CIM GROUP, INC. 10-K

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 accompanying consolidated financial statements and notes thereto. See also the Cautionary Note Regarding Forward-Looking Statements section preceding Part I of this Annual Report on Form 10-K. For a comparison of the years ended December 31, 2019 and 2018, see Item 7 . Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Company’s Annual Report on Form 10-K for the year ended December 31, 201 9 . Overview We were formed on July 27, 2010, and we elected to be taxed, and currently qualify, as a REIT for U.S. federal income tax purposes commencing with our taxable year ended December 31, 2012. We commenced our principal operations on April 13, 2012, when we satisfied the conditions of our escrow agreement regarding the minimum offering and issued approximately 308,000 shares of our common stock. We have no paid employees and are externally managed by CMFT Management and, with respect to investments in securities, our Investment Advisor. CIM indirectly owns and/or controls CMFT Management; our dealer manager, CCO Capital; our property manager, CREI Advisors; and CCO Group. We ceased issuing shares in our Offering on April 4, 2014 and in the Initial DRIP Offering effective as of June 30, 2016, but will continue to issue shares of common stock under the Secondary DRIP Offering until certain liquidity events occur, such as the listing of our shares, on a national securities exchange or the sale of our company, or the Secondary DRIP Offering is otherwise terminated by our Board. We suspended issuing shares of common stock under our Secondary DRIP Offering on August 30, 2020, in connection with our entry into the Merger Agreements. On March 25, 2021, the Board approved reinstating the DRIP effective April 1, 2021. We expect that property acquisitions in 2021 and future periods will be funded by proceeds from financing of the acquired properties, cash flows from operations and the strategic sale of properties and other asset acquisitions. Our operating results and cash flows are primarily influenced by rental and other property income from our commercial properties, interest expense on our indebtedness and acquisition and operating expenses. As 94.1% of our rentable square feet 53 Table of Contents was under lease, including any month-to-month agreements, as of December 31, 2020 with a weighted average remaining lease term of 8.8 years, we believe our exposure to changes in commercial rental rates on our portfolio is substantially mitigated, except for vacancies caused by tenant bankruptcies or other factors, including due to circumstances related to COVID-19. Our manager regularly monitors the creditworthiness of our tenants by reviewing each tenant’s financial results, any available credit rating agency reports on the tenant or guarantor, the operating history of the property with such tenant, the tenant’s market share and track record within its industry segment, the general health and outlook of the tenant’s industry segment and other information for changes and possible trends. If CMFT Management identifies significant changes or trends that may adversely affect the creditworthiness of a tenant, it will gather a more in-depth knowledge of the tenant’s financial condition and, if necessary, attempt to mitigate the tenant credit risk by evaluating the possible sale of the property or identifying a possible replacement tenant should the current tenant fail to perform on the lease. We have primarily acquired core commercial real estate assets principally consisting of retail properties located throughout the United States. As of December 31, 2020, we owned 516 properties, comprising 21.3 million rentable square feet of commercial space located in 45 states. In April 2019, we announced our intention to pursue a more diversified investment strategy across the capital structure by balancing our existing portfolio of core commercial real estate assets with our future investments in a portfolio of commercial mortgage loans and other real estate-related credit investments, in which our sponsor and its affiliates have expertise, that we would originate, acquire, finance and manage. As of December 31, 2020, our loan portfolio consisted of 206 loans with a net book value of $892.3 million. As of December 31, 2020, we had $41.0 million of unsettled broadly syndicated loan purchases included in cash and cash equivalents, and investments in real estate-related securities of $38.2 million. Pursuant to our strategy, during the year ended December 31, 2020, we disposed of 30 properties, encompassing 1.7 million gross rentable square feet. We previously expected to sell a substantial portion of our anchored-shopping center portfolio and certain single-tenant properties within 24 months of December 31, 2019, subject to market conditions. In light of current market conditions brought on by the COVID-19 pandemic, we cannot provide assurance that these properties will be sold within such 24-month period. As a result, we placed 15 properties with a carrying value of $228.4 million that were previously classified as held for sale back in service as real estate assets in the consolidated balance sheets during the year ended December 31, 2020. As of December 31, 2020, our portfolio consisted of 455 retail properties, 56 anchored shopping centers, four industrial properties and one office property representing 34 industry sectors. See Note 4 — Real Estate Assets to the consolidated financial statements in this Annual Report on Form 10-K for a discussion of the disposition of individual properties during the year ended December 31, 2020. COVID-19 The COVID-19 outbreak and the associated “shelter-in-place” or “stay-at-home” orders or other quarantine mandates or public health guidance issued by local, state or federal authorities has adversely affected a number of our tenants’ businesses. The extent to which the COVID-19 pandemic continues to impact our operations and those of our tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others. During the year ended December 31, 2020, we provided lease concessions, either in the form of rental deferrals or abatements, to certain tenants in response to the impact of the COVID-19 pandemic. As of December 31, 2020, we granted total rent deferrals with an aggregate deferral amount of $6.2 million. Additionally, as of December 31, 2020, we granted rent abatements to tenants with an abatement amount of $4.1 million, which reduced revenues during the year ended December 31, 2020. As of March 24, 2021 , we have collected approximately 98% of rental payments billed to tenants during the three months ended December 31, 2020. There have been no significant changes in rent collections subsequent to December 31, 2020. Additionally, COVID-19 has caused us to materially increase our provision for credit losses related to our mezzanine loans. During the year ended December 31, 2020, we recorded a $58.0 million net increase in our provision for credit losses related to our mezzanine loans. This provision for credit losses reflects, among other things, the macroeconomic impact of the COVID-19 pandemic on commercial real estate markets generally, as well as certain loans assessed for impairment in our portfolio. Further, this reserve is not reflective of what we expect our provision for credit losses to be absent the current and potential future impacts of the COVID-19 pandemic. If the adverse macroeconomic effects of the COVID-19 pandemic persist or worsen, we may further materially increase our provision for credit losses, which may have a material adverse effect on our business, financial condition, results of operations and ability to make distributions. 54 Table of Contents We are actively managing our response to the COVID-19 pandemic in collaboration with our tenants and business partners and are assessing potential impacts to our financial position and operating results, as well as potential adverse developments in our business. On April 20, 2020, our Board decided to make a determination as to the amount and timing of distributions on a monthly, instead of a quarterly, basis, and to value our assets for the purpose of updated the estimated per share NAV on a quarterly, rather than annual basis, until such time that we had greater visibility into the impact that the COVID-19 pandemic would have on our tenants’ ability to continue to pay rent on their leases on a timely basis or at all, the degree to which federal, state or local governmental authorities grant rent relief or other relief or amnesty programs applicable to our tenants, our ability to access the capital markets, and on the United States and worldwide financial markets and economy. Given the relative stability of the Company’s rent collections and the per share NAV for the quarters ended March 31, 2020 and June 30, 2020, the Board determined that it is in the best interests of the Company and its stockholders to cease incurring the additional costs associated with quarterly valuations and return to updating the Company’s per share NAV on an annual basis in accordance with its valuation policies. On March 25, 2021, the Board resumed declaring distributions on a quarterly basis by declaring a monthly per share distribution for the months of March, April, May and June. See Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Distributions for a further discussion of distributions declared. Mergers On December 21, 2020, we completed the Mergers pursuant to the Merger Agreements dated August 30, 2020, as amended, with CCIT III Merger Sub and CCPT V Merger Sub each surviving as a wholly owned subsidiary of ours. In accordance with the MGCL, the separate existence of CCIT III and CCPT V ceased. Through the Mergers, we acquired 146 properties with a total of 3.8 million square feet, all of which had an aggregate gross real estate value of approximately $763.0 million. The combined company after the Mergers retained the name “CIM Real Estate Finance Trust, Inc.” Each Merger qualified as a “reorganization” under, and within the meaning of, Section 368(a) of the Code. Additionally, on August 30, 2020, we, along with Cole Office & Industrial REIT (CCIT II), Inc. (“CCIT II”) and Thor II Merger Sub, LLC, a wholly owned subsidiary of ours (“CCIT II Merger Sub”), entered into an Agreement and Plan of Merger (the “CCIT II Merger Agreement”). Subject to the terms and conditions of the CCIT II Merger Agreement, CCIT II would have merged with and into CCIT II Merger Sub (the “CCIT II Merger”), with CCIT II Merger Sub surviving the CCIT II Merger, such that following the CCIT II Merger, the surviving entity would continue as a wholly owned subsidiary of ours. On October 29, 2020, CCIT II terminated the CCIT II Merger Agreement pursuant to Sections 9.1(c)(ii) and 9.2 of the CCIT II Merger Agreement and entered into an agreement (the “Termination Notice”) with us reflecting such termination and pursuant to which, among other things, CCIT II paid the termination fee equal to $7.38 million to us in accordance with the CCIT II Merger Agreement, and agreed to pay to us the amount of our expenses up to $3.69 million, required to be paid pursuant to the terms of the CCIT II Merger Agreement (such amounts together, the “CCIT II Termination Payment”). Operating Highlights and Key Performance Indicators 2020 Activity • Completed the Mergers, which included the acquisition of 146 properties with an aggregate value of $763.0 million and the assumption of debt totaling $379.7 million. • In addition to the property acquisitions related to the Mergers, we acquired four properties for an aggregate purchase price of $35.5 million. • Invested $582.7 million in broadly syndicated loans and sold broadly syndicated loans for an aggregate gross sales price of $42.0 million. • Received payment in full on one senior loan totaling $40.8 million. • Disposed of 30 properties, consisting of 20 retail properties and 10 anchored shopping centers, for an aggregate sales price of $270.4 million. • Entered into two repurchase agreements that provide up to $800.0 million to finance a portfolio of existing and future commercial real estate mortgage loans. • Increased total debt by $303.3 million, from $1.6 billion to $2.1 billion. 55 Table of Contents Portfolio Information The following table shows the carrying value of our portfolio by investment type as of December 31, 2020 and 2019: As of December 31, 2020 2019 Asset Count Carrying Value Asset Count Carrying Value Loan Held-For-Investment Mezzanine loans 8 $ 147,475 3.5 % 8 $ 146,060 4.7 % Senior loans 4 341,546 8.1 % 3 152,820 4.9 % Broadly syndicated loans 194 473,603 11.3 % 1 2,750 0.1 % Less: Allowance for credit losses (70,358) (1.7) % — — % Total loans-held-for-investment and related receivable, net 206 892,266 21.2 % 12 301,630 9.7 % Real Estate-Related Securities CMBS 4 38,194 0.9 % — — — % Real Estate Total real estate assets and intangible lease liabilities, net 516 3,278,905 77.9 % 396 2,800,709 90.3 % Total Investment Portfolio 726 $ 4,209,365 100.0 % 408 $ 3,102,339 100.0 % The following table details overall statistics of our credit portfolio as of December 31, 2020 (dollar amounts in thousands): Mezzanine Loans (1) (2) Senior Loans (1) (2) Broadly Syndicated Loans CMBS Number of loans 8 4 194 4 Net book value $ 89,437 $ 338,956 $ 463,873 $ 38,194 Weighted-average interest rate 14.1 % 4.9 % 3.8 % 6.8 % Weighted-average maximum years to maturity 0.4 3.0 4.9 8.0 ____________________________________ (1) As of December 31, 2020, 100% of the our loans by principal balance earned a floating rate of interest, primarily indexed to U.S. dollar LIBOR. (2) Maximum maturity date assumes all extension options are exercised by the borrowers; however, our CRE loans may be repaid prior to such date. Real Estate Portfolio Information As of December 31, 2020, we owned 516 properties located in 45 states, the gross rentable square feet of which was 94.1% leased, including any month-to-month agreements, with a weighted average lease term remaining of 8.8 years. During the year ended December 31, 2020, we disposed of 30 properties, for an aggregate gross sales price of $270.4 million. The following table shows the property statistics of our real estate assets as of December 31, 2020 and 2019: As of December 31, 2020 2019 Number of commercial properties 516 396 Rentable square feet (in thousands) (1) 21,309 19,103 Percentage of rentable square feet leased 94.1 % 94.6 % Percentage of investment-grade tenants (2) 38.0 % 36.9 % ____________________________________ (1) Includes square feet of buildings on land parcels subject to ground leases. (2) Investment-grade tenants are those with a credit rating of BBB- or higher by Standard & Poor’s Financial Services LLC (“Standard & Poor’s”) or a credit rating of Baa3 or higher by Moody’s Investor Service, Inc. (“Moody’s”). The ratings may reflect those assigned by Standard & Poor’s or Moody’s to the lease guarantor or the parent company, as applicable. The 56 Table of Contents weighted average credit rating is weighted based on annualized rental income and is for only those tenants rated by Standard & Poor’s. The following table summarizes our real estate acquisition activity during the years ended December 31, 2020 and 2019: Year Ended December 31, 2020 2019 Commercial properties acquired 150 1 Purchase price of acquired properties (in thousands) $ 798,500 $ 6,165 Rentable square feet (in thousands) (1) 3,945 6 ____________________________________ (1) Includes square feet of buildings on land parcels subject to ground leases. The following table shows the tenant diversification of our real estate portfolio, based on annualized rental income, as of December 31, 2020: 2020 2020 Percentage of Total Leased Annualized Annualized 2020 Number Square Feet Rental Income Rental Income Annualized Tenant of Leases (1) (in thousands) (2) (in thousands) per Square Foot (2) Rental Income Walgreens 37 544 $ 13,429 $ 24.69 5 % Lowe’s 15 1,899 13,270 6.99 5 % Academy Sports 7 2,016 12,311 6.11 5 % CVS 42 529 11,920 22.53 4 % United Oil 4 64 10,928 170.75 4 % L.A. Fitness 9 410 7,860 19.17 3 % PetSmart 28 485 7,745 15.97 3 % Home Depot 4 555 7,408 13.35 3 % Dick’s Sporting Goods 13 572 6,894 12.05 3 % Cabela’s 1 403 6,544 16.24 2 % Other 872 12,566 168,865 13.44 63 % 1,032 20,043 $ 267,174 $ 13.33 100 % ____________________________________ (1) Includes leases which are master lease agreements. (2) Includes square feet of the buildings on land parcels subject to ground leases. 