CIM GROUP, INC. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis should be read in conjunction with the accompanying condensed consolidated financial statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q. We make statements in this section that are forward-looking statements within the meaning of the federal securities laws. Certain risks may cause our actual results, performance or achievements to differ materially from those expressed or implied by the following discussion. For a complete discussion of such risk factors, see Item 1A — Risk Factors of this Quarterly Report on Form 10-Q and the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. Capitalized terms used herein, but not otherwise defined, shall have the meaning ascribed to those terms in “Part I — Financial Information” of this Quarterly Report on Form 10-Q, including the notes to the condensed consolidated financial statements contained therein, and the terms “we,” “us,” “our” and the “Company” refer to CIM Real Estate Finance Trust, Inc. Forward-Looking Statements This Quarterly Report on Form 10-Q includes “forward-looking statements” (within the meaning of the federal securities laws, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that reflect our expectations and projections about our future results, performance, prospects and opportunities. We have attempted to identify these forward-looking statements by the use of words such as “may,” “will,” “seek,” “expects,” “anticipates,” “believes,” “targets,” “intends,” “should,” “estimates,” “could,” “continue,” “assume,” “projects,” “plans” or similar expressions. These forward-looking statements are based on information currently available to us and are subject to a number of known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. These factors include, among other things, those discussed below. In addition, these risks and uncertainties include those associated with (i) the scope, severity and duration of the current pandemic of COVID-19 and actions taken to contain the pandemic or mitigate its impact, (ii) the potential adverse effect of the COVID-19 pandemic on the financial condition, results of operations, cash flows and performance of the Company and its tenants, the real estate market and the global economy and financial markets, among others, and (iii) general economic, market and other conditions. We intend for all such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act and Section 21E of the Exchange Act, as applicable by law. We do not undertake to publicly update or revise any forward-looking statements, whether as a result of changes in underlying assumptions or new information, future events or otherwise, except as may be required to satisfy our obligations under federal securities law. The forward-looking statements should be read in light of the risk factors identified in Item 1A — Risk Factors of this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2020. The following are some, but not all, of the assumptions, risks, uncertainties and other factors that could cause our actual results to differ materially from those presented in our forward-looking statements: • We may be unable to renew leases, lease vacant space or re-lease space as leases expire on favorable terms or at all. • We are subject to risks associated with tenant, geographic and industry concentrations with respect to our properties. • Our properties, intangible assets and other assets may be subject to impairment charges. • We could be subject to unexpected costs or unexpected liabilities that may arise from dispositions. • We are subject to competition in the acquisition and disposition of properties and in the leasing of our properties, and we may suffer delays or be unable to acquire, dispose of, or lease properties on advantageous terms. • We are subject to risks associated with bankruptcies or insolvencies of tenants or from tenant defaults generally. • We have substantial indebtedness, which may affect our ability to pay distributions and expose us to interest rate fluctuation risk and the risk of default under our debt obligations. • We are subject to risks associated with the incurrence of additional secured or unsecured debt. • We may not be able to maintain profitability. • We may not generate cash flows sufficient to pay our distributions to stockholders or meet our debt service obligations. • Our continued compliance with debt covenants depends on many factors and could be impacted by current or future economic conditions associated with the current novel coronavirus (“COVID-19”) pandemic. • We may be affected by risks resulting from losses in excess of insured limits. • We may fail to remain qualified as a REIT for U.S. federal income tax purposes. • We may be unable to successfully reposition our portfolio or list our shares on a national securities exchange in the timeframe we expect or at all. 39 Table of Contents • We may be unable to achieve the cost synergies anticipated to result from the Mergers. Definitions We use certain defined terms throughout this Quarterly Report on Form 10-Q that have the following meanings: The phrase “annualized rental income” refers to the straight-line rental revenue under our leases on operating properties owned as of the respective reporting date, which includes the effect of rent escalations and any tenant concessions, such as free rent, and excludes any contingent rent, such as percentage rent. Management uses annualized rental income as a basis for tenant, industry and geographic concentrations and other metrics within the portfolio. Annualized rental income is not indicative of future performance. Under a “net lease,” the tenant occupying the leased property (usually as a single tenant) does so in much the same manner as if the tenant were the owner of the property. The tenant generally agrees that it will either have no ability or only limited ability to terminate the lease or abate rent prior to the expiration of the term of the lease as a result of real estate driven events such as casualty, condemnation or failure by the landlord to fulfill its obligations under the lease. There are various forms of net leases, most typically classified as either triple-net or double-net. Triple-net leases typically require the tenant to pay all expenses associated with the property (e.g., real estate taxes, insurance, maintenance and repairs, including roof, structure and parking lot). Double-net leases typically hold the landlord responsible for the capital expenditures for the roof and structure, while the tenant is responsible for all lease payments and remaining operating expenses associated with the property (e.g., real estate taxes, insurance and maintenance). Overview We were formed on July 27, 2010, and we elected to be taxed, and currently qualify, as a REIT for U.S. federal income tax purposes commencing with our taxable year ended December 31, 2012. We commenced our principal operations on April 13, 2012, when we satisfied the conditions of our escrow agreement regarding the minimum offering and issued approximately 308,000 shares of our common stock. We have no paid employees and are externally managed by CMFT Management and, with respect to investments in securities, our Investment Advisor. CIM indirectly owns and/or controls CMFT Management; our dealer manager, CCO Capital; our property manager, CREI Advisors; and CCO Group. We ceased issuing shares in our Offering on April 4, 2014 and in the Initial DRIP Offering effective as of June 30, 2016, but will continue to issue shares of common stock under the Secondary DRIP Offering until certain liquidity events occur, such as the listing of our shares, on a national securities exchange or the sale of our company, or the Secondary DRIP Offering is otherwise terminated by our Board. We suspended issuing shares of common stock under our Secondary DRIP Offering on August 30, 2020 in connection with our entry into the merger agreements with CCIT III and CCPT V. On March 25, 2021, the Board approved reinstating the DRIP effective April 1, 2021. We expect that property acquisitions in 2021 and future periods will be funded by proceeds from financing of the acquired properties, cash flows from operations and the strategic sale of properties and other asset acquisitions. Our operating results and cash flows are primarily influenced by rental and other property income from our commercial properties, interest expense on our indebtedness and acquisition and operating expenses. As 93.7% of our rentable square feet was under lease, including any month-to-month agreements, as of March 31, 2021, with a weighted average remaining lease term of 8.7 years, we believe our exposure to changes in commercial rental rates on our portfolio is substantially mitigated, except for vacancies caused by tenant bankruptcies or other factors. Our manager regularly monitors the creditworthiness of our tenants by reviewing each tenant’s financial results, any available credit rating agency reports on the tenant or guarantor, the operating history of the property with such tenant, the tenant’s market share and track record within its industry segment, the general health and outlook of the tenant’s industry segment and other information for changes and possible trends. If CMFT Management identifies significant changes or trends that may adversely affect the creditworthiness of a tenant, it will gather a more in-depth knowledge of the tenant’s financial condition and, if necessary, attempt to mitigate the tenant credit risk by evaluating the possible sale of the property or identifying a possible replacement tenant should the current tenant fail to perform on the lease. We have primarily acquired core commercial real estate assets principally consisting of retail properties located throughout the United States. As of March 31, 2021, we owned 515 properties, comprising 21.3 million rentable square feet of commercial space located in 45 states. In addition, during the three months ended March 31, 2021, we completed foreclosure proceedings and took control of the assets which previously secured our mezzanine loans, including 75 condominium units and 21 rental units across four buildings. We intend to continue to pursue a more diversified investment strategy across the capital structure by balancing our existing portfolio of core commercial real estate assets with our future investments in a portfolio of commercial mortgage loans 40 Table of Contents and other real estate-related credit investments in which our sponsor and its affiliates have expertise, that we would originate, acquire, finance and manage. As of March 31, 2021, our loan portfolio consisted of 227 loans with a net book value of $1.0 billion. As of March 31, 2021, we had $34.5 million of unsettled broadly syndicated loan purchases included in cash and cash equivalents, and investments in real estate-related securities of $67.2 million. During the three months ended March 31, 2021, we disposed of one property, encompassing approximately 15,000 gross rentable square feet. As of March 31, 2021, our real estate portfolio consisted of 454 retail properties, 56 anchored shopping centers, four industrial properties and one office property representing 35 industry sectors. In addition, we acquired 75 condominium units and 21 rental units via foreclosure during the three months ended March 31, 2021. See Note 4 — Real Estate Assets to the condensed consolidated financial statements in this Quarterly Report on Form 10-Q for a discussion of the disposition of individual properties during the three months ended March 31, 2021. COVID-19 We are closely monitoring the negative impacts that the COVID-19 pandemic and the efforts to mitigate its spread are having on the economy, our tenants and our business. T he extent to which the COVID-19 pandemic continues to impact our operations and those of our tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, the timing and pace of reopening efforts, and the direct and indirect economic effects of the pandemic and containment measures, among others. During the three months ended March 31, 2021, we provided lease concessions, either in the form of rental deferrals or abatements, to certain tenants in response to the impact of the COVID-19 pandemic. During the three months ended March 31, 2021, we granted total rent deferrals with an aggregate deferral amount o f $431,000 . Additionally, during the three months ended March 31, 2021, we granted rent abatements to tenants with an abatement amount of $248,000 . As of May 6, 2021, we have collected approximately 98% of rental payments billed to tenants during the three months ended March 31, 2021 . Additionally, as of May 6, 2021, we have collected 97% of April rental payments billed to tenants. Operating Highlights and Key Performance Indicators 2021 Activity • Completed foreclosure to take control of the assets which previously secured our mezzanine loans, including 75 condominium units and 21 rental units across four buildings. • Invested $82.1 million in broadly syndicated loans and sold broadly syndicated loans for an aggregate gross sales price of $7.6 million. • Invested $28.5 million in CMBS. • Disposed of one retail property for an aggregate sales price of $3.7 million. • Increased total debt by $299.6 million, from $2.1 billion to $2.4 billion. 41 Table of Contents Portfolio Information The following table shows the carrying value of our portfolio by investment type as of March 31, 2021 and 2020 (dollar amounts in thousands): As of March 31, 2021 2020 Asset Count Carrying Value Asset Count Carrying Value Loan Held-For-Investment Mezzanine loans — $ — — % 8 $ 140,061 4.3 % Senior loans 6 525,447 11.6 % 3 153,870 4.7 % Broadly syndicated loans 221 496,832 11.0 % 113 333,449 10.2 % Less: Allowance for credit losses (12,888) (0.3) % (19,779) (0.6) % Total loans held-for-investment and related receivable, net 227 1,009,391 22.3 % 124 607,601 18.6 % Real Estate-Related Securities CMBS 5 67,222 1.5 % — — — % Real Estate Total real estate assets and intangible lease liabilities, net 515 3,450,076 76.2 % 384 2,655,882 81.4 % Total Investment Portfolio 747 $ 4,526,689 100.0 % 508 $ 3,263,483 100.0 % The following table details overall statistics of our credit portfolio as of March 31, 2021 (dollar amounts in thousands): Senior Loans (1) (2) Broadly Syndicated Loans CMBS Number of loans 6 221 5 Net book value $ 521,562 $ 487,829 $ 67,222 Weighted-average interest rate 4.9 % 3.6 % 6.8 % Weighted-average maximum years to maturity 2.6 5.0 19.5 ____________________________________ (1) As of March 31, 2021, 100% of our loans by principal balance earned a floating rate of interest, primarily indexed to U.S. dollar LIBOR. (2) Maximum maturity date assumes all extension options are exercised by the borrowers; however, our CRE loans may be repaid prior to such date. Real Estate Portfolio Information As of March 31, 2021, we owned 515 properties located in 45 states, the gross rentable square feet of which was 93.7% leased, including any month-to-month agreements, with a weighted average lease term remaining of 8.7 years. As of March 31, 2021, no single tenant accounted for greater than 10% of our 2021 annualized rental income. As of March 31, 2021, we had certain geographic and industry concentrations in our property holdings. In particular, 61 of our properties were located in California, which accounted for 11% of our 2021 annualized rental income. In addition, we had tenants in the sporting goods, home and garden and general merchandise store industries, which accounted for 12%, 11% and 10%, respectively, of our 2021 annualized rental income. The following table shows the property statistics of our real estate assets as of March 31, 2021 and 2020: As of March 31, 2021 2020 Number of commercial properties 515 384 Rentable square feet (in thousands) (1) 21,293 18,381 Percentage of rentable square feet leased 93.7 % 94.6 % Percentage of investment-grade tenants (2) 38.6 % 38.6 % ____________________________________ (1) Includes square feet of buildings on land parcels subject to ground leases. 42 Table of Contents (2) Investment-grade tenants are those with a credit rating of BBB- or higher by Standard & Poor’s Financial Services LLC (“Standard & Poor’s”) or a credit rating of Baa3 or higher by Moody’s Investor Service, Inc. (“Moody’s”). The ratings may reflect those assigned by Standard & Poor’s or Moody’s to the lease guarantor or the parent company, as applicable. The weighted average credit rating is weighted based on annualized rental income and is for only those tenants rated by Standard & Poor’s. During the three months ended March 31, 2021 and 2020, the Company did not acquire any properties. Results of Operations Overview We are not aware of any material trends or uncertainties, other than those listed in the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2020 and this Quarterly Report on Form 10-Q, the effects of the COVID-19 pandemic, and national economic conditions affecting real estate in general that may reasonably be expected to have a material impact on our results from the acquisition, management and operation of properties. Currently, we are unable to predict the impact that the COVID-19 pandemic will have on our financial condition, results of operations and cash flows in future periods due to numerous uncertainties. Same Store Analysis Our results of operations are influenced by the timing of acquisitions and the operating performance of our real estate assets. We review our stabilized operating results, measured by net operating income, from properties that we owned for the entirety of both the current and prior year reporting periods, referred to as “same store” properties, and we believe that the presentation of operating results for same store properties provides useful information to stockholders. Net operating income is a supplemental non-GAAP financial measure of a real estate company’s operating performance. Net operating income is considered by management to be a helpful supplemental performance measure, as it enables management to evaluate the impact of occupancy, rents, leasing activity, and other controllable property operating results at our real estate properties, and it provides a consistent method for the comparison of our properties. We define net operating income as operating revenues less operating expenses, which exclude (i) depreciation and amortization, (ii) interest expense and other non-property related revenue and expense items such as (a) general and administrative expenses, (b) management and advisory fees and expenses, (c) transaction-related expenses, (d) real estate impairment, (e) provision for credit losses, (f) gain on disposition of real estate, net, (g) merger-related items and (h) interest income. Our net operating income may not be comparable to that of other REITs and should not be considered to be more relevant or accurate in evaluating our operating performance than the current GAAP methodology used in calculating net income (loss). In determining the same store property pool, we include all properties that were owned for the entirety of both the current and prior reporting periods, except for properties during the current or prior year that were under development or redevelopment. 43 Table of Contents Comparison of the Three Months Ended March 31, 2021 and 2020 The following table reconciles net loss, calculated in accordance with GAAP, to net operating income (dollar amounts in thousands): For the Three Months Ended March 31, 2021 2020 Change Net loss $ (2,753) $ (12,175) $ 9,422 Loss on extinguishment of debt — 4,382 (4,382) Interest expense and other, net 20,022 15,767 4,255 Operating income 17,269 7,974 9,295 Gain on disposition of real estate, net — (13,110) 13,110 Provision for credit losses 568 17,777 (17,209) Real estate impairment 4,300 11,676 (7,376) Depreciation and amortization 25,738 20,823 4,915 Transaction-related expenses 185 252 (67) Management and advisory fees and expenses 13,014 11,090 1,924 General and administrative expenses 5,471 3,682 1,789 Interest income (11,953) (5,571) (6,382) Net operating income $ 54,592 $ 54,593 $ (1) Our operating segments include credit and real estate. Refer to Note 16 — Segment Reporting for further discussion of our operating segments. Credit Segment Interest Income The increase in interest income of $6.4 million for the three months ended March 31, 2021, compared to the same period in 2020, was due to an increase in credit investments. As of March 31, 2021, we held investments in 221 broadly syndicated loans, six CRE loans held-for-investment and five CMBS. As of March 31, 2020, we held investments in 113 broadly syndicated loans and 11 CRE loans held-for-investment. Provision for Credit Losses The decrease in provision for credit losses of $17.2 million during the three months ended March 31, 2021, as compared to the same period in 2020 was primarily due to the foreclosure of the assets securing the Company’s mezzanine loans. During the three months ended March 31, 2020, the borrower on the Company’s eight mezzanine loans remained delinquent on the required reserve payments and became delinquent on principal and interest, resulting in the Company recording $13.0 million in credit losses related to the mezzanine loans. Upon completing foreclosure proceedings in January 2021, the Company took control of the assets which previously secured the loans, and as such, a provision for credit losses related to the mezzanine loans was not recorded for the three months ended March 31, 2021. Real Estate Segment A total of 368 properties were acquired before January 1, 2020 and represent our “same store” properties during the three months ended March 31, 2021 and 2020. “Non-same store” properties, for purposes of the table below, includes properties acquired or disposed of on or after January 1, 2020. 44 Table of Contents The following table details the components of net operating income broken out between same store and non-same store properties (dollar amounts in thousands): Total Same Store Non-Same Store For the Three Months Ended March 31, For the Three Months Ended March 31, For the Three Months Ended March 31, 2021 2020 Change 2021 2020 Change 2021 2020 Change Rental and other property income $ 76,930 $ 68,436 $ 8,494 $ 61,680 $ 64,162 $ (2,482) $ 15,250 $ 4,274 $ 10,976 Property operating expenses 10,119 6,865 3,254 6,217 6,319 (102) 3,902 546 3,356 Real estate tax expenses 12,219 6,978 5,241 6,659 6,542 117 5,560 436 5,124 Total property operating expenses 22,338 13,843 8,495 12,876 12,861 15 9,462 982 8,480 Net operating income $ 54,592 $ 54,593 $ (1) $ 48,804 $ 51,301 $ (2,497) $ 5,788 $ 3,292 $ 2,496 Loss on Extinguishment of Debt Loss on extinguishment of debt decreased $4.4 million for the three months ended March 31, 2021, as compared to the same period in 2020. During the three months ended March 31, 2020, we recorded losses on the extinguishment of mortgage loans with an aggregate carrying value of $97.0 million. No such losses were recorded during the three months ended March 31, 2021. Interest Expense and Other, Net Interest expense and other, net also includes amortization of deferred financing costs. The increase in interest expense and other, net, of $4.3 million for the three months ended March 31, 2021, as compared to the same period in 2020, was primarily due to an increase in the average aggregate amount of debt outstanding from $1.56 billion as of March 31, 2020 to $2.46 billion as of March 31, 2021, partially offset by a decrease in the weighted average interest rate from 3.8% as of March 31, 2020 to 2.8% as of March 31, 2021. Gain on Disposition of Real Estate, Net The decrease in gain on disposition of real estate, net, of $13.1 million during the three months ended March 31, 2021, as compared to the same period in 2020, was primarily due to the disposition of one property with no gain or loss recognized during the three months ended March 31, 2021 compared to the disposition of 12 properties for a gain of $13.1 million during the three months ended March 31, 2020. Real Estate Impairment The decrease in real estate impairments of $7.4 million during the three months ended March 31, 2021, as compared to the same period in 2020, was due to five properties that were deemed to be impaired, resulting in impairment charges of $4.3 million during the three months ended March 31, 2021, compared to seven properties that were deemed to be impaired, resulting in impairment charges of $11.7 million during the three months ended March 31, 2020. Depreciation and Amortization The increase in depreciation and amortization of $4.9 million during the three months ended March 31, 2021, as compared to the same period in 2020, was primarily due to the acquisition of 146 properties in connection with the Mergers that closed in December 2020, partially offset by the disposition of 19 properties subsequent to March 31, 2020. Transaction-Related Expenses Transaction-related expenses include manager reimbursements for acquisition and disposition activities. Transaction-related expenses remained generally consistent during the three months ended March 31, 2021, as compared to the same period in 2020. Management and Advisory Fees and Expenses We pay CMFT Management a management fee pursuant to the Management Agreement, payable quarterly in arrears, equal to the greater of (a) $250,000 per annum ($62,500 per quarter) and (b) 1.50% per annum (0.375% per quarter) of the 45 Table of Contents Company’s Equity (as defined in the Management Agreement). Additionally, we may be required to reimburse certain expenses incurred by CMFT Management in providing management services, subject to limitations as set forth in the Management Agreement (as discussed in Note 12 — Related-Party Transactions and Arrangements to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q). Furthermore, as discussed in Note 12 — Related-Party Transactions and Arrangements to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q, pursuant to the Investment Advisory and Management Agreement, for management of investments in the Managed Assets (as defined in the Investment Advisory and Management Agreement), CMFT Securities pays the Investment Advisor the Investment Advisory Fee, payable quarterly in arrears, equal to 1.50% per annum (0.375% per quarter) of CMFT Securities’ Equity (as defined in the Investment Advisory and Management Agreement). Pursuant to the Investment Advisory and Management Agreement, CMFT Securities reimburses the Investment Advisor for costs and expenses incurred by the Investment Advisor on its behalf. Because the Managed Assets are excluded from the calculation of management fees payable by the Company to CMFT Management pursuant to the Management Agreement, the total management and advisory fees payable by the Company to its external advisors are not increased as a result of the Investment Advisory and Management Agreement. In addition, pursuant to the Sub-Advisory Agreement, in connection with providing investment management services with respect to the corporate credit-related securities held by CMFT Securities, on a quarterly basis, the Investment Advisor designates 50% of the sum of the Investment Advisory Fee payable to the Investment Advisor as sub-advisory fees. The increase in management and advisory fees and expenses of $1.9 million during the three months ended March 31, 2021, as compared to the same period in 2020, was primarily due to an increase in manager expense reimbursements. Additionally, we incurred management fees of $11.6 million during the three months ended March 31, 2021, as compared to $11.1 million in management fees during the same period 2020. General and Administrative Expenses The primary general and administrative expense items are certain expense reimbursements to our manager, banking fees and transfer agency costs. The increase in general and administrative expenses of $1.8 million for the three months ended March 31, 2021, as compared to the same period in 2020, was primarily due to an increase in legal costs related to the foreclosure completed in January 2021 to take control of the assets securing the Company’s mezzanine loans, as discussed in Note 7 — Loans Held-For-Investment to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q. Net Operating Income Same store property net operating income decreased $2.5 million during the three months ended March 31, 2021, as compared to the same period in 2020. The change was primarily due to a reduction in same store occupancy to 92.8% as of March 31, 2021, compared to 94.9% as of March 31, 2020, resulting in a $1.5 million decrease in net operating income. Additionally, the bankruptcy of one tenant resulted in a decrease in rental income of $805,000. Non-same store property net operating income increased $2.5 million during the three months ended March 31, 2021, as compared to the same period in 2020. The increase was primarily due to the acquisition of 146 properties in connection with the Mergers that closed December 2020, and the disposition of 19 properties subsequent to March 31, 2020. Distributions Prior to April 1, 2020, on a quarterly basis, our Board authorized a daily distribution for the succeeding quarter. Our Board authorized the following daily distribution amounts per share for the periods indicated below: Period Commencing Period Ending Daily Distribution Amount April 14, 2012 December 31, 2012 $0.001707848 January 1, 2013 December 31, 2015 $0.001712523 January 1, 2016 December 31, 2016 $0.001706776 January 1, 2017 December 31, 2019 $0.001711452 January 1, 2020 March 31, 2020 $0.001706776 On April 20, 2020, our Board decided to make a determination as to the amount and timing of distributions on a monthly, instead of a quarterly, basis until such time that we had greater visibility into the impact that the COVID-19 pandemic would have on our tenants’ ability to continue to pay rent on their leases on a timely basis or at all, the degree to which federal, state or local governmental authorities grant rent relief or other relief or amnesty programs applicable to our tenants, our ability to access the capital markets, and on the United States and worldwide financial markets and economy. On March 25, 2021, the 46 Table of Contents Board resumed declaring distributions on a quarterly basis by declaring a monthly per share distribution for the months of March, April, May and June of 2021. Since April of 2020, our Board authorized the following monthly distribution amounts per share for the periods indicated below: Record Date Distribution Amount April 30, 2020 $0.0130 May 31, 2020 $0.0130 June 30, 2020 $0.0161 July 30, 2020 $0.0304 August 28, 2020 $0.0303 September 29, 2020 $0.0303 October 29, 2020 $0.0303 November 27, 2020 $0.0303 December 30, 2020 $0.0303 January 28, 2021 $0.0303 February 25, 2021 $0.0303 March 29, 2021 $0.0303 April 29, 2021 $0.0303 May 28, 2021 $0.0303 June 29, 2021 $0.0303 As of March 31, 2021, we had distributions payable of $11.0 million. The following table presents distributions and sources of distributions for the periods indicated below (dollar amounts in thousands): Three Months Ended March 31, 2021 2020 Amount Percent Amount Percent Distributions paid in cash $ 32,906 100 % $ 29,148 60 % Distributions reinvested — — % 19,231 40 % Total distributions $ 32,906 100 % $ 48,379 100 % Sources of distributions: Net cash provided by operating activities (1) $ 28,747 87 % $ 26,770 (2) 55 % Proceeds from the issuance of debt (3) 4,159 13 % 13,301 28 % Proceeds from the issuance of common stock — — % 8,308 (4) 17 % Total sources $ 32,906 100 % $ 48,379 100 % ____________________________________ (1) Net cash provided by operating activities for the three months ended March 31, 2021 and 2020 was $28.7 million and $17.1 million, respectively. (2) Our distributions covered by cash flows from operating activities for the three months ended March 31, 2020 include cash flows from operating activities in excess of distributions from prior periods of $9.6 million. (3) Net proceeds on the credit facilities and notes payable for the three months ended March 31, 2021 and 2020 were $197.0 million and $2.9 million, respectively. (4) In accordance with GAAP, certain real estate acquisition-related fees and expenses, such as expenses and fees incurred in connection with property acquisitions accounted for as business combinations, are expensed, and therefore reduce net cash flows from operating activities. Therefore, for consistency, proceeds from the issuance of common stock used as a source of distributions for the three months ended March 31, 2020 include the amount by which real estate acquisition-related fees and expenses have reduced net cash flows from operating activities in those prior periods. 47 Table of Contents Share Redemptions Our amended and restated share redemption program (the “Amended Share Redemption Program”) permits our stockholders to sell their shares of common stock back to us, subject to certain conditions and limitations. Funding for the redemption of shares will be limited to the cumulative net proceeds we receive from the sale of shares under the Secondary DRIP Offering, net of shares redeemed to date. In addition, we will generally limit quarterly redemptions to approximately 1.25% of the weighted average number of shares outstanding during the trailing 12-month period ending on the last day of the fiscal quarter for which the redemptions are being paid, and to the net proceeds we receive from the sale of shares in the respective quarter under the Secondary DRIP Offering. Any of the foregoing limits might prevent us from accommodating all redemption requests made in any fiscal quarter or in any 12-month period. In addition, our Board may choose to amend the terms of, suspend or terminate our Amended Share Redemption Program at any time in its sole discretion if it believes that such action is in the best interest of us and our stockholders. Any material modifications or suspension of the Amended Share Redemption Program will be disclosed to our stockholders as promptly as practicable in our reports filed with the SEC and via our website. In connection with the Mergers, our Board suspended our Amended Share Redemption Program on August 30, 2020, and therefore, no shares were redeemed from our stockholders after that date. On March 25, 2021 our Board reinstated the Amended Share Redemption Program, effective April 1, 2021. Liquidity and Capital Resources General We expect to utilize proceeds from real estate dispositions, sales proceeds and principal payments received on credit investments, cash flows from operations and future proceeds from secured or unsecured financing to complete future acquisitions, repayment of certain indebtedness and for general corporate uses. The sources of our operating cash flows will primarily be provided by the rental and other property income received from current and future leased properties and interest income from our portfolio of credit investments. As of March 31, 2021, the CMFT Credit Facility provided for borrowings of up to $1.24 billion, which includes the $885.0 million CMFT Term Loan and up to $350.0 million on the CMFT Revolving Loans. The CCPT V Credit Facility provides for borrowings of $220.0 million under the CCPT V Term Loans and up to $130.0 million under the CCPT V Revolving Loans. As of March 31, 2021, we had $430.0 million in unused capacity under the Credit Facilities, subject to borrowing availability. We had available borrowings of $44.2 million as of March 31, 2021. As of March 31, 2021, we also had cash and cash equivalents of $57.6 million, which included $34.5 million of unsettled broadly syndicated loan purchases. As of March 31, 2021, the Credit and Security Agreement provided for borrowings in an aggregate principal amount up to $500.0 million under the Credit Securities Revolver, which may be increased from time to time pursuant to the Credit and Security Agreement. Borrowings under the Credit and Security Agreement are secured by substantially all of the assets held by CMFT Corporate Credit Securities, LLC, which shall primarily consist of broadly-syndicated senior secured loans subject to certain eligibility criteria under the Credit and Security Agreement. As of March 31, 2021, the amounts borrowed and outstanding under the Credit Securities Revolver totaled $256.5 million. As of March 31, 2021, the Citibank Repurchase Agreement provided up to $300.0 million under the Citibank Repurchase Facility. Additionally, as of March 31, 2021, the Barclays Repurchase Agreement provided up to $500.0 million of financing primarily through the Barclays Repurchase Facility. The Citibank Repurchase Agreement and the Barclays Repurchase Agreement provide for simultaneous agreements by Citibank and Barclays to re-sell purchased CRE mortgage loans back to CMFT RE Lending RF Sub CB, LLC and CMFT RE Lending RF Sub BB, LLC at a certain future date or upon demand. As of March 31, 2021, we had six senior loans with an aggregate carrying value of $525.4 million financed with $357.6 million under the Repurchase Facilities, $170.2 million of which was financed under the Barclays Repurchase Facility and $187.4 million of which was financed under the Citibank Repurchase Facility. As of March 31, 2021, we believe that we were in compliance with the financial covenants of the CMFT Second Amended and Restated Credit Agreement, the CCPT V Credit Agreement, the Citibank Repurchase Agreement and the Barclays Repurchase Agreement, as well as the financial covenants under our various fixed and variable rate debt agreements, as further discussed in Note 9 — Credit Facilities, Notes Payable and Repurchase Facilities to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q. Short-term Liquidity and Capital Resources On a short-term basis, our principal demands for funds will be for the acquisition of real estate-related securities, real estate and real estate-related assets and the payment of acquisition-related fees and expenses, operating expenses, distributions, redemptions and interest and principal on current and any future debt financings, including principal repayments of $1.4 billion 48 Table of Contents within the next 12 months. We expect to meet our short-term liquidity requirements through cash proceeds from real estate asset dispositions, net cash provided by operations and proceeds from the Secondary DRIP Offering, as well as secured or unsecured borrowings from banks and other lenders to finance our future acquisitions and loan originations. Operating cash flows are expected to increase as we complete future acquisitions. We believe that the resources stated above will be sufficient to satisfy our operating requirements for the foreseeable future, and we do not anticipate a need to raise funds from sources other than those described above within the next 12 months. Management intends to use the proceeds from the disposition of properties to, among other things, acquire additional high-quality net-lease properties and credit investments in furtherance of our investment objectives and for other general corporate purposes. Long-term Liquidity and Capital Resources On a long-term basis, our principal demands for funds will be for the acquisition of real estate-related securities, real estate and real estate-related credit investments and the payment of tenant improvements, acquisition-related fees and expenses, operating expenses, distributions and redemptions to stockholders and interest and principal on any current and future indebtedness. Generally, we expect to meet our long-term liquidity requirements through proceeds from cash flows from operations, borrowings on the Credit Facilities, proceeds from secured or unsecured borrowings from banks and other lenders, and proceeds raised pursuant to the Secondary DRIP Offering. We expect that substantially all net cash flows from operations will be used to pay distributions to our stockholders after certain capital expenditures, including tenant improvements and leasing commissions, are paid; however, we have used, and may continue to use, other sources to fund distributions, as necessary, including borrowings on the Credit Facilities and/or future borrowings on our unencumbered assets. To the extent that cash flows from operations are lower due to fewer properties being acquired or lower than expected returns on the properties, distributions paid to our stockholders may be lower. We expect that substantially all net cash flows from the Offerings or debt financings will be used to fund acquisitions, loan originations, certain capital expenditures, repayments of outstanding debt or distributions and redemptions to our stockholders. Contractual Obligations As of March 31, 2021, we had debt outstanding with a carrying value of $2.4 billion and a weighted average interest rate of 2.8%. See Note 9 — Credit Facilities, Notes Payable and Repurchase Facilities to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q for certain terms of our debt outstanding. Our contractual obligations as of March 31, 2021 were as follows (in thousands): Payments due by period (1) Total Less Than 1 Year 1-3 Years 3-5 Years More Than 5 Years Principal payments — fixed rate debt (2) $ 577,853 $ 138,794 $ 373,083 $ 65,976 $ — Interest payments — fixed rate debt (3) 42,498 19,134 22,467 897 — Principal payments — variable rate debt 102,553 102,553 — — — Interest payments — variable rate debt (4) 587 587 — — — Principal payments — credit facilities (5) 1,411,500 1,155,000 — 256,500 — Interest payments — credit facilities (5) 44,039 30,607 9,760 3,672 — Principal payments — repurchase facilities (6) 357,648 — 357,648 — — Interest payments — repurchase facilities (6) 20,232 8,696 11,536 — — Total $ 2,556,910 $ 1,455,371 $ 774,494 $ 327,045 $ — ____________________________________ (1) The table does not include amounts due to CMFT Management or its affiliates pursuant to our Management Agreement because such amounts are not fixed and determinable. (2) Principal payment amounts reflect actual payments based on the face amount of notes payable secured by our wholly-owned properties, which excludes the fair value adjustment, net of amortization, of mortgage notes assumed of $126,000 as of March 31, 2021. (3) As of March 31, 2021, we had $53.6 million of variable rate debt effectively fixed through the use of interest rate swap agreements. We used the effective interest rates fixed under our interest rate swap agreements to calculate the debt payment obligations in future periods. (4) As of March 31, 2021, we had variable rate debt outstanding of $102.6 million with a weighted average interest rate of 5.5%. We used the weighted average interest rate to calculate the debt payment obligations in future periods. 49 Table of Contents (5) As of March 31, 2021, the Term Loans outstanding totaled $1.1 billion, $220.0 million of which is subject to interest rate swap agreements. As of March 31, 2021, the weighted average all-in interest rate for the Swapped Term Loans was 4.2%. The remaining $935.0 million outstanding under the Credit Facilities had a weighted average interest rate of 1.9% as of March 31, 2021. As of March 31, 2021, the amounts outstanding under the Credit Securities Revolver totaled $256.5 million and had a weighted average interest rate of 1.9%. (6) As of March 31, 2021, the amount outstanding under the Citibank Repurchase Facility was $187.4 million at a weighted average interest rate of 2.2%, and the amount outstanding under the Barclays Repurchase Facility was $170.2 million at a weighted average interest rate of 2.7%. We expect to incur additional borrowings in the future to acquire additional properties and other real estate-related assets. There is no limitation on the amount we may borrow against any single improved property. As of March 31, 2021, our ratio of debt to total gross assets net of gross intangible lease liabilities was 49.0% and our ratio of debt to the fair market value of our gross assets net of gross intangible lease liabilities was 49.5%. Fair market value is based on the estimated market value of our real estate assets as of June 30, 2020 that were used to determine our estimated per share NAV, and for those assets acquired from July 1, 2020 through March 31, 2021 is based on the purchase price. Our management reviews net debt as part of its management of our overall liquidity, financial flexibility, capital structure and leverage, and we therefore believe that the presentation of net debt provides useful information to stockholders. Net debt is a non-GAAP measure used to show our outstanding principal debt balance, excluding certain GAAP adjustments, such as premiums or discounts, financing and issuance costs, and related accumulated amortization, less all cash and cash equivalents. As of March 31, 2021, our net debt leverage ratio, which is the ratio of net debt to total gross real estate and related assets net of gross intangible lease liabilities, was 47.8%. The following table provides a reconciliation of the notes payable and credit facility, net balance, as reported on our condensed consolidated balance sheet, to net debt as of March 31, 2021 (dollar amounts in thousands): Balance as of March 31, 2021 Credit facilities, notes payable and repurchase facilities, net $ 2,445,246 Deferred costs and net premiums (1) 4,308 Less: Cash and cash equivalents (57,550) Net debt $ 2,392,004 Gross real estate and related assets, net (2) $ 5,001,401 Net debt leverage ratio 47.8 % ____________________________________ (1) Deferred costs relate to mortgage notes payable and the term portion of the Credit Facilities. (2) Net of gross intangible lease liabilities. Includes gross assets held for sale, as well as real estate-related securities and loans held-for-investment principal balance, net of allowance for credit losses, of $1.1 billion. Cash Flow Analysis Operating Activities. Net cash provided by operating activities increased by $11.6 million for the three months ended March 31, 2021, as compared to the same period in 2020. The increase was primarily due to the acquisition of 146 properties in connection with the Mergers that closed in December 2020, partially offset by lower net income after non-cash adjustments primarily resulting from foreclosure of the assets which previously secured the Company’s mezzanine loans during the three months ended March 31, 2021. See “— Results of Operations” for a more complete discussion of the factors impacting our operating performance. Investing Activities. Net cash used in investing activities increased $43.0 million for the three months ended March 31, 2021, as compared to the same period in 2020. The change was primarily due to a decrease in proceeds from disposition of real estate assets of $123.1 million and an increase in the net investment in loans held-for-investment of $138.0 million, partially offset by a decrease in the net investment in broadly syndicated loans and real estate-related securities of $227.5 million. Financing Activities. Net cash provided by financing activities was $163.3 million for the three months ended March 31, 2021, as compared to net cash used in financing activities of $45.9 million for the three months ended March 31, 2020. The change was primarily due to an increase in net proceeds on the credit facilities, notes payable and repurchase facilities of $194.2 million as a result of entering into the Repurchase Facilities subsequent to March 31, 2020, coupled with a decrease in 50 Table of Contents redemptions of common stock of $19.5 million resulting from the Board’s suspension of the Amended Share Redemption Program. Election as a REIT We elected to be taxed, and currently qualify, as a REIT for federal income tax purposes commencing with our taxable year ended December 31, 2012. To maintain our qualification as a REIT, we must continue to meet certain requirements relating to our organization, sources of income, nature of assets, distributions of income to our stockholders and recordkeeping. As a REIT, we generally are not subject to federal income tax on taxable income that we distribute to our stockholders so long as we distribute at least 90% of our annual taxable income (computed without regard to the dividends paid deduction and excluding net capital gains). If we fail to maintain our qualification as a REIT for any reason in a taxable year and applicable relief provisions do not apply, we will be subject to tax on our taxable income at regular corporate rates. We will not be able to deduct distributions paid to our stockholders in any year in which we fail to maintain our qualification as a REIT. We also will be disqualified for the four taxable years following the year during which qualification was lost, unless we are entitled to relief under specific statutory provisions. Such an event could materially adversely affect our net income and net cash available for distribution to stockholders. However, we believe that we are organized and operate in such a manner as to maintain our qualification as a REIT for federal income tax purposes. No provision for federal income taxes has been made in our accompanying condensed consolidated financial statements. We are subject to certain state and local taxes related to the operations of properties in certain locations, which have been provided for in our accompanying condensed consolidated financial statements. Critical Accounting Policies and Significant Accounting Estimates Our accounting policies have been established to conform with GAAP. The preparation of financial statements in conformity with GAAP requires us to use judgment in the application of accounting policies, including making estimates and assumptions. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Management believes that we have made these estimates and assumptions in an appropriate manner and in a way that accurately reflects our financial condition. We continually test and evaluate these estimates and assumptions using our historical knowledge of the business, as well as other factors, to ensure that they are reasonable for reporting purposes. However, actual results may differ from these estimates and assumptions. If our judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied, thus resulting in a different presentation of the financial statements. Additionally, other companies may utilize different estimates that may impact comparability of our results of operations to those of companies in similar businesses. We believe the following critical accounting policies govern the significant judgments and estimates used in the preparation of our financial statements, which should be read in conjunction with the more complete discussion of our accounting policies and procedures included in Note 2 — Summary of Significant Accounting Policies to our audited consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2020. We consider our critical accounting policies to be the following: • Recoverability of Real Estate Assets; • Allocation of Purchase Price of Real Estate Assets; and • Allowance for Credit Losses. A complete description of such policies and our considerations is contained in our Annual Report on Form 10-K for the year ended December 31, 2020. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with our audited consolidated financial statements as of and for the year ended December 31, 2020 and related notes thereto. We continually monitor events and changes in circumstances that could indicate that the carrying amounts of our real estate assets may not be recoverable. Impairment indicators that we consider include, but are not limited to: bankruptcy or other credit concerns of a property’s major tenant, such as a history of late payments, lease concessions and other factors; a significant decrease in a property’s revenues due to lease terminations; vacancies; co-tenancy clauses; reduced lease rates; or changes in anticipated holding periods. We continue to evaluate our portfolio to determine if anticipated holding periods for certain properties may materially differ from the initial intended holding periods for such properties, which could result in an impairment charge in the future. 51 Table of Contents Related-Party Transactions and Agreements We have entered into agreements with CMFT Management or its affiliates whereby we agree to pay certain fees to, or reimburse certain expenses of, CMFT Management or its affiliates such as management and advisory fees and expenses, organization and offering costs, leasing fees and reimbursement of certain operating costs. See Note 12 — Related-Party Transactions and Arrangements to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q for a discussion of the various related-party transactions, agreements and fees. Conflicts of Interest Richard S. Ressler, the chairman of our Board, chief executive officer and president, who is also a founder and principal of CIM and is an officer/director of certain of its affiliates including CMFT Management, is the chairman of the board, chief executive officer and president of CIM Income NAV. One of our directors, Avraham Shemesh, who is also a founder and principal of CIM and is an officer/director of certain of its affiliates including CMFT Management, serves as a director of CIM Income NAV. One of our directors, Elaine Y. Wong, who is a principal of CIM, also serves as a director of CIM Income NAV. One of our independent directors, W. Brian Kretzmer, also serves as an independent director of CIM Income NAV. Nathan D. DeBacker, our chief financial officer and treasurer, who is also an officer of other real estate programs sponsored by CCO Group, is a vice president of CMFT Management and is an officer of certain of its affiliates. In addition, affiliates of CMFT Management act as an advisor to CIM Income NAV. As such, there may be conflicts of interest where CMFT Management or its affiliates, while serving in the capacity as sponsor, general partner, officer, director, key personnel and/or advisor for CIM or another real estate program sponsored or operated by CIM or CCO Group, including other real estate offerings in registration, may be in conflict with us in connection with providing services to other real estate-related programs related to property acquisitions, property dispositions, and property management, among others. The compensation arrangements between affiliates of CMFT Management and these other real estate programs sponsored or operated by CCO Group could influence the advice provided to us. See Part I, Item 1. Business — Conflicts of Interest in our Annual Report on Form 10-K for the year ended December 31, 2020. Off-Balance Sheet Arrangements As of March 31, 2021 and December 31, 2020, we had no material off-balance sheet arrangements that had or are reasonably likely to have a current or future effect on our financial condition, results of operations, liquidity or capital resources.