CIM GROUP, INC. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis should be read in conjunction with the accompanying condensed consolidated financial statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q. We make statements in this section that are forward-looking statements within the meaning of the federal securities laws. Certain risks may cause our actual results, performance or achievements to differ materially from those expressed or implied by the following discussion. For a complete discussion of such risk factors, see Item 1A — Risk Factors of this Quarterly Report on Form 10-Q and the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. Capitalized terms used herein, but not otherwise defined, shall have the meaning ascribed to those terms in “Part I — Financial Information” of this Quarterly Report on Form 10-Q, including the notes to the condensed consolidated financial statements contained therein, and the terms “we,” “us,” “our” and the “Company” refer to CIM Real Estate Finance Trust, Inc. Forward-Looking Statements This Quarterly Report on Form 10-Q includes “forward-looking statements” (within the meaning of the federal securities laws, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that reflect our expectations and projections about our future results, performance, prospects and opportunities. We have attempted to identify these forward-looking statements by the use of words such as “may,” “will,” “seek,” “expects,” “anticipates,” “believes,” “targets,” “intends,” “should,” “estimates,” “could,” “continue,” “assume,” “projects,” “plans” or similar expressions. These forward-looking statements are based on information currently available to us and are subject to a number of known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. These factors include, among other things, those discussed below. In addition, these risks and uncertainties include those associated with (i) the scope, severity and duration of the current pandemic of COVID-19 and actions taken to contain the pandemic or mitigate its impact, (ii) the potential adverse effect of the COVID-19 pandemic on the financial condition, results of operations, cash flows and performance of the Company and its tenants, the real estate market and the global economy and financial markets, among others, and (iii) general economic, market and other conditions. We intend for all such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act and Section 21E of the Exchange Act, as applicable by law. We do not undertake to publicly update or revise any forward-looking statements, whether as a result of changes in underlying assumptions or new information, future events or otherwise, except as may be required to satisfy our obligations under federal securities law. The forward-looking statements should be read in light of the risk factors identified in Item 1A — Risk Factors of this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2021. The following are some, but not all, of the assumptions, risks, uncertainties and other factors that could cause our actual results to differ materially from those presented in our forward-looking statements: • We may be unable to renew leases, lease vacant space or re-lease space as leases expire on favorable terms or at all. • We are subject to risks associated with tenant, geographic and industry concentrations with respect to our investments and properties. • Our properties, intangible assets and other assets, as well as the property securing our loans or other investments, may be subject to impairment charges. • We could be subject to unexpected costs or unexpected liabilities that may arise from dispositions. • We are subject to competition in the acquisition and disposition of properties and in the leasing of our properties and we may suffer delays or be unable to acquire, dispose of, or lease properties on advantageous terms. • We are subject to risks associated with bankruptcies or insolvencies of our borrowers and tenants and from borrower or tenant defaults generally. • Our credit and real estate investments subject us to the political, economic, capital markets and other conditions in the United States, including with respect to the effects of the COVID-19 pandemic and other events that impact the United States. • We are subject to fluctuations in interest rates which could reduce our ability to generate income on our credit investments. • We are subject to competition from entities engaged in lending which may impact the availability of origination and acquisition opportunities acceptable to us. • We have substantial indebtedness, which may affect our ability to pay distributions and expose us to interest rate fluctuation risk and the risk of default under our debt obligations. • We are subject to risks associated with the incurrence of additional secured or unsecured debt. 42 Table of Contents • We may not be able to maintain profitability. • We may not generate cash flows sufficient to pay our distributions to stockholders or meet our debt service obligations. • Our continued compliance with debt covenants depends on many factors and could be impacted by current or future economic conditions associated with the COVID-19 pandemic. • We may be affected by risks resulting from losses in excess of insured limits. • We may fail to remain qualified as a REIT for U.S. federal income tax purposes. • We may be unable to successfully reposition our portfolio or list our shares on a national securities exchange in the timeframe we expect or at all. Definitions We use certain defined terms throughout this Quarterly Report on Form 10-Q that have the following meanings: The phrase “annualized rental income” refers to the straight-line rental revenue under our leases on operating properties owned as of the respective reporting date, which includes the effect of rent escalations and any tenant concessions, such as free rent, and excludes any contingent rent, such as percentage rent. Management uses annualized rental income as a basis for tenant, industry and geographic concentrations and other metrics within the portfolio. Annualized rental income is not indicative of future performance. Under a “net lease,” the tenant occupying the leased property (usually as a single tenant) does so in much the same manner as if the tenant were the owner of the property. The tenant generally agrees that it will either have no ability or only limited ability to terminate the lease or abate rent prior to the expiration of the term of the lease as a result of real estate driven events such as casualty, condemnation or failure by the landlord to fulfill its obligations under the lease. There are various forms of net leases, most typically classified as either triple-net or double-net. Triple-net leases typically require the tenant to pay all expenses associated with the property (e.g., real estate taxes, insurance, maintenance and repairs, including roof, structure and parking lot). Double-net leases typically hold the landlord responsible for the capital expenditures for the roof and structure, while the tenant is responsible for all lease payments and remaining operating expenses associated with the property (e.g., real estate taxes, insurance and maintenance). Overview We are primarily focused on originating, acquiring, financing and managing shorter duration senior secured loans, other related credit investments and core commercial real estate. Our investment strategy allows us to adapt over time in order to respond to evolving market conditions and to capitalize on investment opportunities that may arise at different points in the economic and real estate investment cycle. We are continuing our strategy as a credit focused REIT, balancing our existing core of necessity commercial real estate assets leased to creditworthy tenants under long-term net leases with a portfolio of commercial mortgage loans and other credit investments. Assuming the successful repositioning of our portfolio and subject to market conditions, we then expect to pursue a listing of our common stock on a national securities exchange, though we can provide no assurances that a listing will happen on that timeframe or at all. We were formed on July 27, 2010, and we elected to be taxed, and conduct our operations to qualify, as a REIT for U.S. federal income tax purposes. We have no paid employees and are externally managed by CMFT Management and, with respect to investments in securities and certain other of our investments, our Investment Advisor, each of which is an affiliate of CIM, a community-focused real estate and infrastructure owner, operator, lender and developer. As of March 31, 2022, we owned 445 properties, which consisted of 400 retail properties, 19 anchored shopping centers, 14 industrial properties and 12 office properties, representing 38 industry sectors and comprising 15.4 million rentable square feet of commercial space located in 45 states. As of March 31, 2022, we owned condominium developments with a net book value of $158.1 million. As of March 31, 2022, our loan portfolio consisted of 332 loans with a net book value of $3.3 billion. As of March 31, 2022, we had $39.5 million of unfunded or unsettled liquid senior loan purchases included in cash and cash equivalents, and investments in real estate-related securities of $254.3 million. In furtherance of our strategy, during the three months ended March 31, 2022, we disposed of 69 properties, encompassing 7.4 million gross rentable square feet. On December 20, 2021, certain subsidiaries of the Company entered into the Purchase and Sale Agreement to sell 79 shopping centers and two single-tenant properties, for which we are to receive, in the aggregate, approximately $1.32 billion in total consideration at closing. During the three months ended March 31, 2022, the sale of 56 properties closed under the Purchase and Sale Agreement for total consideration of $811.8 million, as further discussed in Note 43 Table of Contents 4 — Real Estate Assets to the condensed consolidated financial statements in this Quarterly Report on Form 10-Q. The remaining 25 properties are classified as held for sale in the condensed consolidated balance sheets as of March 31, 2022 with a carrying value of $481.4 million. The sale of 23 such properties closed in phases for total consideration of $289.2 million subsequent to March 31, 2022, as further discussed in Note 17 — Subsequent Events to the condensed consolidated financial statements in this Quarterly Report on Form 10-Q, with the remaining two properties expected to close during the second quarter of 2022. Our operating results and cash flows are primarily influenced by rental and other property income from our commercial properties, interest income from our credit investments, interest expense on our indebtedness and investment and operating expenses. As 97.2% of our rentable square feet was under lease, including any month-to-month agreements, as of March 31, 2022, with a weighted average remaining lease term of 9.8 years, we believe our exposure to changes in commercial rental rates on our portfolio is substantially mitigated, except for vacancies caused by tenant bankruptcies or other factors, including due to circumstances related to COVID-19. Our manager regularly monitors the creditworthiness of our tenants by reviewing each tenant’s financial results, any available credit rating agency reports on the tenant or guarantor, the operating history of the property with such tenant, the tenant’s market share and track record within its industry segment, the general health and outlook of the tenant’s industry segment and other information for changes and possible trends. If CMFT Management identifies significant changes or trends that may adversely affect the creditworthiness of a tenant, it will gather a more in-depth knowledge of the tenant’s financial condition and, if necessary, attempt to mitigate the tenant credit risk by evaluating the possible sale of the property or identifying a possible replacement tenant should the current tenant fail to perform on the lease. In addition, our manager reviews our investment portfolios and is in regular contact with our borrowers, monitoring performance of the collateral and enforcing our rights as necessary. COVID-19 We are closely monitoring the negative impacts that the COVID-19 pandemic and the efforts to mitigate its spread are having on the economy, our tenants and our business. T he extent to which the COVID-19 pandemic continues to impact our operations and those of our tenants will depend on future developments, including, among other factors, the duration, spread and resurgences of the virus, including certain variants thereof, along with related travel advisories and restrictions, the recovery time of the disrupted supply chains and industries, the impact of labor market interruptions, the impact of government interventions, the pace, scope and efficacy of vaccination programs, and general uncertainty as to the impact of COVID-19, including related variants, on the global economy. Operating Highlights and Key Performance Indicators Activity from January 1, 2022 through March 31, 2022 Operating Results: • Net income of $39.1 million, or $0.09 per share. • Declared distributions of $0.09 per share. Credit Portfolio Activity: • Invested $784.1 million in first mortgage loans and received principal repayments of $102.5 million. • Invested $61.0 million in liquid senior loans and sold liquid senior loans for an aggregate gross sales price of $23.8 million. • Invested $102.2 million in CMBS and preferred units and sold one marketable security for an aggregate gross sales price of $132,000. • Invested $10.0 million in a corporate senior loan. Real Estate Portfolio Activity: • Disposed of 69 properties for an aggregate sales price of $925.3 million. • Disposed of condominium units for an aggregate sales price of $21.1 million. Financing Activity: • Increased total debt by $29.8 million. • Increased maximum financing amounts on two existing repurchase facilities to provide up to $1.25 billion and $750.0 million, respectively, to finance a portfolio of existing and future commercial real estate mortgage loans. 44 Table of Contents Portfolio Information The following table shows the carrying value of our portfolio by investment type as of March 31, 2022 and 2021 (dollar amounts in thousands): As of March 31, 2022 2021 Asset Count Carrying Value Asset Count Carrying Value Loan Held-For-Investment First mortgage loans 25 $ 2,664,702 40.8 % 6 $ 525,447 11.6 % Liquid senior loans 306 671,569 10.3 % 221 496,832 11.0 % Corporate senior loan 1 9,927 0.2 % — — — % Less: Current expected credit losses (19,150) (0.3) % (12,888) (0.3) % Total loans held-for-investment and related receivable, net 332 3,327,048 51.0 % 227 1,009,391 22.3 % Real Estate-Related Securities CMBS and equity securities 8 186,070 2.9 % 5 67,222 1.5 % Preferred units 1 68,243 1.0 % — — — % Real Estate Total real estate assets and intangible lease liabilities, net 445 2,944,298 45.1 % 515 3,450,076 76.2 % Total Investment Portfolio 786 $ 6,525,659 100.0 % 747 $ 4,526,689 100.0 % Credit Portfolio Information The following table details overall statistics for our credit portfolio as of March 31, 2022 (dollar amounts in thousands): First Mortgage Loans and Preferred Units (1) Liquid Senior Loans CMBS and Equity Securities Corporate Senior Loan Number of investments 26 306 8 1 Principal balance $ 2,757,184 $ 675,086 $ 157,830 $ 10,000 Net book value $ 2,721,703 $ 663,717 $ 186,070 $ 9,871 Unfunded or unsettled loan commitments $ 384,659 $ 39,489 $ — $ — Weighted-average interest rate 3.5 % 4.0 % 4.8 % 7.0 % Weighted-average maximum years to maturity (2) 4.2 5.1 11.0 5.6 ____________________________________ (1) As of March 31, 2022, 100% of our loans by principal balance earned a floating rate of interest, primarily indexed to U.S. dollar LIBOR and SOFR. (2) Maximum maturity date assumes all extension options are exercised by the borrower; however, our CRE loans may be repaid prior to such date. Real Estate Portfolio Information As of March 31, 2022, we owned 445 properties located in 45 states, the gross rentable square feet of which was 97.2% leased, including any month-to-month agreements, with a weighted average lease term remaining of 9.8 years. As of March 31, 2022, no single tenant accounted for greater than 10% of our 2022 annualized rental income. As of March 31, 2022, we had certain geographic and industry concentrations in our property holdings. In particular, we had properties located in California and Ohio, which accounted for 12% and 11%, respectively, of our 2022 annualized rental income. In addition, we had tenants in the health and personal care stores and sporting goods, hobby and musical instruments store industries, which accounted for 11% and 10%, respectively, of our 2022 annualized rental income. During the three months ended March 31, 2022, we disposed of 69 properties, for an aggregate gross sales price of $925.3 million. Additionally, during the three months ended March 31, 2022, we sold condominium units for an aggregate gross sales price of $21.1 million. 45 Table of Contents The following table shows the property statistics of our real estate assets as of March 31, 2022 and 2021: As of March 31, 2022 2021 Number of commercial properties 445 515 Rentable square feet (in thousands) (1) 15,357 21,293 Percentage of rentable square feet leased 97.2 % 93.7 % Percentage of investment-grade tenants (2) 38.8 % 38.6 % ____________________________________ (1) Includes square feet of buildings on land parcels subject to ground leases. (2) Investment-grade tenants are those with a credit rating of BBB- or higher by Standard & Poor’s or a credit rating of Baa3 or higher by Moody’s Investor Service, Inc. (“Moody’s”). The ratings may reflect those assigned by Standard & Poor’s or Moody’s to the lease guarantor or the parent company, as applicable. The weighted average credit rating is weighted based on annualized rental income and is for only those tenants rated by Standard & Poor’s. During the three months ended March 31, 2022 and 2021, the Company did not acquire any properties. Results of Operations Overview We are not aware of any material trends or uncertainties, other than those listed in the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2021 and this Quarterly Report on Form 10-Q, the effects of the COVID-19 pandemic, and national economic conditions affecting real estate in general that may reasonably be expected to have a material impact on our results from the acquisition, management and operation of properties. Currently, we are unable to predict the impact that the COVID-19 pandemic will have on our financial condition, results of operations and cash flows in future periods due to numerous uncertainties. Same Store Analysis Our results of operations are influenced by the timing of acquisitions and the operating performance of our real estate assets. We review our stabilized operating results, measured by net operating income, from properties that we owned for the entirety of both the current and prior year reporting periods, referred to as “same store” properties, and we believe that the presentation of operating results for same store properties provides useful information to stockholders. Net operating income is a supplemental non-GAAP financial measure of a real estate company’s operating performance. Net operating income is considered by management to be a helpful supplemental performance measure, as it enables management to evaluate the impact of occupancy, rents, leasing activity, and other controllable property operating results at our real estate properties, and it provides a consistent method for the comparison of our properties. We define net operating income as operating revenues less operating expenses, which exclude (i) depreciation and amortization, (ii) interest expense and other non-property related revenue and expense items such as (a) general and administrative expenses, (b) expense reimbursements to related parties, (c) management fees, (d) transaction-related expenses, (e) real estate impairment, (f) increase in provision for credit losses, (g) gain on disposition of real estate and condominium developments, net, (h) merger-related expenses, net and (i) interest income. Our calculation of net operating income may not be comparable to that of other REITs and should not be considered to be more relevant or accurate in evaluating our operating performance than the current GAAP methodology used in calculating net income (loss). In determining the same store property pool, we include all properties that were owned for the entirety of both the current and prior reporting periods, except for properties during the current or prior year that were under development or redevelopment. 46 Table of Contents Comparison of the Three Months Ended March 31, 2022 and 2021 The following table reconciles net income (loss), calculated in accordance with GAAP, to net operating income (dollar amounts in thousands): For the Three Months Ended March 31, 2022 2021 Change Net income (loss) $ 39,101 $ (2,753) $ 41,854 Loss on extinguishment of debt 10,871 — 10,871 Interest expense and other, net 31,037 20,022 11,015 Gain on investment in unconsolidated entities (5,340) — (5,340) Operating income 75,669 17,269 58,400 Gain on disposition of real estate and condominium developments, net (32,574) — (32,574) Increase in provision for credit losses 4,709 568 4,141 Real estate impairment 3,291 4,300 (1,009) Depreciation and amortization 19,141 25,738 (6,597) Transaction-related expenses 7 4 3 Management fees 13,347 11,577 1,770 Expense reimbursements to related parties 3,694 2,661 1,033 General and administrative expenses 3,475 4,428 (953) Interest income (31,463) (11,953) (19,510) Net operating income $ 59,296 $ 54,592 $ 4,704 Our operating segments include credit and real estate. Refer to Note 16 — Segment Reporting to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q for further discussion of our operating segments. Credit Segment Interest Income The increase in interest income of $19.5 million for the three months ended March 31, 2022, as compared to the same period in 2021, was due to an increase in the overall size of our investment portfolio. As of March 31, 2022, we held investments in CRE loans held-for-investment of $2.7 billion, liquid senior loans of $671.6 million, an investment in a corporate senior loan of $9.9 million, CMBS and other securities of $186.1 million, and an investment in preferred units of $68.2 million. As of March 31, 2021, we held investments in CRE loans held-for-investment of $525.4 million, liquid senior loans of $496.8 million, and CMBS of $67.2 million. Provision for Credit Losses The increase in provision for credit losses of $4.1 million during the three months ended March 31, 2022, as compared to the same period in 2021, was primarily due to the increased number of loan investments entered into during the three months ended March 31, 2022, as compared to the same period in 2021. Real Estate Segment A total of 336 properties were acquired before January 1, 2021 and represent our “same store” properties during the three months ended March 31, 2022 and 2021. “Non-same store” properties, for purposes of the table below, includes properties acquired or disposed of on or after January 1, 2021. 47 Table of Contents The following table details the components of net operating income broken out between same store and non-same store properties (dollar amounts in thousands): Total Same Store Non-Same Store For the Three Months Ended March 31, For the Three Months Ended March 31, For the Three Months Ended March 31, 2022 2021 Change 2022 2021 Change 2022 2021 Change Rental and other property income $ 73,736 $ 76,930 $ (3,194) $ 43,254 $ 43,154 $ 100 $ 30,482 $ 33,776 $ (3,294) Property operating expenses 7,727 10,119 (2,392) 2,879 2,703 176 4,848 7,416 (2,568) Real estate tax expenses 6,713 12,219 (5,506) 3,175 3,264 (89) 3,538 8,955 (5,417) Total property operating expenses 14,440 22,338 (7,898) 6,054 5,967 87 8,386 16,371 (7,985) Net operating income $ 59,296 $ 54,592 $ 4,704 $ 37,200 $ 37,187 $ 13 $ 22,096 $ 17,405 $ 4,691 Loss on Extinguishment of Debt The increase in loss on extinguishment of debt of $10.9 million for the three months ended March 31, 2022, as compared to the same period in 2021, was primarily due to the termination of certain mortgage notes in connection with the disposition of the underlying properties during the three months ended March 31, 2022. Gain on Investment in Unconsolidated Entities The increase in gain on investment in unconsolidated entities of $5.3 million for the three months ended March 31, 2022, as compared to the same period in 2021, was due to the Company’s investment in CIM UII Onshore and NP JV Holdings, both of which were not invested in by the Company during the three months ended March 31, 2021. Interest Expense and Other, Net Interest expense and other, net also includes amortization of deferred financing costs. The increase in interest expense and other, net, of $11.0 million for the three months ended March 31, 2022, as compared to the same period in 2021, was primarily due to an increase in the average aggregate amount of debt outstanding from $2.5 billion as of March 31, 2021 to $4.2 billion as of March 31, 2022 as a result of entering into and upsizing additional repurchase agreements, originating the Mortgage Loan and Class A Notes, and assuming the CIM Income NAV Credit Facility as part of the CIM Income NAV Merger subsequent to March 31, 2021. Gain on Disposition of Real Estate and Condominium Developments, Net The increase in gain on disposition of real estate and condominium developments, net, of $32.6 million during the three months ended March 31, 2022, as compared to the same period in 2021, was due to the disposition of 69 properties for a gain of $29.2 million and the disposition of condominium units for a gain of $3.3 million during the three months ended March 31, 2022, compared to the disposition of one property with no gain or loss recognized during the three months ended March 31, 2021. Real Estate Impairment The decrease in real estate impairments of $1.0 million during the three months ended March 31, 2022, as compared to the same period in 2021, was due to seven properties that were deemed to be impaired, resulting in impairment charges of $3.3 million during the three months ended March 31, 2022, compared to five properties that were deemed to be impaired, resulting in impairment charges of $4.3 million during the three months ended March 31, 2021. Depreciation and Amortization The decrease in depreciation and amortization of $6.6 million during the three months ended March 31, 2022, as compared to the same period in 2021, was primarily due to the disposition of 185 properties subsequent to March 31, 2021, partially offset by the acquisition of 115 properties through the CIM Income NAV Merger that closed in December 2021. 48 Table of Contents Transaction-Related Expenses Transaction-related expenses remained generally consistent during the three months ended March 31, 2022, as compared to the same period in 2021. Management Fees We pay CMFT Management a management fee pursuant to the Management Agreement, payable quarterly in arrears, equal to the greater of (a) $250,000 per annum ($62,500 per quarter) and (b) 1.50% per annum (0.375% per quarter) of the Company’s Equity (as defined in the Management Agreement). Furthermore, as discussed in Note 12 — Related-Party Transactions and Arrangements to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q, pursuant to the Investment Advisory and Management Agreement, for management of investments in the Managed Assets (as defined in the Investment Advisory and Management Agreement), CMFT Securities pays the Investment Advisor the Investment Advisory Fee, payable quarterly in arrears, equal to 1.50% per annum (0.375% per quarter) of CMFT Securities’ Equity (as defined in the Investment Advisory and Management Agreement). Because the Managed Assets are excluded from the calculation of management fees payable by the Company to CMFT Management pursuant to the Management Agreement, the total management and advisory fees payable by the Company to its external advisors are not increased as a result of the Investment Advisory and Management Agreement. In addition, pursuant to the Sub-Advisory Agreement, in connection with providing investment management services with respect to the corporate credit-related securities held by CMFT Securities, on a quarterly basis, the Investment Advisor designates 50% of the sum of the Investment Advisory Fee payable to the Investment Advisor as sub-advisory fees. The increase in management fees of $1.8 million during the three months ended March 31, 2022, as compared to the same period in 2021, was primarily due to increased equity from the issuance of common stock in connection with the CIM Income NAV Merger that closed in December 2021. Expense Reimbursements to Related Parties 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. Additionally, we may be required to reimburse certain expenses incurred by CMFT Management in providing management services, subject to limitations as set forth in the Management Agreement (as discussed in Note 12 — Related-Party Transactions and Arrangements to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q). The increase in expense reimbursements to related parties of $1.0 million during the three months ended March 31, 2022, as compared to the same period in 2021, was primarily due to increased operating expense reimbursements due to CMFT Management, primarily as a result of increased allocated payroll resulting from increased portfolio activity. General and Administrative Expenses The primary general and administrative expense items are banking fees and escrow and trustee fees. The decrease in general and administrative expenses of $1.0 million for the three months ended March 31, 2022, as compared to the same period in 2021, was primarily due to a decrease in fees related to the unused portion of our line of credit due to the pay down and termination of the Company’s credit facilities subsequent to March 31, 2021 as well as a decrease in legal costs and other professional fees. This decrease was partially offset by increased expenses related to the assumption of the CIM Income NAV Credit Facility in connection with the CIM Income NAV Merger completed in December 2021. Net Operating Income Same store property net operating income remained relatively consistent during the three months ended March 31, 2022, as compared to the same period in 2021. Non-same store property net operating income increased $4.7 million during the three months ended March 31, 2022, as compared to the same period in 2021. The increase was primarily due to the acquisition of 115 properties in connection with the CIM Income NAV Merger that closed in December 2021 and the acquisition of 146 properties that closed in December 2020, partially offset by a decrease in net operating income due to the disposition of 185 properties subsequent to March 31, 2021. Distributions Prior to April 1, 2020, on a quarterly basis, our Board authorized a daily distribution for the succeeding quarter. Our Board authorized the following daily distribution amounts per share for the periods indicated below: 49 Table of Contents Period Commencing Period Ending Daily Distribution Amount April 14, 2012 December 31, 2012 $0.001707848 January 1, 2013 December 31, 2015 $0.001712523 January 1, 2016 December 31, 2016 $0.001706776 January 1, 2017 December 31, 2019 $0.001711452 January 1, 2020 March 31, 2020 $0.001706776 On April 20, 2020, our Board decided to make a determination as to the amount and timing of distributions on a monthly, instead of a quarterly, basis until such time that we had greater visibility into the impact that the COVID-19 pandemic would have on our tenants’ ability to continue to pay rent on their leases on a timely basis or at all, the degree to which federal, state or local governmental authorities grant rent relief or other relief or amnesty programs applicable to our tenants, our ability to access the capital markets, and on the United States and worldwide financial markets and economy. On March 25, 2021, the Board resumed declaring distributions on a quarterly basis, which are paid out on a monthly basis. Since April 2020, our Board authorized the following monthly distribution amounts per share, payable to shareholders as of the record date for the applicable month, for the periods indicated below: Period Commencing Period Ending Monthly Distribution Amount April 2020 May 2020 $0.0130 June 2020 June 2020 $0.0161 July 2020 July 2020 $0.0304 August 2020 December 2021 $0.0303 January 2022 September 2022 $0.0305 As of March 31, 2022, we had distributions payable of $13.3 million. The following table presents distributions and source of distributions for the periods indicated below (dollar amounts in thousands): Three Months Ended March 31, 2022 2021 Amount Percent Amount Percent Distributions paid in cash $ 30,357 76 % $ 32,906 100 % Distributions reinvested 9,574 24 % — — % Total distributions $ 39,931 100 % $ 32,906 100 % Sources of distributions: Net cash provided by operating activities (1)(2) $ 39,931 100 % $ 28,747 87 % Proceeds from the issuance of debt (3) — — % 4,159 13 % Total sources $ 39,931 100 % $ 32,906 100 % ____________________________________ (1) Net cash provided by operating activities for the three months ended March 31, 2022 and 2021 was $30.1 million and $28.7 million, respectively. (2) Our distributions covered by cash flows from operating activities for the three months ended March 31, 2022 include cash flows from operating activities in excess of distributions from prior periods of $9.9 million. (3) Net proceeds on the repurchase facilities, credit facilities and notes payable for the three months ended March 31, 2022 and 2021 was $45.2 million and $197.0 million, respectively. Share Redemptions Our share redemption program permits our stockholders to sell their shares of common stock back to us, subject to certain conditions and limitations. Funding for the redemption of shares will be limited to the cumulative net proceeds we receive from the sale of shares under the Secondary DRIP Offering, net of shares redeemed to date. In addition, we will generally limit quarterly redemptions to approximately 1.25% of the weighted average number of shares outstanding during the trailing 12-month period ending on the last day of the fiscal quarter for which the redemptions are being paid, and to the net proceeds we 50 Table of Contents receive from the sale of shares in the respective quarter under the Secondary DRIP Offering. Any of the foregoing limits might prevent us from accommodating all redemption requests made in any fiscal quarter or in any 12-month period. In addition, our Board may choose to amend the terms of, suspend or terminate our share redemption program at any time in its sole discretion if it believes that such action is in the best interest of us and our stockholders. Any material modifications or suspension of the share redemption program will be disclosed to our stockholders as promptly as practicable in our reports filed with the SEC and via our website. During the three months ended March 31, 2022, we received valid redemption requests under our share redemption program totaling approximately 25.2 million shares, of which we redeemed approximately 1.4 million shares subsequent to March 31, 2022 for $9.9 million (at a redemption price of $7.20 per share). The remaining redemption requests relating to approximately 23.8 million shares went unfulfilled. A valid redemption request is one that complies with the applicable requirements and guidelines of the share redemption program then in effect. The share redemptions were funded with proceeds from the Secondary DRIP Offering and available borrowings. Liquidity and Capital Resources General We expect to utilize proceeds from real estate dispositions, sales proceeds and principal payments received on credit investments, cash flows from operations and future proceeds from secured or unsecured financing to complete future acquisitions and loan originations, repayment of certain indebtedness and for general corporate uses. The sources of our operating cash flows will primarily be provided by the rental and other property income received from current and future leased properties and interest income from our portfolio of credit investments. As a result of the CIM Income NAV Merger that closed in December 2021, our subsidiary assumed CIM Income NAV’s obligations pursuant to the CIM Income NAV Credit Agreement, including as guarantor under a guaranty provided by CIM Income NAV. As of March 31, 2022, the CIM Income NAV Credit Agreement allows for borrowings of up to $425.0 million (the “CIM Income NAV Credit Facility”). The CIM Income NAV Credit Facility includes $212.5 million in term loans and up to $212.5 million in revolving loans. As of March 31, 2022, we had cash and cash equivalents of $165.1 million, which included $39.5 million of unfunded or unsettled liquid senior loan purchases. As of March 31, 2022, CMFT Corporate Credit Securities, LLC, our indirect wholly-owned subsidiary, had a revolving credit and security agreement with Citibank, as administrative agent, that provided for borrowings secured by substantially all of the assets held by CMFT Corporate Credit Securities, LLC, which shall primarily consist of liquid senior secured loans subject to certain eligibility criteria under the Credit and Security Agreement. As of March 31, 2022, the CMFT Lending Subs had Master Repurchase Agreements with Citibank, Barclays, Wells Fargo, and Deutsche Bank to provide financing primarily through each bank’s purchase of our CRE mortgage loans and future funding advances. The following table details our outstanding financing arrangements as of March 31, 2022 (in thousands): Portfolio Financing Outstanding Principal Balance Maximum Capacity Notes payable – fixed rate debt $ 399,409 $ 399,409 Notes payable – variable rate debt 122,488 122,488 First lien mortgage loan 156,161 650,000 ABS mortgage notes 768,840 774,000 Credit facilities 774,000 975,000 Repurchase facilities 1,980,324 2,700,000 Total portfolio financing $ 4,201,222 $ 5,620,897 As of March 31, 2022, we believe that we were in compliance with the financial covenants of the Mortgage Loan, the ABS mortgage notes, and the Repurchase Agreements, as well as the financial covenants under our various fixed and variable rate debt agreements, as further discussed in Note 10 — Repurchase Facilities, Credit Facilities and Notes Payable to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q. Short-term Liquidity and Capital Resources On a short-term basis, our principal demands for funds will be for the acquisition of real estate-related securities, real estate and real estate-related assets and the payment of acquisition-related fees and expenses, operating expenses, distributions, 51 Table of Contents redemptions and interest and principal on current and any future debt financings, including principal repayments of $437.0 million within the next 12 months. We expect to meet our short-term liquidity requirements through cash proceeds from real estate asset dispositions, net cash provided by operations and proceeds from the Secondary DRIP Offering, as well as secured or unsecured borrowings from banks and other lenders to finance our future acquisitions and loan originations. Operating cash flows are expected to increase as we complete future acquisitions. We believe that the resources stated above will be sufficient to satisfy our operating requirements for the foreseeable future, and we do not anticipate a need to raise funds from sources other than those described above within the next 12 months. Management intends to use the proceeds from the disposition of properties to, among other things, acquire additional high-quality net-lease properties and credit investments in furtherance of our investment objectives and for other general corporate purposes. Long-term Liquidity and Capital Resources On a long-term basis, our principal demands for funds will be for the acquisition of real estate-related securities, real estate and real estate-related credit investments and the payment of tenant improvements, acquisition-related expenses, operating expenses, distributions and redemptions to stockholders and interest and principal on any current and future indebtedness. Generally, we expect to meet our long-term liquidity requirements through proceeds from cash flows from operations, proceeds from secured or unsecured borrowings from banks and other lenders, and proceeds raised pursuant to the Secondary DRIP Offering. We expect that substantially all net cash flows from operations will be used to pay distributions to our stockholders after certain capital expenditures, including tenant improvements and leasing commissions, are paid; however, we have used, and may continue to use, other sources to fund distributions, as necessary, including borrowings on our unencumbered assets. To the extent that cash flows from operations are lower, distributions paid to our stockholders may be lower. We expect that substantially all net cash flows from the Offerings or debt financings will be used to fund acquisitions, loan originations, certain capital expenditures, repayments of outstanding debt or distributions and redemptions to our stockholders. Contractual Obligations As of March 31, 2022, we had debt outstanding with a carrying value of $4.2 billion and a weighted average interest rate of 2.7%. See Note 10 — Repurchase Facilities, Credit Facilities and Notes Payable to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q for certain terms of our debt outstanding. Our contractual obligations as of March 31, 2022 were as follows (in thousands): Payments due by period (1) Total Less Than 1 Year 1-3 Years 3-5 Years More Than 5 Years Principal payments — fixed rate debt $ 399,409 $ 23,722 $ 375,687 $ — $ — Interest payments — fixed rate debt (2) 22,670 15,121 7,549 — — Principal payments — variable rate debt 122,488 59,713 — — 62,775 Interest payments — variable rate debt (3) 8,573 1,897 3,111 3,107 458 Principal payments — first lien mortgage loan (4) 156,161 — 156,161 — — Interest payments — first lien mortgage loan (4) 10,227 7,511 2,716 — — Principal payments — ABS mortgage notes (5) 768,840 7,740 2,580 — 758,520 Interest payments — ABS mortgage notes (5) 190,254 21,377 42,930 42,871 83,076 Principal payments — credit facilities (6) 774,000 252,500 521,500 — — Interest payments — credit facilities (6) 40,251 17,257 22,994 — — Principal payments — repurchase facilities (7) 1,980,324 93,373 1,886,951 — — Interest payments — repurchase facilities (7) 91,150 39,320 51,830 — — Total $ 4,564,347 $ 539,531 $ 3,074,009 $ 45,978 $ 904,829 ____________________________________ (1) The table does not include amounts due to CMFT Management or its affiliates pursuant to our Management Agreement because such amounts are not fixed and determinable. The table also does not include $384.7 million of unfunded commitments related to our existing CRE loans held-for-investment, $16.2 million of unfunded commitments related to NP JV Holdings, which are subject to the satisfaction of borrower milestones. In addition, the table does not include $39.5 52 Table of Contents million of unfunded or unsettled liquid senior loan acquisitions, which are included in cash and cash equivalents in the accompanying condensed consolidated balance sheet. (2) As of March 31, 2022, we had $15.8 million of variable rate debt effectively fixed through the use of interest rate swap agreements. We used the effective interest rates fixed under our interest rate swap agreements to calculate the debt payment obligations in future periods. (3) As of March 31, 2022, we had variable rate debt outstanding of $122.5 million with a weighted average interest rate of 3.9%. We used the weighted average interest rate to calculate the debt payment obligations in future periods. (4) As of March 31, 2022, the amounts outstanding under the Mortgage Loan totaled $156.2 million and had a weighted average interest rate of 4.8%. (5) As of March 31, 2022, the amounts outstanding under the ABS mortgage notes totaled $768.8 million and had a weighted average interest rate of 2.8%. (6) As of March 31, 2022, the amounts outstanding under the Credit Securities Revolver (as defined in Note 10 — Repurchase Facilities, Credit Facilities and Notes Payable to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q) totaled $521.5 million and had a weighted average interest rate of 2.5% and the amounts outstanding under the CIM Income NAV Revolving Loans totaled $40.0 million and had a weighted average interest rate of 4.4%. As of March 31, 2022, the CIM Income NAV Term Loans outstanding totaled $212.5 million, $140.0 million of which is subject to interest rate swap agreements. As of March 31, 2022, the weighted average all-in interest rate for the Swapped Term Loans was 4.4%. The remaining $72.5 million outstanding under our credit facilities had a weighted average interest rate of 2.3% as of March 31, 2022. (7) As of March 31, 2022, the amount outstanding under the Citibank Repurchase Facility was $322.4 million at a weighted average interest rate of 2.1%, the amount outstanding under the Barclays Repurchase Facility was $906.9 million at a weighted average interest rate of 2.1%, the amount outstanding under the Wells Fargo Repurchase Facility was $657.6 million at a weighted average interest rate of 1.8%, and the amount outstanding under the Deutsche Bank Repurchase Facility was $93.4 million at a weighted average interest rate of 2.3%. We expect to incur additional borrowings in the future to acquire additional properties and credit investments. There is no limitation on the amount we may borrow against any single improved property. As of March 31, 2022, our ratio of debt to total gross assets net of gross intangible lease liabilities was 60.1% and our ratio of debt to the fair market value of our gross assets net of gross intangible lease liabilities was 60.8%. Fair market value of our first mortgage loans is based on the estimated market value as of March 31, 2022. Fair market value of the remaining credit investments is based on the market value as of March 31, 2022. Fair market value of our real estate assets is based on the estimated market value as of March 31, 2021 that was used to determine our estimated per share NAV, and for those assets acquired from April 1, 2021 through March 31, 2022 is based on the purchase price. Cash Flow Analysis Operating Activities. Net cash provided by operating activities increased by $1.3 million for the three months ended March 31, 2022, as compared to the same period in 2021. The increase was primarily due to the acquisition of 115 properties through the CIM Income NAV Merger and the growth in our loan portfolio, offset by the disposition of 185 properties subsequent to March 31, 2021. See “— Results of Operations” for a more complete discussion of the factors impacting our operating performance. Investing Activities. Net cash provided by investing activities increased $305.3 million for the three months ended March 31, 2022, as compared to the same period in 2021. The change was primarily due to an