CIM GROUP, INC. 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our accompanying consolidated financial statements and notes thereto. See also the Cautionary Note Regarding Forward-Looking Statements section preceding Part I of this Annual Report on Form 10-K. For a comparison of the years ended December 31, 2023 and 2022, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Company’s Annual Report on Form 10-K for the year ended December 31, 202 3 . 58 Table of Contents Overview We are a non-traded REIT that seeks 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. Our investment strategy allows us to adapt over time in order to respond to evolving market conditions and to capitalize on investment opportunities that may arise at different points in the economic and real estate investment cycle. Subject to market conditions, we expect to pursue a listing of our common stock on a national securities exchange at such time as our Board determines that such a listing would be in the best interests of our stockholders, though we can provide no assurance that a listing will happen in a particular timeframe or at all. We were formed on July 27, 2010, and we elected to be taxed, and conduct our operations to qualify, as a REIT for U.S. federal income tax purposes. We are externally managed by CMFT Management and, with respect to investments in securities and certain other investments of ours, 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 December 31, 2024, our loan portfolio consisted of 68 loans with a net book value of $3.4 billion, and investments in real estate-related securities of $345.8 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 December 31, 2024 , CLR holds a diversified portfolio of approximately $1.5 billion, which includes first mortgage loans with a net book value of $1.05 billion, CMBS with an estimated fair value of $241.3 million, and an investment in the Unconsolidated Joint Venture (as defined in Note 2 — Summary of Significant Accounting Policies — Investment in Unconsolidated Entities to the consolidated financial statements in this Annual Report on Form 10-K) with a carrying value of $171.8 million. As of December 31, 2024, we owned 187 commercial real estate properties, which consisted of 176 retail properties, seven office properties, and four industrial properties, representing 16 industry sectors and comprising approximately 5.8 million rentable square feet of commercial space located in 36 states, with a net book value of $983.3 million. As of December 31, 2024, we owned condominium developments with a net book value of $64.9 million. During the year ended December 31, 2024, we disposed of seven properties encompassing 430,000 gross rentable square feet, and 11 condominium units for total consideration of $128.0 million, as further discussed in Note 4 — Real Estate Assets to the consolidated financial statements in this Annual Report on Form 10-K. 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 other operating 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 December 31, 2024, 95.1% of our CMBS and loans held-for-investment by carrying value earned a floating rate of interest, indexed to Secured Overnight Financing Rate (“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 100.0% of our rentable square feet was under lease, including any month-to-month agreements, as of December 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. Our manager regularly monitors the creditworthiness of our tenants by reviewing each tenant’s financial results, any available credit rating agency reports on the tenant or guarantor, the operating history of the property with such tenant, the tenant’s market share and track record within its industry segment, the general health and outlook of the tenant’s industry segment and other information for changes and possible trends. If our manager identifies significant changes or trends that may adversely affect the creditworthiness of a tenant, it will gather a more in-depth knowledge of the tenant’s financial condition and, if necessary, attempt to mitigate the tenant credit risk by evaluating the possible sale of the property or identifying a possible replacement tenant should the current tenant fail to perform on the lease. Recent Developments Macroeconomic Environment The year 2024 was 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. 59 Table of Contents Heightened 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 the ability of our existing borrowers to pay debt service, tenants and property values of our own portfolio and the assets that serve as collateral for our loans. The Federal Reserve began to decrease interest rates in the second half of 2024 and has indicated that it may continue to decrease interest rates in 2025. 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. In addition, the U.S. office sector has been adversely affected by the increase in remote working arrangements and, over the past several years, the retail sector has been adversely affected by electronic commerce. These negative factors have been considered in the determination of our CECL allowance. We may be required to record further increases to our current expected credit loss reserves in the future, depending on the performance of our portfolio and broader market conditions, and there may be volatility in the level of our CECL reserves, particularly if market conditions relevant to the office sector do not improve. Any such reserve increases are difficult to predict. Operating Highlights and Key Performance Indicators 2024 Activity Operating Results: • Net loss attributable to the Company of $292.3 million, or $0.67 per share. • Redeemed 7.3 million shares under the share redemption program for $45.0 million at an average price of $6.15 per share. • Declared aggregate distributions of $0.45 per share. Credit Portfolio Investment Activity: • Originated $77.1 million of first mortgage loans. • Funded $85.8 million in existing first mortgage loans. • Invested $65.4 million in liquid corporate senior loans and sold liquid corporate senior loans for an aggregate gross sales price of $452.9 million, including $265.4 million as part of the Master Participation Agreement (as defined in Note 13 — Related-Party Transactions and Arrangements to the consolidated financial statements in this Annual Report on Form 10-K). The liquid corporate senior loans served as the initial positions for the formation of a CLO, in which we invested $27.6 million in a CLO subordinated note. • Invested $78.7 million in corporate senior loans. • Received principal repayments on loans held-for-investment of $479.2 million. • Invested $24.9 million in CMBS, received principal repayments on CMBS of $107.4 million and sold CMBS for an aggregate gross sales price of $31.1 million. • Funded an additional $58.7 million in NP JV Holdings (as defined in Note 2 — Summary of Significant Accounting Policies to the consolidated financial statements in this Annual Report on Form 10-K). Real Estate Portfolio Investment Activity: • Acquired two properties for an aggregate purchase price of $44.1 million. • Disposed of seven properties for an aggregate sales price of $90.6 million. • Disposed of 11 condominium units for an aggregate sales price of $37.4 million. Financing Activity: • Decreased total debt by $756.5 million, reducing our ratio of debt to total gross assets net of gross intangible lease liabilities to 62.6%. 