What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-05-17 compared with 2020-11-13 · 192 added, 255 removed, 232 unchanged (66% of the section changed)

25 unchanged sentences

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

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

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

• We may be affected by risks resulting from losses in excess of insured limits.

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• We may be unable to successfully reposition our portfolio or list our shares on a national securities exchange in the timeframe we expect or at all.

• We may be unable to achieve the cost synergies anticipated to result from the Mergers.

We use certain defined terms throughout this Quarterly Report on Form 10-Q that have the following meanings:

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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 advised and managed by CMFT Management.

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;

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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 continued to issue shares of common stock under the Secondary DRIP Offering until, on August 30, 2020, the Board suspended the Secondary DRIP Offering in connection with the our entry into the Merger Agreements.

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 with CCIT III and CCPT V.

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 94.3% of our rentable square feet was under lease, including any month-to-month agreements, as of September 30, 2020, with a weighted average remaining lease term of 8.5 years, we believe our exposure to changes in commercial rental rates on our portfolio is substantially mitigated, except for vacancies caused by tenant bankruptcies or other factors, including due to circumstances related to the COVID-19 pandemic.

Our advisor regularly monitors the creditworthiness of our tenants by reviewing each tenant’s financial results, any available credit rating agency reports on the tenant or guarantor, the operating history of the property with such tenant, the tenant’s market share and track record within its industry segment, the general health and outlook of the tenant’s industry segment and other information for changes and possible trends.

As 93.7% of our rentable square feet was under lease, including any month-to-month agreements, as of March 31, 2021, with a weighted average remaining lease term of 8.7 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.

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 September 30, 2020, we owned 380 properties, comprising 17.9 million rentable square feet of commercial space located in 42 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 that we would originate, acquire, finance and manage in which our sponsor and its affiliates have expertise.

As of September 30, 2020, our loan portfolio consisted of 173 loans with a net book value of $857.9 million.

As of September 30, 2020, we had $42.1 million of unsettled broadly syndicated loan purchases included in cash and cash equivalents in the accompanying condensed consolidated balance sheet.

Pursuant to our strategy, during the nine months ended September 30, 2020, we disposed of 19 properties, encompassing 1.2 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, 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 a 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 condensed consolidated balance sheets during the nine months ended September 30, 2020.

As of September 30, 2020, our portfolio consisted of 325 retail properties, 52 anchored shopping centers and three industrial properties representing 35 industry sectors.

See Note 4 — Real Estate Assets to the condensed consolidated financial statements in this Quarterly Report on Form 10-Q for a discussion of the disposition of individual properties during the nine months ended ended September 30, 2020.

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.

T he extent to which the COVID-19 pandemic continues to impact our operations and those of our tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others.

During the three and nine months ended September 30, 2020, we provided lease concessions, either in the form of rental deferrals or abatements, to certain tenants in response to the impact of the COVID-19 pandemic.

As of September 30, 2020, we granted total rent deferrals with an aggregate deferral amount o f $4.9 million .

Additionally, as of September 30, 2020, we granted rent abatements to tenants with an abatement amount of $2.8 million .

As of November 5, 2020, we have collected approximately 90% of rental payments billed to tenants during the three months ended September 30, 2020 .

Additionally, as of November 5, 2020, we have collected 96% of October rental payments billed to tenants.

We are actively managing our response to the COVID-19 pandemic in collaboration with our tenants and business partners and are assessing potential impacts to our financial position and operating results, as well as potential adverse developments in our business.

Given the relative stability of the Company’s rent collections and the per share NAV for the quarters ended March 31, 2020 and June 30, 2020, the Board determined that it is in the best interests of the Company and its stockholders to cease incurring the additional costs associated with quarterly valuations and return to updating the Company’s per share NAV on an annual basis in accordance with its valuation policies.

Further, in order to manage the financial health of the Company, our Board is making its determinations with respect to the declaration of distributions on a monthly, instead of quarterly basis, and has approved and adopted a Second Amended and Restated Distribution Reinvestment Plan (the “Amended DRIP”) and an Amended and Restated Share Redemption Program (the “Amended Share Redemption Program”) that, among other changes, provides that the Amended DRIP and the Amended Share Redemption Program may be suspended at any time by majority vote of the Board without prior notice if the Board believes such action is in the best interest of the Company and its stockholders.

In connection with the entry of the Company into the Merger Agreements, on August 30, 2020, the Board approved the suspension of the Amended DRIP and the Amended Share Redemption Program.

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

Pending Mergers

On August 30, 2020, we entered into the Merger Agreements.

Subject to the terms and conditions of the Merger Agreements, each of the Target REITs will merge into the applicable Merger Sub with the Merger Subs surviving the Mergers, such that following the Mergers, the surviving entity of each Merger will continue as our wholly owned subsidiary.

In accordance with the applicable provisions of the MGCL, the separate existence of each of the Target REITs shall cease at the effective time of the applicable Merger.

Neither of the Mergers is contingent upon the completion of the other.

At the effective time of the applicable Merger and subject to the terms and conditions of the applicable Merger Agreement, each issued and outstanding share of common stock of CCIT III and CCPT V, $0.01 par value per share, will be converted into the right to receive 1.098 and 2.892 shares of our common stock, $0.01 par value per share, respectively, subject to the treatment of fractional shares in accordance with the applicable Merger Agreement.

The combined company after the Mergers will retain the name CIM Real Estate Finance Trust, Inc.

Each of the Mergers is intended to qualify as a “reorganization” under, and within the meaning of, Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”).

For additional information on the Mergers, see Note 1 — Organization and Business to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q and our Current Reports on Form 8-K filed with the SEC on August 31, 2020, October 28, 2020, November 2, 2020 and November 4, 2020.

Also on August 30, 2020, we entered into the CCIT II Merger Agreement.

Prior to the CCIT II Stockholder Approval, CCIT II received an acquisition proposal that CCIT II’s board of directors determined to be a Superior Proposal.

As a result, on October 29, 2020, CCIT II terminated the CCIT II Merger Agreement in order to enter into an Alternative Acquisition Agreement with respect to such Superior Proposal.

In accordance with the termination of the CCIT II Merger Agreement, CCIT II paid us a termination fee of $7.38 million and agreed to pay us up to $3.69 million as reimbursement for our expenses.

As of March 31, 2021, we owned 515 properties, comprising 21.3 million rentable square feet of commercial space located in 45 states.

In addition, during the three months ended March 31, 2021, we completed foreclosure proceedings and took control of the assets which previously secured our mezzanine loans, including 75 condominium units and 21 rental units across four buildings.

We intend to continue 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 March 31, 2021, our loan portfolio consisted of 227 loans with a net book value of $1.0 billion.

As of March 31, 2021, we had $34.5 million of unsettled broadly syndicated loan purchases included in cash and cash equivalents, and investments in real estate-related securities of $67.2 million.

During the three months ended March 31, 2021, we disposed of one property, encompassing approximately 15,000 gross rentable square feet.

As of March 31, 2021, our real estate portfolio consisted of 454 retail properties, 56 anchored shopping centers, four industrial properties and one office property representing 35 industry sectors.

In addition, we acquired 75 condominium units and 21 rental units via foreclosure during the three months ended March 31, 2021.

We are closely monitoring the negative impacts that the COVID-19 pandemic and the efforts to mitigate its spread are having on the economy, our tenants and our business.

T he 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, the timing and pace of reopening efforts, and the direct and indirect economic effects of the pandemic and containment measures, among others.

During the three months ended March 31, 2021, 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.

During the three months ended March 31, 2021, we granted total rent deferrals with an aggregate deferral amount o f $431,000 .

Additionally, during the three months ended March 31, 2021, we granted rent abatements to tenants with an abatement amount of $248,000 .

As of May 6, 2021, we have collected approximately 98% of rental payments billed to tenants during the three months ended March 31, 2021 .

Additionally, as of May 6, 2021, we have collected 97% of April rental payments billed to tenants.

Operating Highlights and Key Performance Indicators

2021 Activity

• Completed foreclosure to take control of the assets which previously secured our mezzanine loans, including 75 condominium units and 21 rental units across four buildings.

• Invested $82.1 million in broadly syndicated loans and sold broadly syndicated loans for an aggregate gross sales price of $7.6 million.

• Received payment in full on one senior loan totaling $40.8 million.

• Acquired three commercial properties for an aggregate purchase price of $14.5 million.

• Disposed of 19 properties, consisting of 12 retail properties and seven anchored shopping centers, for an aggregate sales price of $199.2 million.

• Entered into two Repurchase Agreements that provide up to $800.0 million to finance a portfolio of existing and future CRE mortgage loans.

• Increased total debt by $242.1 million.

• Invested $28.5 million in CMBS.

• Disposed of one retail property for an aggregate sales price of $3.7 million.

• Increased total debt by $299.6 million, from $2.1 billion to $2.4 billion.

Portfolio Information

As of September 30, 2020, we owned 380 properties located in 42 states, the gross rentable square feet of which was 94.3% leased, including any month-to-month agreements, with a weighted average lease term remaining of 8.5 years.

As of September 30, 2020, no single tenant accounted for greater than 10% of our 2020 annualized rental income.

As of September 30, 2020, we had certain geographic and industry concentrations in our property holdings.

In particular, 48 of our properties were located in California and 20 of our properties were located in Georgia, which accounted for 11% and 10%, respectively, of our 2020 annualized rental income.

In addition, we had tenants in the sporting goods, home and garden and discount store industries, which accounted for 13%, 12% and 10%, respectively, of our 2020 annualized rental income.

The following table shows the property statistics of our real estate assets as of September 30, 2020 and 2019:

As of September 30,

The following table shows the carrying value of our portfolio by investment type as of March 31, 2021 and 2020 (dollar amounts in thousands):

As of March 31,

Asset Count Carrying Value Asset Count Carrying Value

Loan Held-For-Investment

Mezzanine loans — $ — — % 8 $ 140,061 4.3 %

Senior loans 6 525,447 11.6 % 3 153,870 4.7 %

Broadly syndicated loans 221 496,832 11.0 % 113 333,449 10.2 %

Allowance for credit losses (12,888) (0.3) % (19,779) (0.6) %

Total loans held-for-investment and related receivable, net 227 1,009,391 22.3 % 124 607,601 18.6 %

Real Estate-Related Securities

CMBS 5 67,222 1.5 % — — — %

Total real estate assets and intangible lease liabilities, net 515 3,450,076 76.2 % 384 2,655,882 81.4 %

Total Investment Portfolio 747 $ 4,526,689 100.0 % 508 $ 3,263,483 100.0 %

The following table details overall statistics of our credit portfolio as of March 31, 2021 (dollar amounts in thousands):

Senior Loans (1) (2)

Broadly Syndicated Loans CMBS

Number of loans 6 221 5

Net book value $ 521,562 $ 487,829 $ 67,222

Weighted-average interest rate 4.9 % 3.6 % 6.8 %

Weighted-average maximum years to maturity 2.6 5.0 19.5

____________________________________

(1) As of March 31, 2021, 100% of 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 March 31, 2021, we owned 515 properties located in 45 states, the gross rentable square feet of which was 93.7% leased, including any month-to-month agreements, with a weighted average lease term remaining of 8.7 years.

As of March 31, 2021, no single tenant accounted for greater than 10% of our 2021 annualized rental income.

As of March 31, 2021, we had certain geographic and industry concentrations in our property holdings.

In particular, 61 of our properties were located in California, which accounted for 11% of our 2021 annualized rental income.

In addition, we had tenants in the sporting goods, home and garden and general merchandise store industries, which accounted for 12%, 11% and 10%, respectively, of our 2021 annualized rental income.

The following table shows the property statistics of our real estate assets as of March 31, 2021 and 2020:

As of March 31,

Number of commercial properties 515 384

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The weighted average credit rating is weighted based on annualized rental income and is for only those tenants rated by Standard & Poor’s.

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Commercial properties acquired 2 1 3 1

Purchase price of acquired properties (in thousands)

$ 9,851 $ 6,165 $ 14,510 $ 6,165

Rentable square feet (in thousands) (1)

____________________________________

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

During the three months ended March 31, 2021 and 2020, the Company did not acquire any properties.

Results of Operations

We are not aware of any material trends or uncertainties, other than those listed in the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2019 and this Quarterly Report on Form 10-Q, the effects of the recent outbreak of COVID-19, and national economic conditions affecting real estate in general, that may reasonably be expected to have a material impact on our results from the acquisition, management and operation of properties.

We are not aware of any material trends or uncertainties, other than those listed in the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2020 and this Quarterly Report on Form 10-Q, the effects of the COVID-19 pandemic, and national economic conditions affecting real estate in general that may reasonably be expected to have a material impact on our results from the acquisition, management and operation of properties.

Currently, we are unable to predict the impact that the COVID-19 pandemic will have on our financial condition, results of operations and cash flows in future periods due to numerous uncertainties.

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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.

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

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

For the Three Months Ended September 30,

Comparison of the Three Months Ended March 31, 2021 and 2020

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

For the Three Months Ended March 31,

2021 2020 Change

Net income $ 4,179 $ 2,573 $ 1,606

Net loss $ (2,753) $ (12,175) $ 9,422

Loss on extinguishment of debt — 4,382 (4,382)

3 unchanged sentences

Provision for credit losses 568 17,777 (17,209)

Impairment 476 24,008 (23,532)

Real estate impairment 4,300 11,676 (7,376)

Depreciation and amortization 25,738 20,823 4,915

Transaction-related expenses 185 252 (67)

Merger-related expenses 1,207 — 1,207

Management and advisory fees and expenses 13,014 11,090 1,924

2 unchanged sentences

Net operating income $ 54,592 $ 54,593 $ (1)

A total of 375 properties were acquired before July 1, 2019 and represent our “same store” properties during the three months ended September 30, 2020 and 2019.

“Non-same store” properties, for purposes of the table below, includes properties acquired or disposed of on or after July 1, 2019.

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

Total Same Store Non-Same Store

For the Three Months Ended September 30,

2020 2019 Change 2020 2019 Change 2020 2019 Change

Rental and other property income $ 66,011 $ 99,552 $ (33,541) $ 64,524 $ 64,544 $ (20) $ 1,487 $ 35,008 $ (33,521)

Property operating expenses 5,214 7,199 (1,985) 5,045 5,227 (182) 169 1,972 (1,803)

Real estate tax expenses 6,566 8,933 (2,367) 6,466 6,398 68 100 2,535 (2,435)

Total property operating expenses 11,780 16,132 (4,352) 11,511 11,625 (114) 269 4,507 (4,238)

Net operating income $ 54,231 $ 83,420 $ (29,189) $ 53,013 $ 52,919 $ 94 $ 1,218 $ 30,501 $ (29,283)

Loss on Extinguishment of Debt

The decrease in loss on extinguishment of debt of $2.2 million for the three months ended September 30, 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 three months ended September 30, 2020.

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 $8.7 million for the three months ended September 30, 2020, as compared to the same period in 2019, was primarily due to a decrease in the average aggregate amount of debt outstanding from $2.4 billion as of September 30, 2019 to $1.8 billion as of September 30, 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 4.0% as of September 30, 2019 to 3.3% as of September 30, 2020.

Gain on Disposition of Real Estate, Net

The decrease in gain on disposition of real estate, net, of $2.6 million during the three months ended September 30, 2020, as compared to the same period in 2019, was primarily due to the disposition of three properties for a gain of $3.2 million during the three months ended September 30, 2020 compared to the disposition of four properties for a gain of $5.8 million during the three months ended September 30, 2019.

Provision for Credit Losses

The increase in provision for credit losses of $7.4 million during the three months ended September 30, 2020, as compared to the same period in 2019, was primarily due to 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 $7.4 million in credit losses during the three months ended September 30, 2020.

No such losses were recorded during the three months ended September 30, 2019.

Impairments decreased $23.5 million during the three months ended September 30, 2020, as compared to the same period in 2019, due to one property that were deemed to be impaired, resulting in impairment charges of $476,000 during the three months ended September 30, 2020, compared to 13 properties that were deemed to be impaired, resulting in impairment charges of $24.0 million during the three months ended September 30, 2019.

Depreciation and Amortization

The decrease in depreciation and amortization of $6.8 million during the three months ended September 30, 2020, as compared to the same period in 2019, was primarily due to the disposition of 473 properties subsequent to September 30, 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 advisor reimbursements for disposition activities, are expensed as incurred.

The decrease in transaction-related expenses of $235,000 during the three months ended September 30, 2020, as compared to the same period in 2019, was primarily due to a decrease in reimbursements to our advisor for expenses related to the three dispositions that occurred during the three months ended September 30, 2020 for an aggregate sales price of $38.5 million, compared to such expenses related to the four dispositions that occurred during the three months ended September 30, 2019 for an aggregate gross sales price of $38.4 million.

Merger-Related Expenses

In connection with the Mergers, we incurred consulting fees of $1.2 million during the three months ended September 30, 2020.

No such fees were incurred during the three months ended September 30, 2019.

