What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-14 compared with 2024-05-15 · 175 added, 106 removed, 320 unchanged (47% of the section changed)

53 unchanged sentences

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 vertically-integrated community-focused real estate and infrastructure owner, operator, lender and developer.

As of March 31, 2024, our loan portfolio consisted of 254 loans with a net book value of $4.1 billion, and 25 investments in CMBS and equity securities of $513.5 million.

The Company expects to conduct its commercial real estate lending business through CLR, a Maryland statutory trust and subsidiary of the Company which we expect to be taxed as a REIT for U.S.

As of June 30, 2024, our loan portfolio consisted of 210 loans with a net book value of $3.8 billion, and 21 investments in CMBS and equity securities of $404.4 million.

The Company conducts and expects to continue to conduct its commercial real estate lending business through CLR, a Maryland statutory trust and subsidiary of the Company which we expect to be taxed as a REIT for U.S.

federal income tax purposes.

As of March 31, 2024, CLR holds a diversified portfolio of approximately $1.6 billion of the Company’s senior secured mortgage loans and commercial mortgage-backed securities.

As of March 31, 2024, we owned 192 properties, which consisted of 179 retail properties, eight office properties, and five industrial properties, representing 17 industry sectors and comprising approximately 6.2 million rentable square feet of

As of June 30, 2024, CLR holds a diversified portfolio of approximately $1.5 billion of the Company’s senior secured mortgage loans and commercial mortgage-backed securities.

As of June 30, 2024, we owned 190 properties, which consisted of 178 retail properties, seven office properties, and five industrial properties, representing 17 industry sectors and comprising approximately 6.0 million rentable square feet of

commercial space located in 36 states, with a net book value of $1.0 billion.

As of March 31, 2024, we owned condominium developments with a net book value of $80.1 million.

During the three months ended March 31, 2024, we did not dispose of any properties, as further discussed in Note 4 — Real Estate Assets to the condensed consolidated financial statements in this Quarterly Report on Form 10-Q.

As of June 30, 2024, we owned condominium developments with a net book value of $70.0 million.

During the six months ended June 30, 2024, we disposed of two properties encompassing approximately 182,000 gross rentable square feet, 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 related 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, 2024, 99.3% of our CMBS and loans held-for-investment by net book 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.

As of June 30, 2024, 99.2% of our CMBS and loans held-for-investment by net book 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 99.9% of our rentable square feet was under lease, including any month-to-month agreements, as of March 31, 2024, with a weighted average remaining lease term of 10.5 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 100.0% of our rentable square feet was under lease, including any month-to-month agreements, as of June 30, 2024, with a weighted average remaining lease term of 10.5 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 three months ended March 31, 2024 have been characterized by a mix of positive and challenging developments leading to continued volatility in global markets.

Investor concerns over inflation, high interest rates, slowing economic growth, political and regulatory uncertainty and geopolitical conditions have persisted.

If inflation and other economic indicators do not meet central banks’ relevant expectations, interest rates could remain higher for longer than expected by market participants and observers, which could create further uncertainty for the economy and our borrowers.

Continued inflation caused the Federal Reserve to raise interest rates in 2022 and 2023, and while the Federal Reserve has left interest rates unchanged since its July 26, 2023 meeting, 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.

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.

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

The six months ended June 30, 2024 have been characterized by a mix of positive and challenging developments leading to continued volatility in global markets.

Investor concerns over inflation, higher interest rates, slowing economic growth, political and regulatory uncertainty and geopolitical conditions have persisted.

Continued inflation caused the Federal Reserve to raise interest rates in 2022 and 2023.

Although the majority of our business model is such that elevated 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.

The Federal Reserve has indicated that it may decrease interest rates in 2024.

In a period of declining interest rates, our interest income on floating-rate investments may generally decrease, subject to the impact of interest rate floors in our investment portfolio

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, 2023 .

Operating Highlights and Key Performance Indicators

Activity from January 1, 2024 through March 31, 2024

Activity from January 1, 2024 through June 30, 2024

Operating Results:

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Real Estate Portfolio Activity:

• Disposed of four condominium units for an aggregate sales price of $13.2 million.

• Disposed of two properties for an aggregate sales price of $53.9 million.

• Disposed of eight condominium units for an aggregate sales price of $27.1 million.

Financing Activity:

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Portfolio Information

The following table shows the net book value of our portfolio by investment type as of March 31, 2024 and 2023 (dollar amounts in thousands):

As of March 31,

The following table shows the net book value of our portfolio by investment type as of June 30, 2024 and 2023 (dollar amounts in thousands):

As of June 30,

Asset Count Net Book Value

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____________________________________

(1) 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 $138.3 million as of March 31, 2024.

Credit Portfolio Information

The following table details overall statistics for our credit portfolio as of March 31, 2024 (dollar amounts in thousands):

The following table details overall statistics for our credit portfolio as of June 30, 2024 (dollar amounts in thousands):

CRE Loans (1)(2)

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____________________________________

(1) As of March 31, 2024, 100% of our loans by principal balance earned a floating rate of interest, primarily indexed to SOFR.

(1) As of June 30, 2024, 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 and assumes all relevant conditions are met for such extensions;

however, our loans and CMBS 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 $138.3 million as of March 31, 2024.

(4) The weighted-average interest rate for variable rate investments is based on the relevant floating benchmark plus a spread.

(5) Includes two tranches of a CMBS position held by the Company that did not mature as anticipated in December 2023 and therefore were in maturity default as of March 31, 2024.

Real Estate Portfolio Information

As of March 31, 2024, we owned 192 properties located in 37 states, the gross rentable square feet of which was 99.9% leased, including any month-to-month agreements, with a weighted average lease term remaining of 10.5 years.

As of March 31, 2024, no single tenant accounted for greater than 10% of our 2024 annualized rental income.

As of March 31, 2024, 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 2024 annualized rental income.

As of June 30, 2024, we owned 190 properties located in 36 states, the gross rentable square feet of which was 100.0% leased, including any month-to-month agreements, with a weighted average lease term remaining of 10.5 years.

As of June 30, 2024, we had certain tenant, geographic and industry concentrations in our property holdings.

As of June 30, 2024, one of the Company’s tenants, CVS, accounted for 10% of our 2024 annualized rental income across 33 properties.

As of June 30, 2024, we had properties located in Ohio, which accounted for 17% of our 2024 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 15%, 12%, and 12%, respectively, of our 2024 annualized rental income.

During the three months ended March 31, 2024, we sold four condominium units for a gross sales price of $13.2 million.

The following table shows the property statistics of our real estate assets as of March 31, 2024 and 2023:

As of March 31,

During the six months ended June 30, 2024, we disposed of two properties for an aggregate gross sales price of $53.9 million as well as eight condominium units for a gross sales price of $27.1 million.

The following table shows the property statistics of our real estate assets as of June 30, 2024 and 2023:

As of June 30,

Number of commercial properties 190 195

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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 months ended March 31, 2024 and 2023 by operating segment (amounts in thousands):

For the Three Months Ended

March 31, 2024 March 31, 2023 Change

The following table compares our summarized results of operations for the three and six months ended June 30, 2024 and 2023 by operating segment (amounts in thousands):

For the Three Months Ended For the Six Months Ended

June 30, 2024 June 30, 2023 Change June 30, 2024 June 30, 2023 Change

Credit Segment $ 98,309 $ 115,038 $ (16,729) $ 208,164 $ 223,121 $ (14,957)

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372,116 144,266 227,850 540,530 254,728 285,802

Other (expense) income:

Other income (expense):

Credit Segment 688 10,068 (9,380) (5,994) 13,397 (19,391)

2 unchanged sentences

4,444 35,421 (30,977) (113) 53,211 (53,324)

Net income (38,542) 54,192 (92,734)

Net (loss) income

(245,801) 31,875 (277,676) (284,343) 86,067 (370,410)

Net income allocated to non-controlling interest

Net income attributable to the Company $ (38,542) $ 54,184 $ (92,726)

Three Months Ended March 31, 2024 Compared to the Three Months Ended March 31, 2023

— — — — 8 (8)

Net (loss) income attributable to the Company

$ (245,801) $ 31,875 $ (277,676) $ (284,343) $ 86,059 $ (370,402)

Three Months Ended June 30, 2024 Compared to the Three Months Ended June 30, 2023

Credit Segment

The increase in our Credit segment revenues of $1.8 million for the three months ended March 31, 2024, as compared to the same period in 2023, was primarily due to increased average index rates during 2024, as well as an increase in the overall size of our investment portfolio.

As of March 31, 2024, we held $4.6 billion in credit investments compared to $4.5 billion in credit investments as of March 31, 2023.

The increase was partially offset by the suspension of interest income on our risk-rated 5 loans placed on nonaccrual status subsequent to March 31, 2023.

Our Credit segment revenues decreased $16.7 million for the three months ended June 30, 2024, as compared to the same period in 2023.

The decrease was primarily due to the suspension of interest income on three of our risk-rated 5 first mortgage loans with a carrying value of $436.1 million that were placed on nonaccrual status subsequent to June 30, 2023, as well as a decrease in the overall size of our investment portfolio during the three months ended June 30, 2024 as compared to the same period in 2023.

As of June 30, 2024, we held credit investments with an outstanding principal balance of $4.8 billion compared to credit investments with an outstanding principal balance of $5.0 billion as of June 30, 2023.

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 $72.5 million for the three months ended March 31, 2024, as compared to the same period in 2023, was primarily due to a $65.7 million increase in the provision for credit losses during the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, driven by a net increase in the asset-specific credit loss provision of $70.3 million on funded amounts during the three months ended March 31, 2024.

The increase in our Credit segment expenses of $169.5 million for the three months ended June 30, 2024, as compared to the same period in 2023, was primarily due to a $167.3 million increase in the provision for credit losses during the three months ended June 30, 2024, as compared to the three months ended June 30, 2023, primarily due to the asset-specific credit loss provision of $197.1 million on funded and unfunded commitments recognized on eight of the Company’s first mortgage loan investments during the three months ended June 30,

2024, as a result of the increased risk of potential principal loss and as collateral performance was deemed to be worse than underwriting.

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

The decrease in our Credit segment other income of $9.4 million during the three months ended June 30, 2024, as compared to the same period in 2023, was primarily due to recognizing a $4.2 million unrealized loss on equity securities during the three months ended June 30, 2024, as compared to a $3.1 million unrealized gain on equity securities for the same period in 2023.

The change was further driven by a $3.1 million decrease in gain on investment in unconsolidated entities during the three months ended June 30, 2024, as compared to the same period in 2023.

Real Estate Segment

The decrease in our Real Estate segment revenues of $2.1 million for the three months ended June 30, 2024, as compared to the same period in 2023, was primarily due to the disposition of five properties subsequent to June 30, 2023.

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

The increase in our Real Estate segment expenses of $51.9 million for the three months ended June 30, 2024, as compared to the same period in 2023, was primarily due to an increase in impairment charges of $51.5 million for the three months ended June 30, 2024, as compared to the same period in 2023, as there were no properties deemed to be impaired during the three months ended June 30, 2023, compared to seven properties that were deemed to be impaired during the three months ended June 30, 2024, due to sales prices or revised cash flow estimates that were less than their respective carrying values.

The increase was partially offset by the disposition of five properties subsequent to June 30, 2023.

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

Other income 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 $21.8 million for the three months ended June 30, 2024, as compared to the same period in 2023, was primarily due to the disposition of two properties resulting in no gain or loss during the three months ended June 30, 2024, compared to the disposition of 33 properties resulting in a net gain of $24.3 million during the three months ended June 30, 2023.

The decrease was partially offset due to $2.4 million of unrealized loss on interest rate caps included in other income, net on the condensed consolidated statements of operations for the three months ended June 30, 2023.

Corporate and Other

Our corporate revenues, which consist primarily of rental income from our condominium and rental units acquired via foreclosure, decreased $22,000 during the three months ended June 30, 2024 as compared to the same period in 2023, primarily due to one-time credits issued to rental tenants during the three months ended June 30, 2024 in relation to overpayments of rent.

Our corporate expenses consist primarily of general and administrative expenses, expense reimbursements to related parties, interest expense, net related to our credit facilities, and property operating expenses related to our condominium and rental units acquired via foreclosure.

The increase in corporate expenses of $6.5 million during the three months ended June 30, 2024 as compared to the same period in 2023, was partially due to $5.5 million in impairment charges related to condominium units during the three months ended June 30, 2024.

The increase was further driven by an increase of $1.7 million in general and administrative expenses during the three months ended June 30, 2024 as compared to the same period in 2023, primarily in connection with restricted stock unit related expenses recorded during the three months ended June 30, 2024.

The increase in corporate other income of $232,000 during the three months ended June 30, 2024, as compared to the same period in 2023, was primarily due to $870,000 in loss on extinguishment of debt recognized during the three months ended

June 30, 2023, driven by the partial paydown of the Assumed Variable Rate Debt during the three months ended June 30, 2023.

The increase was further driven by the disposition of four condominium units resulting in a net gain of $2.5 million during the three months ended June 30, 2024, compared to the disposition of nine condominium units for a gain of $2.3 million for the three months ended June 30, 2023.

The increase was partially offset by a decrease in other income, net of $828,000 primarily due to a decrease in interest income generated by decreased short-term liquid investments included in cash and cash equivalents on the condensed consolidated balance sheets during the three months ended June 30, 2024, as compared to the same period in 2023.

Six Months Ended June 30, 2024 Compared to the Six Months Ended June 30, 2023

Credit Segment

Our Credit segment revenues decreased $15.0 million for the six months ended June 30, 2024, as compared to the same period in 2023.

The decrease was primarily due to the suspension of interest income on three of our risk-rated 5 first mortgage loans with a carrying value of $436.1 million that were placed on nonaccrual status subsequent to June 30, 2023, as well as a decrease in the overall size of our investment portfolio during the six months ended June 30, 2024 as compared to the same period in 2023.

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 $242.8 million for the six months ended June 30, 2024, as compared to the same period in 2023, was primarily due to a $232.9 million increase in the provision for credit losses during the six months ended June 30, 2024, as compared to the six months ended June 30, 2023, primarily due to the asset-specific credit loss provision of $274.4 million on funded and unfunded commitments recognized on eight of the Company’s first mortgage loan investments during the six months ended June 30, 2024, as a result of the increased risk of potential principal loss and as collateral performance was deemed to be worse than underwriting.

The increase was further driven by a $7.8 million increase in interest expense primarily due to higher average index rates during 2024.

Other (Expense) Income

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

The decrease in our Credit segment other (expense) income of $10.0 million during the three months ended March 31, 2024, as compared to the same period in 2023, was primarily due to recognizing an $11.4 million unrealized loss on equity securities during the three months ended March 31, 2024, as compared to a $2.3 million unrealized gain on equity securities for the same period in 2023.

The change was partially offset by the recognition of a $2.5 million gain on investment in unconsolidated entities during the three months ended March 31, 2024, as compared to a $770,000 loss on investment in unconsolidated entities for the same period in 2023.

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

The decrease in our Credit segment other (expense) income of $19.4 million during the six months ended June 30, 2024, as compared to the same period in 2023, was primarily due to recognizing a $15.6 million unrealized loss on equity securities during the six months ended June 30, 2024, as compared to a $5.4 million unrealized gain on equity securities for the same period in 2023.

The change was partially offset by a $1.4 million increase in other income, net during the six months ended June 30, 2024, as compared to the same period in 2023, primarily related to increased interest income generated by short-term liquid investments included in cash and cash equivalents on the condensed consolidated balance sheets.

Real Estate Segment

The decrease in our Real Estate segment revenues of $14.3 million for the three months ended March 31, 2024, as compared to the same period in 2023, was primarily due to the disposition of 36 properties subsequent to March 31, 2023.

The decrease in our Real Estate segment revenues of $16.4 million for the six months ended June 30, 2024, as compared to the same period in 2023, was primarily due to the disposition of five properties subsequent to June 30, 2023.

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 $14.8 million for the three months ended March 31, 2024, as compared to the same period in 2023, was primarily due to the disposition of 36 properties subsequent to March 31, 2023.

The increase in our Real Estate segment expenses of $37.0 million for the six months ended June 30, 2024, as compared to the same period in 2023, was primarily due to the increase in impairment charges of $46.7 million, as there were seven properties deemed to be impaired during the six months ended June 30, 2024, due to sales prices or revised cash flow estimates that were less than their respective carrying values, resulting in impairment charges of $51.5 million, compared to one property that was deemed to be impaired during the six months ended June 30, 2023, due to sales prices or revised cash flow estimates that was less than its respective carrying value, resulting in impairment charges of $4.8 million.

The increase was partially offset by the disposition of five properties subsequent to June 30, 2023.

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

The decrease was also driven by a decrease in impairment charges of $4.8 million for the three months ended March 31, 2024, as compared to the same period in 2023, as there were no properties deemed to be impaired during the three months ended March 31, 2024, compared to one property that was deemed to be impaired during the three months ended March 31, 2023, resulting in impairment charges of $4.8 million.

Other income 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 $16.5 million for the three months ended March 31, 2024, as compared to the same period in 2023, was primarily due to no properties being disposed of during the three months ended March 31, 2024, compared to the disposition of 152 properties resulting in a net gain of $19.6 million during the three months ended March 31, 2023.

The decrease was partially offset due to $1.9 million of unrealized loss on interest rate caps included in other income, net on the condensed consolidated statements of operations for the three months ended March 31, 2023.

The decrease was further offset by $1.2 million of loss on extinguishment of debt recognized during the three months ended March 31, 2023, driven by the termination of certain mortgage loans in connection with the disposition of the underlying properties.

Other (expense) income 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 $38.3 million for the six months ended June 30, 2024, as compared to the same period in 2023, was primarily due to the disposition of two properties resulting in no gain or loss during the six months ended June 30, 2024, compared to the disposition of 185 properties resulting in a net gain of $43.8 million during the six months ended June 30, 2023.

The decrease was partially offset due to $4.2 million of unrealized loss on interest rate caps included in other income, net on the condensed consolidated statements of operations for the six months ended June 30, 2023.

Corporate and Other

Our corporate revenues, which consist primarily of rental income from our condominium and rental units acquired via foreclosure, increased $51,000 during the three months ended March 31, 2024 as compared to the same period in 2023, primarily due to rental credits issued to tenants during the three months ended March 31, 2023 in relation to ongoing onsite condominium and rental unit construction.

Our corporate revenues, which consist primarily of rental income from our condominium and rental units acquired via foreclosure, increased $29,000 during the six months ended June 30, 2024 as compared to the same period in 2023, primarily due to rental credits issued to tenants during the six months ended June 30, 2023 in relation to ongoing onsite condominium and rental unit construction.

The increase in corporate expenses of $276,000 during the three months ended March 31, 2024 as compared to the same period in 2023, was partially due to an increase in property operating expenses of $2.1 million, primarily driven by increased condominium-related legal fees during the three months ended March 31, 2024 as compared to the same period in 2023.

The change was also driven by an increase of $2.1 million in general and administrative expenses during the three months ended March 31, 2024 as compared to the same period in 2023, primarily in connection with restricted stock unit related expense recorded during the three months ended March 31, 2024 as compared to the same period in 2023.

The increase was partially offset by a decrease in interest expense, net of $4.1 million during the three months ended March 31, 2024 as compared to the same period in 2023, driven by the pay down and termination of the credit agreement with JPMorgan Chase Bank, N.A.

The increase in corporate expenses of $6.0 million during the six months ended June 30, 2024 as compared to the same period in 2023, was partially due to $5.5 million in impairment charges related to condominium units during the six months ended June 30, 2024.

There were no impairments related to condominium units during the six months ended June 30, 2023.

The increase was further driven by an increase of general and administrative expenses of $3.8 million, primarily in connection with restricted stock unit expenses recorded during the six months ended June 30, 2024 as well as a $1.8 million increase in property operating expenses during the six months ended June 30, 2024 as compared to the same period in 2023, primarily driven by increased condominium-related legal fees during the six months ended June 30, 2024 as compared to the same period in 2023.

The increase was partially offset by a $4.4 million decrease in interest expense, net driven by the pay down and termination of the credit agreement with JPMorgan Chase Bank, N.A.

and PNC Bank, N.A.

(the “CMFT Credit Facility”) during the three months ended March 31, 2023.

Other Income (Expense)

The increase in corporate other income (expense) of $4.1 million during the three months ended March 31, 2024, as compared to the same period in 2023, was primarily due to $2.5 million in loss on extinguishment of debt recognized during the three months ended March 31, 2023, driven by the paydown and termination of the CMFT Credit Facility.

The increase was further driven by an increase in other income, net of $952,000 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 March 31, 2024, as compared to the same period in 2023.

The increase was also driven by the disposition of four condominium units resulting in a net gain of $782,000 during the three months ended March 31, 2024, compared to the disposition of one condominium unit for a gain of $60,000 for the three months ended March 31, 2023.

(the “CMFT Credit Facility”) during the six months ended June 30, 2023 and the paydown and termination of the Assumed Variable Rate Debt subsequent to June 30, 2023.

The increase in corporate other income of $4.4 million during the six months ended June 30, 2024 as compared to the same period in 2023, was primarily due to $3.3 million in loss on extinguishment of debt recognized during the six months ended June 30, 2023 driven by the paydown and termination of the CMFT Credit Facility and the partial paydown of the Assumed Variable Rate Debt during the six months ended June 30, 2023.

The increase was further driven by the disposition of eight condominium units resulting in a net gain of $3.3 million during the six months ended June 30, 2024, compared to the disposition of 10 condominium units resulting in a net gain of $2.3 million during the six months ended June 30, 2023.

Same Store Analysis

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Our calculation of net operating income may not be comparable to that of other REITs and should not be considered to be more relevant or accurate in evaluating our operating performance than the current GAAP methodology used in calculating net (loss) 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, 2024 and 2023

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, 2024 and 2023

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 March 31,

For the Three Months Ended June 30,

2024 2023 Change

Net income $ 5,804 $ 21,743 $ (15,939)

Net (loss) income

$ (45,854) $ 29,923 $ (75,777)

Loss on extinguishment of debt — 24 (24)

2 unchanged sentences

Gain on disposition of real estate and condominium developments, net

— (24,285) 24,285

Real estate impairment 51,469 — 51,469

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Net operating income $ 21,894 $ 23,499 $ (1,605)

A total of 192 properties were acquired before January 1, 2023 and represent our “same store” properties during the three months ended March 31, 2024 and 2023.

A total of 190 properties were acquired before April 1, 2023 and represent our “same store” properties during the three months ended June 30, 2024 and 2023.

“Non-same store” properties, for purposes of the table below, includes properties acquired or disposed of on or after April 1, 2023.

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,

2024 2023 Change 2024 2023 Change 2024 2023 Change

Rental and other property income $ 23,492 $ 25,590 $ (2,098) $ 23,090 $ 22,755 $ 335 $ 402 $ 2,835 $ (2,433)

Property operating expenses 765 1,201 (436) 826 791 35 (61) 410 (471)

Real estate tax expenses 833 890 (57) 832 818 14 1 72 (71)

Total property operating expenses 1,598 2,091 (493) 1,658 1,609 49 (60) 482 (542)

Net operating income

$ 21,894 $ 23,499 $ (1,605) $ 21,432 $ 21,146 $ 286 $ 462 $ 2,353 $ (1,891)

Net Operating Income

Same store property net operating income remained relatively consistent during the three months ended June 30, 2024, as compared to the same period in 2023.

Non-same store property net operating income decreased $1.9 million during the three months ended June 30, 2024, as compared to the same period in 2023.

The decrease was primarily due to the disposition of five properties subsequent to June 30, 2023.

Comparison of the Six Months Ended June 30, 2024 and 2023

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

For the Six Months Ended June 30,

2024 2023 Change

Net (loss) income

$ (40,050) $ 51,663 $ (91,713)

Loss on extinguishment of debt — 1,195 (1,195)

Other (expense) income, net

(148) 4,192 (4,340)

Gain on disposition of real estate and condominium developments, net

— (43,845) 43,845

Real estate impairment 51,469 4,814 46,655

Depreciation and amortization 16,939 24,429 (7,490)

Transaction-related expenses — 25 (25)

Management fees 4,172 5,891 (1,719)

General and administrative expenses 245 422 (177)

Interest expense, net 11,622 11,316 306

Net operating income $ 44,249 $ 60,102 $ (15,853)

A total of 190 properties were acquired before January 1, 2023 and represent our “same store” properties during the six months ended June 30, 2024 and 2023.

“Non-same store” properties, for purposes of the table below, includes properties acquired or disposed of on or after January 1, 2023.

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 Three Months Ended March 31,

For the Six Months Ended June 30,

2024 2023 Change 2024 2023 Change 2024 2023 Change

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Real estate tax expenses

1,874 1,315 559 1,771 1,687 84 103 (372) 475

Total property operating expenses 3,700 4,203 (503) 3,518 3,212 306 182 991 (809)

Net operating income (loss)

Net operating income

$ 44,249 $ 60,102 $ (15,853) $ 42,769 $ 42,506 $ 263 $ 1,480 $ 17,596 $ (16,116)

Net Operating Income

Same store property net operating income remained relatively consistent during the three months ended March 31, 2024, as compared to the same period in 2023.

Non-same store property net operating income decreased $14.3 million during the three months ended March 31, 2024, as compared to the same period in 2023.

The decrease was primarily due to the disposition of 36 properties subsequent to March 31, 2023.

Same store property net operating income remained relatively consistent during the six months ended June 30, 2024, as compared to the same period in 2023.

Non-same store property net operating income decreased $16.1 million during the six months ended June 30, 2024, as compared to the same period in 2023.

The decrease was primarily due to the disposition of five properties subsequent to June 30, 2023.

Distributions

Our Board authorizes 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, 2023 and the three months ended March 31, 2024 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, 2023 and the six months ended June 30, 2024 for the periods indicated below:

Period Commencing Period Ending Monthly Distribution Amount

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October 2023 December 2023 $0.0367

January 2024 September 2024 $0.0375

As of March 31, 2024, we had distributions payable of $16.5 million.

January 2024 December 2024 $0.0375

As of June 30, 2024, we had distributions payable of $16.6 million.

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

Three Months Ended March 31,

Six Months Ended June 30,

Amount Percent Amount Percent

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____________________________________

(1) Net cash provided by operating activities for the three months ended March 31, 2024 and 2023 was $50.7 million and $65.1 million, respectively.

(1) Net cash provided by operating activities for the six months ended June 30, 2024 and 2023 was $86.1 million and $110.1 million, respectively.

(2) Our distributions covered by cash flows for the six months ended June 30, 2024 include cash flows from operating activities in excess of distributions from prior periods of $11.9 million.

We have paid, and may continue to pay, some of our distributions from sources other than cash flows from operations, including proceeds from asset sales, proceeds from loan repayments, and borrowings.

Distributions at any point in time may not reflect the current performance of our assets or our current operating cash flows.

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.

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.

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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 three months ended March 31, 2024, we received valid redemption requests under our share redemption program totaling approximately 32.1 million shares, of which we redeemed approximately 1.8 million shares subsequent to March 31, 2024 for $11.2 million (at a redemption price of $6.09 per share).

During the six months ended June 30, 2024, we received valid redemption requests under our share redemption program totaling approximately 69.0 million shares, of which we redeemed approximately 1.9 million shares as of June 30, 2024 for $11.5 million (at an average redemption price of $6.10 per share) and approximately 1.7 million shares subsequent to June 30, 2024 for $10.6 million (at an average redemption price of $6.09 per share).

The remaining redemption requests relating to 65.4 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):

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

Cash and cash equivalents $ 425,831 $ 247,500

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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 March 31, 2024 (in thousands):

The following table details our outstanding financing arrangements and borrowing capacity as of June 30, 2024 (in thousands):

Portfolio Financing Outstanding Principal Balance Maximum Capacity (1)

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The following table compares the average amount outstanding under our Repurchase Facilities during each quarter and the amount outstanding as of the end of each quarter, together with an explanation of significant variances (amounts in thousands):

Quarter Ended

Quarter-End Balance

Weighted-Average Balance During Quarter

Quarter Ended Quarter-End Balance Weighted-Average Balance During Quarter Variance

December 31, 2023 $ 2,067,264 $ 2,212,706 $ (145,442) (1)

March 31, 2024 $ 2,028,944 $ 2,065,339 $ (36,395)

June 30, 2024 $ 1,929,204 $ 1,975,822 $ (46,618)

____________________________________

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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 $547.9 million within the next 12 months, $130.5 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.

As of March 31, 2024, we had unfunded commitments of $218.9 million related to 34 loans and unfunded commitments of $76.7 million related to the NewPoint JV.

As of June 30, 2024, we had unfunded commitments of $232.5 million related to 34 loans and unfunded commitments of $61.9 million related to the NewPoint JV.

Loan funding commitments are generally subject to certain conditions and the satisfaction of borrower milestones.

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We expect to fund our loan commitments over the remaining term of the related loans, which have a weighted-average future funding period of 2.7 years.

unsecured borrowings from banks and other lenders to finance our future acquisitions and loan originations, repayment of certain indebtedness and for general corporate uses.

Generally, we expect to meet our liquidity requirements through net cash provided by operations, cash proceeds from the sale of credit investments, principal payments received on credit investments, cash proceeds from real estate asset dispositions, proceeds from the Secondary DRIP Offering, proceeds from the sale of subsidiary equity, distributions, as well as secured or unsecured borrowings from banks and other lenders to finance our future acquisitions and loan originations, repayment of certain indebtedness and for general corporate uses.

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;

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Contractual Obligations

As of March 31, 2024, we had debt outstanding with a carrying value of $3.9 billion and a weighted average interest rate of 6.3%.

As of June 30, 2024, we had debt outstanding with a carrying value of $3.8 billion and a weighted average interest rate of 6.3%.

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

Our contractual obligations as of March 31, 2024 were as follows (in thousands):

Our contractual obligations as of June 30, 2024 were as follows (in thousands):

Payments due by period (1)

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

(2) Comprised of our off-balance sheet unfunded loan commitments to provide additional CRE loan, corporate senior loan and liquid corporate senior loan financing as of March 31, 2024.

(2) Comprised of our off-balance sheet unfunded loan commitments to provide additional CRE loan, corporate senior loan and liquid corporate senior loan financing as of June 30, 2024.

The allocation of our unfunded loan commitments is based on the earlier of the commitment expiration date or the final maturity date;

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This table does not include $61.9 million of unfunded commitments related to the NewPoint JV.

(3) Interest payments on the variable rate debt, credit facilities and repurchase facilities have been calculated based on outstanding balances as of March 31, 2024 through their respective maturity dates.

(3) Interest payments on the variable rate debt, credit facilities and repurchase facilities have been calculated based on outstanding balances as of June 30, 2024 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 March 31, 2024, our ratio of debt to total gross assets net of gross intangible lease liabilities was 64.2%.

As of June 30, 2024, our ratio of debt to total gross assets net of gross intangible lease liabilities was 68.5%.

Cash Flow Analysis

Operating Activities.

Net cash provided by operating activities decreased by $14.4 million for the three months ended March 31, 2024, as compared to the same period in 2023.

The decrease was primarily due to the disposition of 36 properties subsequent to March 31, 2023.

The decrease was partially offset by net increases in credit investments of $171.2 million coupled with an increase in interest rates driving higher interest income for the three months ended March 31, 2024, as compared to the same period in 2023.

Net cash provided by operating activities decreased by $23.9 million for the six months ended June 30, 2024, as compared to the same period in 2023.

The decrease was primarily due to decreased interest income of $12.6 million as a result of our three first mortgage loans being placed on nonaccrual status subsequent to June 30, 2023, along with the disposition of five properties and net decreases in credit investments of $154.1 million subsequent to June 30, 2023.

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

Investing Activities.

For the three months ended March 31, 2024, net cash provided by investing activities decreased by $806.9 million, as compared to the same period in 2023.

The change was primarily due to a decrease in net proceeds from the disposition of real estate assets and condominium units of $764.6 million as the Company disposed of four condominium units

during the three months ended March 31, 2024, as compared to 152 properties and one condominium unit during the same period in 2023.

The change was further driven by a decrease in net proceeds from real estate-related securities of $36.3 million.

For the six months ended June 30, 2024, net cash provided by investing activities decreased by $384.7 million, as compared to the same period in 2023.

The change was primarily due to a decrease in net proceeds from the disposition of real estate assets and condominium units of $849.8 million as the Company disposed of two properties and eight condominium units during the six months ended June 30, 2024, as compared to 185 properties and 10 condominium units disposed of during the same period in 2023.

The change was offset by $96.2 million of net proceeds from real estate-related securities during the six months ended June 30, 2024, as compared to the $89.6 million net investment in real estate-related securities during the six months ended June 30, 2023.

The change was further offset by $189.5 million of net proceeds from loans held-for-investment during the six months ended June 30, 2024, as compared to the $114.8 million net investment in loans held-for-investment during the six months ended June 30, 2023.

Financing Activities.

For the three months ended March 31, 2024, net cash used in financing activities decreased by $429.1 million, as compared to the same period in 2023.

For the six months ended June 30, 2024, net cash used in financing activities decreased by $285.2 million, as compared to the same period in 2023.

The change was primarily due to a decrease in net repayments on the repurchase facilities, notes payable and credit facilities of $289.5 million.

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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.

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

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.

Additionally, one of our directors, Jason Schreiber, is an employee of CIM Group.

Additionally, one of our

directors, Jason Schreiber, is an employee of CIM Group.

DeBacker, our chief financial officer, principal accounting officer and treasurer, is an employee of CIM and a vice president of our manager, and is an officer of certain of its affiliates.

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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