What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-12 compared with 2022-11-14 · 170 added, 270 removed, 226 unchanged (66% of the section changed)

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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.

In addition, these risks and uncertainties include those associated with 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.

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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 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 domestic and international political, economic, capital markets and other conditions, including with respect to the effects of the COVID-19 pandemic and other events.

• We are subject to fluctuations in interest rates which could reduce our ability to generate income on our credit investments.

• We are subject to an increase in inflation that could increase our credit and real estate portfolio related costs at a higher rate than our rental income and other revenue and adversely impact demand for rental space and future extensions of our tenants’ leases.

• We are subject to competition from entities engaged in lending which may impact the availability of origination and acquisition opportunities acceptable to us.

• We may be unable to renew leases, lease vacant space or re-lease space as leases expire on favorable terms or at all.

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• 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.

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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.

• We may be subject to adverse legislative or regulatory tax changes that could increase our tax liability or reduce our operating flexibility.

• We may be unable to list our shares on a national securities exchange in the timeframe we expect or at all.

We use certain defined terms throughout this Quarterly Report on Form 10-Q that have the following meanings:

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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).

We are primarily focused on originating, acquiring, financing and managing shorter duration senior secured loans, other related credit investments and core commercial real estate.

We are a non-traded REIT that seeks to attain attractive risk-adjusted returns and create long term value for its investors by investing in a diversified portfolio of senior secured mortgage loans, creditworthy long-term net-leased property investments and other senior loan and liquid credit investments.

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.

Subject to market conditions, we expect to pursue a listing of our common stock on a national securities exchange at such time as our Board determines that such a listing would be in the best interests of our stockholders, though we can provide no assurance that a listing will happen in a particular 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 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.

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 Group, a community-focused real estate and infrastructure owner, operator, lender and developer.

As of March 31, 2023, our loan portfolio consisted of 349 loans with a net book value of $3.9 billion, and investments in real estate-related securities of $520.6 million.

As of March 31, 2023, we owned 228 properties, which consisted of 213 retail properties, nine office properties, and six industrial properties, representing 19 industry sectors and comprising approximately 6.9 million rentable square feet of commercial space located in 37 states, with a net book value of $1.3 billion.

As of March 31, 2023, we owned condominium developments with a net book value of $131.6 million.

In furtherance of our strategy, during the three months ended March 31, 2023, we disposed of 152 properties encompassing approximately 4.0 million gross rentable square feet.

On December 29, 2022, certain subsidiaries of the Company entered into the Realty Income Purchase and Sale Agreement to sell 185 single-tenant net lease properties for total consideration of $894.0 million.

During the three months ended March 31, 2023, the sale of 151 properties closed under the Realty Income Purchase and Sale Agreement for total consideration of $779.0 million, as further discussed in Note 4 — Real Estate Assets to the condensed consolidated financial statements in this Quarterly Report on Form 10-Q.

Subsequent to March 31, 2023, the remaining 27 properties closed pursuant to the Realty Income Purchase and Sale Agreement, as further

discussed in Note 17 — Subsequent Events to the condensed consolidated financial statements in this Quarterly Report on Form 10-Q.

In general, our business model is such that rising interest rates will correlate to increases in our net income, while declining interest rates will correlate to decreases in our net income.

As of March 31, 2023, 99.3% of our CMBS and loans held-for-investment by carrying value earned a floating rate of interest, primarily indexed to SOFR and U.S.

dollar LIBOR, and were financed with liabilities that pay interest at floating rates, which resulted in an amount of net equity that is positively correlated to rising interest rates, subject to the impact of interest rate floors on certain of our floating rate loans.

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

In addition, as 98.9% of our rentable square feet was under lease, including any month-to-month agreements, as of March 31, 2023, with a weighted average remaining lease term of 11.3 years, we believe our exposure to changes in commercial rental rates on our portfolio is substantially mitigated, except for vacancies caused by tenant bankruptcies or other factors.

Our manager regularly monitors the creditworthiness of our tenants by reviewing each tenant’s financial results, any available credit rating agency reports on the tenant or guarantor, the operating history of the property with such tenant, the tenant’s market share and track record within its industry segment, the general health and outlook of the tenant’s industry segment and other information for changes and possible trends.

If 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.

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.

Macroeconomic Environment

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.

The three months ended March 31, 2023 have been characterized by continued volatility in global markets, driven by investor concerns over inflation, rising interest rates, slowing economic growth and geopolitical uncertainty.

Multiple bank failures have contributed to instability in the banking sector and have also contributed to diminished liquidity and credit availability in the market broadly.

The ongoing war between Russia and Ukraine is also contributing to economic and geopolitical uncertainty.

Continued 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.

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.

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 and the ability of our tenants to pay rent.

While there is debate among economists as to whether such factors 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.

For a complete discussion of risk factors related to the economy that could impact our lending and our business, see the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Operating Highlights and Key Performance Indicators

Activity from January 1, 2022 through September 30, 2022

Activity from January 1, 2023 through March 31, 2023

Operating Results:

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Credit Portfolio Activity:

• Invested $1.3 billion in first mortgage loans and received principal repayments on loans held-for-investment of $156.9 million.

• Invested $160.9 million in liquid senior loans and sold liquid senior loans for an aggregate gross sales price of $53.7 million.

• Invested $433.2 million in CMBS and sold one marketable security for an aggregate gross sales price of $132,000.

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

• Invested $17.0 million in first mortgage loans and received principal repayments on loans held-for-investment of $124.0 million.

• Invested $26.8 million in liquid corporate senior loans and sold liquid corporate senior loans for an aggregate gross sales price of $8.5 million.

• Invested $9.4 million in CMBS and received repayments on CMBS of $49.0 million.

• Invested $16.8 million in corporate senior loans.

Real Estate Portfolio Activity:

• 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.

• Disposed of 152 properties for an aggregate sales price of $781.2 million.

• Disposed of a condominium unit for a sales price of $1.6 million.

Financing Activity:

• Increased total debt by $209.2 million.

• 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.

• Decreased total debt by $464.5 million.

• Entered into a new financing facility that provides up to $300.0 million in financing, which may be increased to an aggregate principal amount up to $500.0 million, pursuant to the Loan and Security Agreement.

• Paid down the $240.0 million outstanding balance under the CMFT Credit Facility and terminated the CMFT Credit Facility.

• Paid down the $121.9 million outstanding balance on the Mortgage Loan.

Portfolio Information

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,

The following table shows the carrying value of our portfolio by investment type as of March 31, 2023 and 2022 (dollar amounts in thousands):

As of March 31,

Asset Count Carrying Value Asset Count Carrying Value

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First mortgage loans 28 $ 3,198,651 54.6 % 25 $ 2,664,702 40.8 %

Liquid senior loans 313 705,750 10.6 % 262 571,488 12.3 %

Liquid corporate senior loans 315 703,866 12.0 % 306 671,569 10.3 %

Corporate senior loans 6 73,799 1.3 % 1 9,927 0.2 %

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Credit Portfolio Information

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

The following table details overall statistics for our credit portfolio as of March 31, 2023 (dollar amounts in thousands):

CRE Loans (1)(2)

Liquid Senior Loans CMBS and Equity Security Corporate Senior Loans

Liquid Corporate Senior Loans CMBS and Equity Security Corporate Senior Loans

Number of investments (3)

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____________________________________

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

(1) As of March 31, 2023, 100% of our loans by principal balance earned a floating rate of interest, primarily indexed to U.S.

dollar LIBOR and SOFR.

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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.

(3) Table does not include our investment in the Unconsolidated Joint Venture (as defined in Note 2 — Summary of Significant Accounting Policies — Investment in Unconsolidated Entities to the condensed consolidated financial statements in this Quarterly Report on Form 10-Q), which had a carrying value of $97.4 million as of March 31, 2023.

Real Estate Portfolio Information

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.

As of March 31, 2023, we owned 228 properties located in 37 states, the gross rentable square feet of which was 98.9% leased, including any month-to-month agreements, with a weighted average lease term remaining of 11.3 years.

As of March 31, 2023, no single tenant accounted for greater than 10% of our 2023 annualized rental income.

As of March 31, 2023, we had certain geographic and industry concentrations in our property holdings.

In particular, we had properties located in Ohio, which accounted for 17% of our 2023 annualized rental income.

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,

In addition, we had tenants in the health and personal care stores and manufacturing industries, which accounted for 14% and 11%, respectively, of our 2023 annualized rental income.

During the three months ended March 31, 2023, we disposed of 152 properties for an aggregate gross sales price of $781.2 million.

Additionally, during the three months ended March 31, 2023, we sold one condominium unit for a gross sales price of $1.6 million.

The following table shows the property statistics of our real estate assets as of March 31, 2023 and 2022:

As of March 31,

Number of commercial properties 228 445

Rentable square feet (in thousands) (1)

11,043 17,623

Percentage of rentable square feet leased 98.9 % 97.2 %

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

During the three months ended March 31, 2023 and 2022, the Company did not acquire any properties.

Results of Operations

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.

We are not aware of any material trends or uncertainties, other than national economic conditions affecting real estate in general, such as inflation and rising interest rates, that may reasonably be expected to have a material impact on our results from the acquisition, management and operation of properties and credit investments other than those listed in the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2022 and this Quarterly Report on Form 10-Q.

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.

The following table compares our summarized results of operations for the three months ended March 31, 2023 and 2022 by operating segment (amounts in thousands):

For the Three Months Ended

March 31, 2023 March 31, 2022 Change

Credit Segment $ 108,083 $ 31,463 $ 76,620

Real Estate Segment 38,715 73,639 (34,924)

Corporate 66 97 (31)

146,864 105,199 41,665

Credit Segment 65,170 22,767 42,403

Real Estate Segment 33,521 58,283 (24,762)

Corporate 11,771 11,050 721

110,462 92,100 18,362

Other income (expense):

Credit Segment 3,331 (2,134) 5,465

Real Estate Segment 16,549 19,767 (3,218)

Corporate (2,090) 8,369 (10,459)

17,790 26,002 (8,212)

Net income 54,192 39,101 15,091

Net income allocated to non-controlling interest 8 9 (1)

Net income attributable to the Company $ 54,184 $ 39,092 $ 15,092

Credit Segment

The increase in our Credit segment revenues of $76.6 million for the three months ended March 31, 2023, as compared to the same period in 2022, was primarily due to increased average index rates during 2022 and 2023, as well as an increase in the overall size of our investment portfolio.

As of March 31, 2023, we held $4.5 billion in credit investments compared to $3.6 billion in credit investments as of March 31, 2022.

Expenses for our Credit segment consists primarily of interest expense, management fees, increases (decreases) to our provision for credit losses, and general and administrative expenses.

The increase in our Credit segment expenses of $42.4 million for the three months ended March 31, 2023, as compared to the same period in 2022, was primarily due to increased interest expenses due to higher average index rates during 2022 and 2023 and increased outstanding borrowings used to fund credit investments.

As of March 31, 2023, we held $4.5 billion in credit investments compared to $3.6 billion in credit investments as of March 31, 2022.

The increase was offset by a $3.3 million decrease in the increase in provision for credit losses primarily driven by a reduced amount of credit investments entered into during the three months ended March 31, 2023, as compared to the same period in 2022.

Other Income (Expense)

Other income (expense) for our Credit segment consists of (loss) gain on investment in unconsolidated entities, unrealized gain (loss) on equity security, along with dividend income from our equity security.

The increase in our Credit segment other income (expense) of $5.5 million during the three months ended March 31, 2023, as compared to the same period in 2022, was primarily due to recognizing a $2.3 million unrealized gain on equity security during the three months ended March 31, 2023 compared to a $2.4 million unrealized loss on equity security during the three months ended March 31, 2022.

The increase was further driven by a full quarter of dividend income from our equity security during the three months ended March 31, 2023, offset by a loss on the Unconsolidated Joint Venture of $770,000 during the three months ended March 31, 2023, compared to a gain of $168,000 recognized during the same period in 2022.

Real Estate Segment

The decrease in our Real Estate segment revenues of $34.9 million for the three months ended March 31, 2023, as compared to the same period in 2022, was primarily due to the disposition of 217 properties subsequent to March 31, 2022.

Refer to “Same Store Analysis” below for a further discussion of net operating income at our “same store properties”.

The decrease in our Real Estate segment expenses of $24.8 million for the three months ended March 31, 2023, as compared to the same period in 2022, was primarily due to the disposition of 217 properties subsequent to March 31, 2022.

Refer to “Same Store Analysis” below for a further discussion of net operating income at our “same store properties”.

The decrease was partially offset by an increase in impairment charges of $1.5 million for the three months ended March 31, 2023, as compared to the same period in 2022, due to one property that was deemed to be impaired, resulting in impairment charges of $4.8 million during the three months ended as March 31, 2023, compared 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.

Other Income (Expense)

Other income (expense) for our Real Estate segment primarily consists of gain on disposition of real estate and condominium developments, net, loss on extinguishment of debt and other income, net.

The decrease in our Real Estate segment other income of $3.2 million for the three months ended March 31, 2023, as compared to the same period in 2022, was primarily due to the disposition of 152 properties for a gain of $19.6 million during the three months ended March 31, 2023, compared to the disposition of 69 properties for a gain of $29.2 million during the three months ended March 31, 2022.

Other income was further reduced due to a $2.0 million decrease in the fair value of our interest rate caps during the three months ended March 31, 2023, as compared to a $1.2 million increase in the fair value of our interest rate caps during the three months ended March 31, 2022.

The decrease was partially offset by a $9.6 million decrease in loss on extinguishment of debt, driven by increased termination of certain mortgage notes in connection with the disposition of the underlying properties during the three months ended March 31, 2022, as compared to the three months ended March 31, 2023.

Net Income Allocated to Non-Controlling Interest

Net income allocated to non-controlling interest remained relatively consistent for the three months ended March 31, 2023, as compared to the same period in 2022.

Same Store Analysis

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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.

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.

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 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 September 30,

2022 2021 Change

Net income $ 15,539 $ 42,603 $ (27,064)

Loss on extinguishment of debt 3,344 3,251 93

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

Real estate impairment 527 891 (364)

Depreciation and amortization 16,948 22,801 (5,853)

Transaction-related expenses 9 6 3

Management fees 12,915 11,703 1,212

Expense reimbursements to related parties 3,428 2,516 912

General and administrative expenses 3,435 3,076 359

Interest income (66,222) (19,755) (46,467)

Net operating income $ 37,334 $ 52,046 $ (14,712)

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 $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 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 September 30,

2022 2021 Change 2022 2021 Change 2022 2021 Change

Rental and other property income $ 43,559 $ 70,794 $ (27,235) $ 29,354 $ 29,822 $ (468) $ 14,205 $ 40,972 $ (26,767)

Property operating expenses 4,432 11,157 (6,725) 739 872 (133) 3,693 10,285 (6,592)

Real estate tax expenses 1,793 7,591 (5,798) 900 1,001 (101) 893 6,590 (5,697)

Total property operating expenses 6,225 18,748 (12,523) 1,639 1,873 (234) 4,586 16,875 (12,289)

Net operating income $ 37,334 $ 52,046 $ (14,712) $ 27,715 $ 27,949 $ (234) $ 9,619 $ 24,097 $ (14,478)

Loss on Extinguishment of Debt

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 $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 $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 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 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 $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

Transaction-related expenses remained generally consistent during the three months ended September 30, 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 $1.2 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

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 $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 September 30, 2022, as compared to the same period in 2021.

Net Operating Income

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 Nine Months Ended September 30,

Comparison of the Three Months Ended March 31, 2023 and 2022

The following table reconciles our Real Estate segment net income, calculated in accordance with GAAP, to net operating income (dollar amounts in thousands):

For the Three Months Ended March 31,

2023 2022 Change

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Loss on extinguishment of debt 1,172 10,737 (9,565)

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)

Other income (expense), net 1,842 (1,239) 3,081

Gain on disposition of real estate and condominium developments, net (19,563) (29,265) 9,702

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

Real estate impairment 4,814 3,291 1,523

2 unchanged sentences

Management fees 3,250 7,131 (3,881)

Expense reimbursements to related parties 10,899 8,387 2,512

General and administrative expenses 74 149 (75)

Interest income (142,669) (48,168) (94,501)

Interest expense, net 8,151 15,078 (6,927)

Net operating income $ 36,606 $ 60,153 $ (23,547)

Credit Segment

Interest Income

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 302 properties were acquired before January 1, 2021 and represent our “same store” properties during the nine months ended September 30, 2022 and 2021.

A total of 228 properties were acquired before January 1, 2022 and represent our “same store” properties during the three months ended March 31, 2023 and 2022.

“Non-same store” properties, for purposes of the table below, includes properties acquired or disposed of on or after January 1, 2022.

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

The following table details the components of our Real Estate segment 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 Nine Months Ended September 30,

For the Three Months Ended March 31,

2023 2022 Change 2023 2022 Change 2023 2022 Change

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Net operating income $ 36,606 $ 60,153 $ (23,547) $ 24,822 $ 24,719 $ 103 $ 11,784 $ 35,434 $ (23,650)

Loss on Extinguishment of Debt

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 $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 $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 $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 $14.5 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 $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 $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 $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 $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 $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 $1.0 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.

Same store property net operating income remained relatively consistent during the three months ended March 31, 2023, as compared to the same period in 2022.

Non-same store property net operating income decreased $23.7 million during the three months ended March 31, 2023, as compared to the same period in 2022.

The decrease was primarily due to the the disposition of 217 properties subsequent to March 31, 2022.

Corporate Segment

Our Corporate segment revenues, which consist primarily of rental income from our condominium and rental units acquired via foreclosure, remained relatively consistent during the three months ended March 31, 2023 as compared to the same period in 2022.

Expenses for our Corporate segment consists primarily of general and administrative expenses, expense reimbursements to related parties, and interest expense related to our credit facilities.

The increase in Corporate segment expenses of $721,000 during the three months ended March 31, 2023 as compared to the same period in 2022, was primarily driven by the change in interest expense due to increased average index rates during 2022 and 2023.

Other Income (Expense)

The decrease in Corporate segment other income (expense) of $10.5 million during the three months ended March 31, 2023, as compared to the same period in 2022, was primarily driven by the $5.2 million net gain during the three months ended March 31, 2022 related to our investment in CIM UII Onshore, which was subsequently redeemed during 2022.

The change was further driven by the increase in loss on extinguishment of debt of $2.3 million, primarily in connection with the termination of the CMFT Credit Facility, and a decrease in gain on disposition of real estate and condominium developments, net, driven by a reduced amount of condominium units disposed of during the three months ended March 31, 2023 as compared to the same period in 2022.

Distributions

Prior to April 1, 2020, on a quarterly basis, our Board authorized a daily distribution for the succeeding quarter.

Our Board authorized the following daily distribution amounts per share for the periods indicated below:

Period Commencing Period Ending Daily Distribution Amount

April 14, 2012 December 31, 2012 $0.001707848

January 1, 2013 December 31, 2015 $0.001712523

January 1, 2016 December 31, 2016 $0.001706776

January 1, 2017 December 31, 2019 $0.001711452

January 1, 2020 March 31, 2020 $0.001706776

On April 20, 2020, our Board decided to make a determination as to the amount and timing of distributions on a monthly, instead of a quarterly, basis until such time that we had greater visibility into the impact that the COVID-19 pandemic would have on our tenants’ ability to continue to pay rent on their leases on a timely basis or at all, the degree to which federal, state or local governmental authorities grant rent relief or other relief or amnesty programs applicable to our tenants, our ability to access the capital markets, and on the United States and worldwide financial markets and economy.

On March 25, 2021, the 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 stockholders as of the record date for the applicable month, for the periods indicated below:

Our Board declares distributions on a quarterly basis, which are paid out on a monthly basis.

Our Board authorized the following monthly distribution amounts per share, payable to stockholders as of the record date for the applicable month, during the year ended December 31, 2022 and the three months ended March 31, 2023 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

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.

January 2023 September 2023 $0.0350

As of March 31, 2023, we had distributions payable of $15.3 million.

The following table presents distributions and source of distributions for the periods indicated below (dollar amounts in thousands):

Nine Months Ended September 30,

Three Months Ended March 31,

Amount Percent Amount Percent

2 unchanged sentences

Total distributions $ 45,447 100 % $ 39,931 100 %

Sources of distributions:

Source of distributions:

Net cash provided by operating activities (1)(2)

$ 45,447 100 % $ 39,931 100 %

Proceeds from the issuance of debt (2)

— — % 1,287 1 %

Total sources $ 45,447 100 % $ 39,931 100 %

____________________________________

(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.

(1) Net cash provided by operating activities for the three months ended March 31, 2023 and 2022 was $65.1 million and $30.1 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.

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.

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.

If sufficient proceeds from the sale of shares under our DRIP, net of shares redeemed to date, were not available to pay all such redemptions in full, the requests to redeem deceased stockholders’ shares would be honored on a pro rata basis.

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 and stockholders with exigent circumstances, as determined in our sole discretion and accompanied by such evidentiary documentation as we may request.

While the shares of deceased stockholders and stockholders determined to have exigent circumstances 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 and stockholders determined to have exigent circumstances 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 and stockholders determined to have exigent circumstances would be completed in full, assuming sufficient proceeds from the sale of shares under our DRIP, net of shares redeemed to date, were available.

We next will give priority to requests for full redemption of accounts with a balance of 250 shares or less at the time we receive the request, in order to reduce the expense of maintaining small accounts.

5 unchanged sentences

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 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).

During the three months ended March 31, 2023, we received valid redemption requests under our share redemption program totaling approximately 25.5 million shares, of which we redeemed approximately 1.6 million shares subsequent to March 31, 2023 for $10.8 million (at a redemption price of $6.57 per share).

The remaining redemption requests relating to approximately 23.9 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.

The share redemptions were funded with proceeds from the Secondary DRIP Offering.

Liquidity and Capital Resources

2 unchanged sentences

Sources of Liquidity

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:

September 30, 2022 December 31, 2021

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 (in thousands):

March 31, 2023 December 31, 2022

Cash and cash equivalents $ 555,245 $ 118,978

4 unchanged sentences

(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 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):

See Note 10 — Repurchase Facilities, Notes Payable and Credit Facilities 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 March 31, 2023 (in thousands):

Portfolio Financing Outstanding Principal Balance Maximum Capacity (1)

Notes payable – fixed rate debt $ 36,647 $ 36,647

Notes payable – variable rate debt $ 461,060 $ 485,519

First lien mortgage loan 134,007 134,007

ABS mortgage notes 761,100 761,100

4 unchanged sentences

(1) Subject to borrowing availability.

(2) Facilities under the Master Repurchase Agreement with J.P.

Morgan carry no maximum facility size.

Liquidity and Capital Resources

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.

(2) Facilities under the J.P.

Morgan Repurchase Facility carry no maximum facility size.

Capital Resources

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 $387.3 million within the next 12 months, $235.8 million of which has a rolling term that resets monthly, as further discussed in Note 10 — Repurchase Facilities, Notes Payable and Credit Facilities to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q.

Generally, we expect to meet our liquidity requirements through net cash provided by operations, cash proceeds from real estate asset dispositions, cash proceeds from the sale of credit investments, principal payments received on credit investments, 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.

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;

6 unchanged sentences

Contractual Obligations

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

As of March 31, 2023, we had debt outstanding with a carrying value of $4.0 billion and a weighted average interest rate of 5.9%.

See Note 10 — Repurchase Facilities, Notes Payable and Credit Facilities to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q for certain terms of our debt outstanding.

Our contractual obligations as of March 31, 2023 were as follows (in thousands):

Payments due by period (1)

1 unchanged sentence

Year 1-3 Years 3-5 Years More Than

Principal payments — fixed rate debt $ 36,647 $ 443 $ 36,204 $ — $ —

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

Principal payments — variable rate debt $ 461,060 $ — $ 37,541 $ 423,519 $ —

Interest payments — variable rate debt (2)

113,857 24,972 46,267 41,289 1,329

Principal payments — first lien mortgage loan 134,007 134,007 — — —

Interest payments — first lien mortgage loan (2)

8,630 8,630 — — —

Principal payments — ABS mortgage notes 761,100 2,580 — — 758,520

Interest payments — ABS mortgage notes (2)

163,355 21,179 42,227 42,227 57,722

Principal payments — credit facilities 533,500 — — 533,500 —

Interest payments — credit facilities (2)

81,735 34,655 47,080 — —

Principal payments — repurchase facilities 2,223,748 384,684 1,839,064 — —

Interest payments — repurchase facilities (2)

Interest payments (2)

726,128 216,863 328,963 133,136 47,166

2 unchanged sentences

(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 $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.

The table also does not include $292.7 million of unfunded commitments related to our existing CRE loans held-for-investment, corporate senior loans held-for-investment and liquid corporate senior loans and $112.6 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 $18.0 million of unsettled liquid corporate senior loan acquisitions, which is included in cash and cash equivalents on the accompanying condensed consolidated balance sheet.

(2) Interest payments on the variable rate debt, credit facilities and repurchase facilities have been calculated based on outstanding balances as of March 31, 2023 through their respective maturity dates.

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

1 unchanged sentence

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

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.

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 September 30, 2022 is based on the purchase price.

As of March 31, 2023, our ratio of debt to total gross assets net of gross intangible lease liabilities was 65.4%.

Cash Flow Analysis

Operating Activities.

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.

Net cash provided by operating activities increased by $35.0 million for the three months ended March 31, 2023, as compared to the same period in 2022.

The increase was primarily due to net increases in credit investments of $896.4 million coupled with an increase in interest rates driving higher interest income, partially offset by the disposition of 217 properties subsequent to March 31, 2022.

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 $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.

Net cash provided by investing activities increased by $823.6 million for the three months ended March 31, 2023, as compared to the same period in 2022.

The change was primarily due to a decrease in the net investment in loans held-for-investment of $791.0 million and a decrease in the net investment of real estate-related securities of $195.1 million, offset by a decrease in proceeds from disposition of real estate assets of $148.3 million and a decrease in net proceeds in relation to our investment in unconsolidated entities of $21.3 million.

Financing Activities.

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.

Net cash used in financing activities increased $515.0 million for the three months ended March 31, 2023, as compared to the same period in 2022.

The change was primarily due to an increase in net repayments on the repurchase facilities, notes payable and credit facilities of $511.0 million, coupled with an increase in distributions to stockholders of $4.3 million.

Election as a REIT

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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.

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.

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Conflicts of Interest

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.

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.

Ressler, the chairman of our Board, chief executive officer and president, who is also a founder and principal of CIM Group 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 Group 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 Group.

DeBacker, our chief financial officer, principal accounting 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 Group 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 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.

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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