CA and leased to Rite Aid through February 29, 2028. This impairment charge represented the excess of the property's carrying value over the property's sale price less estimated selling costs (see below for discussion of the property sale). The first quarter aggregate impairment charges of $9,157,068 represented approximately 2.2% of the Company’s total investments in real estate property before impairments as of March 31, 2020 and the second quarter impairment charge of $349,457 represented approximately 0.1% of the Company’s total investments in real estate property before impairments as of June 30, 2020. There were no additional impairment charges during the three months ended September 30, 2020.

The details of the Company's real estate impairment charges for the nine months ended September 30, 2020 were as follows:

Property

Location

Nine Months Ended September 30, 2020

Rite Aid

Lake Elsinore, CA

349,457

Dana

Cedar Park, TX

2,184,395

24 Hour Fitness

Las Vegas, NV

5,664,517

Dinan Cars

Morgan Hill, CA

1,308,156

9,506,525

Acquisitions:

The Company did not acquire any real estate properties during the nine months ended September 30, 2020 or 2019.

Dispositions:

The Company sold the following properties during the nine months ended September 30, 2020:


Property	Location	Disposition Date	Property Type	Rentable Square Feet	Contract Sale Price		(Loss) Gain on Sale
Rite Aid	Lake Elsinore, CA	8/3/2020	Retail	70,960	$	7,250,000	$	(422)
Walgreens	Stockbridge, GA	8/27/2020	Retail	15,120	5,538,462		1,306,768
Island Pacific	Elk Grove, CA	9/16/2020	Retail	27,296	3,155,000		387,296
				113,376	$	15,943,462	$	1,693,642

On August 3, 2020, the Company completed the sale of its Lake Elsinore, CA retail property which was leased to Rite Aid for $7,250,000, which generated net proceeds of $3,299,016 after repayment of the existing mortgage, commissions and closing costs. Prior to the sale, the Company evaluated the Rite Aid property for impairment and recognized a $349,457 impairment charge during the three months ended June 30, 2020 in order to reduce the carrying value of the property to its estimated fair value.

On August 27, 2020, the Company completed the sale of its Stockbridge, GA retail property which was leased to Walgreens for $5,538,462, which generated net proceeds of $5,296,356 after payment of commissions and closing costs. The mortgage for this property was previously repaid on August 10, 2020 in connection with the refinancing of the Accredo property as discussed in Note 7.

On September 16, 2020, the Company completed the sale of its Elk Grove, CA retail property which was leased to Island Pacific for $3,155,000, which generated net proceeds of $1,124,016 after repayment of the existing mortgage, commissions and closing costs.

Asset Concentration

The Company holds no real estate property with a net book value that is greater than 10% of its total assets as of September 30, 2020 and December 31, 2019.

Revenue Concentration

No tenants represented the source of 10% of total revenues during the three or nine months ended September 30, 2020. The Company’s revenue concentration based on tenants representing greater than 10% of total revenues for the three and nine months ended September 30, 2019 was as follows:


	Three Months Ended September 30, 2019
Property and Location	Revenue		Percentage of Total Revenue
Costco, Issaquah, WA	$	662,585	10.8	%
AvAir, Chandler, AZ	$	671,406	11.0	%


	Nine Months Ended September 30, 2019
Property and Location	Revenue		Percentage of Total Revenue
Costco, Issaquah, WA	$	2,038,609	11.4	%
AvAir, Chandler, AZ	$	2,004,954	11.2	%

Operating Leases

The Company’s real estate properties are primarily leased to tenants under net leases for which terms and expirations vary. The Company monitors the credit of all tenants to stay abreast of any material changes in credit quality. The Company monitors tenant credit by (1) reviewing the credit ratings of tenants (or their parent companies or lease guarantors) that are rated by nationally recognized rating agencies; (2) reviewing financial statements and related metrics and information that are publicly available or that are required to be provided pursuant to the lease; (3) monitoring news reports and press releases regarding the tenants (or their parent companies or lease guarantors), and their underlying business and industry; and (4) monitoring the timeliness of rent collections.

During the first four months of 2020, the Company paid an aggregate of $990,000 in lease incentives to cancel certain termination options related to two leases with Walgreens for its Santa Maria, California and Stockbridge, Georgia properties, resulting in extension of the leases for approximately 10 years each. The Stockbridge property was sold on August 27, 2020 as discussed above.

As of September 30, 2020, the future minimum contractual rent payments due to the Company under the Company’s non-cancellable operating leases, excluding rents due related to real estate investments held for sale, are as follows:


October through December 2020	$	6,528,690
2021	25,681,770
2022	23,147,301
2023	19,412,451
2024	19,229,235
2025	15,813,536
Thereafter	42,540,235
	$	152,353,218

Intangibles

As of September 30, 2020, the Company’s lease intangibles were as follows:


	Tenant Origination and Absorption Costs		Above-Market Lease Intangibles		Below-Market Lease Intangibles
Cost	$	24,274,555	$	1,194,720	$	(15,552,554)
Accumulated amortization	(8,689,796)		(284,219)		2,277,721
Net amount	$	15,584,759	$	910,501	$	(13,274,833)

The intangible assets acquired in connection with the acquisitions have a weighted average amortization period of approximately 9.3 years as of September 30, 2020. As of September 30, 2020, the amortization of intangible assets for the three months ending December 31, 2020 and for each year of the next five years and thereafter is expected to be as follows:


	Tenant Origination and Absorption Costs		Above-Market Lease Intangibles		Below-Market Lease Intangibles
October through December 2020	$	1,106,918	$	35,445	$	(383,344)
2021	3,698,643		141,779		(1,525,877)
2022	2,709,134		141,780		(1,280,223)
2023	1,832,039		139,131		(984,317)
2024	1,715,028		134,500		(980,897)
2025	1,316,375		122,383		(980,897)
Thereafter	3,206,622		195,483		(7,139,278)
	$	15,584,759	$	910,501	$	(13,274,833)

Weighted-average remaining amortization period	7.0 years		7.3 years		12.2 years

Real Estate Investments Held For Sale

As a result of the COVID-19 pandemic discussed in Note 1, during the second quarter of 2020, the Company deemed it necessary to sell certain of its real estate investment properties to generate funds for share repurchases and certain debt obligations. During the three months ended June 30, 2020, the Company identified four real estate investment properties as held for sale. These four properties consisted of three retail properties (the property leased to Island Pacific Supermarket through May 30, 2033 located in Elk Grove, CA, the property leased to Rite Aid through February 29, 2028 located in Lake Elsinore, CA and the property leased to Walgreens through February 28, 2031 located in Stockbridge, GA) and one industrial property previously leased to Dinan Cars located in Morgan Hill, CA. These properties were classified as real estate investments held for sale, net in the Company's condensed consolidated balance sheet as of June 30, 2020. As discussed above, the three retail properties were subsequently sold during the three months ended September 30, 2020. The industrial property was sold on October 28, 2020 as discussed in Note 11.

During the three months ended September 30, 2020, the Company also determined to sell two additional retail properties (the property leased to Harley Davidson through April 12, 2032 located in Bedford, TX and the property formerly leased to 24 Hour Fitness located in Las Vegas, NV) resulting in a total of three properties classified as real estate investments held for sale as of September 30, 2020, including the Morgan Hill, CA industrial property that was sold on October 28, 2020.

On September 17, 2020, the Company’s special purpose subsidiary entered into a purchase and sale agreement to sell the Las Vegas property formerly leased to 24 Hour Fitness, subject to a number of contingencies including lender approval of the buyer’s assumption of the existing mortgage. There can be no assurances that all of the contingencies will be satisfied or that the transaction will close. If the Company's special purpose subsidiary does not complete the sale of the Las Vegas property formerly leased to 24 Hour Fitness, then it would consider allowing the lender to foreclose on, and take possession of, the property. The estimated liability of $3,120,678 under a loan guarantee related to the secured mortgage was accrued and included in liabilities related to real estate held for sale on the condensed consolidated balance sheet as of September 30, 2020.

The following table summarizes the major components of assets and liabilities related to real estate investments held for sale as of September 30, 2020:


	September 30, 2020
Assets related to real estate investments held for sale:
Land, buildings and improvements	$	24,971,754
Tenant origination and absorption costs	176,276
Accumulated depreciation and amortization	(2,114,912)
Real estate investments held for sale, net	23,033,118
Other assets, net	864,008
Total assets related to real estate investments held for sale:	$	23,897,126

Liabilities related to real estate investments held for sale:
Mortgage notes payable, net	$	14,671,370
Other liabilities, net (a)	3,934,795
Total liabilities related to real estate investments held for sale:	$	18,606,165

(a) Includes the estimated liability for a loan guarantee related to the secured mortgage for the Las Vegas, Nevada property formerly leased to 24 Hour Fitness, as a result of the evaluation of the impact of the COVID-19 pandemic on the tenant's business and the risk that the lender could foreclose on the property if the pending sale described above does not close.

The following table summarizes the major components of rental income, expenses and impairment related to real estate investments held for sale as of September 30, 2020, which were included in continuing operations for the three and nine months ended September 30, 2020 and 2019:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Total revenues	$	366,673	$	593,981	$	2,004,279	$	1,750,072
Expenses:
Interest expense	169,871		155,722		554,009		610,583
Depreciation and amortization	145,695		198,785		554,036		594,353
Other expenses	143,173		169,520		414,115		499,998
Impairment of real estate properties/reserve	—		—		10,097,710		—
Total expenses	458,739		524,027		11,619,870		1,704,934
Net (loss) income	$	(92,066)	$	69,954	$	(9,615,591)	$	45,138

As discussed in Note 3, the property located in Morgan Hill, CA was acquired in the Merger on December 31, 2019 and therefore did not contribute to the Company's rental income or net loss for the three and nine months ended September 30, 2019.