increase in proceeds from disposition of real estate assets of $919.9 million, partially offset by an increase in the net investment in loans held-for-investment of $540.2 million and an increase in the net investment of real estate-related securities of $127.0 million. Financing Activities. Net cash provided by financing activities decreased $162.7 million for the three months ended March 31, 2022, as compared to the same period in 2021. The change was primarily due to a decrease in net proceeds on the credit facilities, notes payable and repurchase facilities of $151.8 million in addition to an increase in redemptions of common stock due to the reinstatement of the share redemption program subsequent to March 31, 2021. Election as a REIT We elected to be taxed, and operate our business to qualify, as a REIT for federal income tax purposes commencing with our taxable year ended December 31, 2012. To maintain our qualification as a REIT, we must continue to meet certain requirements relating to our organization, sources of income, nature of assets, distributions of income to our stockholders and recordkeeping. As a REIT, we generally are not subject to federal income tax on taxable income that we distribute to our 53 Table of Contents stockholders so long as we distribute at least 90% of our annual taxable income (computed without regard to the dividends paid deduction and excluding net capital gains). If we fail to maintain our qualification as a REIT for any reason in a taxable year and applicable relief provisions do not apply, we will be subject to tax on our taxable income at regular corporate rates. We will not be able to deduct distributions paid to our stockholders in any year in which we fail to maintain our qualification as a REIT. We also will be disqualified for the four taxable years following the year during which qualification was lost, unless we are entitled to relief under specific statutory provisions. Such an event could materially adversely affect our net income and net cash available for distribution to stockholders. However, we believe that we are organized and operate in such a manner as to maintain our qualification as a REIT for federal income tax purposes. No provision for federal income taxes has been made in our accompanying condensed consolidated financial statements. We are subject to certain state and local taxes related to the operations of properties in certain locations, which have been provided for in our accompanying condensed consolidated financial statements. Critical Accounting Policies and Significant Accounting Estimates Our accounting policies have been established to conform with GAAP. The preparation of financial statements in conformity with GAAP requires us to use judgment in the application of accounting policies, including making estimates and assumptions. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Management believes that we have made these estimates and assumptions in an appropriate manner and in a way that accurately reflects our financial condition. We continually test and evaluate these estimates and assumptions using our historical knowledge of the business, as well as other factors, to ensure that they are reasonable for reporting purposes. However, actual results may differ from these estimates and assumptions. If our judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied, thus resulting in a different presentation of the financial statements. Additionally, other companies may utilize different estimates that may impact comparability of our results of operations to those of companies in similar businesses. We believe the following critical accounting policies govern the significant judgments and estimates used in the preparation of our financial statements, which should be read in conjunction with the more complete discussion of our accounting policies and procedures included in Note 2 — Summary of Significant Accounting Policies to our audited consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2021. We consider our critical accounting policies to be the following: • Recoverability of Real Estate Assets; • Allocation of Purchase Price of Real Estate Assets; and • Current Expected Credit Losses. A complete description of such policies and our considerations is contained in our Annual Report on Form 10-K for the year ended December 31, 2021. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with our audited consolidated financial statements as of and for the year ended December 31, 2021 and related notes thereto. Related-Party Transactions and Agreements We have entered into agreements with CMFT Management and our Investment Advisor whereby we agree to pay certain fees to, or reimburse certain expenses of, CMFT Management, the Investment Advisor or their affiliates. In addition, we have invested in, and may continue to invest in, certain co-investments with funds that are advised by an affiliate of CMFT Management. We may also originate loans to third parties that use the proceeds to finance the acquisition of real estate from funds that are advised by an affiliate of CMFT Management. See Note 12 — Related-Party Transactions and Arrangements to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q for a discussion of the various related-party transactions, agreements and fees. Conflicts of Interest Richard S. Ressler, the chairman of our Board, chief executive officer and president, who is also a founder and principal of CIM and is an officer/director of certain of its affiliates, is the vice president of our manager. One of our directors, Avraham Shemesh, who is also a founder and principal of CIM and is an officer/director of certain of its affiliates, is the president and treasurer of our manager. Additionally, two of our directors, Jason Schreiber and Emily Vande Krol, are employees of CIM. Nathan D. DeBacker, our chief financial officer and treasurer, is a vice president of our manager and is an officer of certain of its affiliates. As such, there may be conflicts of interest where CMFT Management or its affiliates, while serving in the capacity as sponsor, general partner, officer, director, key personnel and/or advisor for CIM or another program sponsored or operated by affiliates of our manager, may be in conflict with us in connection with providing services to other real estate-related programs related to property acquisitions, property dispositions, and property management, among others. The compensation 54 Table of Contents arrangements between affiliates of CMFT Management and these other real estate programs sponsored or operated by affiliates of our manager could influence the advice provided to us. See Part I, Item 1. Business — Conflicts of Interest in our Annual Report on Form 10-K for the year ended December 31, 2021.