CIM GROUP, INC. 10-Q

Item 1. Financial Statements CIM REAL ESTATE FINANCE TRUST, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share amounts) (Unaudited) March 31, 2021 December 31, 2020 ASSETS Real estate assets: Land $ 874,610 $ 881,896 Buildings, fixtures and improvements 2,463,130 2,490,030 Intangible lease assets 389,004 389,564 Condominium developments 201,031 — Total real estate assets, at cost 3,927,775 3,761,490 Less: accumulated depreciation and amortization ( 477,865 ) ( 453,385 ) Total real estate assets, net 3,449,910 3,308,105 Real estate-related securities 67,222 38,194 Loans held-for-investment and related receivables, net 1,022,279 962,624 Less: Allowance for credit losses ( 12,888 ) ( 70,358 ) Total loans held-for-investment and related receivables, net 1,009,391 892,266 Cash and cash equivalents 57,550 121,385 Restricted cash 20,372 7,023 Rents and tenant receivables, net 67,208 74,419 Prepaid expenses and other assets 14,516 10,406 Deferred costs, net 4,444 4,293 Assets held for sale 31,241 3,518 Total assets $ 4,721,854 $ 4,459,609 LIABILITIES AND STOCKHOLDERS’ EQUITY Credit facilities, notes payable and repurchase facilities, net $ 2,445,246 $ 2,144,993 Accrued expenses and accounts payable 31,653 30,419 Due to affiliates 15,376 14,723 Intangible lease liabilities, net 31,075 32,718 Distributions payable 10,969 10,969 Deferred rental income, derivative liabilities and other liabilities 21,351 27,361 Total liabilities 2,555,670 2,261,183 Commitments and contingencies Redeemable common stock — — STOCKHOLDERS’ EQUITY Preferred stock, $ 0.01 par value per share; 10,000,000 shares authorized, none issued and outstanding — — Common stock, $ 0.01 par value per share; 490,000,000 shares authorized, 362,001,968 shares issued and outstanding as of both March 31, 2021 and December 31, 2020 3,620 3,620 Capital in excess of par value 3,157,899 3,157,859 Accumulated distributions in excess of earnings ( 996,665 ) ( 961,006 ) Accumulated other comprehensive income (loss) 1,330 ( 2,047 ) Total stockholders’ equity 2,166,184 2,198,426 Total liabilities, redeemable common stock and stockholders’ equity $ 4,721,854 $ 4,459,609 The accompanying notes are an integral part of these condensed consolidated financial statements. 3 Table of Contents CIM REAL ESTATE FINANCE TRUST, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share and per share amounts) (Unaudited) Three Months Ended March 31, 2021 2020 Revenues: Rental and other property income $ 76,930 $ 68,436 Interest income 11,953 5,571 Total revenues 88,883 74,007 Operating expenses: General and administrative 5,471 3,682 Property operating 10,119 6,865 Real estate tax 12,219 6,978 Management and advisory fees and expenses 13,014 11,090 Transaction-related 185 252 Depreciation and amortization 25,738 20,823 Real estate impairment 4,300 11,676 Provision for credit losses 568 17,777 Total operating expenses 71,614 79,143 Gain on disposition of real estate, net — 13,110 Operating income 17,269 7,974 Other expense: Interest expense and other, net ( 20,022 ) ( 15,767 ) Loss on extinguishment of debt — ( 4,382 ) Total other expense ( 20,022 ) ( 20,149 ) Net loss $ ( 2,753 ) $ ( 12,175 ) Weighted average number of common shares outstanding: Basic and diluted 362,001,968 311,248,421 Net loss per common share: Basic and diluted $ ( 0.01 ) $ ( 0.04 ) The accompanying notes are an integral part of these condensed consolidated financial statements. 4 Table of Contents CIM REAL ESTATE FINANCE TRUST, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in thousands) (Unaudited) Three Months Ended March 31, 2021 2020 Net loss $ ( 2,753 ) $ ( 12,175 ) Other comprehensive income (loss) Unrealized gain on real estate-related securities 122 — Unrealized gain (loss) on interest rate swaps 123 ( 10,805 ) Amount of loss reclassified from other comprehensive income (loss) into income as interest expense and other, net 3,132 977 Total other comprehensive income (loss) 3,377 ( 9,828 ) Comprehensive income (loss) $ 624 $ ( 22,003 ) The accompanying notes are an integral part of these condensed consolidated financial statements. 5 Table of Contents CIM REAL ESTATE FINANCE TRUST, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands, except share amounts) (Unaudited) Common Stock Capital in Excess of Par Value Accumulated Distributions in Excess of Earnings Accumulated Other Comprehensive (Loss) Income Total Stockholders’ Equity Number of Shares Par Value Balance as of January 1, 2021 362,001,968 $ 3,620 $ 3,157,859 $ ( 961,006 ) $ ( 2,047 ) $ 2,198,426 Equity-based compensation — — 40 — — 40 Distributions declared on common stock — $ 0.09 per common share — — — ( 32,906 ) — ( 32,906 ) Comprehensive (loss) income — — — ( 2,753 ) 3,377 624 Balance as of March 31, 2021 362,001,968 $ 3,620 $ 3,157,899 $ ( 996,665 ) $ 1,330 $ 2,166,184 Common Stock Capital in Excess of Par Value Accumulated Distributions in Excess of Earnings Accumulated Other Comprehensive Loss Total Stockholders’ Equity Number of Shares Par Value Balance as of January 1, 2020 311,207,725 $ 3,112 $ 2,606,925 $ ( 816,181 ) $ ( 3,908 ) $ 1,789,948 Cumulative effect of accounting changes — — — ( 2,002 ) — ( 2,002 ) Issuance of common stock 2,223,298 22 19,209 — — 19,231 Equity-based compensation — — 40 — — 40 Distributions declared on common stock — $ 0.15 per common share — — — ( 48,332 ) — ( 48,332 ) Redemptions of common stock ( 2,256,037 ) ( 22 ) ( 19,492 ) — — ( 19,514 ) Changes in redeemable common stock — — 283 — — 283 Comprehensive loss — — — ( 12,175 ) ( 9,828 ) ( 22,003 ) Balance as of March 31, 2020 311,174,986 $ 3,112 $ 2,606,965 $ ( 878,690 ) $ ( 13,736 ) $ 1,717,651 The accompanying notes are an integral part of these condensed consolidated financial statements. 6 Table of Contents CIM REAL ESTATE FINANCE TRUST, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited) Three Months Ended March 31, 2021 2020 Cash flows from operating activities: Net loss $ ( 2,753 ) $ ( 12,175 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization, net 25,118 20,530 Amortization of deferred financing costs 1,871 1,042 Amortization of fair value adjustment of mortgage notes payable assumed ( 23 ) ( 23 ) Amortization and accretion on deferred loan fees ( 376 ) ( 560 ) Amortization of premiums and discounts on credit investments ( 442 ) ( 21 ) Capitalized interest income on real estate-related securities ( 173 ) ( 539 ) Equity-based compensation 40 40 Straight-line rental income ( 1,706 ) ( 375 ) Write-offs for uncollectible lease-related receivables 1,773 636 Gain on disposition of real estate assets, net — ( 13,110 ) Loss on sale of credit investments, net 111 — Amortization of fair value adjustment and gain on interest rate swaps ( 1,431 ) ( 5 ) Impairment of real estate assets 4,300 11,676 Provision for credit losses 568 17,777 Write-off of deferred financing costs — 177 Changes in assets and liabilities: Rents and tenant receivables, net 7,151 ( 238 ) Prepaid expenses and other assets ( 4,175 ) ( 484 ) Accrued expenses and accounts payable ( 435 ) 1,918 Deferred rental income and other liabilities ( 1,324 ) ( 7,271 ) Due to affiliates 653 ( 1,849 ) Net cash provided by operating activities 28,747 17,146 Cash flows from investing activities: Investment in real estate-related securities ( 28,509 ) — Investment in broadly syndicated loans ( 82,144 ) ( 330,678 ) Investment in real estate assets and capital expenditures ( 10,864 ) ( 1,534 ) Origination and acquisition of loans held-for-investment, net ( 185,652 ) ( 866 ) Origination and exit fees received on loans held-for-investment 2,043 61 Principal payments received on loans held-for-investment 51,650 6,853 Principal payments received on real estate-related securities 10 — Net proceeds from disposition of real estate assets 3,511 126,645 Net proceeds from sale of broadly syndicated loans 7,445 — Net cash used in investing activities ( 242,510 ) ( 199,519 ) Cash flows from financing activities: Redemptions of common stock — ( 19,514 ) Distributions to stockholders ( 32,906 ) ( 29,148 ) Proceeds from credit facility and repurchase facilities 282,323 100,000 Repayments of credit facility and notes payable ( 85,298 ) ( 97,129 ) Refund of loan deposits 65 — Deferred financing costs paid ( 907 ) ( 115 ) Net cash provided by (used in) financing activities 163,277 ( 45,906 ) Net decrease in cash and cash equivalents and restricted cash ( 50,486 ) ( 228,279 ) Cash and cash equivalents and restricted cash, beginning of period 128,408 473,355 Cash and cash equivalents and restricted cash, end of period $ 77,922 $ 245,076 Reconciliation of cash and cash equivalents and restricted cash to the condensed consolidated balance sheets: Cash and cash equivalents $ 57,550 $ 240,872 Restricted cash 20,372 4,204 Total cash and cash equivalents and restricted cash $ 77,922 $ 245,076 The accompanying notes are an integral part of these condensed consolidated financial statements. 7 Table of Contents CIM REAL ESTATE FINANCE TRUST, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2021 (Unaudited) NOTE 1 — ORGANIZATION AND BUSINESS CIM Real Estate Finance Trust, Inc. (the “Company”) is a non-exchange traded real estate investment trust (“REIT”) formed as a Maryland corporation on July 27, 2010, that elected to be taxed, and currently qualifies, as a REIT for U.S. federal income tax purposes beginning with its taxable year ended December 31, 2012. The Company operates a diversified portfolio of core commercial real estate assets primarily consisting of net leased properties located throughout the United States. The Company continues to pursue a more diversified investment strategy across the capital structure by balancing the Company’s existing core of commercial real estate assets leased to creditworthy tenants under long-term net leases with a portfolio of commercial mortgage loans and other credit investments in which the Company’s sponsor and its affiliates have expertise. As of March 31, 2021, the Company owned 515 properties, comprising 21.3 million rentable square feet of commercial space located in 45 states. As of March 31, 2021, the rentable square feet at these properties was 93.7 % leased, including month-to-month agreements, if any. As of March 31, 2021, the Company’s loan portfolio consisted of 227 loans with a net book value of $ 1.0 billion, and investments in real estate-related securities of $ 67.2 million. During the three months ended March 31, 2021, the Company completed foreclosure proceedings to take control of the assets which previously secured its eight mezzanine loans, including 75 condominium units and 21 rental units across four buildings. A majority of the Company’s business is conducted through CIM Real Estate Finance Operating Partnership, LP, a Delaware limited partnership, of which the Company is the sole general partner and owns, directly or indirectly, 100 % of the partnership interests. The Company is externally managed by CIM Real Estate Finance Management, LLC, a Delaware limited liability company (“CMFT Management”), which is an affiliate of CIM Group, LLC (“CIM”). CIM is a community-focused real estate and infrastructure owner, operator, lender and developer. Headquartered in Los Angeles, California, CIM has offices across the United States and in Tokyo, Japan. CCO Group, LLC owns and controls CMFT Management, the Company’s manager, and is the indirect owner of CCO Capital, LLC (“CCO Capital”), the Company’s dealer manager, and CREI Advisors, LLC (“CREI Advisors”), the Company’s property manager. CCO Group, LLC and its subsidiaries (collectively, “CCO Group”) serve as the Company’s sponsor and as a sponsor to CIM Income NAV, Inc. (“CIM Income NAV”). The Company relies upon CIM Capital IC Management, LLC, the Company’s investment advisor (the “Investment Advisor”) to provide substantially all of the Company’s day-to-day management with respect to investments in securities. On January 26, 2012, the Company commenced its initial public offering on a “best efforts” basis of up to a maximum of $ 2.975 billion in shares of common stock (the “Offering”). The Company ceased issuing shares in the Offering on April 4, 2014. At the completion of the Offering, a total of approximately 297.4 million shares of common stock had been issued, including approximately 292.3 million shares of common stock sold to the public pursuant to the primary portion of the Offering and approximately 5.1 million shares of common stock issued pursuant to the distribution reinvestment plan (“DRIP”) portion of the Offering. The remaining approximately 404,000 unsold shares from the Offering were deregistered. The Company registered $ 247.0 million of shares of common stock under the DRIP (the “Initial DRIP Offering”) pursuant to a Registration Statement on Form S-3 (Registration No. 333-192958), which was filed with the U.S. Securities and Exchange Commission (the “SEC”) on December 19, 2013 and automatically became effective with the SEC upon filing. The Company ceased issuing shares under the Initial DRIP Offering effective as of June 30, 2016. At the completion of the Initial DRIP Offering, a total of approximately $ 241.7 million of shares of common stock had been issued. The remaining $ 5.3 million of unsold shares from the Initial DRIP Offering were deregistered. The Company registered an additional $ 600.0 million of shares of common stock under the DRIP (the “Secondary DRIP Offering,” and together with the Initial DRIP Offering, the “DRIP Offerings,” and the DRIP Offerings collectively with the Offering, the “Offerings”) pursuant to a Registration Statement on Form S-3 (Registration No. 333-212832), which was filed with the SEC on August 2, 2016 and automatically became effective with the SEC upon filing. The Company began to issue shares under the Secondary DRIP Offering on August 2, 2016 and continued to issue shares under the Secondary DRIP Offering until, on August 30, 2020, the Company’s board of directors (the “Board”) suspended the Secondary DRIP Offering in connection with the entry of the Company into the merger agreements with Cole Office & Industrial REIT (CCIT III), Inc. 8 Table of Contents CIM REAL ESTATE FINANCE TRUST, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2021 (Unaudited) – (Continued) (“CCIT III”) and Cole Credit Property Trust V, Inc. (“CCPT V”) (the “Mergers”). On March 25, 2021, the Board reinstated the Secondary DRIP Offering, effective April 1, 2021. The Board establishes an updated estimated per share net asset value (“NAV”) of the Company’s common stock on at least an annual basis for purposes of assisting broker-dealers that participated in the Offering in meeting their customer account reporting obligations under Financial Industry Regulatory Authority Rule 2231. Distributions are reinvested in shares of the Company’s common stock under the DRIP at the estimated per share NAV as determined by the Board. Additionally, the estimated per share NAV as determined by the Board serves as the per share NAV for purposes of the share redemption program. As of March 31, 2021, the estimated per share NAV of the Company’s common stock was $ 7.31 , which was established by the Board on August 11, 2020 using a valuation date of June 30, 2020. Commencing on August 14, 2020, $ 7.31 served as the per share NAV under the DRIP. The Board previously established a per share NAV as of August 31, 2015, September 30, 2016, December 31, 2016, December 31, 2017, December 31, 2018, December 31, 2019, and March 31, 2020. The Company’s estimated per share NAVs are not audited or reviewed by its independent registered public accounting firm. NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The summary of significant accounting policies presented below is designed to assist in understanding the Company’s condensed consolidated financial statements. These accounting policies conform to accounting principles generally accepted in the United States of America (“GAAP”) in all material respects, and have been consistently applied in preparing the accompanying condensed consolidated financial statements. Principles of Consolidation and Basis of Presentation The condensed consolidated financial statements of the Company have been prepared in accordance with the rules and regulations of the SEC regarding interim financial reporting, including the instructions to Form 10-Q and Article 10 of Regulation S-X, and do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the statements for the interim periods presented include all adjustments, which are of a normal and recurring nature, necessary for a fair presentation of the results for such periods. Results for these interim periods are not necessarily indicative of full year results. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company’s audited consolidated financial statements as of and for the year ended December 31, 2020, and related notes thereto, set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. The condensed consolidated financial statements should also be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in this Quarterly Report on Form 10-Q. The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Reclassifications Certain amounts in the Company’s prior period condensed consolidated financial statements have been reclassified to conform to the current period presentation.These reclassifications had no effect on previously reported totals or subtotals. The Company is separately presenting the write-offs for uncollectible lease-related receivables of $ 636,000 for the three months ended March 31, 2020, which was previously included in straight-line rental income, net in the condensed consolidated statements of cash flows. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 9 Table of Contents CIM REAL ESTATE FINANCE TRUST, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2021 (Unaudited) – (Continued) Real Estate Assets Real estate assets are stated at cost, less accumulated depreciation and amortization. The Company considers the period of future benefit of each respective asset to determine the appropriate useful life. The estimated useful lives of the Company’s real estate assets by class are generally as follows: Buildings 40 years Site improvements 15 years Tenant improvements Lesser of useful life or lease term Intangible lease assets Lease term Recoverability of Real Estate Assets The Company continually monitors events and changes in circumstances that could indicate that the carrying amounts of its real estate assets may not be recoverable. Impairment indicators that the Company considers include, but are not limited to: bankruptcy or other credit concerns of a property’s major tenant, such as a history of late payments, lease concessions and other factors; a significant decrease in a property’s revenues due to lease terminations; vacancies; co-tenancy clauses; reduced lease rates; and changes in anticipated holding periods. When indicators of potential impairment are present, the Company assesses the recoverability of the assets by determining whether the carrying amount of the assets will be recovered through the undiscounted future cash flows expected from the use of the assets and their eventual disposition. In the event that such expected undiscounted future cash flows do not exceed the carrying amount, the Company will adjust the real estate assets to their respective fair values and recognize an impairment loss. Generally, fair value is determined using a discounted cash flow analysis and recent comparable sales transactions. During the three months ended March 31, 2021, as part of the Company’s quarterly impairment review procedures, the Company recorded impairment charges of $ 4.3 million related to five properties, of which impairment at three properties was due to sales prices that were less than their respective carrying values and impairment at two properties was due to vacancy. The Company’s impairment assessment as of March 31, 2021 was based on the most current information available to the Company, including expected holding periods. If the Company’s expected holding periods for assets change, subsequent tests for impairment could result in additional impairment charges in the future. The Company cannot provide any assurance that additional material impairment charges with respect to the Company’s real estate assets will not occur during 2021 or in future periods. During the three months ended March 31, 2020, the Company recorded impairment charges of $ 11.7 million related to six properties due to revised cash flow estimates as a result of market conditions and one property due to a tenant bankruptcy. The assumptions and uncertainties utilized in the evaluation of the impairment of real estate assets are discussed in detail in Note 3 — Fair Value Measurements. See also Note 4 — Real Estate Assets for further discussion regarding real estate investment activity. Assets Held for Sale When a real estate asset is identified by the Company as held for sale, the Company will cease recording depreciation and amortization of the assets related to the property and estimate its fair value, net of selling costs. If, in management’s opinion, the fair value, net of selling costs, of the asset is less than the carrying amount of the asset, an adjustment to the carrying amount is then recorded to reflect the estimated fair value of the property, net of selling costs. As of March 31, 2021, the Company identified two properties with a fair value of $ 31.2 million as held for sale, which were sold subsequent to March 31, 2021 at a gain of $ 824,000 . As of March 31, 2021, the Company had mortgage notes payable of $ 21.9 million related to one of the held for sale properties, which was repaid subsequent to March 31, 2021 in connection with the disposition of the underlying held for sale property. As of December 31, 2020, the Company identified one property with a fair value of $ 3.5 million as held for sale, which was sold during the three months ended March 31, 2021. No gain or loss was recognized on this disposition. 10 Table of Contents CIM REAL ESTATE FINANCE TRUST, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2021 (Unaudited) – (Continued) Disposition of Real Estate Assets Gains and losses from dispositions are recognized once the various criteria relating to the terms of sale and any subsequent involvement by the Company with the asset sold are met. A discontinued operation includes only the disposal of a component of an entity and represents a strategic shift that has (or will have) a major effect on an entity’s financial results. The Company’s property dispositions during the three months ended March 31, 2021 and 2020 did not qualify for discontinued operations presentation and thus, the results of the properties that were sold will remain in operating income, and any associated gains or losses from the disposition are included in gain on disposition of real estate, net. See Note 4 — Real Estate Assets for a discussion of the disposition of individual properties during the three months ended March 31, 2021. Allocation of Purchase Price of Real Estate Assets Upon the acquisition of real properties, the Company allocates the purchase price to acquired tangible assets, consisting of land, buildings and improvements, and to identified intangible assets and liabilities, consisting of the value of above- and below-market leases and the value of in-place leases and other intangibles, based in each case on their relative fair values. The Company utilizes independent appraisals to assist in the determination of the fair values of the tangible assets of an acquired property (which includes land and buildings). The information in the appraisal, along with any additional information available to the Company’s management, is used in estimating the amount of the purchase price that is allocated to land. Other information in the appraisal, such as building value and market rents, may be used by the Company’s management in estimating the allocation of purchase price to the building and to intangible lease assets and liabilities. The appraisal firm has no involvement in management’s allocation decisions other than providing this market information. The determination of the fair values of the real estate assets and liabilities acquired requires the use of significant assumptions with regard to the current market rental rates, rental growth rates, capitalization and discount rates, interest rates and other variables. The use of alternative estimates may result in a different allocation of the Company’s purchase price, which could materially impact the Company’s results of operations. Certain acquisition-related expenses related to asset acquisitions are capitalized and allocated to tangible and intangible assets and liabilities, as described above. Other acquisition-related expenses, such as manager expense reimbursements, continue to be expensed as incurred and are included in transaction-related expenses in the accompanying condensed consolidated statements of operations . Restricted Cash The Company had $ 20.4 million and $ 7.0 million in restricted cash as of March 31, 2021 and December 31, 2020, respectively. Included in restricted cash was $ 4.0 million and $ 3.6 million held by lenders in lockbox accounts, as of March 31, 2021 and December 31, 2020, respectively. As part of certain debt agreements, rents from certain encumbered properties are deposited directly into a lockbox account, from which the monthly debt service payment is disbursed to the lender and the excess is disbursed to the Company. Also included in restricted cash was $ 16.4 million and $ 3.4 million held by lenders in escrow accounts for real estate taxes and other lender reserves for certain properties, in accordance with the associated lender’s loan agreement, as of March 31, 2021 and December 31, 2020, respectively. Real Estate-Related Securities Real estate-related securities consists primarily of the Company’s investment in commercial mortgage-backed securities (“CMBS”). The Company determines the appropriate classification for real estate-related securities at the time of purchase and reevaluates such designation as of each balance sheet date. As of March 31, 2021, the Company classified its investments as available-for-sale as the Company is not actively trading the securities; however, the Company may sell them prior to their maturity. These investments are carried at their estimated fair value with unrealized gains and losses reported in other comprehensive income (loss). During the three months ended March 31, 2021, the Company invested $ 28.5 million in CMBS. As of March 31, 2021, the Company had investments in five CMBS with an estimated aggregate fair value of $ 67.2 million. The Company monitors its available-for-sale securities for changes in fair value. An allowance for credit losses is recorded when the Company acquires CMBS, and any subsequent impairment is recognized when the Company determines that a decline in the estimated fair value of a security below its amortized cost has resulted from a credit loss or other factors. The Company records impairments related to credit losses through the allowance for credit losses. However, the allowance is limited by the amount that the fair value is less than the amortized cost basis. The Company considers many factors in determining whether a credit loss exists, including, but not limited to, the extent to which the fair value is less than the amortized cost basis, recent events specific to the security, industry or geographic area, the payment structure of the security, 11 Table of Contents CIM REAL ESTATE FINANCE TRUST, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2021 (Unaudited) – (Continued) the failure of the issuer of the security to make scheduled interest or principal payments, and external credit ratings and recent changes in such ratings. The analysis of determining whether a credit loss exists requires significant judgments and assumptions. The use of alternative judgments and assumptions could result in a different conclusion. The amortized cost of real estate-related securities is adjusted for amortization of premiums and accretion of discounts to maturity computed under the effective interest method and is recorded in the accompanying condensed consolidated statements of operations in interest and other expense, net. Upon the sale of a security, the realized net gain or loss is computed on the specific identification method. Interest earned is either received in cash or capitalized to real estate-related securities in the Company’s condensed consolidated balance sheets. Interest is capitalized when certain conditions are met as specified in each security agreement. During the three months ended March 31, 2021, the Company recorded $ 12.0 million in interest income on its credit investments, $ 173,000 of which was capitalized to real estate-related securities. No such amounts were capitalized during the three months ended March 31, 2020 as the Company began investing in real estate-related securities in June 2020. Loans Held-for-Investment The Company has acquired, and may continue to acquire, loans related to real estate assets. Additionally, the Company may acquire and originate credit investments, including commercial mortgage loans, mezzanine loans, preferred equity, and other loans and securities related to commercial real estate assets, as well as corporate loan opportunities that are consistent with the Company’s investment strategy and objectives. The Company intends to hold the loans held-for-investment for the foreseeable future or until maturity. Loans held-for-investment are carried on the Company’s condensed consolidated balance sheets at amortized cost, net of any allowance for credit losses. Discounts or premiums, origination fees and exit fees are amortized as a component of interest income using the effective interest method over the life of the respective loans, or on a straight-line basis when it approximates the effective interest method. Upon the sale of a loan, the realized net gain or loss is computed on the specific identification method. Interest earned is either received in cash or capitalized to loans held-for-investment and related receivables, net in the Company’s condensed consolidated balance sheets. Interest is capitalized when certain conditions are met as specified in each loan agreement. During the three months ended March 31, 2020, the Company recorded $ 5.6 million in interest income on its credit investments, $ 539,000 of which was capitalized to loans held-for-investment and related receivables, net. Accrual of interest income is suspended on nonaccrual loans. Loans that are past due 90 days or more as to principal or interest, or where reasonable doubt exists as to timely collection, are generally considered nonperforming and placed on nonaccrual status. Interest collected is recognized on a cash basis by crediting income when received. Loans may be restored to accrual status when all principal and interest are current and full repayment of the remaining contractual principal and interest are reasonably assured. As of March 31, 2021, the Company did no t have nonaccrual loans. Allowance for Credit Losses The Company adopted Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments - Credit Losses (Topic 326) (“ASU 2016-13”), on January 1, 2020. The allowance for credit losses required under ASU 2016-13 reflects the Company’s current estimate of potential credit losses related to the Company’s loans held-for-investment included in the condensed consolidated balance sheets. The initial allowance for credit losses recorded on January 1, 2020 is reflected as a direct charge to retained earnings on the Company’s condensed consolidated statements of stockholders’ equity; however, subsequent changes to the allowance for credit losses are recognized through net income on the Company’s condensed consolidated statements of operations. While ASU 2016-13 does not require any particular method for determining the allowance for credit losses, it does specify the allowance should be based on relevant information about past events, including historical loss experience, current portfolio and market conditions, and reasonable and supportable forecasts for the duration of each respective loan. In addition, other than a few narrow exceptions, ASU 2016-13 requires that all financial instruments subject to the credit loss model have some amount of loss reserve to reflect the GAAP principal underlying the credit loss model that all loans, debt securities, and similar assets have some inherent risk of loss, regardless of credit quality, subordinate capital, or other mitigating factors. The Company has elected to use a discounted cash flow model to estimate the allowance for credit losses. This model requires the Company 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. The Company then records 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. The Company considers loan investments that are both (i) expected to be substantially repaid through the operation or sale of the underlying collateral, and 12 Table of Contents CIM REAL ESTATE FINANCE TRUST, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2021 (Unaudited) – (Continued) (ii) for which the borrower is experiencing financial difficulty, to be “collateral-dependent” loans. For such loans that the Company determines that foreclosure of the collateral is probable, the Company measures the expected losses based on the difference between the fair value of the collateral less costs to sell and the amortized cost basis of the loan as of the measurement date. For collateral-dependent loans that the Company determines foreclosure is not probable, the Company applies a practical expedient to estimate expected losses using the difference between the collateral’s fair value (less costs to sell the asset if repayment is expected through the sale of the collateral) and the amortized cost basis of the loan. For the Company’s broadly syndicated loans, the Company uses a probability of default and loss given default method using an underlying third-party CMBS/Commercial Real Estate (“CRE”) loan database with historical loan losses from 1998 to 2019. The Company may use other acceptable alternative approaches in the future depending on, among other factors, the type of loan, underlying collateral, and availability of relevant historical market loan loss data. The Company adopted ASU 2016-13 using the modified retrospective method for all financial assets measured at amortized cost. Prior to adoption, the Company had no allowance for credit losses on its condensed consolidated balance sheets. The Company recorded a cumulative-effective adjustment to the opening retained earnings in its condensed consolidated statement of stockholders’ equity as of January 1, 2020 of $ 2.0 million. Quarterly, the Company evaluates the risk of all loans and assigns a risk rating based on a variety of factors, grouped as follows: (i) loan and credit structure, including the as-is loan-to-value (“LTV”) ratio and structural features; (ii) quality and stability of real estate value and operating cash flow, including debt yield, dynamics of the geography, property type and local market, physical condition, stability of cash flow, leasing velocity and quality and diversity of tenancy; (iii) performance against underwritten business plan; and (iv) quality, experience and financial condition of sponsor, borrower and guarantor(s). Based on a 5-point scale, the Company’s loans are rated “1” through “5,” from least risk to greatest risk, respectively, which ratings are defined as follows: 1- Outperform — Most satisfactory asset quality and liquidity, good leverage capacity. A “1” rating maintains predictable and strong cash flows from operations. The trends and outlook for the credit's operations, balance sheet, and industry are neutral to favorable. Collateral, if appropriate, exceeds performance metrics; 2- Meets or Exceeds Expectations — Acceptable asset quality, moderate excess liquidity, modest leverage capacity. A “2” rating could have some financial/non-financial weaknesses which are offset by strengths; however, the credit demonstrates an ample current cash flow from operations. The trends and outlook for the credit's operations, balance sheet, and industry are generally positive or neutral. Collateral performance, if appropriate, meets or exceeds substantially all performance metrics included in original or current underwriting / business plan; 3- Satisfactory — Acceptable asset quality, somewhat strained liquidity, minimal leverage capacity. A “3” rating is at times characterized by acceptable cash flows from operations. The trends and conditions of the credit's operations and balance sheet are neutral. Collateral performance, if appropriate, meets or is on track to meet underwriting; business plan can reasonably be achieved; 4- Underperformance — The debt investment possesses credit deficiencies or potential weaknesses which deserve management’s close and continued attention. The portfolio company’s operations and/or balance sheet have demonstrated an adverse trend or deterioration which, while serious, has not reached the point where the liquidation of debt is jeopardized. These weaknesses are generally considered correctable by the borrower in the normal course of business but may weaken the asset or inadequately protect the Company’s credit position if not checked or corrected. Collateral performance, if appropriate, falls short of original underwriting, material differences exist from business plan, or both; technical milestones have been missed; defaults may exist, or may soon occur absent material improvement; and 5- Default/Possibility of Loss — The debt investment is protected inadequately by the current enterprise value or paying capacity of the obligor or of the collateral, if any. The underlying company’s operations have well-defined weaknesses based upon objective evidence, such as recurring or significant decreases in revenues and cash flows. Major variance from business plan; loan covenants or technical milestones have been breached; timely exit from loan via sale or refinancing is questionable; risk of principal loss. Collateral performance, if appropriate, is significantly worse than underwriting. The Company generally assigns a risk rating of “3” to all newly originated or acquired loans held-for-investment during a most recent quarter, except in the case of specific circumstances warranting an exception. 13 Table of Contents CIM REAL ESTATE FINANCE TRUST, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2021 (Unaudited) – (Continued) Leases The Company has lease agreements with lease and non-lease components. The Company has elected to not separate non-lease components from lease components for all classes of underlying assets (primarily real estate assets) and will account for the combined components as rental and other property income. Non-lease components included in rental and other property income include certain tenant reimbursements for maintenance services (including common-area maintenance services or “CAM”), real estate taxes, insurance and utilities paid for by the lessor but consumed by the lessee. As a lessor, the Company has further determined that this policy will be effective only on a lease that has been classified as an operating lease and the revenue recognition pattern and timing is the same for both types of components. The Company is not a party to any material leases where it is the lessee. Significant judgments and assumptions are inherent in not only determining if a contract contains a lease, but also the lease classification, terms, payments, and, if needed, discount rates. Judgments include the nature of any options, including if they will be exercised, evaluation of implicit discount rates and the assessment and consideration of “fixed” payments for straight-line rent revenue calculations. The Company has an investment in a real estate property that is subject to a ground lease, for which a lease liability and right of use (“ROU”) asset of $ 2.4 million was recorded as of both March 31, 2021 and December 31, 2020. See Note 15 — Leases for a further discussion regarding this ground lease. Lease costs represent the initial direct costs incurred in the origination, negotiation and processing of a lease agreement. Such costs include outside broker commissions and other independent third-party costs and are amortized over the life of the lease on a straight-line basis. Costs related to salaries and benefits, supervision, administration, unsuccessful origination efforts and other activities not directly related to completed lease agreements are expensed as incurred. Upon successful lease execution, leasing commissions are capitalized. Development Activities Project costs and expenses, including interest incurred, associated with the development, construction and lease-up of a real estate project are capitalized as construction in progress. During the three months ended March 31, 2021, the Company capitalized $ 514,000 of interest expense associated with the development of condominiums acquired via foreclosure, which is included in condominium developments in the accompanying condensed consolidated balance sheets. There were no development projects during the three months ended March 31, 2020. Revenue Recognition Revenue from leasing activities Rental and other property income is primarily derived from fixed contractual payments from operating leases, and therefore, is generally recognized on a straight-line basis over the term of the lease, which typically begins the date the tenant takes control of the space. When the Company acquires a property, the terms of existing leases are considered to commence as of the acquisition date for the purpose of this calculation. Variable rental and other property income consists primarily of tenant reimbursements for recoverable real estate taxes and operating expenses which are included in rental and other property income in the period when such costs are incurred, with offsetting expenses in real estate taxes and property operating expenses, respectively, within the condensed consolidated statements of operations. The Company defers the recognition of variable rental and other property income, such as percentage rents, until the specific target that triggers the contingent rental income is achieved. The Company continually reviews whether collection of lease-related receivables, including any straight-line rent, and current and future operating expense reimbursements from tenants are probable. The determination of whether collectability is probable takes into consideration the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located. Upon the determination that the collectability of a receivable is not probable, the Company will record a reduction to rental and other property income for amounts previously recorded and a decrease in the outstanding receivable. Revenue from leases where collection is deemed to be not probable is recorded on a cash basis until collectability becomes probable. Management’s estimate of the collectability of lease-related receivables is based on the best information available at the time of estimate. The Company does not use a general reserve approach and lease-related receivables are adjusted and taken against rental and other property income only when collectability becomes not probable. 14 Table of Contents CIM REAL ESTATE FINANCE TRUST, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2021 (Unaudited) – (Continued) During the three months ended March 31, 2021, the Company identified certain tenants where collection was no longer considered probable. For these tenants, the Company made the determination to record revenue on a cash basis and wrote off total outstanding receivables of $ 1.8 million for the three months ended March 31, 2021, which included $ 29,000 of straight-line rental income and $ 1.1 million related to certain tenant reimbursements. These write-offs reduced rental and other property income during the three months ended March 31, 2021. Revenue from lending activities Interest income from the Company’s loans held-for-investment and real estate-related securities is comprised of interest earned on loans and the accretion and amortization of net loan origination fees and discounts. Interest income on loans is accrued as earned, with the accrual of interest suspended when the related loan becomes a nonaccrual loan. Interest income on the Company’s broadly syndicated loans is accrued as earned beginning on the settlement date. Reportable Segments During the year ended December 31, 2020, the Company updated its reportable segment information to reflect how the chief operating decision makers regularly review and manage the business and determined that it has two reportable segments: Credit — engages primarily in acquiring and originating loans related to real estate assets. The Company may acquire first and second lien mortgage loans, mezzanine loans, bridge loans, wraparound mortgage loans, construction mortgage loans on real property and loans on leasehold interest mortgages. This segment also includes investments in CMBS and broadly syndicated loans. Real estate — engages primarily in acquiring and managing income-producing retail properties that are primarily single-tenant properties or anchored shopping centers, which are leased to creditworthy tenants under long-term net leases. The commercial properties are geographically diversified throughout the United States and have similar economic characteristics. See Note 16 — Segment Reporting for a further discussion regarding these segments. Recent Accounting Pronouncements From time to time, new accounting pronouncements are issued by various standard setting bodies that may have an impact on the Company’s accounting and reporting. Except as otherwise stated below, the Company is currently evaluating the effect that certain new accounting requirements may have on the Company’s accounting and related reporting and disclosures in the Company’s condensed consolidated financial statements. In April 2020, the FASB issued a question and answer document (the “Lease Modification Q&A”) focused on the application of lease accounting guidance to lease concessions provided as a result of the current novel coronavirus (“COVID-19”) pandemic. Due to the business disruptions and challenges severely affecting the global economy caused by the COVID-19 pandemic, many lessors may be required to provide rent deferrals and other lease concessions to lessees. While the lease modification guidance in ASC 842 addresses routine changes to lease terms resulting from negotiations between the lessee and the lessor, this guidance did not contemplate concessions being so rapidly executed to address the sudden liquidity constraints of some lessees arising from COVID-19 related impacts. Under existing lease guidance, the Company would have to determine, on a lease by lease basis, if a lease concession was the result of a new arrangement reached with the tenant (treated within the lease modification accounting framework) or if a lease concession was under the enforceable rights and obligations within the existing lease agreement (precluded from applying the lease modification accounting framework). The Lease Modification Q&A allows the Company, if certain criteria have been met, to bypass the lease by lease analysis, and instead elect to either apply the lease modification accounting framework or not, with such election applied consistently to leases with similar characteristics and similar circumstances. The Company has elected to apply this guidance to avoid performing a lease by lease analysis for the lease concessions that (1) were granted as relief due to COVID-19 related impacts and (2) result in the cash flows remaining substantially the same or less than the original contract and will account for these lease concessions as if no changes were made to the leases. During the three months ended March 31, 2021, the Company 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 on those tenants. During the three months ended March 31, 2021, the Company had granted rent deferrals of $ 427,000 . The deferral of rental payments affects the timing, but not the amount, of the lease payments and resulted in an increase of $ 427,000 to the Company’s lease-related receivables balance as of March 31, 2021. Additionally, during the three months ended March 31, 2021, the Company had granted rental abatements of $ 13,000 . 15 Table of Contents CIM REAL ESTATE FINANCE TRUST, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2021 (Unaudited) – (Continued) In addition, the Company entered into lease amendments during the three months ended March 31, 2021 that provided for lease concessions, through rent abatements or rent deferrals, that represented substantive changes to the consideration in the original lease. These lease amendments extended the lease periods ranging from 12 months to 63 months. For these leases, the Company applied the lease modification accounting framework pursuant to ASC 842. During the three months ended March 31, 2021 , these lease amendments resulted in rent abatements of $ 235,000 and deferred rental income of $ 5,000 . As of May 6, 2021, the Company has collected approximately 98 % of rental payments billed to tenants during the three months ended March 31, 2021 . In January 2021, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2021-01, Reference Rate Reform (Topic 848) (“ASU 2021-01”). The amendments in ASU 2021-01 clarify that certain optional expedients and exceptions for contract modifications and hedge accounting apply to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of the discontinuation of the use of the London Interbank Offered Rate (“LIBOR”) as a benchmark interest rate due to reference rate reform. ASU 2021-01 is effective immediately for all entities with the option to apply retrospectively as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, and can be applied prospectively to any new contract modifications made on or after January 7, 2021. The Company currently uses LIBOR as its benchmark interest rate for its derivative instruments, and has not entered into any new contracts on or after the effective date of ASU 2021-01. The Company has evaluated the impact of this ASU’s adoption, and does not believe this ASU will have a material impact on its condensed consolidated financial statements. NOTE 3 — FAIR VALUE MEASUREMENTS GAAP defines fair value, establishes a framework for measuring fair value and requires disclosures about fair value measurements. GAAP emphasizes that fair value is intended to be a market-based measurement, as opposed to a transaction-specific measurement. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. Depending on the nature of the asset or liability, various techniques and assumptions can be used to estimate the fair value. Assets and liabilities are measured using inputs from three levels of the fair value hierarchy, as follows: Level 1 — Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. An active market is defined as a market in which transactions for the assets or liabilities occur with sufficient frequency and volume to provide pricing information on an ongoing basis. Level 2 — Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active (markets with few transactions), inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data correlation or other means (market corroborated inputs). Level 3 — Unobservable inputs, which are only used to the extent that observable inputs are not available, reflect the Company’s assumptions about the pricing of an asset or liability. The following describes the methods the Company uses to estimate the fair value of the Company’s financial assets and liabilities: Real estate-related securities — The Company generally determines the fair value of its real estate-related securities by utilizing broker-dealer quotations, reported trades or valuation estimates from pricing models to determine the reported price. Pricing models for real estate-related securities are generally discounted cash flow models that usually consider the attributes applicable to a particular class of security (e.g., credit rating, seniority), current market data, and estimated cash flows for each class and incorporate deal collateral performance such as prepayment speeds and default rates, as available. Depending upon the significance of the fair value inputs used in determining these fair values, these securities are valued using either Level 2 or Level 3 inputs. As of March 31, 2021, the Company concluded that $ 27.4 million of real estate-related securities fell under Level 2 and $ 39.8 million of real estate-related securities fell under Level 3. Credit facilities and notes payable — The fair value is estimated by discounting the expected cash flows based on estimated borrowing rates available to the Company as of the measurement date. Current and prior period liabilities’ carrying and fair values exclude net deferred financing costs. These financial instruments are valued using Level 2 inputs. As of March 31, 2021, the estimated fair value of the Company’s debt was $ 2.45 billion, which approximated its carrying value. The 16 Table of Contents CIM REAL ESTATE FINANCE TRUST, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2021 (Unaudited) – (Continued) estimated fair value of the Company’s debt as of December 31, 2020 was $ 2.14 billion, compared to a carrying value of $ 2.15 billion. Derivative instruments — The Company’s derivative instruments are comprised of interest rate swaps. All derivative instruments are carried at fair value and are valued using Level 2 inputs. The fair value of these instruments is determined using interest rate market pricing models. In addition, credit valuation adjustments are incorporated into the fair values to account for the Company’s potential nonperformance risk and the performance risk of the respective counterparties. Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with those derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by the Company and its counterparties. However, as of March 31, 2021 and December 31, 2020, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and determined that the credit valuation adjustments are not significant to the overall valuation of the Company’s derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. Loans held-for-investment — The Company’s loans held-for-investment are recorded at cost upon origination and adjusted by net loan origination fees and discounts. The Company estimates the fair value of its loans held-for-investment by performing a present value analysis for the anticipated future cash flows using an appropriate market discount rate taking into consideration the credit risk. The Company has determined that its CRE loans held-for-investment are classified in Level 3 of the fair value hierarchy. The Company’s broadly syndicated loans are classified as Level 2 or Level 3 depending on the number of market quotations or indicative prices from pricing services that are available, and whether the depth of the market is sufficient to transact at those prices in amounts approximating the Company’s investment position at the measurement date. As of March 31, 2021, $ 389.7 million and $ 107.6 million of the Company’s broadly syndicated loans were classified in Level 2 and Level 3 of the fair value hierarchy, respectively. As of December 31, 2020, $ 359.6 million and $ 114.1 million of the Company’s broadly syndicated loans were classified in Level 2 and Level 3 of the fair value hierarchy, respectively. As of March 31, 2021, the estimated fair value of the Company’s loans held-for-investment and related receivables, net was $ 1.03 billion, compared to its carrying value of $ 1.01 billion. As of December 31, 2020, the estimated fair value of the Company’s loans held-for-investment was $ 907.8 million, compared to its carrying value of $ 892.3 million. Other financial instruments — The Company considers the carrying values of its cash and cash equivalents, restricted cash, tenant receivables, accounts payable and accrued expenses, other liabilities, due to affiliates and distributions payable to approximate their fair values because of the short period of time between their origination and their expected realization as well as their highly-liquid nature. Due to the short-term maturities of these instruments, Level 1 inputs are utilized to estimate the fair value of these financial instruments. Considerable judgment is necessary to develop estimated fair values of financial assets and liabilities. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize, or be liable for, upon disposition of the financial assets and liabilities. As of March 31, 2021 and December 31, 2020, there have been no transfer s of financial assets or liabilities between fair value hierarchy levels. 17 Table of Contents CIM REAL ESTATE FINANCE TRUST, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2021 (Unaudited) – (Continued) Items Measured at Fair Value on a Recurring Basis In accordance with the fair value hierarchy described above, the following tables show the fair value of the Company’s financial assets and liabilities that are required to be measured at fair value on a recurring basis as of March 31, 2021 and December 31, 2020 (in thousands): Balance as of March 31, 2021 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Financial assets: CMBS $ 67,222 $ — $ 27,441 $ 39,781 Total financial assets $ 67,222 $ — $ 27,441 $ 39,781 Financial liabilities: Interest rate swaps $ ( 7,622 ) $ — $ ( 7,622 ) $ — Total financial liabilities $ ( 7,622 ) $ — $ ( 7,622 ) $ — Balance as of December 31, 2020 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Financial assets: CMBS $ 38,194 $ — $ 27,461 $ 10,733 Total financial assets $ 38,194 $ — $ 27,461 $ 10,733 Financial liabilities: Interest rate swaps $ ( 12,308 ) $ — $ ( 12,308 ) $ — Total financial liabilities $ ( 12,308 ) $ — $ ( 12,308 ) $ — The following are reconciliations of the changes in financial assets with Level 3 inputs in the fair value hierarchy for the three months ended March 31, 2021 (in thousands): CMBS Beginning Balance, January 1, 2021 $ 10,733 Total gains and losses: Unrealized loss included in other comprehensive income, net 70 Purchases and payments received: Purchases 34,491 Discounts, net ( 5,676 ) Capitalized interest income 173 Principal payments received ( 10 ) Ending Balance, March 31, 2021 $ 39,781 Items Measured at Fair Value on a Non-Recurring Basis (Including Impairment Charges) Certain financial and nonfinancial assets and liabilities are measured at fair value on a nonrecurring basis and are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment. The Company’s process for identifying and recording impairment related to real estate assets and intangible assets is discussed in Note 2 — Summary of Significant Accounting Policies. 18 Table of Contents CIM REAL ESTATE FINANCE TRUST, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2021 (Unaudited) – (Continued) As discussed in Note 4 — Real Estate Assets, during the three months ended March 31, 2021, real estate assets related to five properties were deemed to be impaired and their carrying values were reduced to an estimated fair value of $ 31.3 million, resulting in impairment charges of $ 4.3 million. During the three months ended March 31, 2020, real estate assets related to seven properties were deemed to be impaired and their carrying values were reduced to an estimated fair value of $ 52.6 million, resulting in impairment charges of $ 11.7 million. The Company estimates fair values using Level 3 inputs and a combined income and market approach, specifically using discounted cash flow analysis and recent comparable sales transactions. The evaluation of real estate assets for potential impairment requires the Company’s management to exercise significant judgment and to make certain key assumptions, including, but not limited to, the following: (1) terminal capitalization rates; (2) discount rates; (3) the number of years the property will be held; (4) property operating expenses; and (5) re-leasing assumptions, including the number of months to re-lease, market rental income and required tenant improvements. There are inherent uncertainties in making these estimates such as market conditions and the future performance and sustainability of the Company’s tenants. The Company determined that the selling prices used to determine the fair values were Level 2 inputs. The following summarizes the ranges of discount rates and terminal capitalization rates used for the Company’s impairment test for the real estate assets during the three months ended March 31, 2021: Three Months Ended March 31, 2021 Discount Rate Terminal Capitalization Rate 7.9 % - 9.7 % 7.4 % - 9.2 % The following table presents the impairment charges by asset class recorded during the three months ended March 31, 2021 and 2020 (in thousands): Three Months Ended March 31, 2021 2020 Asset class impaired: Land $ 768 $ 2,925 Buildings, fixtures and improvements 3,434 8,264 Intangible lease assets 225 497 Intangible lease liabilities ( 127 ) ( 10 ) Total impairment loss $ 4,300 $ 11,676 NOTE 4 — REAL ESTATE ASSETS Property Acquisitions During the three months ended March 31, 2021 and 2020, the Company did no t acquire any properties. Assets Acquired Via Foreclosure During the three months ended March 31, 2021, the Company completed foreclosure proceedings to take control of the assets which previously secured its eight mezzanine loans, including 75 condominium units and 21 rental units across four buildings. No land was acquired in connection with the foreclosure. The following table summarizes the purchase price allocation for the real estate acquired via foreclosure (in thousands): 19 Table of Contents CIM REAL ESTATE FINANCE TRUST, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2021 (Unaudited) – (Continued) As of March 31, 2021 Buildings, fixtures and improvements 192,182 Acquired in-place leases and other intangibles 134 Intangible lease liabilities ( 326 ) Total purchase price $ 191,990 In connection with the foreclosure, the Company assumed $ 102.6 million of mortgage notes payable related to the assets, as further discussed in Note 9 — Credit Facilities, Notes Payable and Repurchase Facilities. 2021 Condominium Development Project During the three months ended March 31, 2021, the Company capitalized $ 1.5 million of expenses as construction in progress associated with the development of condominiums acquired via foreclosure, which is included in condominium developments in the accompanying condensed consolidated balance sheets. 2021 Property Disposition and Real Estate Assets Held for Sale During the three months ended March 31, 2021, the Company disposed of one retail property for an aggregate gross sales price of $ 3.7 million, resulting in proceeds of $ 3.5 million after closing costs. The Company has no continuing involvement with this property. As of March 31, 2021, there were two properties classified as held for sale with a carrying value of $ 31.2 million included in assets held for sale in the accompanying condensed consolidated balance sheets. Subsequent to March 31, 2021, the Company disposed of these properties, as further discussed in Note 17 — Subsequent Events. 2021 Impairment The Company performs quarterly impairment review procedures, primarily through continuous monitoring of events and changes in circumstances that could indicate that the carrying value of certain of its real estate assets may not be recoverable. See Note 2 — Summary of Significant Accounting Policies for a discussion of the Company’s accounting policies regarding impairment of real estate assets. During the three months ended March 31, 2021, five properties totaling approximately 165,000 square feet with a carrying value of $ 35.6 million were deemed to be impaired and their carrying values were reduced to an estimated fair value of $ 31.3 million, resulting in impairment charges of $ 4.3 million, which were recorded in the condensed consolidated statements of operations. See Note 3 — Fair Value Measurements for a further discussion regarding these impairment charges. 2020 Property Dispositions During the three months ended March 31, 2020, the Company disposed of 12 properties, consisting of nine retail properties and three anchored shopping centers, for an aggregate gross sales price of $ 129.0 million, resulting in proceeds of $ 126.6 million after closing costs and disposition fees due to CMFT Management or its affiliates, and a gain of $ 13.1 million. The Company has no continuing involvement with these properties. The gain on sale of real estate is included in gain on disposition of real estate, net in the condensed consolidated statements of operations. 2020 Impairment During the three months ended March 31, 2020, seven properties totaling approximately 414,000 square feet with a carrying value of $ 64.3 million were deemed to be impaired and their carrying values were reduced to an estimated fair value of $ 52.6 million, resulting in impairment charges of $ 11.7 million, which were recorded in the condensed consolidated statements of operations. See Note 3 — Fair Value Measurements for a further discussion regarding these impairment charges. 20 Table of Contents CIM REAL ESTATE FINANCE TRUST, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2021 (Unaudited) – (Continued) NOTE 5 — INTANGIBLE LEASE ASSETS AND LIABILITIES Intangible lease assets and liabilities consisted of the following as of March 31, 2021 and December 31, 2020 (in thousands, except weighted average life remaining): March 31, 2021 December 31, 2020 Intangible lease assets: In-place leases and other intangibles, net of accumulated amortization of $ 140,462 and $ 132,967 , respectively (with a weighted average life remaining of 9.6 years and 9.7 years, respectively) $ 209,676 $ 217,431 Acquired above-market leases, net of accumulated amortization of $ 22,607 and $ 22,054 , respectively (with a weighted average life remaining of 7.7 years and 7.6 years, respectively) 16,398 17,112 Total intangible lease assets, net $ 226,074 $ 234,543 Intangible lease liabilities: Acquired below-market leases, net of accumulated amortization of $ 33,341 and $ 31,933 , respectively (both with a weighted average life remaining of 7.5 years) $ 31,414 $ 32,718 Amortization of the above-market leases is recorded as a reduction to rental and other property income, and amortization expense for the in-place leases and other intangibles is included in depreciation and amortization in the accompanying condensed consolidated statements of operations. Amortization of below-market leases is recorded as an increase to rental and other property income in the accompanying condensed consolidated statements of operations. The following table summarizes the amortization related to the intangible lease assets and liabilities for the three months ended March 31, 2021 and 2020 (in thousands): Three Months Ended March 31, 2021 2020 In-place lease and other intangible amortization $ 7,773 $ 5,940 Above-market lease amortization $ 650 $ 908 Below-market lease amortization $ 1,466 $ 1,399 As of March 31, 2021, the estimated amortization relating to the intangible lease assets and liabilities is as follows (in thousands): Amortization In-Place Leases and Other Intangibles Above-Market Leases Below-Market Leases Remainder of 2021 $ 22,301 $ 1,813 $ 4,012 2022 27,702 2,323 4,752 2023 24,509 2,070 4,088 2024 21,314 1,575 3,128 2025 17,534 1,334 2,760 Thereafter 96,316 7,283 12,674 Total $ 209,676 $ 16,398 $ 31,414 NOTE 6 — REAL ESTATE-RELATED SECURITIES As of March 31, 2021, the Company had CMBS investment securities with an aggregate estimated fair value of $ 67.2 million. The CMBS mature on various dates from January 2024 through June 2058 and have interest rates ranging from 4.0 % to 13.0 %. The following is a summary of the Company’s real estate-related securities as of March 31, 2021 (in thousands): Real Estate-Related Securities Amortized Cost Basis Unrealized Gain Fair Value CMBS $ 65,953 $ 1,269 $ 67,222 Total real estate-related securities $ 65,953 $ 1,269 $ 67,222 21 Table of Contents CIM REAL ESTATE FINANCE TRUST, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2021 (Unaudited) – (Continued) The following table provides the activity for the real estate-related securities during the three months ended March 31, 2021 (in thousands): Amortized Cost Basis Unrealized Gain Fair Value Real estate-related securities as of January 1, 2021 $ 37,047 $ 1,147 $ 38,194 Face value of real estate-related securities acquired 34,491 — 34,491 Premiums and discounts on purchase of real estate-related securities, net of acquisition costs ( 5,982 ) — ( 5,982 ) Amortization of discount on real estate-related securities 234 — 234 Capitalized interest income on real estate-related securities 173 — 173 Principal payments received on real estate-related securities ( 10 ) — ( 10 ) Unrealized gain on real estate-related securities — 122 122 Real estate-related securities as of March 31, 2021 $ 65,953 $ 1,269 $ 67,222 During the three months ended March 31, 2021, the Company invested $ 28.5 million in CMBS. Unrealized gains and losses on real estate-related securities are recorded in other comprehensive income (loss), with a portion of the amount subsequently reclassified into interest expense and other, net in the accompanying condensed consolidated statements of operations as securities are sold and gains and losses are recognized. During the three months ended March 31, 2021, the Company recorded $ 122,000 of unrealized gains on its real estate-related securities included in accumulated other comprehensive (loss) income in the accompanying condensed consolidated statement of stockholders’ equity. The scheduled maturities of the Company’s real estate-related securities as of March 31, 2021 are as follows (in thousands): Available-for-sale securities Amortized Cost Estimated Fair Value Due within one year $ — $ — Due after one year through five years 26,989 27,441 Due after five years through ten years — — Due after ten years 38,964 39,781 Total $ 65,953 $ 67,222 Actual maturities of real estate-related securities can differ from contractual maturities because borrowers on certain corporate credit securities may have the right to prepay their respective debt obligations at any time. In addition, factors such as prepayments and interest rates may affect the yields on such securities. In estimating credit losses related to real estate-related securities, management considers a variety of factors, including (1) whether the Company has the intent to sell the impaired security before the recovery of its amortized cost basis, (2) whether the Company expects to hold the investment for a period of time sufficient to allow for anticipated recovery in fair value, and (3) whether the Company expects to recover the entire amortized cost basis of the security. As of March 31, 2021, the Company had no credit losses related to real estate-related securities. 22 Table of Contents CIM REAL ESTATE FINANCE TRUST, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2021 (Unaudited) – (Continued) NOTE 7 — LOANS HELD-FOR-INVESTMENT The Company’s loans held-for-investment consisted of the following as of March 31, 2021 and December 31, 2020 (dollar amounts in thousands): As of March 31, As of December 31, 2021 2020 Mezzanine loans $ — $ 147,475 Senior loans 525,447 341,546 Total CRE loans held-for-investment and related receivables, net 525,447 489,021 Broadly syndicated loans 496,832 473,603 Loans held-for-investment and related receivables, net $ 1,022,279 $ 962,624 Less: Allowance for credit losses $ ( 12,888 ) $ ( 70,358 ) Total loans held-for-investment and related receivable, net $ 1,009,391 $ 892,266 During the three months ended March 31, 2021, the Company invested $ 82.1 million in broadly syndicated loans. During the same period, the Company received $ 51.6 million of principal payments on broadly syndicated loans and sold $ 7.6 million of broadly syndicated loans, resulting in proceeds of $ 7.4 million after closing costs and a loss of $ 111,000 . The loss was recorded as an increase to interest expense and other, net in the condensed consolidated statements of operations. As of March 31, 2021, the Company had $ 34.5 million of unsettled broadly syndicated loan purchases included in cash and cash equivalents in the accompanying condensed consolidated balance sheet. As of March 31, 2021, the Company had $ 64.4 million of unfunded commitments related to CRE loans held-for-investment, the funding of which is subject to the satisfaction of borrower milestones. These commitments are not reflected in the accompanying condensed consolidated balance sheet. The following table details overall statistics for the Company’s loans held-for-investment as of March 31, 2021 and December 31, 2020 (dollar amounts in thousands): CRE Loans (1) (2) Broadly Syndicated Loans March 31, 2021 December 31, 2020 March 31, 2021 December 31, 2020 Number of loans 6 12 221 194 Principal balance $ 530,301 $ 481,438 $ 501,095 $ 477,777 Net book value $ 521,562 $ 428,393 $ 487,829 $ 463,873 Weighted-average interest rate 4.9 % 7.5 % 3.6 % 3.8 % Weighted-average maximum years to maturity 2.6 2.2 5.0 4.9 ____________________________________ (1) As of March 31, 2021, 100 % of the Company’s CRE 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 borrower; however, the Company’s CRE loans may be repaid prior to such date. 23 Table of Contents CIM REAL ESTATE FINANCE TRUST, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2021 (Unaudited) – (Continued) Activity relating to the Company’s loans held-for-investment portfolio was as follows (dollar amounts in thousands): Principal Balance Deferred Fees / Other Items (1) Loan Fees Receivable Net Book Value Balance, December 31, 2020 $ 959,215 $ ( 74,116 ) $ 7,167 $ 892,266 Loan originations and acquisitions 268,214 — — 268,214 Cure payments receivable (2) — ( 7,351 ) — ( 7,351 ) Sale of loans ( 7,594 ) 38 — ( 7,556 ) Principal repayments received ( 51,650 ) — — ( 51,650 ) Capitalized interest (2) ( 9,469 ) — — ( 9,469 ) Deferred fees and other items — ( 2,461 ) — ( 2,461 ) Accretion and amortization of fees and other items — 584 — 584 Foreclosure of assets (2) ( 127,320 ) 3,831 ( 7,167 ) ( 130,656 ) Allowance for credit losses (3) — 57,470 — 57,470 Balance, March 31, 2021 $ 1,031,396 $ ( 22,005 ) $ — $ 1,009,391 ____________________________________ (1) Other items primarily consist of allowance for credit losses (as discussed below), purchase discounts or premiums, accretion of exit fees and deferred origination expenses. (2) During the three months ended March 31, 2021, the Company completed foreclosure of the assets which previously secured its eight mezzanine loans. (3) Includes the reversal of the allowance for credit losses related to the mezzanine loans upon foreclosure of the assets which previously secured the loans, as further discussed below in “Allowance for Credit Losses,” partially offset by the increase in allowance for credit losses related to the Company’s loans held-for-investment during the three months ended March 31, 2021. Allowance for Credit Losses The allowance for credit losses reflects the Company’s current estimate of potential credit losses related to the loans held-for-investment included in the Company’s condensed consolidated balance sheets. Refer to Note 2 — Summary of Significant Accounting Policies for further discussion of the Company’s allowance for credit losses. 24 Table of Contents CIM REAL ESTATE FINANCE TRUST, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2021 (Unaudited) – (Continued) The following table presents the activity in the Company’s allowance for credit losses by loan type for the three months ended March 31, 2021 (dollar amounts in thousands): Mezzanine Loans Senior Loans Broadly Syndicated Loans Total Allowance for credit losses as of December 31, 2020 $ 58,038 $ 2,590 $ 9,730 $ 70,358 Foreclosure of assets (1) ( 58,038 ) — — ( 58,038 ) Provision for credit losses — 1,295 ( 727 ) 568 Allowance for credit losses as of March 31, 2021 $ — $ 3,885 $ 9,003 $ 12,888 ____________________________________ (1) During the three months ended March 31, 2021, the Company completed foreclosure of the assets which previously secured its eight mezzanine loans. Changes to the allowance for credit losses are recognized through net loss on the Company’s condensed consolidated statements of operations. Troubled Debt Restructuring An individual financial instrument is classified as a troubled debt restructuring when there is a reasonable expectation that the financial instrument’s contractual terms will be modified in a manner that grants concessions to the borrower who is experiencing financial difficulties. Concessions could include term extensions, payment deferrals, interest rate reductions, principal forgiveness, forbearance, or other actions designed to maximize the Company’s collection on the financial instrument. The allowance for credit losses for financial instruments that are trouble debt restructurings are determined individually. The Company also classifies a financial instrument as a troubled debt restructuring when receivables from third parties, real estate, or other assets are transferred from the debtor to the creditor in order to fully or partially satisfy a debt, such as in the event of a foreclosure or repossession. During the year ended December 31, 2019, the borrower on the Company’s eight mezzanine loans became delinquent on certain required reserve payments. Throughout 2020, the borrower remained delinquent on the required reserve payments and became delinquent on principal and interest. As a result, the Company classified the loans as a troubled debt restructuring and commenced foreclosure proceedings during the year ended December 31, 2020. Upon completing foreclosure in January 2021, the Company took control of the assets which previously secured the loans, including 75 condominium units and 21 rental units across four buildings. As a result of the foreclosure, the Company recorded a $ 58.0 million decrease to its provision for credit losses related to its mezzanine loans during the three months ended March 31, 2021. During the same period, the Company recorded a $ 568,000 net increase to the provision for credit losses related to its senior loans and broadly syndicated loans to reflect the estimated fair value of such loans, bringing the total allowance for credit losses to $ 12.9 million as of March 31, 2021. As further described in Note 2 — Summary of Significant Accounting Policies, the Company evaluates its loans held-for-investment portfolio on a quarterly basis. Each quarter, the Company assesses the risk factors of each loan, and assigns a risk rating based on several factors. Factors considered in the assessment include, but are not limited to, loan and credit structure, current LTV, debt yield, collateral performance, and the quality and condition of the sponsor, borrower, and guarantor(s). Loans are rated “1” (less risk) through “5” (greater risk), which ratings are defined in Note 2 — Summary of Significant Accounting Policies. 25 Table of Contents CIM REAL ESTATE FINANCE TRUST, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2021 (Unaudited) – (Continued) The Company’s primary credit quality indicator is its risk ratings, which are further discussed above. The following table presents the net book value of the Company’s loans held-for-investment portfolio as of March 31, 2021 by year of origination, loan type, and risk rating (dollar amounts in thousands): Amortized Cost of Loans Held-For-Investment by Year of Origination (1) As of March 31, 2021 Number of Loans 2021 2020 2019 Total Senior loans by internal risk rating: 1 — — — — — 2 — — — — — 3 6 176,908 232,573 115,966 525,447 4 — — — — — 5 — — — — — Total senior loans 6 176,908 232,573 115,966 525,447 Broadly syndicated loans by internal risk rating: 1 — — — — — 2 3 — 6,906 — 6,906 3 216 64,986 415,232 3,057 483,275 4 2 — 6,651 — 6,651 5 — — — — — Total broadly syndicated loans 221 64,986 428,789 3,057 496,832 Less: Allowance for credit losses ( 12,888 ) Total loans held-for-investment and related receivables, net 227 $ 1,009,391 Weighted Average Risk Rating (2) 3.0 ____________________________________ (1) Date loan was originated or acquired by the Company. Origination dates are subsequently updated to reflect material loan modifications. (2) Weighted average risk rating calculated based on carrying value at period end. NOTE 8 — DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES In the normal course of business, the Company uses certain types of derivative instruments for the purpose of managing or hedging its interest rate risk. During the three months ended March 31, 2021, one of the Company’s interest rate swap agreements matured. As of March 31, 2021, the Company had four interest rate swap agreements designated as hedging instruments. The following table summarizes the terms of the Company’s interest rate swap agreements designated as hedging instruments as of March 31, 2021 and December 31, 2020 (dollar amounts in thousands): Outstanding Notional Fair Value of Liabilities as of Balance Sheet Amount as of Interest Effective Maturity March 31, December 31, Location March 31, 2021 Rates (1) Dates Dates 2021 2020 Interest Rate Swaps Deferred rental income, derivative liabilities and other liabilities $ 273,600 2.55 % to 4.50 % 6/29/2016 to 5/27/2020 4/5/2021 to 3/27/2023 $ ( 7,622 ) $ ( 12,308 ) ____________________________________ (1) The interest rates consist of the underlying index swapped to a fixed rate and the applicable interest rate spread as of March 31, 2021. 26 Table of Contents CIM REAL ESTATE FINANCE TRUST, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2021 (Unaudited) – (Continued) Additional disclosures related to the fair value of the Company’s derivative instruments are included in Note 3 — Fair Value Measurements. The notional amount under the interest rate swap agreements is an indication of the extent of the Company’s involvement in each instrument, but does not represent exposure to credit, interest rate or market risks. Accounting for changes in the fair value of a derivative instrument depends on the intended use and designation of the derivative instrument. The Company designated the interest rate swaps as cash flow hedges in order to hedge the variability of the anticipated cash flows on its variable rate debt. The change in fair value of the derivative instruments that are designated as hedges is recorded in other comprehensive income (loss), with a portion of the amount subsequently reclassified to interest expense as interest payments are made on the Company’s variable rate debt. For the three months ended March 31, 2021 and 2020, the amount of losses reclassified from other comprehensive income (loss) as an increase to interest expense was $ 3.1 million and $ 977,000 , respectively. The total unrealized gain on interest rate swaps was $ 61,000 as of March 31, 2021, and the total unrealized loss on interest rate swaps was $ 3.2 million as of December 31, 2020, which are included in accumulated other comprehensive income (loss) in the accompanying condensed consolidated statement of stockholders’ equity. During the next 12 months, the Company estimates that $ 82,000 will be reclassified from other comprehensive income (loss) as an increase to interest expense. The Company includes cash flows from interest rate swap agreements in net cash flows provided by operating activities on its condensed consolidated statements of cash flows, as the Company’s accounting policy is to present cash flows from hedging instruments in the same category in its condensed consolidated statements of cash flows as the category for cash flows from the hedged items. The Company has agreements with each of its derivative counterparties that contain provisions whereby if the Company defaults on certain of its unsecured indebtedness, the Company could also be declared in default on its derivative obligations, resulting in an acceleration of payment. If the Company had breached any of these provisions, it could have been required to settle its obligations under the agreements at their aggregate termination value, inclusive of interest payments and accrued interest, of $ 7.7 million as of March 31, 2021. In addition, the Company is exposed to credit risk in the event of non-performance by its derivative counterparties. The Company believes it mitigates its credit risk by entering into agreements with creditworthy counterparties. The Company records credit risk valuation adjustments on its interest rate swaps based on the credit quality of the Company and the respective counterparty. There were no termination events or events of default related to the interest rate swaps as of March 31, 2021. NOTE 9 — CREDIT FACILITIES, NOTES PAYABLE AND REPURCHASE FACILITIES As of March 31, 2021, the Company had $ 2.4 billion of debt outstanding, including net deferred financing costs, with a weighted average years to maturity of 1.6 years and a weighted average interest rate of 2.8 %. The weighted average years to maturity is computed using the scheduled repayment date as specified in each loan agreement where applicable. The weighted average interest rate is computed using the interest rate in effect until the scheduled repayment date. The following table summarizes the debt balances as of March 31, 2021 and December 31, 2020, and the debt activity for the three months ended March 31, 2021 (in thousands): During the Three Months Ended March 31, 2021 Balance as of December 31, 2020 Debt Issuances & Assumptions (1) Repayments & Modifications Accretion and (Amortization) Balance as of March 31, 2021 Notes payable – fixed rate debt $ 578,096 $ — $ ( 243 ) $ — $ 577,853 Notes payable – variable rate debt — 102,553 — — 102,553 Credit facilities 1,336,500 160,000 ( 85,000 ) — 1,411,500 Repurchase facilities 235,380 122,323 ( 55 ) — 357,648 Total debt 2,149,976 384,876 ( 85,298 ) — 2,449,554 Net premiums (2) 149 — — ( 23 ) 126 Deferred costs – credit facility (3) ( 3,543 ) — — 733 ( 2,810 ) Deferred costs – fixed rate debt ( 1,589 ) — — 586 ( 1,003 ) Deferred costs – variable rate debt — ( 621 ) — — ( 621 ) Total debt, net $ 2,144,993 $ 384,255 $ ( 85,298 ) $ 1,296 $ 2,445,246 ____________________________________ (1) Includes deferred financing costs incurred during the period. 27 Table of Contents CIM REAL ESTATE FINANCE TRUST, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2021 (Unaudited) – (Continued) (2) Net premiums on mortgage notes payable were recorded upon the assumption of the respective debt instruments. Amortization of these net premiums is recorded as a reduction to interest expense over the remaining term of the respective debt instruments using the effective-interest method. (3) Deferred costs related to the term portion of the CMFT Credit Facility (as defined below). Notes Payable As of March 31, 2021, the fixed rate debt outstanding of $ 577.9 million included $ 53.6 million of variable rate debt that is fixed through interest rate swap agreements, which has the effect of fixing the variable interest rates per annum through the maturity date of the variable rate debt. The fixed rate debt has interest rates ranging from 2.6 % to 5.0 % per annum. The fixed rate debt outstanding matures on various dates from April 2021 to December 2024. Should a loan not be repaid by its scheduled repayment date, the applicable interest rate may increase as specified in the respective loan agreement. The aggregate balance of gross real estate assets, net of gross intangible lease liabilities, securing the fixed rate debt outstanding was $ 984.4 million as of March 31, 2021. Each of the mortgage notes payable comprising the fixed rate debt is secured by the respective properties on which the debt was placed. Upon completing foreclosure to take control of the assets which previously secured the Company’s mezzanine loans in January 2021, the Company assumed $ 102.6 million in variable rate debt related to the underlying properties. As of March 31, 2021, the variable rate debt outstanding had a weighted average interest rate of 5.5 %.The variable rate debt outstanding is set to mature on May 9, 2021; however, the Company may elect to extend the maturity date for one 12 -month period to May 9, 2022, which was elected subsequent to March 31, 2021. Credit Facilities The Company has a second amended and restated unsecured credit agreement (the “CMFT Second Amended and Restated Credit Agreement”) with JPMorgan Chase Bank, N.A. as administrative agent (“JPMorgan Chase”), and the other lenders party thereto that provides for borrowings of up to $ 1.24 billion as of March 31, 2021, which includes an $ 885.0 million unsecured term loan (the “CMFT Term Loan”) and up to $ 350.0 million in unsecured revolving loans (the “CMFT Revolving Loans” and, collectively with the CMFT Term Loan, the “CMFT Credit Facility”). The CMFT Credit Facility matures on March 15, 2022. Depending upon the type of loan specified and overall leverage ratio, the CMFT Credit Facility bears interest at (i) the one-month, two-month, three-month or six-month LIBOR multiplied by the statutory reserve rate (the “Eurodollar Rate”) plus an interest rate spread ranging from 1.65 % to 2.25 % or (ii) a base rate, ranging from 0.65 % to 1.25 %, plus the greater of: (a) JPMorgan Chase’s prime rate; (b) the Federal Funds Effective Rate (as defined in the CMFT Second Amended and Restated Credit Agreement) plus 0.50 %; or (c) the one-month LIBOR multiplied by the statutory reserve rate plus 1.00 %. On December 21, 2020, as a result of CCPT V’s merger with the Company, a subsidiary of the Company assumed CCPT V’s obligations pursuant to the credit agreement by and among Cole Operating Partnership V, LP, the operating partnership of CCPT V (“CCPT V OP”), JPMorgan Chase, as administrative agent, and the lender parties thereto (the “CCPT V Credit Agreement”), including as guarantor under a guaranty provided by CCPT V, and as modified by a modification agreement dated as of May 31, 2018 and subsequently modified following the consummation of CCPT V’s merger with the Company by a second modification agreement on December 21, 2020. The CCPT V Credit Agreement allows for borrowings of up to $ 350.0 million (the “CCPT V Credit Facility”). The CCPT V Credit Facility includes $ 220.0 million in term loans (the “CCPT V Term Loans”) and up to $ 130.0 million in revolving loans (the “CCPT V Revolving Loans”). The CCPT V Credit Facility matures on March 15, 2022. Depending upon the type of loan specified and overall leverage ratio, the CCPT V Credit Facility bears interest at (i) the one-month, two-month, three-month or six-month LIBOR multiplied by the statutory reserve rate (the “Adjusted LIBO Rate”) for the interest period plus an applicable rate ranging from 1.30 % to 1.70 %; or (ii) a base rate ranging from 0.30 % to 0.70 %, plus the greater of: (a) JPMorgan Chase’s Prime Rate (as defined in the CCPT V Credit Agreement); (b) the NYFRB Rate (as defined in the CCPT V Credit Agreement) plus 0.50 %; or (c) the Adjusted LIBO Rate for a period of one month plus 1.0 %. As of March 31, 2021, there was $ 50.0 million outstanding under the CMFT Revolving Loans at a weighted average interest rate of 1.9 %, and there were no amounts outstanding under the CCPT V Revolving Loans (collectively, the “Revolving Loans”). As of March 31, 2021, the CMFT Term Loan and CCPT V Term Loans (collectively the “Term Loans”) outstanding totaled $ 1.11 billion, $ 220.0 million of which is subject to interest rate swap agreements (the “Swapped Term Loans”). The interest rate swap agreements had the effect of fixing the Eurodollar Rate per annum of the Swapped Term Loans at an all-in rate of 4.2 %. As of March 31, 2021, the Company had $ 1.16 billion outstanding under the CMFT Credit Facility and CCPT V 28 Table of Contents CIM REAL ESTATE FINANCE TRUST, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2021 (Unaudited) – (Continued) Credit Facility (collectively the “Credit Facilities”) at a weighted average interest rate of 2.3 % and $ 430.0 million in unused capacity, subject to borrowing availability. The Company had available borrowings of $ 44.2 million as of March 31, 2021. The CMFT Second Amended and Restated Credit Agreement and the CCPT V Credit Agreement (collectively, the “Credit Agreements”) contain provisions with respect to covenants, events of default and remedies customary for facilities of this nature. In particular, the CMFT Second Amended and Restated Credit Agreement requires the Company to maintain a minimum consolidated net worth greater than or equal to the sum of $ 1.75 billion under the CMFT Second Amended and Restated Credit Agreement, and a leverage ratio less than or equal to 60 %. The CCPT V Credit Agreement requires a minimum consolidated net worth not less than $ 225.0 million plus 75 % of the equity issued and a net leverage ratio less than or equal to 60 %. Each of the Credit Agreements require a fixed charge coverage ratio greater than 1.50 , an unsecured debt to unencumbered asset value ratio equal to or less than 60 %, an unsecured debt service coverage ratio greater than 1.75 , a secured debt ratio equal to or less than 40 % and the amount of secured debt that is recourse debt at no greater than 15 % of total asset value. The Company believes it was in compliance with the financial covenants under the CMFT Second Amended and Restated Credit Agreement and the CCPT V Credit Agreement, as well as the financial covenants under the Company’s various fixed and variable rate debt agreements, as of March 31, 2021. On December 31, 2019 (the “Closing Date”), CMFT Corporate Credit Securities, LLC, an indirect wholly-owned, bankruptcy-remote subsidiary of the Company, entered into a revolving credit and security agreement (the “Credit and Security Agreement”) with the lenders from time to time parties thereto, Citibank, N.A. (“Citibank”), as administrative agent, CMFT Securities Investments, LLC, a wholly-owned subsidiary of the Company (“CMFT Securities”), as equityholder and as collateral manager, Citibank (acting through its Agency & Trust division), as both a collateral agent and as a collateral custodian, and Virtus Group, LP, as collateral administrator. The Credit and Security Agreement provides 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. As of March 31, 2021, the amounts borrowed and outstanding under the Credit Securities Revolver totaled $ 256.5 million at a weighted average interest rate of 1.9 %. Borrowings under the Credit and Security Agreement will bear interest equal to the three-month LIBOR for the relevant interest period, plus an applicable rate. The applicable rate is 1.70 % per annum during the reinvestment period and 2.00 % per annum during the amortization period (and, in each case, an additional 2.00 % per annum following an event of default under the Credit and Security Agreement). The reinvestment period begins on the Closing Date and concludes on the earlier of (i) the date that is three years after the Closing Date, (ii) the final maturity date and (iii) the date on which the total assets under management of the Company and its wholly-owned subsidiaries is less than $ 1.25 billion (the “Reinvestment Period”). The final maturity date is the earliest to occur of: (i) the date that the Credit Securities Revolver is paid down and (ii) the second anniversary after the Reinvestment Period concludes. 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. Repurchase Facilities On June 4, 2020, CMFT RE Lending RF Sub CB, LLC, an indirect wholly-owned subsidiary of the Company, entered into a Master Repurchase Agreement with Citibank (the “Citibank Repurchase Agreement”), which provides up to $ 300.0 million of financing primarily through Citibank’s purchase of the Company’s CRE mortgage loans and future funding advances (the “Citibank Repurchase Facility”). Additionally, on September 21, 2020, CMFT RE Lending RF Sub BB, LLC, an indirect wholly-owned subsidiary of the Company, entered into a second Master Repurchase Agreement with Barclays Bank PLC (“Barclays”) (the “Barclays Repurchase Agreement”), which provides up to $ 500.0 million of financing primarily through Barclays’ purchase of the Company’s 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 (collectively, the “Repurchase Agreements”) 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 (collectively, the “CMFT Lending Subs”) at a certain future date or upon demand. Advances under the Repurchase Agreements accrue interest at per annum rates based on the one-month LIBOR, plus a spread ranging from 2.00 % to 2.40 % to be determined on a case-by-case basis between Citibank or Barclays and the CMFT Lending Subs. The Repurchase Facilities mature on various dates between June 2023 and September 2023, with two one-year extension options, subject to certain conditions set forth in the Repurchase Agreements. In connection with the Repurchase Agreements, the Company (as the guarantor) entered into guaranties with Citibank and Barclays (the “Guaranties”), under which the Company agreed to guarantee up to 25 % of the CMFT Lending Subs’ obligations under the Repurchase Agreements. As of March 31, 2021, the Company had six senior loans with an aggregate carrying value 29 Table of Contents CIM REAL ESTATE FINANCE TRUST, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2021 (Unaudited) – (Continued) 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 at a weighted average interest rate of 2.7 %, and $ 187.4 million of which was financed under the Citibank Repurchase Facility at a weighted average interest rate of 2.2 %. The Repurchase Agreements and the Guaranties contain representations, warranties, covenants, conditions precedent to funding, events of default and indemnities that are customary for agreements of these types. In addition, the Guaranties contain financial covenants that require the Company to maintain: (i) minimum liquidity of not less than the lower of (a) $ 50.0 million and (b) the greater of (A) $ 10.0 million and (B) 5 % of the Company’s recourse indebtedness, as defined in the Guaranties; (ii) minimum consolidated net worth greater than or equal to $ 1.0 billion plus (a) 75 % of the equity issued by the Company following the respective closing dates of the Repurchase Agreements (the “Repurchase Closing Dates”) minus (b) the aggregate amount of any redemptions or similar transaction by the Company from the Repurchase Closing Dates; (iii) maximum leverage ratio of total indebtedness to total equity less than or equal to 80 %; and (iv) minimum interest coverage ratio of EBITDA (as defined in the Guaranties) to interest expense equal to or greater than 1.40 . The Company believes it was in compliance with the financial covenants under the Repurchase Agreements as of March 31, 2021. Maturities Liquidity and Financial Condition — As of March 31, 2021, the Company had $ 1.4 billion of debt maturing within the next 12 months following the date these financial statements are issued. The Company expects to enter into new financing arrangements or refinance existing arrangements to meet its obligations as they become due, which management believes is probable based on the current loan-to-value ratios, the occupancy of the Company’s properties and assessment of the current lending environment. The Company believes cash on hand, proceeds from real estate asset dispositions, net cash provided by operations, borrowings available under the credit facilities or the entry into new financing arrangements will be sufficient to meet its obligations as they become due in the ordinary course of business for at least 12 months following the date these financial statements are issued. The following table summarizes the scheduled aggregate principal repayments for the Company’s outstanding debt subsequent to March 31, 2021 (in thousands): Principal Repayments Remainder of 2021 $ 240,520 2022 1,184,391 2023 677,051 2024 347,592 2025 — Thereafter — Total $ 2,449,554 30 Table of Contents CIM REAL ESTATE FINANCE TRUST, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2021 (Unaudited) – (Continued) NOTE 10 — SUPPLEMENTAL CASH FLOW DISCLOSURES Supplemental cash flow disclosures for the three months ended March 31, 2021 and 2020 are as follows (in thousands): Three Months Ended March 31, 2021 2020 Supplemental Disclosures of Non-Cash Investing and Financing Activities: Distributions declared and unpaid $ 10,969 $ 16,463 Accrued capital expenditures $ 1,412 $ 87 Accrued deferred financing costs $ 417 $ 8 Real estate acquired via foreclosure $ 191,990 $ — Foreclosure of assets securing the mezzanine loans $ ( 79,968 ) $ — Mortgage notes payable assumed in connection with foreclosure of assets securing the mezzanine loans $ 102,553 $ — Change in interest income capitalized to loans held-for-investment $ ( 9,469 ) $ 539 Common stock issued through distribution reinvestment plan $ — $ 19,231 Change in fair value of interest rate swaps $ 4,686 $ ( 9,823 ) Change in fair value of real estate-related securities $ 122 $ — Supplemental Cash Flow Disclosures: Interest paid $ 18,493 $ 15,665 Cash paid for taxes $ 739 $ 138 NOTE 11 — COMMITMENTS AND CONTINGENCIES Litigation In the ordinary course of business, the Company may become subject to litigation and claims. The Company is not aware of any material pending legal proceedings, other than ordinary routine litigation incidental to the Company’s business, to which the Company is a party or of which the Company’s properties are the subject. Unfunded Commitments As of March 31, 2021, the Company had $ 64.4 million of unfunded commitments related to its existing CRE loans held-for-investment. These commitments are not reflected in the accompanying condensed consolidated balance sheet. Unsettled Broadly Syndicated Loans As of March 31, 2021, the Company had $ 34.5 million of unsettled broadly syndicated loan acquisitions, $ 711,000 of which settled subsequent to March 31, 2021. Additionally, the Company had $ 4.3 million of unsettled broadly syndicated loan sales, $ 1.2 million of which settled subsequent to March 31, 2021. Unsettled acquisitions are included in cash and cash equivalents in the accompanying condensed consolidated balance sheet. Environmental Matters In connection with the ownership and operation of real estate, the Company may potentially be liable for costs and damages related to environmental matters. In addition, the Company may own or acquire certain properties that are subject to environmental remediation. Generally, the seller of the property, the tenant of the property and/or another third party is responsible for environmental remediation costs related to a property. Additionally, in connection with the purchase of certain properties, the respective sellers and/or tenants may agree to indemnify the Company against future remediation costs. The Company also carries environmental liability insurance on its properties that provides limited coverage for any remediation liability and/or pollution liability for third-party bodily injury and/or property damage claims for which the Company may be liable. The Company is not aware of any environmental matters which it believes are reasonably likely to have a material effect on its results of operations, financial condition or liquidity. 31 Table of Contents CIM REAL ESTATE FINANCE TRUST, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2021 (Unaudited) – (Continued) NOTE 12 — RELATED-PARTY TRANSACTIONS AND ARRANGEMENTS The Company has incurred fees and expenses payable to CMFT Management and certain of its affiliates in connection with the acquisition, management and disposition of its assets. On August 20, 2019, the Company and CMFT Management entered into an Amended and Restated Management Agreement (the “Management Agreement”), which amended and restated that certain Advisory Agreement between the parties dated January 24, 2012, as amended (the “Prior Advisory Agreement”). Management and investment advisory fees The Company pays CMFT Management a management fee, 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). CMFT Securities has an investment advisory and management agreement dated December 6, 2019 (the “Investment Advisory and Management Agreement”) with the Investment Advisor. CMFT Securities was formed for the purpose of holding any securities investments made by the Company. The Investment Advisor, a wholly-owned subsidiary of CIM, is registered as an investment advisor under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). Pursuant to the Investment Advisory and Management Agreement, the Investment Advisor manages the day-to-day business affairs of CMFT Securities and its investments in corporate credit and real estate-related securities (collectively, the “Managed Assets”), subject to the supervision of the Board. In connection with the services provided by the Investment Advisor, CMFT Securities pays the Investment Advisor an investment advisory fee (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). 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, the Investment Advisor has a sub-advisory agreement dated December 6, 2019 (the “Sub-Advisory Agreement”) with OFS Capital Management, LLC (the “Sub-Advisor”) to act as an investment sub-advisor to CMFT Securities. The Sub-Advisor is registered as an investment adviser under the Advisers Act and is an affiliate of the Investment Advisor. The Sub-Advisor is responsible for 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 and incentive compensation payable to the Investment Advisor as sub-advisory fees. Incentive compensation CMFT Management is entitled to receive incentive compensation, payable with respect to each quarter, which is generally equal to the excess of (a) the product of (i) 20 % and (ii) the excess of (A) Core Earnings (as defined in the Management Agreement) of the Company for the previous 12-month period, over (B) the product of (1) the Company’s Consolidated Equity (as defined in the Management Agreement) in the previous 12-month period, and (2) 7 % per annum, over (b) the sum of any incentive compensation paid to CMFT Management with respect to the first three calendar quarters of such previous 12-month period (or such lesser number of completed calendar quarters preceding the applicable period, if applicable). During the three months ended March 31, 2021 and 2020, no incentive compensation fees were incurred. In addition, the Investment Advisor is eligible to receive a portion of the incentive compensation payable to CMFT Management pursuant to the Management Agreement. In the event that the incentive compensation is earned and payable with respect to any quarter, CMFT Management calculates the portion of the incentive compensation that was attributable to the Managed Assets and payable to the Investment Advisor. 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. Operating expenses The Company reimburses CMFT Management or its affiliates for certain expenses CMFT Management or its affiliates paid or incurred in connection with the services provided to the Company. The Company will reimburse CMFT Management or its affiliates for salaries and benefits paid to personnel who provide services to the Company including the Company’s executive officers and any portfolio management, acquisitions or investment professionals. 32 Table of Contents CIM REAL ESTATE FINANCE TRUST, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2021 (Unaudited) – (Continued) Disposition fees If CMFT Management or its affiliates provided a substantial amount of services (as determined by a majority of the Company’s independent directors) in connection with the sale of one or more properties (or the Company’s entire portfolio), the Company paid CMFT Management or its affiliates a disposition fee in an amount equal to up to one-half of the real estate or brokerage commission paid by the Company to third parties on the sale of such property, not to exceed 1.0 % of the contract price of the property sold; provided, however, in no event would the total disposition fees paid to CMFT Management, its affiliates and unaffiliated third parties exceed the lesser of the customary competitive real estate commission or an amount equal to 6.0 % of the contract sales price. The Company recorded fees and expense reimbursements as shown in the table below for services provided by CMFT Management or its affiliates related to the services described above during the periods indicated (in thousands): Three Months Ended March 31, 2021 2020 Management fees and expenses $ 13,014 $ 11,090 Acquisition fees and expenses $ 181 $ 127 Disposition fees $ — $ 341 Operating expenses $ 1,043 $ 810 Of the amounts shown above, $ 15.4 million and $ 12.6 million had been incurred, but not yet paid, for services provided by CMFT Management or its affiliates in connection with management and operating activities during the three months ended March 31, 2021 and 2020, respectively, and such amounts were recorded as liabilities of the Company as of such dates. Due to Affiliates As of March 31, 2021 and December 31, 2020, $ 15.4 million and $ 14.7 million, respectively, had been incurred primarily for management fees and operating expenses by CMFT Management or its affiliates, but had not yet been reimbursed by the Company. These amounts were included in due to affiliates in the condensed consolidated balance sheets for such periods. Development Management Agreements On January 7, 2021, the Company completed foreclosure proceedings to take control of the assets which previously secured its mezzanine loans, including 75 condominium units and 21 rental units across four buildings in New York. Upon foreclosure, and with the approval of the valuation, compensation and affiliate transactions committee of the Board, CIM NY Management, LLC, an affiliate of the Company’s manager CMFT Management, entered into a Development Management Agreement with the indirect wholly owned subsidiaries of the Company that own each of the four buildings (the “Building Owners”), wherein CIM NY Management, LLC will act as project manager in overseeing the development and construction of property improvements in accordance with each respective Development Management Agreement (the “Development Services”). In consideration for the Development Services, CIM NY Management, LLC will receive a development management fee from the Building Owners equal to 4 % of the aggregate gross project costs expended during the term of the Development Management Agreement, subject to the conditions in each respective Development Management Agreement. Additionally, CIM NY Management, LLC is reimbursed by the Building Owners for expenses incurred in connection with the Development Services, including services provided that are incidental to but not part thereof the Development Services. The Development Management Agreement shall remain in effect until the project completion date, and is terminable by either party with fifteen days prior notice to the other party, with or without cause. NOTE 13 — ECONOMIC DEPENDENCY Under various agreements, the Company has engaged and may in the future engage CMFT Management or its affiliates to provide certain services that are essential to the Company, including asset management services, supervision of the management and leasing of properties owned by the Company, asset acquisition and disposition decisions, as well as other administrative responsibilities for the Company including accounting services and stockholder relations. As a result of these relationships, the Company is dependent upon CMFT Management or its affiliates. In the event that these companies are unable to provide the Company with these services, the Company would be required to find alternative providers of these services. 33 Table of Contents CIM REAL ESTATE FINANCE TRUST, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2021 (Unaudited) – (Continued) NOTE 14 — STOCKHOLDERS’ EQUITY Equity-Based Compensation On August 10, 2018, the Board approved the adoption of the Company’s 2018 Equity Incentive Plan (the “Plan”), under which 400,000 of the Company’s shares of common stock were reserved for issuance and awards of approximately 345,000 shares of common stock are available for future grant at March 31, 2021. Under the Plan, the Board or a committee designated by the Board has the authority to grant restricted stock awards or deferred stock awards to non-employee directors of the Company, which will further align such directors’ interests with the interests of the Company’s stockholders. The Board or a committee designated by the Board also has the authority to determine the terms of any award granted pursuant to the Plan, including vesting schedules, restrictions and acceleration of any restrictions. The Plan may be amended or terminated by the Board at any time. The Plan expires on August 9, 2028. As of March 31, 2021, the Company has granted awards of approximately 11,000 restricted shares to each of the independent members of the Board (approximately 54,500 restricted shares in aggregate) under the Plan. As of March 31, 2021, 32,500 of the restricted shares had vested based on one year of continuous service. The remaining 22,000 restricted shares issued had not vested or been forfeited as of March 31, 2021. The fair value of the Company’s share awards is determined using the Company’s per share NAV on the date of grant. Compensation expense related to the restricted shares is recognized over the vesting period. The Company recorded compensation expense of $ 40,000 for each of the three months ended March 31, 2021 and 2020, respectively, related to the restricted shares which is included in general and administrative expenses in the accompanying condensed consolidated statements of operations. As of March 31, 2021, there was $ 80,000 of total unrecognized compensation expense related to these restricted shares, which will be recognized ratably over the remaining period of service prior to October 2021. NOTE 15 — LEASES The Company’s real estate assets are leased to tenants under operating leases for which the terms, expirations and extension options vary. The Company’s operating leases do not convey to the lessee the right to purchase the underlying asset upon expiration of the lease period. To determine whether a contract contains a lease, the Company reviews contracts to determine if the agreement conveys the right to control the use of an asset. The Company accounts for lease and non-lease components as a single, combined operating lease component. Non-lease components primarily consist of maintenance services, including CAM, real estate taxes, insurance and utilities paid for by the lessor but consumed by the lessee. Non-lease components are considered to be variable rental and other property income and are recognized in the period incurred. As of March 31, 2021, the Company’s leases had a weighted-average remaining term of 8.7 years. Certain leases include provisions to extend the lease agreements, options for early termination after paying a specified penalty, rights of first refusal to purchase the property at competitive market rates, and other negotiated terms and conditions. The Company retains substantially all of the risks and benefits of ownership of the real estate assets leased to tenants. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. As of March 31, 2021, the future minimum rental income from the Company’s real estate assets under non-cancelable operating leases, assuming no exercise of renewal options for the succeeding five fiscal years and thereafter, was as follows (in thousands): Future Minimum Rental Income Remainder of 2021 $ 191,931 2022 248,096 2023 231,349 2024 212,216 2025 193,595 Thereafter 1,245,868 Total $ 2,323,055 A certain amount of the Company’s rental and other property income is from tenants with leases which are subject to contingent rent provisions. These contingent rents are subject to the tenant achieving periodic revenues in excess of specified levels. For the three months ended March 31, 2021 and 2020, the amount of the contingent rent earned by the Company was not significant . 34 Table of Contents CIM REAL ESTATE FINANCE TRUST, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2021 (Unaudited) – (Continued) Rental and other property income during the three months ended March 31, 2021 and 2020 consisted of the following (in thousands): Three Months Ended March 31, 2021 2020 Fixed rental and other property income (1) $ 66,541 $ 56,673 Variable rental and other property income (2) 10,389 11,763 Total rental and other property income $ 76,930 $ 68,436 __________________________________ (1) Consists primarily of fixed contractual payments from operating leases with tenants recognized on a straight-line basis over the lease term, including amortization of acquired above- and below-market leases, and is net of uncollectible lease-related receivables. (2) Consists primarily of tenant reimbursements for recoverable real estate taxes and property operating expenses, and percentage rent. The Company has one property subject to a non-cancelable operating ground lease with a remaining term of 12.4 years, with a lease liability (in deferred rental income, derivative liabilities and other liabilities) and a related ROU asset (in prepaid expenses and other assets) of $ 2.4 million in the condensed consolidated balance sheets. The lease liability and ROU asset were initially measured at the present value of the future minimum lease payments using a discount rate of 4.3 %. This reflects the Company’s incremental borrowing rate, which was calculated based on the interest rate the Company would incur to borrow on a fully collateralized basis over a term similar to the lease. The Company recognized $ 63,000 of ground lease expense during the three months ended March 31, 2021, of which $ 61,000 was paid in cash during the period it was recognized. As of March 31, 2021, the Company’s scheduled future minimum rental payments related to its operating ground lease is approximately $ 188,000 for the remainder of 2021, $ 250,000 annually for 2022 through 2026, and $ 1.6 million thereafter through the maturity date of the lease in August 2033. NOTE 16 — SEGMENT REPORTING The Company has two reportable segments: real estate and credit. Corporate/other represents all corporate level and unallocated items and includes the Company’s other asset management activities and operating expenses. There were no changes in the structure of the Company’s internal organization that prompted the change in reportable segments. Prior period amounts have been revised to conform to the current year presentation shown below. 35 Table of Contents CIM REAL ESTATE FINANCE TRUST, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2021 (Unaudited) – (Continued) The following tables present segment reporting for the three months ended March 31, 2021 and 2020 (in thousands): Real Estate Credit Corporate/Other (1) Company Total Three Months Ended March 31, 2021 Rental and other property income $ 76,794 $ — $ 136 $ 76,930 Interest income — 11,953 — 11,953 Total revenues 76,794 11,953 136 88,883 General and administrative 64 376 5,031 5,471 Property operating 8,523 — 1,596 10,119 Real estate tax 7,869 — 4,350 12,219 Management and advisory fees and expenses 9,331 2,246 1,437 13,014 Transaction-related 4 — 181 185 Depreciation and amortization 25,738 — — 25,738 Real estate impairment 4,300 — — 4,300 Provision for credit losses — 568 — 568 Total operating expenses 55,829 3,190 12,595 71,614 Operating income (loss) 20,965 8,763 ( 12,459 ) 17,269 Other expense: Interest expense and other, net ( 4,116 ) ( 3,547 ) ( 12,359 ) ( 20,022 ) Segment net income (loss) $ 16,849 $ 5,216 $ ( 24,818 ) $ ( 2,753 ) Total assets as of March 31, 2021 $ 3,371,496 $ 1,155,640 $ 194,718 $ 4,721,854 __________________________________ (1) Includes 75 condominium units and 21 rental units acquired via foreclosure during the three months ended March 31, 2021. During the year ended December 31, 2019, the borrower on the Company’s eight mezzanine loans became delinquent on certain required reserve payments. Throughout 2020, the borrower remained delinquent on the required reserve payments and became delinquent on principal and interest. As a result, the Company classified the loans as a troubled debt restructuring and commenced foreclosure proceedings. Upon completing foreclosure in January 2021, The Company took control of the assets which previously secured its mezzanine loans. 36 Table of Contents CIM REAL ESTATE FINANCE TRUST, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2021 (Unaudited) – (Continued) Real Estate Credit Corporate/Other Company Total Three Months Ended March 31, 2020 Rental and other property income $ 68,436 $ — $ — $ 68,436 Interest income — 5,571 — 5,571 Total revenues 68,436 5,571 — 74,007 General and administrative 62 12 3,608 3,682 Property operating 6,865 — — 6,865 Real estate tax 6,978 — — 6,978 Management and advisory fees and expenses 7,981 1,869 1,240 11,090 Transaction-related 125 — 127 252 Depreciation and amortization 20,823 — — 20,823 Real estate impairment 11,676 — — 11,676 Provision for credit losses — 17,777 — 17,777 Total operating expenses 54,510 19,658 4,975 79,143 Gain on disposition of real estate, net 13,110 — — 13,110 Operating income (loss) 27,036 ( 14,087 ) ( 4,975 ) 7,974 Other expense: Interest expense and other, net ( 6,335 ) 200 ( 9,632 ) ( 15,767 ) Loss on extinguishment of debt ( 4,382 ) — — ( 4,382 ) Segment net income (loss) $ 16,319 $ ( 13,887 ) $ ( 14,607 ) $ ( 12,175 ) Total assets as of March 31, 2020 $ 2,749,026 $ 627,479 $ 224,187 $ 3,600,692 NOTE 17 — SUBSEQUENT EVENTS The following events occurred subsequent to March 31, 2021: Broadly Syndicated Loans Subsequent to March 31, 2021, the Company settled $ 8.7 million of broadly syndicated loan acquisitions, $ 711,000 of which were traded as of March 31, 2021. Additionally, subsequent to March 31, 2021, the Company settled $ 8.6 million of broadly syndicated loan sales, $ 1.2 million of which were traded as of March 31, 2021. CMBS Sales Subsequent to March 31, 2021, the Company sold $ 24.4 million of CMBS, resulting in proceeds of $ 27.6 million and a gain of $ 660,000 . CRE Loans Subsequent to March 31, 2021, the Company acquired two senior loans with an aggregate principal balance of $ 92.6 million and unfunded commitments of $ 12.4 million, the funding of which is subject to the satisfaction of borrower milestones. The senior loans have a weighted average interest rate of 2.1 % and an initial maturity date of November 2021, with three one-year extension options for a final maturity date of November 2024. Property Dispositions Subsequent to March 31, 2021, the Company disposed of five properties for an aggregate gross sales price of $ 41.5 million. The property dispositions resulted in proceeds of $ 38.8 million after closing costs and a gain of approximately $ 2.0 million. In connection with one of the property dispositions, the Company legally defeased a mortgage loan with an outstanding balance of $ 21.9 million. The Company has no continuing involvement with these properties. 37 Table of Contents CIM REAL ESTATE FINANCE TRUST, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2021 (Unaudited) – (Continued) Derivative Instruments and Notes Payable Subsequent to March 31, 2021, one of the Company’s interest rate swap agreements matured and the Company repaid in full $ 32.1 million of the underlying mortgage notes payable. Credit Facilities Subsequent to March 31, 2021, the Company borrowed $ 60.0 million under the Credit Securities Revolver. The Credit Securities Revolver bears interest equal to the three-month LIBOR for the relevant interest period, plus an applicable rate of 1.70 % per annum during the reinvestment period and 2.00 % per annum during the amortization period, as discussed in Note 9 — Credit Facilities, Notes Payable and Repurchase Facilities. Subsequent to March 31, 2021, the Company repaid $ 60.0 million on the CMFT Credit Facility. 38 Table of Contents