60 Table of Contents Portfolio Information The following table shows the net book value of our portfolio by investment type as of December 31, 2024 and 2023 (dollar amounts in thousands): As of December 31, 2024 2023 Asset Count Net Book Value Asset Count Net Book Value Loan Held-For-Investment First mortgage loans 33 $ 3,466,929 72.7 % 33 $ 3,648,351 61.0 % Liquid corporate senior loans 15 41,467 0.9 % 237 537,990 9.0 % Corporate senior loans 20 254,617 5.3 % 21 210,722 3.5 % Less: Current expected credit losses (392,136) (8.2) % (132,598) (2.2) % Total loans held-for-investment and related receivable, net 68 3,370,877 70.7 % 291 4,264,465 71.3 % Real Estate-Related Securities and Other CMBS 16 396,819 8.3 % 22 512,523 8.6 % CLO subordinated note 1 26,901 0.6 % — — — % Equity securities 4 32,170 0.7 % 1 42,999 0.7 % Less: Current expected credit losses (110,062) (2.3) % (35,808) (0.6) % Total real estate-related securities and other, net 21 345,828 7.3 % 23 519,714 8.7 % Real Estate Total real estate assets and intangible lease liabilities, net 187 1,048,194 22.0 % 192 1,195,276 20.0 % Total Investment Portfolio (1)(2) 271 $ 4,764,899 100.0 % 506 $ 5,979,455 100.0 % ____________________________________ (1) Table does not include our investment in the Unconsolidated Joint Venture (as defined in Note 2 — Summary of Significant Accounting Policies to the consolidated financial statements in this Annual Report on Form 10-K), which had a carrying value of $181.4 million, $171.8 million of which is held through CLR as of December 31, 2024. (2) As of December 31, 2024, first mortgage loans with a net book value of $1.05 billion and CMBS with an estimated fair value of $241.3 million were held through CLR. Credit Portfolio Information The following table details overall statistics for our credit portfolio as of December 31, 2024 (dollar amounts in thousands): CRE Loans (1)(2) Liquid Corporate Senior Loans Real Estate Related Securities and Other (2) Corporate Senior Loans Number of investments (3) 33 15 21 20 Principal balance $ 3,483,454 $ 42,717 $ 596,700 $ 258,816 Net book value $ 3,085,104 $ 35,653 $ 345,828 $ 250,120 Unfunded loan commitments $ 217,907 $ — — $ 43,750 Weighted-average interest rate (4) 7.7 % 9.9 % 7.9 % 10.5 % Weighted-average maximum years to maturity 2.3 3.7 5.0 3.5 ____________________________________ (1) As of December 31, 2024, 95.5% of our loans by principal balance earned a floating rate of interest indexed to SOFR. (2) Maximum maturity date assumes all extension options are exercised by the borrowers and assumes all relevant conditions are met for such extensions; however, our loans and CMBS may be repaid prior to such date. 61 Table of Contents (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 consolidated financial statements in this Annual Report on Form 10-K), which had a carrying value of $181.4 million as of December 31, 2024. (4) The weighted-average interest rate for variable rate investments is based on the relevant floating benchmark plus a spread. As of December 31, 2024, our CRE loans had the following characteristics based on carrying values (dollar amounts in thousands): Collateral Property Type As of December 31, 2024 Office $ 1,779,324 51.2 % Multifamily 1,023,514 29.5 % Industrial 331,269 9.6 % Hospitality 137,541 4.0 % Mixed Use 69,786 2.0 % Retail 64,677 1.9 % Self-Storage 60,818 1.8 % Total first mortgage loans $ 3,466,929 100.0 % Less: current expected credit losses (381,825) Total first mortgage loans, net $ 3,085,104 Geographic Location As of December 31, 2024 South $ 1,350,617 38.9 % West 1,009,262 29.1 % East 795,688 23.0 % Various 311,362 9.0 % Total first mortgage loans $ 3,466,929 100.0 % Less: current expected credit losses (381,825) Total first mortgage loans, net $ 3,085,104 Real Estate Portfolio Information As of December 31, 2024, we owned 187 commercial real estate 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. During the year ended December 31, 2024, we disposed of seven properties for an aggregate gross sales price of $90.6 million. Additionally, during the year ended December 31, 2024, we sold 11 condominium units for an aggregate gross sales price of $37.4 million. The following table shows the property statistics of our real estate assets as of December 31, 2024 and 2023: As of December 31, 2024 2023 Number of commercial properties 187 192 Rentable square feet (in thousands) (1) 5,821 6,153 Percentage of rentable square feet leased 100.0 % 99.9 % Percentage of investment-grade tenants (2) 30.8 % 33.8 % ____________________________________ (1) Includes square feet of buildings on land parcels subject to ground leases. (2) Investment-grade tenants are those with a credit rating of BBB- or higher by Standard & Poor’s Financial Services LLC (“Standard & Poor’s”) or a credit rating of Baa3 or higher by Moody’s Investor Service, Inc. (“Moody’s”). The ratings may reflect those assigned by Standard & Poor’s or Moody’s to the lease guarantor or the parent company, as applicable. The weighted average credit rating is weighted based on annualized rental income and is for only those tenants rated by Standard & Poor’s. 62 Table of Contents The following table summarizes our real estate acquisition activity during the year ended December 31, 2024. No properties were acquired during the year ended December 31, 2023. As of December 31, 2024 Commercial properties acquired 2 Purchase price of acquired properties (in thousands) $ 44,148 Rentable square feet (in thousands) 105 The following table shows the tenant diversification of our real estate portfolio, based on annualized rental income, as of December 31, 2024: 2024 2024 Percentage of Total Leased Annualized Annualized 2024 Number Square Feet Rental Income Rental Income Annualized Tenant of Leases (1) (in thousands) (2) (in thousands) per Square Foot (2) Rental Income CVS 33 421 $ 8,852 $ 21.03 10 % Cabela’s 1 403 7,198 17.86 8 % United Oil 2 38 6,508 171.26 8 % Lowe’s 8 1,073 6,321 5.89 7 % Walgreens 11 162 3,884 23.98 5 % BJ's Wholesale Club, Inc. 2 225 3,270 14.53 4 % Valvoline Oil Change 1 162 3,060 18.89 4 % Tractor Supply 11 213 2,892 13.58 3 % Bob Evans 2 76 2,826 37.18 3 % AAA 1 120 2,811 23.43 3 % Other 61 2,928 38,668 13.21 45 % 133 5,821 $ 86,290 $ 14.82 100 % ____________________________________ (1) Includes leases which are master lease agreements. (2) Includes square feet of the buildings on land parcels subject to ground leases. 63 Table of Contents The following table shows the tenant industry diversification of our real estate portfolio, based on annualized rental income, as of December 31, 2024: 2024 2024 Percentage of Total Leased Annualized Annualized 2024 Number Square Feet Rental Income Rental Income Annualized Industry of Leases (1) (in thousands) (2) (in thousands) per Square Foot (2) Rental Income Health and Personal Care Stores 44 584 $ 12,736 $ 21.81 15 % Manufacturing 7 1,009 10,320 10.23 12 % Sporting Goods, Hobby, and Musical Instrument Retailers 3 504 9,072 18.00 11 % Automotive Repair and Maintenance 9 312 7,603 24.37 9 % Gasoline Stations 5 52 7,272 139.85 8 % Warehouse Clubs, Supercenters, and Other General Merchandise Retailers 9 695 6,815 9.81 8 % Building Material and Supplies Dealers 8 1,073 6,321 5.89 7 % Grocery Stores 9 717 6,317 8.81 7 % Restaurants and Other Eating Places 11 110 4,492 40.84 5 % Lawn and Garden Equipment and Supplies Stores 12 278 4,301 15.47 5 % Other 16 487 11,041 22.67 13 % 133 5,821 $ 86,290 $ 14.82 100 % ____________________________________ (1) Includes leases which are master lease agreements. (2) Includes square feet of the buildings on land parcels subject to ground leases. The following table shows the geographic diversification of our real estate portfolio, based on annualized rental income, as of December 31, 2024: 2024 2024 Percentage of Total Rentable Annualized Annualized 2024 Number of Square Feet Rental Income Rental Income Annualized Location Properties (in thousands) (1) (in thousands) per Square Foot (1) Rental Income Ohio 18 1,120 $ 13,506 $ 12.06 16 % Illinois 10 634 7,238 11.42 8 % California 28 72 7,164 99.50 8 % Wisconsin 7 677 6,530 9.65 8 % Florida 9 601 6,167 10.26 7 % Texas 24 189 4,873 25.78 6 % Virginia 10 239 3,960 16.57 5 % Kentucky 3 188 3,632 19.32 4 % Nebraska 2 193 3,540 18.34 4 % New Jersey 3 146 3,523 24.13 4 % Other 73 1,762 26,157 14.85 30 % 187 5,821 $ 86,290 $ 14.82 100 % ____________________________________ (1) Includes square feet of the buildings on land parcels subject to ground leases. 64 Table of Contents The following table shows the property type diversification of our real estate portfolio, based on annualized rental income, as of December 31, 2024: 2024 2024 Percentage of Total Rentable Annualized Annualized 2024 Number of Square Feet Rental Income Rental Income Annualized Property Type Properties (in thousands) (1) (in thousands) per Square Foot (1) Rental Income Retail 176 4,149 $ 67,911 $ 16.37 78 % Office 4 888 14,414 16.23 17 % Industrial 7 784 3,965 5.06 5 % 187 5,821 $ 86,290 $ 14.82 100 % ____________________________________ (1) Includes square feet of the buildings on land parcels subject to ground leases. Leases Although there are variations in the specific terms of the leases of our properties, the following is a summary of the general structure of our current leases. Generally, the leases of the properties acquired provide for initial terms of ten or more years and provide the tenant with one or more multi-year renewal options, subject to generally the same terms and conditions as the initial lease term. Certain leases also provide that in the event we wish to sell the property subject to that lease, we first must offer the lessee the right to purchase the property on the same terms and conditions as any offer which we intend to accept for the sale of the property. The properties are generally leased under net leases pursuant to which the tenant bears responsibility for substantially all property costs and expenses associated with ongoing maintenance and operation, including utilities, property taxes and insurance, while certain of the leases require us to maintain the roof, structure and parking areas of the building. Additionally, certain leases provide for increases in rent as a result of fixed increases, increases in the consumer price index, and/or increases in the tenant’s sales volume. The leases of the properties provide for annual rental payments (payable in monthly installments) ranging from $47,000 to $3.1 million (average of $461,000). Certain leases provide for limited increases in rent as a result of fixed increases or increases in the consumer price index. The following table shows lease expirations of our real estate portfolio, as of December 31, 2024, during each of the next ten years and thereafter, assuming no exercise of renewal options: 2024 Total Leased Annualized 2024 Percentage of Number Square Feet Rental Income Annualized 2024 of Leases Expiring Expiring Rental Income Annualized Year of Lease Expiration Expiring (1) (in thousands) (2) (in thousands) per Square Foot (2) Rental Income 2025 1 60 $ 1,018 $ 16.97 1 % 2026 2 296 3,333 11.26 4 % 2027 3 420 5,067 12.06 6 % 2028 — — — — — % 2029 4 226 3,184 — 4 % 2030 5 86 1,491 17.34 2 % 2031 10 815 6,011 7.38 7 % 2032 10 378 7,853 20.78 9 % 2033 10 406 4,120 10.15 4 % 2034 11 123 8,658 70.39 10 % Thereafter 77 3,011 45,555 15.13 53 % 133 5,821 $ 86,290 $ 14.82 100 % ____________________________________ (1) Includes leases which are master lease agreements. (2) Includes square feet of the buildings on land parcels subject to ground leases. 65 Table of Contents The following table shows the economic metrics of our real estate assets as of and for the years ended December 31, 2024 and 2023: 2024 2023 Economic Metrics Weighted-average lease term (in years) (1) 10.5 10.7 Lease rollover (1)(2) : Annual average 2.9% 2.5% Maximum for a single year 5.9% 5.6% ____________________________________ (1) Based on annualized rental income of our real estate portfolio as of December 31, 2024 and 2023. (2) Through the end of the next five years as of the respective reporting date. Results of Operations Overview We are not aware of any material trends or uncertainties, other than national economic conditions affecting real estate in general, such as inflation and heightened interest rates and the imposition of tariffs and other changes to trade policy in the U.S. and other jurisdictions, that may reasonably be expected to have a material impact on our results from the acquisition, management and operation of properties and credit investments other than those listed in Part I, Item 1A. Risk Factors . For a comparison of the years ended December 31, 2023 and 2022, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. Our operating segments include Credit and Real Estate. Refer to Note 18 — Segment Reporting to our consolidated financial statements in this Annual Report on Form 10-K for further discussion of our operating segments. 66 Table of Contents The following table compares our summarized results of operations for the years ended December 31, 2024 and 2023 by operating segment (amounts in thousands): For the Year Ended December 31, 2024 2023 Change Revenues: Credit Segment $ 389,988 $ 453,480 $ (63,492) Real Estate Segment 93,525 115,056 (21,531) Corporate 387 323 64 483,900 568,859 (84,959) Expenses: Credit Segment 603,837 412,341 191,496 Real Estate Segment 122,779 105,874 16,905 Corporate 51,802 58,126 (6,324) 778,418 576,341 202,077 Other (expense) income: Credit Segment (10,034) (17,674) 7,640 Real Estate Segment 2,268 44,159 (41,891) Corporate 9,994 9,083 911 2,228 35,568 (33,340) Net (loss) income (292,290) 28,086 (320,376) Net income allocated to non-controlling interest 11 8 3 Net (loss) income attributable to the Company $ (292,301) $ 28,078 $ (320,379) Year Ended December 31, 2024 Compared to the Year Ended December 31, 2023 Credit Segment Revenues The decrease in our Credit segment revenues of $63.5 million for the year ended December 31, 2024, as compared to the year ended December 31, 2023, was primarily due to the suspension of interest income on three of our risk-rated 5 first mortgage loans with a carrying value of $373.8 million that were placed on nonaccrual status and were past due on their interest payments as of December 31, 2024, as well as a decrease in the overall size of our investment portfolio and a decline in interest rates during the year ended December 31, 2024. As of December 31, 2024, we held credit investments with an outstanding principal balance of $4.4 billion compared to credit investments with an outstanding principal of $5.1 billion as of December 31, 2023. Expenses Expenses for our Credit segment consist primarily of interest expense, increases (decreases) to our provision for credit losses, management fees, and general and administrative expenses. The increase in our Credit segment expenses of $191.5 million for the year ended December 31, 2024, as compared to the year ended December 31, 2023, was primarily due to a $208.5 million increase in the provision for credit losses, primarily due to the asset-specific credit loss provision on funded and unfunded commitments recognized on seven of the Company’s first mortgage loan investments and the increase in provision for credit loss related to two CMBS positions that was recognized due to a decline in the underlying collateral value during the year ended December 31, 2024. Other Expense Other expense for our Credit segment consists of gain on investment in unconsolidated entities, unrealized (loss) gain on equity securities, and loss on extinguishment of debt, along with dividend income from our equity securities. The decrease in our Credit segment other expense of $7.6 million during the year ended December 31, 2024, as compared to the same period in 2023, was primarily due to a $25.2 million decrease in other (expense) income, net, driven by a $36.4 million decrease in loss 67 Table of Contents on sale of CMBS during the year ended December 31, 2024, as compared to the same period in 2023, partially offset by a $13.7 million increase in loss on sale of liquid corporate senior loans during the year ended December 31, 2024, as compared to the same period in 2023. The decrease in other expense was further driven by a $1.9 million increase in gain on investment in unconsolidated entities and a decrease of $1.2 million in loss on extinguishment of debt during the year ended December 31, 2024, as compared to the same period in 2023. The decrease in other expense was partially offset by a $15.9 million unrealized loss on equity securities during the year ended December 31, 2024, compared to a $4.8 million unrealized gain on equity securities during the year ended December 31, 2023. Real Estate Segment Revenues The decrease in our Real Estate segment revenues of $21.5 million for the year ended December 31, 2024, as compared to the year ended December 31, 2023, was primarily due to the disposition of seven properties subsequent to December 31, 2023 and the disposition of 188 properties during the year ended December 31, 2023. Refer to “Same Store Analysis” below for a further discussion of net operating income at our “same store properties”. Expenses The increase in our Real Estate segment expenses of $16.9 million for the year ended December 31, 2024, as compared to the year ended December 31, 2023, was primarily due to an increase in impairment charges of $31.8 million for the year ended December 31, 2024, as compared to the year ended December 31, 2023, as ten properties were deemed to be impaired during the year ended December 31, 2024, due to sales prices or revised cash flow estimates that were less than their respective carrying values, resulting in impairment charges of $52.2 million, as compared to six properties that were deemed to be impaired during the year ended December 31, 2023, resulting in impairment charges of $20.4 million. The increase was partially offset by the disposition of seven properties subsequent to December 31, 2023. Refer to “Same Store Analysis” below for a further discussion of net operating income at our “same store properties”. Other Income Other income for our Real Estate segment primarily consists of gain on disposition of real estate, loss on extinguishment of debt and other income. The decrease in our Real Estate segment other income of $41.9 million for the year ended December 31, 2024, as compared to the year ended December 31, 2023, was primarily due to the disposition of seven properties resulting in a net gain of $1.9 million during the year ended December 31, 2024, compared to the disposition of 188 properties resulting in a net gain of $44.4 million during the year ended December 31, 2023. Corporate and Other Revenues Our corporate revenues, which consist primarily of rental income from our condominium and rental units acquired via foreclosure, did not meaningfully change during the year ended December 31, 2024 as compared to the year ended December 31, 2023. Expenses 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 and impairment on our condominium and rental units acquired via foreclosure. The decrease in corporate expenses of $6.3 million during the year ended December 31, 2024 as compared to the year ended December 31, 2023, was partially due to a $5.6 million decrease in impairment charges related to condominium units during the year ended December 31, 2024, as compared to the year ended December 31, 2023, and a decrease in interest expense, net of $4.3 million, 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”) and the paydown and termination of the variable rate debt assumed by the Company upon completing the January 2021 foreclosure of assets which previously secured the Company's mezzanine loans (the “Assumed Variable Rate Debt”) during the year ended December 31, 2023. The decrease was further driven by a $3.4 million decrease in transaction-related expenses driven by a tax settlement related to the Company’s condominium units during the year ended December 31, 2023. In addition, we saw a decrease in property operating expenses of $1.9 million, primarily driven by decreased condominium-related legal expenses during the year ended December 31, 2024 as compared to the year ended December 31, 2023. The decrease was partially offset by an increase in general and administrative expenses of $8.9 million, primarily in connection with restricted stock unit related expenses recorded during the year ended December 31, 2024 as well as an increase in escrow and trustee fees and a non-recurring increase in taxes. 68 Table of Contents Other Income The increase in corporate other income of $911,000 during the year ended December 31, 2024, as compared to the year ended December 31, 2023, was primarily driven by a decrease of $4.4 million in loss on extinguishment of debt during the year ended December 31, 2024, as compared to the year ended December 31, 2023, primarily in connection with the paydown and termination of the CMFT Credit Facility and the refinanced Assumed Variable Rate Debt. The increase was further driven by the disposition of 11 condominium units resulting in a net gain of $4.8 million during year ended December 31, 2024, compared to the disposition of 18 condominium units resulting in a net gain of $3.6 million during the year ended December 31, 2023. The increase was partially offset by a decrease in other (expense) income, net of $4.7 million primarily due to a decrease in interest income generated by decreased short-term liquid investments included in cash and cash equivalents on the consolidated balance sheets during the year ended December 31, 2024, as compared to the year ended December 31, 2023. Same Store Analysis Our results of operations are influenced by the timing of acquisitions and the operating performance of our real estate assets. We review our stabilized operating results, measured by net operating income, from properties that we owned for the entirety of both the current and prior year reporting periods, referred to as “same store” properties, and we believe that the presentation of operating results for same store properties provides useful information to stockholders. Net operating income is a supplemental non-GAAP financial measure of a real estate company’s operating performance. Net operating income is considered by management to be a helpful supplemental performance measure, as it enables management to evaluate the impact of occupancy, rents, leasing activity and other controllable property operating results at our real estate properties, and it provides a consistent method for the comparison of our properties. We define net operating income as operating revenues less operating expenses, which exclude (i) depreciation and amortization, (ii) interest expense and other non-property related revenue and expense items such as (a) general and administrative expenses, (b) expense reimbursements to related parties, (c) management fees, (d) transaction-related expenses, (e) real estate impairment, (f) increase in provision for credit losses, (g) gain on disposition of real estate and condominium developments, net, (h) merger-related expenses, net and (i) interest income. Our calculation of net operating income may not be comparable to that of other REITs and should not be considered to be more relevant or accurate in evaluating our operating performance than the current GAAP methodology used in calculating net income. In determining the same store property pool, we include all properties that were owned for the entirety of both the current and prior reporting periods, except for properties during the current or prior year that were under development or redevelopment. 69 Table of Contents Comparison of the Years Ended December 31, 2024 and 2023 The following table reconciles our Real Estate segment net (loss) income, calculated in accordance with GAAP, to net operating income (in thousands): Total For the Year Ended December 31, 2024 2023 Change Net (loss) income $ (26,986) $ 53,341 $ (80,327) Loss on extinguishment of debt — 1,192 (1,192) Other (expense) income, net (413) 4,380 (4,793) Gain on disposition of real estate and condominium developments, net (1,855) (49,731) 47,876 Real estate impairment 52,243 20,404 31,839 Depreciation and amortization 31,981 42,532 (10,551) Transaction-related expenses — 10 (10) Management fees 8,218 10,702 (2,484) General and administrative expenses 399 709 (310) Interest expense, net 23,248 22,884 364 Net operating income $ 86,835 $ 106,423 $ (19,588) A total of 185 properties were acquired before January 1, 2023 and represent our “same store” properties during the years ended December 31, 2024 and 2023. “Non-same store” properties, for purposes of the table below, include 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 (in thousands): Total Same Store Non-Same Store For the Year Ended December 31, For the Year Ended December 31, For the Year Ended December 31, 2024 2023 Change 2024 2023 Change 2024 2023 Change Rental and other property income $ 93,525 $ 115,056 $ (21,531) $ 87,370 $ 87,462 $ (92) $ 6,155 $ 27,594 $ (21,439) Property operating expenses 3,639 5,203 (1,564) 3,054 3,171 (117) 585 2,032 (1,447) Real estate tax expenses 3,051 3,430 (379) 2,547 2,732 (185) 504 698 (194) Total property operating expenses 6,690 8,633 (1,943) 5,601 5,903 (302) 1,089 2,730 (1,641) Net operating income $ 86,835 $ 106,423 $ (19,588) $ 81,769 $ 81,559 $ 210 $ 5,066 $ 24,864 $ (19,798) Net Operating Income Same store property net operating income remained relatively consistent during the year ended December 31, 2024, as compared to the year ended December 31, 2023. Non-same store property net operating income decreased $19.8 million during the year ended December 31, 2024, as compared to the year ended December 31, 2023. The decrease was primarily due to the disposition of seven properties subsequent to December 31, 2023 in addition to the disposition of 188 properties during the year ended December 31, 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, for the periods indicated below: 70 Table of Contents Period Commencing Period Ending Monthly Distribution Amount January 2022 September 2022 $0.0305 October 2022 December 2022 $0.0339 January 2023 September 2023 $0.0350 October 2023 December 2023 $0.0367 January 2024 December 2024 $0.0375 January 2025 June 2025 $0.0283 As of December 31, 2024, we had distributions payable of $16.5 million. The following table presents distributions and source of distributions for the periods indicated below (dollar amounts in thousands): Year Ended December 31, 2024 2023 Amount Percent Amount Percent Distributions paid in cash $ 154,040 78 % $ 141,818 77 % Distributions reinvested 42,635 22 % 42,879 23 % Total distributions $ 196,675 100 % $ 184,697 100 % Source of distributions: Net cash provided by operating activities (1) (2) $ 196,675 100 % $ 184,697 100 % Total sources $ 196,675 100 % $ 184,697 100 % ____________________________________ (1) Net cash provided by operating activities for the years ended December 31, 2024 and 2023 was $161.2 million and $223.8 million, respectively. (2) Our distributions covered by cash flows for the year ended December 31, 2024 include cash flows from operating activities in excess of distributions from prior periods of $35.4 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 During the year ended December 31, 2024, we received valid redemption requests under our share redemption program totaling approximately 151.9 million shares, of which we redeemed approximately 5.6 million shares as of December 31, 2024 for $33.9 million (at an average redemption price of $6.09 per share) and approximately 1.8 million shares subsequent to December 31, 2024 for $11.1 million (at an average redemption price of $6.09 per share). The remaining redemption requests relating to approximately 144.5 million shares went unfulfilled. During the year ended December 31, 2023, we received valid redemption requests under our share redemption program totaling approximately 110.2 million shares, of which we redeemed approximately 5.2 million shares as of December 31, 2023 for $33.9 million (at an average redemption price of $6.57 per share) and approximately 1.7 million shares subsequent to December 31, 2023 for $11.0 million (at an average redemption price of $6.31 per share). The remaining redemption requests relating to approximately 103.3 million shares went unfulfilled. See the discussion of our share redemption program in 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. Liquidity and Capital Resources General We expect to utilize proceeds from 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 from certain investments, as well as secured or unsecured borrowings from banks and other lenders to finance our future acquisitions and loan originations, repayment of certain indebtedness, distributions, redemptions and for general corporate uses. The sources of our operating cash 71 Table of Contents flows will primarily be provided by interest income from our portfolio of credit investments and the rental and other property income received from current and future leased properties. Sources of Liquidity Our primary sources of liquidity include cash and cash equivalents and available borrowings under our debt facilities, which are set forth in the following table (in thousands): December 31, 2024 December 31, 2023 Cash and cash equivalents $ 181,291 $ 247,500 Unused borrowing capacity (1) 91,786 100,138 $ 273,077 $ 347,638 ____________________________________ (1) Reflects the total borrowing capacity approved by the lenders related to the assets pledged as collateral, less the drawn amount. See Note 10 — Repurchase Facilities, Notes Payable and Credit Facilities to our consolidated financial statements in this Annual Report on Form 10-K 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 December 31, 2024 (in thousands): Portfolio Financing Outstanding Principal Balance Maximum Capacity (1) Notes payable – variable rate debt $ 606,452 $ 606,452 ABS mortgage notes 758,520 758,520 Credit facilities 124,500 318,000 Repurchase facilities 1,693,142 3,054,030 (2) Total portfolio financing $ 3,182,614 $ 4,737,002 ___________________________________ (1) Subject to borrowing availability. (2) Facilities under the J.P. Morgan Repurchase Facility carry no maximum facility size. Variance between Average and Quarter-End Repurchase Facility Borrowings Outstanding The following table compares the average amount outstanding under our Repurchase Facilities (as defined in Note 10 — Repurchase Facilities, Notes Payable and Credit Facilities to our consolidated financial statements in this Annual Report on Form 10-K) 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 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) September 30, 2024 $ 1,810,749 $ 1,888,858 $ (78,109) December 31, 2024 $ 1,693,142 $ 1,779,490 $ (86,348) (2) ____________________________________ (1) Variance driven by late quarter timing of CMBS sales and debt pay downs primarily in connection with the amended and restated Master Repurchase Agreement with Barclays Bank PLC (as described in further detail in Note 10 — Repurchase Facilities, Notes Payable and Credit Facilities to our consolidated financial statements in this Annual Report on Form 10-K). (2) Variance driven by late quarter timing of CMBS sales and debt pay downs, primarily in connection with the Master Repurchase agreement with Wells Fargo Bank, N.A and the amended and restated Master Repurchase Agreement with Barclays Bank PLC (as described in further detail in Note 10 — Repurchase Facilities, Notes Payable and Credit Facilities to our consolidated financial statements in this Annual Report on Form 10-K). 72 Table of Contents Capital Resources Our principal demands for funds will be for the acquisition or origination of credit investments and real estate, and the payment of tenant improvements, acquisition-related expenses, operating expenses, distributions, redemptions and interest and principal on current and any future debt financings, including principal repayments of $1.7 billion within the next 12 months, $104.0 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 consolidated financial statements in this Annual Report on Form 10-K. 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; however, we have used, and may continue to use, other sources to fund distributions, as necessary, including borrowings on our unencumbered assets. To the extent that cash flows from operations are lower, distributions paid to our stockholders may be lower. We expect that substantially all net cash flows from the Secondary DRIP Offering or debt financings will be used to fund acquisitions, loan originations, certain capital expenditures, repayments of outstanding debt or distributions and redemptions to our stockholders. We believe that the resources stated above will be sufficient to satisfy our operating requirements for the foreseeable future, and we do not anticipate a need to raise funds from sources other than those described above within the next 12 months. Contractual Obligations As of December 31, 2024, we had debt outstanding with a carrying value of $3.2 billion and a weighted average interest rate of 5.5%. See Note 10 — Repurchase Facilities, Notes Payable and Credit Facilities to our consolidated financial statements in this Annual Report on Form 10-K for certain terms of our debt outstanding, including extension options. Our contractual obligations as of December 31, 2024 were as follows (in thousands): Payments due by period (1) Total Less Than 1 Year 1-3 Years 3-5 Years More Than 5 Years Unfunded loan commitments (2) $ 261,657 $ 3,735 $ 154,785 $ 92,361 $ 10,776 Principal payments — variable rate debt 606,452 190,926 369,686 45,840 — Principal payments — ABS mortgage notes 758,520 — — 303,408 455,112 Principal payments — credit facilities 124,500 — 12,500 112,000 — Principal payments — repurchase facilities 1,693,142 1,505,249 187,893 — — Interest payments (3) 314,687 142,163 119,041 32,408 21,075 Total $ 3,758,958 $ 1,842,073 $ 843,905 $ 586,017 $ 486,963 ____________________________________ (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 unfunded loan commitments to provide additional CRE loan, corporate senior loan and liquid corporate senior loan financing as of December 31, 2024. The allocation of our unfunded loan commitments is based on the earlier of the commitment expiration date or the final maturity date; however, we may be obligated to fund these commitments earlier than such date. This table does not include $33.9 million of unfunded commitments related to the NewPoint JV (as defined in Note 2 — Summary of Significant Accounting Policies — Investment in Unconsolidated Entities to the consolidated financial statements in this Annual Report on Form 10-K). In addition, the table does not include $1.2 million of unsettled liquid corporate senior loan acquisitions, which is included in cash and cash equivalents on the accompanying consolidated balance sheet. (3) Interest payments on the variable rate debt, credit facilities and repurchase facilities have been calculated based on outstanding balances as of December 31, 2024 through their respective maturity dates. This is only an estimate as actual amounts borrowed and interest rates could vary over time. We expect to incur additional borrowings in the future to acquire additional properties and credit investments. There is no limitation on the amount we may borrow against any single improved property. As of December 31, 2024, our ratio of debt to total gross assets net of gross intangible lease liabilities was 62.6%. 73 Table of Contents Cash Flow Analysis Year Ended December 31, 2024 Compared to Year Ended December 31, 2023 Operating Activities. Net cash provided by operating activities decreased by $62.5 million for the year ended December 31, 2024, as compared to the year ended December 31, 2023. The decrease was primarily due to a net decrease in credit investments of $717.8 million, and decreased interest income as a result of our three first mortgage loans that were placed on nonaccrual status and were past due on their interest payments as of December 31, 2024, along with a decline in interest rates during the year ended December 31, 2024. The decease was further driven by the dispositions of seven properties subsequent to December 31, 2023. See “— Results of Operations” for a more complete discussion of the factors impacting our operating performance. Investing Activities. For the year ended December 31, 2024, net cash provided by investing activities increased by $161.1 million, as compared to the year ended December 31, 2023. The change was primarily due to $627.3 million of net proceeds from loans held-for-investment during the year ended December 31, 2024, as compared to the $342.4 million net investment in loans held-for-sale during the year ended December 31, 2023. The change was further driven by $85.9 million of net proceeds from real estate-related securities and other during the year ended December 31, 2024, as compared to the $26.3 million net investment in real estate-related securities and other during the year ended December 31, 2023. The change was offset by a decrease in net proceeds from real estate assets and condominium units of $892.3 million, as the Company disposed of seven properties and 11 condominium units during the year ended December 31, 2024, as compared to 188 properties and 18 condominium units disposed of during the same period in 2023. Financing Activities. For the year ended December 31, 2024, net cash used in financing activities increased by $257.9 million. The change was primarily due to net repayments on the repurchase facilities, notes payable and credit facilities of $756.5 million during the year ended December 31, 2024, as compared to net repayments on the repurchase facilities, notes payable and credit facilities of $505.8 million during the year ended December 31, 2023. Election as a REIT We elected to be taxed, and operate our business to qualify, as a REIT for U.S. federal income tax purposes commencing with our taxable year ended December 31, 2012. To maintain our qualification as a REIT, we must continue to meet certain requirements relating to our organization, sources of income, nature of assets, distributions of income to our stockholders and recordkeeping. As a REIT, we generally are not subject to federal income tax on taxable income that we distribute to our stockholders so long as we distribute at least 90% of our annual taxable income (computed without regard to the dividends paid deduction and excluding net capital gains). If we fail to maintain our qualification as a REIT for any reason in a taxable year and applicable relief provisions do not apply, we will be subject to tax on our taxable income at regular corporate rates. We will not be able to deduct distributions paid to our stockholders in any year in which we fail to maintain our qualification as a REIT. We also will be disqualified for the four taxable years following the year during which qualification was lost, unless we are entitled to relief under specific statutory provisions. Such an event could materially adversely affect our net income and net cash available for distribution to stockholders. However, we believe that we are organized and operate in such a manner as to maintain our qualification as a REIT for federal income tax purposes. No provision for federal income taxes has been made in our accompanying consolidated financial statements. We are subject to certain state and local taxes related to the operations of properties in certain locations, which have been provided for in our accompanying consolidated financial statements. Related-Party Transactions and Agreements We have entered into agreements with CMFT Management and our Investment Advisor whereby we agree to pay certain fees to, or reimburse certain expenses of, CMFT Management, the Investment Advisor or their affiliates. In addition, we have invested in, and may continue to invest in, certain co-investments with funds that are advised by an affiliate of CMFT Management. We may also originate loans to third parties that use the proceeds to finance the acquisition of real estate from funds that are advised by an affiliate of CMFT Management. See Note 13 — Related-Party Transactions and Arrangements to our consolidated financial statements in this Annual Report on Form 10-K for a discussion of the various related-party transactions, agreements and fees. Conflicts of Interest Richard S. Ressler, the chairman of our Board, chief executive officer and president, who is also a founder and principal of CIM Group and is an officer/director of certain of its affiliates, is the vice president of our manager. Through his affiliation with Orchard Capital Corporation, Mr. Ressler chairs the executive committee of Orchard First Source Asset Management Holdings, 74 Table of Contents LLC, the holding Company of our Investment Advisor. Additionally, one of our directors, Jason Schreiber, is an employee of CIM Group. Nathan D. DeBacker, our chief financial officer, principal accounting officer and treasurer, is an employee of CIM Group, the vice president of our manager, and is an officer of certain of its affiliates. As such, there may be conflicts of interest where CMFT Management or its affiliates, while serving in the capacity as sponsor, general partner, officer, director, key personnel and/or advisor for CIM Group or another program sponsored or operated by affiliates of our manager, may be in conflict with us in connection with providing services to other real estate-related programs related to property acquisitions, property dispositions, and property management, among others. The compensation arrangements between affiliates of CMFT Management and these other real estate programs sponsored or operated by affiliates of our manager could influence the advice provided to us. See Part I, Item 1. Business — Conflicts of Interest and Part I, Item 1A. Risk Factors — Risks Related to Conflicts of Interest of this Annual Report on Form 10-K. Critical Accounting Policies and Significant Accounting Estimates Our accounting policies have been established to conform with GAAP. The preparation of financial statements in conformity with GAAP requires us to use judgment in the application of accounting policies, including making estimates and assumptions. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Management believes that we have made these estimates and assumptions in an appropriate manner and in a way that accurately reflects our financial condition. We continually test and evaluate these estimates and assumptions using our historical knowledge of the business, as well as other factors, to ensure that they are reasonable for reporting purposes. However, actual results may differ from these estimates and assumptions. If our judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied, thus resulting in a different presentation of the financial statements. Additionally, other companies may utilize different estimates that may impact comparability of our results of operations to those of companies in similar businesses. We believe the following critical accounting policies govern the significant judgments and estimates used in the preparation of our financial statements, which should be read in conjunction with the more complete discussion of our accounting policies and procedures included in Note 2 — Summary of Significant Accounting Policies to our consolidated financial statements in this Annual Report on Form 10-K. Current Expected Credit Losses The current expected credit loss is our current estimate of potential credit losses related to our loans held-for-investment, CMBS and CLO subordinated note. We estimate our CECL reserve for our senior loans and mezzanine loans primarily using the Weighted Average Remaining Maturity method, which has been identified as an acceptable method for estimating CECL reserves in the Financial Accounting Standards Board Staff Q&A Topic 326, No. 1. For our liquid corporate senior loans and corporate senior loans, we use a probability of default and loss given default method. CMBS and CLO subordinated note credit losses, if any, are estimated by calculating the difference between (i) the present value of estimated cash flows expected to be collected from the security discounted at the yield determined as of the initial acquisition date or, if since revised, as of the last date previously revised, to (ii) the net amortized cost basis of the security. The risks and uncertainties involved in applying the principles related to CECL reserves include, but are not limited to, the following: • The historical loan loss data used in estimating our CECL reserve. To estimate the historical loan losses relevant to our portfolio, we have utilized historical loan performance with market loss data from 1998 through 2024. Within this database, we focused on the applicable subset of available loan data, which we determined based on loan metrics that are most comparable to our loan portfolio including asset type, loan structure, credit rating and years to maturity; • The expected repayments over the contractual term of each loan, CMBS and CLO subordinated note. As part of our quarterly review of our loan and CMBS portfolios, we assess the expected repayment date of each position, which is used to determine the contractual term for purposes of computing our CECL reserve; • The current credit quality and performance expectations of our loan, CMBS and CLO subordinated note portfolios, as well as market conditions over the relevant time period and its impact on our portfolios are estimated by management; and • The expectations of performance and market conditions. Our CECL reserve is adjusted to reflect our estimation of the current and future economic conditions that impact the performance of the commercial real estate assets securing our loans. These estimations include unemployment rates, interest rates, inflation, and other macroeconomic factors impacting the likelihood and magnitude of potential credit losses for our loans during their anticipated term. In addition to the CRE data we have licensed from Trepp LLC, we have also licensed certain macroeconomic financial forecasts to inform our view of the potential future impact that broader economic conditions may have on our loan 75 Table of Contents portfolio’s performance. We may also incorporate information from other sources, including information and opinions available to our Investment Advisor, to further inform these estimations. This process requires significant judgments about future events that, while based on the information available to us as of the balance sheet date, are ultimately indeterminate and the actual economic condition impacting our portfolios could vary significantly from the estimates we made as of December 31, 2024. Recoverability of Real Estate Assets We acquire real estate assets and subsequently monitor those assets quarterly for impairment, including the review of real estate properties subject to direct financing leases, if applicable. Additionally, we record depreciation and amortization related to our assets. The risks and uncertainties involved in applying the principles related to real estate assets include, but are not limited to, the following: • The estimated useful lives of our depreciable assets affects the amount of depreciation and amortization recognized on our assets; • The review of impairment indicators and subsequent determination of the undiscounted future cash flows could require us to reduce the carrying value of assets held and used to a fair value estimated by management and recognize an impairment loss. The process for evaluating real estate impairment requires management to make significant assumptions related to certain inputs, including holding periods; • The fair value of held for sale assets is estimated by management. This estimated value could result in a reduction of the carrying value of the asset; and • Changes in assumptions based on actual results may have a material impact on our financial results. Allocation of Purchase Price of Real Estate Assets In connection with our acquisition of real estate assets, we allocate the purchase price to the tangible and intangible assets and liabilities acquired based on their respective relative fair values. Tangible assets consist of land, buildings, fixtures and tenant improvements. Intangible assets consist of above- and below-market lease values and the value of in-place leases. Our purchase price allocations are developed utilizing third-party appraisal reports, industry standards and management experience. The risks and uncertainties involved in applying the principles related to purchase price allocations include, but are not limited to, the following: • The value allocated to land, as opposed to buildings, fixtures and tenant improvements, affects the amount of depreciation expense we record. If more value is attributed to land, depreciation expense is lower than if more value is attributed to buildings, fixtures and tenant improvements; • Intangible lease assets and liabilities can be significantly affected by estimates including market rent, lease terms including renewal options at rental rates below estimated market rental rates, carrying costs of the property during a hypothetical expected lease-up period, and current market conditions and costs, including tenant improvement allowances and rent concessions; and • We determine whether any financing assumed is above- or below-market based upon comparison to similar financing terms for similar types of debt financing with similar maturities. Recently Issued Accounting Pronouncements Recently issued accounting pronouncements are described in Note 2 — Summary of Significant Accounting Policies to our consolidated financial statements in this Annual Report on Form 10-K.