CIM GROUP, INC. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis should be read in conjunction with the accompanying condensed consolidated financial statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q. We make statements in this section that are forward-looking statements within the meaning of the federal securities laws. Certain risks may cause our actual results, performance or achievements to differ materially from those expressed or implied by the following discussion. For a complete discussion of such risk factors, see Item 1A — Risk Factors of this Quarterly Report on Form 10-Q and the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. Capitalized terms used herein, but not otherwise defined, shall have the meaning ascribed to those terms in “Part I — Financial Information” of this Quarterly Report on Form 10-Q, including the notes to the condensed consolidated financial statements contained therein, and the terms “we,” “us,” “our” and the “Company” refer to CIM Real Estate Finance Trust, Inc. Forward-Looking Statements This Quarterly Report on Form 10-Q includes “forward-looking statements” (within the meaning of the federal securities laws, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that reflect our expectations and projections about our future results, performance, prospects and opportunities. We have attempted to identify these forward-looking statements by the use of words such as “may,” “will,” “seek,” “expects,” “anticipates,” “believes,” “targets,” “intends,” “should,” “estimates,” “could,” “continue,” “assume,” “projects,” “plans” or similar expressions. These forward-looking statements are based on information currently available to us and are subject to a number of known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. These factors include, among other things, those discussed below. In addition, these risks and uncertainties include those associated with general economic, market and other conditions. We intend for all such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act and Section 21E of the Exchange Act, as applicable by law. We do not undertake to publicly update or revise any forward-looking statements, whether as a result of changes in underlying assumptions or new information, future events or otherwise, except as may be required to satisfy our obligations under federal securities law. The forward-looking statements should be read in light of the risk factors identified in Item 1A — Risk Factors of this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2022. 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. • We are subject to risks associated with tenant, geographic and industry concentrations with respect to our investments and properties. • Our properties, intangible assets and other assets, as well as the property securing our loans or other investments, may be subject to impairment charges. • We could be subject to unexpected costs or unexpected liabilities that may arise from dispositions. • We are subject to competition in the acquisition and disposition of properties and in the leasing of our properties and we may suffer delays or be unable to acquire, dispose of, or lease properties on advantageous terms. • We have substantial indebtedness, which may affect our ability to pay distributions and expose us to interest rate fluctuation risk and the risk of default under our debt obligations. • We are subject to risks associated with the incurrence of additional secured or unsecured debt. • We may not be able to maintain profitability. 40 Table of Contents • 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, including those associated with the COVID-19 pandemic. • We may be affected by risks resulting from losses in excess of insured limits. • We may fail to remain qualified as a REIT for U.S. federal income tax purposes. • We may be 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. Definitions We use certain defined terms throughout this Quarterly Report on Form 10-Q that have the following meanings: The phrase “annualized rental income” refers to the straight-line rental revenue under our leases on operating properties owned as of the respective reporting date, which includes the effect of rent escalations and any tenant concessions, such as free rent, and excludes any contingent rent, such as percentage rent. Management uses annualized rental income as a basis for tenant, industry and geographic concentrations and other metrics within the portfolio. Annualized rental income is not indicative of future performance. Under a “net lease,” the tenant occupying the leased property (usually as a single tenant) does so in much the same manner as if the tenant were the owner of the property. The tenant generally agrees that it will either have no ability or only limited ability to terminate the lease or abate rent prior to the expiration of the term of the lease as a result of real estate driven events such as casualty, condemnation or failure by the landlord to fulfill its obligations under the lease. There are various forms of net leases, most typically classified as either triple-net or double-net. Triple-net leases typically require the tenant to pay all expenses associated with the property (e.g., real estate taxes, insurance, maintenance and repairs, including roof, structure and parking lot). Double-net leases typically hold the landlord responsible for the capital expenditures for the roof and structure, while the tenant is responsible for all lease payments and remaining operating expenses associated with the property (e.g., real estate taxes, insurance and maintenance). Overview We are 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. 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 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 41 Table of Contents 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 interest income from our credit investments, rental and other property income from our commercial properties, interest expense on our indebtedness and credit investments and expenses. 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. Macroeconomic Environment 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 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. 42 Table of Contents Operating Highlights and Key Performance Indicators Activity from January 1, 2023 through March 31, 2023 Operating Results: • Net income attributable to the Company of $54.2 million, or $0.12 per share. • Declared aggregate distributions of $0.11 per share. Credit Portfolio Activity: • 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 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: • 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 March 31, 2023 and 2022 (dollar amounts in thousands): As of March 31, 2023 2022 Asset Count Carrying Value Asset Count Carrying Value Loan Held-For-Investment First mortgage loans 28 $ 3,198,651 54.6 % 25 $ 2,664,702 40.8 % 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 % Less: Current expected credit losses (43,779) (0.7) % (19,150) (0.3) % Total loans held-for-investment and related receivable, net 349 3,932,537 67.2 % 332 3,327,048 51.0 % Real Estate-Related Securities CMBS and equity security 19 520,639 8.9 % 8 186,070 2.9 % Preferred units — — — % 1 68,243 1.0 % Real Estate Total real estate assets and intangible lease liabilities, net 228 1,394,810 23.9 % 445 2,944,298 45.1 % Total Investment Portfolio 596 $ 5,847,986 100.0 % 786 $ 6,525,659 100.0 % 43 Table of Contents Credit Portfolio Information The following table details overall statistics for our credit portfolio as of March 31, 2023 (dollar amounts in thousands): CRE Loans (1)(2) Liquid Corporate Senior Loans CMBS and Equity Security Corporate Senior Loans Number of investments (3) 28 315 19 6 Principal balance $ 3,216,545 $ 710,334 $ 644,375 $ 74,917 Net book value $ 3,176,350 $ 683,585 $ 520,639 $ 72,602 Unfunded loan commitments $ 287,515 $ 1,425 $ — $ 3,794 Weighted-average interest rate 8.0 % 8.5 % 8.9 % 11.3 % Weighted-average maximum years to maturity 3.4 4.6 2.6 4.4 ____________________________________ (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. (2) Maximum maturity date assumes all extension options are exercised by the borrower; however, our CRE loans may be repaid prior to such date. (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 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 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, 2023 2022 Number of commercial properties 228 445 Rentable square feet (in thousands) (1) 6,892 15,357 Percentage of rentable square feet leased 98.9 % 97.2 % Percentage of investment-grade tenants (2) 37.0 % 38.8 % ____________________________________ (1) Includes square feet of buildings on land parcels subject to ground leases. (2) Investment-grade tenants are those with a credit rating of BBB- or higher by Standard & Poor’s or a credit rating of Baa3 or higher by Moody’s Investor Service, Inc. (“Moody’s”). The ratings may reflect those assigned by Standard & Poor’s or Moody’s to the lease guarantor or the parent company, as applicable. The weighted average credit rating is weighted based on annualized rental income and is for only those tenants rated by Standard & Poor’s. During the three months ended March 31, 2023 and 2022, the Company did not acquire any properties. 44 Table of Contents Results of Operations Overview 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 Revenues: 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 Expenses: 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 Revenues 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 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. 45 Table of Contents 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 Revenues 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”. Expenses 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 Our results of operations are influenced by the timing of acquisitions and the operating performance of our real estate assets. We review our stabilized operating results, measured by net operating income, from properties that we owned for the entirety of both the current and prior year reporting periods, referred to as “same store” properties, and we believe that the presentation of operating results for same store properties provides useful information to stockholders. Net operating income is a supplemental non-GAAP financial measure of a real estate company’s operating performance. Net operating income is considered by management to be a helpful supplemental performance measure, as it enables management to evaluate the impact of occupancy, rents, leasing activity and other controllable property operating results at our real estate properties, and it provides a consistent method for the comparison of our properties. We define net operating income as operating revenues less operating expenses, which exclude (i) depreciation and amortization, (ii) interest expense and other non-property related revenue and expense items such as (a) general and administrative expenses, (b) expense reimbursements to related parties, (c) management fees, (d) transaction-related expenses, (e) real estate impairment, (f) increase in provision for credit losses, (g) gain on disposition of real estate and condominium developments, net, (h) merger-related expenses, net and (i) interest income. Our calculation of net operating income may not be comparable to that of other REITs and should not be considered to be more 46 Table of Contents 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 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 Net income $ 21,743 $ 35,123 $ (13,380) Loss on extinguishment of debt 1,172 10,737 (9,565) 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 Real estate impairment 4,814 3,291 1,523 Depreciation and amortization 15,110 19,141 (4,031) Transaction-related expenses 13 7 6 Management fees 3,250 7,131 (3,881) General and administrative expenses 74 149 (75) Interest expense, net 8,151 15,078 (6,927) Net operating income $ 36,606 $ 60,153 $ (23,547) 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 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 Three Months Ended March 31, For the Three Months Ended March 31, For the Three Months Ended March 31, 2023 2022 Change 2023 2022 Change 2023 2022 Change Rental and other property income $ 38,715 $ 73,639 $ (34,924) $ 27,078 $ 26,787 $ 291 $ 11,637 $ 46,852 $ (35,215) Property operating expenses 1,684 7,136 (5,452) 1,174 1,036 138 510 6,100 (5,590) Real estate tax expenses 425 6,350 (5,925) 1,082 1,032 50 (657) 5,318 (5,975) Total property operating expenses 2,109 13,486 (11,377) 2,256 2,068 188 (147) 11,418 (11,565) Net operating income $ 36,606 $ 60,153 $ (23,547) $ 24,822 $ 24,719 $ 103 $ 11,784 $ 35,434 $ (23,650) Net Operating Income 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. 47 Table of Contents Corporate Segment Revenues 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 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 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 January 2022 September 2022 $0.0305 October 2022 December 2022 $0.0339 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): Three Months Ended March 31, 2023 2022 Amount Percent Amount Percent Distributions paid in cash $ 34,684 76 % $ 30,357 76 % Distributions reinvested 10,763 24 % 9,574 24 % Total distributions $ 45,447 100 % $ 39,931 100 % Source of distributions: Net cash provided by operating activities (1)(2) $ 45,447 100 % $ 39,931 100 % Total sources $ 45,447 100 % $ 39,931 100 % ____________________________________ (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. 48 Table of Contents Share Redemptions Our share redemption program permits our stockholders to sell their shares of common stock back to us, subject to certain conditions and limitations. We will limit the number of shares redeemed pursuant to our share redemption program as follows: (1) we will not redeem in excess of 5% of the weighted average number of shares outstanding during the trailing 12 months prior to the end of the fiscal quarter for which the redemptions are being paid; and (2) funding for the redemption of shares will be limited, among other things, to the net proceeds we receive from the sale of shares under our DRIP, net of shares redeemed to date. In an effort to accommodate redemption requests throughout the calendar year, we will generally limit quarterly redemptions to approximately 1.25% of the weighted average number of shares outstanding during the trailing 12-month period ending on the last day of the fiscal quarter for which the redemptions are being paid, and to the net proceeds we receive from the sale of shares in the respective quarter under the Secondary DRIP Offering. Any of the foregoing limits might prevent us from accommodating all redemption requests made in any fiscal quarter or in any 12-month period. 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 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. 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 and shareholders determined to have exigent circumstances would be honored on a pro rata basis. 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. Thereafter, we will honor the remaining redemption requests on a pro rata basis. Following such quarterly redemption period, if a stockholder would like to resubmit the unsatisfied portion of the prior request for redemption, such stockholder must submit a new request for redemption of such shares prior to the last day of the new quarter. Unfulfilled requests for redemption will not be carried over automatically to subsequent redemption periods. In addition, our management reserves the right, in its sole discretion at any time, and from time to time, to reject any request for redemption for any reason. Our Board may choose to amend the terms of, suspend or terminate our share redemption program at any time in its sole discretion if it believes that such action is in the best interest of us and our stockholders. Any material modifications or suspension of the share redemption program will be disclosed to our stockholders as promptly as practicable in our reports filed with the SEC and via our website. During the three months ended March 31, 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. Liquidity and Capital Resources General We expect to utilize proceeds from real estate dispositions, sales proceeds and principal payments received on credit investments, cash flows from operations and future proceeds from secured or unsecured financing to complete future acquisitions and loan originations, repayment of certain indebtedness and for general corporate uses. The sources of our operating cash flows will primarily be provided by interest income from our portfolio of credit investments and the rental and other property income received from current and future leased properties. 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 (in thousands): 49 Table of Contents March 31, 2023 December 31, 2022 Cash and cash equivalents $ 555,245 $ 118,978 Unused borrowing capacity (1) 817,211 513,121 $ 1,372,456 $ 632,099 ____________________________________ (1) Subject to borrowing availability. 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 – variable rate debt $ 461,060 $ 485,519 ABS mortgage notes 761,100 761,100 Credit facilities 533,500 850,000 Repurchase facilities 2,223,748 2,700,000 (2) Total portfolio financing $ 3,979,408 $ 4,796,619 ____________________________________ (1) Subject to borrowing availability. (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; however, we have used, and may continue to use, other sources to fund distributions, as necessary, including borrowings on our unencumbered assets. To the extent that cash flows from operations are lower, distributions paid to our stockholders may be lower. Operating cash flows are expected to increase as we complete future acquisitions. We expect that substantially all net cash flows from the Secondary DRIP Offering or debt financings will be used to fund acquisitions, loan originations, certain capital expenditures, repayments of outstanding debt or distributions and redemptions to our stockholders. We believe that the resources stated above will be sufficient to satisfy our operating requirements for the foreseeable future, and we do not anticipate a need to raise funds from sources other than those described above within the next 12 months. Management intends to use the proceeds from the disposition of properties to, among other things, acquire additional high-quality net-lease properties and credit investments in furtherance of our investment objectives and for other general corporate purposes. Contractual Obligations 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. 50 Table of Contents Our contractual obligations as of March 31, 2023 were as follows (in thousands): Payments due by period (1) Total Less Than 1 Year 1-3 Years 3-5 Years More Than 5 Years Principal payments — variable rate debt $ 461,060 $ — $ 37,541 $ 423,519 $ — Principal payments — ABS mortgage notes 761,100 2,580 — — 758,520 Principal payments — credit facilities 533,500 — — 533,500 — Principal payments — repurchase facilities 2,223,748 384,684 1,839,064 — — Interest payments (2) 726,128 216,863 328,963 133,136 47,166 Total $ 4,705,536 $ 604,127 $ 2,205,568 $ 1,090,155 $ 805,686 ____________________________________ (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 $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. We expect to incur additional borrowings in the future to acquire additional properties and credit investments. There is no limitation on the amount we may borrow against any single improved property. As of March 31, 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 $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 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 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 We elected to be taxed, and operate our business to qualify, as a REIT for federal income tax purposes commencing with our taxable year ended December 31, 2012. To maintain our qualification as a REIT, we must continue to meet certain requirements relating to our organization, sources of income, nature of assets, distributions of income to our stockholders and recordkeeping. As a REIT, we generally are not subject to federal income tax on taxable income that we distribute to our stockholders so long as we distribute at least 90% of our annual taxable income (computed without regard to the dividends paid deduction and excluding net capital gains). If we fail to maintain our qualification as a REIT for any reason in a taxable year and applicable relief provisions do not apply, we will be subject to tax on our taxable income at regular corporate rates. We will not be able to deduct distributions paid to our stockholders in any year in which we fail to maintain our qualification as a REIT. We also will be disqualified for the 51 Table of Contents four taxable years following the year during which qualification was lost, unless we are entitled to relief under specific statutory provisions. Such an event could materially adversely affect our net income and net cash available for distribution to stockholders. However, we believe that we are organized and operate in such a manner as to maintain our qualification as a REIT for federal income tax purposes. No provision for federal income taxes has been made in our accompanying condensed consolidated financial statements. We are subject to certain state and local taxes related to the operations of properties in certain locations, which have been provided for in our accompanying condensed consolidated financial statements. Critical Accounting Policies and Significant Accounting Estimates Our accounting policies have been established to conform with GAAP. The preparation of financial statements in conformity with GAAP requires us to use judgment in the application of accounting policies, including making estimates and assumptions. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Management believes that we have made these estimates and assumptions in an appropriate manner and in a way that accurately reflects our financial condition. We continually test and evaluate these estimates and assumptions using our historical knowledge of the business, as well as other factors, to ensure that they are reasonable for reporting purposes. However, actual results may differ from these estimates and assumptions. If our judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied, thus resulting in a different presentation of the financial statements. Additionally, other companies may utilize different estimates that may impact comparability of our results of operations to those of companies in similar businesses. We believe the following critical accounting policies govern the significant judgments and estimates used in the preparation of our financial statements, which should be read in conjunction with the more complete discussion of our accounting policies and procedures included in Note 2 — Summary of Significant Accounting Policies to our audited consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2022. We consider our critical accounting policies to be the following: • Recoverability of Real Estate Assets; • Allocation of Purchase Price of Real Estate Assets; and • Current Expected Credit Losses. A complete description of such policies and our considerations is contained in our Annual Report on Form 10-K for the year ended December 31, 2022. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with our audited consolidated financial statements as of and for the year ended December 31, 2022 and related notes thereto. Related-Party Transactions and Agreements We have entered into agreements with CMFT Management and our Investment Advisor whereby we agree to pay certain fees to, or reimburse certain expenses of, CMFT Management, the Investment Advisor or their affiliates. In addition, we have invested in, and may continue to invest in, certain co-investments with funds that are advised by an affiliate of CMFT Management. We may also originate loans to third parties that use the proceeds to finance the acquisition of real estate from funds that are advised by an affiliate of CMFT Management. See Note 12 — Related-Party Transactions and Arrangements to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q for a discussion of the various related-party transactions, agreements and fees. Conflicts of Interest Richard S. Ressler, the chairman of our Board, chief executive officer and president, who is also a founder and principal of CIM 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. Nathan D. 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. See Part I, Item 1. Business — Conflicts of Interest in our Annual Report on Form 10-K for the year ended December 31, 2022. 52 Table of Contents