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) June 30, 2021 December 31, 2020 ASSETS Real estate assets: Land $ 843,192 $ 881,896 Buildings, fixtures and improvements 2,267,204 2,490,030 Intangible lease assets 367,622 389,564 Condominium developments 197,080 — Total real estate assets, at cost 3,675,098 3,761,490 Less: accumulated depreciation and amortization ( 472,399 ) ( 453,385 ) Total real estate assets, net 3,202,699 3,308,105 Real estate-related securities 42,071 38,194 Loans held-for-investment and related receivables, net 1,356,247 962,624 Less: Allowance for credit losses ( 13,011 ) ( 70,358 ) Total loans held-for-investment and related receivables, net 1,343,236 892,266 Cash and cash equivalents 141,299 121,385 Restricted cash 32,918 7,023 Rents and tenant receivables, net 57,945 74,419 Prepaid expenses and other assets 17,028 10,406 Deferred costs, net 5,842 4,293 Assets held for sale 6,124 3,518 Total assets $ 4,849,162 $ 4,459,609 LIABILITIES AND STOCKHOLDERS’ EQUITY Credit facilities, notes payable and repurchase facilities, net $ 2,540,809 $ 2,144,993 Accrued expenses and accounts payable 35,102 30,419 Due to affiliates 15,957 14,723 Intangible lease liabilities, net 27,578 32,718 Distributions payable 10,997 10,969 Deferred rental income, derivative liabilities and other liabilities 19,686 27,361 Total liabilities 2,650,129 2,261,183 Commitments and contingencies Redeemable common stock 173,628 — 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, 362,923,841 and 362,001,968 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively 3,629 3,620 Capital in excess of par value 2,990,971 3,157,859 Accumulated distributions in excess of earnings ( 971,826 ) ( 961,006 ) Accumulated other comprehensive income (loss) 2,631 ( 2,047 ) Total stockholders’ equity 2,025,405 2,198,426 Total liabilities, redeemable common stock and stockholders’ equity $ 4,849,162 $ 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 June 30, Six Months Ended June 30, 2021 2020 2021 2020 Revenues: Rental and other property income $ 75,302 $ 60,103 $ 152,232 $ 128,539 Interest income 16,460 7,193 28,413 12,764 Total revenues 91,762 67,296 180,645 141,303 Operating expenses: General and administrative 3,605 3,020 8,033 5,902 Property operating 11,356 4,811 21,475 11,676 Real estate tax 7,706 6,748 19,925 13,726 Expense reimbursements to related parties 3,210 3,057 5,871 5,235 Management fees 11,755 9,750 23,332 19,600 Transaction-related 27 125 31 250 Depreciation and amortization 24,647 19,696 50,385 40,519 Real estate impairment 77 3,831 4,377 15,507 Provision for credit losses 123 7,905 691 25,682 Total operating expenses 62,506 58,943 134,120 138,097 Gain on disposition of real estate and condominium developments, net 46,469 3,791 46,469 16,901 Operating income 75,725 12,144 92,994 20,107 Other expense: Interest expense and other, net ( 16,460 ) ( 15,520 ) ( 36,482 ) ( 31,276 ) Loss on extinguishment of debt ( 1,478 ) ( 370 ) ( 1,478 ) ( 4,752 ) Total other expense ( 17,938 ) ( 15,890 ) ( 37,960 ) ( 36,028 ) Net income (loss) $ 57,787 $ ( 3,746 ) $ 55,034 $ ( 15,921 ) Weighted average number of common shares outstanding: Basic and diluted 362,448,778 310,558,499 362,226,607 310,903,460 Net income (loss) per common share: Basic and diluted $ 0.16 $ ( 0.01 ) $ 0.15 $ ( 0.05 ) 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 June 30, Six Months Ended June 30, 2021 2020 2021 2020 Net income (loss) $ 57,787 $ ( 3,746 ) $ 55,034 $ ( 15,921 ) Other comprehensive income (loss) Unrealized gain on real estate-related securities 1,930 20 2,052 20 Reclassification adjustment for realized gain included in income as other income ( 648 ) — ( 648 ) — Unrealized (loss) gain on interest rate swaps ( 52 ) ( 805 ) 71 ( 11,610 ) Amount of loss reclassified from other comprehensive income (loss) into income (loss) as interest expense and other, net 71 3,343 3,203 4,320 Total other comprehensive income (loss) 1,301 2,558 4,678 ( 7,270 ) Comprehensive income (loss) $ 59,088 $ ( 1,188 ) 59,712 ( 23,191 ) 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 Issuance of common stock 917,769 9 6,651 — — 6,660 Equity-based compensation 4,104 — 49 — — 49 Distributions declared on common stock — $ 0.09 per common share — — — ( 32,948 ) — ( 32,948 ) Changes in redeemable common stock — — ( 173,628 ) — — ( 173,628 ) Comprehensive income — — — 57,787 1,301 59,088 Balance as of June 30, 2021 362,923,841 $ 3,629 $ 2,990,971 $ ( 971,826 ) $ 2,631 $ 2,025,405 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, 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 Issuance of common stock 1,242,475 12 9,531 — — 9,543 Equity-based compensation — — 40 — — 40 Distributions declared on common stock — $ 0.04 per common share — — — ( 13,072 ) — ( 13,072 ) Redemptions of common stock ( 2,468,754 ) ( 25 ) ( 19,166 ) — — ( 19,191 ) Changes in redeemable common stock — — 9,643 — — 9,643 Comprehensive (loss) income — — — ( 3,746 ) 2,558 ( 1,188 ) Balance as of June 30, 2020 309,948,707 $ 3,099 $ 2,607,013 $ ( 895,508 ) $ ( 11,178 ) $ 1,703,426 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) Six Months Ended June 30, 2021 2020 Cash flows from operating activities: Net income (loss) $ 55,034 $ ( 15,921 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization, net 49,184 39,886 Amortization of deferred financing costs 3,782 2,034 Amortization of fair value adjustment of mortgage notes payable assumed ( 149 ) ( 45 ) Amortization and accretion on deferred loan fees ( 817 ) ( 1,425 ) Amortization of premiums and discounts on credit investments ( 3,767 ) ( 194 ) Capitalized interest income on real estate-related securities ( 435 ) ( 539 ) Equity-based compensation 89 80 Straight-line rental income ( 2,756 ) ( 2,083 ) Write-offs for uncollectible lease-related receivables 591 5,870 Gain on disposition of real estate assets and condominium developments, net ( 46,469 ) ( 16,901 ) Gain on sale of credit investments, net ( 813 ) ( 223 ) Amortization of fair value adjustment and gain on interest rate swaps ( 2,757 ) ( 10 ) Impairment of real estate assets 4,377 15,507 Provision for credit losses 691 25,682 Write-off of deferred financing costs 45 544 Changes in assets and liabilities: Rents and tenant receivables, net 15,315 ( 12,958 ) Prepaid expenses and other assets ( 6,083 ) 2,045 Accrued expenses and accounts payable 707 1,427 Deferred rental income and other liabilities ( 1,656 ) ( 4,885 ) Due to affiliates 1,234 ( 662 ) Net cash provided by operating activities 65,347 37,229 Cash flows from investing activities: Investment in real estate-related securities ( 28,509 ) ( 16,450 ) Investment in broadly syndicated loans ( 142,324 ) ( 404,896 ) Investment in real estate assets and capital expenditures ( 14,543 ) ( 7,171 ) Origination and acquisition of loans held-for-investment, net ( 533,222 ) ( 1,165 ) Origination and exit fees received on loans held-for-investment 4,694 571 Principal payments received on loans held-for-investment 97,459 63,592 Principal payments received on real estate-related securities 20 355 Net proceeds from sale of real estate-related securities 27,624 — Net proceeds from disposition of real estate assets and condominium developments 304,370 157,198 Net proceeds from sale of broadly syndicated loans 36,518 19,842 Payment of property escrow deposits — ( 250 ) Refund of property escrow deposits — 250 Proceeds from the settlement of insurance claims 58 — Net cash used in investing activities ( 247,855 ) ( 188,124 ) Cash flows from financing activities: Redemptions of common stock — ( 38,705 ) Distributions to stockholders ( 59,166 ) ( 44,150 ) Proceeds from credit facilities and repurchase facilities 590,182 320,992 Repayments of credit facilities and notes payable ( 298,021 ) ( 218,814 ) Payment of loan deposits ( 650 ) — Refund of loan deposits 65 — Deferred financing costs paid ( 4,093 ) ( 844 ) Net cash provided by financing activities 228,317 18,479 Net increase (decrease) in cash and cash equivalents and restricted cash 45,809 ( 132,416 ) Cash and cash equivalents and restricted cash, beginning of period 128,408 473,355 Cash and cash equivalents and restricted cash, end of period $ 174,217 $ 340,939 Reconciliation of cash and cash equivalents and restricted cash to the condensed consolidated balance sheets: Cash and cash equivalents $ 141,299 $ 336,142 Restricted cash 32,918 4,797 Total cash and cash equivalents and restricted cash $ 174,217 $ 340,939 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 June 30, 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 June 30, 2021, the Company owned 469 properties, comprising 18.6 million rentable square feet of commercial space located in 41 states. As of June 30, 2021, the rentable square feet at these properties was 93.1 % leased, including month-to-month agreements, if any. As of June 30, 2021, the Company’s loan portfolio consisted of 247 loans with a net book value of $ 1.3 billion, and investments in three real estate-related securities with a net book value of $ 42.1 million. On January 7, 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. As of June 30, 2021, the Company owned $ 197.1 million of condominium developments. 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 June 30, 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 June 30, 2021, the estimated per share NAV of the Company’s common stock was $ 7.20 , which was established by the Board on May 25, 2021 using a valuation date of March 31, 2021. Commencing on May 26, 2021, $ 7.20 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, March 31, 2020 and June 30, 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. 9 Table of Contents CIM REAL ESTATE FINANCE TRUST, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 2021 (Unaudited) – (Continued) Reclassifications Certain amounts in the Company’s prior period condensed consolidated financial statements have been reclassified to conform to the current period presentation. This reclassification had no effect on previously reported totals or subtotals. The reclassifications have been made to the condensed consolidated statements of operations for the three and six months ended June 30, 2020 as follows (in thousands): Three Months Ended June 30, 2020 Six Months Ended June 30, 2020 As previously reported Reclassification As Revised As previously reported Reclassification As Revised Condensed Consolidated Statements of Operations General and administrative $ 4,235 $ ( 1,215 ) $ 3,020 $ 7,917 $ ( 2,015 ) $ 5,902 Management fees $ 11,398 $ ( 1,648 ) $ 9,750 $ 22,488 $ ( 2,888 ) $ 19,600 Transaction-related $ 330 $ ( 205 ) $ 125 $ 582 $ ( 332 ) $ 250 Expense reimbursements to related parties $ — $ 3,057 $ 3,057 $ — $ 5,235 $ 5,235 Interest expense and other, net $ 15,509 $ 11 $ 15,520 $ 31,276 $ — $ 31,276 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. 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 six months ended June 30, 2021, as part of the Company’s quarterly impairment review procedures, the Company recorded impairment charges of $ 4.4 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 June 30, 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 six months ended June 30, 2020, the Company recorded impairment charges of $ 15.5 million related to nine properties due to revised cash flow estimates as a result of market 10 Table of Contents CIM REAL ESTATE FINANCE TRUST, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 2021 (Unaudited) – (Continued) 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 June 30, 2021, the Company identified two properties with a fair value of $ 6.1 million as held for sale, which were sold subsequent to June 30, 2021 at a gain of $ 779,000 . 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 six months ended June 30, 2021. No gain or loss was recognized on this disposition. 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 dispositions during the six months ended June 30, 2021 and 2020 did not qualify for discontinued operations presentation and thus, the results of the properties and condominiums 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 and condominium developments, net. See Note 4 — Real Estate Assets for a discussion of the disposition of individual properties and condominiums during the six months ended June 30, 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. Acquisition-related manager expense reimbursements are expensed as incurred and are included in expense reimbursements to related parties in the accompanying condensed consolidated statements of operations. Other acquisition-related expenses 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 $ 32.9 million and $ 7.0 million in restricted cash as of June 30, 2021 and December 31, 2020, respectively. Included in restricted cash was $ 4.1 million and $ 3.6 million held by lenders in lockbox accounts, as of June 30, 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 $ 28.8 million and $ 3.4 million of construction reserves, amounts 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 June 30, 2021 and December 31, 2020, respectively. 11 Table of Contents CIM REAL ESTATE FINANCE TRUST, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 2021 (Unaudited) – (Continued) 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 June 30, 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 six months ended June 30, 2021, the Company invested $ 28.5 million in CMBS. During the same period, the Company sold CMBS with a carrying value of $ 27.0 million resulting in net proceeds of $ 27.6 million and a gain of $ 648,000 . As of June 30, 2021, the Company had investments in three CMBS with an estimated aggregate fair value of $ 42.1 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, 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 income. 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 and six months ended June 30, 2021, the Company capitalized $ 435,000 of interest income to real estate-related securities. No such amounts were capitalized during the three and six months ended June 30, 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 and six months ended June 30, 2020, the Company recorded $ 7.2 million and $ 12.8 million, respectively, in interest income on its credit investments, $ 539,000 of which was capitalized during the six months ended June 30, 2020. No such amounts were capitalized during the three months ended June 30, 2020. 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 June 30, 2021, the Company did no t have nonaccrual loans. 12 Table of Contents CIM REAL ESTATE FINANCE TRUST, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 2021 (Unaudited) – (Continued) 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 (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 13 Table of Contents CIM REAL ESTATE FINANCE TRUST, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 2021 (Unaudited) – (Continued) 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. 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 June 30, 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 six months ended June 30, 2021, the Company capitalized $ 1.8 million 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 six months ended June 30, 2020. 14 Table of Contents CIM REAL ESTATE FINANCE TRUST, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 2021 (Unaudited) – (Continued) 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. During the six months ended June 30, 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 $ 591,000 for the six months ended June 30, 2021, which included $ 525,000 of straight-line rental income. These write-offs reduced rental and other property income during the six months ended June 30, 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. 15 Table of Contents CIM REAL ESTATE FINANCE TRUST, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 2021 (Unaudited) – (Continued) 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 ASU No. 2016-02, Leases (Topic 842) (“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 and six months ended June 30, 2021, the majority of the lease concessions provided by the Company were in the form of rental abatements, to certain tenants in response to the impact of the COVID-19 pandemic on those tenants. As of August 9, 2021 , the Company has collected approximately 99 % of rental payments billed to tenants during the three months ended June 30, 2021, and as of August 9, 2021 , the Company collected $ 4.1 million of deferred rent, representing approximately 99 % of amounts due through June 30, 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. 16 Table of Contents CIM REAL ESTATE FINANCE TRUST, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 2021 (Unaudited) – (Continued) 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 June 30, 2021, the Company concluded that all of its 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 June 30, 2021, the estimated fair value of the Company’s debt was $ 2.54 billion, which approximated its carrying value. The 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 and interest rate caps. 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 June 30, 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 June 30, 2021, $ 407.6 million and $ 76.2 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 June 30, 2021, the estimated fair value of the Company’s loans held-for-investment and related receivables, net was $ 1.36 billion, compared to its carrying value of $ 1.34 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 June 30, 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 June 30, 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 June 30, 2021 and December 31, 2020 (in thousands): Balance as of June 30, 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 $ 42,071 $ — $ — $ 42,071 Interest rate caps — — — — Total financial assets $ 42,071 $ — $ — $ 42,071 Financial liabilities: Interest rate swaps $ ( 6,289 ) $ — $ ( 6,289 ) $ — Total financial liabilities $ ( 6,289 ) $ — $ ( 6,289 ) $ — 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 six months ended June 30, 2021 (in thousands): CMBS Beginning Balance, January 1, 2021 $ 10,733 Total gains and losses: Unrealized loss included in other comprehensive income (loss), net 1,804 Purchases and payments received: Purchases 34,491 Discounts, net ( 5,372 ) Capitalized interest income 435 Principal payments received ( 20 ) Ending Balance, June 30, 2021 $ 42,071 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 June 30, 2021 (Unaudited) – (Continued) As discussed in Note 4 — Real Estate Assets, during the six months ended June 30, 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 $ 31.2 million, resulting in impairment charges of $ 4.4 million. During the six months ended June 30, 2020, real estate assets related to 10 properties were deemed to be impaired and their carrying values were reduced to an estimated fair value of $ 70.2 million, resulting in impairment charges of $ 15.5 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 six months ended June 30, 2021: Six Months Ended June 30, 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 six months ended June 30, 2021 and 2020 (in thousands): Six Months Ended June 30, 2021 2020 Asset class impaired: Land $ 781 $ 3,541 Buildings, fixtures and improvements 3,496 11,315 Intangible lease assets 230 696 Intangible lease liabilities ( 130 ) ( 45 ) Total impairment loss $ 4,377 $ 15,507 NOTE 4 — REAL ESTATE ASSETS 2021 Property Acquisitions During the six months ended June 30, 2021, the Company did no t acquire any properties. Assets Acquired Via Foreclosure On January 7, 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. 19 Table of Contents CIM REAL ESTATE FINANCE TRUST, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 2021 (Unaudited) – (Continued) The following table summarizes the purchase price allocation for the real estate acquired via foreclosure (in thousands): As of June 30, 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 six months ended June 30, 2021, the Company capitalized $ 4.5 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 Condominium Dispositions During the six months ended June 30, 2021, the Company disposed of condominium units for an aggregate sales price of $ 8.8 million, resulting in proceeds of $ 8.5 million after closing costs and a gain of $ 1.5 million. The Company has no continuing involvement with these condominium units. The gain on sale of condominium units is included in gain on disposition of real estate and condominium developments, net in the condensed consolidated statements of operations. 2021 Property Dispositions and Real Estate Assets Held for Sale During the six months ended June 30, 2021, the Company disposed of 47 retail properties for an aggregate gross sales price of $ 304.0 million, resulting in proceeds of $ 296.0 million after closing costs and a gain of $ 46.5 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 and condominium developments, net in the condensed consolidated statements of operations. As of June 30, 2021, there were two properties classified as held for sale with a carrying value of $ 6.1 million included in assets held for sale in the accompanying condensed consolidated balance sheets. Subsequent to June 30, 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 six months ended June 30, 2021, five properties totaling approximately 165,000 square feet with a carrying value of $ 35.5 million were deemed to be impaired and their carrying values were reduced to an estimated fair value of $ 31.2 million, resulting in impairment charges of $ 4.4 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 Acquisition During the six months ended June 30, 2020, the Company acquired one commercial property for an aggregate purchase price of $ 4.7 million (the “2020 Property Acquisition”), which includes $ 42,000 of external acquisition-related expenses that were capitalized. The Company funded the 2020 Property Acquisition with proceeds from real estate dispositions and available borrowings. 20 Table of Contents CIM REAL ESTATE FINANCE TRUST, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 2021 (Unaudited) – (Continued) The following table summarizes the purchase price allocation for the 2020 Property Acquisition (in thousands): 2020 Property Acquisition Land $ 1,417 Buildings, fixtures and improvements 2,800 Acquired in-place leases and other intangibles (1) 442 Total purchase price $ 4,659 ______________________ (1) The amortization period for acquired in-place leases and other intangibles is 14.8 years. 2020 Property Dispositions During the six months ended June 30, 2020, the Company disposed of 16 properties, consisting of 10 retail properties and six anchored shopping centers, for an aggregate gross sales price of $ 160.8 million, resulting in proceeds of $ 157.2 million after closing costs and disposition fees due to CMFT Management or its affiliates, and a gain of $ 16.9 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 and condominium developments, net in the condensed consolidated statements of operations. 2020 Impairment During the six months ended June 30, 2020, 10 properties totaling approximately 673,000 square feet with a carrying value of $ 85.7 million were deemed to be impaired and their carrying values were reduced to an estimated fair value of $ 70.2 million, resulting in impairment charges of $ 15.5 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. NOTE 5 — INTANGIBLE LEASE ASSETS AND LIABILITIES Intangible lease assets and liabilities consisted of the following as of June 30, 2021 and December 31, 2020 (in thousands, except weighted average life remaining): June 30, 2021 December 31, 2020 Intangible lease assets: In-place leases and other intangibles, net of accumulated amortization of $ 141,487 and $ 132,967 , respectively (with a weighted average life remaining of 9.2 years and 9.7 years, respectively) $ 187,922 $ 217,431 Acquired above-market leases, net of accumulated amortization of $ 22,746 and $ 22,054 , respectively (with a weighted average life remaining of 7.5 years and 7.6 years, respectively) 15,467 17,112 Total intangible lease assets, net $ 203,389 $ 234,543 Intangible lease liabilities: Acquired below-market leases, net of accumulated amortization of $ 34,297 and $ 31,933 , respectively (with a weighted average life remaining of 7.4 years and 7.5 years, respectively) $ 27,917 $ 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 and six months ended June 30, 2021 and 2020 (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 In-place lease and other intangible amortization $ 7,428 $ 5,615 $ 15,201 $ 11,555 Above-market lease amortization $ 599 $ 729 $ 1,249 $ 1,637 Below-market lease amortization $ 1,377 $ 1,267 $ 2,843 $ 2,666 21 Table of Contents CIM REAL ESTATE FINANCE TRUST, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 2021 (Unaudited) – (Continued) As of June 30, 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 $ 14,027 $ 1,188 $ 2,541 2022 26,209 2,281 4,496 2023 23,027 2,028 3,832 2024 19,849 1,533 2,872 2025 16,071 1,292 2,503 Thereafter 88,739 7,145 11,673 Total $ 187,922 $ 15,467 $ 27,917 NOTE 6 — REAL ESTATE-RELATED SECURITIES As of June 30, 2021, the Company had CMBS investment securities with an aggregate estimated fair value of $ 42.1 million. The CMBS mature on various dates from November 2033 through June 2058 and have interest rates ranging from 2.7 % to 13.0 %, with one CMBS earning a zero coupon rate. The following is a summary of the Company’s real estate-related securities as of June 30, 2021 (in thousands): Real Estate-Related Securities Amortized Cost Basis Unrealized Gain Fair Value CMBS $ 39,520 $ 2,551 $ 42,071 Total real estate-related securities $ 39,520 $ 2,551 $ 42,071 The following table provides the activity for the real estate-related securities during the six months ended June 30, 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 525 — 525 Sale of real estate-related securities ( 26,976 ) ( 648 ) ( 27,624 ) Capitalized interest income on real estate-related securities 435 — 435 Principal payments received on real estate-related securities ( 20 ) — ( 20 ) Unrealized gain on real estate-related securities — 2,052 2,052 Real estate-related securities as of June 30, 2021 $ 39,520 $ 2,551 $ 42,071 During the six months ended June 30, 2021, the Company invested $ 28.5 million in CMBS. During the same period, the Company sold CMBS with a carrying value of $ 27.0 million resulting in net proceeds of $ 27.6 million and a gain of $ 648,000 . 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 and six months ended June 30, 2021, the Company recorded $ 1.9 million and $ 2.1 million, respectively, of unrealized gains on its real estate-related securities included in other comprehensive income (loss) in the accompanying condensed consolidated statements of comprehensive income (loss). 22 Table of Contents CIM REAL ESTATE FINANCE TRUST, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 2021 (Unaudited) – (Continued) The scheduled maturities of the Company’s real estate-related securities as of June 30, 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 — — Due after five years through ten years — — Due after ten years 39,520 42,071 Total $ 39,520 $ 42,071 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 June 30, 2021, the Company had no credit losses related to real estate-related securities. NOTE 7 — LOANS HELD-FOR-INVESTMENT The Company’s loans held-for-investment consisted of the following as of June 30, 2021 and December 31, 2020 (dollar amounts in thousands): As of June 30, As of December 31, 2021 2020 Mezzanine loans $ — $ 147,475 Senior loans 872,188 341,546 Total CRE loans held-for-investment and related receivables, net 872,188 489,021 Broadly syndicated loans 484,059 473,603 Loans held-for-investment and related receivables, net $ 1,356,247 $ 962,624 Less: Allowance for credit losses $ ( 13,011 ) $ ( 70,358 ) Total loans held-for-investment and related receivable, net $ 1,343,236 $ 892,266 During the six months ended June 30, 2021, the Company invested $ 142.3 million in broadly syndicated loans. During the same period, the Company received $ 97.3 million of principal payments on broadly syndicated loans and sold $ 36.7 million of broadly syndicated loans, resulting in proceeds of $ 36.5 million after closing costs and a gain of $ 165,000 . The gain was recorded as a decrease to interest expense and other, net in the condensed consolidated statements of operations. As of June 30, 2021, the Company had $ 43.2 million of unsettled broadly syndicated loan purchases included in cash and cash equivalents in the accompanying condensed consolidated balance sheet. As of June 30, 2021, the Company had $ 108.3 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. 23 Table of Contents CIM REAL ESTATE FINANCE TRUST, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 2021 (Unaudited) – (Continued) The following table details overall statistics for the Company’s loans held-for-investment as of June 30, 2021 and December 31, 2020 (dollar amounts in thousands): CRE Loans (1) (2) Broadly Syndicated Loans June 30, 2021 December 31, 2020 June 30, 2021 December 31, 2020 Number of loans 10 12 237 194 Principal balance $ 882,505 $ 481,438 $ 487,121 $ 477,777 Net book value $ 865,722 $ 428,393 $ 477,514 $ 463,873 Weighted-average interest rate 4.2 % 7.5 % 3.6 % 3.8 % Weighted-average maximum years to maturity 2.6 2.2 5.0 4.9 ____________________________________ (1) As of June 30, 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. 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 681,580 — — 681,580 Cure payments receivable (2) — ( 7,351 ) — ( 7,351 ) Sale of loans ( 36,664 ) 311 — ( 36,353 ) Principal repayments received ( 97,716 ) 257 — ( 97,459 ) Capitalized interest (2) ( 9,469 ) — — ( 9,469 ) Deferred fees and other items — ( 5,886 ) — ( 5,886 ) Accretion and amortization of fees and other items — ( 783 ) — ( 783 ) Foreclosure of assets (2) ( 127,320 ) 3,831 ( 7,167 ) ( 130,656 ) Allowance for credit losses (3) — 57,347 — 57,347 Balance, June 30, 2021 $ 1,369,626 $ ( 26,390 ) $ — $ 1,343,236 ____________________________________ (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 six months ended June 30, 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 six months ended June 30, 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 June 30, 2021 (Unaudited) – (Continued) The following table presents the activity in the Company’s allowance for credit losses by loan type for the six months ended June 30, 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 Provision for (reversal of) credit losses — 2,581 ( 2,458 ) 123 Allowance for credit losses as of June 30, 2021 $ — $ 6,466 $ 6,545 $ 13,011 ____________________________________ (1) During the six months ended June 30, 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 income (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 six months ended June 30, 2021, the Company recorded a $ 691,000 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 $ 13.0 million as of June 30, 2021. The Company recorded a decrease in the provision for credit losses related to its broadly syndicated loans during the three months ended June 30, 2021 due to the ongoing market recovery from COVID-19 and the resulting improvement in the performance of the collateral assets underlying the portfolio. Risk Ratings 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 June 30, 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 June 30, 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 June 30, 2021 Number of Loans 2021 2020 2019 Total Senior loans by internal risk rating: 1 — $ — $ — $ — $ — 2 — — — — — 3 10 521,699 234,248 116,241 872,188 4 — — — — — 5 — — — — — Total senior loans 10 521,699 234,248 116,241 872,188 Broadly syndicated loans by internal risk rating: 1 — — — — — 2 3 — 6,889 — 6,889 3 233 120,536 349,670 3,050 473,256 4 1 — 3,914 — 3,914 5 — — — — — Total broadly syndicated loans 237 120,536 360,473 3,050 484,059 Less: Allowance for credit losses ( 13,011 ) Total loans held-for-investment and related receivables, net 247 $ 1,343,236 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 six months ended June 30, 2021, two of the Company’s interest rate swap agreements matured. Additionally, the Company entered into four interest rate cap agreements during the six months ended June 30, 2021. As of June 30, 2021, the Company had three interest rate swap agreements designated as hedging instruments and four non-designated interest rate cap agreements. The following table summarizes the terms of the Company’s interest rate swap agreements and interest rate cap agreements as of June 30, 2021 and December 31, 2020 (dollar amounts in thousands): Outstanding Notional Fair Value of Assets (Liabilities) as of Balance Sheet Amount as of Interest Effective Maturity June 30, December 31, Location June 30, 2021 Rates Dates Dates 2021 2020 Interest Rate Caps Prepaid expenses and other assets $ 102,553 5.45 % (1) 5/7/2021 5/9/2022 $ — $ — Interest Rate Swaps Deferred rental income, derivative liabilities and other liabilities $ 241,500 2.55 % to 4.50 % (2) 6/29/2016 to 4/25/2019 7/1/2021 to 3/27/2023 $ ( 6,289 ) $ ( 12,308 ) ____________________________________ (1) The interest rate consists of the underlying index capped to a fixed rate as of June 30, 2021. 26 Table of Contents CIM REAL ESTATE FINANCE TRUST, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 2021 (Unaudited) – (Continued) (2) The interest rates consist of the underlying index swapped to a fixed rate and the applicable interest rate spread as of June 30, 2021. 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 derivative instruments 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 has interest rate caps that are used to manage exposure to interest rate movements, but do not meet the requirements to be designated as hedging instruments. The change in fair value of the derivative instruments that are not designated as hedges is recorded directly to earnings in interest expense and other, net on the accompanying condensed consolidated statements of operations. The Company has interest rate swaps that are designated 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 and six months ended June 30, 2021, the amount of losses reclassified from other comprehensive income (loss) as an increase to interest expense was $ 71,000 and $ 3.2 million, respectively. For the three and six months ended June 30, 2020, the amount of losses reclassified from other comprehensive income (loss) as an increase to interest expense was $ 3.3 million and $ 4.3 million, respectively. The total unrealized gain on interest rate swaps was $ 80,000 as of June 30, 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 (loss) income in the accompanying condensed consolidated statement of stockholders’ equity. During the next 12 months, the Company estimates that $ 59,000 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 $ 6.3 million as of June 30, 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 June 30, 2021. NOTE 9 — CREDIT FACILITIES, NOTES PAYABLE AND REPURCHASE FACILITIES As of June 30, 2021, the Company had $ 2.5 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. 27 Table of Contents CIM REAL ESTATE FINANCE TRUST, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 2021 (Unaudited) – (Continued) The following table summarizes the debt balances as of June 30, 2021 and December 31, 2020, and the debt activity for the six months ended June 30, 2021 (in thousands): During the Six Months Ended June 30, 2021 Balance as of December 31, 2020 Debt Issuances & Assumptions (1) Repayments & Modifications (2) Accretion and (Amortization) Balance as of June 30, 2021 Notes payable – fixed rate debt $ 578,096 $ — $ ( 54,534 ) $ — $ 523,562 Notes payable – variable rate debt — 102,553 ( 8,351 ) — 94,202 Credit facilities 1,336,500 320,000 ( 235,000 ) — 1,421,500 Repurchase facilities 235,380 270,182 ( 136 ) — 505,426 Total debt 2,149,976 692,735 ( 298,021 ) — 2,544,690 Net premiums (3) 149 — — ( 149 ) — Deferred costs – credit facility (4) ( 3,543 ) — — 1,466 ( 2,077 ) Deferred costs – fixed rate debt ( 1,589 ) — 45 374 ( 1,170 ) Deferred costs – variable rate debt — ( 1,346 ) — 712 ( 634 ) Total debt, net $ 2,144,993 $ 691,389 $ ( 297,976 ) $ 2,403 $ 2,540,809 ____________________________________ (1) Includes deferred financing costs incurred during the period. (2) In connection with the repayment of certain mortgage notes, the Company recognized a loss on extinguishment of debt of $ 1.5 million during the six months ended June 30, 2021. (3) 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. (4) Deferred costs related to the term portion of the CMFT Credit Facility (as defined below). Notes Payable As of June 30, 2021, the fixed rate debt outstanding of $ 523.6 million included $ 21.5 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 4.6 % per annum. The fixed rate debt outstanding matures on various dates from July 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 $ 904.5 million as of June 30, 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 June 30, 2021, the variable rate debt outstanding of $ 94.2 million had a weighted average interest rate of 5.5 %.The variable rate debt outstanding matures on May 9, 2022. 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 June 30, 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 %. 28 Table of Contents CIM REAL ESTATE FINANCE TRUST, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 2021 (Unaudited) – (Continued) 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 outstanding (the “CCPT V Term Loans”) and up to $ 130.0 million in revolving loans (the “CCPT V Revolving Loans,” and, collectively with the CMFT Revolving Loans, the “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 June 30, 2021, there were no amounts outstanding under the Revolving Loans. As of June 30, 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 June 30, 2021, the Company had $ 1.11 billion outstanding under the CMFT Credit Facility and CCPT V Credit Facility (collectively the “Credit Facilities”) at a weighted average interest rate of 2.5 % and $ 480.0 million in unused capacity, subject to borrowing availability. The Company had available borrowings of $ 12.2 million as of June 30, 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 June 30, 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 June 30, 2021, the amounts borrowed and outstanding under the Credit Securities Revolver totaled $ 316.5 million at a weighted average interest rate of 1.8 %. Subsequent to June 30, 2021, the Company received borrowings in an aggregate principal amount of $ 50.0 million under the Credit and Security Agreement, as discussed in Note 17 — Subsequent Events. 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 29 Table of Contents CIM REAL ESTATE FINANCE TRUST, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 2021 (Unaudited) – (Continued) 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”). 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”). Additionally, on May 20, 2021, CMFT RE Lending RF Sub WF, LLC, an indirect wholly-owned subsidiary of the Company, entered into a third Master Repurchase Agreement with Wells Fargo Bank, N.A. (“Wells Fargo”) (the “Wells Fargo Repurchase Agreement”), which provides up to $ 250.0 million of financing primarily through Wells Fargo’s purchase of the Company’s CRE mortgage notes and future funding advances (the “Wells Fargo Repurchase Facility,” and, collectively with the Citibank Repurchase Facility and Barclays Repurchase Facility, the “Repurchase Facilities”). The Citibank Repurchase Agreement, the Barclays Repurchase Agreement, and the Wells Fargo Repurchase Agreement (collectively, the “Repurchase Agreements”) provide for simultaneous agreements by Citibank, Barclays and Wells Fargo to re-sell such purchased CRE mortgage loans back to CMFT RE Lending RF Sub CB, LLC, CMFT RE Lending RF Sub BB, LLC and CMFT RE Lending RF Sub WF, 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 2.10 % to 4.60 % to be determined on a case-by-case basis between Citibank, Barclays or Wells Fargo and the CMFT Lending Subs. The Repurchase Facilities mature on various dates between June 2023 and May 2024, with two one-year extension options, subject to certain conditions set forth in the Repurchase Agreements. Subsequent to June 30, 2021, the Company amended the Barclays Repurchase Agreement to extend the maturity date to September 21, 2024, as further discussed in Note 17 — Subsequent Events. In connection with the Repurchase Agreements, the Company (as the guarantor) entered into guaranties with Citibank, Barclays and Wells Fargo (the “Guaranties”), under which the Company agreed to guarantee up to 25 % of the CMFT Lending Subs’ obligations under the Repurchase Agreements. As of June 30, 2021, the Company had nine senior loans with an aggregate carrying value of $ 727.4 million financed with $ 505.4 million under the Repurchase Facilities, $ 250.0 million of which was financed under the Barclays Repurchase Facility at a weighted average interest rate of 2.5 %, $ 188.0 million of which was financed under the Citibank Repurchase Facility at a weighted average interest rate of 2.2 %, and $ 67.4 million of which was financed under the Wells Fargo Repurchase Facility at a weighted average interest rate of 1.8 %. 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 June 30, 2021. Maturities Liquidity and Financial Condition — As of June 30, 2021, the Company had $ 1.3 billion of debt maturing within the next 12 months following the date these financial statements are issued. Subsequent to June 30, 2021, the Company repaid $ 104.1 million of fixed rate debt, including $ 21.5 million of variable rate debt fixed through interest rate swap agreements, and paid down the $ 1.11 billion outstanding under the Credit Facilities, as further discussed in Note 17 — Subsequent Events. With respect to the remaining $ 99.3 million maturing within the next 12 months, 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 30 Table of Contents CIM REAL ESTATE FINANCE TRUST, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 2021 (Unaudited) – (Continued) 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 June 30, 2021 (in thousands): Principal Repayments Remainder of 2021 $ 105,171 2022 1,207,098 2023 757,442 2024 474,979 2025 — Thereafter — Total $ 2,544,690 NOTE 10 — SUPPLEMENTAL CASH FLOW DISCLOSURES Supplemental cash flow disclosures for the six months ended June 30, 2021 and 2020 are as follows (in thousands): Six Months Ended June 30, 2021 2020 Supplemental Disclosures of Non-Cash Investing and Financing Activities: Distributions declared and unpaid $ 10,997 $ 4,990 Accrued capital expenditures $ 4,104 $ 139 Accrued deferred financing costs $ 32 $ — 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 $ 6,660 $ 28,774 Change in fair value of derivative instruments $ 6,031 $ ( 7,280 ) Change in fair value of real estate-related securities $ 1,404 $ — Supplemental Cash Flow Disclosures: Interest paid $ 34,183 $ 30,686 Cash paid for taxes $ 1,412 $ 466 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 June 30, 2021, the Company had $ 108.3 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. 31 Table of Contents CIM REAL ESTATE FINANCE TRUST, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 2021 (Unaudited) – (Continued) Unsettled Broadly Syndicated Loans As of June 30, 2021, the Company had $ 43.2 million of unsettled broadly syndicated loan acquisitions, $35.1 million of which settled subsequent to June 30, 2021. Additionally, the Company had $ 10.4 million of unsettled broadly syndicated loan sales, $ 6.6 million of which settled subsequent to June 30, 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. 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 32 Table of Contents CIM REAL ESTATE FINANCE TRUST, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 2021 (Unaudited) – (Continued) period (or such lesser number of completed calendar quarters preceding the applicable period, if applicable). During the three and six months ended June 30, 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. Expense reimbursements to related parties 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. Disposition fees Pursuant to the Prior Advisory Agreement, through August 20, 2019, 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. For the Company’s properties under contract to be sold or specifically identified in a broker agreement as being marketed for sale as of August 20, 2019, CMFT Management was entitled to receive a disposition fee in accordance with the terms of the Prior Advisory Agreement. 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 June 30, Six Months Ended June 30, 2021 2020 2021 2020 Management fees $ 11,755 $ 9,750 $ 23,332 $ 19,600 Disposition fees $ — $ — $ — $ 341 Expense reimbursements to related parties $ 3,210 $ 3,057 $ 5,871 $ 5,235 Of the amounts shown above, $ 16.0 million and $ 13.8 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 six months ended June 30, 2021 and 2020, respectively, and such amounts were recorded as liabilities of the Company as of such dates. Due to Affiliates As of June 30, 2021 and December 31, 2020, $ 16.0 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 33 Table of Contents CIM REAL ESTATE FINANCE TRUST, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 2021 (Unaudited) – (Continued) 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. 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 341,000 shares of common stock are available for future grant at June 30, 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 June 30, 2021, the Company has granted awards of approximately 58,700 restricted shares to the independent members of the Board under the Plan. As of June 30, 2021, 32,500 of the restricted shares had vested based on one year of continuous service. The remaining 26,200 restricted shares issued had not vested or been forfeited as of June 30, 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 $ 49,000 and $ 89,000 for the three and six months ended June 30, 2021, respectively, and $ 40,000 and $ 80,000 for the three and six months ended June 30, 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 June 30, 2021, there was $ 57,000 of total unrecognized compensation expense related to these restricted shares, which will be recognized ratably over the applicable remaining period of service. 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 June 30, 2021, the Company’s leases had a weighted-average remaining term of 8.3 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. 34 Table of Contents CIM REAL ESTATE FINANCE TRUST, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 2021 (Unaudited) – (Continued) As of June 30, 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 $ 118,547 2022 234,443 2023 218,823 2024 200,270 2025 181,734 Thereafter 1,125,513 Total $ 2,079,330 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 and six months ended June 30, 2021 and 2020, the amount of the contingent rent earned by the Company was not significant . Rental and other property income during the three and six months ended June 30, 2021 and 2020 consisted of the following (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Fixed rental and other property income (1) $ 64,060 $ 51,423 $ 130,601 $ 108,096 Variable rental and other property income (2) 11,242 8,680 21,631 20,443 Total rental and other property income $ 75,302 $ 60,103 $ 152,232 $ 128,539 __________________________________ (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 12.2 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 and $ 125,000 of ground lease expense during the three and six months ended June 30, 2021, respectively, of which $ 61,000 and $ 121,000 was paid in cash during the period it was recognized. As of June 30, 2021, the Company’s scheduled future minimum rental payments related to its operating ground lease is approximately $ 125,000 for the remainder of 2021, $ 250,000 annually for 2022 through 2026, and $ 1.7 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 June 30, 2021 (Unaudited) – (Continued) The following tables present segment reporting for the three and six months ended June 30, 2021 and 2020 (in thousands): Real Estate Credit Corporate/Other (1) Company Total Three Months Ended June 30, 2021 Rental and other property income $ 75,203 $ — $ 99 $ 75,302 Interest income — 16,460 — 16,460 Total revenues 75,203 16,460 99 91,762 General and administrative 55 331 3,219 3,605 Property operating 7,613 — 3,743 11,356 Real estate tax 7,196 — 510 7,706 Expense reimbursements to related parties — — 3,210 3,210 Management fees 8,533 3,222 — 11,755 Transaction-related 27 — — 27 Depreciation and amortization 24,647 — — 24,647 Real estate impairment 77 — — 77 Provision for credit losses — 123 — 123 Total operating expenses 48,148 3,676 10,682 62,506 Gain on disposition of real estate and condominium developments, net 44,976 — 1,493 46,469 Operating income (loss) 72,031 12,784 ( 9,090 ) 75,725 Other expense: Interest expense and other, net ( 3,713 ) ( 3,341 ) ( 9,406 ) ( 16,460 ) Loss on extinguishment of debt ( 1,372 ) — ( 106 ) ( 1,478 ) Segment net income (loss) $ 66,946 $ 9,443 $ ( 18,602 ) $ 57,787 Total assets as of June 30, 2021 $ 3,089,744 $ 1,479,061 $ 280,357 $ 4,849,162 __________________________________ (1) Includes condominium and rental units acquired via foreclosure during the six months ended June 30, 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 June 30, 2021 (Unaudited) – (Continued) Real Estate Credit Corporate/Other (1) Company Total Six Months Ended June 30, 2021 Rental and other property income $ 151,998 $ — $ 234 $ 152,232 Interest income — 28,413 — 28,413 Total revenues 151,998 28,413 234 180,645 General and administrative 119 713 7,201 8,033 Property operating 14,742 — 6,733 21,475 Real estate tax 15,065 — 4,860 19,925 Expense reimbursements to related parties — — 5,871 5,871 Management fees 17,864 5,468 — 23,332 Transaction-related 31 — — 31 Depreciation and amortization 50,385 — — 50,385 Real estate impairment 4,377 — — 4,377 Provision for credit losses — 691 — 691 Total operating expenses 102,583 6,872 24,665 134,120 Gain on disposition of real estate and condominium developments, net 44,976 — 1,493 46,469 Operating income (loss) 94,391 21,541 ( 22,938 ) 92,994 Other expense: Interest expense and other, net ( 7,829 ) ( 6,888 ) ( 21,765 ) ( 36,482 ) Loss on extinguishment of debt ( 1,372 ) — ( 106 ) ( 1,478 ) Segment net income (loss) $ 85,190 $ 14,653 $ ( 44,809 ) $ 55,034 Total assets as of June 30, 2021 $ 3,089,744 $ 1,479,061 $ 280,357 $ 4,849,162 __________________________________ (1) Includes condominium and rental units acquired via foreclosure during the six months ended June 30, 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. 37 Table of Contents CIM REAL ESTATE FINANCE TRUST, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 2021 (Unaudited) – (Continued) Real Estate Credit Corporate/Other Company Total Three Months Ended June 30, 2020 Rental and other property income $ 60,103 $ — $ — $ 60,103 Interest income — 7,193 — 7,193 Total revenues 60,103 7,193 — 67,296 General and administrative 55 512 2,453 3,020 Property operating 4,811 — — 4,811 Real estate tax 6,748 — — 6,748 Expense reimbursements to related parties — — 3,057 3,057 Management fees 8,042 1,708 — 9,750 Transaction-related 120 5 — 125 Depreciation and amortization 19,696 — — 19,696 Real estate impairment 3,831 — — 3,831 Provision for credit losses — 7,905 — 7,905 Total operating expenses 43,303 10,130 5,510 58,943 Gain on disposition of real estate, net 3,791 — — 3,791 Merger-related expenses, net — — — — Merger termination fee income — — — — Operating income (loss) 20,591 ( 2,937 ) ( 5,510 ) 12,144 Other expense: Interest expense and other, net ( 5,560 ) ( 762 ) ( 9,198 ) ( 15,520 ) Loss on extinguishment of debt ( 12 ) — ( 358 ) ( 370 ) Segment net income (loss) $ 15,019 $ ( 3,699 ) $ ( 15,066 ) $ ( 3,746 ) Total assets as of June 30, 2020 $ 2,712,707 $ 708,084 $ 243,544 $ 3,664,335 38 Table of Contents CIM REAL ESTATE FINANCE TRUST, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 2021 (Unaudited) – (Continued) Real Estate Credit Corporate/Other Company Total Six Months Ended June 30, 2020 Rental and other property income $ 128,539 $ — $ — $ 128,539 Interest income — 12,764 — 12,764 Total revenues 128,539 12,764 — 141,303 General and administrative 117 524 5,261 5,902 Property operating 11,676 — — 11,676 Real estate tax 13,726 — — 13,726 Expense reimbursements to related parties — — 5,235 5,235 Management fees 17,523 2,077 — 19,600 Transaction-related 245 5 — 250 Depreciation and amortization 40,519 — — 40,519 Real estate impairment 15,507 — — 15,507 Provision for credit losses — 25,682 — 25,682 Total operating expenses 99,313 28,288 10,496 138,097 Gain on disposition of real estate, net 16,901 — — 16,901 Operating income (loss) 46,127 ( 15,524 ) ( 10,496 ) 20,107 Other expense: Interest expense and other, net ( 11,895 ) ( 562 ) ( 18,819 ) ( 31,276 ) Loss on extinguishment of debt ( 4,394 ) — ( 358 ) ( 4,752 ) Segment net income (loss) $ 29,838 $ ( 16,086 ) $ ( 29,673 ) $ ( 15,921 ) Total assets as of June 30, 2020 $ 2,712,707 $ 708,084 $ 243,544 $ 3,664,335 NOTE 17 — SUBSEQUENT EVENTS The following events occurred subsequent to June 30, 2021: Redemptions of Shares of Common Stock Subsequent to June 30, 2021, the Company redeemed approximately 1.7 million shares for $ 12.0 million (at a redemption price of $ 7.20 per share). The remaining redemption requests relating to approximately 31.1 million shares went unfulfilled. Property Dispositions Subsequent to June 30, 2021, the Company disposed of 61 properties for an aggregate gross sales price of $ 118.8 million, resulting in net proceeds of $ 115.5 million after closing costs and a net gain of approximately $ 27.0 million. The Company has no continuing involvement with these properties. Broadly Syndicated Loans Subsequent to June 30, 2021, the Company settled $ 62.3 million of broadly syndicated loan transactions, $ 28.5 million of which were traded as of June 30, 2021. CRE Loans Subsequent to June 30, 2021, the Company received a principal repayment of $ 99.6 million in connection with the partial release and modification of one CRE senior loan financed under the Barclays Repurchase Facility. The Company used the proceeds to repay amounts on the Barclays Repurchase Facility, as discussed below under Repurchase Facilities. 39 Table of Contents CIM REAL ESTATE FINANCE TRUST, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 2021 (Unaudited) – (Continued) Derivative Instruments and Notes Payable Subsequent to June 30, 2021, one of the Company’s interest rate swap agreements matured and the Company repaid in full $ 21.5 million of the underlying mortgage notes payable. Additionally, in connection with the origination of the Mortgage Loan (as defined below), the Company terminated two interest rate swap agreements and paid down the $ 220.0 million outstanding balance under the CCPT V Credit Facility. Credit and Security Agreement Subsequent to June 30, 2021, the Company received borrowings in an aggregate principal amount of $ 50.0 million under the Credit and Security Agreement. Repurchase Facilities Subsequent to June 30, 2021, the Company entered into an amendment to the Barclay’s Repurchase Agreement, pursuant to which the maturity date of the Barclays Repurchase Facility was extended to September 21, 2024. Additionally, the Company repaid $ 66.4 million of the Barclays Repurchase Facility. First Lien Mortgage Loan Subsequent to June 30, 2021, JPMorgan Chase and DBR Investments Co. Limited originated a $ 650.0 million first lien mortgage loan (the “Mortgage Loan”) to 114 single purpose entities, each of which is a wholly-owned subsidiary of the Company and are managed on a day-to-day basis by affiliates of CIM. The proceeds from the Mortgage Loan were primarily used by the Company to paydown existing debt. Net-Lease Mortgage Notes Subsequent to June 30, 2021, the Company issued $ 774.0 million aggregate principal amount of Net-Lease Mortgage Notes, Series 2021-1 (the “Class A Notes”). The Company used the net proceeds from the sale of the Class A Notes to refinance or repay certain indebtedness and pay fees and expenses related to the issuance. Credit Facilities and Notes Payable Subsequent to June 30, 2021, and with the proceeds from the Mortgage Loan and the sale of the Class A Notes, the Company repaid fixed-rate debt of $ 104.1 million, paid down the $ 1.11 billion outstanding balance under the Credit Facilities and terminated the CCPT V Credit Facility and the CMFT Credit Facility. 40 Table of Contents