What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-14 compared with 2022-08-12 · 132 added, 123 removed, 364 unchanged (41% of the section changed)

29 unchanged sentences

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

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

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

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

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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 June 30, 2022, we owned 402 properties, which consisted of 378 retail properties, 13 industrial properties, 10 office properties, and one anchored shopping center, representing 33 industry sectors and comprising 12.1 million rentable square feet of commercial space located in 45 states.

As of June 30, 2022, we owned condominium developments with a net book value of $152.5 million.

As of June 30, 2022, our loan portfolio consisted of 341 loans with a net book value of $3.9 billion, and investments in real estate-related securities of $274.4 million.

In furtherance of our strategy, during the six months ended June 30, 2022, we disposed of 112 properties and an outparcel of land, encompassing 10.6 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 were to receive, in the aggregate, approximately $1.32 billion in total consideration at closing.

During the six months ended June 30, 2022, the sale of 80 properties closed under the Purchase and Sale Agreement for total consideration of $1.3 billion, as further discussed in Note 4 — Real Estate Assets to the condensed consolidated financial statements in this Quarterly Report on Form 10-Q.

The remaining property is classified as held for sale in the condensed consolidated balance sheets as of June 30, 2022 with a carrying value of $66.2 million.

The sale of the final property closed for total consideration of $68.3 million subsequent to June 30, 2022, as further discussed in Note 17 — Subsequent Events to the condensed consolidated financial statements in this Quarterly Report on Form 10-Q.

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 99.2% of our rentable square feet was under lease, including any month-to-month agreements, as of June 30, 2022, with a weighted average remaining lease term of 10.6 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.

As of September 30, 2022, our loan portfolio consisted of 346 loans with a net book value of $4.0 billion, and investments in real estate-related securities of $470.1 million.

As of September 30, 2022, we owned 384 properties, which consisted of 367 retail properties, nine office properties, and eight industrial properties, representing 25 industry sectors and comprising 11.0 million rentable square feet of commercial space located in 44 states, with a net book value of $2.2 billion.

As of September 30, 2022, we owned condominium developments with a net book value of $153.6 million.

In furtherance of our strategy, during the nine months ended September 30, 2022, we disposed of 130 properties and an outparcel of land, including the two properties previously owned through the Consolidated Joint Venture, encompassing 11.7

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 were to receive, in the aggregate, approximately $1.32 billion in total consideration at closing.

During the nine months ended September 30, 2022, the sale of the 81 properties closed under the Purchase and Sale Agreement for total consideration of $1.33 billion, as further discussed in Note 4 — Real Estate Assets to the condensed consolidated financial statements in this Quarterly Report on Form 10-Q.

Our operating results and cash flows are primarily influenced by interest income from our credit investments, rental and other property income from our commercial properties, interest expense on our indebtedness and investment and operating expenses.

CMFT Management reviews our investment portfolios and is in regular contact with our borrowers, monitoring performance of the collateral and enforcing our rights as necessary.

In addition, as 99.3% of our rentable square feet was under lease, including any month-to-month agreements, as of September 30, 2022, with a weighted average remaining lease term of 10.7 years, we believe our exposure to changes in commercial rental rates on our portfolio is substantially mitigated, except for vacancies caused by tenant bankruptcies or other factors, 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.

If our manager identifies significant changes or trends that may adversely affect the creditworthiness of a tenant, it will gather a more in-depth knowledge of the tenant’s financial condition and, if necessary, attempt to mitigate the tenant credit risk by evaluating the possible sale of the property or identifying a possible replacement tenant should the current tenant fail to perform on the lease.

We 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.

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Macroeconomic Environment

Federal Reserve’s recent actions to increase interest rates in order to control inflation have created further uncertainty for the economy and for our borrowers and tenants.

This year has been characterized by steep declines and significant volatility in global markets, driven by investor concerns over inflation, rising interest rates, slowing economic growth and geopolitical uncertainty.

Inflation across many key economies reached generational highs, prompting central banks to take monetary policy tightening actions that have, and will likely continue to create headwinds to economic growth.

The ongoing war between Russia and Ukraine is also contributing to mounting inflationary pressure.

Inflation has caused the Federal Reserve to continue raising interest rates, which has created further uncertainty for the economy and for our borrowers and tenants.

Although the majority of our business model is such that rising interest rates will, all else being equal, correlate to increases in our net income, increases in interest rates may adversely affect our existing borrowers, tenants and owned property values.

It is difficult to predict the full impact of recent changes and any future changes in interest rates or inflation.

Additionally, rising rates and increasing costs may dampen consumer spending and slow corporate profit growth, which may negatively impact the collateral underlying certain of our loans.

While there is debate among economists as to whether such factors, coupled with economic contraction in the U.S.

in 2022, indicate that the U.S.

has entered, or in the near term will enter, a recession, it remains difficult to predict the full impact of recent changes and any future changes in interest rates or inflation.

Operating Highlights and Key Performance Indicators

Activity from January 1, 2022 through June 30, 2022

Activity from January 1, 2022 through September 30, 2022

Operating Results:

6 unchanged sentences

• Converted $68.2 million of preferred units into a CRE loan upon maturity.

• Invested $55.3 million in corporate senior loans and received principal repayments of $50,000.

• Invested $74.8 million in corporate senior loans.

Real Estate Portfolio Activity:

• Disposed of 112 properties and an outparcel of land for an aggregate sales price of $1.55 billion.

• Disposed of 130 properties and an outparcel of land, including the two properties previously owned through the Consolidated Joint Venture, for an aggregate sales price of $1.71 billion.

• Disposed of condominium units for an aggregate sales price of $24.2 million.

2 unchanged sentences

• Entered into a new repurchase agreement and 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 and CMBS.

• Entered into a new credit agreement that provides for borrowings of up to $300.0 million, which includes a $100.0 million term loan facility and the ability to borrow up to $200.0 million in revolving loans under a revolving credit facility with a $30.0 million letter of credit subfacility.

• Paid down the $212.5 million outstanding balance under the CIM Income NAV Credit Facility and terminated the CIM Income NAV Credit Facility.

Portfolio Information

The following table shows the carrying value of our portfolio by investment type as of June 30, 2022 and 2021 (dollar amounts in thousands):

As of June 30,

The following table shows the carrying value of our portfolio by investment type as of September 30, 2022 and 2021 (dollar amounts in thousands):

As of September 30,

Asset Count Carrying Value Asset Count Carrying Value

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CMBS and equity security 17 470,121 7.0 % 15 121,757 2.6 %

Preferred units — — — % 1 63,490 1.4 %

Total real estate assets and intangible lease liabilities, net 384 2,220,272 33.2 % 403 3,011,599 64.8 %

1 unchanged sentence

Credit Portfolio Information

The following table details overall statistics for our credit portfolio as of June 30, 2022 (dollar amounts in thousands):

First Mortgage Loans (1)

The following table details overall statistics for our credit portfolio as of September 30, 2022 (dollar amounts in thousands):

CRE Loans (1)

Liquid Senior Loans CMBS and Equity Security Corporate Senior Loans

7 unchanged sentences

____________________________________

(1) As of June 30, 2022, 100% of our loans by principal balance earned a floating rate of interest, primarily indexed to U.S.

(1) As of September 30, 2022, 100% of our loans by principal balance earned a floating rate of interest, primarily indexed to U.S.

dollar LIBOR and SOFR.

1 unchanged sentence

however, our CRE loans may be repaid prior to such date.

(3) Table does not include our investment in the Unconsolidated Joint Venture, which had a carrying value of $132.4 million as of September 30, 2022.

Real Estate Portfolio Information

As of June 30, 2022, we owned 402 properties located in 45 states, the gross rentable square feet of which was 99.2% leased, including any month-to-month agreements, with a weighted average lease term remaining of 10.6 years.

As of June 30, 2022, no single tenant accounted for greater than 10% of our 2022 annualized rental income.

As of June 30, 2022, we had certain geographic and industry concentrations in our property holdings.

As of September 30, 2022, we owned 384 properties located in 44 states, the gross rentable square feet of which was 99.3% leased, including any month-to-month agreements, with a weighted average lease term remaining of 10.7 years.

As of September 30, 2022, no single tenant accounted for greater than 10% of our 2022 annualized rental income.

As of September 30, 2022, we had certain geographic and industry concentrations in our property holdings.

In particular, we had properties located in Ohio, which accounted for 12% 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 12% and 10%, respectively, of our 2022 annualized rental income.

During the six months ended June 30, 2022, we disposed of 112 properties and an outparcel of land, for an aggregate gross sales price of $1.55 billion.

Additionally, during the six months ended June 30, 2022, we sold condominium units for an aggregate gross sales price of $22.5 million.

The following table shows the property statistics of our real estate assets as of June 30, 2022 and 2021:

As of June 30,

In addition, we had tenants in the health and personal care stores, sporting goods, hobby and musical instrument stores, and grocery store industries, which accounted for 13%, 10% and 10%, respectively, of our 2022 annualized rental income.

During the nine months ended September 30, 2022, we disposed of 130 properties and an outparcel of land, including the two properties previously

owned through the Consolidated Joint Venture, for an aggregate gross sales price of $1.71 billion.

Additionally, during the nine months ended September 30, 2022, we sold condominium units for an aggregate gross sales price of $24.2 million.

The following table shows the property statistics of our real estate assets as of September 30, 2022 and 2021:

As of September 30,

Number of commercial properties 384 403

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

During the six months ended June 30, 2022 and 2021, the Company did not acquire any properties.

During the nine months ended September 30, 2022 and 2021, the Company did not acquire any properties.

Results of Operations

9 unchanged sentences

In determining the same store property pool, we include all properties that were owned for the entirety of both the current and prior reporting periods, except for properties during the current or prior year that were under development or redevelopment.

Comparison of the Three Months Ended June 30, 2022 and 2021

Comparison of the Three Months Ended September 30, 2022 and 2021

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

For the Three Months Ended June 30,

For the Three Months Ended September 30,

2022 2021 Change

2 unchanged sentences

Interest expense and other, net 39,366 20,381 18,985

Unrealized loss on equity security 9,030 — 9,030

Gain on investment in unconsolidated entities (2,195) — (2,195)

Operating income 65,084 66,235 (1,151)

Merger-related expenses, net — 398 (398)

Gain on disposition of real estate and condominium developments, net (4,454) (34,033) 29,579

Increase in provision for credit losses 4,942 123 4,819

Increase (decrease) in provision for credit losses 5,664 (1,792) 7,456

Real estate impairment 527 891 (364)

10 unchanged sentences

Interest Income

The increase in interest income of $28.5 million for the three months ended June 30, 2022, as compared to the same period in 2021, was due to an increase in the overall size of our investment portfolio.

As of June 30, 2022, we held investments in CRE loans held-for-investment of $3.2 billion, liquid senior loans of $684.9 million, corporate senior loans of $55.2 million, and CMBS and other securities of $274.4 million.

As of June 30, 2021, we held investments in CRE loans held-for-investment of $872.2 million, liquid senior loans of $484.1 million, and CMBS of $42.1 million.

Increase in Provision for Credit Losses

The increase in provision for credit losses of $4.8 million during the three months ended June 30, 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 June 30, 2022, as compared to the same period in 2021.

The increase in interest income of $46.5 million for the three months ended September 30, 2022, as compared to the same period in 2021, was due to an increase in the overall size of our investment portfolio.

As of September 30, 2022, we held $4.5 billion in credit investments compared to $1.6 billion in credit investments as of September 30, 2021.

Increase (Decrease) in Provision for Credit Losses

The increase in provision for credit losses of $7.5 million during the three months ended September 30, 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 September 30, 2022, as compared to the same period in 2021.

Real Estate Segment

A total of 307 properties were acquired before April 1, 2021 and represent our “same store” properties during the three months ended June 30, 2022 and 2021.

“Non-same store” properties, for purposes of the table below, includes properties acquired or disposed of on or after April 1, 2021.

A total of 302 properties were acquired before July 1, 2021 and represent our “same store” properties during the three months ended September 30, 2022 and 2021.

“Non-same store” properties, for purposes of the table below, includes properties acquired or disposed of on or after July 1, 2021.

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

Total Same Store Non-Same Store

For the Three Months Ended June 30,

For the Three Months Ended September 30,

2022 2021 Change 2022 2021 Change 2022 2021 Change

5 unchanged sentences

Loss on Extinguishment of Debt

The increase in loss on extinguishment of debt of $3.9 million for the three months ended June 30, 2022, as compared to the same period in 2021, was primarily due to the increase in terminations of certain mortgage notes in connection with the disposition of the underlying properties during the three months ended June 30, 2022, as compared to the same period in 2021.

The increase in loss on extinguishment of debt of $93,000 for the three months ended September 30, 2022, as compared to the same period in 2021, was primarily due to the increase in terminations of certain mortgage notes in connection with the disposition of the underlying properties during the three months ended September 30, 2022, as compared to the same period in 2021.

Gain on Investment in Unconsolidated Entities

The increase in gain on investment in unconsolidated entities of $1.3 million for the three months ended June 30, 2022, as compared to the same period in 2021, was due to the Company’s investment in NP JV Holdings, which was not invested in by the Company during the three months ended June 30, 2021.

The increase in gain on investment in unconsolidated entities of $2.2 million for the three months ended September 30, 2022, as compared to the same period in 2021, was due to the Company’s investment in NP JV Holdings, which was not invested in by the Company during the three months ended September 30, 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 $18.0 million for the three months ended June 30, 2022, as compared to the same period in 2021, was primarily due to an increase in the three-month average aggregate amount of debt outstanding from $2.2 billion as of June 30, 2021 to $4.1 billion as of June 30, 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 June 30, 2021.

In addition, interest expense and other, net was further increased by the unrealized loss on the Company’s equity security of $4.1 million during the three months ended June 30, 2022.

The increase in interest expense and other, net, of $19.0 million for the three months ended September 30, 2022, as compared to the same period in 2021, was primarily due to an increase in the three-month average aggregate amount of debt outstanding from $2.8 billion as of September 30, 2021 to $4.3 billion as of September 30, 2022, primarily as a result of entering into and upsizing additional repurchase agreements subsequent to September 30, 2021, coupled with an increase in the Company’s weighted average interest rate from 2.8% as of September 30, 2021 to 4.5% as of September 30, 2022.

Merger-Related Expenses, Net

The decrease in merger-related expenses, net of $398,000 for the three months ended September 30, 2022, as compared to the same period in 2021, was due to expenses incurred related to the CIM Income NAV Merger during the three months ended September 30, 2021.

No such expenses were incurred during the three months ended September 30, 2022.

Gain on Disposition of Real Estate and Condominium Developments, Net

The increase in gain on disposition of real estate and condominium developments, net, of $34.6 million during the three months ended June 30, 2022, as compared to the same period in 2021, was due to the disposition of 43 properties and an outparcel of land for a gain of $81.2 million, partially offset by the disposition of condominium units for a loss of $74,000 during the three months ended June 30, 2022, compared to the disposition of 46 properties for a gain of $45.0 million during the three months ended June 30, 2021.

The decrease in gain on disposition of real estate and condominium developments, net, of $29.6 million during the three months ended September 30, 2022, as compared to the same period in 2021, was due to the disposition of 18 properties, an outparcel of land and condominium units for a gain of $4.5 million during the three months ended September 30, 2022, compared to the disposition of 66 properties, an outparcel of land and condominium units for a gain of $34.0 million during the three months ended September 30, 2021.

Real Estate Impairment

The increase in real estate impairments of $15.9 million during the three months ended June 30, 2022, as compared to the same period in 2021, was due to 11 properties and certain condominium units that were deemed to be impaired, resulting in impairment charges of $16.0 million during the three months ended June 30, 2022, compared to one property that was deemed to be impaired, resulting in impairment charges of $77,000 during the three months ended June 30, 2021.

The decrease in real estate impairments of $364,000 during the three months ended September 30, 2022, as compared to the same period in 2021, was due to one property that was deemed to be impaired, resulting in impairment charges of $527,000 during the three months ended September 30, 2022, compared to six properties that were deemed to be impaired, resulting in impairment charges of $891,000 during the three months ended September 30, 2021.

Depreciation and Amortization

The decrease in depreciation and amortization of $6.6 million during the three months ended June 30, 2022, as compared to the same period in 2021, was primarily due to the disposition of 182 properties subsequent to June 30, 2021, partially offset by the acquisition of 115 properties through the CIM Income NAV Merger that closed in December 2021.

The decrease in depreciation and amortization of $5.9 million during the three months ended September 30, 2022, as compared to the same period in 2021, was primarily due to the disposition of 134 properties subsequent to September 30, 2021, partially offset by the acquisition of 115 properties through the CIM Income NAV Merger that closed in December 2021.

Transaction-Related Expenses

The increase in transaction-related expenses of $419,000 during the three months ended June 30, 2022, as compared to the same period in 2021, was primarily due to escrow holdbacks that were deemed uncollectible as of June 30, 2022 and were therefore written off.

No such write-offs occurred during the same period in 2021.

Transaction-related expenses remained generally consistent during the three months ended September 30, 2022, as compared to the same period in 2021.

Management Fees

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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 $1.6 million during the three months ended June 30, 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.

The increase in management fees of $1.2 million during the three months ended September 30, 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

1 unchanged sentence

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 $567,000 during the three months ended June 30, 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.

The increase in expense reimbursements to related parties of $912,000 during the three months ended September 30, 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 legal and accounting fees, banking fees and transfer agency and board of directors costs.

General and administrative expenses remained generally consistent during the three months ended June 30, 2022, as compared to the same period in 2021.

General and administrative expenses remained generally consistent during the three months ended September 30, 2022, as compared to the same period in 2021.

Net Operating Income

Same store property net operating income increased $1.4 million during the three months ended June 30, 2022, as compared to the same period in 2021.

The increase was partially due to an increase in same store occupancy to 98.9% as of June 30, 2022 from 98.8% as of June 30, 2021.

Non-same store property net operating income decreased $11.4 million during the three months ended June 30, 2022, as compared to the same period in 2021.

The decrease was primarily due to the disposition of 182 properties subsequent to June 30, 2021, partially offset by an increase in net operating income due to the acquisition of 115 properties in connection with the CIM Income NAV Merger that closed in December 2021.

Comparison of the Six Months Ended June 30, 2022 and 2021

Same store property net operating income remained relatively consistent during the three months ended September 30, 2022, as compared to the same period in 2021.

Non-same store property net operating income decreased $14.5 million during the three months ended September 30, 2022, as compared to the same period in 2021.

The decrease was primarily due to the disposition of 134 properties subsequent to September 30, 2021, partially offset by an increase in net operating income due to the acquisition of 115 properties in connection with the CIM Income NAV Merger that closed in December 2021.

Comparison of the Nine Months Ended September 30, 2022 and 2021

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

For the Six Months Ended June 30,

For the Nine Months Ended September 30,

2022 2021 Change

2 unchanged sentences

Interest expense and other, net 98,453 56,863 41,590

Unrealized loss on equity security 15,440 — 15,440

Gain on investment in unconsolidated entities (8,858) — (8,858)

Operating income 252,872 159,229 93,643

Merger-related expenses, net — 398 (398)

Gain on disposition of real estate and condominium developments, net (118,135) (80,502) (37,633)

Increase in provision for credit losses 9,651 691 8,960

Increase (decrease) in provision for credit losses 15,315 (1,101) 16,416

Real estate impairment 19,814 5,268 14,546

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Interest Income

The increase in interest income of $48.0 million for the six months ended June 30, 2022, as compared to the same period in 2021, was due to an increase in the overall size of our investment portfolio.

As of June 30, 2021, we held investments in CRE loans held-for-investment of $872.2 million, liquid senior loans of $484.1 million, and CMBS of $42.1 million.

Increase in Provision for Credit Losses

The increase in provision for credit losses of $9.0 million during the six months ended June 30, 2022, as compared to the same period in 2021, was primarily due to the increased number of loan investments entered into during the six months ended June 30, 2022, as compared to the same period in 2021.

The increase in interest income of $94.5 million for the nine months ended September 30, 2022, as compared to the same period in 2021, was due to an increase in the overall size of our investment portfolio.

As of September 30, 2022, we held $4.5 billion in credit investments compared to $1.6 billion in credit investments as of September 30, 2021.

Increase (Decrease) in Provision for Credit Losses

The increase in provision for credit losses of $16.4 million during the nine months ended September 30, 2022, as compared to the same period in 2021, was primarily due to the increased number of loan investments entered into during the nine months ended September 30, 2022, as compared to the same period in 2021.

Real Estate Segment

A total of 307 properties were acquired before January 1, 2021 and represent our “same store” properties during the six months ended June 30, 2022 and 2021.

A total of 302 properties were acquired before January 1, 2021 and represent our “same store” properties during the nine months ended September 30, 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.

1 unchanged sentence

Total Same Store Non-Same Store

For the Six Months Ended June 30,

For the Nine Months Ended September 30,

2022 2021 Change 2022 2021 Change 2022 2021 Change

5 unchanged sentences

Loss on Extinguishment of Debt

The increase in loss on extinguishment of debt of $14.8 million for the six months ended June 30, 2022, as compared to the same period in 2021, was primarily due to the increased terminations of certain mortgage notes in connection with the disposition of the underlying properties during the six months ended June 30, 2022, as compared to the same period in 2021.

The increase in loss on extinguishment of debt of $14.9 million for the nine months ended September 30, 2022, as compared to the same period in 2021, was primarily due to the increased terminations of certain mortgage notes in connection with the disposition of the underlying properties during the nine months ended September 30, 2022, as compared to the same period in 2021.

Gain on Investment in Unconsolidated Entities

The increase in gain on investment in unconsolidated entities of $6.7 million for the six months ended June 30, 2022, as compared to the same period in 2021, was due to the Company’s investment in CIM UII Onshore and NP JV Holdings, neither of which were invested in by the Company during the six months ended June 30, 2021.

The increase in gain on investment in unconsolidated entities of $8.9 million for the nine months ended September 30, 2022, as compared to the same period in 2021, was due to the Company’s investment in CIM UII Onshore and NP JV Holdings, neither of which were invested in by the Company during the nine months ended September 30, 2021.

Interest Expense and Other, Net

The increase in interest expense and other, net, of $29.0 million for the six months ended June 30, 2022, as compared to the same period in 2021, was primarily due to an increase in the six-month average aggregate amount of debt outstanding from $2.4 billion as of June 30, 2021 to $4.2 billion as of June 30, 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 June 30, 2021.

In addition, interest expense and other, net was further increased by the unrealized loss on the Company’s equity security of $6.4 million during the six months ended June 30, 2022.

The increase in interest expense and other, net, of $41.6 million for the nine months ended September 30, 2022, as compared to the same period in 2021, was primarily due to an increase in the nine-month average aggregate amount of debt outstanding from $2.5 billion as of September 30, 2021 to $4.2 billion as of September 30, 2022 as a result of entering into and upsizing additional repurchase agreements and assuming the CIM Income NAV Credit Facility as part of the CIM Income NAV Merger subsequent to September 30, 2021, coupled with an increase in the Company’s weighted average interest rate from 2.8% as of September 30, 2021 to 4.5% as of September 30, 2022.

Merger-Related Expenses, Net

The decrease in merger-related expenses, net of $398,000 for the nine months ended September 30, 2022, as compared to the same period in 2021, was due to expenses incurred related to the CIM Income NAV Merger during the nine months ended September 30, 2021.

No such expenses were incurred during the nine months ended September 30, 2022.

Gain on Disposition of Real Estate and Condominium Developments, Net

The increase in gain on disposition of real estate and condominium developments, net, of $67.2 million during the six months ended June 30, 2022, as compared to the same period in 2021, was primarily due to the disposition of 112 properties and one outparcel of land for a gain of $110.4 million and the disposition of condominium units for a gain of $3.3 million during the six months ended June 30, 2022, compared to the disposition of 47 properties for a gain of $45.0 million during the six months ended June 30, 2021.

The increase in gain on disposition of real estate and condominium developments, net, of $37.6 million during the nine months ended September 30, 2022, as compared to the same period in 2021, was primarily due to the disposition of 130 properties and one outparcel of land, including the two properties previously owned through the Consolidated Joint Venture, for a gain of $115.0 million and the disposition of condominium units for a gain of $3.1 million during the nine months ended September 30, 2022, compared to the disposition of 113 properties and an outparcel of land for a gain of $75.6 million and the disposition of condominium units for a gain of $4.9 million during the nine months ended September 30, 2021.

Real Estate Impairment

The increase in impairments of $14.9 million during the six months ended June 30, 2022, as compared to the same period in 2021, was due to 18 properties and certain condominium units that were deemed to be impaired, resulting in impairment charges of $19.3 million during the six months ended June 30, 2022, compared to five properties that were deemed to be impaired, resulting in impairment charges of $4.4 million during the six months ended June 30, 2021.

The increase in impairments of $14.5 million during the nine months ended September 30, 2022, as compared to the same period in 2021, was due to 19 properties and certain condominium units that were deemed to be impaired, resulting in impairment charges of $19.8 million during the nine months ended September 30, 2022, compared to 11 properties that were deemed to be impaired, resulting in impairment charges of $5.3 million during the nine months ended September 30, 2021.

Depreciation and Amortization

The decrease in depreciation and amortization of $13.2 million during the six months ended June 30, 2022, as compared to the same period in 2021, was primarily due to the disposition of 182 properties subsequent to June 30, 2021, partially offset by the acquisition of 115 properties through the CIM Income NAV Merger that closed in December 2021.

The decrease in depreciation and amortization of $19.1 million during the nine months ended September 30, 2022, as compared to the same period in 2021, was primarily due to the disposition of 134 properties subsequent to September 30, 2021, partially offset by the acquisition of 115 properties through the CIM Income NAV Merger that closed in December 2021.

Transaction-Related Expenses

The increase in transaction-related expenses of $422,000 during the six months ended June 30, 2022, as compared to the same period in 2021, was primarily due to escrow holdbacks that were deemed uncollectible as of June 30, 2022 and were therefore written off.

The increase in transaction-related expenses of $425,000 during the nine months ended September 30, 2022, as compared to the same period in 2021, was primarily due to escrow holdbacks that were deemed uncollectible as of September 30, 2022 and were therefore written off.

No such write-offs occurred during the same period in 2021.

Management Fees

The increase in management fees of $3.4 million during the six months ended June 30, 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.

The increase in management fees of $4.6 million during the nine months ended September 30, 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

The increase in expense reimbursements to related parties of $1.6 million during the six months ended June 30, 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.

The increase in expense reimbursements to related parties of $2.5 million during the nine months ended September 30, 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 decrease in general and administrative expenses of $878,000 for the six months ended June 30, 2022, compared to the same period in 2021, was primarily due to increased legal expenses incurred during the six months ended June 30, 2021 related to the foreclosure completed in January 2021 to take control of the assets which previously secured the Company’s mezzanine loans, as discussed in Note 8 — Loans Held-For-Investment to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q.

Such foreclosure activity did not occur during the six months ended June 30, 2022.

The decrease in general and administrative expenses of $519,000 for the nine months ended September 30, 2022, compared to the same period in 2021, was primarily due to increased legal expenses incurred during the nine months ended September 30, 2021 related to the foreclosure completed in January 2021 to take control of the assets which previously secured the Company’s mezzanine loans, as discussed in Note 8 — Loans Held-For-Investment to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q.

The overall 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 increased $1.4 million during the six months ended June 30, 2022, as compared to the same period in 2021.

The increase was partially due to an increase in same store occupancy to 98.9% as of June 30, 2022 from 98.8% as of June 30, 2021.

Non-same store property net operating income decreased $6.7 million during the six months ended June 30, 2022, as compared to the same period in 2021.

Same store property net operating income increased $1.0 million during the nine months ended September 30, 2022, as compared to the same period in 2021.

The increase was partially due to amended lease agreements, coupled with an increase in same store occupancy to 98.9% as of September 30, 2022 from 98.8% as of September 30, 2021.

Non-same store property net operating income decreased $21.0 million during the nine months ended September 30, 2022, as compared to the same period in 2021.

Distributions

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January 2022 September 2022 $0.0305

As of June 30, 2022, we had distributions payable of $13.3 million.

October 2022 December 2022 $0.0339

January 2023 March 2023 $0.0350

As of September 30, 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):

Six Months Ended June 30,

Nine Months Ended September 30,

Amount Percent Amount Percent

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____________________________________

(1) Net cash provided by operating activities for the six months ended June 30, 2022 and 2021 was $61.2 million and $65.3 million, respectively.

(2) Our distributions covered by cash flows from operating activities for the six months ended June 30, 2022 include cash flows from operating activities in excess of distributions from prior periods of $18.7 million.

(3) Net proceeds on the repurchase facilities, credit facilities and notes payable for the six months ended June 30, 2021 was $292.2 million.

(1) Net cash provided by operating activities for the nine months ended September 30, 2022 and 2021 was $125.4 million and $97.5 million, respectively.

(2) Net proceeds on the repurchase facilities, credit facilities and notes payable for the nine months ended September 30, 2021 was $584.1 million.

Share Redemptions

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We will determine whether we have sufficient funds and/or shares available as soon as practicable after the end of each fiscal quarter, but in any event prior to the applicable payment date.

If we cannot purchase all shares presented for redemption in any fiscal quarter, based upon insufficient cash available from DRIP and/or the limit on the number of shares we may redeem during any quarter or year, we will give priority to the redemption of deceased stockholders’ shares.

While deceased stockholders’ shares will be included in

calculating the maximum number of shares that may be redeemed in any annual or quarterly period, they will not be subject to the annual or quarterly percentage caps;

If we cannot purchase all shares presented for redemption in any fiscal quarter, based upon insufficient cash available from the sale of shares under our DRIP and/or the limit on the number of shares we may redeem during any quarter or year, we will give priority to the redemption of deceased stockholders’ shares.

While deceased

stockholders’ shares will be included in calculating the maximum number of shares that may be redeemed in any annual or quarterly period, they will not be subject to the annual or quarterly percentage caps;

therefore, if the volume of requests to redeem deceased stockholders’ shares in a particular quarter were large enough to cause the annual or quarterly percentage caps to be exceeded, even if no other redemption requests were processed, the redemptions of deceased stockholders’ shares would be completed in full, assuming sufficient proceeds from the sale of shares under our DRIP, net of shares redeemed to date, were available.

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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 six months ended June 30, 2022, we received valid redemption requests under our share redemption program totaling approximately 49.6 million shares, of which we redeemed approximately 1.4 million shares as of June 30, 2022 for $10.0 million (at an average redemption price of $7.20 per share) and approximately 1.3 million shares subsequent to June 30, 2022 for $9.4 million (at a redemption price of $7.20 per share).

During the nine months ended September 30, 2022, we received valid redemption requests under our share redemption program totaling approximately 74.8 million shares, of which we redeemed approximately 2.8 million shares as of September 30, 2022 for $19.9 million (at an average redemption price of $7.20 per share) and approximately 1.3 million shares subsequent to September 30, 2022 for $9.6 million (at a redemption price of $7.20 per share).

The remaining redemption requests relating to approximately 70.8 million shares went unfulfilled.

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Our primary sources of liquidity include cash and cash equivalents and available borrowings under our debt facilities, which are set forth in the following table:

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Cash and cash equivalents $ 124,836 $ 107,381

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(1) Subject to borrowing availability.

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 additional details regarding our notes payable, credit facilities and repurchase facilities.

The following table details our outstanding financing arrangements and borrowing capacity as of June 30, 2022 (in thousands):

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 additional details regarding our repurchase facilities, notes payable and credit facilities.

The following table details our outstanding financing arrangements and borrowing capacity as of September 30, 2022 (in thousands):

Portfolio Financing Outstanding Principal Balance Maximum Capacity (1)

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Liquidity and Capital Resources

Our principal demands for funds will be for the acquisition of real estate-related securities, real estate and real estate-related assets and the payment of tenant improvements, acquisition-related expenses, operating expenses, distributions, redemptions and interest and principal on current and any future debt financings, including principal repayments of $504.2 million within the next 12 months, $228.3 million of which was paid down subsequent to June 30, 2022, as further discussed in Note 17 — Subsequent Events to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q.

Subsequent to June 30, 2022, we entered into a new credit agreement with JPMorgan Chase which provides for borrowings of $300.0 million, the proceeds of which were used to pay down the $212.5 million outstanding balance under the CIM Income NAV Credit Facility.

We also exercised the Deutsche Bank Repurchase Facility’s first extension option which was set to mature on October 8, 2022, extending the date of maturity to October 8, 2023.

Our principal demands for funds will be for the acquisition or origination of credit investments and real estate, and the payment of tenant improvements, acquisition-related expenses, operating expenses, distributions, redemptions and interest and principal on current and any future debt financings, including principal repayments of $336.4 million within the next 12 months, $195.5 million of which has a rolling term that resets monthly, as further discussed in Note 17 — Subsequent Events to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q.

Generally, we expect to meet our liquidity requirements through cash proceeds from real estate asset dispositions, net cash provided by operations and proceeds from the Secondary DRIP Offering, as well as secured or unsecured borrowings from banks and other lenders to finance our future acquisitions and loan originations.

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Contractual Obligations

As of June 30, 2022, we had debt outstanding with a carrying value of $4.2 billion and a weighted average interest rate of 3.3%.

As of September 30, 2022, we had debt outstanding with a carrying value of $4.4 billion and a weighted average interest rate of 4.5%.

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 June 30, 2022 were as follows (in thousands):

Our contractual obligations as of September 30, 2022 were as follows (in thousands):

Payments due by period (1)

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Interest payments — fixed rate debt 3,537 1,591 1,946 — —

7,160 3,328 3,832 — —

Principal payments — variable rate debt 470,860 — 49,366 175,710 245,784

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(1) The table does not include amounts due to CMFT Management or its affiliates pursuant to our Management Agreement because such amounts are not fixed and determinable.

The table also does not include $370.9 million of unfunded commitments related to our existing CRE loans held-for-investment and corporate senior loans held-for-investment and $115.7 million of unfunded commitments related to the NewPoint JV, which are subject to the satisfaction of borrower milestones.

In addition, the table does not include $2.0 million of unfunded liquid senior loans and $22.4 million of unsettled liquid senior loan acquisitions, the unsettled amount of which is included in cash and cash equivalents in the accompanying condensed consolidated balance sheet.

(2) As of June 30, 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) Interest payments on the variable rate debt, first lien mortgage loan, ABS mortgage notes, credit facilities and repurchase facilities have been calculated based on outstanding balances as of June 30, 2022 through their respective maturity dates.

The table also does not include $344.7 million of unfunded commitments related to our existing CRE loans held-for-investment, corporate senior loans held-for-investment and liquid senior loans and $79.5 million of unfunded commitments related to the NewPoint JV, which are subject to the satisfaction of borrower milestones.

In addition, the table does not include $6.3 million of unsettled liquid senior loan acquisitions, which is included in cash and cash equivalents in the accompanying condensed consolidated balance sheet.

(2) Interest payments on the variable rate debt, first lien mortgage loan, ABS mortgage notes, credit facilities and repurchase facilities have been calculated based on outstanding balances as of September 30, 2022 through their respective maturity dates.

This is only an estimate as actual amounts borrowed and interest rates could vary over time.

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There is no limitation on the amount we may borrow against any single improved property.

As of June 30, 2022, our ratio of debt to total gross assets net of gross intangible lease liabilities was 60.8% and our ratio of debt to the fair market value of our gross assets net of gross intangible lease liabilities was 60.5%.

Fair market value of our first mortgage loans is based on the estimated market value as of June 30, 2022.

Fair market value of the remaining credit investments is based on the market value as of June 30, 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 June 30, 2022 is based on the purchase price.

As of September 30, 2022, our ratio of debt to total gross assets net of gross intangible lease liabilities was 61.0% and our ratio of debt to the fair market value of our gross assets net of gross intangible lease liabilities was 61.1%.

Fair market value of our first mortgage loans is based on the estimated market value as of September 30, 2022.

Fair market value of the remaining credit investments is based on the market value as of September 30, 2022.

Cash Flow Analysis

Operating Activities.

Net cash provided by operating activities decreased by $4.1 million for the six months ended June 30, 2022, as compared to the same period in 2021.

The decrease was primarily due to the disposition of 182 properties subsequent to June 30, 2021, offset by the acquisition of 115 properties through the CIM Income NAV Merger.

Net cash provided by operating activities increased by $27.9 million for the nine months ended September 30, 2022, as compared to the same period in 2021.

The increase was primarily due to net increases in credit investments of $2.8 billion driving higher interest income and the acquisition of 115 properties in connection with the CIM Income NAV Merger, partially offset by the disposition of 134 properties subsequent to September 30, 2021.

See “— Results of Operations” for a more complete discussion of the factors impacting our operating performance.

Investing Activities.

Net cash used in investing activities increased $14.0 million for the six months ended June 30, 2022, as compared to the same period in 2021.

Net cash used in investing activities increased $147.5 million for the nine months ended September 30, 2022, as compared to the same period in 2021.

The change was primarily due to an increase in the net investment in loans held-for-investment of $682.9 million and an increase in the net investment of real estate-related securities of $272.7 million, partially offset by an increase in proceeds from disposition of real estate assets of $818.9 million.

Financing Activities.

Net cash provided by financing activities increased $62.6 million for the six months ended June 30, 2022, as compared to the same period in 2021.

The change was primarily due to an increase in net proceeds on the repurchase

facilities, notes payable and credit facilities of $88.4 million, partially offset by an increase in redemptions of common stock of $19.7 million due to the reinstatement of the share redemption program on April 1, 2021.

Net cash provided by financing activities decreased $35.0 million for the nine months ended September 30, 2022, as compared to the same period in 2021.

The change was primarily due to an increase in net repayments on the repurchase facilities, notes payable and credit facilities of $29.9 million, coupled with an increase in redemptions of common stock of $17.3 million due to the reinstatement of the share redemption program on April 1, 2021.

The change was

partially offset by decreased deferred financing costs paid as a result of a reduced amount of debt agreements entered into compared to the same period in 2021.

Election as a REIT

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis