What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-14 compared with 2023-08-11 · 132 added, 124 removed, 334 unchanged (43% of the section changed)

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• 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.

• 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 long-term macroeconomic 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.

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• 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.

• 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 long-term macroeconomic effects of the COVID-19 pandemic.

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

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

• If we, our operating partnership and any other subsidiaries do not maintain exemptions from registration under the Investment Company Act of 1940, as amended, we will be subject to significant regulation and restrictions on our business and investments, which could materially and adversely impact us.

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

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We have no paid employees and are externally managed by CMFT Management and, with respect to investments in securities and certain other of our investments, our Investment Advisor, each of which is an affiliate of CIM Group, a community-focused real estate and infrastructure owner, operator, lender and developer.

As of June 30, 2023, our loan portfolio consisted of 357 loans with a net book value of $4.1 billion, and investments in real estate-related securities of $647.3 million.

As of June 30, 2023, we owned 195 properties, which consisted of 180 retail properties, nine office properties, and six industrial properties, representing 18 industry sectors and comprising approximately 6.3 million rentable square feet of commercial space located in 37 states, with a net book value of $1.2 billion.

As of June 30, 2023, we owned condominium developments with a net book value of $112.0 million.

In furtherance of our strategy, during the six months ended June 30, 2023, we disposed of 185 properties encompassing approximately 4.7 million gross rentable square feet, including the sale of 178 properties that closed under the Realty Income Purchase and Sale Agreement for total consideration of $861.0 million, as further discussed in Note 4 — Real Estate Assets to the condensed consolidated financial statements in this Quarterly Report on Form 10-Q.

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

As of September 30, 2023, our loan portfolio consisted of 346 loans with a net book value of $4.1 billion, and investments in real estate-related securities of $639.1 million.

As of September 30, 2023, we owned 194 properties, which consisted of 180 retail properties, nine office properties, and five industrial properties, representing 18 industry sectors and comprising approximately 6.2 million rentable square feet of commercial space located in 37 states, with a net book value of $1.1 billion.

As of September 30, 2023, we owned condominium developments with a net book value of $106.5 million.

In furtherance of our strategy, during the nine months ended September 30, 2023, we disposed of 186 properties encompassing approximately 4.7 million gross rentable square feet, including the sale of 178 properties that closed under the Realty Income Purchase and Sale Agreement for total consideration of $861.0 million, as further discussed in Note 4 — Real Estate Assets to the condensed consolidated financial statements in this Quarterly Report on Form 10-Q.

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 June 30, 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 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.

As of September 30, 2023, 99.4% of our CMBS and loans held-for-investment by carrying value earned a floating rate of interest, indexed to SOFR, 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 99.8% of our rentable square feet was under lease, including any month-to-month agreements, as of June 30, 2023, with a weighted average remaining lease term of 11.1 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.

In addition, as 99.8% of our rentable square feet was under lease, including any month-to-month agreements, as of September 30, 2023, with a weighted average remaining lease term of 10.9 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.

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Macroeconomic Environment

The six months ended June 30, 2023 have been characterized by continued volatility in global markets, driven by investor concerns over inflation, rising interest rates, slowing economic growth, political and regulatory uncertainty and geopolitical conditions.

The nine months ended September 30, 2023 have been characterized by continued volatility in global markets, driven by investor concerns over inflation, rising interest rates, slowing economic growth, political and regulatory uncertainty and geopolitical conditions.

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.

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.

Continued inflation has caused the Federal Reserve to raise interest rates, and while the Federal Reserve declined to raise interest rates at its last two meetings, interest rates are expected to remain at an elevated level in the near-term, 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.

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Operating Highlights and Key Performance Indicators

Activity from January 1, 2023 through June 30, 2023

Activity from January 1, 2023 through September 30, 2023

Operating Results:

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Credit Portfolio Activity:

• Invested $135.4 million in first mortgage loans and received principal repayments on loans held-for-investment of $156.6 million.

• Invested $212.7 million in first mortgage loans.

• Invested $105.1 million in liquid corporate senior loans and sold liquid corporate senior loans for an aggregate gross sales price of $76.0 million.

• Invested $143.2 million in CMBS and received repayments on CMBS of $53.6 million.

• Invested $106.2 million in corporate senior loans.

• Received principal repayments on loans held-for-investment of $184.0 million.

• Invested $143.2 million in CMBS and received repayments on CMBS of $57.5 million.

• Funded an additional $14.5 million in NP JV Holdings.

Real Estate Portfolio Activity:

• Disposed of 186 properties for an aggregate sales price of $913.5 million.

• Disposed of 10 condominium units for a sales price of $29.0 million.

• Disposed of 14 condominium units for an aggregate sales price of $43.1 million.

Financing Activity:

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

• Paid down the $43.1 million outstanding balance on the refinanced Assumed Variable Rate Debt and terminated the respective amended borrowing agreement.

Portfolio Information

The following table shows the carrying value of our portfolio by investment type as of June 30, 2023 and 2022 (dollar amounts in thousands):

As of June 30,

The following table shows the carrying value of our portfolio by investment type as of September 30, 2023 and 2022 (dollar amounts in thousands):

As of September 30,

Asset Count Carrying Value Asset Count Carrying Value

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Credit Portfolio Information

The following table details overall statistics for our credit portfolio as of June 30, 2023 (dollar amounts in thousands):

The following table details overall statistics for our credit portfolio as of September 30, 2023 (dollar amounts in thousands):

CRE Loans (1)(2)

Liquid Corporate Senior Loans CMBS and Equity Security Corporate Senior Loans

Liquid Corporate Senior Loans CMBS and Equity Security (2)

Corporate Senior Loans

Number of investments (3)

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____________________________________

(1) As of June 30, 2023, 100% of our loans by principal balance earned a floating rate of interest, primarily indexed to SOFR.

(1) As of September 30, 2023, 100% of our loans by principal balance earned a floating rate of interest, primarily indexed to 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 $101.2 million as of June 30, 2023.

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

Real Estate Portfolio Information

As of June 30, 2023, we owned 195 properties located in 37 states, the gross rentable square feet of which was 99.8% leased, including any month-to-month agreements, with a weighted average lease term remaining of 11.1 years.

As of June 30, 2023, no single tenant accounted for greater than 10% of our 2023 annualized rental income.

As of June 30, 2023, we had certain geographic and industry concentrations in our property holdings.

As of September 30, 2023, we owned 194 properties located in 37 states, the gross rentable square feet of which was 99.8% leased, including any month-to-month agreements, with a weighted average lease term remaining of 10.9 years.

As of September 30, 2023, no single tenant accounted for greater than 10% of our 2023 annualized rental income.

As of September 30, 2023, we had certain geographic and industry concentrations in our property holdings.

In particular, we had properties located in Ohio, which accounted for 16% of our 2023 annualized rental income.

In addition, we had tenants in the health and personal care stores, manufacturing, and sporting goods, hobby, and musical instrument retailers industries, which accounted for 14%, 12%, and 11%, respectively, of our 2023 annualized rental income.

During the six months ended June 30, 2023, we disposed of 185 properties for an aggregate gross sales price of $909.3 million.

Additionally, during the six months ended June 30, 2023, we sold 10 condominium units for a gross sales price of $29.0 million.

The following table shows the property statistics of our real estate assets as of June 30, 2023 and 2022:

As of June 30,

In addition, we had tenants in the

health and personal care stores, manufacturing, and sporting goods, hobby, and musical instrument retailers industries, which accounted for 14%, 11%, and 11%, respectively, of our 2023 annualized rental income.

During the nine months ended September 30, 2023, we disposed of 186 properties for an aggregate gross sales price of $913.5 million.

Additionally, during the nine months ended September 30, 2023, we sold 14 condominium units for a gross sales price of $43.1 million.

The following table shows the property statistics of our real estate assets as of September 30, 2023 and 2022:

As of September 30,

Number of commercial properties 194 384

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

During the six months ended June 30, 2023 and 2022, the Company did not acquire any properties.

During the nine months ended September 30, 2023 and 2022, the Company did not acquire any properties.

Results of Operations

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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 and six months ended June 30, 2023 and 2022 by operating segment (amounts in thousands):

For the Three Months Ended For the Six Months Ended

June 30, 2023 June 30, 2022 Change June 30, 2023 June 30, 2022 Change

The following table compares our summarized results of operations for the three and nine months ended September 30, 2023 and 2022 by operating segment (amounts in thousands):

For the Three Months Ended For the Nine Months Ended

September 30, 2023 September 30, 2022 Change September 30, 2023 September 30, 2022 Change

Credit Segment $ 113,766 $ 66,222 $ 47,544 $ 336,887 $ 142,669 $ 194,218

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Net income (11,042) 15,539 (26,581) 75,025 128,253 (53,228)

Net (loss) income allocated to non-controlling interest — (72) 72 8 (63) 71

Net income allocated to non-controlling interest

— 129 (129) 8 66 (58)

Net income attributable to the Company $ (11,042) $ 15,410 $ (26,452) $ 75,017 $ 128,187 $ (53,170)

Three Months Ended June 30, 2023 Compared to the Three Months Ended June 30, 2022

Three Months Ended September 30, 2023 Compared to the Three Months Ended September 30, 2022

Credit Segment

The increase in our Credit segment revenues of $70.1 million for the three months ended June 30, 2023, as compared to the same period in 2022, was primarily due to increased average index rates during 2023, as well as an increase in the overall size of our investment portfolio.

As of June 30, 2023, we held $4.8 billion in credit investments compared to $4.2 billion in credit investments as of June 30, 2022.

The increase in our Credit segment revenues of $47.5 million for the three months ended September 30, 2023, as compared to the same period in 2022, was primarily due to increased average index rates during 2023, as well as an increase in the overall size of our investment portfolio.

As of September 30, 2023, we held $4.7 billion in credit investments compared to $4.5 billion in credit investments as of September 30, 2022.

Expenses for our Credit segment consist 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 $85.3 million for the three months ended June 30, 2023, as compared to the same period in 2022, was primarily due to increased interest expenses due to higher average index rates during 2023 and increased outstanding borrowings used to fund credit investments.

As of June 30, 2023, we held $4.8 billion in credit investments compared to $4.2 billion in credit investments as of June 30, 2022.

The increase was further driven by an increase in the provision for credit losses of $44.7 million, primarily

driven by the $23.5 million credit loss allowance related to a CMBS position that was recognized due to a decline in the underlying collateral value during the three months ended June 30, 2023, as compared to the same period in 2022.

The increase in our Credit segment expenses of $74.7 million for the three months ended September 30, 2023, as compared to the same period in 2022, was primarily due to a $44.6 million increase in the provision for credit losses driven by the asset-specific credit loss provision of $63.9 million recognized on two of the Company’s first mortgage loan investments, partially offset by reversals to the increase in provision for credit losses, during the three months ended September 30, 2023, as compared to the same period in 2022.

The increase was further driven by increased interest expenses due to higher average index rates during 2023 and increased outstanding borrowings used to fund credit investments.

As of September 30, 2023, we held $4.7 billion in credit investments compared to $4.5 billion in credit investments as of September 30, 2022.

Other Income (Expense)

Other income (expense) for our Credit segment consists of 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 $11.7 million during the three months ended June 30, 2023, as compared to the same period in 2022, was primarily due to recognizing a $3.1 million unrealized gain on equity security during the three months ended June 30, 2023 compared to a $4.1 million unrealized loss on equity security during the three months ended June 30, 2022.

The increase was further driven by a gain on the Unconsolidated Joint Venture of $5.8 million during the three months ended June 30, 2023, compared to a gain of $1.3 million recognized during the same period in 2022.

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

The increase in our Credit segment other income (expense) of $9.2 million during the three months ended September 30, 2023, as compared to the same period in 2022, was primarily due to recognizing a $2.1 million unrealized loss on equity security during the three months ended September 30, 2023, as compared to a $9.0 million unrealized loss on equity security for the same period in 2022.

Real Estate Segment

The decrease in our Real Estate segment revenues of $27.8 million for the three months ended June 30, 2023, as compared to the same period in 2022, was primarily due to the disposition of 207 properties subsequent to June 30, 2022.

The decrease in our Real Estate segment revenues of $18.5 million for the three months ended September 30, 2023, as compared to the same period in 2022, was primarily due to the disposition of 190 properties subsequent to September 30, 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 $30.2 million for the three months ended June 30, 2023, as compared to the same period in 2022, was primarily due to the disposition of 207 properties subsequent to June 30, 2022.

The decrease in our Real Estate segment expenses of $6.1 million for the three months ended September 30, 2023, as compared to the same period in 2022, was primarily due to the disposition of 190 properties subsequent to September 30, 2022.

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

The decrease was further driven by a decrease in impairment charges of $8.1 million for the three months ended June 30, 2023, as compared to the same period in 2022, as no properties were deemed to be impaired during the three months ended June 30, 2023, as compared to 11 properties that were deemed to be impaired, resulting in impairment charges of $8.1 million during the three months ended June 30, 2022.

The decrease was partially offset by an increase in impairment charges of $6.2 million for the three months ended September 30, 2023, as compared to the same period in 2022, as four properties were deemed to be impaired during the three months ended September 30, 2023, resulting in impairment charges of $6.8 million, as compared to one property that was deemed to be impaired during the three months ended September 30, 2022, resulting in impairment charges of $527,000.

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 (expense) of $58.1 million for the three months ended June 30, 2023, as compared to the same period in 2022, was primarily due to the disposition of 33 properties for a gain of $24.3 million during the three months ended June 30, 2023, compared to the disposition of 43 properties for a gain of $81.2 million during the three months ended June 30, 2022.

The increase in our Real Estate segment other income (expense) of $3.5 million for the three months ended September 30, 2023, as compared to the same period in 2022, was primarily due to no loss on extinguishment of debt recognized during the three months ended September 30, 2023, as compared to $5.6 million loss on extinguishment of debt recognized in connection with the repayment of certain mortgage notes for the same period in 2022.

The increase was partially offset by a $2.8 million decrease in unrealized gain on interest rate caps included in other income, net on the condensed consolidated statements of operations for the three months ended September 30, 2023, as compared to the same period in 2022.

Corporate Segment and Other

Our Corporate segment revenues, which consist primarily of rental income from our condominium and rental units acquired via foreclosure, decreased $11,000 during the three months ended June 30, 2023 as compared to the same period in 2022, primarily due to the disposition of certain condominium units subsequent to June 30, 2022.

Our Corporate segment revenues, which consist primarily of rental income from our condominium and rental units acquired via foreclosure, decreased $29,000 during the three months ended September 30, 2023 as compared to the same period in 2022, primarily due to the write-off of certain rent previously owed as a result of a settlement during the three months ended September 30, 2023.

Expenses for our Corporate segment consist primarily of general and administrative expenses, expense reimbursements to related parties, interest expense, net related to our credit facilities, and impairment on our condominium and rental units acquired via foreclosure.

The decrease in Corporate segment expenses of $11.0 million during the three months ended June 30, 2023 as compared to the same period in 2022, was primarily driven by the decrease in impairment charges related to condominium units of $7.9 million during the three months ended June 30, 2023, compared to the same period in 2022.

The decrease was further driven by a decrease in interest expense, net of $3.3 million during the three months ended June 30, 2023 as compared to the same period in 2022, primarily due to the pay down and termination of the CMFT Credit Facility during the six months ended June 30, 2023.

The increase in Corporate segment expenses of $329,000 during the three months ended September 30, 2023 as compared to the same period in 2022, was primarily due to an increase in property operating expenses of $2.3 million, which was driven by increased litigation expenses.

The change was partially offset by a decrease in interest expense, net of $2.0 million during the three months ended September 30, 2023 as compared to the same period in 2022, primarily due to the pay down and termination of the CMFT Credit Facility during the nine months ended September 30, 2023.

Other Income (Expense)

The increase in Corporate segment other income (expense) of $6.6 million during the three months ended June 30, 2023, as compared to the same period in 2022, was partially driven by a $2.3 million gain on real estate and condominium developments, net during the three months ended June 30, 2023 due to an increased amount of condominium units disposed of

during the three months ended June 30, 2023 as compared to the same period in 2022.

The change was further driven by the decrease in loss on extinguishment of debt of $2.2 million and an increase in other income, net of $2.0 million due to interest income generated by an increase in short-term liquid investments included in cash and cash equivalents on the condensed consolidated balance sheets during the three months ended June 30, 2023, as compared to the same period in 2022.

Net (Loss) Income Allocated to Non-Controlling Interest

The change in net (loss) income allocated to non-controlling interest of $72,000 for the three months ended June 30, 2023, as compared to the same period in 2022, was due to the disposition of two properties previously owned through a consolidated joint venture arrangement during the year ended December 31, 2022, and therefore no income allocated to non-controlling interest was recorded during the three months ended June 30, 2023.

Six Months Ended June 30, 2023 Compared to the Six Months Ended June 30, 2022

The increase in Corporate segment other income (expense) of $518,000 during the three months ended September 30, 2023, as compared to the same period in 2022, was primarily driven by an increase in other income, net of $3.1 million due to interest income generated by an increase in short-term liquid investments included in cash and cash equivalents on the condensed consolidated balance sheets during the three months ended September 30, 2023, as compared to the same period in 2022.

The increase was further driven by a $728,000 increase in gain on real estate and condominium developments, net during the three months ended September 30, 2023, as compared to the same period in 2022.

The increase was partially offset by an increase in loss on extinguishment of debt during the three months ended September 30, 2023, as compared to the same period in 2022, driven by the paydown and termination of the refinanced Assumed Variable Rate Debt.

Net Income Allocated to Non-Controlling Interest

The change in net income allocated to non-controlling interest of $129,000 for the three months ended September 30, 2023, as compared to the same period in 2022, was due to the disposition of the two properties previously owned through a consolidated joint venture arrangement during the year ended December 31, 2022, and therefore no income allocated to non-controlling interest was recorded during the three months ended September 30, 2023.

Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 30, 2022

Credit Segment

The increase in our Credit segment revenues of $146.7 million for the six months ended June 30, 2023, as compared to the same period in 2022, was primarily due to increased average index rates during 2023, as well as an increase in the overall size of our investment portfolio.

As of June 30, 2023, we held $4.8 billion in credit investments compared to $4.2 billion in credit investments as of June 30, 2022.

The increase in our Credit segment revenues of $194.2 million for the nine months ended September 30, 2023, as compared to the same period in 2022, was primarily due to increased average index rates during 2023, as well as an increase in the overall size of our investment portfolio.

As of September 30, 2023, we held $4.7 billion in credit investments compared to $4.5 billion in credit investments as of September 30, 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 $127.7 million for the six months ended June 30, 2023, as compared to the same period in 2022, was primarily driven by increased interest expenses due to higher average index rates during 2023 and increased outstanding borrowings used to fund credit investments.

As of June 30, 2023, we held $4.8 billion in credit investments compared to $4.2 billion in credit investments as of June 30, 2022.

The increase was further driven by an increase in the provision for credit losses of $41.4 million, primarily driven by the $23.5 million credit loss allowance related to a CMBS position that was recognized due to a decline in the underlying collateral value during the six months ended June 30, 2023.

The increase in our Credit segment expenses of $202.3 million for the nine months ended September 30, 2023, as compared to the same period in 2022, was primarily driven by increased interest expenses due to higher average index rates during 2023 and increased outstanding borrowings used to fund credit investments.

As of September 30, 2023, we held $4.7 billion in credit investments compared to $4.5 billion in credit investments as of September 30, 2022.

The increase was further driven by an increase in the provision for credit losses of $86.0 million, primarily due to the asset-specific credit loss provision of $63.9 million recognized on two of the Company’s first mortgage loan investments, partially offset by reversals to the increase in provision for credit losses, and the $25.7 million credit loss allowance related to a CMBS position that was recognized due to a decline in the underlying collateral value during the nine months ended September 30, 2023.

Other Income (Expense)

The increase in our Credit segment other income (expense) of $17.1 million during the six months ended June 30, 2023, as compared to the same period in 2022, was primarily due to recognizing a $5.4 million unrealized gain on equity security during the six months ended June 30, 2023, compared to a $6.4 million unrealized loss on equity security during the six months ended June 30, 2022.

The increase was further driven by $2.7 million of dividend income from our equity security during the six months ended June 30, 2023, compared to $1.4 million recognized during the same period in 2022, and a gain on the Unconsolidated Joint Venture of $5.0 million during the six months ended June 30, 2023, compared to a gain of $1.5 million recognized during the same period in 2022.

The increase in our Credit segment other income (expense) of $26.3 million during the nine months ended September 30, 2023, as compared to the same period in 2022, was primarily due to recognizing a $3.3 million unrealized gain on equity security during the nine months ended September 30, 2023, compared to a $15.5 million unrealized loss on equity security during the nine months ended September 30, 2022.

The increase was further driven by a $4.5 million increase in gain on investment in unconsolidated entities during the nine months ended September 30, 2023, compared to the same period in 2022, along with a $1.4 million increase in dividend income from our equity security during the nine months ended September 30, 2023, compared to the same period in 2022.

Real Estate Segment

The decrease in our Real Estate segment revenues of $62.7 million for the six months ended June 30, 2023, as compared to the same period in 2022, was primarily due to the disposition of 207 properties subsequent to June 30, 2022.

The decrease in our Real Estate segment revenues of $81.2 million for the nine months ended September 30, 2023, as compared to the same period in 2022, was primarily due to the disposition of 190 properties subsequent to September 30, 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 $54.9 million for the six months ended June 30, 2023, as compared to the same period in 2022, was primarily due to the disposition of 207 properties subsequent to June 30, 2022.

The decrease in our Real Estate segment expenses of $61.1 million for the nine months ended September 30, 2023, as compared to the same period in 2022, was primarily due to the disposition of 190 properties subsequent to September 30, 2022.

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

The decrease was further driven by a decrease in impairment charges of $6.5 million for the six months ended June 30, 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 six months ended June 30, 2023, as compared to 18 properties that were deemed to be impaired, resulting in impairment charges of $11.3 million during the six months ended June 30, 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 (expense) of $61.3 million for the six months ended June 30, 2023, as compared to the same period in 2022, was primarily due to the disposition of 185 properties for a gain of $43.8 million during the six months ended June 30, 2023, compared to the disposition of 112 properties and an outparcel of land for a gain of $110.4 million during the six months ended June 30, 2022.

Other income (expense) was further reduced due to a $4.2 million decrease in the fair value of our interest rate caps during the six months ended June 30, 2023, as compared to a $1.9 million increase in the fair value of our interest rate caps during the six months ended June 30, 2022.

The decrease was partially offset by an $11.8 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 six months ended June 30, 2022, as compared to the six months ended June 30, 2023.

The decrease in our Real Estate segment other income (expense) of $57.8 million for the nine months ended September 30, 2023, as compared to the same period in 2022, was primarily due to the disposition of 186 properties and the receipt of additional earnout proceeds upon the settlement of earnout claims related to the disposition of the properties pursuant to the RTL Purchase and Sale Agreement,

resulting in a gain of $49.2 million during the nine months ended September 30, 2023, compared to the disposition of 130 properties and an outparcel of land for a gain of $115.0 million during the nine months ended September 30, 2022.

Other income (expense) was further reduced due to a $4.6 million decrease in the fair value of our interest rate caps during the nine months ended September 30, 2023, as compared to a $4.2 million increase in the fair value of our interest rate caps during the nine months ended September 30, 2022.

The decrease was partially offset by a $17.4 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 nine months ended September 30, 2022, as compared to the nine months ended September 30, 2023.

Corporate Segment and Other

Our Corporate segment revenues, which consist primarily of rental income from our condominium and rental units acquired via foreclosure, decreased $42,000 during the six months ended June 30, 2023, as compared to the same period in 2022, primarily due to the disposition of certain condominium units subsequent to June 30, 2022.

Our Corporate segment revenues, which consist primarily of rental income from our condominium and rental units acquired via foreclosure, decreased $69,000 during the nine months ended September 30, 2023, as compared to the same period in 2022, primarily due to the write-off of certain rent previously owed as a result of a settlement during the nine months ended September 30, 2023.

Expenses for our Corporate segment consists primarily of general and administrative expenses, expense reimbursements to related parties, interest expense related to our credit facilities, and impairment on our condominium and rental units acquired via foreclosure.

The decrease in Corporate segment expenses of $10.3 million during the six months ended June 30, 2023, as compared to the same period in 2022, was primarily driven by a decrease in impairment charges related to condominium units of $7.9 million.

The change was further driven by a decrease in interest expense, net during the six months ended June 30, 2023 as compared to the same period in 2022.

The decrease in Corporate segment expenses of $9.9 million during the nine months ended September 30, 2023, as compared to the same period in 2022, was primarily driven by a decrease in impairment charges related to condominium units of $7.8 million.

The change was further driven by a decrease in interest expense, net primarily due to the pay down and termination of the CMFT Credit Facility during the nine months ended September 30, 2023 as compared to the same period in 2022.

The change was partially offset by an increase in property operating expenses of $3.3 million, primarily driven by increased litigation expenses during the nine months ended September 30, 2023 as compared to the same period in 2022.

Other Income (Expense)

The decrease in Corporate segment other income (expense) of $3.9 million during the six months ended June 30, 2023, as compared to the same period in 2022, was primarily driven by the $5.2 million net gain during the six months ended June 30, 2022 related to our investment in CIM UII Onshore, which was subsequently redeemed during 2022.

The change was further driven by an $894,000 decrease in gain on disposition of real estate and condominium developments, net, during the six months ended June 30, 2023 as compared to the same period in 2022.

The change was partially offset by an increase in other income, net of $2.3 million due to interest income generated by an increase in short-term liquid investments included in cash and cash equivalents on the condensed consolidated balance sheets during the six months ended June 30, 2023, as compared to the same period in 2022.

Net Income (Loss) Allocated to Non-Controlling Interest

The change in net income (loss) allocated to non-controlling interest for the six months ended June 30, 2023, as compared to the same period in 2022, was due to the Company having sold the two properties previously owned through a consolidated joint venture arrangement during the year ended December 31, 2022, and therefore no longer had a controlling financial interest in the Consolidated Joint Venture during the six months ended June 30, 2023.

The decrease in Corporate segment other income (expense) of $3.3 million during the nine months ended September 30, 2023, as compared to the same period in 2022, was primarily driven by the $5.2 million net gain during the nine months ended September 30, 2022 related to our investment in CIM UII Onshore, which was subsequently redeemed during 2022.

The change was further driven by a $3.5 million increase in loss on extinguishment of debt during the nine months ended September 30, 2023, as compared to the same period in 2022, primarily in connection with the pay down and termination of the CMFT Credit Facility and the refinanced Assumed Variable Rate Debt.

The decrease was partially offset by a $5.4 million increase in other income, net primarily due to interest income generated by an increase in short-term liquid investments included in cash and cash equivalents on the condensed consolidated balance sheets during the nine months ended September 30, 2023, as compared to the same period in 2022.

Net Income Allocated to Non-Controlling Interest

The change in net income allocated to non-controlling interest for the nine months ended September 30, 2023, as compared to the same period in 2022, was due to the Company having sold the two properties previously owned through a consolidated joint venture arrangement during the year ended December 31, 2022, and therefore no longer having a controlling financial interest in the consolidated joint venture arrangement during the nine months ended September 30, 2023.

Same Store Analysis

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

Comparison of the Three Months Ended June 30, 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 June 30,

Comparison of the Three Months Ended September 30, 2023 and 2022

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

For the Three Months Ended September 30,

2023 2022 Change

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Net operating income $ 22,248 $ 39,971 $ (17,723)

A total of 195 properties were acquired before April 1, 2022 and represent our “same store” properties during the three months ended June 30, 2023 and 2022.

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

A total of 194 properties were acquired before July 1, 2022 and represent our “same store” properties during the three months ended September 30, 2023 and 2022.

“Non-same store” properties, for purposes of the table below, includes properties acquired or disposed of on or after July 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 (in thousands):

Total Same Store Non-Same Store

For the Three Months Ended June 30,

For the Three Months Ended September 30,

2023 2022 Change 2023 2022 Change 2023 2022 Change

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Total property operating expenses 2,760 3,494 (734) 1,956 1,890 66 804 1,604 (800)

Net operating income $ 23,499 $ 47,735 $ (24,236) $ 22,388 $ 22,738 $ (350) $ 1,111 $ 24,997 $ (23,886)

Net operating income (loss)

$ 22,248 $ 39,971 $ (17,723) $ 22,573 $ 22,403 $ 170 $ (325) $ 17,568 $ (17,893)

Net Operating Income

Same store property net operating income remained relatively consistent during the three months ended June 30, 2023, as compared to the same period in 2022.

Non-same store property net operating income decreased $23.9 million during the three months ended June 30, 2023, as compared to the same period in 2022.

The decrease was primarily due to the disposition of 207 properties subsequent to June 30, 2022.

Comparison of the Six Months Ended June 30, 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 Six Months Ended June 30,

Same store property net operating income remained relatively consistent during the three months ended September 30, 2023, as compared to the same period in 2022.

Non-same store property net operating income decreased $17.9 million during the three months ended September 30, 2023, as compared to the same period in 2022.

The decrease was primarily due to the disposition of 190 properties subsequent to September 30, 2022.

Comparison of the Nine Months Ended September 30, 2023 and 2022

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

For the Nine Months Ended September 30,

2023 2022 Change

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Net operating income $ 82,351 $ 147,855 $ (65,504)

A total of 195 properties were acquired before January 1, 2022 and represent our “same store” properties during the six months ended June 30, 2023 and 2022.

A total of 194 properties were acquired before January 1, 2022 and represent our “same store” properties during the nine months ended September 30, 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):

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

Total Same Store Non-Same Store

For the Six Months Ended June 30,

For the Nine Months Ended September 30,

2023 2022 Change 2023 2022 Change 2023 2022 Change

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Net Operating Income

Same store property net operating income remained relatively consistent during the six months ended June 30, 2023, as compared to the same period in 2022.

Non-same store property net operating income decreased $47.9 million during the six months ended June 30, 2023, as compared to the same period in 2022.

The decrease was primarily due to the disposition of 207 properties subsequent to June 30, 2022.

Same store property net operating income remained relatively consistent during the nine months ended September 30, 2023, as compared to the same period in 2022.

Non-same store property net operating income decreased $65.8 million during the nine months ended September 30, 2023, as compared to the same period in 2022.

The decrease was primarily due to the disposition of 190 properties subsequent to September 30, 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 six months ended June 30, 2023 for the periods indicated below:

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 nine months ended September 30, 2023 for the periods indicated below:

Period Commencing Period Ending Monthly Distribution Amount

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October 2023 December 2023 $0.0367

As of June 30, 2023, we had distributions payable of $15.3 million.

January 2024 March 2024 $0.0375

As of September 30, 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):

Six Months Ended June 30,

Nine Months Ended September 30,

Amount Percent Amount Percent

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____________________________________

(1) Net cash provided by operating activities for the six months ended June 30, 2023 and 2022 was $110.1 million and $61.2 million, respectively.

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

(1) Net cash provided by operating activities for the nine months ended September 30, 2023 and 2022 was $170.5 million and $125.4 million, respectively.

Share Redemptions

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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.

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.

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Any material modifications or suspension of the share redemption program will be disclosed to our stockholders as promptly as practicable in our reports filed with the SEC and via our website.

During the six months ended June 30, 2023, we received valid redemption requests under our share redemption program totaling approximately 51.9 million shares, of which we redeemed approximately 1.7 million shares as of June 30, 2023 for $11.1 million (at an average redemption price of $6.57 per share) and approximately 1.6 million shares subsequent to June 30, 2023 for $10.8 million (at a redemption price of $6.57 per share).

During the nine months ended September 30, 2023, we received valid redemption requests under our share redemption program totaling approximately 80.8 million shares, of which we redeemed approximately 3.4 million shares as of September 30, 2023 for $22.4 million (at an average redemption price of $6.57 per share) and approximately 1.6 million shares subsequent to September 30, 2023 for $10.7 million (at a redemption price of $6.57 per share).

The remaining redemption requests relating to 75.8 million shares went unfulfilled.

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

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Cash and cash equivalents $ 486,383 $ 118,978

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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 June 30, 2023 (in thousands):

The following table details our outstanding financing arrangements and borrowing capacity as of September 30, 2023 (in thousands):

Portfolio Financing Outstanding Principal Balance Maximum Capacity (1)

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Contractual Obligations

As of June 30, 2023, we had debt outstanding with a carrying value of $4.0 billion and a weighted average interest rate of 6.2%.

As of September 30, 2023, we had debt outstanding with a carrying value of $4.1 billion and a weighted average interest rate of 6.4%.

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 June 30, 2023 were as follows (in thousands):

Our contractual obligations as of September 30, 2023 were as follows (in thousands):

Payments due by period (1)

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In addition, the table does not include $9.3 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 June 30, 2023 through their respective maturity dates.

(2) Interest payments on the variable rate debt, credit facilities and repurchase facilities have been calculated based on outstanding balances as of September 30, 2023 through their respective maturity dates.

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

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

As of June 30, 2023, our ratio of debt to total gross assets net of gross intangible lease liabilities was 64.3%.

As of September 30, 2023, our ratio of debt to total gross assets net of gross intangible lease liabilities was 65.5%.

Cash Flow Analysis

Operating Activities.

Net cash provided by operating activities increased by $48.8 million for the six months ended June 30, 2023, as compared to the same period in 2022.

The increase was primarily due to net increases in credit investments of $627.2 million coupled with an increase in interest rates driving higher interest income, partially offset by the disposition of 207 properties subsequent to June 30, 2022.

Net cash provided by operating activities increased by $45.1 million for the nine months ended September 30, 2023, as compared to the same period in 2022.

The increase was primarily due to net increases in credit investments of $282.8 million coupled with an increase in interest rates driving higher interest income, partially offset by the disposition of 190 properties subsequent to September 30, 2022.

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

Investing Activities.

For the six months ended June 30, 2023, net cash provided by investing activities was $715.2 million, as compared to net cash used in investing activities of $261.9 million in the same period in 2022.

The change was primarily due to a decrease in the net investment in loans held-for-investment of $1.1 billion and a decrease in the net investment in real estate-related securities of $168.3 million, partially offset by a decrease in proceeds from disposition of real estate assets of $279.3 million and a decrease in net proceeds in relation to our investment in unconsolidated entities of $18.6 million.

For the nine months ended September 30, 2023, net cash provided by investing activities was $678.8 million, as compared to net cash used in investing activities of $494.8 million in the same period in 2022.

The change was primarily due to a decrease in the net investment in loans held-for-investment of $1.2 billion, a decrease in the net investment in real estate-related securities of $331.2 million, and a decrease in the net investment in unconsolidated entities of $8.5 million, partially offset by a decrease in proceeds from the disposition of real estate assets of $330.5 million.

Financing Activities.

For the six months ended June 30, 2023, net cash used in financing activities was $533.2 million, as compared to net cash provided by financing activities of $290.9 million in 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 $818.2 million, coupled with an increase in distributions to stockholders of $9.0 million.

For the nine months ended September 30, 2023, net cash used in financing activities was $516.1 million, as compared to net cash provided by financing activities of $413.0 million in the same period in 2022.

The change was primarily due to a decrease in net proceeds from borrowings on the repurchase facilities, notes payable and credit facilities of $927.0 million.

Election as a REIT

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis