SILA US Equity☆

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes thereto and the other financial information appearing elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of various factors, including those discussed below and elsewhere in this report, particularly under “Risk Factors” and “Forward-Looking Statements.” All forward-looking statements in this document are based on information available to us as of the date hereof, and we assume no obligation to update any such forward-looking statements.

This section of the Annual Report on Form 10-K generally discusses 2020 and 2019 items and year-to-year comparisons between 2020 and 2019. A discussion of the changes in our financial condition and results of operations for the years ended December 31, 2019, and 2018 may be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal years ended December 31, 2019 and December 31, 2018.

Overview

We were formed on January 11, 2013, under the laws of Maryland to acquire and operate a diversified portfolio of income-producing commercial real estate with a focus on data centers and healthcare properties, preferably with long-term net leases to creditworthy tenants, as well as to make real estate-related investments that relate to such property types.

We currently operate through two reportable segments – commercial real estate investments in data centers and healthcare. As of December 31, 2020, we had purchased 155 properties, inclusive of 60 properties, or Legacy REIT I properties, acquired in the merger with Carter Validus Mission Critical REIT, Inc., or REIT I, whereby REIT I merged with and into one of our wholly-owned subsidiaries, or REIT Merger, composed of approximately 8,770,000 of rentable square feet for an aggregate purchase price of approximately $3,147.0 million. Since inception through December 31, 2020, we sold two Legacy REIT I healthcare properties and a portion of another healthcare property, composed of approximately 290,000 rentable square feet, for an aggregate sale price of $61.1 million and generated net proceeds of $31.4 million. The sales occurred during the fourth quarter of 2020, second quarter of 2020 and the fourth quarter of 2019, respectively.

Prior to September 30, 2020, we were externally advised and managed by our Former Advisor. On July 28, 2020, we and our Operating Partnership entered into the Purchase Agreement, which provided for the internalization of the external management functions previously performed for us and our Operating Partnership by our Former Advisor and its affiliates. The Purchase Agreement was entered into with our Former Advisor and various affiliates of our Former Advisor, or the Sellers, and Sila Realty Management Company, LLC f/k/a CV Manager, LLC, a newly formed Delaware limited liability company, or Manager Sub.

Under the Purchase Agreement and related agreements, immediately prior to the closing of the Internalization Transaction, the Sellers assigned or caused to be assigned to Manager Sub all of the assets necessary to operate our business and our subsidiaries, or the Business, and delegated all obligations of the Sellers in connection with the Business to Manager Sub pursuant to an assignment and acceptance agreement. Immediately thereafter, under the Purchase Agreement, our Operating Partnership (i) acquired 100% of the membership interests in Manager Sub for an aggregate cash purchase price of $40,000,000, subject to certain adjustments, or the Purchase Price, and (ii) redeemed our Former Advisor’s limited partner interest (including special limited partner interest) in our Operating Partnership. $25,000,000 of the Purchase Price was paid at the Closing, and, subject to certain acceleration provisions: (i) $7,500,000 will be due and payable on March 31, 2021, and (ii) $7,500,000 will be due and payable on March 31, 2022. On September 30, 2020, we and our Operating Partnership closed the Internalization Transaction.

On September 30, 2020, we and Sila REIT, LLC, f/k/a Carter Validus Mission Critical REIT II, LLC, entered into the Third A&R LP Agreement, in order to reflect the completion of the Internalization Transaction. For details regarding the Internalization Transaction, see Note 3—"Internalization Transaction" to the consolidated financial statements that are a part of this Annual Report on Form 10-K.

On September 30, 2020, Articles of Amendment changing our name from “Carter Validus Mission Critical REIT II, Inc.” to “Sila Realty Trust, Inc.” were filed and accepted for record by the State Department of Assessment and Taxation of the State of Maryland, and thereby became effective as part of our charter.

We anticipate that the Internalization Transaction will provide various benefits, including cost savings, continuity of management and further alignment of interests between management and our stockholders, as well as a potential benefit for ultimate liquidity given the preference for an internal management structure in traded equity REITs.

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Concurrently with, and as a condition to the execution and delivery of the Purchase Agreement, we entered into an employment agreement with each of Michael A. Seton and Kay C. Neely, pursuant to which Mr. Seton and Ms. Neely have served from and after the Closing as our Chief Executive Officer and Chief Financial Officer, respectively. Such employment agreements became effective at and upon the Closing.

Effective upon the Closing, our board of directors approved the establishment of a compensation committee and a nominating and corporate governance committee.

On July 28, 2020, pursuant to the Purchase Agreement, John E. Carter resigned as the chairman of our board of directors, effective immediately. On July 28, 2020, our board of directors elected Jonathan Kuchin, a current independent director of the board of directors and the chairman of the audit committee, as chairman of our board of directors, effective immediately. On September 30, 2020, pursuant to the Purchase Agreement and as a closing condition, John E. Carter resigned as a director of our board of directors at and upon the Closing. As a result of Mr. Carter’s resignation, our board of directors reduced its size so that it now has five members, four of whom are independent directors. For more information regarding the Internalization Transaction, see our Current Reports on Forms 8-K filed with the SEC on July 29, 2020 and September 30, 2020, respectively.

Upon completion of the Internalization Transaction, 76 individuals, who were previously employed by an affiliate of our Former Advisor, became our employees and the functions previously performed by our Former Advisor were internalized by us. As an internally managed company, we will no longer pay our Former Advisor and its affiliates any fees or expense reimbursements arising from the advisory agreement that was terminated prior to the Closing.

On December 1, 2020, our board of directors, at the recommendation of our audit committee, which is comprised solely of independent directors, established the Estimated Per Share NAV, calculated as of September 30, 2020, of $8.69. Therefore, effective December 8, 2020, shares of common stock are offered pursuant to the second DRIP Offering for a price per share of $8.69. The Estimated Per Share NAV was calculated for purposes of assisting broker-dealers participating in the Initial Offering and the Offering in meeting their customer account statement reporting obligations under the National Association of Securities Dealers Conduct Rule 2340. The Estimated Per Share NAV was determined by our board of directors after consultation with management, and an independent third-party valuation firm. The Estimated Per Share NAV is not subject to audit by our independent registered public accounting firm. We intend to publish an updated estimated NAV per share on an annual basis.

We raised the equity capital for our real estate investments through our Offerings, from May 2014 through November 2018, and we have offered shares pursuant to our DRIP Offerings, since November 2017. As of December 31, 2020, we had accepted investors’ subscriptions for and issued approximately 151,238,000 shares of Class A, Class I, Class T and Class T2 common stock in our Offerings, resulting in receipt of gross proceeds of approximately $1,467,668,000, before share repurchases of $116,956,000, selling commissions and dealer manager fees of approximately $96,734,000 and other offering costs of approximately $27,618,000.

The Dealer Manager served as the dealer manager of our Offerings. Effective September 30, 2020, as a result of the Internalization Transaction, the Dealer Manager is no longer affiliated with us. The Dealer Manager received fees for services related to our Offerings. We continue to pay the Dealer Manager a distribution and servicing fee with respect to Class T and Class T2 shares that were sold in our Offerings.

COVID-19 Developments

In March 2020, the World Health Organization declared the outbreak of COVID-19 a global health pandemic and it continues to spread throughout the United States. As a result, the global markets and economies have experienced, and may continue to experience, a significant amount of volatility.

The global outbreak of COVID-19 has forced temporary closures, changes to the operating hours or other temporary changes to the business of certain tenants in healthcare and data center properties of the Company. In response, certain of our tenants sought rent concessions, including decreased rent or rent deferrals. We discussed the circumstances with our tenants and granted rent deferrals to an immaterial number of tenants impacted by COVID-19, relative to the overall portfolio. At this time, unless the pandemic materially increases in severity, we anticipate decreased rent and rent deferral repayments to continue for a relatively short period and to have an immaterial impact on the collectability of tenant receivables over their respective term of the lease. During the year ended December 31, 2020, we entered into 30 rent concessions and lease modifications due to the impact of COVID-19 on our tenants and collected approximately 99% of rental revenue related to these lease concessions and lease modifications for such period.

On July 10, 2020, we entered into second amendments to our credit agreement and term loan agreement due to certain rent concessions provided to tenants as a result of the COVID-19 pandemic and their impact on the amount available to be drawn under our credit facility.

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Our personnel have successfully transitioned to a remote work environment with the ability to maintain our operations, financial reporting and internal and disclosure controls and procedures. If the global pandemic continues for an extended period of time, we do not anticipate that the remote work environment will have a material impact on our internal control over financial reporting.

Additionally, due to the uncertainty surrounding COVID-19 and any impact it may have on us, our board of directors decided to temporarily suspend share repurchases under our SRP. However, we continue to process repurchases due to death or involuntary exigent circumstance in accordance with the terms of our share repurchase program. See "Liquidity and Capital Resources".

The extent to which the COVID-19 pandemic continues to impact our business will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others. We continue to closely monitor the impact of the COVID-19 pandemic on all aspects of our business and geographies. However, as a result of the many uncertainties surrounding the COVID-19 pandemic, we are unable to predict the impact that it ultimately will have on our business and results of operations.

Critical Accounting Policies

The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect reported amounts of assets, liabilities, revenues and expenses. Changes in these estimates and assumptions could have a significant effect on the financial statements. We base our estimates on historical experience and various assumptions that we believe are reasonable under the circumstances. Although our actual results historically have not deviated materially from those determined using estimates, our results of operations or financial condition could differ materially from these estimates under different assumptions or conditions. We believe that the following discussion addresses critical accounting policies, which are those that are most important to the portrayal of our financial condition and results of operations and require management’s most difficult, subjective and complex judgments.

Purchase Price Allocation

Upon the acquisition of real properties, we evaluate whether the acquisition is a business combination or an asset acquisition. For both business combinations and asset acquisitions we allocate the purchase price of properties to acquired tangible assets, consisting of land, buildings and improvements, and acquired intangible assets and liabilities, consisting of the value of above-market and below-market leases and the value of in-place leases. For asset acquisitions, we capitalize transaction costs and allocate the purchase price using a relative fair value method allocating all accumulated costs. For business combinations, we expense transaction costs incurred and allocate the purchase price based on the estimated fair value of each separately identifiable asset and liability.

The fair values of the tangible assets of an acquired property (which includes land, buildings and improvements) are determined by valuing the property as if it were vacant, and the “as-if-vacant” value is then allocated to land and buildings and improvements based on management’s determination of the relative fair value of these assets. Management determines the as-if-vacant fair value of a property using methods similar to those used by independent appraisers. Factors considered by management in performing these analyses include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases, including leasing commissions and other related costs. In estimating carrying costs, management includes real estate taxes, insurance, and other operating expenses during the expected lease-up periods based on current market conditions.

The fair values of above-market and below-market in-place leases are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) an estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease including any fixed rate bargain renewal periods, with respect to a below-market lease. The above-market and below-market lease values are capitalized as intangible lease assets or liabilities. Above-market lease values are amortized as an adjustment of rental revenue over the remaining terms of the respective leases. Below-market leases are amortized as an adjustment of rental revenue over the remaining terms of the respective leases, including any fixed rate bargain renewal periods. If a lease were to be terminated prior to its stated expiration, all unamortized amounts of above-market and below-market in-place lease values related to that lease would be recorded as an adjustment to rental revenue.

The fair values of in-place leases include an estimate of direct costs associated with obtaining a new tenant and opportunity costs associated with lost rentals that are avoided by acquiring an in-place lease. Direct costs associated with obtaining a new tenant include commissions, tenant improvements, and other direct costs and are estimated based on

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management’s consideration of current market costs to execute a similar lease. The value of opportunity costs is calculated using the contractual amounts to be paid pursuant to the in-place leases over a market absorption period for a similar lease. These lease intangibles are amortized to depreciation and amortization expense over the remaining terms of the respective leases. If a lease were to be terminated prior to its stated expiration, all unamortized amounts of in-place lease assets relating to that lease would be expensed.

Goodwill

Goodwill represents the excess of the amount paid over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed in a business combination and is allocated to an entity's reporting units. Our reporting unit represents each individual real estate property. Goodwill has an indefinite life and is not amortized.

We evaluate goodwill for impairment when an event occurs or circumstances change that indicate the carrying value may not be recoverable, or at least annually. Unless circumstances otherwise dictate, the annual impairment test is performed as of the last date of each year. We evaluate potential triggering events that may affect the estimated fair value of our reporting units to assess whether any goodwill impairment exists. Deteriorating or adverse market conditions for certain reporting units may have a significant impact on the estimated fair value of these reporting units and could result in future impairments of goodwill. If the carrying value of a reporting unit exceeds its estimated fair value, then an impairment charge is recorded in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.

Impairment of Long-Lived Assets

We continually monitor events and changes in circumstances that could indicate that the carrying amounts of its real estate and related intangible assets may not be recoverable. When indicators of potential impairment suggest that the carrying value of real estate and related intangible assets may not be recoverable, we assess the recoverability of the asset group by estimating whether we will recover the carrying value of the asset group through its undiscounted future cash flows and their eventual disposition. If, based on this analysis, we do not believe that we will be able to recover the carrying value of the asset group, we will record an impairment loss to the extent that the carrying value exceeds the estimated fair value of the asset group.

When developing estimates of expected future cash flows, we make certain assumptions regarding future market rental rates subsequent to the expiration of current lease arrangements, property operating expenses, terminal capitalization and discount rates, probability weighting of the potential re-lease of the property versus sales scenarios, sale prices of comparable properties, required tenant improvements and the number of years the property will be held for investment. The use of alternative assumptions in the future cash flow analysis could result in a different determination of the property’s future cash flows and a different conclusion regarding the existence of an impairment, the extent of such loss, if any, as well as the carrying value of the real estate and related assets.

In addition, we estimate the fair value of the assets by applying a market approach using comparable sales for certain properties. The use of alternative assumptions in the market approach analysis could result in a different determination of the property’s estimated fair value and a different conclusion regarding the existence of an impairment, the extent of such loss, if any, as well as the carrying value of the real estate and related assets.

Real Estate Acquisitions and Dispositions in 2020

•During the year ended December 31, 2020, we purchased two operating healthcare properties, comprising approximately 49,000 of rentable square feet for an aggregate purchase price of approximately $16,077,000. In addition, we purchased one development healthcare property for approximately $58,000 in acquisition costs and funded approximately $849,000 related to the construction. We anticipate completing the development project in January 2022.

•During the year ended December 31, 2020, we sold two healthcare properties for an aggregate sale price of $58,000,000 and generated net proceeds of $28,542,000. In connection with the sale of one of the healthcare properties, we issued a note receivable in the amount of $28,000,000.

For further discussion of our 2020 acquisitions and dispositions, see Note 4—"Acquisitions and Dispositions" to our consolidated financial statements that are a part of this Annual Report on Form 10-K.

Factors That May Influence Results of Operations

We are not aware at this time of any material trends or uncertainties, other than national economic conditions and those discussed below and in Part I. Item 1A. “Risk Factors” of this Annual Report on Form 10-K, affecting our real estate properties, that may reasonably be expected to have a material impact, favorable or unfavorable, on revenues or income from the acquisition, management and operation of our properties. However, due to the ongoing COVID-19 pandemic in the U.S. and globally, our tenants and their operations, and, thus, their ability to pay rent, may be impacted. The impact of COVID-19 on our

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future results could be significant and will largely depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of COVID-19, the duration of COVID-19, the success of actions taken to contain or treat COVID-19 and reactions by consumers, companies, governmental entities and capital markets.

As an internally managed company, we will no longer pay the Former Advisor and its affiliates any fees or expense reimbursements arising from the advisory agreement, which were previously incurred while we were externally managed. We will incur additional payroll and overhead related costs. We expect our future operating results will be influenced by the impact of the Internalization Transaction. See Note 3—"Internalization Transaction" to our consolidated financial statements that are a part of this Annual Report on Form 10-K, for additional information.

Rental Revenue

The amount of rental revenue generated by our properties depends principally on our ability to maintain the occupancy rates of leased space and to lease available space at the then-existing rental rates. Negative trends in one or more of these factors could adversely affect our rental revenue in future periods. As of December 31, 2020, our properties were 93% leased.

Results of Operations

Our results of operations are influenced by the timing of acquisitions and the operating performance of our operating real estate properties. The following table shows the property statistics of our real estate properties as of December 31, 2020 and 2019:

December 31,

Number of operating real estate properties (1) 151 150

Weighted average percentage of rentable square feet leased 93 % 95 %

(1)As of December 31, 2020, we owned 153 real estate properties, two of which were under construction. As of December 31, 2020, we had one vacant real estate property, which is currently being marketed for sale or re-tenanting. As of December 31, 2019, we owned 152 real estate properties, two of which were under construction.

The following table summarizes our real estate activity for the years ended December 31, 2020 and 2019:

Year EndedDecember 31,

Operating real estate properties acquired 2 (1) 65 (2)

Operating real estate properties disposed 2 —

Operating real estate properties placed into service 1 —

Net book value of properties disposed $ 53,959,000 $ —

Leased square feet of operating real estate property additions 69,000 2,655,000

Leased square feet of operating real estate property dispositions 82,000 —

(1)During the year ended December 31, 2020, we acquired three real estate properties, one of which was under construction.

(2)During the year ended December 31, 2019, we acquired 67 real estate properties, two of which were under construction.

This section describes and compares our results of operations for the years ended December 31, 2020 and 2019. We generate almost all of our revenue from property operations. In order to evaluate our overall portfolio, management analyzes the net operating income of same store properties. We define "same store properties" as operating properties that were owned and operated for the entirety of both calendar periods being compared and exclude properties under development. Legacy REIT I property activities represent amounts recorded since the REIT Merger.

By evaluating the revenue and expenses of our same store and Legacy REIT I properties, management is able to monitor the operations of our existing properties for comparable periods to measure the performance of our current portfolio and determine the effects of our new acquisitions on net income.

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Year Ended December 31, 2020 Compared to Year Ended December 31, 2019

The following table represents the breakdown of the year ended December 31, 2020 total rental revenue and compares with 2019 amounts for the comparable periods (amounts in thousands). We believe that the below presentation of total rental revenue is not, and is not intended to be, a presentation in accordance with GAAP and allows investors and management to evaluate our performance.

Year EndedDecember 31,

•Same store rental revenue decreased primarily due to rent not collected from two tenants at a healthcare property, whose leases were terminated during 2019, and rent not being collected from one tenant at a data center property since October 2020, coupled with a decrease in parking garage revenue from one of our data center properties due to the COVID-19 pandemic's impact on the property's traffic, offset by the write off of a below-market lease intangible liability in the amount of approximately $2.0 million related to a tenant in a data center property that was experiencing financial difficulty due to deteriorating economic conditions driven by the impact of the COVID-19 pandemic and the pandemic’s acceleration of the tenant’s modification of work strategy to a remote environment.

•Non-same store rental revenue and tenant reimbursements increased due to the acquisition of seven operating properties and placement of one development property in service since January 1, 2019.

•Legacy REIT I properties' rental revenue and tenant reimbursements represent revenue recorded subsequent to the REIT Merger on October 4, 2019. During the year ended December 31, 2020, we wrote-off approximately $0.3 million of rental revenue, attributable to one tenant that was experiencing financial difficulties and vacated the property on June 19, 2020, by accelerating the amortization of one above-market lease intangible asset. During the year ended December 31, 2020, we sold two Legacy REIT I properties.

Changes in our expenses are summarized in the following table (amounts in thousands):

Year EndedDecember 31,

•Same store rental expenses, certain of which are subject to reimbursement by our tenants, decreased primarily due to two lease terminations at one healthcare property during 2019 and one tenant at a data center property vacated space during the fourth quarter of 2020. This resulted in lower space maintenance and unitization of the properties, coupled with a decrease in real estate tax expenses at certain data center properties as a result of successful tax appeals, and a decrease in

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property management fees. Effective September 30, 2020, as an internally managed company, we no longer pay our Former Property Manager fees or any other fees arising from the property management and leasing agreement.

•Non-same store rental expenses, certain of which are subject to reimbursement by our tenants, increased primarily due to the acquisition of seven operating properties and placing one development property in service since January 1, 2019, partially offset by a decrease in property management fees. As a result of the Internalization Transaction, effective September 30, 2020, we no longer pay fees to our Former Property Manager or fees arising from the property management and leasing agreement.

•The increase in rental expenses represents a full year of ownership of the Legacy REIT I properties in 2020. During the year ended December 31, 2020, we sold two Legacy REIT I properties.

•General and administrative expenses increased primarily due to an increase in payroll-related expenses as a result of the Internalization Transaction and an increase in transfer agent fees related to an increase in our number of stockholders as a result of the REIT Merger. Upon completion of the Internalization Transaction, 76 individuals, who were previously employed by an affiliate of our Former Advisor, became our employees, and the functions previously performed by our Former Advisor were internalized by us. As an internally managed company, we no longer pay our Former Advisor and its affiliates any fees or expense reimbursements arising from the advisory agreement that was terminated prior to the Closing.

•Internalization transaction expenses consist primarily of legal fees, as well as fees for other professional and financial advisors.

•Asset management fees increased due to an increase in our real estate properties since January 1, 2019 primarily as a result of the REIT Merger. As a result of the Internalization Transaction, effective September 30, 2020, we no longer pay fees to our Former Advisor and its affiliates arising from the advisory agreement.

•Depreciation and amortization increased due to an increase in the weighted average depreciable basis of operating real estate properties since January 1, 2019, as a result of the REIT Merger and property acquisitions, coupled with the accelerated amortization of in-place lease intangible assets in the amount of $4.7 million, primarily related to one tenant that was experiencing financial difficulties and vacated the property on June 19, 2020 and another tenant that was experiencing financial difficulty due to deteriorating economic conditions driven by the impact of COVID-19 and the pandemic’s acceleration of the tenant’s modification of work strategy to a remote environment. During the year ended December 31, 2019, we accelerated the amortization of two in-place lease intangible assets in the amount of $3.2 million.

•Impairment loss on real estate decreased as a result of an impairment recorded in the amount of $21.0 million during the year ended December 31, 2019 related to two healthcare properties.

•Gain on real estate dispositions increased due to the sale of two Legacy REIT I healthcare properties.

Changes in interest and other expense, net, are summarized in the following table (amounts in thousands):

Year EndedDecember 31,

Interest and other expense, net:

Interest on finance lease 47 — 47 100.0 %

Amortization of discount of deferred liability 54 — 54 100.0 %

•Interest on credit facility increased due to an increase in the weighted average outstanding principal balance on our credit facility, offset by a decrease in LIBOR interest rates.

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•Notes receivable interest income and amortization of origination fee resulted from the origination of a $28.0 million note receivable on May 28, 2020.

•Other income increased primarily due to property management, leasing and asset management services we provide to manage and coordinate leases of certain properties of a third-party. Prior to the Internalization Transaction, our Former Advisor received fees for these services.

•Capitalized interest increased as a result of an increase in capital projects, including two development properties acquired in December 2019, one of which was placed into service in November 2020.

Liquidity and Capital Resources

Our principal demands for funds are for acquisitions of real estate and real estate-related investments, capital expenditures, operating expenses, distributions to and repurchases from stockholders and principal and interest on any current and future indebtedness. Generally, cash for these items is generated from operations of our current and future investments. Our sources of funds are primarily operating cash flows, funds equal to amounts reinvested in the DRIP, our credit facility and other borrowings.

When we acquire a property, we prepare a capital plan that contemplates the estimated capital needs of that investment. In addition to operating expenses, capital needs may also include costs of refurbishment, tenant improvements or other major capital expenditures. The capital plan also sets forth the anticipated sources of the necessary capital, which may include a line of credit or other loans established with respect to the investment, operating cash generated by the investment, additional equity investments from us, and when necessary, capital reserves. In some cases, a lender may require us to establish capital reserves for a particular investment. The capital plan for each investment will be adjusted through ongoing, regular reviews of our portfolio or, as necessary, to respond to unanticipated additional capital needs.

As discussed above, effective September 30, 2020, we no longer incur acquisition, asset and property management fees, which we previously incurred while we were externally advised. However, going forward we will incur additional payroll and overhead costs. In general, we anticipate various benefits from the internalization, including cost savings, continuity of management and further alignment of interests between management and our stockholders, as well as a potential benefit for ultimate liquidity given the preference for internal management structure in traded equity REITs.

During the quarter ended June 30, 2020, we temporarily fell out of compliance with one of our mortgage loan agreements as a result of a covenant requiring the tenant at the property to maintain a certain rent coverage ratio. The tenant at the property is a healthcare tenant that experienced a temporary reduction in patient volume as a result of the COVID-19 pandemic and has not missed any rental payments. On August 6, 2020, the lenders waived compliance with the covenant through June 30, 2020. Consequently, as of June 30, 2020, we were in compliance with all covenants in our loan agreement. During the quarter ended September 30, 2020, we amended the mortgage loan agreement to, among other things, modify the rent coverage ratio beginning with the quarter ended September 30, 2020 through the quarter ending June 30, 2021. As of December 31, 2020, we were in compliance with all covenants in the mortgage loan agreement.

Short-term Liquidity and Capital Resources

For at least the next twelve months, we expect our principal demands for funds will be for operating expenses, including our general and administrative expenses, as well as the acquisition of real estate and real estate-related notes and investments and funding of capital improvements and tenant improvements, distributions to and repurchases from stockholders, and interest and principal payments on current and future debt financing. We expect to meet our short-term liquidity requirements through net cash flows provided by operations, funds equal to amounts reinvested in the DRIP, borrowings on our credit facility, as well as secured and unsecured borrowings from banks and other lenders.

Given the present uncertainty surrounding the global economy due to the ongoing COVID-19 pandemic, as noted above, some of our properties are operating at reduced capacities and may not be able to generate sufficient cash from operations to cover all of our projected expenditures while operating at these reduced capacities. Accordingly, in response to the current conditions, we have suspended our SRP until further notice except for repurchases due to death or involuntary exigent circumstance as defined in the Amended SRP.

We believe we will have sufficient liquidity available to meet our obligations in a timely manner, under both normal and stressed conditions, for the next twelve months.

Long-term Liquidity and Capital Resources

Beyond the next twelve months, our principal demands for funds will be for the payments of the principal amount of our long-term debt as it becomes due or matures, long-term capital investment demands for our real estate properties, costs to acquire additional real estate properties and our distributions necessary to maintain our REIT status.

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We currently expect to meet our long-term liquidity requirements through proceeds from cash flow from operations, borrowings on our credit facility and proceeds from secured or unsecured borrowings from banks or other lenders.

We currently expect that substantially all cash flows from operations will be used to pay distributions to our stockholders after certain capital expenditures; however, we have used, and may continue to use, other sources to fund distributions, as necessary, such as, funds equal to amounts reinvested in the DRIP, borrowings on our credit facility and/or future borrowings on unencumbered assets. To the extent cash flows from operations are lower due to lower-than-expected returns on the properties held or the disposition of properties, distributions paid to stockholders may be lower. We currently expect that substantially all net cash flows from our operations or debt financings will be used to fund acquisitions, certain capital expenditures identified at acquisition, ongoing capital expenditures, repayments of outstanding debt or distributions to our stockholders.

In addition, we continue to monitor the ongoing COVID-19 pandemic and its impact on our tenants and the healthcare and data center industries as a whole. The magnitude and duration of the pandemic and its impact on our operations and liquidity is uncertain as of the filing date of this Annual Report on Form 10-K as conditions continue to evolve globally. However, if the pandemic continues for an extended period of time or worsens, such impacts could grow and become material. To the extent that our tenants continue to be impacted by the COVID-19 pandemic or by the other risks disclosed in this Annual Report on Form 10-K, our business operations could be materially disrupted.

Material Cash Requirements

We anticipate requiring approximately $235.1 million in cash over the next twelve months, of which $194.1 million will be required for the payment of principal and estimated interest on our outstanding debt and $41.0 million will be required for capital improvement expenditures primarily related to one development project that we expect to complete in January 2022 and another development project we completed in March 2021. We cannot provide assurances, however, that actual expenditures will not exceed these estimates. As of December 31, 2020, we had approximately $53.2 million in cash and cash equivalents and $6.4 million of restricted cash in escrow reserve accounts for capital improvement expenditures. For the year ended December 31, 2020, we paid capital expenditures of $28.8 million that primarily related to one data center property and five healthcare properties.

As of December 31, 2020, we had material contractual obligations beyond 12 months in the amount of approximately $1,498.7 million, inclusive of $1,336.7 million related to principal and estimated interest on our outstanding debt, $12.6 million related to capital improvement expenditures and $149.4 million related to ground lease payments.

Debt Service Requirements

One of our principal liquidity needs is the payment of principal and interest on outstanding indebtedness. As of December 31, 2020, we had $453.4 million in notes payable principal outstanding and $938.0 million of principal outstanding under our credit facility. We are required by the terms of certain loan documents to meet certain covenants, such as financial ratios and reporting requirements. As of December 31, 2020, we were in compliance with all such covenants and requirements on our notes payable and our credit facility.

As of December 31, 2020, the aggregate notional amount under our derivative instruments was $635.0 million. We have agreements with each derivative counterparty that contain cross-default provisions, if we default on our indebtedness, then we could also be declared in default on our derivative obligations, resulting in an acceleration of payment. As of December 31, 2020, we were in compliance with all such cross-default provisions.

Credit Facility

As of December 31, 2020, the maximum commitments available under our credit facility with KeyBank National Association as Administrative Agent for the lenders, or the KeyBank Credit Facility, were $780,000,000, consisting of a $500,000,000 revolving line of credit, with a maturity date of April 27, 2022, subject to our right for one, 12-month extension period and a $280,000,000 term loan, with a maturity date of April 27, 2023. Subject to certain conditions, the KeyBank Credit Facility can be increased to $1,000,000,000 any time before April 27, 2021.

As of December 31, 2020, the maximum commitments available under our senior unsecured term loan with KeyBank National Association as Administrative Agent for the lenders, or the Term Loan, were $520,000,000, with a maturity date of December 31, 2024. Subject to certain conditions, the Term Loan can be increased to $600,000,000 any time before December 31, 2023. The Term Loan was funded upon the consummation of the REIT Merger on October 4, 2019.

The maximum commitments available under the KeyBank Credit Facility and the Term Loan, collectively, can be increased to $1,600,000,000. Generally, the proceeds of loans made under our credit facility may be used to finance the acquisition of real estate investments, for tenant improvements and leasing commissions with respect to real estate, for

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repayment of indebtedness, for capital expenditures with respect to real estate and for general corporate and working capital purposes.

On July 10, 2020, we, our Operating Partnership, certain of our subsidiaries, KeyBank National Association and the other lenders listed as lenders in our credit agreement and term loan agreement entered into second amendments to such agreements due to certain rent concessions provided to tenants as a result of the COVID-19 pandemic and their impact on the amount available to be drawn under our credit facility. In particular, the second amendments (i) modify the calculation of Adjusted Net Operating Income, or ANOI, such that beginning with the second quarter of 2020 and continuing thereafter, ANOI is calculated using a trailing 12 month accrual method, rather than a trailing six month annualized cash-based approach, and waives a rent coverage ratio requirement with respect to certain healthcare pool properties beginning with the quarter ended June 30, 2020 through and including the quarter ending June 30, 2021; and (ii) provide updated provisions for the conversion of the benchmark interest rate from LIBOR to an alternate index rate adopted by the Federal Reserve Board and the Federal Reserve Bank of New York following the occurrence of certain transition events.

During the year ended December 31, 2020, we drew $140,000,000 on our credit facility, $20,000,000 of which was related to a property acquisition (discussed in Note 4—"Acquisitions and Dispositions") and to fund share repurchases, $75,000,000 was drawn to provide additional liquidity due to the uncertainty in overall economic conditions created by the COVID-19 outbreak and $45,000,000 of which was related to another property acquisition and the Internalization Transaction. During the year ended December 31, 2020, we repaid $110,000,000 on our credit facility.

During the year ended December 31, 2020, we added two healthcare properties to the unencumbered pool of our credit facility, which increased our total pool availability under our credit facility by approximately $8,704,000. As of December 31, 2020, we had a total pool availability under our credit facility of $1,138,249,000 and an aggregate outstanding principal balance of $938,000,000; therefore, $200,249,000 was available to be drawn under our credit facility. We were in compliance with all financial covenant requirements as of December 31, 2020.

Notes Payable

For a discussion of our notes payable, see Note 11—"Notes Payable" to the consolidated financial statements that are a part of this Annual Report on Form 10-K.

Financing

We anticipate that our aggregate borrowings, both secured and unsecured, will not exceed the greater of 50.0% of the combined cost or fair market value of our real estate-related investments. For these purposes, the fair market value of each asset is equal to the purchase price paid for the asset or, if the asset was appraised subsequent to the date of purchase, then the fair market value will be equal to the value reported in the most recent independent appraisal of the asset. Our policies do not limit the amount we may borrow with respect to any individual investment. As of December 31, 2020, our borrowings were 42.7% of the fair market value of our real estate-related investments.

Under our charter, we have a limitation on borrowing that precludes us from borrowing in excess of 300.0% of our net assets, without the approval of a majority of our independent directors. Net assets for purposes of this calculation are defined to be our total assets (other than intangibles) valued at cost prior to deducting depreciation, amortization, bad debt and other non-cash reserves, less total liabilities. Generally, the preceding calculation is expected to approximate 75.0% of the aggregate cost of our real estate and real estate-related investments before depreciation, amortization, bad debt and other similar non-cash reserves. In addition, we may incur mortgage debt and pledge some or all of our properties as security for that debt to obtain funds to acquire additional real properties or for working capital. We may also borrow funds to satisfy the REIT tax qualification requirement that we distribute at least 90.0% of our annual REIT taxable income to our stockholders. Furthermore, we may borrow if we otherwise deem it necessary or advisable to ensure that we maintain our qualification as a REIT for federal income tax purposes. As of December 31, 2020, our leverage did not exceed 300.0% of the value of our net assets.

In July 2017, the Financial Conduct Authority, or FCA, that regulates LIBOR announced it intends to stop compelling banks to submit rates for the calculation of LIBOR in the future. As a result, the Federal Reserve Board and the Federal Reserve Bank of New York organized the Alternative Reference Rates Committee which identified the Secured Overnight Financing Rate, or the SOFR, as its preferred alternative to USD-LIBOR in derivatives and other financial contracts. Subsequently, in March 2021, the Intercontinental Exchange (“ICE”) Benchmark Administration Limited (“IBA”), the administrator of LIBOR, issued an announcement confirming that it would cease the publication of the one-week and two-month USD LIBOR settings immediately following December 31, 2021, and the remaining USD LIBOR settings immediately following the LIBOR publication on June 30, 2023. We are not able to predict when LIBOR will cease to be available or when there will be sufficient liquidity in the SOFR markets. Any changes adopted by FCA or other governing bodies in the method used for determining LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR. If that were to occur, our interest payments could change. In addition, uncertainty about the extent and manner of future changes may result in interest rates and/or payments that are higher or lower than if LIBOR were to remain available in its current form.

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Cash Flows

Year Ended December 31, 2020 Compared to Year Ended December 31, 2019

Year EndedDecember 31,

Operating Activities

•Net cash provided by operating activities increased primarily due to an increase in rental revenues resulting from the acquisition of 67 operating properties, inclusive of 60 properties acquired in the REIT Merger, since January 1, 2019, two of which were sold on May 28, 2020 and November 6, 2020, respectively. The increase was offset by an increase in general and administrative costs paid as a result of the Internalization Transaction and the interest expense paid related to the increase in borrowings on our credit facility; coupled with rent not being collected from three tenants, one of which related to a tenant in a data center property that was experiencing financial difficulty due to deteriorating economic conditions driven by the impact of COVID-19 and the pandemic’s acceleration of the tenant’s modification of work strategy to a remote environment and the other two tenants, leases with which were terminated during 2019.

Investing Activities

•Net cash used in investing activities decreased primarily due to a decrease in acquisition of real estate properties and increase in proceeds from real estate dispositions, offset by the closing of the Internalization Transaction and an increase in capital projects, which included three development properties, during the year ended December 31, 2020.

Financing Activities

•Net cash used in financing activities increased primarily due to an increase in repurchases of common stock, an increase in total cash distributions paid to our stockholders primarily related to an increase in our number of stockholders as a result of the REIT Merger and increase in payments on our credit facility, coupled with a decrease in proceeds from our credit facility that were used to fund share repurchases, two property acquisitions and the Internalization Transaction.

Distributions to Stockholders

We have paid, and may continue to pay, distributions from sources other than from our cash flows from operations. For the year ended December 31, 2020, our cash flows provided by operations of approximately $112.8 million covered 100% of our distributions paid (total distributions were approximately $107.1 million, of which $76.5 million was cash and $30.6 million was reinvested in shares of our common stock pursuant to the DRIP) during such period. For the year ended December 31, 2019, our cash flows provided by operations of approximately $80.1 million was a shortfall of approximately $9.3 million, or 10.4%, of our distributions paid (total distributions were approximately $89.4 million, of which $49.5 million was cash and $39.9 million was reinvested in shares of our common stock pursuant to the DRIP) during such period and such shortfall was paid from proceeds from our DRIP Offering. Our inability to acquire additional properties or other real estate-related investments may result in a lower return on investment than a stockholder may expect.

We do not have any limits on the sources of funding distribution payments to our stockholders. We may pay distributions from any source, such as from borrowings, the sale of assets, the sale of additional securities, and offering proceeds and we have no limits on the amounts we may pay from such sources. Funding distributions from borrowings could restrict the amount we can borrow for investments, which may affect our profitability. Funding distributions from the sale of additional securities could dilute a stockholder's interest in us if we sell shares of our common stock to third party investors. Funding distributions to our stockholders will result in us having less funds available for acquiring properties or real estate-related investments. Our inability to acquire additional properties or real estate-related investments may have a negative effect on our ability to generate sufficient cash flow from operations to pay distributions. As a result, the return investors may realize on their investment may be reduced and investors who invest in us before we generate significant cash flow may realize a lower rate of return than later investors. Payment of distributions from any of the mentioned sources could restrict our ability to generate sufficient cash flow from operations, affect our profitability and/or affect the distributions payable upon a liquidity event, any or all of which may have an adverse effect on an investment in us.

For federal income tax purposes, distributions to common stockholders are characterized as ordinary dividends, capital gain distributions, or nontaxable distributions. To the extent that we make a distribution in excess of our current or accumulated

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earnings and profits, such excess will be a nontaxable return of capital, reducing the tax basis in each U.S. stockholder’s shares. Further, the amount of distributions in excess of a U.S. stockholder’s tax basis in such shares will be taxable as a realized gain.

The following table shows the character of distributions we paid on a percentage basis during the years ended December 31, 2020 and 2019:

Year Ended December 31,

Character of Class A Distributions: 2020 2019

Ordinary dividends — % 17.93 %

Capital gain distributions — % 0.38 %

Year Ended December 31,

Character of Class I Distributions: 2020 2019

Ordinary dividends — % 17.93 %

Capital gain distributions — % 0.38 %

Year Ended December 31,

Character of Class T Distributions: 2020 2019

Ordinary dividends — % 4.79 %

Capital gain distributions — % 0.43 %

Year Ended December 31,

Character of Class T2 Distributions: 2020 2019

Ordinary dividends — % 4.79 %

Capital gain distributions — % 0.43 %

The amount of distributions payable to our stockholders is determined by our board of directors and is dependent on a number of factors, including our funds available for distribution, financial condition, lenders' restrictions and limitations, capital expenditure requirements and the annual distribution requirements needed to maintain our status as a REIT under the Internal Revenue Code of 1986, as amended. Our board of directors must authorize each distribution and may, in the future, authorize lower amounts of distributions or not authorize additional distributions and, therefore, distribution payments are not guaranteed. Additionally, our organizational documents permit us to pay distributions from unlimited amounts of any source, and we may use sources other than operating cash flows to fund distributions, including funds equal to amounts reinvested in the DRIP, which may reduce the amount of capital we ultimately invest in properties or other permitted investments. We have funded distributions with operating cash flows from our properties and funds equal to amounts reinvested in the DRIP. To the extent that we do not have taxable income, distributions paid will be considered a return of capital to stockholders.

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The following table shows the sources of distributions paid during the years ended December 31, 2020 and 2019 (amounts in thousands):

Year Ended December 31,

Distributions paid in cash - common stockholders $ 76,517 $ 49,494

Distributions reinvested (shares issued) 30,553 39,934

Source of distributions:

(1)Percentages were calculated by dividing the respective source amount by the total sources of distributions.

Total distributions declared but not paid on Class A shares, Class I shares, Class T shares and Class T2 shares as of December 31, 2020, were approximately $9.1 million for common stockholders. These distributions were paid on January 4, 2021.

For the year ended December 31, 2020, we declared and paid distributions of approximately $107.1 million to Class A stockholders, Class I stockholders, Class T stockholders and Class T2 stockholders, collectively, including shares issued pursuant to the DRIP, as compared to FFO and AFFO (as defined below) for the year ended December 31, 2020, of approximately $139.1 million and $122.3 million, respectively.

The payment of distributions from sources other than FFO and AFFO may reduce the amount of proceeds available for investment and operations or cause us to incur additional interest expense as a result of borrowed funds.

For a discussion of distributions paid subsequent to December 31, 2020, see Note 22—"Subsequent Events" to the consolidated financial statements included in this Annual Report on Form 10-K.

Share Repurchase Program

Our SRP allows for repurchases of shares of our common stock when certain criteria are met. On December 11, 2020, our board of directors authorized and approved the A&R SRP. Under the A&R SRP, we will only repurchase shares due to death or involuntary exigent circumstance in accordance with the A&R SRP, subject in each case to the terms and limitations of the A&R SRP, including, but not limited to, quarterly share limitations, an annual 5.0% share limitation and DRIP funding limitations. See Part II, Item 5. "Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities" for more information on the A&R SRP.

During the year ended December 31, 2020, we repurchased 3,408,870 Class A shares, Class I shares, Class T shares and Class T2 shares of common stock (2,666,674 Class A shares, 408,346 Class I shares, 298,224 Class T shares and 35,626 Class T2 shares) for an aggregate purchase price of approximately $29,487,000 (an average of $8.65 per share). During the year ended December 31, 2019, we repurchased 2,557,298 Class A shares, Class I shares, Class T shares and Class T2 shares of common stock (1,910,894 Class A shares, 189,947 Class I shares, 451,058 Class T shares and 5,399 Class T2 shares) for an aggregate purchase price of approximately $23,655,000 (an average of $9.25 per share).

Commitments and Contingencies

For a discussion of our commitments and contingencies, see Note 20—"Commitments and Contingencies" to the consolidated financial statements that are a part of this Annual Report on Form 10-K.

Related-Party Transactions and Arrangements

Prior to the completion of the Internalization Transaction, we had been a party to the advisory and management agreements with our Former Advisor and its affiliates. Pursuant to the agreements with our Former Advisor and its affiliates we paid certain fees to, or reimbursed certain expenses of, our Former Advisor or its affiliates for acquisition and disposition fees and expenses, organization and offering expenses, asset and property management fees and reimbursement of operating costs. Refer to Note 13—"Related-Party Transactions and Arrangements" to our consolidated financial statements that are a part of this Annual Report on Form 10-K for a detailed discussion of the various related-party transactions and agreements. As an internally managed company, we no longer pay our Former Advisor and its affiliates any fees or expense reimbursements arising from such respective agreement. As of December 31, 2020, we had no off-balance sheet arrangements.

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Non-GAAP Financial Measures

In the real estate industry, analysts and investors employ certain non-GAAP supplemental financial measures in order to facilitate meaningful comparisons between periods and among peer companies. Additionally, in the formulation of our goals and in the evaluation of the effectiveness of our strategies, we use funds from operations, or FFO, modified funds from operations, or MFFO, and adjusted funds from operations, or AFFO, which are non-GAAP measures defined by management. We believe that these measures are useful to investors to consider because they may assist them to better understand and measure the performance of our business over time and against similar companies. A description of FFO, MFFO and AFFO and reconciliations of these non-GAAP measures to the most directly comparable GAAP measures, are provided below.

Funds from Operations, Modified Funds from Operations and Adjusted Funds from Operations

One of our objectives is to provide cash distributions to our stockholders from cash generated by our operations. The purchase of real estate assets and real estate-related investments, and the corresponding expenses associated with that process, is a key operational feature of our business plan in order to generate cash from operations. Due to certain unique operating characteristics of real estate companies, the National Association of Real Estate Investment Trusts, or NAREIT, an industry trade group, has promulgated a measure known as FFO, which we believe is an appropriate supplemental measure to reflect the operating performance of a REIT. The use of FFO is recommended by the REIT industry as a supplemental performance measure. FFO is not equivalent to our net income as determined under GAAP.

We define FFO, consistent with NAREIT’s definition, as net income (computed in accordance with GAAP), excluding gains (or losses) from sales of property and asset impairment write-downs, plus depreciation and amortization of real estate assets, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures will be calculated to reflect FFO on the same basis.

We, along with others in the real estate industry, consider FFO to be an appropriate supplemental measure of a REIT’s operating performance because it is based on a net income analysis of property portfolio performance that excludes non-cash items such as depreciation and amortization and asset impairment write-downs, which we believe provides a more complete understanding of our performance to investors and to our management, and when compared year over year, reflects the impact on our operations from trends in occupancy.

Historical accounting convention (in accordance with GAAP) for real estate assets requires companies to report their investment in real estate at its carrying value, which consists of capitalizing the cost of acquisitions, development, construction, improvements and significant replacements, less depreciation and amortization and asset impairment write-downs, if any, which is not necessarily equivalent to the fair market value of their investment in real estate assets.

The historical accounting convention requires straight-line depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably over time, which could be the case if such assets are not adequately maintained or repaired and renovated as required by relevant circumstances and/or as requested or required by lessees for operational purposes in order to maintain the value disclosed. We believe that, since the fair value of real estate assets historically rises and falls with market conditions including, but not limited to, inflation, interest rates, the business cycle, unemployment and consumer spending, presentations of operating results for a REIT using historical accounting for depreciation could be less informative.

In addition, we believe it is appropriate to disregard asset impairment write-downs as they are non-cash adjustments to recognize losses on prospective sales of real estate assets. Since losses from sales of real estate assets are excluded from FFO, we believe it is appropriate that asset impairment write-downs in advance of realization of losses should be excluded. Impairment write-downs are based on negative market fluctuations and underlying assessments of general market conditions, which are independent of our operating performance, including, but not limited to, a significant adverse change in the financial condition of our tenants, changes in supply and demand for similar or competing properties, changes in tax, real estate, environmental and zoning laws, which can change over time. When indicators of potential impairment suggest that the carrying value of real estate and related assets may not be recoverable, we assess the recoverability by estimating whether we will recover the carrying value of the asset through undiscounted future cash flows and eventual disposition (including, but not limited to, net rental and lease revenues, net proceeds on the sale of property and any other ancillary cash flows at a property or group level under GAAP). If based on this analysis, we do not believe that we will be able to recover the carrying value of the real estate asset, we will record an impairment write-down to the extent that the carrying value exceeds the estimated fair value of the real estate asset. Testing for indicators of impairment is a continuous process and is analyzed on a quarterly basis or when indicators of impairment exist. Investors should note, however, that determinations of whether impairment charges have been incurred are based partly on anticipated operating performance, because estimated undiscounted future cash flows from a property, including estimated future net rental and lease revenues, net proceeds on the sale of the property, and certain other ancillary cash flows, are taken into account in determining whether an impairment charge has been incurred. While impairment charges are excluded from the calculation of FFO as described above, investors are cautioned that due to the fact that

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identifying impairments is based on estimated future undiscounted cash flows and that we intend to have a relatively limited term of our operations, it could be difficult to recover any impairment charges through the eventual sale of the property.

In developing estimates of expected future cash flows, we make certain assumptions regarding future market rental income amounts subsequent to the expiration of current lease arrangements, property operating expenses, terminal capitalization and discount rates, the expected number of months it takes to re-lease the property, required tenant improvements and the number of years the property will be held for investment. The use of alternative assumptions in the future cash flow analysis could result in a different determination of the property’s future cash flows and a different conclusion regarding the existence of an asset impairment, the extent of such loss, if any, as well as the carrying value of the real estate asset.

Publicly registered, non-listed REITs, such as us, typically have a significant amount of acquisition activity and are substantially more dynamic during their initial years of investment and operations. While other start up entities may also experience significant acquisition activity during their initial years, we believe that publicly registered, non-listed REITs, like us, are unique in that they have a limited life with targeted exit strategies within a relatively limited time frame after the acquisition activity ceases. We will use the cash flows from operations and debt financings to acquire real estate assets and real estate-related investments, and our board of directors will determine to pursue a liquidity event when it believes that the then-current market conditions are favorable; however, our board of directors does not anticipate evaluating a liquidity event (i.e., listing of our shares of common stock on a national securities exchange, a sale, the sale of all or substantially all of our assets, or another similar transaction) until five to seven years after the termination of our primary offering of our initial public offering (from November 24, 2022 to November 24, 2024), which is generally comparable to other publicly registered, non-listed REITs. Thus, we do not intend to continuously purchase real estate assets and intend to have a limited life. Due to these factors and other unique features of publicly registered, non-listed REITs, the Institute for Portfolio Alternatives, or the IPA, an industry trade group, has standardized a measure known as MFFO, which we believe to be another appropriate supplemental measure to reflect the operating performance of a publicly registered, non-listed REIT. MFFO is a metric used by management to evaluate sustainable performance and dividend policy. MFFO is not equivalent to our net income as determined under GAAP.

We define MFFO, a non-GAAP measure, consistent with the IPA’s definition in its Practice Guideline: FFO further adjusted for the following items included in the determination of GAAP net income: acquisition fees and expenses incurred in connection with business combinations; amounts related to straight-line rental income and amortization of above and below intangible lease assets and liabilities; accretion of discounts and amortization of premiums on debt investments; mark-to-market adjustments included in net income; nonrecurring gains or losses included in net income from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan; unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting; adjustments related to contingent purchase price obligations where such adjustments have been included in the derivation of GAAP net income; and after adjustments for a consolidated and unconsolidated partnership and joint ventures, with such adjustments calculated to reflect MFFO on the same basis. Our MFFO calculation complies with the IPA’s Practice Guideline, described above. In calculating MFFO, we exclude acquisition expenses in connection with the Internalization Transaction, discount amortization related to the deferred liability in connection with the Internalization Transaction, amortization of above and below-market leases, along with the net of right-of-use assets - operating leases and right-of-use assets - finance lease, resulting from above- and below- market leases, and amounts related to straight-line rents (which are adjusted in order to reflect such payments from a GAAP accrual basis to closer to an expected to be received cash basis of disclosing the rent and lease payment). The other adjustments included in the IPA’s Practice Guidelines are not applicable to us.

Since MFFO excludes acquisition fees and expenses, it should not be construed as a historic performance measure. Acquisition expenses are paid in cash by us, and we have not set aside or put into escrow any specific amount of proceeds from our offerings to be used to fund acquisition expenses. Acquisition expenses incurred and paid in connection with the Internalization Transaction consist of legal fees and other payments to third parties, including professional and financial advisors. Acquisition expenses are paid in cash by us from cash flows from operations, additional debt, net proceeds from the sale of properties or from ancillary cash flows. As a result, the amount of proceeds available for investment and operations would be reduced, or we may incur additional interest expense as a result of borrowed funds. Under GAAP, acquisition fees and expenses related to acquisitions determined to be business combinations are expensed as incurred, including investment transactions that are no longer under consideration, and, when incurred, are included in acquisition related expenses in the accompanying consolidated statements of comprehensive income (loss) and acquisition fees and expenses associated with transactions determined to be an asset acquisition are capitalized.

All paid and accrued acquisition fees and expenses have negative effects on returns to investors, the potential for future distributions, and cash flows generated by us, unless earnings from operations or net sales proceeds from the disposition of other properties are generated to cover the purchase price of the real estate asset, these fees and expenses and other costs related to such property. In addition, MFFO may not be an indicator of our operating performance, especially during periods in which properties are being acquired.

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In addition, certain contemplated non-cash fair value and other non-cash adjustments are considered operating non-cash adjustments to net income in determining cash flows from operations in accordance with GAAP.

We use MFFO and the adjustments used to calculate it in order to evaluate our performance against other publicly registered, non-listed REITs, which intend to have limited lives with short and defined acquisition periods and targeted exit strategies thereafter. As noted above, MFFO may not be a useful measure of the impact of long-term operating performance if we do not continue to operate in this manner. We believe that our use of MFFO and the adjustments used to calculate it allow us to present our performance in a manner that reflects certain characteristics that are unique to publicly registered, non-listed REITs, such as their limited life, limited and defined acquisition period and targeted exit strategy, and hence the use of such measures may be useful to investors. For example, acquisition fees and expenses are intended to be funded from financing sources and not from operations. By excluding acquisition fees and expenses related to business combination transactions, the use of MFFO provides information consistent with management’s analysis of the operating performance of its real estate assets. Additionally, fair value adjustments, which are based on the impact of current market fluctuations and underlying assessments of general market conditions but can also result from operational factors such as rental and occupancy rates, may not be directly related or attributable to our current operating performance. By excluding such charges that may reflect anticipated and unrealized gains or losses, we believe MFFO provides useful supplemental information.

In addition to FFO and MFFO, we use AFFO as a supplemental financial performance metric to further evaluate our operating performance. We calculate AFFO, a non-GAAP measure, by further adjusting MFFO for the following items included in the determination of GAAP net income: amortization of deferred financing costs and stock-based compensation.

Presentation of this information is intended to assist management and investors in comparing the operating performance of different REITs, although it should be noted that not all REITs calculate FFO, MFFO and AFFO the same way, so comparisons with other REITs may not be meaningful. Furthermore, FFO, MFFO and AFFO are not necessarily indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income as an indication of our performance, as an indication of our liquidity, or indicative of funds available for our cash needs, including our ability to make distributions to our stockholders. FFO, MFFO and AFFO should be reviewed in conjunction with other measurements as an indication of our performance. MFFO and AFFO have limitations as performance measures. However, MFFO and AFFO may be useful in assisting management and investors in assessing the sustainability of operating performance in future operating periods, and in particular, after the offering and acquisition stages are complete and net asset value is disclosed. MFFO and AFFO are not useful measures in evaluating net asset value since impairment write-downs are taken into account in determining net asset value but not in determining MFFO and AFFO.

FFO, MFFO and AFFO, as described above, should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income or in its applicability in evaluating our operational performance. The method used to evaluate the value and performance of real estate under GAAP should be construed as a more relevant measure of operating performance and considered more prominently than the non-GAAP FFO, MFFO and AFFO measures and the adjustments to GAAP in calculating FFO, MFFO and AFFO.

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Reconciliation of FFO, MFFO and AFFO

The following is a reconciliation of net income attributable to common stockholders, which is the most directly comparable GAAP financial measure, to FFO, MFFO and AFFO for the years ended December 31, 2020 and 2019 (amounts in thousands, except share data and per share amounts):

Year EndedDecember 31,

Net income attributable to common stockholders $ 36,776 $ 2,782

Adjustments:

Gain on real estate dispositions (3,142) (79)

Impairment loss on real estate — 21,000

FFO attributable to common stockholders $ 139,110 $ 97,807

Adjustments:

Amortization of intangible assets and liabilities (2) (4,680) (4,248)

Internalization transaction expenses (4) 3,640 —

Amortization of discount of deferred liability 54 —

MFFO attributable to common stockholders $ 117,933 $ 80,089

Adjustments:

Amortization of deferred financing costs 3,884 2,825

Stock-based compensation 437 89

AFFO attributable to common stockholders $ 122,254 $ 83,003

Net income per common share - basic $ 0.17 $ 0.02

Net income per common share - diluted $ 0.17 $ 0.02

FFO per common share - basic $ 0.63 $ 0.62

FFO per common share - diluted $ 0.63 $ 0.62

(1)During the years ended December 31, 2020 and December 31, 2019, we wrote off in-place lease intangible assets in the amounts of approximately $4.7 million and $3.2 million, respectively, by accelerating the amortization of the acquired intangible assets.

(2)Under GAAP, certain intangibles are accounted for at cost and reviewed for impairment. However, because real estate values and market lease rates historically rise or fall with market conditions, management believes that by excluding charges related to amortization of these intangibles, MFFO provides useful supplemental information on the performance of the real estate. During the year ended December 31, 2020, we wrote off an above-market lease intangible asset in the amount of approximately $0.3 million, by accelerating the amortization of the acquired intangible asset and one below-market lease intangible liability in the amount of approximately $2.0 million by accelerating the amortization of the acquired intangible liability. During the year ended December 31, 2019, we wrote off one below-market lease intangible liability in the amount of approximately $0.2 million by accelerating the amortization of the acquired intangible liability.

(3)Under GAAP, rental revenue is recognized on a straight-line basis over the terms of the related lease (including rent holidays if applicable). This may result in income recognition that is significantly different than the underlying contract terms. During the years ended December 31, 2020 and 2019, we wrote off approximately $0.1 million and $0.5 million, respectively, of straight-line rent. By adjusting for the change in straight-line rent receivable, MFFO may provide useful supplemental information on the realized economic impact of lease terms, providing insight on the expected contractual cash flows of such lease terms, and aligns with our analysis of operating performance.

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(4)Under GAAP, acquisition fees and expenses related to transactions determined to be business combinations are expensed as incurred. Internalization transaction expenses consist primarily of legal fees, as well as fees for other professional and financial advisors incurred in connection with the Internalization Transaction. We believe that adjusting for such non-recurring items provides useful supplemental information because such expenses may not be reflective of ongoing operations and aligns with our analysis of operating performance.

The following is a reconciliation of net income attributable to common stockholders, which is the most directly comparable GAAP financial measure, to FFO and MFFO for the following quarterly periods (amounts in thousands, except share data and per share amounts):

Quarter Ended

Adjustments:

Gain on real estate dispositions (439) — (2,703) —

Impairment loss on real estate — — — —

Adjustments:

Amortization of intangible assets and liabilities (1) (613) (2,810) (840) (417)

Internalization transaction expenses (3) — 2,235 911 494

Amortization of discount of deferred liability 54 — — —

Adjustments:

Net income per common share - basic $ 0.07 $ 0.02 $ 0.05 $ 0.03

Net income per common share - diluted $ 0.07 $ 0.02 $ 0.05 $ 0.03

(1)Under GAAP, certain intangibles are accounted for at cost and reviewed for impairment. However, because real estate values and market lease rates historically rise or fall with market conditions, management believes that by excluding charges related to amortization of these intangibles, MFFO provides useful supplemental information on the performance of the real estate.

(2)Under GAAP, rental revenue is recognized on a straight-line basis over the terms of the related lease (including rent holidays if applicable). This may result in income recognition that is significantly different than the underlying contract terms.

(3)Under GAAP, acquisition fees and expenses related to transactions determined to be business combinations are expensed as incurred. Internalization transaction expenses consist primarily of legal fees, as well as fees for other professional and financial advisors incurred in connection with the Internalization Transaction. We believe that adjusting for such non-recurring items provides useful supplemental information because such expenses may not be reflective of ongoing operations and aligns with our analysis of operating performance.

Subsequent Events

For a discussion of subsequent events, see Note 22—"Subsequent Events" to the consolidated financial statements that are a part of this Annual Report on Form 10-K.

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Impact of Recent Accounting Pronouncements

Refer to Note 2—“Summary of Significant Accounting Policies” to the consolidated financial statements that are a part of this Annual Report on Form 10-K for further explanation.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market sensitive instruments. In pursuing our business plan, the primary market risk to which we are exposed is interest rate risk.

We have obtained variable rate debt financing to fund certain property acquisitions, and we are exposed to changes in the one-month LIBOR. Our objectives in managing interest rate risk seek to limit the impact of interest rate changes on operations and cash flows, and to lower overall borrowing costs. To achieve these objectives, we will borrow primarily at interest rates with the lowest margins available and, in some cases, with the ability to convert variable interest rates to fixed rates.

In July 2017, the Financial Conduct Authority, or FCA, which regulates LIBOR, announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. As a result, the Federal Reserve Board and the Federal Reserve Bank of New York organized the Alternative Reference Rates Committee which identified the Secured Overnight Financing Rate, or the SOFR, as its preferred alternative to USD-LIBOR in derivatives and other financial contracts. Subsequently, in March 2021, the Intercontinental Exchange (“ICE”) Benchmark Administration Limited (“IBA”), the administrator of LIBOR, issued an announcement confirming that it would cease the publication of the one-week and two-month USD LIBOR settings immediately following December 31, 2021, and the remaining USD LIBOR settings immediately following the LIBOR publication on June 30, 2023. We are not able to predict when LIBOR will cease to be available or when there will be sufficient liquidity in the SOFR markets. Any changes adopted by FCA or other governing bodies in the method used for determining LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR. If that were to occur, our interest payments could change. In addition, uncertainty about the extent and manner of future changes may result in interest rates and/or payments that are higher or lower than if LIBOR were to remain available in its current form.

We had five interest rate swap agreements that matured on December 22, 2020. As of December 31, 2020, we had 15 interest rate swap agreements outstanding, which mature on various dates from October 2021 to December 2024, with an aggregate notional amount under the swap agreements of $635.0 million. As of December 31, 2020, the aggregate settlement liability value was $21.9 million. The settlement value of these interest rate swap agreements is dependent upon existing market interest rates and swap spreads. As of December 31, 2020, an increase of 50 basis points in the market rates of interest would have resulted in a decrease to the settlement liability value of these interest rate swaps to $13.9 million. These interest rate swap agreements were designated as hedging instruments. In addition, as of December 31, 2020, we had $538.0 million principal variable rate debt outstanding that is indexed to LIBOR. As of December 31, 2020, $538.0 million of the $1,391.4 million total principal debt outstanding was subject to variable interest rates with a weighted average interest rate of 2.4% per annum. As of December 31, 2020, an increase of 50 basis points in the market rates of interest would have resulted in an increase in interest expense of approximately $2.7 million per year. We are monitoring and evaluating the related risks, which include interest on variable rate debt and amounts received and paid on derivative instruments. These risks arise in connection with transitioning contracts to a new alternative rate, including any resulting value transfer that may occur. The value of variable rate debt or derivative instruments tied to LIBOR may also be impacted by the discontinuance of LIBOR. For some instruments, the method of transitioning to an alternative rate may be challenging, as they may require negotiation with the respective counterparty.

If a contract is not transitioned to an alternative rate and LIBOR is discontinued, the impact on our 15 interest rate swap agreements and variable rate debt is likely to vary by agreement. If LIBOR is discontinued or if the methods of calculating LIBOR change from their current form, interest rates on our current or future indebtedness may be adversely affected.

We have entered, and may continue to enter, into additional derivative financial instruments, such as the above interest rate swaps, in order to mitigate our interest rate risk on a given variable rate financial instrument. To the extent we do, we are exposed to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes us, which creates credit risk for us. When the fair value of a derivative contract is negative, we owe the counterparty and, therefore, it does not possess credit risk. Market risk is the adverse effect on the value of a financial instrument that results from a change in interest rates. We manage the market risk associated with interest rate contracts by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken. We have not entered, and do not intend to enter, into derivative or interest rate transactions for speculative purposes. We may also enter into rate-lock arrangements to lock interest rates on future borrowings.

In addition to changes in interest rates, the value of our future investments will be subject to fluctuations based on changes in local and regional economic conditions and changes in the creditworthiness of tenants, which may affect our ability to refinance our debt, if necessary.

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The following table summarizes our principal debt outstanding as of December 31, 2020 (amounts in thousands):

Notes payable:

Fixed rate notes payable $ 218,415

Variable rate notes payable fixed through interest rate swaps 235,007

Credit facility:

Variable rate revolving line of credit 138,000

Variable rate term loan fixed through interest rate swaps 400,000

Variable rate term loans 400,000

Total principal debt outstanding (1) $ 1,391,422

(1)As of December 31, 2020, the weighted average interest rate on our total debt outstanding was 3.5%.

We do not have any foreign operations and thus we are not exposed to foreign currency fluctuations.

Item 8. Financial Statements and Supplementary Data.

See the index at Part IV, Item 15. Exhibits and Financial Statement Schedules

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

(a) Evaluation of disclosure controls and procedures. We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports pursuant to the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the rules and forms, and that such information is accumulated and communicated to us, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and we necessarily were required to apply our judgment in evaluating whether the benefits of the controls and procedures that we adopt outweigh their costs.

As required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act, we conducted an evaluation as of December 31, 2020 under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures, as of December 31, 2020, were effective at a reasonable assurance level.

(b) Management’s Report on Internal Control over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over our financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Because of its inherent limitations, internal control is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected. Under the supervision, and with the participation, of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control-Integrated Framework issued in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission, or the Original Framework. Based on our evaluation under the Original Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2020.

This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered

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public accounting firm pursuant to the permanent deferral adopted by the Securities and Exchange Commission that permits us to provide only management’s report in this annual report.

(c) Changes in internal control over financial reporting. There have been no changes in our internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the three months ended December 31, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information.

None.

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PART III

Item 10. Directors, Executive Officers and Corporate Governance.

The information required by this Item will be presented in our definitive proxy statement for our 2021 annual meeting of stockholders, which is expected to be filed with the SEC within 120 days after December 31, 2020, and is incorporated herein by reference.

Our board of directors has adopted a Code of Business Conduct and Ethics that is applicable to all members of our board of directors, our officers and employees. The policy may be located on our website at www.silarealtytrust.com by clicking on “Corporate Governance Documents,” and then on “Code of Business Conduct and Ethics.” If, in the future, we amend, modify or waive a provision in the Code of Business Conduct and Ethics, we may, rather than filing a Current Report on Form 8-K, satisfy the disclosure requirement by posting such information on our website as necessary.

Item 11. Executive Compensation.

The information required by this Item will be presented in our definitive proxy statement for our 2021 annual meeting of stockholders, which is expected to be filed with the SEC within 120 days after December 31, 2020, and is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information required by this Item will be presented in our definitive proxy statement for our 2021 annual meeting of stockholders, which is expected to be filed with the SEC within 120 days after December 31, 2020, and is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

The information required by this Item will be presented in our definitive proxy statement for our 2021 annual meeting of stockholders, which is expected to be filed with the SEC within 120 days after December 31, 2020, and is incorporated herein by reference.

Item 14. Principal Accounting Fees and Services.

The information required by this Item will be presented in our definitive proxy statement for our 2021 annual meeting of stockholders, which is expected to be filed with the SEC within 120 days after December 31, 2020, and is incorporated herein by reference.

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PART IV

Item 15. Exhibits, Financial Statement Schedules.

The following documents are filed as part of this Annual Report:

(a)(1) Consolidated Financial Statements:

The index of the consolidated financial statements contained herein is set forth on page F-1 hereof.

(a)(2) Financial Statement Schedules:

The financial statement schedules are listed in the index of the consolidated financial statements on page F-1 hereof.

No additional financial statement schedules are presented since the required information is not present or not present in amounts sufficient to require submission of the schedule or because the information required is disclosed in the Consolidated Financial Statements and notes thereto.

(a)(3) Exhibits:

The exhibits listed on the Exhibit Index are included, or incorporated by reference, in this Annual Report.

(b) Exhibits:

See Item 15(a)(3) above.

(c) Financial Statement Schedules:

See Item 15(a)(2) above.

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

OF SILA REALTY TRUST, INC.

Page

Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm F-2

Consolidated Balance Sheets as of December 31, 2020 and 2019 F-4

Notes to Consolidated Financial Statements F-8

Financial Statement Schedules

Schedule III — Real Estate Assets and Accumulated Depreciation S-1

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Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

Sila Realty Trust, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Sila Realty Trust, Inc. and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes and financial statement schedule III (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.

Change in Accounting Principle

As discussed in Notes 2 and 7 to the consolidated financial statements, the Company changed its method of accounting for leases as of January 1, 2019, due to the adoption of Accounting Standards Codification Topic 842, Leases.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Evaluation of real estate for impairment

As discussed in Note 2 to the consolidated financial statements, the Company tests the carrying value of real estate for impairment whenever events or changes in circumstances indicate that the carrying amount of real estate may not be recoverable. If the carrying amount of real estate exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of real estate exceeds the fair value of real estate. Real estate was $2.7 billion as of December 31, 2020.

We identified the evaluation of real estate for impairment as a critical audit matter. Subjective and challenging auditor judgment was required to evaluate the effects of certain key assumptions used in the Company’s impairment analysis, specifically market rental rates, terminal capitalization rates, probability weighting of the potential re-lease versus sales scenarios, and sales prices of comparable properties used to estimate the future cash flows.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design of an internal control over the Company's real estate impairment process related to evaluating the key assumptions listed above.

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For certain properties, we performed sensitivity analyses over market rental rates, terminal capitalization rates, probability weighting of the potential re-lease versus sales scenarios, and sales prices of comparable properties to assess the impact of changes in those assumptions on the Company’s impairment analysis. For certain properties, we compared the Company’s probability weighting of the potential re-lease versus sales scenarios to the Company’s most recent plan for the property, certain market information, or to historical outcomes for similar properties. In addition, for certain properties we involved valuation professionals with specialized skills and knowledge, who assisted in:

•Evaluating market rental rates by comparing them against rate ranges that were independently developed using publicly available market data for comparable entities;

•Assessing terminal capitalization rates by comparing them to publicly available market data for comparable entities;

•Evaluating the sales prices of comparable properties, including adjustments to such transactions, used by the Company in the impairment analysis.

We have served as the Company’s auditor since 2014.

Tampa, Florida

March 24, 2021

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SILA REALTY TRUST, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

ASSETS

Real estate:

Right-of-use assets - operating leases 29,751 29,537

Right-of-use assets - finance leases 2,527 —

LIABILITIES AND STOCKHOLDERS’ EQUITY

Liabilities:

Accounts payable due to affiliates — 9,759

Accounts payable and other liabilities 80,246 45,354

Finance lease liabilities 2,843 —

Stockholders’ equity:

Accumulated distributions in excess of earnings (311,264) (240,946)

Accumulated other comprehensive loss (20,444) (4,704)

Noncontrolling interests — 2

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

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SILA REALTY TRUST, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

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

Year EndedDecember 31,

Revenue:

Expenses:

Internalization transaction expenses 3,640 — —

Impairment loss on real estate — 21,000 —

Gain on real estate dispositions 3,142 79 —

Net income attributable to common stockholders $ 36,776 $ 2,782 $ 28,873

Other comprehensive (loss) income:

Weighted average number of common shares outstanding:

Net income per common share attributable to common stockholders:

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

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SILA REALTY TRUST, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(in thousands, except share data)

Common Stock

Purchase of noncontrolling interest — — — — — — (2) (2)

Distribution and servicing fees — — 51 — — 51 — 51

Other offering costs — — (40) — — (40) — (40)

Common Stock

Cumulative effect of accounting change — — — (103) 103 — — —

Distribution and servicing fees — — 563 — — 563 — 563

Other offering costs — — (578) — — (578) — (578)

Issuance of noncontrolling interests — — — — — — 1 1

Distributions to noncontrolling interests — — — — — — (1) (1)

Common Stock

Distribution and servicing fees — — (368) — — (368) — (368)

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

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SILA REALTY TRUST, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Year EndedDecember 31,

Cash flows from operating activities:

Net income attributable to common stockholders $ 36,776 $ 2,782 $ 28,873

Amortization of origination fee 166 — —

Amortization of discount of deferred liability 54 — —

Gain on real estate dispositions (3,142) (79) —

Impairment loss on real estate — 21,000 —

Ineffectiveness of interest rate swaps — — 98

Changes in operating assets and liabilities:

Accounts payable and other liabilities (607) 2,214 5,151

Cash flows from investing activities:

Investment in the internalization transaction (25,000) — —

Proceeds from real estate dispositions 28,542 2,882 —

Payments of deal costs (126) — —

Cash flows from financing activities:

Proceeds from issuance of common stock — — 118,605

Payments of deferred financing costs (715) (6,351) (4,958)

Offering costs on issuance of common stock (3,099) (4,146) (12,388)

Distributions to noncontrolling interests — (1) —

Purchase of noncontrolling interests (2) — —

Net change in cash, cash equivalents and restricted cash (12,321) 703 (6,220)

Supplemental cash flow disclosure:

Supplemental disclosure of non-cash transactions:

Equity consideration transferred in the REIT Merger $ — $ 774,010 $ —

Net assets assumed in the REIT Merger $ — $ 778 $ —

Issuance of noncontrolling interests $ — $ 1 $ —

Credit facility revolving loan to term loan conversion $ — $ 30,000 $ —

Accrued capital expenditures $ 2,875 $ 126 $ —

Accrued deal costs $ — $ 139 $ —

Deferred internalization transaction purchase price $ 14,674 $ — $ —

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

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SILA REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2020

Note 1—Organization and Business Operations

Sila Realty Trust, Inc., formerly known as Carter Validus Mission Critical REIT II, Inc., or the Company, is a Maryland corporation that was formed on January 11, 2013. The Company elected, and currently qualifies, to be taxed as a real estate investment trust, or a REIT, under the Internal Revenue Code of 1986, as amended, or the Code, for federal income tax purposes. Substantially all of the Company’s business is conducted through Sila Realty Operating Partnership, LP f/k/a Carter Validus Operating Partnership II, LP, a Delaware limited partnership, or the Operating Partnership, formed on January 10, 2013. The Company is the sole general partner and, prior to the completion of the Internalization Transaction (as defined herein) on September 30, 2020, Carter Validus Advisors II, LLC, or the Former Advisor, was the special limited partner of the Operating Partnership. As of the closing of the Internalization Transaction, the Company owns directly or indirectly, all of the interests in the Operating Partnership.

Prior to September 30, 2020, the Former Advisor was responsible for managing the Company’s affairs on a day-to-day basis and for identifying and making investments on the Company’s behalf pursuant to an advisory agreement among the Company, the Operating Partnership and the Former Advisor. On July 28, 2020, the Company and the Operating Partnership, entered into a Membership Interest Purchase Agreement, or the Purchase Agreement, to provide for the internalization of the external management functions previously performed for the Company and the Operating Partnership by the Former Advisor and its affiliates, or the Internalization Transaction. On September 30, 2020, the Company closed the Internalization Transaction. Effective September 30, 2020, as a result of the Internalization Transaction, the Former Advisor is no longer affiliated with the Company.

Upon completion of the Internalization Transaction, the Company’s 76 employees, who were previously employed by an affiliate of the Former Advisor, became employees of the Company and the functions previously performed by the Former Advisor were internalized by the Company. As an internally managed company, the Company no longer pays the Former Advisor and its affiliates any fees or expense reimbursements arising from the advisory agreement.

In addition, on September 30, 2020, the Operating Partnership redeemed the Former Advisor’s limited partner interest (including special limited partner interest) in the Operating Partnership in connection with the Internalization Transaction. On September 30, 2020, the Company and Sila REIT, LLC, f/k/a Carter Validus Mission Critical REIT II, LLC, a Maryland limited liability company that is the sole limited partner of the Operating Partnership, entered into the Third Amended and Restated Agreement of Limited Partnership of the Operating Partnership, or the Third A&R LP Agreement, in order to reflect the completion of the Internalization Transaction.

On September 30, 2020, Articles of Amendment changing the Company’s name from “Carter Validus Mission Critical REIT II, Inc.” to “Sila Realty Trust, Inc.” were filed and accepted for record by the State Department of Assessment and Taxation of the State of Maryland, and thereby became effective as part of the Company’s charter.

The Company was formed to invest primarily in quality income-producing commercial real estate, with a focus on data centers and healthcare properties, preferably with long-term leases to creditworthy tenants, as well as to make other real estate-related investments in such property types, which may include equity or debt interests in other real estate entities. During the year ended December 31, 2020, the Company acquired three real estate properties and sold two real estate properties. See Note 4—"Acquisitions and Dispositions" for additional information. As of December 31, 2020, the Company owned 153 real estate properties.

The Company raised the equity capital for its real estate investments through two public offerings, or the Offerings, from May 2014 through November 2018, and the Company has offered shares pursuant to its distribution reinvestment plan, or the DRIP, pursuant to two Registration Statements on Form S-3, or each, a DRIP Offering and together the DRIP Offerings, since November 2017.

Except as the context otherwise requires, the “Company” refers to Sila Realty Trust, Inc., the Operating Partnership and all wholly-owned subsidiaries.

Note 2—Summary of Significant Accounting Policies

The summary of significant accounting policies presented below is designed to assist in understanding the Company’s consolidated financial statements. Such consolidated financial statements and the accompanying notes thereto are the responsibility of management. These accounting policies conform to United States generally accepted accounting principles, or GAAP, in all material respects, and have been consistently applied in preparing the consolidated financial statements.

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Principles of Consolidation and Basis of Presentation

The accompanying consolidated financial statements include the accounts of the Company, the Operating Partnership, and all wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of the consolidated financial statements and accompanying notes in conformity with GAAP requires the Company to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. These estimates are made and evaluated on an ongoing basis using information that is currently available as well as various other assumptions believed to be reasonable under the circumstances. Actual results could differ from those estimates.

Restricted Cash

Restricted cash consists of restricted cash held in escrow and restricted bank deposits. Restricted cash held in escrow includes cash held by lenders in escrow accounts for tenant and capital improvements, taxes, repairs and maintenance and other lender reserves for certain properties, in accordance with the respective lender’s loan agreement. Restricted bank deposits consist of tenant receipts for certain properties which are required to be deposited into lender-controlled accounts in accordance with the respective lender's loan agreement. Restricted cash held in escrow and restricted bank deposits are reported in other assets, net, in the accompanying consolidated balance sheets. See Note 9—"Other Assets, Net."

The following table presents a reconciliation of the beginning of year and end of year cash, cash equivalents and restricted cash reported within the consolidated balance sheets to the totals shown in the consolidated statements of cash flows (amounts in thousands):

Year EndedDecember 31,

Beginning of year:

End of year:

Investment in Real Estate

Real estate costs related to the acquisition, development, construction and improvement of properties are capitalized. Repair and maintenance costs are expensed as incurred and significant replacements and betterments are capitalized. Repair and maintenance costs include all costs that do not extend the useful life of the real estate asset. The Company considers the period of future benefit of an asset in determining the appropriate useful life. Real estate assets, other than land, are depreciated or amortized on a straight-line basis over each asset’s useful life.The Company anticipates the estimated useful lives of its assets by class as follows:

Buildings and improvements 15 – 40 years

Tenant improvements Shorter of lease term or expected useful life

Furniture, fixtures, and equipment 3 – 10 years

Allocation of Purchase Price of Real Estate

Upon the acquisition of real properties, the Company evaluates whether the acquisition is a business combination or an asset acquisition. For both business combinations and asset acquisitions the Company allocates the purchase price of properties to acquired tangible assets, consisting of land, buildings and improvements, and acquired intangible assets and liabilities, consisting of the value of above-market and below-market leases and the value of in-place leases. For asset acquisitions, the Company capitalizes transaction costs and allocates the purchase price using a relative fair value method allocating all accumulated costs. For business combinations, the Company expenses transaction costs incurred and allocates the purchase

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price based on the estimated fair value of each separately identifiable asset and liability. During the year ended December 31, 2020, the Company acquired three real estate properties that were determined to be asset acquisitions. See Note 4—"Acquisitions and Dispositions" for additional information. Acquisition fees and costs associated with transactions determined to be asset acquisitions are capitalized in total real estate, net, acquired intangible assets and acquired intangible liabilities in the accompanying consolidated balance sheets.

The fair values of the tangible assets of an acquired property (which includes land, buildings and improvements) are determined by valuing the property as if it were vacant, and the “as-if-vacant” value is then allocated to land and buildings and improvements based on management’s determination of the relative fair value of these assets. Management determines the as-if-vacant fair value of a property using methods similar to those used by independent appraisers. Factors considered by management in performing these analyses include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases, including leasing commissions and other related costs. In estimating carrying costs, management includes real estate taxes, insurance, and other operating expenses during the expected lease-up periods based on current market conditions.

The fair values of above-market and below-market in-place leases are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) an estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease including any fixed rate bargain renewal periods, with respect to a below-market lease. The above-market and below-market lease values are capitalized as intangible lease assets or liabilities. Above-market lease values are amortized as an adjustment of rental revenue over the remaining terms of the respective leases. Below-market leases are amortized as an adjustment of rental revenue over the remaining terms of the respective leases, including any fixed rate bargain renewal periods. If a lease were to be terminated prior to its stated expiration, all unamortized amounts of above-market and below-market in-place lease values related to that lease would be recorded as an adjustment to rental revenue.

The fair values of in-place leases include an estimate of direct costs associated with obtaining a new tenant and opportunity costs associated with lost rentals that are avoided by acquiring an in-place lease. Direct costs associated with obtaining a new tenant include commissions, tenant improvements, and other direct costs and are estimated based on management’s consideration of current market costs to execute a similar lease. The value of opportunity costs is calculated using the contractual amounts to be paid pursuant to the in-place leases over a market absorption period for a similar lease. These lease intangibles are amortized to depreciation and amortization expense over the remaining terms of the respective leases. If a lease were to be terminated prior to its stated expiration, all unamortized amounts of in-place lease assets relating to that lease would be expensed.

Impairment of Long-Lived Assets

The Company continually monitors events and changes in circumstances that could indicate that the carrying amounts of its real estate and related intangible assets may not be recoverable. When indicators of potential impairment suggest that the carrying value of real estate and related intangible assets may not be recoverable, the Company assesses the recoverability of the asset group by estimating whether the Company will recover the carrying value of the asset group through its undiscounted future cash flows and their eventual disposition. If, based on this analysis, the Company does not believe that it will be able to recover the carrying value of the asset group, the Company will record an impairment loss to the extent that the carrying value exceeds the estimated fair value of the asset group.

When developing estimates of expected future cash flows, the Company makes certain assumptions regarding future market rental rates subsequent to the expiration of current lease arrangements, property operating expenses, terminal capitalization and discount rates, probability weighting of the potential re-lease of the property versus sales scenarios, sale prices of comparable properties, required tenant improvements and the number of years the property will be held for investment. The use of alternative assumptions in the future cash flow analysis could result in a different determination of the property’s future cash flows and a different conclusion regarding the existence of an impairment, the extent of such loss, if any, as well as the carrying value of the real estate and related assets.

In addition, the Company estimates the fair value of the assets by applying a market approach using comparable sales for certain properties. The use of alternative assumptions in the market approach analysis could result in a different determination of the property’s estimated fair value and a different conclusion regarding the existence of an impairment, the extent of such loss, if any, as well as the carrying value of the real estate and related assets.

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Impairment of Real Estate

During the year ended December 31, 2020, no impairment losses were recorded on real estate assets. During the third quarter ended September 30, 2019, real estate assets related to one healthcare property were determined to be impaired due to a tenant of the property experiencing financial difficulty and vacating its space, and a second tenant indicating its desire to terminate its lease early, which the Company determined would be consistent with its strategic plans for the property. On November 8, 2019, the Company terminated the lease with the second tenant. The aggregate carrying amount of the assets of $40,266,000 exceeded their fair value. The carrying value of the property was reduced to its estimated fair value of $27,266,000, resulting in an impairment charge of $13,000,000, which is included in impairment loss on real estate in the consolidated statements of comprehensive income (loss). In addition, during the fourth quarter ended December 31, 2019, real estate assets related to another healthcare property with an aggregate carrying amount of $30,412,000 were reduced to their estimated fair value of $22,412,000, resulting in an impairment charge of $8,000,000 based on a letter of intent from a prospective buyer to purchase the property. Impairment charges are recorded as impairment loss on real estate in the consolidated statements of comprehensive income (loss). During the year ended December 31, 2018, no impairment losses were recorded on real estate assets.

Impairment of Acquired Intangible Assets and Acquired Intangible Liabilities

During the year ended December 31, 2020, the Company recognized impairments of three in-place lease intangible assets in the amount of approximately $4,693,000 and one above-market lease intangible asset in the amount of approximately $344,000, by accelerating the amortization of the acquired intangible assets. Of the $4,693,000 in-place lease intangible assets written off, $3,189,000 related to a tenant in a data center property of the Company that was experiencing financial difficulty due to deteriorating economic conditions driven by the impact of COVID-19 and the pandemic’s acceleration of the tenant’s modification of work strategy to a remote environment, $1,484,000 related to one healthcare tenant of the Company that was experiencing financial difficulties and vacated the property on June 19, 2020 and $20,000 as a result of a lease termination at a healthcare property.

During year ended December 31, 2020, the Company wrote off one below-market lease intangible liability in the amount of approximately $1,974,000, by accelerating the amortization of the acquired intangible liability related to one tenant of the data center property discussed above.

During the year ended December 31, 2019, the Company recognized impairments of in-place lease intangible assets in the amount of approximately $3,195,000, by accelerating the amortization of the acquired intangible assets related to two tenants of a healthcare property.

During the year ended December 31, 2019, the Company wrote off one below-market lease intangible liability in the amount of approximately $212,000, by accelerating the amortization of the acquired intangible liability related to one tenant of a healthcare property.

During the year ended December 31, 2018, no impairment losses were recorded on acquired intangible assets or intangible liabilities.

Goodwill

Goodwill represents the excess of the amount paid over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed in a business combination and is allocated to an entity's reporting units. The Company's reporting unit represents each individual operating real estate property. Goodwill has an indefinite life and is not amortized. On September 30, 2020, the Company recorded $39,529,000 of goodwill related to the Internalization Transaction. See Note 3—"Internalization Transaction" for details.

The Company evaluates goodwill for impairment when an event occurs or circumstances change that indicate the carrying value may not be recoverable, or at least annually. Unless circumstances otherwise dictate, the annual impairment test is performed as of the last date of each year. The Company evaluates potential triggering events that may affect the estimated fair value of the Company’s reporting units to assess whether any goodwill impairment exists. Deteriorating or adverse market conditions for certain reporting units may have a significant impact on the estimated fair value of these reporting units and could result in future impairments of goodwill. If the carrying value of a reporting unit exceeds its estimated fair value, then an impairment charge is recorded in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. The Company adopted the annual impairment test and performed a qualitative analysis of each reporting unit as of December 31, 2020. The Company concluded, based on the qualitative assessment, that it is not more likely than not that the fair value of each reporting unit is less than its carrying amount. As of December 31, 2020, no impairment losses on goodwill have been recognized.

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Notes Receivable

Notes receivable are recorded at their outstanding principal balance, net of any unearned income, unamortized deferred fees and costs and allowances for loan losses. The Company defers notes receivable origination costs and fees and amortizes them as an adjustment of yield over the term of the related note receivable. Amortization of the notes receivable origination costs and fees are recorded in interest and other expense, net, in the accompanying consolidated statements of comprehensive income (loss).

During the year ended December 31, 2020, in connection with the sale of a healthcare property, a wholly-owned subsidiary of the Company issued a note receivable in the principal amount of $28,000,000. See Note 8—"Notes Receivable, Net" for further discussion.

The Company evaluates the collectability of both interest and principal on each note receivable to determine whether it is collectible, primarily through the evaluation of credit quality indicators, such as the tenant's financial condition, collateral, evaluations of historical loss experience, current economic conditions and other relevant factors, including contractual terms of repayments. Evaluating a note receivable for potential impairment requires management to exercise judgment. The use of alternative assumptions in evaluating a note receivable could result in a different determination of the note's estimated fair value and a different conclusion regarding the existence of an impairment, the extent of such loss, if any, as well as the carrying value of the note receivable. See "Recently Adopted Accounting Pronouncements—Measurement of Credit Losses on Financial Instruments" section below for further discussion.

Deferred Financing Costs

Deferred financing costs are loan fees, legal fees and other third-party costs associated with obtaining and further modifying financing. These costs are amortized over the terms of the respective financing agreements using the effective interest method. Unamortized deferred financing costs are generally expensed when the associated debt is refinanced or repaid before maturity unless specific rules are met that would allow for the carryover of such costs to the refinanced debt. Costs incurred in seeking financing transactions that do not close are expensed in the period in which it is determined that the financing will not close. Deferred financing costs are recorded as a reduction of the related debt on the accompanying consolidated balance sheets. Deferred financing costs related to a revolving line of credit are recorded in other assets, net, in the accompanying consolidated balance sheets.

Leasing Commission Fees

Leasing commission fees are fees incurred for the initial lease-up, leasing-up of newly constructed properties or re-leasing to existing tenants. Leasing commission fees are capitalized in other assets, net, in the accompanying consolidated balance sheets and amortized over the terms of the related leases.

Fair Value

Accounting Standards Codification, or ASC, 820, Fair Value Measurements and Disclosures, or ASC 820, defines fair value, establishes a framework for measuring fair value in accordance with GAAP and expands disclosures about fair value measurements. ASC 820 emphasizes that fair value is intended to be a market-based measurement, as opposed to a transaction-specific measurement.

Fair value is defined by ASC 820 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. 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 other than quoted prices for similar assets and liabilities in active markets 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, only used to the extent that observable inputs are not available, reflect the Company’s assumptions about the pricing of an asset or liability.

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

Cash and cash equivalents, restricted cash, tenant receivables, prepaid and other assets, accounts payable and accrued liabilities—The Company considers the carrying values of these financial instruments, assets and liabilities, to approximate fair value because of the short period of time between origination of the instruments and their expected realization.

Notes payable—Fixed Rate—The fair value is estimated by discounting the expected cash flows on notes payable at current rates at which management believes similar loans would be made considering the terms and conditions of the loan and prevailing market interest rates.

Credit facility—Fixed Rate—The fair value is estimated by discounting the expected cash flows on the credit facility at current rates at which management believes similar borrowings would be made considering the terms and conditions of the borrowings and prevailing market interest rates.

Credit facility—Variable Rate—The fair value of the Company's variable rate credit facility is estimated based on the interest rates currently offered to the Company by financial institutions.

Derivative instruments—The Company’s derivative instruments consist of interest rate swaps. These swaps are carried at fair value to comply with the provisions of ASC 820. The fair value of these instruments is determined using interest rate market pricing models. The Company incorporated credit valuation adjustments to appropriately reflect the Company’s nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements.

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.

See additional discussion in Note 15—"Fair Value."

Revenue Recognition, Tenant Receivables and Allowance for Uncollectible Accounts

Effective January 1, 2018, the Company recognizes non-rental related revenue in accordance with ASC 606, Revenue from Contracts with Customers, or ASC 606. The Company has identified its revenue streams as rental income from leasing arrangements and tenant reimbursements, which are outside the scope of ASC 606. The core principle of ASC 606 is that an entity 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. Non-rental revenue, subject to ASC 606, is immaterial to the Company's consolidated financial statements.

The majority of the Company's revenue is derived from rental revenue, which is accounted for in accordance with ASC 842, Leases, or ASC 842. In accordance with ASC 842, minimum rental revenue is recognized on a straight-line basis over the term of the related lease (including rent holidays). For lease arrangements when it is not probable that the Company will collect all or substantially all of the remaining lease payments under the term of the lease, rental revenue is limited to the lesser of the rental revenue that would be recognized on a straight-line basis or the lease payments that have been collected from the lessee. Differences between rental income recognized and amounts contractually due under the lease agreements are credited or charged to straight-line rent receivable or straight-line rent liability, as applicable. Tenant reimbursements, which are comprised of additional amounts recoverable from tenants for common area maintenance expenses and certain other recoverable expenses, is recognized when the services are provided and the performance obligations are satisfied.

Prior to the adoption of ASC 842, tenant receivables and straight-line rent receivables were carried net of the provision for credit losses. The provision for credit losses was established for estimated losses resulting from the inability of certain tenants to meet the contractual obligations under their lease agreements. The Company’s determination of the adequacy of these provisions was based primarily upon evaluations of historical loss experience, the tenant’s financial condition, security deposits, letters of credit, lease guarantees, current economic conditions and other relevant factors. Effective January 1, 2019, upon adoption of ASC 842, the Company is no longer recording a provision for credit losses but is, instead, assessing whether or not it is probable that the Company will collect all or substantially all of the remaining lease payments under the term of the lease.

Where it is not probable that the Company will collect all or substantially all of the remaining lease payments under the term of the lease, rental revenue is limited to the lesser of the rental revenue that would be recognized on a straight-line basis or the lease payments that have been collected from the lessee. During the years ended December 31, 2020, 2019, and 2018, the Company recorded $126,000, $672,000 and $0, respectively, as a reduction in rental revenue in the accompanying consolidated statements of comprehensive income (loss).

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Concentration of Credit Risk and Significant Leases

As of December 31, 2020, the Company had cash on deposit, including restricted cash, in certain financial institutions that had deposits in excess of current federally insured levels. The Company limits its cash investments to financial institutions with high credit standings; therefore, the Company believes it is not exposed to any significant credit risk on its cash deposits. To date, the Company has not experienced a loss or lack of access to cash in its accounts.

As of December 31, 2020, the Company owned real estate investments in two micropolitan statistical areas and 68 metropolitan statistical areas, or MSAs, two MSAs of which accounted for 10.0% or more of rental revenue. Real estate investments located in the Atlanta-Sandy Springs-Roswell, Georgia MSA and the Houston-The Woodlands-Sugar Land, Texas MSA accounted for 11.9% and 10.3%, respectively, of rental revenue for the year ended December 31, 2020.

As of December 31, 2020, the Company had one exposure to tenant concentration that accounted for 10.0% or more of rental revenue for the year ended December 31, 2020. The leases with tenants at healthcare properties under common control of Post Acute Medical, LLC accounted for 10.1% of rental revenue for the year ended December 31, 2020.

Share Repurchase Program

The Company’s share repurchase program, or SRP, allows for repurchases of shares of the Company’s common stock when certain criteria are met. The SRP provides that all repurchases during any calendar year, including those redeemable upon death or a Qualifying Disability of a stockholder, are limited to those that can be funded with equivalent proceeds raised from the DRIP during the prior calendar year and other operating funds, if any, as the board of directors, in its sole discretion, may reserve for this purpose.

Repurchases of shares of the Company’s common stock are at the sole discretion of the Company’s board of directors, provided, however, that the Company will limit the number of shares repurchased during any calendar year to 5.0% of the number of shares of common stock outstanding as of December 31st of the previous calendar year. Subject to the terms and limitations of the SRP, including, but not limited to, quarterly share limitations, an annual 5.0% share limitation and DRIP funding limitations and any amendments to the plan, as more fully described below, the SRP is generally available to any stockholder as a potential means of interim liquidity. In addition, the Company’s board of directors, in its sole discretion, may suspend (in whole or in part) the SRP at any time, and may amend, reduce, terminate or otherwise change the SRP upon 30 days' prior notice to the Company’s stockholders for any reason it deems appropriate.

The Company generally honors valid repurchase requests approximately 30 days following the end of the applicable quarter. The Company reached the DRIP funding limitation and was not able to fully accommodate all repurchase requests for the second quarter repurchase date of 2020, which was April 30, 2020. See Part II, Item 5. "Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities" for further information for the second quarter repurchase date of 2020.

On April 30, 2020, due to the uncertainty surrounding the ongoing coronavirus, or COVID-19, pandemic and any impact it may have on the Company, the Company's board of directors decided to temporarily suspend share repurchases under the SRP, effective with repurchase requests that would otherwise be processed on the third quarter repurchase date of 2020, which was July 30, 2020.

On December 11, 2020, the Company's board of directors authorized and approved the Amended and Restated Share Repurchase Program, or the A&R SRP, which applied beginning with the first quarter repurchase date of 2021, which was January 28, 2021. Under the A&R SRP, the Company will only repurchase shares due to death or involuntary exigent circumstance in accordance with the A&R SRP, subject in each case to the terms and limitations of the A&R SRP, including, but not limited to, quarterly share limitations, an annual 5.0% share limitation, and DRIP funding limitations. Under the A&R SRP, the Company may waive certain of the terms and requirements of the A&R SRP in the event of the death of a stockholder who is a natural person, including shares held through an Individual Retirement Account or other retirement or profit-sharing plan, and certain trusts meeting the requirements of the A&R SRP. The Company may also waive certain of the terms and requirements of the A&R SRP in the event of an involuntary exigent circumstance, as determined by the Company or any of the executive officers thereof, in its or their sole discretion. See Part II, Item 5. "Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities" for more information on the Company's A&R SRP.

Effective as of the closing of the Internalization Transaction, the Operating Partnership redeemed the limited partner interest held by the Former Advisor for an aggregate purchase price of approximately $2,000. Additionally, the Company repurchased 29,362 Class A shares of common stock held by Carter Validus REIT Management Company II, LLC, the Former Sponsor, for an aggregate purchase price of approximately $254,000 (an average of $8.65 per share).

During the year ended December 31, 2020, the Company repurchased 3,408,870 Class A shares, Class I shares, Class T shares and Class T2 shares of common stock (2,666,674 Class A shares, 408,346 Class I shares, 298,224 Class T shares and 35,626 Class T2 shares), or 1.54% of shares outstanding as of December 31, 2019, for an aggregate purchase price of

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approximately $29,487,000 (an average of $8.65 per share). During the year ended December 31, 2019, the Company repurchased 2,557,298 Class A shares, Class I shares, Class T shares and Class T2 shares of common stock (1,910,894 Class A shares, 189,947 Class I shares, 451,058 Class T shares and 5,399 Class T2 shares), or 1.87% of shares outstanding as of December 31, 2018, for an aggregate purchase price of approximately $23,655,000 (an average of $9.25 per share).

Distribution Policy and Distributions Payable

In order to maintain its status as a REIT, the Company is required to make distributions each taxable year equal to at least 90% of its REIT taxable income, computed without regard to the dividends paid deduction and excluding capital gains. To the extent funds are available, the Company intends to continue to pay regular distributions to stockholders. Distributions are paid to stockholders of record as of the applicable record dates. Distributions are payable to stockholders from legally available funds therefor. The Company declared distributions per share of common stock in the amounts of $0.48, $0.58 and $0.63 for the years ended December 31, 2020, 2019 and 2018, respectively. As of December 31, 2020, the Company had distributions payable of approximately $9,117,000. Of these distributions payable, approximately $6,574,000 was paid in cash and approximately $2,543,000 was reinvested in shares of common stock pursuant to the DRIP on January 4, 2021. Distributions to stockholders are determined by the board of directors of the Company and are dependent upon a number of factors, including funds available for the payment of distributions, financial condition, the timing of property acquisitions, capital expenditure requirements, and annual distribution requirements in order to maintain the Company’s status as a REIT under the Code. See Note 22—"Subsequent Events" for further discussion.

Stock-based Compensation

On March 6, 2020, the Company's board of directors approved the Amended and Restated 2014 Restricted Share Plan, or the A&R Incentive Plan, pursuant to which the Company has the authority and power to grant awards of restricted shares of its Class A common stock to its directors, officers and employees. The Company accounts for its stock awards in accordance with ASC 718-10, Compensation—Stock Compensation. ASC 718-10 requires that compensation cost for all stock awards be calculated and amortized over the service period (generally equal to the vesting period). For performance-based awards, compensation costs are recognized over the service period if it is probable that the performance condition will be satisfied, with changes of the assessment at each reporting period and recording the effect of the change in the compensation cost as a cumulative catch-up adjustment. The compensation costs for restricted stock are recognized based on the fair value of the restricted stock awards at grant date less forfeitures (if applicable). See Note 18—"Stock-based Compensation" for further information on the Company's stock-based compensation.

Earnings Per Share

The Company calculates basic earnings per share by dividing net income attributable to common stockholders for the period by the weighted average shares of its common stock outstanding for that period. Diluted earnings per share are computed based on the weighted average number of shares outstanding and all potentially dilutive securities. Shares of non-vested restricted common stock give rise to potentially dilutive shares of common stock. During the years ended December 31, 2020, 2019 and 2018 diluted earnings per share reflected the effect of approximately 186,000, 24,000 and 24,000 of non-vested shares of restricted common stock that were outstanding as of each period, respectively.

Reportable Segments

ASC, 280, Segment Reporting, establishes standards for reporting financial and descriptive information about an enterprise’s reportable segments. As of December 31, 2020 and 2019, the Company operated through two reportable business segments—real estate investments in data centers and healthcare. Segregation of the Company’s operations into two reportable segments is useful in assessing the performance of the Company’s business in the same way that management reviews performance and makes operating decisions. See Note 14—"Segment Reporting" for further discussion on the reportable segments of the Company.

Derivative Instruments and Hedging Activities

As required by ASC 815, Derivatives and Hedging, or ASC 815, the Company records all derivative instruments at fair value as assets and liabilities on its consolidated balance sheets. The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, a company must designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, cash flow hedge or a hedge of a net investment in a foreign operation. For derivative instruments not designated as hedging instruments, the income or loss is recognized in the consolidated statements of comprehensive income (loss) during such period.

In accordance with the fair value measurement guidance ASU 2011-04, Fair Value Measurement, the Company made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.

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The Company is exposed to variability in expected future cash flows that are attributable to interest rate changes in the normal course of business. The Company’s primary strategy in entering into derivative contracts is to add stability to future cash flows by managing its exposure to interest rate movements. The Company utilizes derivative instruments, including interest rate swaps, to effectively convert some of its variable rate debt to fixed rate debt. The Company does not enter into derivative instruments for speculative purposes.

In accordance with ASC 815, the Company designates interest rate swap contracts as cash flow hedges of floating-rate borrowings. For derivative instruments that are designated and qualify as cash flow hedges, the gains or losses on the derivative instruments are reported as a component of other comprehensive (loss) income in the consolidated statements of comprehensive income (loss) and are reclassified into earnings in the same line item associated with the forecasted transaction in the same period during which the hedged transactions affect earnings. See additional discussion in Note 16—"Derivative Instruments and Hedging Activities."

Income Taxes

The Company currently qualifies and is taxed as a REIT under Sections 856 through 860 of the Code. Accordingly, it will generally not be subject to corporate U.S. federal or state income tax to the extent that it makes qualifying distributions to stockholders, and provided it satisfies, on a continuing basis, through actual investment and operating results, the REIT requirements, including certain asset, income, distribution and stock ownership tests. If the Company fails to qualify as a REIT, and does not qualify for certain statutory relief provisions, it would be subject to U.S. federal, state and local income taxes and may be precluded from qualifying as a REIT for the subsequent four taxable years following the year in which it lost its REIT qualification, unless the Internal Revenue Service grants the Company relief under certain statutory provisions. Accordingly, failure to qualify as a REIT could have a material adverse impact on the results of operations and amounts available for distribution to stockholders.