57 Table of Contents The following table shows the tenant industry diversification of our real estate portfolio, based on annualized rental income, as of December 31, 2020: 2020 2020 Percentage of Total Leased Annualized Annualized 2020 Number Square Feet Rental Income Rental Income Annualized Industry of Leases (1) (in thousands) (2) (in thousands) per Square Foot (2) Rental Income Sporting goods 38 3,482 $ 32,818 $ 9.43 12 % Home and garden 51 3,182 29,703 9.33 11 % Discount store 117 2,627 27,050 10.30 10 % Pharmacy 79 1,073 25,349 23.62 9 % Grocery and supermarket 39 1,696 21,038 12.40 8 % Gas and convenience 12 91 13,156 144.57 5 % Casual dining 77 453 12,436 27.45 4 % Pet supply 40 635 10,115 15.93 4 % Apparel and jewelry 68 716 9,949 13.90 4 % Entertainment and recreation 20 554 9,412 16.99 4 % Other 491 5,534 76,148 13.76 29 % 1,032 20,043 $ 267,174 $ 13.33 100 % ____________________________________ (1) Includes leases which are master lease agreements. (2) Includes square feet of the buildings on land parcels subject to ground leases. The following table shows the geographic diversification of our real estate portfolio, based on annualized rental income, as of December 31, 2020: 2020 2020 Percentage of Total Rentable Annualized Annualized 2020 Number of Square Feet Rental Income Rental Income Annualized Location Properties (in thousands) (1) (in thousands) per Square Foot (1) Rental Income California 61 833 $ 28,161 $ 33.81 11 % Ohio 38 1,879 21,157 11.26 8 % Georgia 20 1,770 20,348 11.50 8 % Texas 56 1,315 18,887 14.36 7 % Illinois 20 1,216 14,501 11.93 5 % Florida 30 1,138 14,229 12.50 5 % Indiana 24 1,184 13,606 11.49 5 % Wisconsin 16 1,113 13,455 12.09 5 % North Carolina 25 1,085 12,996 11.98 5 % Alabama 27 951 11,639 12.24 4 % Other 199 8,825 98,195 11.13 37 % 516 21,309 $ 267,174 $ 12.54 100 % ____________________________________ (1) Includes square feet of the buildings on land parcels subject to ground leases. 58 Table of Contents The following table shows the property type diversification of our real estate portfolio, based on annualized rental income, as of December 31, 2020: 2020 2020 Percentage of Total Rentable Annualized Annualized 2020 Number of Square Feet Rental Income Rental Income Annualized Property Type Properties (in thousands) (1) (in thousands) per Square Foot (1) Rental Income Retail 455 10,686 $ 150,316 $ 14.07 56 % Anchored shopping centers 56 8,614 104,655 12.15 39 % Industrial 4 1,788 9,392 5.25 4 % Office 1 221 2,811 12.72 1 % 516 21,309 $ 267,174 $ 12.54 100 % ____________________________________ (1) Includes square feet of the buildings on land parcels subject to ground leases. Leases Although there are variations in the specific terms of the leases of our properties, the following is a summary of the general structure of our current leases. Generally, the leases of the properties acquired provide for initial terms of ten or more years and provide the tenant with one or more multi-year renewal options, subject to generally the same terms and conditions as the initial lease term. Certain leases also provide that in the event we wish to sell the property subject to that lease, we first must offer the lessee the right to purchase the property on the same terms and conditions as any offer which we intend to accept for the sale of the property. The properties are generally leased under net leases pursuant to which the tenant bears responsibility for substantially all property costs and expenses associated with ongoing maintenance and operation, including utilities, property taxes and insurance, while certain of the leases require us to maintain the roof, structure and parking areas of the building. Additionally, certain leases provide for increases in rent as a result of fixed increases, increases in the consumer price index, and/or increases in the tenant’s sales volume. The leases of the properties provide for annual rental payments (payable in monthly installments) ranging from $7,000 to $8.0 million (average of $234,000). Certain leases provide for limited increases in rent as a result of fixed increases or increases in the consumer price index. The following table shows lease expirations of our real estate portfolio, as of December 31, 2020, during each of the next ten years and thereafter, assuming no exercise of renewal options: 2020 Total Leased Annualized 2020 Percentage of Number Square Feet Rental Income Annualized 2020 of Leases Expiring Expiring Rental Income Annualized Year of Lease Expiration Expiring (1) (in thousands) (2) (in thousands) per Square Foot (2) Rental Income 2021 97 804 $ 10,433 $ 12.98 4 % 2022 84 845 10,113 11.97 4 % 2023 133 1,358 21,465 15.81 8 % 2024 127 1,758 23,300 13.25 9 % 2025 112 1,576 19,481 12.36 7 % 2026 72 1,546 18,208 11.78 7 % 2027 61 1,406 13,906 9.89 5 % 2028 56 1,082 12,358 11.42 4 % 2029 71 1,020 15,690 15.38 6 % 2030 47 903 15,993 17.71 6 % Thereafter 172 7,745 106,227 13.72 40 % 1,032 20,043 $ 267,174 $ 13.33 100 % ____________________________________ (1) Includes leases which are master lease agreements. (2) Includes square feet of the buildings on land parcels subject to ground leases. 59 Table of Contents The following table shows the economic metrics of our real estate assets as of and for the years ended December 31, 2020 and 2019: 2020 2019 Economic Metrics Weighted-average lease term (in years) (1) 8.8 8.6 Lease rollover (1)(2) : Annual average 6.3% 7.1% Maximum for a single year 8.7% 10.9% ____________________________________ (1) Based on annualized rental income of our real estate portfolio as of December 31, 2020 and 2019. (2) Through the end of the next five years as of the respective reporting date. Results of Operations Overview We are not aware of any material trends or uncertainties, other than the effects of the outbreak of COVID-19, and national economic conditions affecting real estate in general, that may reasonably be expected to have a material impact on our results from the acquisition, management and operation of properties other than those listed in Part I, Item 1A — Risk Factors. Currently, we are unable to predict the impact that the COVID-19 pandemic will have on our financial condition, results of operations and cash flows in future periods due to numerous uncertainties. For a comparison of the years ended December 31, 2019 and 2018, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. Same Store Analysis Our results of operations are influenced by the timing of acquisitions and the operating performance of our real estate assets. We review our stabilized operating results, measured by net operating income, from properties that we owned for the entirety of both the current and prior year reporting periods, referred to as “same store” properties, and we believe that the presentation of operating results for same store properties provides useful information to stockholders. Net operating income is a supplemental non-GAAP financial measure of a real estate company’s operating performance. Net operating income is considered by management to be a helpful supplemental performance measure, as it enables management to evaluate the impact of occupancy, rents, leasing activity, and other controllable property operating results at our real estate properties, and it provides a consistent method for the comparison of our properties. We define net operating income as operating revenues less operating expenses, which exclude (i) depreciation and amortization, (ii) interest expense and other non-property related revenue and expense items such as (a) general and administrative expenses, (b) management and advisory fees and expenses, (c) transaction-related expenses, (d) real estate impairment, (e) provision for credit losses, (f) gain on disposition of real estate, net, (g) merger-related items and (h) interest income. Our net operating income may not be comparable to that of other REITs and should not be considered to be more relevant or accurate in evaluating our operating performance than the current GAAP methodology used in calculating net income (loss). In determining the same store property pool, we include all properties that were owned for the entirety of both the current and prior reporting periods, except for properties during the current or prior year that were under development or redevelopment. 60 Table of Contents Comparison of the Years Ended December 31, 2020 and 2019 The following table reconciles net income, calculated in accordance with GAAP, to net operating income (dollar amounts in thousands): Total For the Year Ended December 31, 2020 2019 Change Net income $ (23,518) $ 183,020 $ (206,538) Loss on extinguishment of debt 4,841 7,227 (2,386) Interest expense and other, net 64,116 98,965 (34,849) Operating income 45,439 289,212 (243,773) Merger termination fee income (7,380) — (7,380) Merger-related expenses, net 2,193 — 2,193 Gain on disposition of real estate, net (27,518) (180,666) 153,148 Provision for credit losses 68,356 — 68,356 Real estate impairment 16,737 72,939 (56,202) Depreciation and amortization 80,973 107,867 (26,894) Transaction-related expenses 905 2,278 (1,373) Management and advisory fees and expenses 44,743 42,339 2,404 General and administrative expenses 15,385 13,729 1,656 Interest income (29,393) (20,132) (9,261) Net operating income $ 210,440 $ 327,566 $ (117,126) Our operating segments include credit and real estate. Refer to Note 17 — Segment Reporting to our consolidated financial statements for further discussion of our operating segments. Credit Segment Interest Income The increase in interest income of $9.3 million for the year ended December 31, 2020, compared to the same period in 2019, was due to an increase in credit investments. As of December 31, 2020, we held investments in 194 broadly syndicated loans, 12 CRE loans held-for-investment and four CMBS. As of December 31, 2019, we held investments in one broadly syndicated loan and 11 CRE loans held-for-investment. Provision for Credit Losses The increase in provision for credit losses of $68.4 million during the year ended December 31, 2020, as compared to the same period in 2019, was primarily due to the adoption of current expected credit losses (“CECL”) on January 1, 2020 and management’s determination that the fair value of the collateral of the Company’s loans held-for-investment, which is based on comparable market sales, decreased compared to the amortized cost basis, which resulted in recording $68.4 million in credit losses during the year ended December 31, 2020. No such losses were recorded during the year ended December 31, 2019. 61 Table of Contents Real Estate Segment A total of 365 properties were acquired before January 1, 2019 and represent our “same store” properties during the years ended December 31, 2020 and 2019. “Non-same store” properties, for purposes of the table below, includes properties acquired or disposed of on or after January 1, 2019. The following table details the components of net operating income broken out between same store and non-same store properties (dollar amounts in thousands): Total Same Store Non-Same Store For the Year Ended December 31, For the Year Ended December 31, For the Year Ended December 31, 2020 2019 Change 2020 2019 Change 2020 2019 Change Rental and other property income $ 261,530 $ 393,224 $ (131,694) $ 246,556 $ 255,869 $ (9,313) $ 14,974 $ 137,355 $ (122,381) Property operating expenses 23,399 33,462 (10,063) 21,645 24,742 (3,097) 1,754 8,720 (6,966) Real estate tax expenses 27,691 32,196 (4,505) 26,300 25,460 840 1,391 6,736 (5,345) Total property operating expenses 51,090 65,658 (14,568) 47,945 50,202 (2,257) 3,145 15,456 (12,311) Net operating income $ 210,440 $ 327,566 $ (117,126) $ 198,611 $ 205,667 $ (7,056) $ 11,829 $ 121,899 $ (110,070) Loss on Extinguishment of Debt The decrease in loss on extinguishment of debt of $2.4 million for the year ended December 31, 2020, as compared to the same period in 2019, was due to a decrease in the number of mortgage notes terminated in connection with the disposition of the underlying properties during the year ended December 31, 2020. During the year ended December 31, 2020, we recorded losses on the extinguishment of mortgage loans with an aggregate carrying value of $97.0 million, as compared to recording losses on the extinguishment of mortgage loans with an aggregate carrying value of $258.0 million during the year ended December 31, 2019. Interest Expense and Other, Net Interest expense and other, net also includes amortization of deferred financing costs. The decrease in interest expense and other, net, of $34.8 million for the year ended December 31, 2020, as compared to the same period in 2019, was primarily due to a decrease in the average aggregate amount of debt outstanding from $2.2 billion for the year ended December 31, 2019 to $1.8 billion for the year ended December 31, 2020, as a result of debt repayments in connection with the disposition of the underlying properties. In addition, the weighted average interest rate decreased from 3.9% as of December 31, 2019 to 3.4% as of December 31, 2020. Merger Termination Fee Income In connection with the Termination Notice, we received a termination fee of $7.4 million during the year ended December 31, 2020. No such fees were received during the year ended December 31, 2019. Merger-Related Expenses, Net In connection with the Mergers, we incurred fees and expenses of $2.2 million during the year ended December 31, 2020. No such fees were incurred during the year ended December 31, 2019. Gain on Disposition of Real Estate, Net The decrease in gain on disposition of real estate, net of $153.1 million during the year ended December 31, 2020, as compared to the same period in 2019, was due to the disposition of 30 properties for a gain of $27.5 million during the year ended December 31, 2020 compared to the disposition of 497 properties for a gain of $180.7 million during the year ended December 31, 2019. Impairment The decrease in impairments of $56.2 million during the year ended December 31, 2020, as compared to the same period in 2019, was due to 12 properties that were deemed to be impaired, resulting in impairment charges of $16.7 million during the 62 Table of Contents year ended December 31, 2020, compared to 34 properties that were deemed to be impaired, resulting in impairment charges of $72.9 million during the year ended December 31, 2019. Depreciation and Amortization The decrease in depreciation and amortization expenses of $26.9 million during the year ended December 31, 2020, as compared to the same period in 2019, was primarily due to the disposition of 30 properties during the year ended December 31, 2020, partially offset by recognizing a full period of depreciation and amortization expenses on the one property acquired in 2019. Transaction-Related Expenses Through August 20, 2019, we paid CMFT Management or its affiliates acquisition fees of up to 2.0% of: (1) the contract purchase price of each property or asset we acquired; (2) the amount paid in respect of the development, construction or improvement of each asset we acquired; (3) the purchase price of any loan we acquired; and (4) the principal amount of any loan we originated. We also reimbursed CMFT Management or its affiliates for transaction-related expenses incurred in the process of acquiring a property or the origination or acquisition of a loan, so long as the total acquisition fees and expenses relating to the transaction did not exceed 6.0% of the contract purchase price, unless otherwise approved by a majority of our Board, including a majority of our independent directors, as commercially competitive, fair and reasonable to us. Other transaction-related expenses, such as manager reimbursements for disposition activities, are expensed as incurred. The decrease in transaction-related expenses of $1.4 million during the year ended December 31, 2020, as compared to the same period in 2019, was primarily due to a decrease in reimbursements to our manager for expenses related to the 30 dispositions that occurred during the year ended December 31, 2020 for an aggregate sales price of $270.4 million, compared to such expenses related to the 497 dispositions that occurred during the year ended December 31, 2019 for an aggregate gross sales price of $1.7 billion. Management and Advisory Fees and Expenses Pursuant to the Prior Advisory Agreement with CMFT Management and based upon the amount of our current invested assets, through August 20, 2019, we were required to pay to CMFT Management a monthly advisory fee equal to one-twelfth of 0.75% of the average invested assets up to $2.0 billion, one-twelfth of 0.70% of the average invested assets over $2.0 billion up to $4.0 billion and one-twelfth of 0.65% of the average invested assets over $4.0 billion. Beginning on August 20, 2019, we pay CMFT Management a management fee pursuant to the Management Agreement, payable quarterly in arrears, equal to the greater of (a) $250,000 per annum ($62,500 per quarter) and (b) 1.50% per annum (0.375% per quarter) of the Company’s Equity (as defined in the Management Agreement). Additionally, we may be required to reimburse certain expenses incurred by CMFT Management in providing management services, subject to limitations as set forth in the Management Agreement (as discussed in Note 12 — Related-Party Transactions and Arrangements). Furthermore, as discussed in Note 12 — Related-Party Transactions and Arrangements, pursuant to the Investment Advisory and Management Agreement, for management of investments in the Managed Assets (as defined in the Investment Advisory and Management Agreement), CMFT Securities pays the Investment Advisor the Investment Advisory Fee, payable quarterly in arrears, equal to 1.50% per annum (0.375% per quarter) of CMFT Securities’ Equity (as defined in the Investment Advisory and Management Agreement). Pursuant to the Investment Advisory and Management Agreement, CMFT Securities reimburses the Investment Advisor for costs and expenses incurred by the Investment Advisor on its behalf. Because the Managed Assets are excluded from the calculation of management fees payable by the Company to CMFT Management pursuant to the Management Agreement, the total management and advisory fees payable by the Company to its external advisors are not increased as a result of the Investment Advisory and Management Agreement. In addition, pursuant to the Sub-Advisory Agreement, in connection with providing investment management services with respect to the corporate credit-related securities held by CMFT Securities, on a quarterly basis, the Investment Advisor designates 50% of the sum of the Investment Advisory Fee payable to the Investment Advisor as sub-advisory fees. The increase in management and advisory fees and expenses of $2.4 million during the year ended December 31, 2020, as compared to the same period in 2019, was due to the management fee we began paying CMFT Management beginning on August 20, 2019. During the year ended December 31, 2020, we incurred management fees of $40.0 million. General and Administrative Expenses The primary general and administrative expense items are certain expense reimbursements to our manager, banking fees and escrow and trustee fees. 63 Table of Contents The increase in general and administrative expenses of $1.7 million for the year ended December 31, 2020, compared to the same period in 2019, was primarily due to an increase in unused fees related to our credit facility, partially offset by a decrease in state franchise and income tax expenses. Net Operating Income Same store property net operating income decreased $7.1 million during the year ended December 31, 2020, as compared to the same period in 2019. The decrease was primarily due to reductions in rental and other property income of $3.8 million for amounts deemed not probable of collection at 39 properties during the year ended December 31, 2020 due to the impact of the COVID-19 pandemic. Additionally, overall same store occupancy was 93.2% as of December 31, 2020, compared to 95.0% as of December 31, 2019. Non-same store property net operating income decreased $110.1 million during the year ended December 31, 2020, as compared to the same period in 2019. The decrease is primarily due to the disposition of 497 properties during the year ended December 31, 2019 and the disposition of 30 properties during the year ended December 31, 2020, offset by recognizing a full period of net operating income for the one property acquired during the year ended December 31, 2019 and partial period of net operating income for the properties acquired during the year ended December 31, 2020. Distributions Prior to April 1, 2020, on a quarterly basis, our Board authorized a daily distribution for the succeeding quarter. Our Board authorized the following daily distribution amounts per share for the periods indicated below: Period Commencing Period Ending Daily Distribution Amount April 14, 2012 December 31, 2012 $0.001707848 January 1, 2013 December 31, 2015 $0.001712523 January 1, 2016 December 31, 2016 $0.001706776 January 1, 2017 December 31, 2019 $0.001711452 January 1, 2020 March 31, 2020 $0.001706776 On April 20, 2020, our Board decided to make a determination as to the amount and timing of distributions on a monthly, instead of a quarterly, basis until such time that we had greater visibility into the impact that the COVID-19 pandemic would have on our tenants’ ability to continue to pay rent on their leases on a timely basis or at all, the degree to which federal, state or local governmental authorities grant rent relief or other relief or amnesty programs applicable to our tenants, our ability to access the capital markets, and on the United States and worldwide financial markets and economy. On March 25, 2021, the Board resumed declaring distributions on a quarterly basis by declaring a monthly per share distribution for the months of March, April, May and June of 2021. Since April of 2020, our Board authorized the following monthly distribution amounts per share for the periods indicated below: 64 Table of Contents Record Date Distribution Amount April 30, 2020 $0.0130 May 31, 2020 $0.0130 June 30, 2020 $0.0161 July 30, 2020 $0.0304 August 28, 2020 $0.0303 September 29, 2020 $0.0303 October 29, 2020 $0.0303 November 27, 2020 $0.0303 December 30, 2020 $0.0303 January 28, 2021 $0.0303 February 25, 2021 $0.0303 March 29, 2021 $0.0303 April 29 2021 $0.0303 May 28, 2021 $0.0303 June 29, 2021 $0.0303 As of December 31, 2020, we had distributions payable of $11.0 million. The following table presents distributions and source of distributions for the periods indicated below (dollar amounts in thousands): Year Ended December 31, 2020 2019 Amount Percent Amount Percent Distributions paid in cash $ 90,655 73 % $ 112,083 58 % Distributions reinvested 34,191 27 % 82,388 42 % Total distributions $ 124,846 100 % $ 194,471 100 % Source of distributions: Net cash provided by operating activities (1)(2) $ 115,985 93 % $ 194,471 100 % Proceeds from the issuance of common stock 8,308 (3) 7 % — — % Proceeds from the issuance of debt 553 (4) — % — — % Total sources $ 124,846 100 % $ 194,471 100 % ____________________________________ (1) Net cash provided by operating activities for the years ended December 31, 2020 and 2019 was $106.4 million and $188.6 million, respectively. (2) Our distributions covered by cash flows from operating activities for the years ended December 31, 2020 and 2019 include cash flows from operating activities in excess of distributions from prior periods of $9.6 million and $5.9 million, respectively. (3) In accordance with GAAP, certain real estate acquisition-related fees and expenses, such as expenses and fees incurred in connection with property acquisitions accounted for as business combinations, are expensed, and therefore reduce net cash flows from operating activities. Therefore, for consistency, proceeds from the issuance of common stock used as a source of distributions for the year ended December 31, 2020 include the amount by which real estate acquisition-related fees and expenses have reduced net cash flows from operating activities in those prior periods. (4) Net proceeds on the credit facilities and notes payable for the year ended December 31, 2020 was $159.0 million. Share Redemptions Our Amended Share Redemption Program permits our stockholders to sell their shares of common stock back to us, subject to certain conditions and limitations. Funding for the redemption of shares will be limited to the cumulative net proceeds we receive from the sale of shares under the Secondary DRIP Offering, net of shares redeemed to date. In addition, we will generally limit quarterly redemptions to approximately 1.25% of the weighted average number of shares outstanding during the trailing 12-month period ending on the last day of the fiscal quarter for which the redemptions are being paid, and to the net 65 proceeds we receive from the sale of shares in the respective quarter under the Secondary DRIP Offering. Any of the foregoing limits might prevent us from accommodating all redemption requests made in any fiscal quarter or in any 12-month period. In addition, our Board may choose to amend the terms of, suspend or terminate our Amended Share Redemption Program at any time in its sole discretion if it believes that such action is in the best interest of us and our stockholders. Any material modifications or suspension of the Amended Share Redemption Program will be disclosed to our stockholders as promptly as practicable in our reports filed with the SEC and via our website. In connection with the Mergers, our Board suspended our Amended Share Redemption Program on August 30, 2020, and therefore, no shares were redeemed from our stockholders after that date until the Amended Share Redemption Program was reinstated, effective April 1, 2021, by our Board on March 25, 2021. During the year ended December 31, 2020, we received valid redemption requests under our Amended Share Redemption Program totaling approximately 48.3 million shares, of which we redeemed approximately 3.8 million shares as of December 31, 2020 for $28.5 million (at an average redemption price of $7.60 per share). The remaining redemption requests relating to approximately 44.5 million shares went unfulfilled. During the year ended December 31, 2019, we received valid redemption requests under our share redemption program totaling approximately 88.6 million shares, of which we redeemed approximately 7.2 million shares as of December 31, 2019 for $62.4 million (at an average redemption price of $8.65 per share) and approximately 2.3 million shares subsequent to December 31, 2019 for $19.5 million at an average redemption price of $8.65 per share. The remaining redemption requests relating to approximately 79.1 million shares went unfulfilled. A valid redemption request is one that complies with the applicable requirements and guidelines of the share redemption program then in effect. The share redemptions were funded with proceeds from the Secondary DRIP Offering. See the discussion of our Amended Share Redemption Program in Part II, Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities — Share Redemption Program in this Annual Report on Form 10-K. Liquidity and Capital Resources General We expect to utilize proceeds from real estate dispositions, sales proceeds and principal payments received on credit investments, cash flows from operations and future proceeds from secured or unsecured financing to complete future acquisitions and for general corporate uses. The sources of our operating cash flows will primarily be provided by the rental and other property income received from current and future leased properties. As of December 31, 2020, we had an unsecured credit facility with JPMorgan Chase Bank, N.A., as administrative agent (the “CMFT Credit Facility”) that provided for borrowings of up to $1.24 billion, which includes a $885.0 million unsecured term loan (the “CMFT Term Loan”) and up to $350.0 million in unsecured revolving loans (the “CMFT Revolving Loans”). During the year ended December 31, 2020, as a result of the Merger with CCPT V, we assumed CCPT V’s obligations pursuant to the credit agreement by and among Cole Operating Partnership V, LP, the operating partnership of CCPT V, JPMorgan Chase Bank, N.A. as administrative agent, and the lender parties thereto (the “CCPT V Credit Agreement”), including as guarantor under a guaranty provided by CCPT V. The CCPT V Credit Agreement allows for borrowings of up to $350.0 million (the “CCPT V Credit Facility,” and together with the CMFT Credit Facility, the “Credit Facilities”). The CCPT V Credit Facility includes $220.0 million in term loans (the “CCPT V Term Loans,” and together with the CMFT Term Loan, the “Term Loans”) and up to $130.0 million in revolving loans (the “CCPT V Revolving Loans,” and together with the CMFT Revolving Loans, the “Revolving Loans”). As of December 31, 2020, we had $480.0 million in unused capacity under the Credit Facilities, subject to borrowing availability. We had available borrowings of $135.5 million as of December 31, 2020. As of December 31, 2020, we also had cash and cash equivalents of $121.4 million, which included $41.0 million of unsettled broadly syndicated loan purchases. As of December 31, 2020, CMFT Corporate Credit Securities, LLC, our indirect wholly-owned subsidiary, had a revolving credit and security agreement with Citibank N.A. (“Citibank”), as administrative agent (the “Credit and Security Agreement”) that provided for borrowings in an aggregate principal amount up to $500.0 million (the “Credit Securities Revolver”), which may be increased from time to time pursuant to the Credit and Security Agreement. Borrowings under the Credit and Security Agreement are secured by substantially all of the assets held by CMFT Corporate Credit Securities, LLC, which shall primarily consist of broadly-syndicated senior secured loans subject to certain eligibility criteria under the Credit and Security Agreement. As of December 31, 2020, the amounts borrowed and outstanding under the Credit Securities Revolver totaled $231.5 million. As of December 31, 2020, CMFT RE Lending RF Sub CB, LLC, our indirect wholly-owned subsidiary, had a Master Repurchase Agreement with Citibank (the “Citibank Repurchase Agreement”), which provided up to $300.0 million of financing primarily through Citibank’s purchase of our CRE mortgage loans and future funding advances (the “Citibank Repurchase Facility”). Additionally, on September 21, 2020, CMFT RE Lending RF Sub BB, LLC, our indirect wholly-owned 66 Table of Contents subsidiary, entered into a second Master Repurchase Agreement with Barclays Bank PLC (“Barclays”) (the “Barclays Repurchase Agreement”), which provided up to $500.0 million of financing primarily through Barclays’ purchase of the our CRE mortgage loans and future funding advances (the “Barclays Repurchase Facility”, and collectively with the Citibank Repurchase Facility, the “Repurchase Facilities”). The Citibank Repurchase Agreement and the Barclays Repurchase Agreement provide for simultaneous agreements by Citibank and Barclays to re-sell such purchased CRE mortgage loans back to CMFT RE Lending RF Sub CB, LLC and CMFT RE Lending RF Sub BB, LLC at a certain future date or upon demand. As of December 31, 2020, we had four senior loans with an aggregate carrying value of $341.5 million financed with $235.4 million under the Repurchase Facilities, $109.1 million of which was financed under the Barclays Repurchase Facility and $126.3 million of which was financed under the Citibank Repurchase Facility. As of December 31, 2020, we believe that we were in compliance with the financial covenants of our second amended and restated unsecured credit agreement (the “Second Amended and Restated Credit Agreement”), the CCPT V Credit Agreement the Citibank Repurchase Agreement and the Barclays Repurchase Agreement, as well as the financial covenants under our various fixed and variable rate debt agreements, with the exception of one mortgage note, as further discussed in Note 9 — Credit Facilities, Notes Payable and Repurchase Facilities to our consolidated financial statements. Short-term Liquidity and Capital Resources On a short-term basis, our principal demands for funds will be for the acquisition of real estate-related securities, real estate and real estate-related assets and the payment of acquisition-related fees and expenses, operating expenses, distributions, redemptions and interest and principal on current and any future debt financings, including principal repayments of $138.2 million within the next 12 months. We expect to meet our short-term liquidity requirements through cash proceeds from real estate asset dispositions, net cash provided by operations and proceeds from the Secondary DRIP Offering, as well as secured or unsecured borrowings from banks and other lenders to finance our future acquisitions and loan originations. Operating cash flows are expected to increase as we complete future acquisitions. We believe that the resources stated above will be sufficient to satisfy our operating requirements for the foreseeable future, and we do not anticipate a need to raise funds from sources other than those described above within the next 12 months. Management intends to use the proceeds from the disposition of properties to, among other things, acquire additional high-quality net-lease properties and credit investments in furtherance of our investment objectives and for other general corporate purposes. Long-term Liquidity and Capital Resources On a long-term basis, our principal demands for funds will be for the acquisition of real estate-related securities, real estate and real estate-related assets and the payment of tenant improvements, acquisition-related fees and expenses, operating expenses, distributions and redemptions to stockholders and interest and principal on any current and future indebtedness. Generally, we expect to meet our long-term liquidity requirements through proceeds from cash flows from operations, borrowings on the Credit Facilities, proceeds from secured or unsecured borrowings from banks and other lenders, and proceeds raised pursuant to the Secondary DRIP Offering. We expect that substantially all net cash flows from operations will be used to pay distributions to our stockholders after certain capital expenditures, including tenant improvements and leasing commissions, are paid; however, we have used, and may continue to use, other sources to fund distributions, as necessary, including borrowings on the Credit Facilities and/or future borrowings on our unencumbered assets. To the extent that cash flows from operations are lower due to fewer properties being acquired or lower than expected returns on the properties, distributions paid to our stockholders may be lower. We expect that substantially all net cash flows from the Offerings or debt financings will be used to fund acquisitions, loan originations, certain capital expenditures, repayments of outstanding debt or distributions and redemptions to our stockholders. Contractual Obligations As of December 31, 2020, we had debt outstanding with a carrying value of $2.1 billion and a weighted average interest rate of 3.4%. See Note 9 — Credit Facilities, Notes Payable and Repurchase Facilities to our consolidated financial statements in this Annual Report on Form 10-K for certain terms of our debt outstanding. 67 Table of Contents Our contractual obligations as of December 31, 2020 were as follows (in thousands): Payments due by period (1) Total Less Than 1 Year 1-3 Years 3-5 Years More Than 5 Years Principal payments — fixed rate debt (2) $ 578,096 $ 138,210 $ 348,794 $ 91,092 $ — Interest payments — fixed rate debt (3) 48,040 20,328 25,999 1,713 — Principal payments — credit facilities (4) 1,336,500 — 1,105,000 231,500 — Interest payments — credit facilities (4) 67,548 45,900 17,237 4,411 — Principal payments — repurchase facilities (5) 235,380 — 235,380 — — Interest payments — repurchase facilities (5) 15,530 6,052 9,478 — — Total $ 2,281,094 $ 210,490 $ 1,741,888 $ 328,716 $ — ____________________________________ (1) The table does not include amounts due to CMFT Management or its affiliates pursuant to our Management Agreement because such amounts are not fixed and determinable. (2) Principal payment amounts reflect actual payments based on the face amount of notes payable secured by our wholly-owned properties, which excludes the fair value adjustment, net of amortization, of mortgage notes assumed of $149,000 as of December 31, 2020. (3) As of December 31, 2020, we had $53.6 million of variable rate debt effectively fixed through the use of interest rate swap agreements. We used the effective interest rates fixed under our interest rate swap agreements to calculate the debt payment obligations in future periods. (4) As of December 31, 2020, the Term Loans outstanding totaled $1.1 billion, $1.0 billion of which is subject to interest rate swap agreements (the “Swapped Term Loans”). As of December 31, 2020, the weighted average all-in interest rate for the Swapped Term Loans was 3.9%. The remaining $73.3 million outstanding under the Credit Facilities had a weighted average interest rate of 1.9% as of December 31, 2020. As of December 31, 2020, the amounts outstanding under the Credit Securities Revolver (as defined in Note 9 — Credit Facilities, Notes Payable and Repurchase Facilities to our consolidated financial statements in this Annual Report on Form 10-K) totaled $231.5 million and had a weighted average interest rate of 1.9%. (5) As of December 31, 2020, the amount outstanding under the Citibank Repurchase Facility (as defined in Note 9 — Credit Facilities, Notes Payable and Repurchase Facilities to our consolidated financial statements in this Annual Report on Form 10-K) was $126.3 million at a weighted average interest rate of 2.3%, and the amount outstanding under the Barclays Repurchase Facility (as defined in Note 9 — Credit Facilities, Notes Payable and Repurchase Facilities to our consolidated financial statements in this Annual Report on Form 10-K) was $109.1 million at a weighted average interest rate of 2.9%. We expect to incur additional borrowings in the future to acquire additional properties and other real estate-related assets. There is no limitation on the amount we may borrow against any single improved property. As of December 31, 2020, our ratio of debt to total gross assets net of gross intangible lease liabilities was 46.2% and our ratio of debt to the fair market value of our gross assets net of gross intangible lease liabilities was 45.8%. Fair market value is based on the estimated market value of our real estate assets as of June 30, 2020 that were used to determine our estimated per share NAV, and for those assets acquired from July 1, 2020 through December 31, 2020 is based on the purchase price. Our management reviews net debt as part of its management of our overall liquidity, financial flexibility, capital structure and leverage, and we therefore believe that the presentation of net debt provides useful information to stockholders. Net debt is a non-GAAP measure used to show our outstanding principal debt balance, excluding certain GAAP adjustments, such as premiums or discounts, financing and issuance costs, and related accumulated amortization, less all cash and cash equivalents. As of December 31, 2020, our net debt leverage ratio, which is the ratio of net debt to total gross real estate and related assets net of gross intangible lease liabilities, was 43.6%. 68 Table of Contents The following table provides a reconciliation of the notes payable and credit facility, net balance, as reported on our consolidated balance sheet, to net debt as of December 31, 2020 (dollar amounts in thousands): Balance as of December 31, 2020 Credit facilities, notes payable and repurchase facilities, net $ 2,144,993 Deferred costs and net premiums (1) 4,983 Less: Cash and cash equivalents (121,385) Net debt $ 2,028,591 Gross real estate and related assets, net (2) $ 4,649,426 Net debt leverage ratio 43.6 % ______________________ (1) Deferred costs relate to mortgage notes payable and the term portion of the Credit Facilities. (2) Net of gross intangible lease liabilities. Includes gross assets held for sale, as well as real estate-related securities and loans held-for-investment principal balance, net of allowance for credit losses, of $949.1 million. Cash Flow Analysis Year Ended December 31, 2020 Compared to Year Ended December 31, 2019 Operating Activities. Net cash provided by operating activities decreased by $82.2 million for the year ended December 31, 2020, as compared to the same period in 2019. The change was primarily due to lower net income after non-cash adjustments due to the disposition of 30 properties during the year ended December 31, 2020, and the disposition of 497 properties during the year ended December 31, 2019. See “— Results of Operations” for a more complete discussion of the factors impacting our operating performance. Investing Activities. Net cash used in investing activities was $466.1 million for the year ended December 31, 2020, as compared to net cash provided by investing activities of $1.2 billion for the year ended December 31, 2019. The change was primarily due to a decrease in net proceeds from disposition of real estate assets of $1.1 billion resulting from the disposal of 30 properties during the year ended December 31, 2020, as compared to the disposal of 497 properties during the year ended December 31, 2019. The decrease was also due to the net investment in broadly syndicated loans and real estate-related securities of $614.1 million, partially offset by net proceeds from the sale of loans held-for investments of $80.7 million during the year ended December 31, 2020. Financing Activities. Net cash provided by financing activities was $14.8 million for the year ended December 31, 2020, as compared to net cash used in financing activities of $910.2 million for the year ended December 31, 2019. The change was primarily due to an increase in net proceeds on the credit facilities, notes payable and repurchase facilities of $871.5 million as a result of entering into the Credit Securities Revolver and the Repurchase Facilities (as defined in Note 9 — Credit Facilities, Notes Payable and Repurchase Facilities to our consolidated financial statements in this Annual Report on Form 10-K) and the repayment of debt obligations as part of the Mergers during the year ended December 31, 2020, coupled with decreases in distributions to stockholders and redemptions of common stock resulting from the Board’s suspension of the Amended Share Redemption Program. Election as a REIT We elected to be taxed, and currently qualify, as a REIT for federal income tax purposes commencing with our taxable year ended December 31, 2012. To maintain our qualification as a REIT, we must continue to meet certain requirements relating to our organization, sources of income, nature of assets, distributions of income to our stockholders and recordkeeping. As a REIT, we generally are not subject to federal income tax on taxable income that we distribute to our stockholders so long as we distribute at least 90% of our annual taxable income (computed without regard to the dividends paid deduction and excluding net capital gains). If we fail to maintain our qualification as a REIT for any reason in a taxable year and applicable relief provisions do not apply, we will be subject to tax on our taxable income at regular corporate rates. We will not be able to deduct distributions paid to our stockholders in any year in which we fail to maintain our qualification as a REIT. We also will be disqualified for the four taxable years following the year during which qualification was lost, unless we are entitled to relief under specific statutory provisions. Such an event could materially adversely affect our net income and net cash available for distribution to stockholders. However, we believe that we are organized and operate in such a manner as to maintain our qualification as a REIT for federal income tax purposes. No provision for federal income taxes has been made in our accompanying consolidated 69 financial statements. We are subject to certain state and local taxes related to the operations of properties in certain locations, which have been provided for in our accompanying consolidated financial statements. Inflation We are exposed to inflation risk as income from long-term leases is the primary source of our cash flows from operations. There are, and we expect that there will continue to be, provisions in many of our tenant leases that are intended to protect us from, and mitigate the risk of, the impact of inflation. These provisions include rent steps and clauses enabling us to receive payment of additional rent calculated as a percentage of the tenant’s gross sales above pre-determined thresholds. In addition, most of our leases require the tenant to pay all or a majority of the property’s operating expenses, including real estate taxes, special assessments and sales and use taxes, utilities, insurance and building repairs. However, because of the long-term nature of leases for real property, such leases may not reset frequently enough to adequately offset the effects of inflation. Related-Party Transactions and Agreements We have entered into agreements with CMFT Management or its affiliates whereby we agree to pay certain fees to, or reimburse certain expenses of, CMFT Management or its affiliates such as acquisition and advisory fees and expenses, organization and offering costs, leasing fees and reimbursement of certain operating costs. See Note 12 — Related-Party Transactions and Arrangements to our consolidated financial statements in this Annual Report on Form 10-K for a discussion of the various related-party transactions, agreements and fees. Conflicts of Interest Richard S. Ressler, the chairman of our Board, chief executive officer and president, who is also a founder and principal of CIM and is an officer/director of certain of its affiliates including CMFT Management, is the chairman of the board, chief executive officer and president of CIM Income NAV. One of our directors, Avraham Shemesh, who is also a founder and principal of CIM and is an officer/director of certain of its affiliates including CMFT Management, serves as a director of CIM Income NAV. One of our directors, Elaine Y. Wong, who is a principal of CIM, also serves as a director of CIM Income NAV. One of our independent directors, W. Brian Kretzmer, also serves as an independent director of CIM Income NAV. Nathan D. DeBacker, our chief financial officer and treasurer, who is also an officer of other real estate programs sponsored by CCO Group, is a vice president of CMFT Management and is an officer of certain of its affiliates. In addition, affiliates of CMFT Management act as an advisor to CIM Income NAV. As such, there may be conflicts of interest where CMFT Management or its affiliates, while serving in the capacity as sponsor, general partner, officer, director, key personnel and/or advisor for CIM or another real estate program sponsored or operated by CIM or CCO Group, including other real estate offerings in registration, may be in conflict with us in connection with providing services to other real estate-related programs related to property acquisitions, property dispositions, and property management, among others. The compensation arrangements between affiliates of CMFT Management and these other real estate programs sponsored or operated by CCO Group could influence the advice provided to us. See Part I, Item 1. Business — Conflicts of Interest of this Annual Report on Form 10-K. Off-Balance Sheet Arrangements As of December 31, 2020 and 2019, we had no material off-balance sheet arrangements that had or are reasonably likely to have a current or future effect on our financial condition, results of operations, liquidity or capital resources. 70 Table of Contents Critical Accounting Policies and Significant Accounting Estimates Our accounting policies have been established to conform with GAAP. The preparation of financial statements in conformity with GAAP requires us to use judgment in the application of accounting policies, including making estimates and assumptions. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Management believes that we have made these estimates and assumptions in an appropriate manner and in a way that accurately reflects our financial condition. We continually test and evaluate these estimates and assumptions using our historical knowledge of the business, as well as other factors, to ensure that they are reasonable for reporting purposes. However, actual results may differ from these estimates and assumptions. If our judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied, thus resulting in a different presentation of the financial statements. Additionally, other companies may utilize different estimates that may impact comparability of our results of operations to those of companies in similar businesses. We believe the following critical accounting policies govern the significant judgments and estimates used in the preparation of our financial statements, which should be read in conjunction with the more complete discussion of our accounting policies and procedures included in Note 2 — Summary of Significant Accounting Policies to our consolidated financial statements in this Annual Report on Form 10-K. Recoverability of Real Estate Assets We acquire real estate assets and subsequently monitor those assets quarterly for impairment, including the review of real estate properties subject to direct financing leases, if applicable. Additionally, we record depreciation and amortization related to our assets. The risks and uncertainties involved in applying the principles related to real estate assets include, but are not limited to, the following: • The estimated useful lives of our depreciable assets affects the amount of depreciation and amortization recognized on our assets; • The review of impairment indicators and subsequent determination of the undiscounted future cash flows could require us to reduce the carrying value of assets held and used to a fair value estimated by management and recognize an impairment loss. The process for evaluating real estate impairment requires management to make significant assumptions related to certain inputs, including holding periods; • The fair value of held for sale assets is estimated by management. This estimated value could result in a reduction of the carrying value of the asset; and • Changes in assumptions based on actual results may have a material impact on our financial results. Allocation of Purchase Price of Real Estate Assets In connection with our acquisition of properties, we allocate the purchase price to the tangible and intangible assets and liabilities acquired based on their respective relative fair values. Tangible assets consist of land, buildings, fixtures and tenant improvements. Intangible assets consist of above- and below-market lease values and the value of in-place leases. Our purchase price allocations are developed utilizing third-party appraisal reports, industry standards and management experience. The risks and uncertainties involved in applying the principles related to purchase price allocations include, but are not limited to, the following: • The value allocated to land, as opposed to buildings, fixtures and tenant improvements, affects the amount of depreciation expense we record. If more value is attributed to land, depreciation expense is lower than if more value is attributed to buildings, fixtures and tenant improvements; • Intangible lease assets and liabilities can be significantly affected by estimates including market rent, lease terms including renewal options at rental rates below estimated market rental rates, carrying costs of the property during a hypothetical expected lease-up period, and current market conditions and costs, including tenant improvement allowances and rent concessions; and • We determine whether any financing assumed is above- or below-market based upon comparison to similar financing terms for similar types of debt financing with similar maturities. Allowance for Credit Losses We have elected to use a discounted cash flow model to estimate the allowance for credit losses. This model requires us to develop cash flows which project estimated credit losses over the life of the loan and discount these cash flows at the asset’s effective interest rate. We then record an allowance for credit losses equal to the difference between the amortized cost basis of the asset and the present value of the expected cash flows. 71 Table of Contents Recently Issued Accounting Pronouncements Recently issued accounting pronouncements are described in Note 2 — Summary of Significant Accounting Policies to our consolidated financial statements in this Annual Report on Form 10-K.