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 advisory services, subject to limitations as set forth in the Management Agreement (as discussed in Note 12 — Related-Party Transactions and Arrangements to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q).

Furthermore, as discussed in Note 12 — Related-Party Transactions and Arrangements to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q, pursuant to the

Investment Advisory and Management Agreement, for management of investments in the Managed Assets, 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 $82,000 during the three months ended September 30, 2020, as compared to the same period in 2019, was primarily due to the management fee we began paying CMFT Management beginning on August 20, 2019.

During three months ended September 30, 2020, we incurred management fees of $10.1 million.

General and Administrative Expenses

The primary general and administrative expense items are certain expense reimbursements to our advisor, escrow and trustee fees, bank services charges, state franchise and income taxes, and accounting fees.

The increase in general and administrative expenses of $128,000 for the three months ended September 30, 2020, compared to the same period in 2019, was primarily due to an increase in operating expense reimbursements to our advisor.

Our operating segments include credit and real estate.

Refer to Note 16 — Segment Reporting for further discussion of our operating segments.

Credit Segment

Interest Income

The increase in interest income of $704,000 for the three months ended September 30, 2020, compared to the same period in 2019, was due to the origination and acquisition of four CRE loans held-for-investment and 161 broadly syndicated loans subsequent to September 30, 2019.

Net Operating Income

Same store property net operating income remained generally consistent during the three months ended September 30, 2020, as compared to the same period in 2019.

Overall same store occupancy decreased from 95.6% as of September 30, 2019 to 94.3% as of September 30, 2020, which was offset by a net increase in rental income at the same store properties.

Non-same store property net operating income decreased $29.3 million during the three months ended 2020, as compared to the same period in 2019.

The decrease is primarily due to the disposition of 473 properties subsequent to September 30, 2019.

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

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

For the Nine Months Ended September 30,

2020 2019 Change

Net (loss) income $ (11,742) $ 20,430 $ (32,172)

Loss on extinguishment of debt 4,841 2,302 2,539

Interest expense and other, net 47,240 75,958 (28,718)

Operating income 40,339 98,690 (58,351)

Gain on disposition of real estate, net (20,120) (19,190) (930)

The increase in interest income of $6.4 million for the three months ended March 31, 2021, compared to the same period in 2020, was due to an increase in credit investments.

As of March 31, 2021, we held investments in 221 broadly syndicated loans, six CRE loans held-for-investment and five CMBS.

As of March 31, 2020, we held investments in 113 broadly syndicated loans and 11 CRE loans held-for-investment.

Provision for Credit Losses

Impairment 15,983 57,163 (41,180)

Depreciation and amortization 60,486 88,900 (28,414)

Transaction-related expenses 730 2,091 (1,361)

Merger-related expenses 1,207 — 1,207

Management and advisory fees and expenses 33,422 31,062 2,360

General and administrative expenses 11,679 10,374 1,305

Interest income (19,395) (15,504) (3,891)

Net operating income $ 157,368 $ 253,586 $ (96,218)

A total of 374 properties were acquired before January 1, 2019 and represent our “same store” properties during the nine months ended September 30, 2020 and 2019.

The decrease in provision for credit losses of $17.2 million during the three months ended March 31, 2021, as compared to the same period in 2020 was primarily due to the foreclosure of the assets securing the Company’s mezzanine loans.

During the three months ended March 31, 2020, the borrower on the Company’s eight mezzanine loans remained delinquent on the required reserve payments and became delinquent on principal and interest, resulting in the Company recording $13.0 million in credit losses related to the mezzanine loans.

Upon completing foreclosure proceedings in January 2021, the Company took control of the assets which previously secured the loans, and as such, a provision for credit losses related to the mezzanine loans was not recorded for the three months ended March 31, 2021.

Real Estate Segment

A total of 368 properties were acquired before January 1, 2020 and represent our “same store” properties during the three months ended March 31, 2021 and 2020.

“Non-same store” properties, for purposes of the table below, includes properties acquired or disposed of on or after January 1, 2020.

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Total Same Store Non-Same Store

For the Nine Months Ended September 30,

For the Three Months Ended March 31,

2021 2020 Change 2021 2020 Change 2021 2020 Change

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Loss on Extinguishment of Debt

The increase in loss on extinguishment of debt of $2.5 million for the nine months ended September 30, 2020, as compared to the same period in 2019, was due to an increase in the number of mortgage notes terminated in connection with the disposition of the underlying properties during the nine months ended September 30, 2020.

Loss on extinguishment of debt decreased $4.4 million for the three months ended March 31, 2021, as compared to the same period in 2020.

During the three months ended March 31, 2020, we recorded losses on the extinguishment of mortgage loans with an aggregate carrying value of $97.0 million.

No such losses were recorded during the three months ended March 31, 2021.

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 $28.7 million for the nine months ended September 30, 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 as of September 30, 2019 to $1.7 billion as of September 30, 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 4.0% as of September 30, 2019 to 3.3% as of September 30, 2020.

The increase in interest expense and other, net, of $4.3 million for the three months ended March 31, 2021, as compared to the same period in 2020, was primarily due to an increase in the average aggregate amount of debt outstanding from $1.56 billion as of March 31, 2020 to $2.46 billion as of March 31, 2021, partially offset by a decrease in the weighted average interest rate from 3.8% as of March 31, 2020 to 2.8% as of March 31, 2021.

Gain on Disposition of Real Estate, Net

The increase in gain on disposition of real estate, net, of $930,000 during the nine months ended September 30, 2020, as compared to the same period in 2019, was primarily due to the disposition of 19 properties for a gain of $20.1 million during the nine months ended September 30, 2020 compared to the disposition of 43 properties for a gain of $19.2 million during the nine months ended September 30, 2019.

Provision for Credit Losses

The increase in provision for credit losses of $33.0 million during the nine months ended September 30, 2020, as compared to the same period in 2019, was primarily due to management’s determination that the Company’s mezzanine loans had an amortized cost basis greater than the fair value of the collateral on the loans, resulting in $33.0 million in credit losses during the nine months ended September 30, 2020.

Additionally, the increase was due to the Company’s adoption of ASU 2016-13 on January 1, 2020.

No such losses were recorded during the nine months ended September 30, 2019.

Impairments decreased $41.2 million during the nine months ended September 30, 2020, as compared to the same period in 2019, due to 11 properties that were deemed to be impaired, resulting in impairment charges of $16.0 million during the nine months ended September 30, 2020, compared to 26 properties that were deemed to be impaired, resulting in impairment charges of $57.2 million during the nine months ended September 30, 2019.

The decrease in gain on disposition of real estate, net, of $13.1 million during the three months ended March 31, 2021, as compared to the same period in 2020, was primarily due to the disposition of one property with no gain or loss recognized during the three months ended March 31, 2021 compared to the disposition of 12 properties for a gain of $13.1 million during the three months ended March 31, 2020.

Real Estate Impairment

The decrease in real estate impairments of $7.4 million during the three months ended March 31, 2021, as compared to the same period in 2020, was due to five properties that were deemed to be impaired, resulting in impairment charges of $4.3 million during the three months ended March 31, 2021, compared to seven properties that were deemed to be impaired, resulting in impairment charges of $11.7 million during the three months ended March 31, 2020.

Depreciation and Amortization

The decrease in depreciation and amortization of $28.4 million during the nine months ended September 30, 2020, as compared to the same period in 2019, was primarily due to the disposition of 473 properties subsequent to September 30, 2019, offset by recognizing a full period of depreciation and amortization expenses on the one property acquired in 2019.

The increase in depreciation and amortization of $4.9 million during the three months ended March 31, 2021, as compared to the same period in 2020, was primarily due to the acquisition of 146 properties in connection with the Mergers that closed in December 2020, partially offset by the disposition of 19 properties subsequent to March 31, 2020.

Transaction-Related Expenses

The decrease in transaction-related expenses of $1.4 million during the nine months ended September 30, 2020, as compared to the same period in 2019, was primarily due to a decrease in reimbursements to our advisor for expenses related to the 19 dispositions that occurred during the nine months ended September 30, 2020 for an aggregate sales price of $199.2 million, compared to such expenses related to the 43 dispositions that occurred during the nine months ended September 30, 2019 for an aggregate gross sales price of $202.3 million.

Merger-Related Expenses

In connection with the Mergers, we incurred consulting fees of $1.2 million during the nine months ended September 30, 2020.

No such fees were incurred during the three months ended September 30, 2019.

Transaction-related expenses include manager reimbursements for acquisition and disposition activities.

Transaction-related expenses remained generally consistent during the three months ended March 31, 2021, as compared to the same period in 2020.

Management and Advisory Fees and Expenses

The increase in management and advisory fees and expenses of $2.4 million during the nine months ended September 30, 2020, as compared to the same period in 2019, was primarily due to the management fee we began paying CMFT Management beginning on August 20, 2019.

During the nine months ended September 30, 2020, we incurred management fees of $29.7 million.

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 to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q).

Furthermore, as discussed in Note 12 — Related-Party Transactions and Arrangements to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q, 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.

The increase in management and advisory fees and expenses of $1.9 million during the three months ended March 31, 2021, as compared to the same period in 2020, was primarily due to an increase in manager expense reimbursements.

Additionally, we incurred management fees of $11.6 million during the three months ended March 31, 2021, as compared to $11.1 million in management fees during the same period 2020.

General and Administrative Expenses

The increase in general and administrative expenses of $1.3 million for the nine months ended September 30, 2020, compared to the same period in 2019, was primarily due to an increase in operating expense reimbursements to our advisor.

Interest income

The increase in interest income of $3.9 million for the nine months ended September 30, 2020, compared to the same period in 2019, was due to the origination and acquisition of four CRE loans held-for-investment and 161 broadly syndicated loans subsequent to September 30, 2019.

The primary general and administrative expense items are certain expense reimbursements to our manager, banking fees and transfer agency costs.

The increase in general and administrative expenses of $1.8 million for the three months ended March 31, 2021, as compared to the same period in 2020, was primarily due to an increase in legal costs related to the foreclosure completed in January 2021 to take control of the assets securing the Company’s mezzanine loans, as discussed in Note 7 — Loans Held-For-Investment to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q.

Net Operating Income

Same store property net operating income decreased $6.5 million during the nine months ended September 30, 2020, as compared to the same period in 2019.

The decrease was primarily due to reductions in rental and other property income of $5.1 million for amounts deemed not probable of collection at 43 properties during the nine months ended September 30, 2020 due to the impact of the COVID-19 pandemic.

Additionally, overall same store occupancy was 94.3% as of September 30, 2020, compared to 95.7% as of September 30, 2019.

Non-same store property net operating income decreased $89.7 million during the nine months ended 2020, as compared to the same period in 2019.

The decrease is primarily due to the disposition of 473 properties subsequent to September 30, 2019.

Same store property net operating income decreased $2.5 million during the three months ended March 31, 2021, as compared to the same period in 2020.

The change was primarily due to a reduction in same store occupancy to 92.8% as of March 31, 2021, compared to 94.9% as of March 31, 2020, resulting in a $1.5 million decrease in net operating income.

Additionally, the bankruptcy of one tenant resulted in a decrease in rental income of $805,000.

Non-same store property net operating income increased $2.5 million during the three months ended March 31, 2021, as compared to the same period in 2020.

The increase was primarily due to the acquisition of 146 properties in connection with the Mergers that closed December 2020, and the disposition of 19 properties subsequent to March 31, 2020.

Distributions

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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 have greater visibility into the impact that the COVID-19 pandemic will have on our tenants’ ability to continue to pay rent on their leases on a timely basis or at all, the degree to which federal, state or local governmental authorities grant rent relief or other relief or amnesty programs applicable to our tenants, our ability to access the capital markets, and on the United States and worldwide financial markets and economy.

After April 1, 2020, our Board authorized the following monthly distribution amounts per share for the periods indicated below:

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:

Record Date Distribution Amount

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November 27, 2020 $0.0303

As of September 30, 2020, we had distributions payable of $9.4 million.

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 March 31, 2021, we had distributions payable of $11.0 million.

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

Nine Months Ended September 30,

Three Months Ended March 31,

Amount Percent Amount Percent

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$ 28,747 87 % $ 26,770 (2) 55 %

Proceeds from the issuance of common stock 8,308 (3) 9 % — — %

Proceeds from the issuance of debt (3)

4,159 13 % 13,301 28 %

Proceeds from the issuance of common stock — — % 8,308 (4) 17 %

Total sources $ 32,906 100 % $ 48,379 100 %

____________________________________

(1) Net cash provided by operating activities for the nine months ended September 30, 2020 and 2019 was $67.6 million and $140.7 million, respectively.

(2) Our distributions covered by cash flows from operating activities for the nine months ended September 30, 2020 and 2019 include cash flows from operating activities in excess of distributions from prior periods of $9.6 million and $5.3 million, respectively.

(1) Net cash provided by operating activities for the three months ended March 31, 2021 and 2020 was $28.7 million and $17.1 million, respectively.

(2) Our distributions covered by cash flows from operating activities for the three months ended March 31, 2020 include cash flows from operating activities in excess of distributions from prior periods of $9.6 million.

(3) Net proceeds on the credit facilities and notes payable for the three months ended March 31, 2021 and 2020 were $197.0 million and $2.9 million, respectively.

(4) 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 nine months ended September 30, 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 nine months ended September 30, 2020 was $242.1 million.

Therefore, for consistency, proceeds from the issuance of common stock used as a source of distributions for the three months ended March 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.

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.

Our amended and restated share redemption program (the “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 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.

Any of the foregoing limits might prevent us from accommodating all redemption requests made in any fiscal quarter or in any 12-month period.

In connection with the Mergers, our Board suspended our Amended Share Redemption Program on August 30, 2020, and therefore, no shares will be redeemed from our stockholders after that date unless and until the Amended Share Redemption Program is reinstated.

During the nine months ended September 30, 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 September 30, 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 s hares went unfulfilled.

A valid redemption request is one that complies with the applicable requirements and guidelines of our Amended Share Redemption Program then in effect.

The share redemptions were funded with proceeds from the Secondary DRIP Offering.

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.

On March 25, 2021 our Board reinstated the Amended Share Redemption Program, effective April 1, 2021.

Liquidity and Capital Resources

We are continuing to closely monitor the outbreak of COVID-19 and its impact on our business, tenants, operating partners and the economy as a whole.

The COVID-19 pandemic has not had a material impact on our operations;

however, we cannot estimate the ultimate magnitude and duration of the pandemic and its impact on our future operations as of the filing date of our report.

If the outbreak continues on its current trajectory, such impacts could be material.

We expect to utilize proceeds from real estate dispositions, cash flows from operations and future proceeds from secured or unsecured financing to complete future acquisitions and for general corporate uses.

The sources of our operating cash flows will primarily be provided by the rental and other property income received from current and future leased properties.

Our Credit Facility provides for borrowings of up to $1.24 billion, which includes a $885.0 million unsecured Term Loan and up to $350.0 million in unsecured Revolving Loans.

As of September 30, 2020, we had $240.0 million in unused capacity under the Credit Facility, subject to borrowing availability.

We had available borrowings of $60.8 million as of September 30, 2020.

As of September 30, 2020, we also had cash and cash equivalents of $175.2 million, which included $42.1 million of unsettled broadly syndicated loan purchases.

Our Credit Securities Revolver provides for borrowings in an aggregate principal amount up to $500.0 million, which may be increased from time to time pursuant to the Credit and Security Agreement.

As of September 30, 2020, the amounts borrowed and outstanding under the Credit Securities Revolver totaled $176.5 million.

Our Repurchase Facilities provide up to $800.0 million of financing.

As of September 30, 2020, the Company had three senior loans with an aggregate carrying value of $256.1 million financed with $174.7 million under the Repurchase Facilities.

Subject to potential credit losses in the remainder of 2020 due to tenants that default on their leases, file bankruptcy and/or otherwise experience significant financial difficulty as a result of the COVID-19 pandemic, we expect to meet our short-term liquidity requirements through available cash, cash provided by property operations, proceeds from the DRIP Offering and borrowings from the Credit Facility or other sources.

Additionally, given the impact of the COVID-19 pandemic, our Board has decided to make a determination as to the amount and timing of distributions on a monthly, instead of a quarterly, basis until such time that we have greater visibility into the impact that the COVID-19 pandemic will have on our property valuations.

During the nine months ended September 30, 2020, our Board approved and adopted the Amended DRIP and the Amended Share Redemption Program that, among other changes, respectively provide that the Amended DRIP and the Amended Share Redemption Program may be suspended at any time by majority vote of the Board without prior notice if the Board believes such action is in the best interest of the Company and its stockholders.

As discussed above, in connection with the contemplated Merger, on August 30, 2020, the Board approved the suspension of the Amended DRIP and the Amended Share Redemption Program.

As of September 30, 2020, we believe that we were in compliance with the financial covenants of the Second Amended and Restated Credit Agreement, as well as the financial covenants under our various fixed and variable rate debt agreements, with the exception of two mortgage notes, as further discussed in Note 9 — Credit Facilities, Notes Payable and Repurchase Facilities to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q.

However, our continued compliance with these debt covenants depends on many factors, including rent collections, which is impacted by the current and future economic conditions related to the COVID-19 pandemic.

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, repayment of certain indebtedness 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 and interest income from our portfolio of credit investments.

As of March 31, 2021, the CMFT Credit Facility provided for borrowings of up to $1.24 billion, which includes the $885.0 million CMFT Term Loan and up to $350.0 million on the CMFT Revolving Loans.

The CCPT V Credit Facility provides for borrowings of $220.0 million under the CCPT V Term Loans and up to $130.0 million under the CCPT V Revolving Loans.

As of March 31, 2021, we had $430.0 million in unused capacity under the Credit Facilities, subject to borrowing availability.

We had available borrowings of $44.2 million as of March 31, 2021.

As of March 31, 2021, we also had cash and cash equivalents of $57.6 million, which included $34.5 million of unsettled broadly syndicated loan purchases.

As of March 31, 2021, the Credit and Security Agreement provided for borrowings in an aggregate principal amount up to $500.0 million under 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 March 31, 2021, the amounts borrowed and outstanding under the Credit Securities Revolver totaled $256.5 million.

As of March 31, 2021, the Citibank Repurchase Agreement provided up to $300.0 million under the Citibank Repurchase Facility.

Additionally, as of March 31, 2021, the Barclays Repurchase Agreement provided up to $500.0 million of financing primarily through the Barclays Repurchase Facility.

The Citibank Repurchase Agreement and the Barclays Repurchase Agreement provide for simultaneous agreements by Citibank and Barclays to re-sell 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 March 31, 2021, we had six senior loans with an aggregate carrying value of $525.4 million financed with $357.6 million under the Repurchase Facilities, $170.2 million of which was financed under the Barclays Repurchase Facility and $187.4 million of which was financed under the Citibank Repurchase Facility.

As of March 31, 2021, we believe that we were in compliance with the financial covenants of the CMFT 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, as further discussed in Note 9 — Credit Facilities, Notes Payable and Repurchase Facilities to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q.

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 $200.7 million within the next 12 months.

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.

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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 sale of its 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.

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.

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 credit investments 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 Facility and/or future borrowings on our unencumbered assets.

To the extent that cash flows from operations are lower due to fewer properties being

acquired or lower than expected returns on the properties, distributions paid to our stockholders may be lower.

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 September 30, 2020, we had debt outstanding with a carrying value of $1.9 billion and a weighted average interest rate of 3.3%.

As of March 31, 2021, we had debt outstanding with a carrying value of $2.4 billion and a weighted average interest rate of 2.8%.

See Note 9 — Credit Facilities, Notes Payable and Repurchase Facilities to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q for certain terms of our debt outstanding.

Our contractual obligations as of September 30, 2020 were as follows (in thousands):

Our contractual obligations as of March 31, 2021 were as follows (in thousands):

Payments due by period (1)

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42,498 19,134 22,467 897 —

Principal payments — variable rate debt 102,553 102,553 — — —

Interest payments — variable rate debt (4)

587 587 — — —

Principal payments — credit facilities (5)

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(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 $171,000 as of September 30, 2020.

(3) As of September 30, 2020, we had $53.6 million of variable rate debt effectively fixed through the use of interest rate swap agreements.

(3) As of March 31, 2021, 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 September 30, 2020, the Term Loan outstanding totaled $885.0 million, $811.7 million of which is subject to interest rate swap agreements.

As of September 30, 2020, the weighted average all-in interest rate for the Swapped Term Loan was 3.7%.

The remaining $183.3 million outstanding under the Credit Facility had a weighted average interest rate of 1.8% as of September 30, 2020.

As of September 30, 2020, the amounts outstanding under the Credit Securities Revolver totaled $176.5 million and had a weighted average interest rate of 2.0%.

(5) As of September 30, 2020, the amount outstanding under the Citibank Repurchase Facility was $74.5 million at a weighted average interest rate of 2.2%, and the amount outstanding under the Barclays Repurchase Facility was $100.2 million at a weighted average interest rate of 2.9%.

(4) As of March 31, 2021, we had variable rate debt outstanding of $102.6 million with a weighted average interest rate of 5.5%.

We used the weighted average interest rate to calculate the debt payment obligations in future periods.

(5) As of March 31, 2021, the Term Loans outstanding totaled $1.1 billion, $220.0 million of which is subject to interest rate swap agreements.

As of March 31, 2021, the weighted average all-in interest rate for the Swapped Term Loans was 4.2%.

The remaining $935.0 million outstanding under the Credit Facilities had a weighted average interest rate of 1.9% as of March 31, 2021.

As of March 31, 2021, the amounts outstanding under the Credit Securities Revolver totaled $256.5 million and had a weighted average interest rate of 1.9%.

(6) As of March 31, 2021, the amount outstanding under the Citibank Repurchase Facility was $187.4 million at a weighted average interest rate of 2.2%, and the amount outstanding under the Barclays Repurchase Facility was $170.2 million at a weighted average interest rate of 2.7%.

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.

Consistent with CMFT Management’s approach toward the moderate use of leverage, our Board has adopted a policy to further limit our borrowings to 60% of the greater of cost (before deducting depreciation or other non-cash reserves) or fair market value of our gross assets, unless excess borrowing is approved by a majority of the independent directors and disclosed to our stockholders in the next quarterly report along with a justification for such excess borrowing.

As of September 30, 2020, our ratio of debt to total gross assets net of gross intangible lease liabilities was 47.1% and our ratio of debt to the fair market value of our gross assets net of gross intangible lease liabilities was 47.5%.

Fair market value is based on the estimated market value of our real estate assets as of June 30, 2020 that were used to determine our estimated per share NAV, and for those assets acquired from July 1, 2020 through September 30, 2020 is based on the purchase price.

As of March 31, 2021, our ratio of debt to total gross assets net of gross intangible lease liabilities was 49.0% and our ratio of debt to the fair market value of our gross assets net of gross intangible lease liabilities was 49.5%.

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 September 30, 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 42.6%.

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

As of March 31, 2021, 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 47.8%.

The following table provides a reconciliation of the notes payable and credit facility, net balance, as reported on our condensed consolidated balance sheet, to net debt as of March 31, 2021 (dollar amounts in thousands):

Balance as of

September 30, 2020

March 31, 2021

Credit facilities, notes payable and repurchase facilities, net $ 2,445,246

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(1) Deferred costs relate to mortgage notes payable and the term portion of the Credit Facility.

(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, real estate-related securities and loans held-for-investment principal balance, net of allowance for credit losses, of $951.6 million.

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 $1.1 billion.

Cash Flow Analysis

Operating Activities.

Net cash provided by operating activities decreased by $73.2 million for the nine months ended September 30, 2020, as compared to the same period in 2019.

The decrease was primarily due to lower net income after non-cash adjustments due to the disposition of 473 properties subsequent to September 30, 2019.

Net cash provided by operating activities increased by $11.6 million for the three months ended March 31, 2021, as compared to the same period in 2020.

The increase was primarily due to the acquisition of 146 properties in connection with the Mergers that closed in December 2020, partially offset by lower net income after non-cash adjustments primarily resulting from foreclosure of the assets which previously secured the Company’s mezzanine loans during the three months ended March 31, 2021.

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 $488.9 million for the nine months ended September 30, 2020, as compared to net cash provided by investing activities of $87.6 million for the nine months ended September 30, 2019.

The change was primarily due to the net investment in broadly syndicated loans and real estate-related securities of $524.3 million, in addition to an increase in net investments in loans held-for investments of $52.6 million during the nine months ended September 30, 2020, compared to the same period in 2019.

Net cash used in investing activities increased $43.0 million for the three months ended March 31, 2021, as compared to the same period in 2020.

The change was primarily due to a decrease in proceeds from disposition of real estate assets of $123.1 million and an increase in the net investment in loans held-for-investment of $138.0 million, partially offset by a decrease in the net investment in broadly syndicated loans and real estate-related securities of $227.5 million.

Financing Activities.

Net cash provided by financing activities was $129.1 million for the nine months ended September 30, 2020, as compared to net cash used in financing activities of $230.1 million for the nine months ended September 30, 2019.

The change was primarily due to an increase in net proceeds on the credit facilities, notes payable and repurchase facilities of $324.8 million as a result of entering into the Credit Securities Revolver and the Repurchase Facilities subsequent to September 30, 2019, coupled with decreases in distributions to stockholders and redemptions of common stock resulting from the Board’s suspension of the Amended DRIP and the Amended Share Redemption Program.

Net cash provided by financing activities was $163.3 million for the three months ended March 31, 2021, as compared to net cash used in financing activities of $45.9 million for the three months ended March 31, 2020.

The change was primarily due to an increase in net proceeds on the credit facilities, notes payable and repurchase facilities of $194.2 million as a result of entering into the Repurchase Facilities subsequent to March 31, 2020, coupled with a decrease in

redemptions of common stock of $19.5 million resulting from the Board’s suspension of the Amended Share Redemption Program.

Election as a REIT

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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 condensed consolidated financial statements.

Critical Accounting Policies and Estimates

Critical Accounting Policies and Significant Accounting Estimates

Our accounting policies have been established to conform with GAAP.

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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 audited consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2020.

Additionally, as a result of our adoption of ASU 2016-13 during the nine months ended September 30, 2020, we updated our critical accounting policies to include allowance for credit losses.

For additional information on our allowance for credit losses, see Note 2 — Summary of Significant Accounting Policies to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q.

We consider our critical accounting policies to be the following:

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Impairment indicators that we consider include, but are not limited to:

bankruptcy or other credit concerns of a property’s major tenant, such as a history of late payments, lease concessions and other factors, all of which are heightened concerns as a result of the economic impact caused by the COVID-19 outbreak;

bankruptcy or other credit concerns of a property’s major tenant, such as a history of late payments, lease concessions and other factors;

a significant decrease in a property’s revenues due to lease terminations;

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reduced lease rates;

changes in anticipated holding periods;

or other circumstances.

or changes in anticipated holding periods.

We continue to evaluate our portfolio to determine if anticipated holding periods for certain properties may materially differ from the initial intended holding periods for such properties, which could result in an impairment charge in the future.

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.

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 management 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 condensed consolidated financial statements in this Quarterly Report on Form 10-Q for a discussion of the various related-party transactions, agreements and fees.

Conflicts of Interest

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, is the chairman of the board, chief executive officer and president of CCIT III and CIM Income NAV, a director of CCIT II and vice president of CMFT Management.

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, serves as the chairman of the board of CCIT II and CCPT V and as a director of CCIT III and CIM Income NAV, and is president and treasurer of CMFT Management.

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 CCIT II, CCPT V and CIM Income NAV.

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 CCIT III and CIM Income NAV.

Another one of our independent directors, Howard A.

Silver, also serves as an independent director of CCIT III.

Brian Kretzmer, also serves as an independent director of CIM Income NAV.

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 CCPT V, CCIT II, CCIT III and CIM Income NAV,

all of which are public, non-listed REITs sponsored or operated by CCO Group.

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.

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Off-Balance Sheet Arrangements

As of September 30, 2020 and December 31, 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.

As of March 31, 2021 and December 31, 2020, 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.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis