What changed in this filing

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Item 1. Business

2024-03-28 compared with 2023-03-28 · 66 added, 74 removed, 220 unchanged (39% of the section changed)

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As of December 31, 2023, our credit portfolio consisted of 291 loans with a net book value of $4.3 billion, and investments in real estate-related securities of $519.7 million as of December 31, 2023.

In addition, we owned 380 properties, comprising 10.9 million rentable square feet of commercial space located in 43 states.

The Company expects to conduct its commercial real estate lending business through CIM Commercial Lending REIT (“CLR”), a Maryland statutory trust and currently wholly owned subsidiary of the Company which we expect to be taxed as a REIT for U.S.

federal income tax purposes.

As of February 29, 2024, CLR holds a diversified portfolio of approximately $1.6 billion of the Company’s senior secured mortgage loans and commercial mortgage-backed securities.

In addition, we owned 192 properties, comprising approximately 6.2 million rentable square feet of commercial space located in 37 states.

As of December 31, 2023, the rentable space at these properties was 99.9% leased, including month-to-month agreements, if any.

We have elected to be taxed and conduct our operations to qualify as a REIT for federal income tax purposes.

We operate our business in a manner that permits us to maintain our exemption from registration under the Investment Company Act of 1940, as amended (the “Investment Company Act”).

We operate our business in a manner that permits us to maintain our exemption from registration under the Investment Company Act.

A majority of our business is conducted through CIM Real Estate Finance Operating Partnership, LP, a Delaware limited partnership (“CMFT OP”), of which we are the sole general partner and own, directly or indirectly, 100% of the partnership interests, and its subsidiaries.

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We are externally managed by CIM Real Estate Finance Management, LLC, a Delaware limited liability company (“CMFT Management”), which is an affiliate of CIM Group, LLC (“CIM Group”).

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

CIM is headquartered in Los Angeles, CA, with offices in Atlanta, GA, Bethesda, MD, Chicago, IL, Dallas, TX, New York, NY, Orlando, FL, Phoenix, AZ, and Tokyo, Japan.

CIM Group also maintains additional offices across the United States, as well as in Korea, Hong Kong, and the United Kingdom to support its platform.

We have no paid employees and rely upon our manager pursuant to our Amended and Restated Management Agreement dated August 20, 2019, which was amended and restated effective March 24, 2023, (the “Management Agreement”), and certain of its affiliates, including our investment advisor, CIM Capital IC Management, LLC (the “Investment Advisor”), with respect to investments in securities and certain other investments, to provide substantially all of our day-to-day management.

CIM Group is a vertically-integrated community-focused real estate and infrastructure owner, operator, lender and developer.

CIM Group is headquartered in Los Angeles, CA, with offices in Atlanta, GA, Chicago, IL, Dallas, TX, London, UK, New York, NY, Orlando, FL, Phoenix, AZ, and Tokyo, Japan.

CIM Group also maintains additional offices across the United States and in South Korea to support its platform.

We have no paid employees and rely upon our manager pursuant to our Second Amended and Restated Management Agreement dated March 24, 2023 (the “Management Agreement”), and certain of its affiliates, including our investment advisor, CIM Capital IC Management, LLC (the “Investment Advisor”), with respect to investments in securities and certain other investments, to provide substantially all of our day-to-day management.

Collectively, our manager and the Investment Advisor, together with certain other affiliates of CIM Group, serve as our sponsor, which we refer to as our “sponsor” or “CIM”.

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The Investment Advisory and Management Agreement had an initial three-year term and shall be deemed renewed automatically each year thereafter for an additional one-year period unless otherwise terminated pursuant to the Investment Advisory and Management Agreement.

In addition, on December 6, 2019, the Investment Advisor entered into a sub-advisory agreement (the “Sub-Advisory Agreement”) with OFS Capital Management, LLC, a Delaware limited liability company and affiliate of the Investment

Advisor (the “Sub-Advisor”), to act as an investment sub-advisor to CMFT Securities.

The Sub-Advisor is registered as an investment adviser under the Advisers Act and is an affiliate of the Investment Advisor.

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Investment Strategy and Objectives

We seek to attain attractive risk-adjusted returns and create long term value for our 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.

We sold the remainder of our non-core anchored shopping center properties through the RTL Purchase and Sale Agreement (as defined below) during 2022.

The net sales proceeds were invested in credit investments in line with our strategy.

Additionally, we are under contract to sell certain non-core single tenant real estate properties through the Realty Income Purchase and Sale Agreement (as defined below), and we intend to redeploy the proceeds from those sales into the origination, participation in, and acquisition of our targeted credit investments and core commercial real estate.

We seek to attain attractive risk-adjusted returns and create long term value for our stockholders 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.

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.

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government obligations, and other instruments and investments reasonably determined to be of high quality;

• not making any (i) individual or single pooled CMBS investment or corporate loan investment in excess of $250 million, (ii) any commercial real estate (“CRE”) loan in excess of $50 million with a loan-to-value ratio in excess of 80%, and (iii) any other type of investment, including but not limited to commercial real estate acquisitions, in excess of $200 million, without the approval of a majority of the Board or a duly constituted committee of the Board.

• not making any investment (i) with a loan-to-value ratio in excess of 78%, and (ii) in excess of $200 million, without the approval of a majority of the Board, including a majority of independent directors, or a duly constituted committee of the Board.

Types of Investments — Commercial Real Estate-Related Credit Investments

Short Duration Senior Secured Loans .

We invest in, acquire or originate loans secured by a first mortgage lien on commercial properties providing mortgage financing to commercial property developers or owners.

These loans will generally have maturity dates ranging from three to ten years and bear interest at a fixed or floating rate, though they are more likely going to be floating rate and have a shorter-duration term.

The loans will likely require interest only payments and if these loans do provide for some amortization, they will typically require, in any event, a balloon payment of principal at maturity.

Senior Secured Commercial Mortgage Loans .

We originate, invest in and acquire loans secured by a first mortgage lien on commercial real estate properties providing mortgage financing to developers or owners.

These loans generally have maturity dates ranging from three to ten years and bear interest at a fixed or floating rate, though most of our portfolio is and is expected to be floating rate and have a shorter-duration term.

The loans typically require interest only payments and if these loans do provide for some amortization, they typically require, in any event, a balloon payment of principal at maturity.

These investments may include whole loan participations and/or pari passu participations within such loans.

Mezzanine Loans .

We also expect to invest in or originate loans made to commercial property owners that are secured by pledges of the borrower’s ownership interests in the property and/or the property owner, subordinate to whole mortgage loans secured by a first lien on the property.

These mortgage loans are senior to the borrower’s equity in the property.

Commercial Mortgage Backed Securities (“CMBS”).

We invest in or acquire secured real estate related securities such as rated and non-rated CMBS generally secured by a single asset or a loan to a single borrower secured by a cross-collateralized portfolio of assets.

Mezzanine Loans, Preferred Equity and Other Real-Estate Related Debt Instruments .

We may also invest in or originate loans made to commercial property owners that are secured by pledges of the borrower’s ownership interests in the property and/or the property owner, subordinate to whole mortgage loans secured by a first lien on the property.

These loans are senior to the borrower’s equity in the property.

These loans may be tranched into senior and junior mezzanine loans, with junior mezzanine loans secured by a pledge of the equity interests in the more junior mezzanine borrower.

Mezzanine lenders typically have different, and at times more limited, rights compared to more senior lenders, including, following a default on the senior loan, the right, for a period of time, to cure defaults under

the senior loan and any senior mezzanine loan and purchase the senior loan and any senior mezzanine loan.

Mezzanine lenders typically have different, and at times more limited, rights compared to more senior lenders, including, following a default on the senior

loan, the right, for a period of time, to cure defaults under the senior loan and any senior mezzanine loan and purchase the senior loan and any senior mezzanine loan.

Subject to the terms negotiated with, and the rights of, the senior lenders, mezzanine lenders typically have the right to foreclose on their equity interest and become the direct or indirect owner of the property.

Other Real-Estate Related Debt Instruments .

We will opportunistically invest in or originate other commercial real estate-related debt instruments such as subordinated mortgage interests, preferred equity, note financing, unsecured loans to owners and operators of real estate assets, and secured real estate-related securities such as rated and non-rated CMBS generally secured by a single asset or a loan to a single borrower secured by a cross-collateralized portfolio of assets, and commercial real estate collateralized loan obligations (“CRE CLOs”).

Corporate Loans .

We may also invest in or originate certain syndicated or directly originated liquid and less liquid corporate loans.

We may also invest in or originate other commercial real estate-related debt instruments such as subordinated mortgage interests, preferred equity, note financing, unsecured loans to owners and operators of real estate assets, and commercial real estate collateralized loan obligations (“CRE CLOs”).

Additionally, we may make investments that are subordinate to any mortgage or mezzanine loan, but senior to the common equity of the mortgage borrower or owner of a mortgage borrower, as applicable.

Preferred equity investments typically pay a preferred return from the investment’s cash flow rather than interest payments and often have the right for such preferred return to accrue if there is insufficient cash flow for current payment.

These interests are not secured by the underlying real estate, but upon the occurrence of a default, the preferred equity provider typically has the right to effect a change of control with respect to the ownership of the property.

Corporate Senior Loans .

We may also invest in or originate certain syndicated or directly originated liquid and less liquid corporate senior loans.

In evaluating prospective loan or other credit investments, CMFT Management will consider factors such as the following:

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We have acquired, and may continue to acquire, either directly or through co-investing in a joint venture agreement, income-producing retail, industrial and office properties that are primarily leased to single, creditworthy tenants under long-term net leases, strategic to the tenants’ operations and are geographically diversified.

On December 20, 2021, certain

subsidiaries of the Company entered into an Agreement of Purchase and Sale, as amended (the “RTL Purchase and Sale Agreement”), with American Finance Trust, Inc.

(now known as The Necessity Retail REIT, Inc.) (NASDAQ:

RTL) (“RTL”), American Finance Operating Partnership, L.P.

(now known as The Necessity Retail REIT Operating Partnership, L.P.) (“RTL OP”), and certain of their subsidiaries (collectively, the “Purchaser”) to sell our remaining multi-tenant anchored shopping center properties, along with two single-tenant properties, all of which were disposed of during the year ended December 31, 2022.

On December 29, 2022, certain subsidiaries of the Company entered into an Agreement of Purchase and Sale (the “Realty Income Purchase and Sale Agreement”) with certain subsidiaries of Realty Income Corporation (NYSE:

O) (“Realty Income”), to sell 185 single-tenant net lease properties.

Many of our retail properties are, and we anticipate that future properties will predominantly be, leased to retail tenants in the chain or franchise retail industry, including, but not limited to, convenience stores, drug stores and restaurant properties, as well as leased to large national retailers as stand-alone properties.

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When spaces in a property become vacant, existing leases expire, or we acquire properties under development or requiring substantial refurbishment or renovation, we generally expect to enter into net leases.

There is no limitation on the number, size or type of properties that we may acquire, or on the percentage of net proceeds of the Offerings that may be used to acquire a single property.

There is no limitation on the number, size or type of properties that we may acquire, or on the percentage of net proceeds of the Offerings (as defined below) that may be used to acquire a single property.

The number and mix of properties comprising our portfolio will depend upon real estate market conditions and other circumstances existing at the time we acquire properties, and the amount of capital we have available for acquisitions.

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In evaluating potential property acquisitions consistent with our investment objectives, CMFT Management applies a well-established underwriting process to determine the creditworthiness of potential tenants.

We consider a tenant to be creditworthy if we believe that the tenant has sufficient assets, cash flow generation and stability of operations to meet its obligations under

We consider a tenant to be creditworthy if we believe that the tenant has sufficient assets, cash flow generation and stability of operations to meet its obligations under the lease.

Similarly, CMFT Management applies credit underwriting criteria to possible new tenants when we are leasing properties in our portfolio.

Many of the tenants of our properties are, and we expect will continue to be, international, national or regional companies that are creditworthy entities having high net worth and operating income.

CMFT Management’s underwriting process includes analyzing the financial data and other available information about the tenant, such as income statements, balance sheets, net worth, cash flows, business plans, data provided by industry credit rating services, and/or other information CMFT Management may deem relevant.

CMFT Management’s underwriting process includes analyzing the financial data and other available information about the tenant, such as income

statements, balance sheets, net worth, cash flows, business plans, data provided by industry credit rating services, and/or other information CMFT Management may deem relevant.

Generally, these tenants must have a proven track record in order to meet the credit tests applied by CMFT Management.

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Circumstances might arise that could cause us to determine to sell an asset before the end of the expected holding period if we believe the sale of the asset would be in the best interests of our stockholders.

The determination of whether a particular asset should be sold or otherwise disposed of will be made after

consideration of relevant factors, including prevailing and projected economic conditions, current tenant rolls and tenant creditworthiness, whether we could apply the proceeds from the sale of the asset to acquire other assets, whether disposition of the asset would increase cash flows, and whether the sale of the asset would be a prohibited transaction under the Code or otherwise impact our status as a REIT for federal income tax purposes.

During the year ended December 31, 2022, we sold 134 properties and an outparcel of land for an aggregate gross sales price of $1.69 billion, resulting in net proceeds of $1.69 billion after closing costs and a gain of $117.8 million.

The determination of whether a particular asset should be sold or otherwise disposed of will be made after consideration of relevant factors, including prevailing and projected economic conditions, current tenant rolls and tenant creditworthiness, whether we could apply the proceeds from the sale of the asset to acquire other assets, whether disposition of the asset would increase cash flows, and whether the sale of the asset would be a prohibited transaction under the Code or otherwise impact our status as a REIT for federal income tax purposes.

During the year ended December 31, 2023, we sold 188

properties for an aggregate gross sales price of $925.9 million, resulting in net proceeds of $914.4 million after closing costs and a net gain of $44.4 million.

Financing Strategy

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The amount of leverage we use is determined by our manager, taking into account a variety of factors, which may include the anticipated liquidity and price volatility of target assets in our investment portfolio, the potential for losses and extension risk in our investment portfolio, the gap between the duration of assets and liabilities, including hedges, the availability and cost of financing the assets, the creditworthiness of our financing counterparties, the health of the global economy and commercial and residential mortgage markets, the outlook for the level, slope, and volatility of interest rate movement, the credit quality of our target assets and the type of collateral underlying such target assets.

In utilizing leverage, we seek to enhance equity returns while limiting interest rate exposure.

We will seek to match the tenor, currency, and indices of our assets and liabilities, including in certain instances through the use of derivatives.

We will also seek to limit the risks associated with recourse borrowing.

In utilizing leverage, we seek to enhance equity returns.

As appropriate, we seek to match the tenor, currency, and indices of our assets and liabilities, including in certain instances through the use of derivatives.

When possible, we will also seek to limit the risks associated with recourse borrowing and the amount of spread mark-to-market.

As of December 31, 2023, our ratio of debt to total gross assets net of gross intangible lease liabilities was 63.2%.

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Portfolio Financing Outstanding Principal Balance Maximum Capacity (1)

Notes payable – fixed rate debt $ 36,538 $ 36,538

Notes payable – variable rate debt $ 622,841 $ 622,841

First lien mortgage loan 121,940 121,940

ABS mortgage notes 758,520 758,520

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(1) Subject to borrowing availability.

(2) Facilities under the J.P.

Morgan Repurchase Facility (as defined in Note 10 — Repurchase Facilities, Notes Payable and Credit Facilities to the consolidated financial statements in this Annual Report on Form 10-K) carry no maximum facility size.

Subject to maintaining our qualification as a REIT, from time to time, we engage in hedging transactions that seek to mitigate the effects of fluctuations in interest rates or currencies on our cash flows.

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Our ability to increase our diversification through borrowing may be adversely impacted if banks and other lending institutions reduce the amount of funds available for borrowing.

When interest rates are high or financing is otherwise unavailable on a timely basis, our ability to make additional investments will be restricted and we may not be able to adequately

diversify our portfolio.

When interest rates are high or financing is otherwise unavailable on a timely basis, our ability to make additional investments will be restricted and we may not be able to adequately diversify our portfolio.

See Part I, Item 1A.

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Our Board establishes an estimated per share net asset value (“NAV”) of the Company’s common stock for purposes of assisting broker-dealers in meeting their customer account statement reporting obligations under Financial Industry Regulatory Authority (“FINRA”) Rule 2231.

The following table summarizes the estimated per share NAV of our common stock for the periods indicated below:

Valuation Date Period Commencing Period Ending NAV per Share

August 31, 2015 October 1, 2015 November 13, 2016 $ 9.70

September 30, 2016 November 14, 2016 March 27, 2017 $ 9.92

December 31, 2016 March 28, 2017 March 28, 2018 $ 10.08

December 31, 2017 March 29, 2018 March 19, 2019 $ 9.37

December 31, 2018 March 26, 2019 March 29, 2020 $ 8.65

December 31, 2019 March 30, 2020 May 28, 2020 $ 7.77

March 31, 2020 May 29, 2020 August 13, 2020 $ 7.26

June 30, 2020 August 14, 2020 May 25, 2021 $ 7.31

March 31, 2021 May 26, 2021 December 19, 2022 $ 7.20

September 30, 2022 December 21, 2022 — $ 6.57

The historical estimated per share NAV of our common stock approved by the Board are set forth below:

Effective Date of Valuation

NAV per Share

October 1, 2015 $ 9.70

November 14, 2016 $ 9.92

March 28, 2017 $ 10.08

March 29, 2018 $ 9.37

March 26, 2019 $ 8.65

March 30, 2020 $ 7.77

May 29, 2020 $ 7.26

August 14, 2020 $ 7.31

May 26, 2021 $ 7.20

December 21, 2022 $ 6.57

November 14, 2023 $ 6.31

March 1, 2024 $ 6.09

For participants in the DRIP, distributions are reinvested in shares of our common stock under the DRIP at the most recent estimated per share NAV as determined by our Board.

Commencing on December 21, 2022, distributions are reinvested in shares of our common stock under the DRIP at a price of $6.57 per share, the estimated per share NAV as of September 30, 2022, as determined by our Board.

Additionally, $6.57 per share serves as the most recent estimated per share NAV for purposes of the share redemption program.

We have not made any adjustments to the valuation of our estimated per share NAV for the impact of other transactions occurring subsequent to December 19, 2022.

As of December 31, 2023, the estimated per share NAV of our common stock was $6.31, which was established by the Board on November 9, 2023 using a valuation date of September 30, 2023.

Effective on March 1, 2024, the Board established an updated estimated per share NAV of our common stock, using a valuation date of January 31, 2024, of $6.09 per share.

Commencing on March 1, 2024, distributions are reinvested in shares of our common stock under the DRIP at a price of $6.09 per share and $6.09 per share serves as the most recent estimated per share NAV for purposes of the share redemption program.

We have not made any adjustments to the valuation of our estimated per share NAV for the impact of other transactions occurring subsequent to February 29, 2024.

See Part II, Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities — Share Redemption Program in this Annual Report on Form 10-K for a discussion of our share redemption program.

Purchase and Sale Agreement with Realty Income Corporation

On December 29, 2022, certain of our subsidiaries (collectively, the “Seller”) entered into the Realty Income Purchase and Sale Agreement with certain subsidiaries of Realty Income Corporation.

Realty Income is not affiliated with the Seller.

Under the terms of the Realty Income Purchase and Sale Agreement, the Seller agreed to sell to Realty Income 185 single-tenant net lease properties encompassing approximately 4.6 million gross rentable square feet of commercial space across 34 states for total consideration of $894.0 million.

The consideration is to be paid in cash.

During December 2022, a cash deposit of $20.0 million was placed in escrow by Realty Income in connection with the Realty Income Purchase and Sale Agreement, which became non-refundable to Realty Income upon the expiration of the due diligence period on March 7, 2023.

Subsequent to December 31, 2022, the sale of 151 of the properties under contract for sale pursuant to the Realty Income Purchase and Sale Agreement closed for total consideration of $779.0 million and a gain of approximately $19.6 million.

remaining properties are expected to close in the second quarter of 2023, although no assurances can be made that the Company will complete the sale of the remaining properties within that timeframe, or at all.

Conflicts of Interest

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Pursuant to the Management Agreement, in connection with the services provided by our manager, our manager receives a management fee, payable quarterly in arrears, equal to the greater of (a) $250,000 per annum ($62,500 per quarter) and (b) 1.50% per annum (0.375% per quarter) of the Company’s Equity (as defined in the Management Agreement).

period, and (2) 7% per annum, over (b) the sum of any Incentive Compensation paid to our manager with respect to the first three calendar quarters of such previous 12-month period (or such lesser number of completed calendar quarters preceding the applicable period, if applicable).

In addition, our manager shall receive Incentive Compensation (as defined in the Management Agreement), payable with respect to each quarter, which is generally equal to the excess of (a) the product of (i) 20% and (ii) the excess of (A) Core Earnings (as defined in the Management Agreement) of the Company for the previous 12-month period, over (B) the product of (1) the Company’s Consolidated Equity (as defined in the Management Agreement) in the previous 12-month period, and (2) 7% per annum, over (b) the sum of any Incentive Compensation paid to our manager with respect to the first three calendar quarters of such previous 12-month period (or such lesser number of completed calendar quarters preceding the applicable period, if applicable).

In addition, our manager generally shall continue to be entitled to reimbursement for costs and expenses to the extent incurred on behalf of the Company in accordance with the Management Agreement.

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Investment Advisory and Management Agreement.

Pursuant to the Investment Advisory and Management Agreement, our Investment Advisor shall receive an investment advisory fee (the “Investment Advisory Fee”), payable quarterly in arrears, equal to (b) 1.50% per annum (0.375% per quarter) of CMFT Securities’ Equity (as defined in the Investment Advisory and Management Agreement).

In addition, the Investment Advisor is eligible to receive incentive compensation, as described below.

Pursuant to the Investment Advisory and Management Agreement, our Investment Advisor shall receive an investment advisory fee (the “Investment Advisory Fee”), payable quarterly in arrears, equal to 1.50% per annum (0.375% per quarter) of CMFT Securities’ Equity (as defined in the Investment Advisory and Management Agreement).

In addition, the Investment Advisor is eligible to receive incentive compensation, as described

In the event that an Incentive Fee is earned and payable with respect to any quarter under the Management Agreement, our manager will calculate the portion of the Incentive Fee that was attributable to the assets managed by our Investment Advisor and payable to the Investment Advisor.

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We also file registration statements, amendments to our registration statements, and/or supplements to our prospectus in connection with any of our offerings with the SEC.

Copies of our filings with the SEC are available on our sponsor’s website, http://www.cimgroup.com , free of charge.

Copies of our filings

with the SEC are available on our sponsor’s website, http://www.cimgroup.com , free of charge.

The information on our sponsor’s website is not incorporated by reference into this Annual Report on Form 10-K.

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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-K

Item 1. Business