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CIM REAL ESTATE FINANCE TRUST, INC. - Annual Report: 2021 (Form 10-K)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)  
x  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  
 For the fiscal year ended December 31, 2021
o  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   For the transition period from to
Commission file number 000-54939
CIM REAL ESTATE FINANCE TRUST, INC.
(Exact name of registrant as specified in its charter)
 Maryland  27-3148022
 (State or other jurisdiction of incorporation or organization)  (I.R.S. Employer Identification Number)
 2398 East Camelback Road, 4th Floor
Phoenix,Arizona 85016
(Address of principal executive offices)(Zip code)
(602)778-8700
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading SymbolName of Each Exchange on Which Registered
NoneNoneNone
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.01 par value per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
o
Accelerated filer
o
Non-accelerated filer
x
Smaller reporting company
o
Emerging growth company
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☐ No x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
There is no established market for the registrant’s shares of common stock. As of June 30, 2021, the last business day of the registrant’s most recently completed second fiscal quarter, there were approximately 362.4 million shares of common stock held by non-affiliates, for an aggregate market value of $2.6 billion, assuming a market value as of that date of $7.20 per share, the most recent estimated per share net asset value of the registrant’s common stock established by the registrant’s board of directors in effect as of that date. Effective May 26, 2021, the estimated per share net asset value of the registrant’s common stock as of March 31, 2021 is $7.20 per share.
As of March 21, 2022, there were approximately 437.4 million shares of common stock, par value per share of $0.01, of CIM Real Estate Finance Trust, Inc. outstanding.
Documents Incorporated by Reference:
The Registrant incorporates by reference portions of the CIM Real Estate Finance Trust, Inc. Definitive Proxy Statement for the 2022 Annual Meeting of Stockholders (into Items 10, 11, 12, 13 and 14 of Part III of this Annual Report on Form 10-K).


Table of Contents


TABLE OF CONTENTS
PART I
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
PART II
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.
ITEM 9A.
ITEM 9B.
ITEM 9C.
PART III
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
PART IV
ITEM 15.
ITEM 16.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Annual Report on Form 10-K of CIM Real Estate Finance Trust, Inc., other than historical facts, may be considered forward-looking statements within the meaning of the federal securities laws, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We intend for all such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act and Section 21E of the Exchange Act, as applicable by law. Such statements include, in particular, statements about our plans, strategies, and prospects and are subject to certain risks and uncertainties, as well as known and unknown risks, which could cause actual results to differ materially from those projected or anticipated. Therefore, such statements are not intended to be a guarantee of our performance in future periods. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as “may,” “would,” “could,” “should,” “expect,” “intend,” “anticipate,” “estimate,” “believe,” “continue,” or other similar words. Forward-looking statements that were true at the time made may ultimately prove to be incorrect or false. These forward-looking statements are based on information currently available to us and are subject to a number of known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. These factors include, among other things, those discussed below. In addition, these risks and uncertainties include those associated with (i) the scope, severity and duration of the COVID‑19 pandemic and actions taken to contain the pandemic or mitigate its impact, (ii) the potential adverse effect of the COVID-19 pandemic on the financial condition, results of operations, cash flows and performance of the Company and its tenants, the real estate market and the global economy and financial markets, among others, and (iii) general economic, market and other conditions. We caution readers not to place undue reliance on forward-looking statements, which reflect our management’s view only as of the date this Annual Report on Form 10-K is filed with the U.S. Securities and Exchange Commission (the “SEC”). Additionally, except as required by applicable law or regulation, we undertake no obligation, and expressly disclaim any such obligation, to publicly update or revise any forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events, changes to future operating results or otherwise.
The following are some, but not all, of the assumptions, risks, uncertainties and other factors that could cause our actual results to differ materially from those presented in our forward-looking statements:
We may be unable to renew leases, lease vacant space or re-lease space as leases expire on favorable terms or at all.
We are subject to risks associated with tenant, geographic and industry concentrations with respect to our investments and properties.
Our properties, intangible assets and other assets, as well as the property securing our loans or other investments, may be subject to impairment charges.
We could be subject to unexpected costs or unexpected liabilities that may arise from dispositions.
We are subject to competition in the acquisition and disposition of properties and in the leasing of our properties and we may suffer delays or be unable to acquire, dispose of, or lease properties on advantageous terms.
We are subject to risks associated with bankruptcies or insolvencies of our borrowers and tenants and from borrower or tenant defaults generally.
Our credit and real estate investments subject us to the political, economic, capital markets and other conditions in the United States, including with respect to the effects of the COVID-19 pandemic and other events that impact the Unites States.
We are subject to fluctuations in interest rates which could reduce our ability to generate income on our credit investments.
We are subject to competition from entities engaged in lending which may impact the availability of origination and acquisition opportunities acceptable to us.
We have substantial indebtedness, which may affect our ability to pay distributions and expose us to interest rate fluctuation risk and the risk of default under our debt obligations.
We are subject to risks associated with the incurrence of additional secured or unsecured debt.
We may not be able to maintain profitability.
We may not generate cash flows sufficient to pay our distributions to stockholders or meet our debt service obligations.
Our continued compliance with debt covenants depends on many factors and could be impacted by current or future economic conditions associated with the COVID-19 pandemic.
We may be affected by risks resulting from losses in excess of insured limits.
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We may fail to remain qualified as a real estate investment trust (“REIT”) for U.S. federal income tax purposes.
We may be unable to successfully reposition our portfolio or list our shares on a national securities exchange, in the timeframe we expect or at all.
All forward-looking statements should be read in light of the risks identified in Part I, Item 1A. Risk Factors within this Annual Report on Form 10-K.
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Definitions
We use certain defined terms throughout this Annual Report on Form 10-K that have the following meanings:
The phrase “annualized rental income” refers to the straight-line rental revenue under our leases on operating properties owned as of the respective reporting date, which includes the effect of rent escalations and any tenant concessions, such as free rent, and excludes any contingent rent, such as percentage rent. Management uses annualized rental income as a basis for tenant, industry and geographic concentrations and other metrics within the portfolio. Annualized rental income is not indicative of future performance.
Under a “net lease,” the tenant occupying the leased property (usually as a single tenant) does so in much the same manner as if the tenant were the owner of the property. The tenant generally agrees that it will either have no ability or only limited ability to terminate the lease or abate rent prior to the expiration of the term of the lease as a result of real estate driven events such as casualty, condemnation or failure by the landlord to fulfill its obligations under the lease. There are various forms of net leases, most typically classified as either triple-net or double-net. Triple-net leases typically require the tenant to pay all expenses associated with the property (e.g., real estate taxes, insurance, maintenance and repairs, including roof, structure and parking lot). Double-net leases typically hold the landlord responsible for the capital expenditures for the roof and structure, while the tenant is responsible for all lease payments and remaining operating expenses associated with the property (e.g., real estate taxes, insurance and maintenance).
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PART I
ITEM 1.    BUSINESS
Our Company
CIM Real Estate Finance Trust, Inc. (together with our subsidiaries unless the context requires otherwise, the “Company,” “we,” “our” or “us”) is a non-exchange traded REIT formed as a Maryland corporation on July 27, 2010. We are primarily focused on originating, acquiring, financing and managing shorter duration senior secured loans, other related credit investments and core commercial real estate.
We have two reportable business segments as of December 31, 2021 and we refer to the investments within these segments as our target assets:
Credit — engages primarily in acquiring and originating shorter duration senior secured loans. We may acquire first and second lien mortgage loans, mezzanine loans, bridge loans, wraparound mortgage loans, construction mortgage loans on real property and loans on leasehold interest mortgages. This segment may also include investments in liquid senior corporate loans, direct corporate loans, and commercial mortgage-backed securities (“CMBS”).
Real estate — engages primarily in acquiring and managing income-producing commercial properties that are primarily single-tenant properties or anchored shopping centers, which are leased to creditworthy tenants under long-term net leases. The commercial properties are geographically diversified throughout the United States and have similar economic characteristics.
As of December 31, 2021, our credit portfolio consisted of 317 loans with a net book value of $2.6 billion, and investments in real estate-related securities of $105.5 million as of December 31, 2021. In addition, we owned 514 properties, comprising 22.7 million rentable square feet of commercial space located in 45 states. As of December 31, 2021, the rentable space at these properties was 94.2% leased, including month-to-month agreements, if any.
We have elected to be taxed and conduct our operations to qualify as a REIT for federal income tax purposes. We operate our business in a manner that permits us to maintain our exemption from registration under the Investment Company Act of 1940, as amended (the “Investment Company Act”). A majority of our business is conducted through CIM Real Estate Finance Operating Partnership, LP, a Delaware limited partnership (“CMFT OP”), of which we are the sole general partner and own, directly or indirectly, 100% of the partnership interests, and its subsidiaries.
Our Manager, Investment Advisor and CIM
We are externally managed by CIM Real Estate Finance Management, LLC, a Delaware limited liability company (“CMFT Management”), which is an affiliate of CIM Group, LLC (“CIM”). CIM is a community-focused real estate and infrastructure owner, operator, lender and developer. CIM is headquartered in Los Angeles, CA, with offices in Atlanta, GA, Bethesda, MD, Chicago, IL, Dallas, TX, New York, NY, Orlando, FL, Phoenix, AZ, and Tokyo, Japan. CIM also maintains additional offices across the United States, as well as in Korea, Hong Kong, and the United Kingdom to support its platform.
We have no paid employees and rely upon our manager pursuant to our Amended and Restated Management Agreement dated August 20, 2019 (the “Management Agreement”), as well as its affiliates, including CCO Capital, LLC (“CCO Capital”), our dealer manager, CREI Advisors, LLC (“CREI Advisors”), our property manager, and CIM Capital IC Management, LLC (the “Investment Advisor”), our investment advisor with respect to investments in securities and certain other investments, to provide substantially all of our day-to-day management. Our manager, CCO Capital, and CREI Advisors are owned directly or indirectly by CCO Group, LLC. Collectively, CCO Group, LLC, CCO Capital and CREI Advisors serve as our sponsor, which we refer to as our “sponsor” or “CCO Group.” Our Management Agreement is for a three-year term and renews automatically each year thereafter for an additional one-year period unless terminated by our board of directors (our “Board”).
On December 6, 2019, CMFT Securities Investments, LLC (“CMFT Securities”), which is a wholly-owned subsidiary of the Company, entered into an investment advisory and management agreement (the “Investment Advisory and Management Agreement”) with our Investment Advisor. CMFT Securities was formed for the purpose of holding any investments in securities and certain other investments made by the Company. The Investment Advisor, a wholly-owned subsidiary of CIM, is registered as an investment advisor with the SEC under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). Pursuant to the Investment Advisory and Management Agreement, the Investment Advisor will manage the day-to-day business affairs of CMFT Securities and its investments in corporate credit and real estate-related securities, subject to the supervision of the Board. The Investment Advisory and Management Agreement shall continue for a term of three years and shall be deemed renewed automatically each year thereafter for an additional one-year period unless otherwise terminated pursuant to the Investment Advisory and Management Agreement.
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In addition, on December 6, 2019, the Investment Advisor entered into a sub-advisory agreement (the “Sub-Advisory Agreement”) with OFS Capital Management, LLC, a Delaware limited liability company and affiliate of the Investment Advisor (the “Sub-Advisor”), to act as an investment sub-advisor to CMFT Securities. The Sub-Advisor is registered as an investment adviser under the Advisers Act and is an affiliate of the Investment Advisor. The Sub-Advisor provides investment management services primarily with respect to the corporate credit and real estate-related securities held by CMFT Securities. Either party may terminate the Sub-Advisory Agreement with 30 days’ prior written notice to the other party.
Investment Strategy and Objectives
Our investment strategy includes acquiring, financing and managing and originating credit investments, including shorter duration senior secured loans, mezzanine loans, preferred equity, and other loans and securities related to commercial real estate, as well as corporate loan opportunities that are consistent with our investment strategy and objectives, while also balancing our existing core portfolio of core commercial real estate, net leased under long-term leases to creditworthy tenants.
In order to execute on this strategy, we sold or are under contract to sell, in addition to certain non-core single tenant real estate properties, a substantial portion of our anchored shopping center properties through the Purchase and Sale Agreement and we intend to redeploy the proceeds from those sales into the origination, participation in, and acquisition of our targeted credit investments and core commercial real estate. Assuming the successful repositioning of our portfolio and subject to market conditions, we then expect to pursue a listing of our common stock on a national securities exchange. We will not list our stock unless and until such time as our board of directors believe that the listing of our stock would be in the best interest of our stockholders. We currently anticipate that our previously announced target listing date in 2022 will be extended to a future date. We can provide no assurances that a listing will happen in a particular timeframe or at all.
We believe a diversified investment portfolio of credit investments and core commercial real estate, combined with our manager’s ability to actively manage those investments, will enable us to generate competitive risk-adjusted returns for our stockholders over time and provide reasonable, stable, current income for stockholders through the payment of cash distributions. 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.
Investment Guidelines
Our manager and our Investment Advisor are required to manage our business in accordance with certain investment guidelines that were adopted by the valuation, compensation and affiliate transactions committee of our Board, which include:
not making investments that would cause us to fail to qualify as a REIT under the Code;
not making any investment that would cause us or any of our subsidiaries to be regulated as an investment company under the Investment Company Act;
our manager seeking to invest our capital in a broad range of investments in or relating to real property and real estate-related credit assets and our Investment Advisor seeking to invest in real estate and corporate credit-related securities;
prior to the deployment or redeployment of capital, permitting the manager or our Investment Advisor to cause the capital to be invested in short-term investments in money market funds, bank accounts, overnight repurchase agreements with primary federal reserve bank dealers collateralized by direct U.S. government obligations, and other instruments and investments reasonably determined to be of high quality; and
not making any (i) individual or single pooled CMBS investment or corporate loan investment in excess of $250 million, (ii) any commercial real estate (“CRE”) loan in excess of $50 million with a loan-to-value ratio in excess of 80%, and (iii) any other type of investment, including but not limited to commercial real estate acquisitions, in excess of $200 million, without the approval of a majority of the Board or a duly constituted committee of the Board.
Types of Investments — Commercial Real Estate-Related Credit Investments
Short Duration Senior Secured Loans. We invest in, acquire or originate loans secured by a first mortgage lien on commercial properties providing mortgage financing to commercial property developers or owners. These loans will generally have maturity dates ranging from three to ten years and bear interest at a fixed or floating rate, though they are more likely going to be floating rate and have a shorter-duration term. The loans will likely require interest only payments and if these loans do provide for some amortization, they will typically require, in any event, a balloon payment of principal at maturity. These investments may include whole loan participations and/or pari passu participations within such loans.
Mezzanine Loans. We also expect to invest in or originate loans made to commercial property owners that are secured by pledges of the borrower’s ownership interests in the property and/or the property owner, subordinate to whole mortgage loans secured by a first lien on the property. These mortgage loans are senior to the borrower’s equity in the property. These loans may be tranched into senior and junior mezzanine loans, with junior mezzanine loans secured by a pledge of the equity interests
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in the more junior mezzanine borrower. Mezzanine lenders typically have different, and at times more limited, rights compared to more senior lenders, including, following a default on the senior loan, the right, for a period of time, to cure defaults under the senior loan and any senior mezzanine loan and purchase the senior loan and any senior mezzanine loan. Subject to the terms negotiated with, and the rights of, the senior lenders, mezzanine lenders typically have the right to foreclose on their equity interest and become the direct or indirect owner of the property.
Other Real-Estate Related Debt Instruments. We will opportunistically invest in or originate other commercial real estate-related debt instruments such as subordinated mortgage interests, preferred equity, note financing, unsecured loans to owners and operators of real estate assets, and secured real estate-related securities such as CMBS and commercial real estate collateralized loan obligations (“CRE CLOs”).
Corporate Loans. We may also invest in or originate certain syndicated or directly originated liquid and less liquid corporate loans.
In evaluating prospective loan or other credit investments, CMFT Management will consider factors such as the following:
the condition and use of the collateral securing the loan;
current and projected cash flows of the collateral securing the loan;
expected levels of rental and occupancy rates of the property securing the loan;
the potential for increased expenses and capital expense requirements;
the loan-to-value ratio of the investment;
the debt service coverage ratio of the investment;
the degree of liquidity of the investment;
the quality, experience and creditworthiness of the borrower;
general economic conditions in the area where the collateral is located;
the strength and structure and loan covenants; and
other factors that CMFT Management believes are relevant.
Because the factors considered, including the specific weight we place on each factor, will vary for each prospective investment, we do not, and are not able to, assign a specific weight or level of importance to any particular factor.
Outside of our investment guidelines, we do not have any policies directing the portion of our assets that may be invested in any particular asset type. However, we recognize that certain types of loans, such as mezzanine loans, are subject to more risk than others, such as loans secured by first deeds of trust or first priority mortgages on income-producing, fee-simple properties. CMFT Management will evaluate the risk associated with a loan when evaluating its decision to invest, and in determining the rate of interest on the loan.
Our credit investments may be subject to regulation by federal, state and local authorities and subject to various laws and judicial and administrative decisions imposing various requirements and restrictions, including among other things, regulating credit granting activities, establishing maximum interest rates and finance charges, requiring disclosures to customers, governing secured transactions and setting collection, repossession and claims handling procedures and other trade practices. In addition, certain states have enacted legislation requiring the licensing of mortgage bankers or other lenders and these requirements may affect our ability to effectuate our proposed investments in loans. Commencement of operations in these or other jurisdictions may be dependent upon a finding of our financial responsibility, character and fitness. We may determine not to make loans in any jurisdiction in which the regulatory authority determines that we have not complied in all material respects with applicable requirements.
Types of Investments — Commercial Real Estate Property Investments
We have acquired, and may continue to acquire either directly or through co-investing in a joint venture agreement, income-producing necessity retail properties that are primarily single-tenant properties, which are leased to creditworthy tenants under long-term net leases, and are strategically located throughout the United States. We consider necessity retail properties to be properties leased to retail tenants that attract consumers for everyday needs, such as pharmacies, home improvement stores, national superstores, restaurants and regional retailers. Our portfolio also includes anchored shopping centers, which are multi-tenant properties that are anchored by one or more large national, regional or local retailers. On December 20, 2021, certain subsidiaries of the Company entered into an Agreement of Purchase and Sale, as amended, (the “Purchase and Sale Agreement”), with American Finance Trust, Inc. (now known as The Necessity Retail REIT, Inc.) (NASDAQ: AFIN) (“AFIN”), American Finance Operating Partnership, L.P. (now known as The Necessity Retail REIT Operating Partnership,
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L.P) (“AFIN OP”), and certain of their subsidiaries (collectively, the “Purchaser”) to sell our remaining multi-tenant anchored shopping center properties, along with two single-tenant properties.
We have acquired, and may continue to acquire, other income-producing properties, such as office and industrial properties, which may share certain core characteristics with our retail investments, such as a principal creditworthy tenant, a long-term net lease, and a strategic location.
Many of our properties are, and we anticipate that future properties will be, leased to tenants in the chain or franchise retail industry, including, but not limited to, convenience stores, drug stores and restaurant properties, as well as leased to large national retailers as stand-alone properties or as part of anchored shopping centers, which are anchored by national, regional and local retailers. CMFT Management monitors industry trends and identifies properties on our behalf that serve to provide a favorable return balanced with risk. Our management primarily targets regional or national name brand retail businesses with established track records. We generally intend to hold each property for a period in excess of five years.
By acquiring a large number of properties, we believe that lower than expected results of operations from one or a few investments will not necessarily preclude our ability to realize our investment objective of generating cash flows from our overall portfolio. Since we acquire properties that are geographically diverse, we expect to minimize the potential adverse impact of economic slowdowns or downturns in local markets.
To the extent feasible, we seek to achieve a well-balanced portfolio diversified by geographic location, age and lease maturities of the various properties. We pursue properties leased to tenants representing a variety of retail industries to avoid concentration in any one industry. We also are diversified between national, regional and local brands. We generally target properties with lease terms in excess of ten years. We have acquired and may continue to acquire properties with shorter lease terms if the property is in an attractive location, if the property is difficult to replace, or if the property has other significant favorable attributes. We expect that these acquisitions will provide long-term value by virtue of their size, location, quality and condition, and lease characteristics.
We expect, in most instances, to continue to acquire properties with existing double-net or triple-net leases. “Net” leases mean leases that typically require tenants to pay all or a majority of the operating expenses, including real estate taxes, special assessments and sales and use taxes, utilities, maintenance, insurance and building repairs related to the property, in addition to the lease payments. Triple-net leases typically require the tenant to pay all costs associated with a property (e.g., real estate taxes, insurance, maintenance and repairs, including roof, structure and parking lot). Double-net leases typically hold the landlord responsible for the capital expenditures for the roof and structure, while the tenant is responsible for all lease payments and remaining operating expenses associated with the property (e.g., real estate taxes, insurance and maintenance). We believe that properties under long-term triple-net and double-net leases offer a distinct investment advantage since these properties generally require less management and operating capital, have less recurring tenant turnover and, with respect to single-tenant properties, often offer superior locations that are less dependent on the financial stability of adjoining tenants. We expect that double-net and triple-net leases will help ensure the predictability and stability of our expenses, which we believe will result in greater predictability and stability of our cash distributions to stockholders. Not all of our properties are, or will be subject to, net leases. In respect of anchored shopping centers, we expect to continue to have a variety of lease arrangements with the tenants of these properties. We have acquired and may continue to acquire properties with tenants subject to “gross” leases. “Gross” leases means leases that typically require the tenant to pay a flat rental amount and we would pay for all property charges regularly incurred as a result of our owning the property. When spaces in a property become vacant, existing leases expire, or we acquire properties under development or requiring substantial refurbishment or renovation, we generally expect to enter into net leases.
There is no limitation on the number, size or type of properties that we may acquire, or on the percentage of net proceeds of the Offerings that may be used to acquire a single property. The number and mix of properties comprising our portfolio will depend upon real estate market conditions and other circumstances existing at the time we acquire properties, and the amount of capital we have available for acquisitions. We will not forgo acquiring a high-quality asset because it does not precisely fit our expected portfolio composition.
We incur debt to acquire properties when CMFT Management determines that incurring such debt is in our best interests and in the best interests of our stockholders. In addition, from time to time, we have acquired and may continue to acquire some properties without financing and later incur mortgage debt secured by one or more of such properties if favorable financing terms are available. We use the proceeds from these loans to acquire additional properties. See “— Financing Strategy” below for a more detailed description of our borrowing intentions and limitations.
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Underwriting Process
In evaluating potential property acquisitions consistent with our investment objectives, CMFT Management applies a well-established underwriting process to determine the creditworthiness of potential tenants. We consider a tenant to be creditworthy if we believe that the tenant has sufficient assets, cash flow generation and stability of operations to meet its obligations under the lease. Similarly, CMFT Management applies credit underwriting criteria to possible new tenants when we are leasing properties in our portfolio. Many of the tenants of our properties are, and we expect will continue to be, national or regional retail chains that are creditworthy entities having high net worth and operating income. CMFT Management’s underwriting process includes analyzing the financial data and other available information about the tenant, such as income statements, balance sheets, net worth, cash flows, business plans, data provided by industry credit rating services, and/or other information CMFT Management may deem relevant. Generally, these tenants must have a proven track record in order to meet the credit tests applied by CMFT Management. In addition, we may obtain guarantees of leases by the corporate parent of the tenant, in which case CMFT Management will analyze the creditworthiness of the corporate parent.
Acquisition Decisions
CMFT Management has substantial discretion with respect to the selection of our specific acquisitions, subject to our investment guidelines. In pursuing our investment objectives and making investment decisions on our behalf, CMFT Management evaluates the proposed terms of the acquisition against all aspects of the transaction, including the condition and financial performance of the asset, the terms of existing leases and the creditworthiness of the tenant, and property location and characteristics. Because the factors considered, including the specific weight we place on each factor, vary for each potential acquisition, we do not, and are not able to, assign a specific weight or level of importance to any particular factor.
CMFT Management procures and reviews an independent valuation estimate on each and every proposed acquisition. In addition, CMFT Management, to the extent such information is available, considers the following:
tenant rolls and tenant creditworthiness;
a property condition report;
unit level store performance;
property location, visibility and access;
age of the property, physical condition and curb appeal;
neighboring property uses;
local market conditions including vacancy rates and market rents;
area demographics, including trade area population and average household income;
neighborhood growth patterns and economic conditions;
presence of nearby properties that may positively or negatively impact store sales at the subject property; and
lease terms, including length of lease term, scope of landlord responsibilities, presence and frequency of contractual rental increases, renewal option provisions, exclusive and permitted use provisions, co-tenancy requirements and termination options.
CMFT Management also reviews the terms of each existing lease by considering various factors, including:
rent escalations;
remaining lease term;
renewal option terms;
tenant purchase options;
termination options;
scope of the landlord’s maintenance, repair and replacement requirements;
projected net cash flow yield; and
projected internal rates of return.
The Board has adopted a policy to prohibit acquisitions from affiliates of CMFT Management unless a majority of our directors (including a majority of our independent directors) not otherwise interested in the transaction determine that the transaction is fair and reasonable to us and certain other conditions are met.
In the purchasing, leasing and development of properties, we are subject to risks generally incident to the ownership of real estate. Refer to Part I, Item 1A. Risk Factors — Risks Associated with Our Real Estate Segment in this Annual Report on Form 10-K.
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Real Estate Dispositions. We generally intend to hold each property we acquire for an extended period, generally in excess of five years. Holding periods for other real estate-related assets may vary. Circumstances might arise that could cause us to determine to sell an asset before the end of the expected holding period if we believe the sale of the asset would be in the best interests of our stockholders. The determination of whether a particular asset should be sold or otherwise disposed of will be made after consideration of relevant factors, including prevailing and projected economic conditions, current tenant rolls and tenant creditworthiness, whether we could apply the proceeds from the sale of the asset to acquire other assets, whether disposition of the asset would increase cash flows, and whether the sale of the asset would be a prohibited transaction under the Code or otherwise impact our status as a REIT for federal income tax purposes. During the year ended December 31, 2021, we sold 117 properties and an outparcel of land for an aggregate gross sales price of $490.3 million, resulting in net proceeds of $475.8 million and a gain of $77.2 million.
Financing Strategy
CMFT Management believes that utilizing borrowings to make investments is consistent with our investment objective of maximizing the return to stockholders. By operating on a leveraged basis, we have more funds available for acquiring properties or credit investments. This allows us to make more investments than would otherwise be possible, potentially resulting in a more diversified portfolio.
The amount of leverage we use is determined by our manager, taking into account a variety of factors, which may include the anticipated liquidity and price volatility of target assets in our investment portfolio, the potential for losses and extension risk in our investment portfolio, the gap between the duration of assets and liabilities, including hedges, the availability and cost of financing the assets, the creditworthiness of our financing counterparties, the health of the global economy and commercial and residential mortgage markets, the outlook for the level, slope, and volatility of interest rate movement, the credit quality of our target assets and the type of collateral underlying such target assets. In utilizing leverage, we seek to enhance equity returns while limiting interest rate exposure. We will seek to match the tenor, currency, and indices of our assets and liabilities, including in certain instances through the use of derivatives. We will also seek to limit the risks associated with recourse borrowing.
As of December 31, 2021, our ratio of debt to total gross assets net of gross intangible lease liabilities was 58.0% (56.5% including adjustments to debt for cash and cash equivalents), and our ratio of debt to the fair market value of our gross assets was 58.8%.
The following table details our outstanding financing arrangements as of December 31, 2021 (in thousands):
Portfolio Financing Outstanding Principal BalanceMaximum Capacity
Notes payable – fixed rate debt$471,967 $471,967 
Notes payable – variable rate debt70,268 70,268 
First lien mortgage loan650,000 650,000 
ABS mortgage notes770,775 774,000 
Credit facilities910,000 975,000 
Repurchase facilities1,298,414 1,780,000 
Total portfolio financing$4,171,424 $4,721,235 
Subject to maintaining our qualification as a REIT, from time to time, we engage in hedging transactions that seek to mitigate the effects of fluctuations in interest rates or currencies on our cash flows. These hedging transactions could take a variety of forms, including interest rate or currency swaps or cap agreements, options, futures contracts, forward rate or currency agreements or similar financial instruments.
We may attempt to reduce interest rate risk and to minimize exposure to interest rate fluctuations through the use of match funded financing structures, when appropriate, whereby we may seek (1) to match the maturities of our debt obligations with the maturities of our assets, and (2) to match the interest rates on our assets with like-kind debt (i.e., we may finance floating rate assets with floating rate debt and fixed-rate assets with fixed-rate debt), directly or through the use of interest rate swap agreements or other financial instruments, or through a combination of these strategies. We expect these instruments will allow us to minimize, but not eliminate, the risk that we may have to refinance our liabilities before the maturities of our assets and to reduce the impact of changing interest rates on our earnings.
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Our ability to increase our diversification through borrowing may be adversely impacted if banks and other lending institutions reduce the amount of funds available for borrowing. When interest rates are high or financing is otherwise unavailable on a timely basis, our ability to make additional investments will be restricted and we may not be able to adequately diversify our portfolio. See Part I, Item 1A. Risk Factors — Risks Associated with Debt Financing in this Annual Report on Form 10-K.
Our Offerings
We commenced our initial public offering in January 2012 on a “best efforts” basis of up to $2.975 billion in shares of common stock (the “Offering”), including $475.0 million in shares allocated to our distribution reinvestment plan (the “DRIP”). In addition, we registered $247.0 million in shares of common stock under the DRIP (the “Initial DRIP Offering”) on December 19, 2013 and an additional $600.0 million in shares of common stock under the DRIP (the “Secondary DRIP Offering,” and together with the Initial DRIP Offering, the “DRIP Offerings,” and the DRIP Offerings collectively with the Offering, the “Offerings”) on August 2, 2016. We continue to issue shares of common stock under the Secondary DRIP Offering.
As of December 31, 2021, we had issued approximately 366.0 million shares of our common stock in the Offerings, including 67.6 million shares issued in the DRIP Offerings, for gross offering proceeds of $4.0 billion before organization and offering costs, selling commissions and dealer manager fees of $306.0 million. In addition, on December 21, 2020 and December 16, 2021, we issued an aggregate 52.6 million shares of common stock in connection with our entry into the merger agreements with Cole Office & Industrial REIT (CCIT III), Inc. (“CCIT III”) and Cole Credit Property Trust V, Inc. (“CCPT V”) and 74.8 million shares of common stock in connection with the CIM Income NAV Merger, as defined and discussed below.
Net Asset Value
Our Board establishes an estimated per share net asset value (“NAV”) of the Company’s common stock for purposes of assisting broker-dealers in meeting their customer account statement reporting obligations under Financial Industry Regulatory Authority (“FINRA”) Rule 2231.
The following table summarizes the estimated per share NAV of our common stock for the periods indicated below:
Valuation DatePeriod CommencingPeriod EndingNAV per Share
August 31, 2015October 1, 2015November 13, 2016$9.70 
September 30, 2016November 14, 2016March 27, 2017$9.92 
December 31, 2016March 28, 2017March 28, 2018$10.08 
December 31, 2017March 29, 2018March 19, 2019$9.37 
December 31, 2018March 26, 2019March 29, 2020$8.65 
December 31, 2019March 30, 2020May 28, 2020$7.77 
March 31, 2020May 29, 2020August 13, 2020$7.26 
June 30, 2020August 14, 2020May 25, 2021$7.31 
March 31, 2021May 26, 2021$7.20 
For participants in the DRIP, distributions are reinvested in shares of our common stock under the DRIP at the most recent estimated per share NAV as determined by our Board. Commencing on May 26, 2021, following our Board’s determination of an updated estimated per share NAV, distributions are reinvested in shares of our common stock under the DRIP at a price of $7.20 per share, the estimated per share NAV as of March 31, 2021, as determined by our Board. Additionally, $7.20 per share serves as the most recent estimated per share NAV for purposes of the share redemption program. On August 30, 2020, our Board approved the suspension of the DRIP and the share redemption program in connection with our entry into the merger agreements with CCIT III and CCPT V. On March 25, 2021, our Board reinstated the DRIP and the share redemption program, effective April 1, 2021. We have not made any adjustments to the valuation of our estimated per share NAV for the impact of other transactions occurring subsequent to May 25, 2021, including, but not limited to, the consummation of the CIM Income NAV Merger on December 16, 2021. See Part II, Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities — Share Redemption Program in this Annual Report on Form 10-K for a discussion of our share redemption program.
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Merger with CIM Income NAV
On December 16, 2021, we completed the merger (the “CIM Income NAV Merger”) with CIM Income NAV, Inc. (“CIM Income NAV”), pursuant to the Agreement and Plan of Merger, dated as of September 21, 2021 (the “CIM Income NAV Merger Agreement”), by and among the Company, Cypress Merger Sub, LLC, a wholly owned subsidiary of the Company (“Merger Sub”), and CIM Income NAV. In accordance with the applicable provisions of the Maryland General Corporation Law (the “MGCL”), the separate existence of CIM Income NAV ceased. The CIM Income NAV Merger qualified as a “reorganization” under, and within the meaning of, Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”). The Company considered the appropriate accounting treatment with regards to ASC 805, Business Combinations (“ASC 805”) and determined it was appropriated to account for this transaction as an asset acquisition. The determination was made as over 95% of the fair value of the gross assets acquired were concentrated in real estate assets.
Purchase and Sale Agreement with AFIN
On December 20, 2021, certain subsidiaries (collectively, the “Seller”) of the Company entered into the Purchase and Sale Agreement, with AFIN, AFIN OP, and certain of their subsidiaries. The Purchaser is not affiliated with the Seller. Under the terms of the Purchase and Sale Agreement, the Seller agreed to sell to the Purchaser 79 shopping centers and two single-tenant properties encompassing approximately 9.5 million gross rentable square feet of commercial space across 27 states for total consideration of $1.32 billion (the “Purchase Price”). The Purchase Price includes the Purchaser’s option to seek the assumption of certain existing debt, and Purchaser’s issuance of up to $53.4 million in value of AFIN’s Class A common stock, par value $0.01 per share (“AFIN Common Stock”), or Class A units in AFIN OP (“AFIN OP Units”), subject to certain limits described more fully in the Purchase and Sale Agreement.
Subsequent to December 31, 2021, the sale of 56 of the properties under contract for sale pursuant to the Purchase and Sale Agreement closed for total consideration of $811.8 million, which consists of $758.4 million in cash proceeds and $53.4 million of AFIN Common Stock, which shares are restricted and subject to certain registration rights as described in the Purchase and Sale Agreement. The remaining 25 properties are expected to close in the second quarter of 2022.
Conflicts of Interest
We are subject to various conflicts of interest arising out of our relationship with CMFT Management and its affiliates, including conflicts related to the arrangements pursuant to which we compensate CMFT Management and its affiliates.
Allocation of Investment Opportunities
Acquisition opportunities will be allocated among the real estate programs sponsored by CCO Group pursuant to an asset allocation policy adopted by our Board. In the event that an acquisition opportunity has been identified that may be suitable for one or more of the other programs sponsored by CCO Group, and for which more than one such entity has sufficient uninvested funds, then an allocation committee, which is comprised of employees of CIM, CCO Group or their respective affiliates (the “Allocation Committee”), will examine the following factors, among others, in determining the entity for which the acquisition opportunity is most appropriate:
the investment objective of each entity;
the anticipated operating cash flows of each entity and the cash requirements of each entity;
the effect of the acquisition both on diversification of each entity’s investments by type of property, geographic area and tenant concentration;
the amount of funds available to each program and the length of time such funds have been available to deploy;
the policy of each entity relating to leverage of properties;
the income tax effects of the purchase to each entity; and
the size of the investment.
If, in the judgment of the Allocation Committee, the acquisition opportunity may be equally appropriate for more than one program, then the entity that has had the longest period of time elapse since it was allocated an acquisition opportunity of a similar size and type (e.g., office, industrial or retail properties) will be allocated such acquisition opportunity. If a subsequent development, such as a delay in the closing of the acquisition or a delay in the construction of a property, causes any such acquisition opportunity, in the opinion of the Allocation Committee, to be more appropriate for an entity other than the entity that committed to make the acquisition opportunity, the Allocation Committee may determine that another program sponsored by CCO Group will be allocated the acquisition opportunity.
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In the event that our targeted asset types or investment objectives and criteria cause acquisition opportunities that are suitable for programs sponsored by affiliates of CIM other than CCO Group, which currently includes our CRE loans, our allocation policy provides that our manager will utilize an allocation method similar to the one described above for programs sponsored by CCO Group, or will otherwise ensure that a reasonable method of allocation be adopted with respect to such investment opportunities and fairly apply them to us. Allocation of our CRE loans and any assets other than net lease assets managed by our Manager, as well as assets that are managed by our Investment Advisor, are currently allocated pursuant to CIM's investment allocation policies. Investments that are managed by the Sub-Advisor are allocated pursuant to the Sub-Advisor's investment allocation policies.
We may enter into certain transactions with CMFT Management or its affiliates, including other real estate programs managed by CIM, which are subject to inherent conflicts of interest. Similarly, joint ventures involving affiliates of CMFT Management also give rise to conflicts of interest. In addition, our Board may encounter conflicts of interest in enforcing our rights against any affiliate of CMFT Management in the event of a default by or disagreement with an affiliate or in invoking powers, rights or options pursuant to any agreement between us and CMFT Management, any of its affiliates or another real estate program sponsored by affiliates of CIM.
Fees and Other Compensation paid to CMFT Management and Its Affiliates
We have incurred, and expect to continue to incur, fees and expenses payable to CMFT Management and its affiliates in connection with the management of our assets.
Management Agreement. Pursuant to the Management Agreement, in connection with the services provided by our manager, our manager receives a management fee, payable quarterly in arrears, equal to the greater of (a) $250,000 per annum ($62,500 per quarter) and (b) 1.50% per annum (0.375% per quarter) of the Company’s Equity (as defined in the Management Agreement). In addition, our manager shall receive Incentive Compensation (as defined in the Management Agreement), payable with respect to each quarter, which is generally equal to the excess of (a) the product of (i) 20% and (ii) the excess of (A) Core Earnings (as defined in the Management Agreement) of the Company for the previous 12-month period, over (B) the product of (1) the Company’s Consolidated Equity (as defined in the Management Agreement) in the previous 12-month period, and (2) 7% per annum, over (b) the sum of any Incentive Compensation paid to our manager with respect to the first three calendar quarters of such previous 12-month period (or such lesser number of completed calendar quarters preceding the applicable period, if applicable). In addition, our manager generally shall continue to be entitled to reimbursement for costs and expenses to the extent incurred on behalf of the Company in accordance with the Management Agreement; provided, however, that the limits on reimbursement for Organization and Offering Expenses, Acquisition Expenses and Operating Expenses as defined and provided in the Prior Advisory Agreement shall no longer be applicable.
The Management Agreement shall continue for a term of three years and shall be deemed renewed automatically each year thereafter for an additional one-year period unless the Company provides 180 days’ written notice to the manager after the affirmative vote of 2/3 of the Company’s independent directors. If the Management Agreement is terminated without cause, the manager shall receive a termination fee equal to three times the sum of (a) the average annual management fee and (b) the average annual Incentive Compensation during the 24-month period prior to the termination.
Investment Advisory and Management Agreement. Pursuant to the Investment Advisory and Management Agreement, our Investment Advisor shall receive an investment advisory fee (the “Investment Advisory Fee”), payable quarterly in arrears, equal to (b) 1.50% per annum (0.375% per quarter) of CMFT Securities’ Equity (as defined in the Investment Advisory and Management Agreement). In addition, the Investment Advisor is eligible to receive incentive compensation, as described below. In the event that an Incentive Fee is earned and payable with respect to any quarter under the Management Agreement, our manager will calculate the portion of the Incentive Fee that was attributable to the assets managed by our Investment Advisor and payable to the Investment Advisor. Because the assets that are managed by our Investment Advisor are excluded from the calculation of Management Fees payable by the Company to our manager under the Management Agreement, the total management and advisory fees payable by us to our external advisors are not increased as a result of entering into the Investment Advisory and Management Agreement. Pursuant to the Investment Advisory and Management Agreement, CMFT Securities will reimburse the Investment Advisor for costs and expenses incurred by the Investment Advisor on its behalf.
The Investment Advisory and Management Agreement shall continue for a term of three years and shall be deemed renewed automatically each year thereafter for an additional one-year period unless CMFT Securities provides 180 days’ written notice to the Investment Advisor after the affirmative vote of 2/3 of our independent directors, or if the Investment Advisor provides 180 days’ written notice to CMFT Securities. If the Investment Advisory and Management Agreement is terminated without cause by CMFT Securities, the Investment Advisor shall receive a termination fee equal to three times the sum of (a) the average annual Investment Advisory Fee and (b) the average annual Securities Manager Incentive Compensation, as that term is defined in the Investment Advisory and Management Agreement, during the 24-month period prior to the
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termination. CMFT Securities is not required to pay the termination fee if the Investment Advisor terminates the Investment Advisory and Management Agreement, or if the Investment Advisory and Management Agreement is terminated for cause.
On a quarterly basis, the Investment Advisor shall designate 50% of the sum of its Investment Advisory Fee and any incentive compensation payable to the Investment Advisor, as described above, as sub-advisory fees. The sub-advisory fees shall be paid by our Investment Advisor ratably, as determined pursuant to the Sub-Advisory Agreement, to the Sub-Advisor and any other sub-advisers, if any, that provide services to CMFT Securities. Either party may terminate the Sub-Advisory Agreement with 30 days’ prior written notice to the other party.
Human Capital Resources
We are operated by affiliates of CIM and have no direct employees. We have entered into the Management Agreement with CMFT Management, and the Investment Advisory and Management Agreement with our Investment Advisor, pursuant to which CMFT Management has agreed to provide, or arrange for other service providers to provide, management and administrative services to us and our subsidiaries, and our Investment Advisor has agreed to provide investment advisory services to CMFT Securities for the assets it manages.
Competition
As we purchase properties, we are in competition with other potential buyers for the same properties and may have to pay more to purchase the property than if there were no other potential acquirers or we may have to locate another property that meets our acquisition criteria. Regarding the leasing efforts of our owned properties, the leasing of real estate is highly competitive in the current market, and we may continue to experience competition for tenants from owners and managers of competing projects. As a result, we may have to provide free rent, incur charges for tenant improvements, or offer other inducements, or we might not be able to timely lease the space, all of which may have an adverse impact on our results of operations. At the time we elect to dispose of our properties, we may also be in competition with sellers of similar properties to locate suitable purchasers for our properties. See the section captioned “— Conflicts of Interest” above.
Similarly, in our lending and investing activities, we compete for opportunities with a variety of institutional lenders and investors, including other REITs, specialty finance companies, public and private, commercial and investment banks, commercial finance and insurance companies and other financial institutions. Several other REITs and other investment vehicles have raised significant amounts of capital, and may have investment objectives that overlap with ours, which may create additional competition for lending and investment opportunities. Some competitors may have a lower cost of funds and access to funding sources, such as the U.S. Government, that are not available to us. Many of our competitors are not subject to the operating constraints associated with REIT compliance or maintenance of an exclusion from regulation under the Investment Company Act. In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of loans and investments, offer more attractive pricing or other terms and establish more relationships than us. Furthermore, competition for originations of and investments in our target assets may lead to the yields of such assets decreasing, which may further limit our ability to generate satisfactory returns.
Available Information
We electronically file our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports with the SEC. We also file registration statements, amendments to our registration statements, and/or supplements to our prospectus in connection with any of our offerings with the SEC. Copies of our filings with the SEC are available on our sponsor’s website, http://www.cimgroup.com, free of charge. The information on our sponsor’s website is not incorporated by reference into this Annual Report on Form 10-K. Copies of our filings with the SEC may also be obtained from the SEC’s website, http://www.sec.gov. Access to these filings is free of charge.
ITEM 1A.    RISK FACTORS
Risk Factor Summary
Below is a summary of the principal factors that make an investment in our common stock speculative or risky. This summary does not address all of the risks that we face and stockholders should carefully consider the following summary, together with the full risk factors contained below in this “Risk Factors” section and all the other information included in this Annual Report on Form 10-K, in evaluating the Company and our business. If any of the following risks actually occur, our business, financial condition and results of operations could be materially and adversely affected, and stockholders may lose all or part of their investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations.
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Risks Related to Our Company
We currently have not identified all of the credit investments, properties or other real estate-related assets we intend to purchase. For this and other reasons, an investment in our shares is speculative.
There is no public trading market for our common stock, and there may never be one because, while we intend to pursue a listing of our common stock on a national securities exchange, we cannot make assurances that such a listing will occur, and we are not required to provide for a liquidity event.
Our estimated per share NAV is an estimate as of a given point in time and likely will not represent the amount of net proceeds that would result if we were liquidated or dissolved or completed a merger or other sale.
We may be unable to pay or maintain cash distributions or increase distributions over time.
Risks Associated with Our Credit Segment
Investing in mortgage, bridge or mezzanine loans could adversely affect our return on our loan investments.
We are subject to risks relating to real estate-related securities, including CMBS.
We operate in a highly competitive market for lending and investment opportunities, which may limit our ability to originate or acquire desirable loans and investments in our target assets.
Commercial real estate-related investments that are secured, directly or indirectly, by real property are subject to delinquency, foreclosure and loss, which could result in losses to us.
Risks Associated with Our Real Estate Segment
Adverse economic, regulatory and geographic conditions that have an impact on the real estate market in general may prevent us from being profitable or from realizing growth in the value of our real estate properties, and could have a significant negative impact on us.
We are dependent on single-tenant leases for our revenue and, accordingly, if we are unable to renew leases, lease vacant space, including vacant space resulting from tenant defaults, or re-lease space as leases expire on favorable terms or at all, our financial condition could be adversely affected.
We have assumed, and in the future may assume, liabilities in connection with our property acquisitions, including unknown liabilities.
Pandemics or other health crises, such as the outbreak of COVID-19 and the emergence of the Delta and Omicron and any future variants thereof, may adversely affect our business and/or operations, our tenants’ financial condition and the profitability of our properties.
Income from our long-term leases is an important source of our cash flow from operations and is subject to risks related to increases in expenses and inflation.
Risks Related to Conflicts of Interest
Our manager and its affiliates face conflicts of interest caused by their compensation arrangements with us, including significant compensation that may be required to be paid to our manager if our manager is terminated.
Our officers, certain of our directors and our manager, including its personnel and officers, face conflicts of interest related to the positions they hold with affiliated and unaffiliated entities.
Risks Related to Our Corporate Structure
Our stockholders’ interest in us will be diluted if we issue additional shares.
The limit on the percentage of shares of our common stock that any person may own may discourage a takeover or business combination that may benefit our stockholders.
Risks Associated with Debt Financing
We have incurred mortgage indebtedness and other borrowings, which may increase our business risks, hinder our ability to make distributions, and decrease the value of our stockholders’ investment.
Lenders may require us to enter into restrictive covenants relating to our operations, which could limit our ability to make distributions to our stockholders.
U.S. Federal Income and Other Tax Risks
Failure to maintain our qualification as a REIT for U.S. federal income tax purposes would adversely affect our operations and our ability to make distributions.
We may be subject to adverse legislative or regulatory tax changes that could increase our tax liability or reduce our operating flexibility.
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To maintain our qualification as a REIT, we must meet annual distribution requirements, which may force us to forego otherwise attractive opportunities or borrow funds during unfavorable market conditions. This could delay or hinder our ability to meet our investment objectives and reduce our stockholders’ overall returns.
Risks Related to Our Company
We currently have not identified all of the credit investments, properties or other real estate-related assets we intend to purchase. For this and other reasons, an investment in our shares is speculative.
We currently have not identified all of the credit investments, properties or other real estate-related assets that we may purchase. We have established policies relating to the types of assets we will acquire and the creditworthiness of tenants of our properties or other investment opportunities, but our manager has wide discretion in implementing these policies, subject to the oversight of our Board. Additionally, our manager has discretion to determine the location, number and size of our investments and the percentage of net proceeds we may dedicate to a single investment. As a result, you will not be able to evaluate the economic merit of our future investments until after such investments have been made. Therefore, an investment in our shares is speculative.
Our stockholders should consider our prospects in light of the risks, uncertainties and difficulties frequently encountered by companies that, like us, have not identified all credit investments, properties or real estate-related assets that they intend to purchase. To be successful in this market, we and our manager must, among other things:
identify and make investments that further our investment objectives;
rely on our manager and its affiliates to attract, integrate, motivate and retain qualified personnel to manage our day-to-day operations;
respond to competition for our targeted credit investments, real estate and other assets;
rely on our manager and its affiliates to continue to build and expand our operations structure to support our business; and
be continuously aware of, and interpret, marketing trends and conditions.
We may not succeed in achieving these goals, and our failure to do so could cause our stockholders to lose all or a portion of their investment.
There is no public trading market for our common stock, and there may never be one.
Our common stock is not currently publicly traded, and while we intend to pursue a listing of our common stock on a national securities exchange, we cannot make assurances that such a listing will occur. In addition, we do not have a fixed date or method for providing stockholders with liquidity. We expect that our Board will make that determination in the future based, in part, upon advice from our manager. If our stockholders are able to find a buyer for their shares, our stockholders will likely have to sell them at a substantial discount to the most recent estimated per share NAV of our common stock of $7.20 as of March 31, 2021. It also is likely that our common stock will not be accepted as the primary collateral for a loan. Therefore, shares of our common stock should be considered illiquid and a long-term investment, and our stockholders must be prepared to hold their shares of our common stock for an indefinite length of time.
Our stockholders are limited in their ability to sell their shares pursuant to our share redemption program and may have to hold their shares for an indefinite period of time.
Our share redemption program allows our stockholders to sell shares of our common stock to us in limited circumstances, subject to numerous restrictions. Subject to funds being available, we generally limit the number of shares redeemed pursuant to our share redemption program to no more than 5% of the weighted average number of shares outstanding during the trailing 12 months prior to the end of the fiscal quarter for which the redemption is being paid. In addition, we intend to limit quarterly redemptions to approximately 1.25% of the weighted average number of shares outstanding during the trailing 12-month period ending on the last day of the fiscal quarter, and funding for redemptions for each quarter generally is limited to the net proceeds we receive from the sale of shares in the respective quarter under the DRIP. Any of the foregoing limits might prevent us from accommodating all redemption requests made in any fiscal quarter or in any 12-month period. During the past 20 quarters, excluding those when the suspension of the share redemption program was in effect, quarterly redemptions were honored on a pro rata basis, as requests for redemption exceeded the quarterly redemption limits described above. The Board may amend the terms of, suspend, or terminate our share redemption program without stockholder approval at any time if it believes that such action is in the best interest of our stockholders, and our management may reject any request for redemption. These restrictions severely limit our stockholders’ ability to sell their shares should they require liquidity, and limit our stockholders’ ability to recover the amount they invested or the fair market value of their shares.
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Our estimated per share NAV is an estimate as of a given point in time and likely will not represent the amount of net proceeds that would result if we were liquidated or dissolved or completed a merger or other sale.
The methodology used by our Board in reaching an estimated per share NAV of our common stock is based upon a number of estimates, assumptions, judgments and opinions that may, or may not, prove to be correct. The use of different estimates, assumptions, judgments or opinions may have resulted in significantly different estimates of the per share NAV of our common stock. Also, the estimated per share NAV of our common stock reflects an estimate as of a given point in time and will fluctuate over time as a result of, among other things, developments related to individual assets and changes in the real estate and capital markets. In addition, our Board’s estimate of the per share NAV is not based on the book values of our real estate, as determined by GAAP, as our book value for most real estate is based on the amortized cost of the property, subject to certain adjustments. Furthermore, in reaching an estimate of the per share NAV of our common stock, our Board did not include, among other things, a discount for debt that may include a prepayment obligation or a provision precluding assumption of the debt by a third party.
As a result, there can be no assurance that:
stockholders will be able to realize the estimated per share NAV upon attempting to sell their shares of our common stock; or
we will be able to achieve, for our stockholders, the estimated per share NAV upon a listing of our shares of common stock on a national securities exchange, a merger, or a sale of our portfolio.
There are currently no SEC, federal or state rules that establish requirements specifying the methodology that we must employ in determining an estimated per share NAV. However, in accordance with the rules of FINRA, the determination of the estimated per share NAV of our common stock must be conducted by, or with the material assistance or confirmation of, a third-party valuation expert and must be derived from a methodology that conforms to standard industry practice.
We may be unable to pay or maintain cash distributions or increase distributions over time.
There are many factors that can affect the availability and timing of cash distributions to our stockholders. Distributions are based primarily on cash flows from operations. The amount of cash available for distributions is affected by many factors, such as the performance of our manager in selecting investments for us to make, selecting tenants for our properties and securing financing arrangements, our ability to make investments, the amount of income we receive from our investments, and our operating expense levels, as well as many other variables. We may not always be in a position to pay distributions to our stockholders and any distributions we do make may not increase over time. In addition, our actual results may differ significantly from the assumptions used by our Board in establishing the distribution rate to our stockholders. There also is a risk that we may not have sufficient cash flows from operations to fund distributions required to maintain our REIT status.
We have paid, and may continue to pay, some of our distributions from sources other than cash flows from operations, including borrowings and proceeds from asset sales, which may reduce the amount of capital we ultimately deploy in our real estate operations and may negatively impact the value of our common stock. Additionally, distributions at any point in time may not reflect the current performance of our properties or our current operating cash flows.
Our organizational documents permit us to pay distributions from any source, including net proceeds from public or private offerings, borrowings, advances from our sponsor or our manager and the deferral of fees and expense reimbursements by our manager, in our sole discretion. To the extent that cash flows from operations have been or are insufficient to fully cover our distributions to our stockholders, we have paid, and may continue to pay, some of our distributions from sources other than cash flows from operations. Such sources may include borrowings, proceeds from asset sales or the sale of our securities. We have no limits on the amounts we may use to pay distributions from sources other than cash flows from operations. The payment of distributions from sources other than cash provided by operating activities may reduce the amount of proceeds available for acquisitions and operations or cause us to incur additional interest expense as a result of borrowed funds, and may cause subsequent holders of our common stock to experience dilution. This may negatively impact the value of our common stock.
Because the amount we pay in distributions may exceed our earnings and our cash flows from operations, distributions may not reflect the current performance of our properties or our current operating cash flows. To the extent distributions exceed cash flows from operations, distributions may be treated as a return of our stockholders’ investment and could reduce their basis in our common stock. A reduction in a stockholder’s basis in our common stock could result in the stockholder recognizing more gain upon the disposition of his or her shares, which, in turn, could result in greater taxable income to such stockholder. For more information regarding the sources of distributions for the years ended December 31, 2021 and 2020, see Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Annual Report on Form 10-K.
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The declaration, amount and payment of future cash distributions on our common stock are subject to uncertainty due to current market conditions.
All distributions will be declared at the discretion of our Board and will depend on our earnings, our financial condition, REIT distribution requirements, and other factors as our Board may deem relevant from time to time. The economic impacts resulting from the COVID-19 pandemic and the emergence of new variants of the virus could adversely affect our ability to pay distributions. Our Board is under no obligation or requirement to declare future distributions and will continue to assess our common stock distribution rate on an ongoing basis, as market conditions and our financial position continue to evolve. We cannot assure you that we will achieve results that will allow us to pay distributions on our common stock or that the level of distributions will be maintained or increased.
We have experienced losses in the past, and we may experience additional losses in the future.
We have experienced net losses in the past (calculated in accordance with GAAP), and we may not be profitable or realize growth in the value of our assets. Many of our losses can be attributed to start-up costs, general and administrative expenses, depreciation and amortization, as well as acquisition expenses incurred in connection with purchasing properties or making other investments. Our ability to sustain profitability is uncertain and depends on the demand for, and value of, our portfolio of properties. For a further discussion of our operational history and the factors affecting our losses, see Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in this Annual Report on Form 10-K and our accompanying consolidated financial statements and notes thereto.
It may be difficult to accurately reflect material events that may impact the estimated per share NAV of our common stock between valuations and, accordingly, we may issue shares in our DRIP or repurchase shares at too high or too low of a price.
Our independent valuation firm calculates estimates of the market value of our principal real estate and real estate-related assets, and our Board determines the net value of our real estate and real estate-related assets and liabilities taking into consideration such estimates provided by the independent valuation firm. The Board is ultimately responsible for determining the estimated per share NAV of our common stock. Since our Board is only required to determine our estimated per share NAV at least annually, there may be changes in the value of our properties that are not fully reflected in the most recent estimated per share NAV of our common stock. As a result, the published estimated per share NAV may not fully reflect changes in value that may have occurred since the prior valuation.
Furthermore, our manager monitors our portfolio, but it may be difficult to reflect changing market conditions or material events that may impact the value of our portfolio between valuations, or to obtain timely or complete information regarding any such events. Therefore, the estimated per share NAV published before the announcement of an extraordinary event may differ significantly from our actual per share NAV until such time as sufficient information is available and analyzed, the financial impact is fully evaluated, and the appropriate adjustment is made to our estimated per share NAV, as determined by our Board. Any resulting disparity may be to the detriment of an acquiror of our common stock or a stockholder redeeming shares pursuant to our share redemption program. The Board last established an updated estimated per share NAV of the Company's shares as of March 31, 2021 on May 25, 2021.
Our future success depends to a significant degree upon certain key personnel of our manager. If our manager loses or is unable to attract and retain key personnel, our ability to achieve our investment objectives could be delayed or hindered, which could adversely affect our ability to pay distributions to our stockholders and the value of their investment.
Our success depends to a significant degree upon the contributions of certain executive officers and other key personnel of CCO Group and our manager. We cannot guarantee that all of these key personnel, or any particular person, will remain affiliated with us, CCO Group and/or our manager. If any of our key personnel were to cease their affiliation with our manager, our operating results could suffer. We believe that our future success depends, in large part, upon our manager’s ability to hire and retain highly skilled managerial, operational and marketing personnel. Competition for such personnel is intense, and we cannot assure our stockholders that CCO Group or our manager will be successful in attracting and retaining such skilled personnel. If our manager loses or is unable to obtain the services of key personnel, our ability to implement our investment strategies could be delayed or hindered, and the value of our stockholders’ investment may decline.
If we seek to internalize our management functions in connection with a listing of our shares of common stock on an exchange or other liquidity event, our stockholders’ interest in us could be diluted, and we could incur other significant costs associated with being self-managed.
In the future, we may undertake a listing of our common stock on an exchange or other liquidity event that may involve internalizing our management functions. If our Board determines that it is in our best interest to internalize our management
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functions, we may negotiate to acquire our manager’s assets and personnel. At this time, we cannot be sure of the form or amount of consideration or other terms relating to any such acquisition. Such consideration could take many forms, including cash payments, promissory notes and shares of our common stock. The payment of such consideration could result in dilution of our stockholders’ interests and could reduce the net income per share attributable to their investment.
Internalization transactions involving the acquisition of advisors affiliated with entity sponsors have also, in some cases, been the subject of litigation. Even if these claims are without merit, we could be forced to spend significant amounts of money defending claims, which would reduce the amount of funds available to operate our business and to pay distributions.
In addition, while we would no longer bear the costs of the various fees and expenses we expect to pay to our manager under the Management Agreement, our direct expenses would include general and administrative costs, including legal, accounting, and other expenses related to corporate governance, including SEC reporting and compliance. We would also incur the compensation and benefits costs of our officers and other employees and consultants that we now expect will be paid by our manager or its affiliates. If the expenses we assume as a result of an internalization are higher than the expenses we avoid paying to our manager, our net income per share would be lower as a result of the internalization than it otherwise would have been, potentially decreasing the amount of funds available to distribute to our stockholders and the value of our shares.
If we internalize our management functions, we could have difficulty integrating these functions as a stand-alone entity and we may fail to properly identify the appropriate mix of personnel and capital needed to operate as a stand-alone entity. Additionally, upon any internalization of our manager, certain key personnel may not remain with our manager, but will instead remain employees of CCO Group.
Our participation in a co-ownership arrangement may subject us to risks that otherwise may not be present in other real estate assets.
We may enter into co-ownership arrangements with respect to a portion of the properties we acquire. Co-ownership arrangements involve risks generally not otherwise present with an investment in other real estate assets, such as the following:
the risk that a co-owner may at any time have economic or business interests or goals that are or become inconsistent with our business interests or goals;
the risk that a co-owner may be in a position to take action contrary to our instructions or requests or contrary to our policies, objectives or status as a REIT;
the possibility that an individual co-owner might become insolvent or bankrupt, or otherwise default under the applicable mortgage loan financing documents, which may constitute an event of default under all of the applicable mortgage loan financing documents, result in a foreclosure and the loss of all or a substantial portion of the investment made by the co-owner, or allow the bankruptcy court to reject the agreements entered into by the co-owners owning interests in the property;
the possibility that a co-owner might not have adequate liquid assets to make cash advances that may be required in order to fund operations, maintenance and other expenses related to the property, which could result in the loss of current or prospective tenants and may otherwise adversely affect the operation and maintenance of the property, and could cause a default under the applicable mortgage loan financing documents and may result in late charges, penalties and interest, and may lead to the exercise of foreclosure and other remedies by the lender;
the risk that a co-owner could breach agreements related to the property, which may cause a default under, and possibly result in personal liability in connection with, any mortgage loan financing documents applicable to the property, violate applicable securities laws, result in a foreclosure or otherwise adversely affect the property and the co-ownership arrangement;
the risk that we could have limited control and rights, with management decisions made entirely by a third party; and
the possibility that we will not have the right to sell the property at a time that otherwise could result in the property being sold for its maximum value.
In the event that our interests become adverse to those of the other co-owners, we may not have the contractual right to purchase the co-ownership interests from the other co-owners. Even if we are given the opportunity to purchase such co-ownership interests in the future, we cannot guarantee that we will have sufficient funds available at the time to purchase co-ownership interests from the co-owners.
We might want to sell our co-ownership interests in a given property or other investment at a time when the other co-owners in such property or investment do not desire to sell their interests. Therefore, because we anticipate that it will be much more difficult to find a willing buyer for our co-ownership interests in an investment than it would be to find a buyer for a property we owned outright, we may not be able to sell our co-ownership interest in a property at the time we would like to sell.
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Cybersecurity risks and cyber incidents may adversely affect our business in the event we or our manager, our transfer agent or any other party that provides us with essential services experiences cyber incidents.
We, our manager, our transfer agent and other parties that provide us with services essential to our operations are vulnerable to service interruptions or damages from any number of sources, including computer viruses, malware, unauthorized access, energy blackouts, natural disasters, terrorism, war and telecommunication failures. Any system failure or accident that causes interruptions in our operations could result in a material disruption to our business. A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity or availability of our information resources. These incidents may be an intentional attack or an unintentional event and could involve gaining unauthorized access to our information systems for purposes of misappropriating assets, stealing confidential information, corrupting data or causing operational disruption. The result of these incidents may include disrupted operations, misstated or unreliable financial data, liability for stolen assets or information, increased cybersecurity protection and insurance costs, litigation and damage to our tenant and stockholder relationships. As we and the parties that provide essential services to us increase our and their reliance on technology, the risks posed to the information systems of such persons have also increased. We have implemented processes, procedures and internal controls to help mitigate cyber incidents, but these measures do not guarantee that a cyber incident will not occur or that attempted security breaches or disruptions would not be successful or damaging. A cyber incident could materially adversely impact our business, financial condition, results of operations, cash flows, or our ability to satisfy our debt service obligations or to maintain our level of distributions on common stock. There also may be liability for any stolen assets or misappropriated Company funds or confidential information. Any material adverse effect experienced by our manager, our transfer agent and other parties that provide us with services essential to our operations could, in turn, have an adverse impact on us.
If we are unable to successfully integrate new assets and manage our growth, our results of operations and financial condition may suffer.
We have in the past and may in the future significantly increase the size and/or change the mix of our portfolio of assets. We may be unable to successfully and efficiently integrate newly-acquired assets into our existing portfolio or otherwise effectively manage our assets or our growth effectively. In addition, increases in our portfolio of assets and/or changes in the mix of our assets may place significant demands on our manager’s administrative, operational, asset management, financial and other resources. Any failure to manage increases in size effectively could adversely affect our results of operations and financial condition.
If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results.
An effective system of internal control over financial reporting is necessary for us to provide reliable financial reports, prevent fraud and operate successfully as a public company. As part of our ongoing monitoring of internal controls, we may discover material weaknesses or significant deficiencies in our internal controls that we believe require remediation. If we discover such weaknesses, we will make efforts to improve our internal controls in a timely manner. Any system of internal controls, however well designed and operated, is based in part on certain assumptions and can only provide reasonable, not absolute, assurance that the objectives of the system are met. Any failure to maintain effective internal controls, or implement any necessary improvements in a timely manner, could have a material adverse effect on our business, financial condition, results of operations, cash flows or our ability to satisfy our debt service obligations or to maintain our level of distributions on our common stock, or cause us to not meet our reporting obligations. Ineffective internal controls could also cause holders of our securities to lose confidence in our reported financial information, which would likely have a negative effect on our business.
Risks Associated with Our Credit Segment
Investing in mortgage, bridge or mezzanine loans could adversely affect our return on our loan investments.
We have invested, and may continue to invest, in mezzanine loans and may make or acquire mortgage or bridge loans, or participations in such loans, to the extent our manager determines that it is advantageous for us to do so. However, if we make or invest in mortgage, bridge or mezzanine loans, we will be at risk of defaults on those loans caused by many conditions beyond our control, including local and other economic conditions affecting real estate values and interest rate levels. If there are defaults under these loans, we may not be able to repossess and sell quickly any properties securing such loans. An action to foreclose on a property securing a loan is regulated by state statutes and regulations and is subject to many of the delays and expenses of any lawsuit brought in connection with the foreclosure if the defendant raises defenses or counterclaims. In the event of default by a mortgagor, these restrictions, among other things, may impede our ability to foreclose on or sell the mortgaged property or to obtain proceeds sufficient to repay all amounts due to us on the loan, which could reduce the value of our investment in the defaulted loan.
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We are subject to risks relating to real estate-related securities, including CMBS.
Real estate-related securities are often unsecured and also may be subordinated to other obligations of the issuer. As a result, investments in real estate-related securities may be subject to risks of (1) limited liquidity in the secondary trading market in the case of unlisted or thinly traded securities, (2) substantial market price volatility resulting from changes in prevailing interest rates in the case of traded equity securities, (3) subordination to the prior claims of banks and other senior lenders to the issuer, (4) the operation of mandatory sinking fund or call/redemption provisions during periods of declining interest rates that could cause the issuer to reinvest redemption proceeds in lower yielding assets, (5) the possibility that earnings of the issuer or that income from collateral may be insufficient to meet debt service and distribution obligations and (6) the declining creditworthiness and potential for insolvency of the issuer during periods of rising interest rates and economic slowdown or downturn. These risks may adversely affect the value of outstanding real estate-related securities and the ability of the obliged parties to repay principal and interest or make distribution payments.
CMBS are securities that evidence interests in, or are secured by, a single commercial mortgage loan or a pool of commercial mortgage loans. Accordingly, these securities are subject to the risks above and all of the risks of the underlying mortgage loans. CMBS are issued by investment banks and non-regulated financial institutions, and are not insured or guaranteed by the U.S. government. The value of CMBS may change due to shifts in the market’s perception of issuers and regulatory or tax changes adversely affecting the mortgage securities market as a whole and may be negatively impacted by any dislocation in the mortgage-backed securities market in general.
CMBS are also subject to several risks created through the securitization process. Subordinate CMBS are paid interest only to the extent that there are funds available to make payments. To the extent the collateral pool includes delinquent loans, there is a risk that interest payments on subordinate CMBS will not be fully paid. Subordinate CMBS are also subject to greater credit risk than those CMBS that are more highly rated. In certain instances, third-party guarantees or other forms of credit support can reduce the credit risk.
Our commercial construction lending may expose us to increased lending risks.
Construction loans generally expose a lender to greater risk of non‑payment and loss than permanent commercial mortgage loans because repayment of the loans often depends on the borrower’s ability to secure permanent take‑out financing, which requires the successful completion of construction and stabilization of the project, or operation of the property with an income stream sufficient to meet operating expenses, including debt service on such replacement financing. For construction loans, increased risks include the accuracy of the estimate of the property’s value at completion of construction and the estimated cost of construction, all of which may be affected by unanticipated construction delays and cost over‑runs. Such loans typically involve an expectation that the borrower’s sponsors will contribute sufficient equity funds in order to keep the loan in balance, and the sponsors’ failure or inability to meet this obligation could result in delays in construction or an inability to complete construction. Commercial construction loans also expose the lender to additional risks of contractor non‑performance, or borrower disputes with contractors resulting in mechanic’s or materialmen’s liens on the property and possible further delay in construction. In addition, since such loans generally entail greater risk than mortgage loans on income producing property, we may need to increase our allowance for loan losses in the future to account for the likely increase in probable incurred credit losses associated with such loans. Further, as the lender under a construction loan, we may be obligated to fund all or a significant portion of the loan at one or more future dates. We may not have the funds available at such future date(s) to meet our funding obligations under the loan. In that event, we would likely be in breach of the loan unless we are able to raise the funds from alternative sources, which we may not be able to achieve on favorable terms or at all. In addition, many of our construction loans have multiple lenders and if another lender fails to fund we could be faced with the choice of either funding for that defaulting lender or suffering a delay or protracted interruption in the progress of construction.
Our mezzanine loans involve greater risks of loss than senior loans secured by income‑producing properties.
We may continue to invest in mezzanine loans, which sometimes take the form of subordinated loans secured by second mortgages on the underlying property or more commonly take the form of loans secured by a pledge of the ownership interests of either the entity owning the property or a pledge of the ownership interests of the entity that owns the interest in the entity owning the property. These types of assets involve a higher degree of risk than long‑term senior mortgage lending secured by income‑producing real property because the loan may become unsecured as a result of foreclosure by the senior lender. In the event of a bankruptcy of the entity providing the pledge of its ownership interests as security, we may not have full recourse to the assets of such entity, or the assets of the entity may not be sufficient to satisfy our mezzanine loan. If a borrower defaults on our mezzanine loan or debt senior to our loan, or in the event of a borrower bankruptcy, our mezzanine loan will be satisfied only after the senior debt. As a result, we may not recover some or all of our investment. In addition, mezzanine loans may have higher loan‑to‑value ratios than conventional mortgage loans, resulting in less equity in the property and increasing the risk of
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loss of principal. Significant losses related to our mezzanine loans would result in operating losses for us and may limit our ability to make distributions to our stockholders.
Our loans and investments expose us to risks associated with debt-oriented real estate investments generally.
We have invested in, and will continue to seek to invest in, debt instruments relating to real estate-related assets. As such, we are subject to, among other things, risk of defaults by borrowers in paying debt service on outstanding indebtedness and to other impairments of our loans and investments. Any deterioration of real estate fundamentals could negatively impact our performance by making it more difficult for borrowers of our mortgage loans, or borrower entities, to satisfy their debt payment obligations, increasing the default risk applicable to borrower entities, and/or making it more difficult for us to generate attractive risk-adjusted returns. Changes in general economic conditions will affect the creditworthiness of borrower entities and/or the value of underlying real estate collateral relating to our investments and may include economic and/or market fluctuations, changes in environmental, zoning and other laws, casualty or condemnation losses, regulatory limitations on rents, decreases in property values, changes in the appeal of properties to tenants, changes in supply and demand, fluctuations in real estate fundamentals, the financial resources of borrower entities, energy supply shortages, various uninsured or uninsurable risks, natural disasters, political events, terrorism and acts of war, changes in government regulations, changes in real property tax rates and/or tax credits, changes in operating expenses, changes in interest rates, changes in inflation rates, changes in the availability of debt financing and/or mortgage funds which may render the sale or refinancing of properties difficult or impracticable, increased mortgage defaults, increases in borrowing rates, negative developments in the economy and/or adverse changes in real estate values generally and other factors that are beyond our control.
We cannot predict the degree to which economic conditions generally, and the conditions for real estate debt investing in particular, will improve or decline. Any declines in the performance of the U.S. and global economies or in the real estate debt markets could have a material adverse effect on our business, financial condition, and results of operations.
We operate in a highly competitive market for lending and investment opportunities, which may limit our ability to originate or acquire desirable loans and investments in our target assets.
A number of entities compete with us to make the types of loans and investments that we seek to make. Our profitability depends, in large part, on our ability to originate or acquire target assets at attractive prices. In originating or acquiring target assets, we compete with a variety of institutional lenders and investors and many other market participants, including specialty finance companies, REITs, commercial banks and thrift institutions, investment banks, insurance companies, hedge funds and other financial institutions. Many competitors are substantially larger and have considerably greater financial, technical, marketing and other resources than we do. Some competitors may have a lower cost of funds and access to funding sources that may not be available to us. Many of our competitors are not subject to the maintenance of an exemption from the Investment Company Act. Furthermore, competition for originations of, and investments in, our target assets may lead to the yield of such assets decreasing, which may further limit our ability to generate desired returns. Also, as a result of this competition, desirable loans and investments in specific types of target assets may be limited in the future and we may not be able to take advantage of attractive lending and investment opportunities from time to time. We can offer no assurance that we will be able to identify and originate loans or make any or all of the types of investments that are described herein.
Our control over certain loans and investments may be limited.
Our ability to manage our portfolio of loans and investments may be limited by the form in which they are made. In certain situations, we:
acquire investments subject to rights of senior classes, special servicers or collateral managers under intercreditor, servicing agreements or securitization documents;
pledge our investments as collateral for financing arrangements;
acquire only a minority and/or a non-controlling participation in an underlying investment;
co-invest with others through partnerships, joint ventures or other entities, thereby acquiring non-controlling interests; or
rely on independent third party management or servicing with respect to the management of an asset.
In addition, in circumstances where we originate or acquire loans relating to borrowers that are owned in whole or part by CCO Group-sponsored investment vehicles, we often forgo all non-economic rights under the loan, including voting rights, so long as CCO Group-sponsored investment vehicles own such borrowers above a certain threshold. Therefore, we may not be able to exercise control over all aspects of our loans or investments. Such financial assets may involve risks not present in investments where senior creditors, junior creditors, servicers, third-party controlling investors or CCO Group-sponsored investment vehicles are not involved. Our rights to control the process following a borrower default may be subject to the rights
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of senior or junior creditors or servicers whose interests may not be aligned with ours. A partner or co-venturer may have financial difficulties, resulting in a negative impact on such asset, may have economic or business interests or goals that are inconsistent with ours, or may be in a position to take action contrary to our investment objectives. In addition, we will generally pay all or a portion of the expenses relating to our joint ventures and we may, in certain circumstances, be liable for the actions of our partners or co-venturers.
Commercial real estate-related investments that are secured, directly or indirectly, by real property are subject to delinquency, foreclosure and loss, which could result in losses to us.
Commercial real estate debt instruments (e.g., mortgages, mezzanine loans and preferred equity) that are secured by commercial property are subject to risks of delinquency and foreclosure and risks of loss. The ability of a borrower to repay a loan secured by an income-producing property typically is dependent primarily upon the successful operation of the property rather than upon the existence of independent income or assets of the borrower. If the net operating income of the property is reduced, the borrower’s ability to repay the loan may be impaired. Net operating income of an income-producing property can be affected by, among other things:
tenant mix and tenant bankruptcies;
success of tenant businesses;
property management decisions, including with respect to capital improvements, particularly in older building structures;
property location and condition;
competition from other properties offering the same or similar services;
changes in laws that increase operating expenses or limit rents that may be charged;
any liabilities relating to environmental matters at the property;
changes in global, national, regional, or local economic conditions and/or specific industry segments;
global trade disruption, significant introductions of trade barriers and bilateral trade frictions;
declines in global, national, regional or local real estate values;
declines in global, national, regional or local rental or occupancy rates;
changes in interest rates, foreign exchange rates, and in the state of the credit and securitization markets and the debt and equity capital markets, including diminished availability or lack of debt financing for commercial real estate;
changes in real estate tax rates, tax credits and other operating expenses;
changes in governmental rules, regulations and fiscal policies, including income tax regulations and environmental legislation;
acts of God, terrorism, social unrest and civil disturbances, which may decrease the availability of or increase the cost of insurance or result in uninsured losses; and
adverse changes in zoning laws.
In addition, we are exposed to the risk of judicial proceedings with our borrowers and entities we invest in, including bankruptcy or other litigation, as a strategy to avoid foreclosure or enforcement of other rights by us as a lender or investor. In the event that any of the properties or entities underlying or collateralizing our loans or investments experiences any of the foregoing events or occurrences, the value of, and return on, such investments could be reduced, which would adversely affect our results of operations and financial condition.
Our secured debt agreements impose, and additional lending facilities may impose, restrictive covenants, which may restrict our flexibility to determine our operating policies and investment strategy.
We borrow funds under secured debt agreements with various counterparties. The documents that govern these secured debt agreements and the related guarantees contain, and additional lending facilities may contain, customary affirmative and negative covenants, including financial covenants applicable to us that may restrict our flexibility to determine our operating policies and investment strategy. In particular, these agreements may require us to maintain specified minimum levels of capacity under our credit facilities and cash. As a result, we may not be able to leverage our assets as fully as we would otherwise choose, which could reduce our return on assets. If we are unable to meet these collateral obligations, our financial condition and prospects could deteriorate significantly. In addition, lenders may require that our manager or one or more of our manager’s executives continue to serve in such capacity. If we fail to meet or satisfy any of these covenants, we would be in default under these agreements, and our lenders could elect to declare outstanding amounts due and payable, terminate their commitments, require the posting of additional collateral and enforce their interests against existing collateral. We may also be
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subject to cross-default and acceleration rights in our other debt arrangements. Further, this could also make it difficult for us to satisfy the distribution requirements necessary to maintain our qualification as a REIT for U.S. federal income tax purposes.
Difficulty in redeploying the proceeds from repayments of our existing loans and other investments could materially and adversely affect us.
As our loans and other investments are repaid, we may attempt to redeploy the proceeds we receive into new loans and investments and repay borrowings under our secured revolving repurchase agreements and other financing arrangements. It is possible that we will fail to identify reinvestment options that would provide a yield and/or a risk profile that is comparable to the asset that was repaid. If we fail to redeploy the proceeds we receive from repayment of a loan or other investment in equivalent or better alternatives, we could be materially and adversely affected.
In addition, we may continue to invest in CMBS as part of our investment strategy. Subordinate interests such as CMBS and similar structured finance investments generally are not actively traded and are relatively illiquid investments. Volatility in CMBS trading markets may cause the value of these investments to decline. In addition, if the underlying mortgage portfolio has been overvalued by the originator, or if the values subsequently decline and, as a result, less collateral value is available to satisfy interest and principal payments and any other fees in connection with the trust or other conduit arrangement for such securities, we may incur significant losses.
Prepayment rates may adversely affect our financial performance and cash flows and the value of certain of our investments.
Our mortgage loan borrowers may be able to repay their loans prior to their stated maturities. In periods of declining interest rates and/or credit spreads, prepayment rates on loans generally increase. If general interest rates or credit spreads decline at the same time, the proceeds of such prepayments received during such periods may not be reinvested for some period of time or may be reinvested by us in comparable assets yielding less than the yields on the assets that were prepaid.
When mortgage loans are not originated or acquired at a premium to par value, prepayment rates do not materially affect the value of such loan assets. However, the value of certain other assets may be affected by prepayment rates. For example, if we acquire fixed rate CRE debt securities investments or other fixed rate mortgage-related securities, or a pool of such fixed rate mortgage-related securities, we anticipate that the mortgage loans underlying these fixed rate securities will prepay at a projected rate generating an expected yield. If we were to purchase these securities at a premium to par value, when borrowers prepay the mortgage loans underlying these securities faster than expected, the increase in corresponding prepayments on these securities will likely reduce the expected yield. Conversely, if we were to purchase these securities at a discount to par value, when borrowers prepay the mortgage loans underlying these securities slower than expected, the decrease in corresponding prepayments on these securities will likely increase the expected yield. In addition, if we were to purchase these securities at a discount to par value, when borrowers prepay the mortgage loans underlying these securities faster than expected, the increase in corresponding prepayments on these securities will likely increase the expected yield.
Prepayment rates on floating rate and fixed rate loans may differ in different interest rate environments, and may be affected by a number of factors, including, but not limited to, the availability of mortgage credit, the relative economic vitality of the area in which the related properties are located, the servicing of the loans, possible changes in tax laws, other opportunities for investment, and other economic, social, geographic, demographic and legal factors, all of which are beyond our control, and structural factors such as call protection. Consequently, such prepayment rates cannot be predicted with certainty and no strategy can completely insulate us from prepayment risk.
We are subject to additional risks associated with investments in the form of loan participation interests.
We have in the past invested, and may in the future invest, in loan participation interests in which another lender or lenders share with us the rights, obligations and benefits of a commercial mortgage loan made by an originating lender to a borrower. Accordingly, we will not be in privity of contract with a borrower because the other lender or participant is the record holder of the loan and, therefore, we will not have any direct right to any underlying collateral for the loan. These loan participations may be senior, pari passu or junior to the interests of the other lender or lenders in respect of distributions from the commercial mortgage loan. Furthermore, we may not be able to control the pursuit of any rights or remedies under the commercial mortgage loan, including enforcement proceedings in the event of default thereunder. In certain cases, the original lender or another participant may be able to take actions in respect of the commercial mortgage loan that are not in our best interests. In addition, in the event that (1) the owner of the loan participation interest does not have the benefit of a perfected security interest in the lender’s rights to payments from the borrower under the commercial mortgage loan or (2) there are substantial differences between the terms of the commercial mortgage loan and those of the applicable loan participation interest, such loan participation interest could be recharacterized as an unsecured loan to a lender that is the record holder of the loan in such lender’s bankruptcy, and the assets of such lender may not be sufficient to satisfy the terms of such loan participation interest.
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Accordingly, we may face greater risks from loan participation interests than if we had made first mortgage loans directly to the owners of real estate collateral.
If the loans that we originate or acquire do not comply with applicable laws, we may be subject to penalties, which could materially and adversely affect us.
Loans that we originate or acquire may be directly or indirectly subject to U.S. federal, state or local governmental laws. Real estate lenders and borrowers may be responsible for compliance with a wide range of laws intended to protect the public interest, including, without limitation, the Truth in Lending, Equal Credit Opportunity, Fair Housing and Americans with Disabilities Acts and local zoning laws (including, but not limited to, zoning laws that allow permitted non-conforming uses). If we or any other person fails to comply with such laws in relation to a loan that we have originated or acquired, legal penalties may be imposed, which could materially and adversely affect us. Additionally, jurisdictions with “one action,” “security first” and/or “antideficiency rules” may limit our ability to foreclose on a real property or to realize on obligations secured by a real property. In the future, new laws may be enacted or imposed by U.S. federal, state or local governmental entities, and such laws could have a material adverse effect on us.
Risks Associated with Our Real Estate Segment
Adverse economic, regulatory and geographic conditions that have an impact on the real estate market in general may prevent us from being profitable or from realizing growth in the value of our real estate properties, and could have a significant negative impact on us.
Our operating results will be subject to risks generally incident to the ownership of real estate, including:
changes in international, national or local economic or geographic conditions (including as a result of the outbreak of COVID-19 and the emergence of the Delta, Omicron and any future variants thereof);
changes in supply of or demand for similar or competing properties in an area;
changes in interest rates and availability of permanent mortgage funds that may render the sale of a property difficult or unattractive;
the illiquidity of real estate assets generally;
changes in tax, real estate, environmental and zoning laws; and
periods of high interest rates and tight money supply.
The outbreak of COVID-19 that began in the fourth quarter of 2019 has led to an economic slowdown. During periods of economic slowdown, rising interest rates or declining demand for real estate, or the public perception that any of these events may occur, could result in a general decline in rents or an increased incidence of defaults under existing leases. If we cannot operate our properties so as to meet our financial expectations, because of these or other risks, we may be prevented from being profitable or growing the values of our real estate properties, and our business, financial condition, results of operations, cash flow or our ability to satisfy our debt service obligations or to maintain our level of distributions to our stockholders may be significantly negatively impacted.
We are dependent on single-tenant leases for a substantial portion of our revenue and, accordingly, if we are unable to renew leases, lease vacant space, including vacant space resulting from tenant defaults, or re-lease space as leases expire on favorable terms or at all, our financial condition could be adversely affected.
We focus our equity investment activities on ownership of primarily freestanding, single-tenant commercial properties that are net leased to a single tenant. Therefore, the financial failure of, or other default by, a significant tenant or multiple tenants could cause a material reduction in our revenues and operating cash flows. In addition, to the extent that we enter into a master lease with a particular tenant, the termination of such master lease could affect each property subject to the master lease, resulting in the loss of revenue from all such properties.
We cannot assure our stockholders that our leases will be renewed or that we will be able to lease or re-lease the properties on favorable terms, or at all, or that lease terminations will not cause us to sell the properties at a loss. Any of our properties that become vacant could be difficult to re-lease or sell. We have experienced and may continue to experience vacancies either by the default of a tenant under its lease or the expiration of one of our leases. We typically must incur all of the costs of ownership for a property that is vacant. Upon or pending the expiration of leases at our properties, we may be required to make rent or other concessions to tenants, or accommodate requests for renovations, remodeling and other improvements, in order to retain and attract tenants. Certain of our properties may be specifically suited to the particular needs of a tenant (e.g., a restaurant) and major renovations and expenditures may be required in order for us to re-lease the space for other uses. If the vacancies continue for a long period of time, we may suffer reduced revenues and increased costs, resulting in less cash available for
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distribution to our stockholders and unitholders of our operating partnership. If we are unable to renew leases, lease vacant space, including vacant space resulting from tenant defaults, or re-lease space as leases expire on favorable terms or at all, our financial condition could be adversely affected.
We are subject to geographic and industry concentrations that make us more susceptible to adverse events with respect to certain geographic areas or industries.
As of December 31, 2021, we had derived approximately:
10% of our 2021 annualized rental income from tenants in Ohio; and
11% of our 2021 annualized rental income from tenants in the sporting goods, hobby, and musical instrument stores industry.
Any adverse change in the financial condition of a tenant with whom we may have a significant credit concentration now or in the future, or any downturn of the economy in any state or industry in which we may have a significant credit concentration now or in the future, could result in a material reduction of our cash flows or material losses to us.
If a major tenant declares bankruptcy, we may be unable to collect balances due under relevant leases, which could have a material adverse effect on our financial condition and ability to pay distributions to our stockholders.
The bankruptcy or insolvency of our tenants may adversely affect the income produced by our properties. Under bankruptcy law, a tenant cannot be evicted solely because of its bankruptcy and has the option to assume or reject any unexpired lease. If the tenant rejects the lease, any resulting claim we have for breach of the lease (excluding collateral securing the claim) will be treated as a general unsecured claim. Our claim against the bankrupt tenant for unpaid and future rent will be subject to a statutory cap that might be substantially less than the remaining rent actually owed under the lease, and it is unlikely that a bankrupt tenant that rejects its lease would pay in full amounts it owes us under the lease. Even if a lease is assumed and brought current, we still run the risk that a tenant could condition lease assumption on a restructuring of certain terms, including rent, that would have an adverse impact on us. Any shortfall resulting from the bankruptcy of one or more of our tenants could adversely affect our business, financial condition, results of operations, cash flows or our ability to satisfy our debt service obligations or to maintain our level of distributions on our common stock.
In addition, the financial failure of, or other default by, one or more of the tenants to whom we have exposure could have an adverse effect on the results of our operations. While we evaluate the creditworthiness of our tenants by reviewing available financial and other pertinent information, there can be no assurance that any tenant will be able to make timely rental payments or avoid defaulting under its lease. If any of our tenants’ businesses experience significant adverse changes, they may fail to make rental payments when due, close a number of stores, exercise early termination rights (to the extent such rights are available to the tenant) or declare bankruptcy. A default by a significant tenant or multiple tenants could cause a material reduction in our revenues and operating cash flows. In addition, if a tenant defaults, we may incur substantial costs in protecting our assets.
If a sale-leaseback transaction is re-characterized in a tenant’s bankruptcy proceeding, our financial condition could be adversely affected.
We may enter into sale-leaseback transactions, whereby we would purchase a property and then lease the same property back to the person from whom we purchased it. In the event of the bankruptcy of a tenant, a transaction structured as a sale-leaseback might be re-characterized as either a financing or a joint venture, either of which outcomes could adversely affect our financial condition, cash flows and the amount available for distributions to our stockholders.
If the sale-leaseback were re-characterized as a financing, we would not be considered the owner of the property, and as a result would have the status of a creditor in relation to the tenant. In that event, we would no longer have the right to sell or encumber our ownership interest in the property. Instead, we would have a claim against the tenant for the amounts owed under the lease, with the claim arguably secured by the property. The tenant/debtor might have the ability to propose a plan restructuring the term, interest rate and amortization schedule of its outstanding balance. If confirmed by the bankruptcy court, we could be bound by the new terms, and prevented from foreclosing our lien on the property. If the sale-leaseback were re-characterized as a joint venture, we and our tenant could be treated as co-venturers with regard to the property. As a result, we could be held liable, under some circumstances, for debts incurred by the tenant relating to the property.
We have assumed, and in the future may assume, liabilities in connection with our property acquisitions, including unknown liabilities.
In connection with the acquisition of properties, we may assume existing liabilities, some of which may have been unknown or unquantifiable at the time of the transaction. Unknown liabilities might include liabilities for cleanup or
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remediation of undisclosed environmental conditions, claims of tenants or other persons dealing with the sellers prior to our acquisition of the properties, tax liabilities, and accrued but unpaid liabilities whether incurred in the ordinary course of business or otherwise. If the magnitude of such unknown liabilities is high, either singly or in the aggregate, it could adversely affect our business, financial condition, liquidity and results of operations, cash flows or our ability to satisfy our debt service obligations or maintain our level of distributions on our common stock.
Challenging economic conditions could adversely affect vacancy rates, which could have an adverse impact on our ability to make distributions and the value of an investment in our shares.
Challenging economic conditions, the availability and cost of credit, turmoil in the mortgage market, and declining real estate markets may contribute to increased vacancy rates in the commercial real estate sector. If we experience vacancy rates that are higher than historical vacancy rates, we may have to offer lower rental rates and greater tenant improvements or concessions than expected. Increased vacancies may have a greater impact on us, as compared to REITs with other investment strategies, as our investment approach relies on long-term leases in order to provide a relatively stable stream of income for our stockholders. As a result, increased vacancy rates could have the following negative effects on us:
the values of our commercial properties could decrease below the amount paid for such assets;
revenues from such properties could decrease due to low or no rental income during vacant periods, lower future rental rates and/or increase tenant improvement expenses or concessions;
ownership costs could increase;
revenues from such properties that secure loans could decrease, making it more difficult for us to meet our payment obligations; and/or
the resale value of such properties could decline.
All of these factors could impair our ability to make distributions and decrease the value of an investment in our shares.
Uninsured losses or losses in excess of our insurance coverage could materially adversely affect our financial condition and cash flows, and there can be no assurance as to future costs and the scope of coverage that may be available under insurance policies.
We carry comprehensive liability, fire, extended coverage, and rental loss insurance covering all of the properties in our portfolio under one or more blanket insurance policies with policy specifications, limits and deductibles customarily carried for similar properties. In addition, we carry professional liability and directors’ and officers’ insurance, and cyber liability insurance. While we select policy specifications and insured limits that we believe are appropriate and adequate given the relative risk of loss, insurance coverages provided by tenants, the cost of the coverage and industry practice, there can be no assurance that we will not experience a loss that is uninsured or that exceeds policy limits. In addition, we may reduce or discontinue terrorism, earthquake, flood or other insurance on some or all of our properties in the future if the cost of premiums for any of these policies exceeds, in our judgment, the value of the coverage discounted for the risk of loss. Our title insurance policies may not insure for the current aggregate market value of our portfolio, and we do not intend to increase our title insurance coverage as the market value of our portfolio increases.
Further, we do not carry insurance for certain losses, including, but not limited to, losses caused by earthquakes, riots or acts of war because such losses may be either uninsurable or not economically insurable. If we experience a loss that is uninsured or which exceeds policy limits, we could lose the capital invested in the damaged properties as well as the anticipated future cash flows from those properties. In addition, if the damaged properties are subject to recourse indebtedness, we would continue to be liable for the indebtedness, even if these properties were irreparably damaged. In addition, we carry several different lines of insurance, placed with several large insurance carriers. If any one of these large insurance carriers were to become insolvent, we would be forced to replace the existing insurance coverage with another suitable carrier, and any outstanding claims would be at risk for collection. In such an event, we cannot be certain that we would be able to replace the coverage at similar or otherwise favorable terms. As a result of any of the situations described above, our financial condition and cash flows may be materially and adversely affected.
We may be unable to secure funds for future leasing commissions, tenant improvements or capital needs, which could adversely impact our ability to pay cash distributions to our stockholders.
When tenants do not renew their leases or otherwise vacate their space, we are typically required to expend substantial funds for leasing commissions, tenant improvements and tenant refurbishments to the vacated space in order to attract replacement tenants. In addition, although we expect that our leases with tenants will require tenants to pay routine property maintenance costs, we could be responsible for any major structural repairs, such as repairs to the foundation, exterior walls and rooftops. The capital to fund these activities may come from cash flows from operations, borrowings, property sales or future
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equity offerings. However, these sources of funding may not be available on attractive terms or at all, and we may be required to defer necessary improvements to a property, which may cause that property to suffer from a greater risk of obsolescence or a decline in value, or a greater risk of decreased operating cash flows as a result of fewer potential tenants being attracted to the property. If this happens, our assets may generate lower cash flows or decline in value, or both.
Our properties may be subject to impairment charges.
We routinely evaluate our real estate assets for impairment indicators. The judgment regarding the existence of impairment indicators is based on factors such as market conditions, tenant performance and lease structure. For example, the early termination of, or default under, a lease by a tenant may lead to an impairment charge. Since our real estate segment investment focus is on properties net leased to a single tenant, the financial failure of, or other default by, a single tenant under its lease may result in a significant impairment loss. If we determine that an impairment has occurred, we would be required to make a downward adjustment to the net carrying value of the property, which could have a material adverse effect on our results of operations in the period in which the impairment charge is recorded. Management has recorded an impairment charge related to certain properties in the year ended December 31, 2021, and may record future impairments based on actual results and changes in circumstances. Negative developments in the real estate market may cause management to reevaluate the business and macro-economic assumptions used in its impairment analysis. Changes in management’s assumptions based on actual results may have a material impact on our financial statements. See Note 3 — Fair Value Measurements to our consolidated financial statements in this Annual Report on Form 10-K for a discussion of our real estate impairment charge.
We may obtain only limited warranties when we purchase a property and, as a result, have limited recourse in the event our due diligence did not identify issues that lower the value of the property.
Properties are often sold on an “as is” condition and “where is” basis and “with all faults,” without any warranties of merchantability or fitness for a particular use or purpose. In addition, purchase agreements may contain only limited warranties, representations and indemnifications that will only survive for a limited period after the closing of the sale. The purchase of properties with limited warranties increases the risk that we may lose some or all of our invested capital in the property.
We may be unable to sell a property if or when we decide to do so, including as a result of uncertain market conditions.
Real estate assets are, in general, relatively illiquid and may become even more illiquid during periods of economic downturn. As a result, we may not be able to sell our properties quickly or on favorable terms in response to changes in the economy or other conditions when it otherwise may be prudent to do so. In addition, certain significant expenditures generally do not change in response to economic or other conditions, including debt service obligations, real estate taxes, and operating and maintenance costs. This combination of variable revenue and relatively fixed expenditures may result, under certain market conditions, in reduced earnings. Further, as a result of the 100% prohibited transactions tax applicable to REITs, we intend to hold our properties for investment, rather than primarily for sale in the ordinary course of business, which may cause us to forgo or defer sales of properties that otherwise would be favorable. Therefore, we may be unable to adjust our portfolio promptly in response to economic, market or other conditions, which could adversely affect our business, financial condition, results of operations, cash flows or our ability to satisfy our debt service obligations or to maintain our level of distributions on our common stock.
Some of our leases may not contain rental increases over time, or the rental increases may be less than the fair market rate at a future point in time. When that is the case, the value of the leased property to a potential purchaser may not increase over time, which may restrict our ability to sell that property, or if we are able to sell that property, may result in a sale price less than the price that we paid to purchase the property or the price that could be obtained if the rental was at the then-current market rate.
We expect to hold the various real properties we acquire until such time as we decide that a sale or other disposition is appropriate given our REIT status and business objectives. Our ability to dispose of properties on advantageous terms or at all depends on certain factors beyond our control, including competition from other sellers and the availability of attractive financing for potential buyers of our properties. We cannot predict the various market conditions affecting real estate assets which will exist at any particular time in the future. Due to the uncertainty of market conditions which may affect the disposition of our properties, we cannot assure our stockholders that we will be able to sell such properties at a profit or at all in the future. Accordingly, the extent to which our stockholders will receive cash distributions and realize potential appreciation on our real estate assets will depend upon fluctuating market conditions. Furthermore, we may be required to expend funds to correct defects or to make improvements before a property can be sold. We cannot assure our stockholders that we will have funds available to correct such defects or to make such improvements.
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Our properties where the underlying tenant has a below investment-grade credit rating, as determined by major credit rating agencies, or has an unrated tenant may have a greater risk of default.
As of December 31, 2021, approximately 62.6% of our tenants were not rated or did not have an investment-grade credit rating from a major ratings agency or were not affiliates of companies having an investment-grade credit rating. Our properties with such tenants may have a greater risk of default and bankruptcy than properties leased exclusively to investment-grade tenants. When we acquire properties where the tenant does not have a publicly available credit rating, we will use certain credit assessment tools as well as rely on our own estimates of the tenant’s credit rating which includes reviewing the tenant’s financial information (e.g., financial ratios, net worth, revenue, cash flows, leverage and liquidity, if applicable). If our ratings estimates are inaccurate, the default or bankruptcy risk for the subject tenant may be greater than anticipated. If our lender or a credit rating agency disagrees with our ratings estimates, we may not be able to obtain our desired level of leverage or our financing costs may exceed those that we projected. This outcome could have an adverse impact on our returns on that asset and hence our operating results.
Increased operating expenses could reduce cash flows from operations and funds available to acquire properties or make distributions.
Our properties are subject to operating risks common to real estate in general, any or all of which may negatively affect us. If any property is not fully occupied or if rents are payable (or are being paid) in an amount that is insufficient to cover operating expenses that are the landlord’s responsibility under the lease, we could be required to expend funds in excess of such rents with respect to that property for operating expenses. Our properties are subject to increases in tax rates, utility costs, insurance costs, repairs and maintenance costs, administrative costs and other operating and ownership expenses. Some of our property leases may not require the tenants to pay all or a portion of these expenses, in which event we may be responsible for these costs. If we are unable to lease properties on terms that require the tenants to pay all or some of the properties’ operating expenses, if our tenants fail to pay these expenses as required or if expenses we are required to pay exceed our expectations, we could have less funds available for future acquisitions or cash available for distributions to our stockholders.
Inflation may adversely affect our financial condition and results of operations.
Since we may incur leverage to make investments, our income depends, in part, upon the difference between the rate at which we borrow funds and the rate at which we invest those funds. Inflation increased substantially in 2021. The consumer price index for February 2022 rose 7.9% from a year ago, the highest level since January 1982. Inflation is expected to further accelerate for the rest of 2022 as a result of the sharp spike in energy costs caused by the war that broke out between Russia and Ukraine. The Federal Reserve has indicated that it was on track to raise interest rates in March 2022 to, among other things, control inflation. Some market participants believe that the Federal Reserve will continue with additional interest rate increases in 2022. In a rising interest rate environment, any leverage that we incur may bear a higher interest rate than may currently be available. There may not, however, be a corresponding increase in our revenues. Any reduction in the rate of return on new investments relative to the rate of return on current investments, and any reduction in the rate of return on current investments, could adversely impact our income, reducing our ability to service the interest obligations on, and to repay the principal of, our indebtedness.
An increase in inflation could have an adverse impact on our floating rate mortgages, credit facilities and general and administrative expenses, as these costs could increase at a rate higher than our rental and other revenue. Inflation could also have an adverse effect on consumer spending, which could impact our tenants’ revenues and, in turn, their demand for space and future extensions of their leases.
Real estate-related taxes may increase, and if these increases are not passed on to tenants, our income will be reduced.
Local real property tax assessors may reassess our properties, which may result in increased taxes. Generally, property taxes increase as property values or assessment rates change, or for other reasons deemed relevant by property tax assessors. An increase in the assessed valuation of a property for real estate tax purposes will result in an increase in the related real estate taxes on that property. Although some tenant leases may permit us to pass through such tax increases to the tenants for payment, renewal leases or future leases may not be negotiated on the same basis. Tax increases not passed through to tenants could have a materially adverse effect on our business, financial condition, results of operations, cash flows or our ability to satisfy our debt service obligations or to maintain our level of distributions on our common stock.
Covenants, conditions and restrictions may restrict our ability to operate a property.
Many of our properties are or will be subject to significant covenants, conditions and restrictions, known as “CC&Rs,” restricting their operation and any improvements on such properties. Compliance with CC&Rs may adversely affect the types
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of tenants we are able to attract to such properties, our operating costs and reduce the amount of funds that we have available to pay distributions to our stockholders.
Acquisitions of build-to-suit properties will be subject to additional risks related to properties under development.
We may engage in build-to-suit programs and the acquisition of properties under development. In connection with these acquisitions, we will enter into purchase and sale arrangements with sellers or developers of suitable properties under development or construction. In such cases, we are generally obligated to purchase the property at the completion of construction, provided that the construction conforms to definitive plans, specifications, and costs approved by us in advance. We may also engage in development and construction activities involving existing properties, including the expansion of existing facilities (typically at the request of a tenant) or the development or build-out of vacant space at retail properties. We may advance significant amounts in connection with certain development projects.
As a result, we are subject to potential development risks and construction delays and the resultant increased costs and risks, as well as the risk of loss of certain amounts that we have advanced should a development project not be completed. To the extent that we engage in development or construction projects, we may be subject to uncertainties associated with obtaining permits or re-zoning for development, environmental and land use concerns of governmental entities and/or community groups, and the builder’s ability to build in conformity with plans, specifications, budgeted costs and timetables. If a developer or builder fails to perform, we may terminate the purchase, modify the construction contract or resort to legal action to compel performance (or in certain cases, we may elect to take over the project and pursue completion of the project ourselves). A developer’s or builder’s performance may also be affected or delayed by conditions beyond that party’s control. Delays in obtaining permits or completion of construction could also give tenants the right to terminate preconstruction leases.
We may incur additional risks if we make periodic progress payments or other advances to builders before they complete construction. These and other such factors can result in increased project costs or the loss of our investment. Although we rarely engage in construction activities relating to space that is not already leased to one or more tenants, to the extent that we do so, we may be subject to normal lease-up risks relating to newly constructed projects. We also will rely on rental income and expense projections and estimates of the fair market value of the property upon completion of construction when agreeing upon a price at the time we acquire the property. If these projections are inaccurate, we may pay too much for a property and our return on our investment could suffer. If we contract with a development company for a newly developed property, there is a risk that money advanced to that development company for the project may not be fully recoverable if the developer fails to successfully complete the project.
Our operating results may be negatively affected by potential development and construction delays and the resultant increased costs and risks.
If we engage in development or construction projects, we will be subject to uncertainties associated with re-zoning for development, environmental and land use concerns of governmental entities and/or community groups, and our builder’s ability to build in conformity with plans, specifications, budgeted costs, and timetables. If a builder fails to perform, we may resort to legal action to rescind the breached agreements or to compel performance. A builder’s performance may also be affected or delayed by conditions beyond the builder’s control. Delays in completion of construction could also give tenants the right to terminate preconstruction leases. We may incur additional risks if we make periodic progress payments or other advances to builders before they complete construction. These and other such factors can result in increased costs of a project or loss of our asset. In addition, we will be subject to normal lease-up risks relating to newly constructed projects. We also must rely on rental income and expense projections and estimates of the fair market value of property upon completion of construction when agreeing upon a price at the time we acquire the property. If our projections are inaccurate, we may pay too much for a property, and our return on our assets could suffer.
We may deploy capital in unimproved real property. Returns from development of unimproved properties are also subject to risks associated with re-zoning the land for development and environmental and land use concerns of governmental entities and/or community groups.
Competition with third parties in acquiring, leasing or selling properties and other investments may reduce our profitability and the return on our stockholders’ investment.
We compete with many other entities engaged in real estate acquisition activities, including individuals, corporations, bank and insurance company investment accounts, other REITs, real estate limited partnerships, and other entities engaged in real estate acquisition activities, many of which have greater resources than we do. Larger competitors may enjoy significant advantages that result from, among other things, a lower cost of capital and enhanced operating efficiencies. In addition, the number of entities and the amount of funds competing for suitable acquisitions may increase. Any such increase would result in increased demand for these assets and therefore increased prices paid for them. If we pay higher prices for properties and other
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assets as a result of competition with third parties without a corresponding increase in tenant lease rates, our profitability will be reduced, and our stockholders may experience a lower return on their investment.
We are also subject to competition in the leasing of our properties. Many of our competitors own properties similar to ours in the same markets in which our properties are located. If one of our properties is nearing the end of the lease term or becomes vacant and our competitors (which could include funds sponsored by affiliates of our manager) offer space at rental rates below current market rates or below the rental rates we currently charge our tenants, we may lose existing or potential tenants and we may be pressured to reduce our rental rates below those we currently charge or to offer substantial rent concessions in order to retain tenants when such tenants’ leases expire or to attract new tenants.
In addition, if our competitors sell assets similar to assets we intend to sell in the same markets and/or at valuations below our valuations for comparable assets, we may be unable to dispose of our assets at all or at favorable pricing or on favorable terms. As a result of these actions by our competitors, our business, financial condition, liquidity and results of operations may be adversely affected.
Our properties face competition that may affect tenants’ ability to pay rent and the amount of rent paid to us may affect the cash available for distributions to our stockholders and the amount of distributions.
Many of our leases provide for increases in rent as a result of increases in the tenant’s sales volume. There likely will be numerous other retail properties within the market area of such properties that will compete with our tenants for customer business. In addition, traditional retailers face increasing competition from alternative retail channels, including internet-based retailers and other forms of e-commerce, factory outlet centers, wholesale clubs, mail order catalogs and television shopping networks, which could adversely impact our retail tenants’ sales volume. Such competition could negatively affect such tenants’ ability to pay rent or the amount of rent paid to us. This could result in decreased cash flows from tenants thus affecting cash available for distributions to our stockholders and the amount of distributions we pay.
Acquiring or attempting to acquire multiple properties in a single transaction may adversely affect our operations.
From time to time, we may acquire multiple properties in a single transaction. Portfolio acquisitions are often more complex and expensive than single-property acquisitions, and the risk that a multiple-property acquisition does not close may be greater than in a single-property acquisition. Portfolio acquisitions may also result in us owning assets in geographically dispersed markets, placing additional demands on our ability to manage the properties in the portfolio. In addition, a seller may require that a group of properties be purchased as a package even though we may not want to purchase one or more properties in the portfolio. In these situations, if we are unable to identify another person or entity to acquire the unwanted properties, we will be required to either pass on the entire portfolio, including the desirable properties or acquire the entire portfolio and operate or attempt to dispose of the unwanted properties. To acquire multiple properties in a single transaction, we may be required to accumulate a large amount of cash. We would expect the returns that we earn on such cash to be less than the ultimate returns on real property, therefore accumulating such cash could reduce our funds available for distributions to our stockholders. Any of the foregoing events may have an adverse impact on our operations.
Terrorist attacks, acts of violence or war or public health crises may affect the markets in which we operate and have a material adverse effect on our financial condition, results of operations and ability to pay distributions to our stockholders.
The strength and profitability of our business depends on demand for and the value of our properties. The war between Russia and Ukraine and resulting economic sanctions imposed by many countries on Russia have led to disruption, instability and volatility in global markets and industries and are expected to have a negative impact on the global economy. Disruption, instability, volatility and decline in global economic activity, whether caused by acts of war, other acts of aggression or terrorism, each case regardless of where it occurs, could in turn harm the demand for and the value of our properties. In addition, public health crises (including the COVID-19 outbreak and the emergence of the Delta, Omicron and any future variants) may result in declining economic activity, which could harm the demand for and the value of our properties and may negatively affect our operations and our stockholders’ investments. We may acquire real estate assets located in areas that are susceptible to terrorist attacks or acts of war. These attacks may directly impact the value of our assets through damage, destruction, loss or increased security costs. Although we may obtain terrorism insurance, we may not be able to obtain sufficient coverage to fund any losses we may incur. Risks associated with potential acts of terrorism could sharply increase the premiums we pay for coverage against property and casualty claims. Further, certain losses resulting from these types of events are uninsurable or not insurable at reasonable costs.
More generally, any terrorist attack, other act of violence or war, or public health crisis (such as the COVID-19 outbreak and the emergence of the Delta, Omicron and any future variants) could result in increased volatility in, or damage to, the United States and worldwide financial markets and economy, all of which could adversely affect our tenants’ ability to pay
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rent on their leases or our ability to borrow money or issue capital stock at acceptable prices, which could have a material adverse effect on our financial condition, results of operations and ability to pay distributions to our stockholders.
Our business and/or operations and the businesses of our tenants could be materially and adversely affected by the risks, or the public perception of the risks, related to a pandemic or other health crisis, such as the recent outbreak of COVID-19 and the emergence of the Delta, Omicron and any future variants.
The COVID-19 outbreak, including the emergence of the Delta, Omicron and any future variants, and the associated “shelter-in-place” or “stay-at-home” orders or other quarantine mandates or public health guidance issued by local, state or federal authorities has adversely affected a number of our tenants’ businesses. The extent to which the lingering effects of COVID-19 pandemic continues to impact our operations and those of our tenants will depend on future developments, including, among other factors, the duration, spread and resurgences of the virus, including certain variants thereof, along with related travel advisories and restrictions, the recovery time of the disrupted supply chains and industries, the impact of labor market interruptions, the impact of government interventions, the pace, scope and efficacy of vaccination programs, and general uncertainty as to the impact of COVID-19, including related variants, on the global economy. Management will continue to monitor the impact to our business, financial condition, results of operations, cash flow, and occupancy. Accordingly, we cannot predict the significance, extent or duration of any adverse impact of the COVID-19 pandemic on our business, financial condition, results of operations or cash flows.
We are subject to risks that affect the retail real estate environment generally.
Our business has historically focused on retail real estate. As such, we are subject to certain risks that can affect the ability of our retail properties to generate sufficient revenue to meet our operating and other expenses, including debt service, to make capital expenditures and to make distributions to our stockholders. We face continuing challenges because of changing consumer preferences and because the conditions in the economy affect employment growth and cause fluctuations and variations in retail sales and in business and consumer confidence and consumer spending on retail goods. In general, a number of factors can negatively affect the income generated by a retail property or the value of a property, including: a downturn in the national, regional or local economy; a decrease in employment or consumer confidence or spending; increases in operating costs, such as common area maintenance, real estate taxes, utility rates and insurance premiums; higher energy or fuel costs resulting from adverse weather conditions, natural disasters, geopolitical concerns, terrorist activities (including the war between Russia and Ukraine, which has led to disruption, instability and volatility in global markets and industries) and other factors; changes in interest rate levels and the cost and availability of financing; a weakening of local real estate conditions, such as an oversupply of, or a reduction in demand for, retail space or retail goods, and the availability and creditworthiness of current and prospective tenants; trends in the retail industry; seasonality; changes in perceptions by retailers or shoppers of the safety, convenience and attractiveness of a retail property; perceived changes in the convenience and quality of competing retail properties and other retailing options such as internet shopping or other strategies, such as using smartphones or other technologies to determine where to make and to assist in making purchases; the ability of our tenants to meet shoppers’ demands for quality, variety, and product availability, which may be impacted by supply chain disruptions; and changes in laws and regulations applicable to real property, including tax and zoning laws.
Changes in one or more of the aforementioned factors can lead to a decrease in the revenue or income generated by our properties and can have a material adverse effect on our financial condition and results of operations. Many of these factors could also specifically or disproportionately affect one or more of our tenants, which could decrease operating performance, reduce property revenue and affect our results of operations. If the estimated future cash flows related to a particular property are significantly reduced, we may be required to reduce the carrying value of the property.
Downturns in the retail industry likely will have a direct adverse impact on our revenues and cash flow.
Our retail properties currently owned consist primarily of necessity retail properties and anchored shopping centers. Our retail performance therefore is generally linked to economic conditions in the market for retail space. The market for retail space could be adversely affected by any of the following:
weakness in the national, regional and local economies, and declines in consumer confidence which could adversely impact consumer spending and retail sales and in turn tenant demand for space and could lead to increased store closings;
changes in market rental rates;
changes in demographics (including the number of households and average household income) surrounding our shopping centers;
adverse financial conditions for anchored shopping centers and other retail, service, medical or restaurant tenants;
continued consolidation in the retail and grocery sector;
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excess amount of retail space in our markets;
reduction in the demand by tenants to occupy our shopping centers as a result of increases in e-commerce and alternative distribution channels, which may negatively affect out tenant sales or decrease the square footage our tenants require and could lead to margin pressure on our anchored shopping centers and store closures;
the impact of an increase in energy costs on consumers and its consequential effect on the number of shopping visits to our centers;
a pandemic or other health crisis, such as the outbreak of COVID-19 and the emergence of the Delta, Omicron and any future variants; and
consequences of any armed conflict involving, or terrorist attack against, the United States.
To the extent that any of these conditions occur, they are likely to impact market rents for retail space, occupancy in our retail properties, our ability to sell, acquire or develop retail properties, and our cash available for distributions to stockholders.
If we sell properties by providing financing to purchasers, defaults by the purchasers would adversely affect our cash flows from operations.
In some instances, we may sell our properties by providing financing to purchasers. When we provide financing to purchasers, we will bear the risk that the purchaser may default on its obligations under the financing, which could negatively impact cash flows from operations. Even in the absence of a purchaser default, the distribution of sale proceeds or their reinvestment in other assets will be delayed until the promissory notes or other property we may accept upon the sale are actually paid, sold, refinanced or otherwise disposed of. In some cases, we may receive initial down payments in cash and other property in the year of sale in an amount less than the selling price, and subsequent payments will be spread over a number of years. If any purchaser defaults under a financing arrangement with us, such default could negatively impact our ability to pay cash distributions to our stockholders.
Our net leases may require us to pay property-related expenses that are not the obligations of our tenants.
Under the terms of the majority of our net leases, in addition to satisfying their rent obligations, our tenants will be responsible for the payment or reimbursement of property expenses such as real estate taxes, insurance and ordinary maintenance and repairs. However, under the provisions of certain existing leases and leases that we may enter into in the future with our tenants, we may be required to pay some or all of the expenses of the property, such as the costs of environmental liabilities, roof and structural repairs, real estate taxes, insurance, certain non-structural repairs and maintenance. If our properties incur significant expenses that must be paid by us under the terms of our leases, our business, financial condition and results of operations may be adversely affected and the amount of cash available to meet expenses and to pay distributions to stockholders may be reduced.
Changes in accounting standards may adversely impact our financial condition and/or results of operations.
We are subject to the rules and regulations of the Financial Accounting Standards Board related to GAAP. Various changes to GAAP are constantly being considered, some of which could materially impact our reported financial condition and/or results of operations. Also, to the extent that public companies in the United States would be required in the future to prepare financial statements in accordance with International Financial Reporting Standards instead of the current GAAP, this change in accounting standards could materially affect our financial condition or results of operations.
Our real estate business is subject to risks from climate change.
Our real estate business is subject to risks associated with climate change. Climate change could trigger extreme weather and changes in precipitation, temperature, and air quality, all of which may result in physical damage to, or a decrease in demand for, our properties located in the areas affected by these conditions. Further, the assessment of the potential impact of climate change has impacted the activities of government authorities, the pattern of consumer behavior, and other areas that impact the business environment in the United States, including, but not limited to, energy-efficiency measures, water use measures, and land-use practices. The promulgation of policies, laws or regulations relating to climate change by governmental authorities in the U.S. and the markets in which we own real estate may require us to invest additional capital in our properties.
To the extent that climate change impacts changes in weather patterns, our markets could experience increases in extreme weather. For example, a portion of our properties are located in areas have been impacted by drought and, as such, face the risk of increased water costs and potential fines and/or penalties for high consumption. There can be no assurances that we will successfully mitigate the risk of increased water costs and potential fines and/or penalties for high consumption.
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Climate change may also have indirect effects on our business by increasing the cost of, or decreasing the availability of, property insurance on terms we find acceptable or at all, or by increasing the cost of energy (or water, as described above). There can be no assurance that climate change will not have a material adverse effect on our financial condition or results of operations.
Compliance with the Americans with Disabilities Act of 1990, as amended, and fire, safety and other regulations may require us to make unanticipated expenditures that could significantly reduce the cash available for distributions on our common stock.
Our properties are subject to regulation under federal laws, such as the Americans with Disabilities Act of 1990, as amended (the “ADA”), pursuant to which all public accommodations must meet federal requirements related to access and use by disabled persons. Although we believe that our properties substantially comply with present requirements of the ADA, we have not conducted an audit or investigation of all of our properties to determine our compliance. If one or more of our properties or future properties are not in compliance with the ADA, we might be required to take remedial action, which would require us to incur additional costs to bring the property into compliance. Noncompliance with the ADA could also result in imposition of fines or an award of damages to private litigants.
Additional federal, state and local laws also may require modifications to our properties or restrict our ability to renovate our properties. We cannot predict the ultimate amount of the cost of compliance with the ADA or other legislation.
In addition, our properties are subject to various federal, state and local regulatory requirements, such as state and local earthquake, fire and life safety requirements. If we were to fail to comply with these various requirements, we might incur governmental fines or private damage awards. If we incur substantial costs to comply with the ADA or any other regulatory requirements, our business, financial condition, results of operations, cash flows or our ability to satisfy our debt service obligations or to maintain our level of distributions on our common stock could be materially adversely affected. Local regulations, including municipal or local ordinances, zoning restrictions and restrictive covenants imposed by community developers may restrict our use of our properties and may require us to obtain approval from local officials or community standards organizations at any time with respect to our properties, including prior to acquiring a property or when undertaking renovations of any of our existing properties.
Risks Related to Conflicts of Interest
Our manager and its affiliates face conflicts of interest caused by their compensation arrangements with us, including significant compensation that may be required to be paid to our manager if our manager is terminated, which could result in actions that are not in the long-term best interests of our stockholders.
Our manager and its affiliates are entitled to substantial fees from us under the terms of the Management Agreement. These fees could influence the judgment of our manager and its affiliates in performing services for us. Among other matters, these compensation arrangements could affect their judgment with respect to:
the continuation, renewal or enforcement of our agreements with our manager and its affiliates, including the Management Agreement;
property acquisitions or other investments acquired from programs sponsored or operated by affiliates of our manager, which might entitle affiliates of our manager to commissions and possible success-based sale fees in connection with its services for the seller;
property acquisitions from third parties, which entitle our manager to advisory fees;
property or asset dispositions, which may entitle our manager or its affiliates to disposition fees;
borrowings to acquire properties, which borrowings will increase the acquisition and advisory fees payable to our manager; and
how and when to recommend to our Board a proposed strategy to provide our stockholders with liquidity, which proposed strategy, if implemented, could entitle our manager to the payment of significant fees.
CMFT Securities has engaged our Investment Advisor to select and manage our investment securities. Our Investment Advisor has engaged its sub-advisor to provide management services with respect to corporate credit-related securities and certain other investments. We rely on the performance of our Investment Advisor and its sub-advisor in implementing the investment securities portion of our investment strategy.
CMFT Securities was formed for the purpose of holding any investment securities of ours. CMFT Securities has engaged our Investment Advisor to manage the day-to-day business affairs of CMFT Securities and its investments in corporate credit and real estate-related securities. Our Investment Advisor engaged its sub-advisor to provide investment management services
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with respect to corporate credit-related securities held by CMFT Securities. Our Investment Advisor and its sub-advisor have, and will continue to have, substantial discretion, within our investment guidelines, to make decisions related to the acquisition, management and disposition of our investment securities. If our Investment Advisor and its sub-advisor do not succeed in implementing the investment securities portion of our investment strategy, our performance will suffer. In addition, even though CMFT Securities has the ability to terminate our Investment Advisor at any time and therefore also terminate the sub-advisor, a termination fee may be required to be paid in connection with such termination and it may be difficult and costly to terminate and replace our Investment Advisor and the sub-advisor.
We do not have a direct contractual relationship with the sub-advisor. Therefore, it may be difficult for us to take enforcement action against the sub-advisor if its actions, performance or non-performance do not comply with the agreement.
We are not a party to the agreement with the sub-advisor pursuant to which the sub-advisor provides investment management services with respect to the corporate credit-related securities held by CMFT Securities. Therefore, we are dependent upon our Investment Advisor to manage and monitor the sub-advisor effectively. The sub-advisor may take actions that are not in our best interest, which could cause our performance to suffer, and as we are not a party to the agreement with the sub-advisor, we are limited in our ability to enforce that agreement.
Our manager faces conflicts of interest relating to the incentive fee structure under our Management Agreement, which could result in actions that are not necessarily in the long-term best interests of our stockholders.
Pursuant to the terms of our Management Agreement, our manager is entitled to a subordinated performance fee that is structured in a manner intended to provide incentives to our manager to perform in our best interests and in the best interests of our stockholders. However, because our manager does not maintain a significant equity interest in us and is entitled to receive certain fees regardless of performance, our manager’s interests are not wholly aligned with those of our stockholders. Furthermore, our manager could be motivated to recommend riskier or more speculative acquisitions in order for us to generate the specified levels of performance or sales proceeds that would entitle our manager to performance-based fees. In addition, our manager will have substantial influence with respect to how and when our Board elects to provide liquidity to our stockholders, and these performance-based fees could influence our manager’s recommendations to us in this regard. Our manager also has the right to terminate the Management Agreement upon 60 days’ written notice without cause or penalty which, under certain circumstances, could result in our manager earning a performance fee. This could have the effect of delaying, deferring or preventing a change of control.
Other programs sponsored by affiliates of our manager, as well as CIM and certain of its affiliates, use investment strategies that are similar to ours; therefore, our executive officers and the officers and key personnel of our manager and its affiliates may face conflicts of interest relating to the purchase and leasing of properties, and such conflicts may not be resolved in our favor.
CIM and its affiliates may have investment objectives, strategy and criteria, including targeted asset types, substantially similar to ours. As a result, we may be seeking to acquire properties and real estate-related assets, including mortgage loans, at the same time as CIM or its affiliates, or one or more of the other real estate programs sponsored by our manager or its affiliates. Certain of our executive officers and certain officers of our manager also are executive officers of CIM or its affiliates and other programs sponsored by our manager or its affiliates, the general partners of other private investment programs sponsored by our manager or its affiliates and/or the advisors or fiduciaries of other real estate programs sponsored by our manager or its affiliates. Accordingly, there is a risk that the allocation of acquisition opportunities may result in our acquiring a property that provides lower returns to us than a property purchased by another real estate program sponsored by our manager or its affiliates.
In addition, we have acquired, and may continue to acquire, properties in geographic areas where CIM or its affiliates or other real estate programs sponsored by CCO Group or its affiliates, own properties. If one of these other real estate programs attracts a tenant that we are competing for, we could suffer a loss of revenue due to delays in locating another suitable tenant.
Our officers, certain of our directors and our manager, including its key personnel and officers, face conflicts of interest related to the positions they hold with affiliated and unaffiliated entities, which could hinder our ability to successfully implement our business strategy and to generate returns to our stockholders.
Richard S. Ressler, the chairman of our Board, chief executive officer and president, who is also a founder and principal of CIM and is an officer or director of certain of its affiliates, is the vice president of our manager. One of our directors, Avraham Shemesh, who is also a founder and principal of CIM and is an officer or director of certain of its affiliates, is the president and treasurer of our manager. Our chief financial officer and treasurer, Nathan D. DeBacker, is a vice president of our manager and is an officer of certain of its affiliates.
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Conflicts with our business and interests are most likely to arise from involvement in activities related to (1) allocation of new acquisition opportunities, management time and operational expertise among us and the other entities, (2) our purchase of properties from, or sale of properties to, affiliated entities, (3) the timing and terms of the acquisition or sale of an asset, (4) development of our properties by affiliates, (5) investments with affiliates of our manager, (6) compensation to our manager and its affiliates, and (7) our relationship with, and compensation to, our dealer manager. Even if these persons do not violate their duties to us and our stockholders, they will have competing demands on their time and resources and may have conflicts of interest in allocating their time and resources among us and these other entities and persons. Should such persons devote insufficient time or resources to our business, returns on our investments may suffer.
The officers and affiliates of our manager will try to balance our interests with the interests of CIM and its affiliates and other programs sponsored or operated by our sponsor, CCO Group, which includes CCO Group, LLC, an affiliate of CIM, and certain of its subsidiaries, including our manager, our dealer manager, and our property manager, to whom they owe duties. However, to the extent that these persons take actions that are more favorable to other entities than to us, these actions could have a negative impact on our financial performance and, consequently, on distributions to our stockholders and the value of their investments.
We may acquire assets and borrow funds from affiliates of our manager, and sell or lease our assets to affiliates of our manager, and any such transaction could result in conflicts of interest.
We are permitted to acquire properties from affiliates of our manager, provided that, pursuant to the Management Agreement, our manager shall not consummate on our behalf any transaction that involves the sale of any real estate or real-estate related asset to, or the acquisition of any such asset from, our manager or its affiliates, including CIM, and any funds managed by CIM or its affiliates, unless such transaction is on terms no less favorable to us than could have been obtained on an arm's length basis from an unrelated third party and has been approved in advance by a majority of our independent directors. In the event that we acquire a property from an affiliate of our manager, we may be foregoing an opportunity to acquire a different property that might be more advantageous to us. In addition, we are permitted to borrow funds from affiliates of our manager, including our sponsor, and to sell and lease our assets to affiliates of our manager, and we have not established a policy that specifically addresses how we will determine the sale or lease price in any such transaction. Any such borrowings, sale or lease transaction must be approved by a majority of our directors, including a majority of our independent directors, not otherwise interested in such transaction as being fair and reasonable to us. To the extent that we acquire any properties from affiliates of our manager, borrow funds from affiliates of our manager or sell or lease our assets to affiliates of our manager, such transactions could result in a conflict of interest.
Our manager faces conflicts of interest relating to joint ventures or other co-ownership arrangements that we may enter into with CIM or its affiliates, or another real estate program sponsored or operated by CCO Group, which could result in a disproportionate benefit to CIM or its affiliates, or another program sponsored by CCO Group.
We may enter into joint ventures or co-ownership arrangements (including co-investment transactions) with CIM or its affiliates, or another program sponsored or operated by CCO Group for the acquisition, development or improvement of properties, as well as the acquisition of real estate-related assets. Since one or more of the officers of our manager are officers of CIM or its affiliates, including CCO Group and/or the advisors to other real estate programs sponsored by CCO Group, our manager may face conflicts of interest in determining which real estate program should enter into any particular joint venture or co-ownership arrangement. These persons also may have a conflict in structuring the terms of the relationship between us and any affiliated co-venturer or co-owner, as well as conflicts of interests in managing the joint venture, which may result in the co-venturer or co-owner receiving benefits greater than the benefits that we receive.
In the event we enter into joint venture or other co-ownership arrangements with CIM or its affiliates, or another program sponsored by CCO Group, our manager and its affiliates may have a conflict of interest when determining when and whether to buy or sell a particular property, or to make or dispose of another real estate-related asset. In addition, if we become listed for trading on a national securities exchange, we may develop more divergent goals and objectives from any affiliated co-venturer or co-owner that is not listed for trading. In the event we enter into a joint venture or other co-ownership arrangement with another real estate program sponsored by CIM or its affiliates, or another real estate investment program sponsored by CCO Group that has a term shorter than ours, the joint venture may be required to sell its properties earlier than we may desire to sell the properties. Even if the terms of any joint venture or other co-ownership agreement between us and CIM or its affiliates, or another real estate program sponsored by CCO Group grants us the right of first refusal to buy such properties, we may not have sufficient funds or borrowing capacity to exercise our right of first refusal under these circumstances. We have adopted certain procedures for dealing with potential conflicts of interest as further described in Part I, Item 1. Business — Conflicts of Interest in this Annual Report on Form 10-K.
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Risks Related to Our Corporate Structure
Our charter permits our Board to authorize the issuance of stock with terms that may subordinate the rights of common stockholders or discourage a third party from acquiring us in a manner that might result in a premium price to our stockholders.
Our charter permits our Board to authorize the issuance of up to 500,000,000 shares of stock, of which 490,000,000 shares are classified as common stock and 10,000,000 shares are classified as preferred stock. In addition, our Board, without any action by our stockholders, may amend our charter from time to time to increase or decrease the aggregate number of shares or the number of shares of any class or series of stock that we have authority to issue. The Board may classify or reclassify any unissued common stock or preferred stock into other classes or series of stock and establish the preferences, conversion or other rights, voting powers, restrictions, limitations as to distributions, qualifications and terms and conditions of redemption of any such stock. Shares of our common stock shall be subject to the express terms of any series of our preferred stock. Thus, our Board could authorize the issuance of preferred stock with terms and conditions that have a priority as to distributions and amounts payable upon liquidation over the rights of the holders of our common stock. Preferred stock could also have the effect of delaying, deferring or preventing the removal of incumbent management or a change of control of us, including an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all of our assets) that might provide a premium to the purchase price of our common stock for our stockholders.
Maryland law prohibits certain business combinations, which may make it more difficult for us to be acquired and may limit our stockholders’ ability to dispose of their shares.
Under Maryland law, “business combinations” between a Maryland corporation and an interested stockholder or an affiliate of an interested stockholder are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. These business combinations include a merger, consolidation, share exchange or, in circumstances specified in the statute, an asset transfer or issuance or reclassification of equity securities. An interested stockholder is defined as:
any person who beneficially owns, directly or indirectly, 10% or more of the voting power of the corporation’s outstanding voting stock after the date on which the corporation had 100 or more beneficial owners of its stock; or
an affiliate or associate of the corporation who, at any time within the two-year period prior to the date in question and after the date on which the corporation had 100 or more beneficial owners of its stock, was the beneficial owner of 10% or more of the voting power of the then outstanding stock of the corporation.
A person is not an interested stockholder under the statute if our Board approved in advance the transaction by which the person otherwise would have become an interested stockholder. However, in approving a transaction, our Board may provide that its approval is subject to compliance, at or after the time of approval, with any terms and conditions determined by our Board.
After the five-year prohibition, any such business combination between the Maryland corporation and an interested stockholder generally must be recommended by the board of directors of the corporation and approved by the affirmative vote of at least:
80% of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation, voting together as a single voting group; and
two-thirds of the votes entitled to be cast by holders of voting stock of the corporation other than voting stock held by the interested stockholder who will (or whose affiliate will) be a party to the business combination or by an affiliate or associate of the interested stockholder.
These super-majority vote requirements do not apply if the corporation’s stockholders receive a minimum price, as defined under Maryland law, for their shares in the form of cash or other consideration in the same form as previously paid by the interested stockholder for its shares. The business combination statute permits various exemptions from its provisions, including business combinations that are exempted by our Board prior to the time that the interested stockholder becomes an interested stockholder. Pursuant to the statute, our Board has exempted any business combination involving our manager or any affiliate of our manager. As a result, our manager and any affiliate of our manager may be able to enter into business combinations with us that may not be in the best interest of our stockholders, without compliance with the super-majority vote requirements and the other provisions of the statute. The business combination statute may discourage others from trying to acquire control of us and increase the difficulty of consummating any offer.
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Maryland law also limits the ability of a third party to buy a large percentage of our outstanding shares and exercise voting control in electing directors.
Under its Control Share Acquisition Act, Maryland law also provides that a holder of “control shares” of a Maryland corporation acquired in a “control share acquisition” has no voting rights with respect to such shares except to the extent approved by the corporation’s disinterested stockholders by a vote of two-thirds of the votes entitled to be cast on the matter. Shares of stock owned by interested stockholders, that is, by the acquiror, or officers of the corporation or employees of the corporation who are directors of the corporation, are excluded from shares entitled to vote on the matter. “Control shares” are voting shares of stock that would entitle the acquiror, directly or indirectly, except solely by virtue of a revocable proxy, to exercise or direct the exercise of voting power in electing directors within specified ranges of voting power. Control shares do not include shares the acquiring person is then entitled to vote as a result of having previously obtained stockholder approval. A “control share acquisition” means the acquisition of control shares. The control share acquisition statute does not apply (a) to shares acquired in a merger, consolidation or share exchange if the corporation is a party to the transaction or (b) to acquisitions approved or exempted by the charter or bylaws of the corporation. Our bylaws contain a provision exempting from the Control Share Acquisition Act any acquisition of shares of our stock by CCO Group, LLC or any affiliate of CCO Group, LLC. This provision may be amended or eliminated at any time in the future. If this provision were amended or eliminated, this statute could have the effect of discouraging offers from third parties to acquire us and increasing the difficulty of successfully completing this type of offer by anyone other than our manager or any of its affiliates.
Our charter includes a provision that may discourage a person, including a stockholder, from launching a tender offer for our shares.
Our charter requires that any tender offer, including any “mini-tender” offer, must comply with most of the requirements of Regulation 14D of the Exchange Act. The offering person must provide us notice of the tender offer at least ten business days before initiating the tender offer. If the offering person does not comply with these requirements, our stockholders will be prohibited from transferring any shares to such non-complying person unless they first offered such shares to us at the tender offer price offered by the non-complying person. In addition, the non-complying person shall be responsible for all of our expenses in connection with that person’s noncompliance. This provision of our charter may discourage a person from initiating a tender offer for our shares and prevent our stockholders from receiving a premium to the purchase price for their shares in such a transaction.
If we are required to register as an investment company under the Investment Company Act, we could not continue our current business plan, which may significantly reduce the value of our stockholders’ investment.
We intend to conduct our operations, and the operations of our operating partnership and any other subsidiaries, so that no such entity meets the definition of an “investment company” under Section 3(a)(1) of the Investment Company Act. Under the Investment Company Act, in relevant part, a company is an “investment company” if:
pursuant to Section 3(a)(1)(A), it is, or holds itself out as being, engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities; or
pursuant to Section 3(a)(1)(C), it is engaged, or proposes to engage, in the business of investing, reinvesting, owning, holding or trading in securities and owns or proposes to acquire “investment securities” having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis (the 40% test). “Investment securities” exclude U.S. government securities and securities of majority-owned subsidiaries that are not themselves investment companies and are not relying on the exception from the definition of investment company under Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act.
We intend to monitor our operations and our assets on an ongoing basis in order to ensure that neither we, nor any of our subsidiaries, meet the definition of “investment company” under Section 3(a)(1) of the Investment Company Act. If we were obligated to register as an investment company, we would have to comply with a variety of substantive requirements under the Investment Company Act imposing, among other things:
limitations on capital structure;
restrictions on specified investments;
prohibitions on transactions with affiliates;
compliance with reporting, record keeping, voting, proxy disclosure and other rules and regulations that would significantly change our operations; and
potentially, compliance with daily valuation requirements.
In order for us to not meet the definition of an “investment company” and avoid regulation under the Investment Company Act, we must engage primarily in the business of buying real estate. To avoid meeting the definition of an “investment
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company” under Section 3(a)(1) of the Investment Company Act, we may be unable to sell assets we would otherwise want to sell and may need to sell assets we would otherwise wish to retain. Similarly, we may have to acquire additional income or loss generating assets that we might not otherwise have acquired or may have to forgo opportunities to acquire interests in companies that we would otherwise want to acquire and would be important to our investment strategy. Accordingly, our Board may not be able to change our investment policies as it may deem appropriate if such change would cause us to meet the definition of an “investment company.” In addition, a change in the value of any of our assets could negatively affect our ability to avoid being required to register as an investment company. If we were required to register as an investment company but failed to do so, we would be prohibited from engaging in our business, and criminal and civil actions could be brought against us. In addition, our contracts would be unenforceable unless a court were to require enforcement, and a court could appoint a receiver to take control of us and liquidate our business.
The Board may change certain of our policies without stockholder approval, which could alter the nature of our stockholders’ investment. If our stockholders do not agree with the decisions of our Board, they only have limited control over changes in our policies and operations and may not be able to change such policies and operations.
The Board determines our major policies, including our policies regarding investments, financing, growth, debt capitalization, REIT qualification and distributions. Our investment policies may change over time. The methods of implementing our investment objectives and strategies also may vary as new real estate development trends emerge and new investment techniques are developed. The Board may amend or revise these and other policies without a vote of our stockholders. As a result, the nature of our stockholders’ investment could change without their consent. Under the MGCL, our stockholders generally have a right to vote only on the following:
the election or removal of directors;
an amendment of our charter, except that our Board may amend our charter without stockholder approval to increase or decrease the aggregate number of our shares or the number of our shares of any class or series that we have the authority to issue, to change our name, to change the name or other designation or the par value of any class or series of our stock and the aggregate par value of our stock or to effect certain reverse stock splits; provided, however, that any such amendment does not adversely affect the rights, preferences and privileges of the stockholders;
our dissolution; and
a merger or consolidation, a statutory share exchange or the sale or other disposition of all or substantially all of our assets.
All other matters are subject to the discretion of our Board. Therefore, our stockholders are limited in their ability to change our policies and operations.
Our rights and the rights of our stockholders to recover claims against our officers, directors and our manager are limited, which could reduce our stockholders’ and our recovery against them if they cause us to incur losses.
The MGCL provides that a director has no liability in such capacity if he or she performs his or her duties in good faith, in a manner he or she reasonably believes to be in the corporation’s best interests and with the care that an ordinarily prudent person in a like position would use under similar circumstances. Our charter, in the case of our directors and officers, and the Management Agreement, in the case of our manager and its affiliates, require us, subject to certain exceptions, to indemnify and advance expenses to our directors, our officers, and our manager and its affiliates. Moreover, we have entered into separate indemnification agreements with each of our directors and executive officers. Our charter permits us to provide such indemnification and advance for expenses to our employees and agents. Additionally, our charter limits, subject to certain exceptions, the liability of our directors and officers to us and our stockholders for monetary damages. Although our charter does not allow us to indemnify our directors or our manager and its affiliates for any liability or loss suffered by them or hold harmless our directors or our manager and its affiliates for any loss or liability suffered by us to a greater extent than permitted under Maryland law, we and our stockholders may have more limited rights against our directors, officers, employees and agents, and our manager and its affiliates, than might otherwise exist under common law, which could reduce our stockholders’ and our recovery against them. In addition, our manager is not required to retain cash to pay potential liabilities and it may not have sufficient cash available to pay liabilities if they arise. If our manager is held liable for a breach of its fiduciary duty to us, or a breach of its contractual obligations to us, we may not be able to collect the full amount of any claims we may have against our manager. In addition, we may be obligated to fund the defense costs incurred by our directors, officers, employees and agents or our manager in some cases, which would decrease the cash otherwise available for distribution to our stockholders.
Our stockholders’ interest in us will be diluted if we issue additional shares.
Our stockholders do not have preemptive rights to any shares issued by us in the future. Our charter authorizes 500,000,000 shares of stock, of which 490,000,000 shares are classified as common stock and 10,000,000 shares are classified
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as preferred stock. Subject to any limitations set forth under Maryland law, our Board may amend our charter from time to time to increase the number of authorized shares of stock, increase or decrease the number of shares of any class or series of stock that we have authority to issue, or classify or reclassify any unissued shares into other classes or series of stock without the necessity of obtaining stockholder approval. All of such shares may be issued in the discretion of our Board. Our stockholders will suffer dilution of their equity investment in us upon future issuances of our capital stock, including in the event that we (1) issue shares pursuant to our Secondary DRIP Offering (unless such stockholders elect to fully participate in the Secondary DRIP Offering), (2) sell securities that are convertible into shares of our common stock, (3) issue shares of our common stock in a private offering of securities to institutional investors, (4) issue shares of our common stock to our manager, its successors or assigns, in payment of an outstanding fee obligation as set forth under our Management Agreement or (5) issue shares of our common stock to sellers of properties acquired by us in connection with an exchange of limited partnership interests of our operating partnership. In addition, the partnership agreement of our operating partnership contains provisions that would allow, under certain circumstances, other entities, including other real estate programs sponsored or operated by CCO Group, to merge into or cause the exchange or conversion of their interest in that entity for interests of our operating partnership. Because the limited partnership interests of our operating partnership may, in the discretion of our Board, be exchanged for shares of our common stock, any merger, exchange or conversion between our operating partnership and another entity ultimately could result in the issuance of a substantial number of shares of our common stock, thereby diluting the percentage ownership interest of other stockholders.
Our Umbrella Partnership Real Estate Investment Trust (“UPREIT”) structure may result in potential conflicts of interest with limited partners in our operating partnership whose interests may not be aligned with those of our stockholders.
Our directors and officers have duties to our corporation and our stockholders under Maryland law in connection with their management of the corporation. At the same time, we, as general partner, have fiduciary duties under Delaware law to our operating partnership and to the limited partners in connection with the management of our operating partnership. If we admit outside limited partners to our operating partnership, our duties as general partner of our operating partnership and its partners may come into conflict with the duties of our directors and officers to the corporation and our stockholders. Under Delaware law, a general partner of a Delaware limited partnership owes its limited partners the duties of good faith and fair dealing. Other duties, including fiduciary duties, may be modified or eliminated in the partnership’s partnership agreement. The partnership agreement of our operating partnership provides that, for so long as we own a controlling interest in our operating partnership, any conflict that cannot be resolved in a manner not adverse to either our stockholders or the limited partners will be resolved in favor of our stockholders.
Additionally, the partnership agreement expressly limits our liability by providing that we and our officers, directors, agents and employees, will not be liable or accountable to our operating partnership for losses sustained, liabilities incurred or benefits not derived if we or our officers, directors, agents or employees acted in good faith. In addition, our operating partnership is required to indemnify us and our officers, directors, employees, agents and designees to the extent permitted by applicable law from and against any and all claims arising from operations of our operating partnership, unless it is established that: (1) the act or omission was committed in bad faith, was fraudulent or was the result of active and deliberate dishonesty; (2) the indemnified party received an improper personal benefit in money, property or services; or (3) in the case of a criminal proceeding, the indemnified person had reasonable cause to believe that the act or omission was unlawful.
The provisions of Delaware law that allow the fiduciary duties of a general partner to be modified by a partnership agreement have not been tested in a court of law, and we have not obtained an opinion of counsel covering the provisions set forth in the partnership agreement that purport to waive or restrict our fiduciary duties.
The limit on the percentage of shares of our common stock that any person may own may discourage a takeover or business combination that may benefit our stockholders.
Our charter restricts the direct or indirect ownership by one person or entity to no more than 9.8% of the value of our then outstanding capital stock (which includes common stock and any preferred stock we may issue) and no more than 9.8% of the value or number of shares, whichever is more restrictive, of the then outstanding shares of our common stock unless exempted (prospectively or retroactively) by our Board. These restrictions may discourage a change of control of us and may deter individuals or entities from making tender offers for shares of our common stock on terms that might be financially attractive to stockholders or which may cause a change in our management. In addition to deterring potential transactions that may be favorable to our stockholders, these provisions may also decrease the ability of stockholders to sell their shares of our common stock.
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Risks Associated with Debt Financing
We have incurred mortgage indebtedness and other borrowings, which may increase our business risks, hinder our ability to make distributions, and decrease the value of our stockholders’ investment.
We have acquired real estate and other real estate-related assets by borrowing new funds. In addition, we have incurred mortgage debt and pledged some of our real properties as security for that debt to obtain funds to acquire additional real properties and other assets and to pay distributions to our stockholders. We may borrow additional funds if we need funds to satisfy the REIT tax qualification requirement that we distribute at least 90% of our annual REIT taxable income, excluding any net capital gains, to our stockholders. We may also borrow additional funds if we otherwise deem it necessary or advisable to assure that we maintain our qualification as a REIT for U.S. federal income tax purposes.
Our manager believes that utilizing borrowing is consistent with our investment objective of maximizing the return to stockholders. There is no limitation on the amount we may borrow against any individual property or other asset. This factor could limit the amount of cash we have available to distribute to our stockholders and could result in a decline in the value of our stockholders’ investment.
We do not intend to incur mortgage debt on a particular property unless we believe the property’s projected operating cash flows are sufficient to service the mortgage debt. However, if there is a shortfall between the cash flows from a property and the cash flows needed to service mortgage debt on a property, the amount available for distributions to our stockholders may be reduced. In addition, incurring mortgage debt increases the risk of loss since defaults on indebtedness secured by a property may result in lenders initiating foreclosure actions. In that case, we could lose the property securing the loan that is in default, thus reducing the value of our stockholders’ investments. For U.S. federal income tax purposes, a foreclosure of any of our properties would be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on foreclosure, but would not receive any cash proceeds from the foreclosure. In such event, we may be unable to pay the amount of distributions required in order to maintain our qualification as a REIT. We may give full or partial guarantees to lenders of recourse mortgage debt to the entities that own our properties. If we provide a guaranty on behalf of an entity that owns one of our properties, we will be responsible to the lender for satisfaction of the debt if it is not paid by such entity and with respect to any such property that is vacant, potentially be responsible for any property-related costs such as real estate taxes, insurance and maintenance, which costs will likely increase if the lender does not timely exercise its remedies. If any mortgages contain cross-collateralization or cross-default provisions, a default on a single property could affect multiple properties. If any of our properties are foreclosed upon due to a default, our ability to pay cash distributions to our stockholders will be adversely affected, which could result in our losing our REIT status and would result in a decrease in the value of our stockholders’ investment.
Our increased indebtedness following completion of the CIM Income NAV Merger may present additional risks to our business.
In connection with the CIM Income NAV Merger, we assumed and/or refinanced certain indebtedness of CIM Income NAV and are subject to risks associated with increased debt financing, including a risk that our cash flow could be insufficient to meet required payments on our debt.
In addition, our indebtedness could have important consequences to our stockholders, including:
vulnerability to general adverse economic and industry conditions;
limiting our ability to obtain additional financing to fund future working capital, capital expenditures and other general corporate requirements;
requiring the use of a substantial portion of our cash flow from operations for the payment of principal and interest on our indebtedness, thereby reducing our ability to use our cash flow to fund working capital, acquisitions, capital expenditures and general corporate requirements;
limiting our flexibility in planning for, or reacting to, changes in our business and industry;
putting us at a disadvantage compared to our competitors with less indebtedness; and
limiting our ability to access capital markets.
We intend to rely on external sources of capital to fund future capital needs, and if we encounter difficulty in obtaining such capital, we may not be able to meet maturing obligations or make any additional acquisitions.
In order to maintain our qualification as a REIT under the Code, we are required, among other things, to distribute annually to our stockholders at least 90% of our REIT taxable income (which does not equal net income as calculated in accordance with
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GAAP), determined without regard to the deduction for dividends paid and excluding any net capital gain. Because of this dividend requirement, we may not be able to fund from cash retained from operations all of our future capital needs, including capital needed to refinance maturing obligations or make new acquisitions.
The capital and credit markets have experienced extreme volatility and disruption as a result of the global outbreak of COVID-19 and the emergence of the Delta, Omicron and any future variants thereof. We believe that such volatility and disruption are likely to continue into the foreseeable future. Market volatility and disruption could hinder our ability to obtain new debt financing or refinance our maturing debt on favorable terms or at all or to raise debt and equity capital. Our access to capital will depend upon a number of factors, including:
general market conditions;
government action or regulation, including changes in tax law;
the market’s perception of our future growth potential;
the extent of investor interest;
analyst reports about us and the REIT industry;
the general reputation of REITs and the attractiveness of their equity securities in comparison to other equity securities, including securities issued by other real estate-based companies;
our financial performance and that of our tenants;
our current debt levels and changes in our credit ratings, if any;
our current and expected future earnings; and
our cash flows and cash distributions, including our ability to satisfy the dividend requirements applicable to REITs.
If we are unable to obtain needed capital on satisfactory terms or at all, we may not be able to meet our obligations and commitments as they mature or make any new acquisitions.
High interest rates may make it difficult for us to finance or refinance assets, which could reduce the number of properties we can acquire and the amount of cash distributions we can make.
We run the risk of being unable to finance or refinance our assets on favorable terms or at all. If interest rates are high when we desire to mortgage our assets or when existing loans come due and the assets need to be refinanced, we may not be able to, or may choose not to, finance the assets and we would be required to use cash to purchase or repay outstanding obligations. Our inability to use debt to finance or refinance our assets could reduce the number of assets we can acquire, which could reduce our operating cash flows and the amount of cash distributions we can make to our stockholders. Higher costs of capital also could negatively impact our operating cash flows and returns on our assets.
Increases in interest rates could increase the amount of our debt payments and adversely affect our ability to pay distributions to our stockholders.
We have incurred indebtedness, and in the future may incur additional indebtedness, that bears interest at a variable rate. To the extent that we incur variable rate debt and do not hedge our exposure thereunder, increases in interest rates would increase the amounts payable under such indebtedness, which could reduce our operating cash flows and our ability to pay distributions to our stockholders. In addition, if our existing indebtedness matures or otherwise becomes payable during a period of rising interest rates, we could be required to liquidate one or more of our assets at times that may prevent realization of the maximum return on such assets.
We may not be able to generate sufficient cash flows to meet our debt service obligations.
Our ability to make payments on and to refinance our indebtedness, and to fund our operations, working capital and capital expenditures, depends on our ability to generate cash. To a certain extent, our cash flows are subject to general economic, industry, financial, competitive, operating, legislative, regulatory and other factors, many of which are beyond our control.
We cannot assure our stockholders that our business will generate sufficient cash flows from operations or that future sources of cash will be available to us in an amount sufficient to enable us to pay amounts due on our indebtedness or to fund our other liquidity needs.
Additionally, if we incur additional indebtedness in connection with any future deployment of capital or development projects or for any other purpose, our debt service obligations could increase. We may need to refinance all or a portion of our indebtedness before maturity. Our ability to refinance our indebtedness or obtain additional financing will depend on, among other things:
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our financial condition and market conditions at the time;
restrictions in the agreements governing our indebtedness;
general economic and capital markets conditions;
the availability of credit from banks or other lenders; and
our results of operations.
As a result, we may not be able to refinance our indebtedness on commercially reasonable terms, or at all. If we do not generate sufficient cash flows from operations, and additional borrowings or refinancings or proceeds of asset sales or other sources of cash are not available to us, we may not have sufficient cash to enable us to meet all of our obligations. Accordingly, if we cannot service our indebtedness, we may have to take actions such as seeking additional equity, or delaying any strategic acquisitions and alliances or capital expenditures, any of which could have a material adverse effect on our business, financial condition, results of operations, cash flows or our ability to satisfy our debt service obligations or maintain our level of distributions on our common stock.
Lenders may require us to enter into restrictive covenants relating to our operations, which could limit our ability to make distributions to our stockholders.
In connection with providing us financing, a lender could impose restrictions on us that affect our distribution and operating policies and our ability to incur additional debt. In general, our loan agreements restrict our ability to encumber or otherwise transfer our interest in the respective property without the prior consent of the lender. Loan documents we enter into may contain covenants that limit our ability to further mortgage the property, discontinue insurance coverage or replace CMFT Management as our manager. These or other limitations imposed by a lender may adversely affect our flexibility and our ability to pay distributions on our common stock.
Interest-only indebtedness may increase our risk of default and ultimately may reduce our funds available for distribution to our stockholders.
We have financed some of our property acquisitions using interest-only mortgage indebtedness and may continue to do so. During the interest-only period, the amount of each scheduled payment will be less than that of a traditional amortizing mortgage loan. The principal balance of the mortgage loan will not be reduced (except in the case of prepayments) because there are no scheduled monthly payments of principal during this period. After the interest-only period, we will be required either to make scheduled payments of amortized principal and interest or to make a lump-sum or “balloon” payment at maturity. These required principal or balloon payments will increase the amount of our scheduled payments and may increase our risk of default under the related mortgage loan. If the mortgage loan has an adjustable interest rate, the amount of our scheduled payments also may increase at a time of rising interest rates. Increased payments and substantial principal or balloon maturity payments will reduce the funds available for distribution to our stockholders because cash otherwise available for distribution will be required to pay principal and interest associated with these mortgage loans.
Our ability to make a balloon payment at maturity is uncertain and may depend upon our ability to obtain additional financing or our ability to sell the property. At the time the balloon payment is due, we may or may not be able to refinance the loan on terms as favorable as the original loan or sell the property at a price sufficient to make the balloon payment. The effect of a refinancing or sale could affect the rate of return to stockholders and the projected time of disposition of our assets. In addition, payments of principal and interest made to service our debts may leave us with insufficient cash to pay the distributions that we are required to pay to maintain our qualification as a REIT. Any of these results would have a significant, negative impact on the value of our common stock.
To hedge against exchange rate and interest rate fluctuations, we have used, and may continue to use, derivative financial instruments that may be costly and ineffective and may reduce the overall returns on our stockholders’ investment.
We have used, and may continue to use, derivative financial instruments to hedge our exposure to changes in exchange rates and interest rates on loans secured by our assets and investments in CMBS. Derivative instruments may include interest rate swap contracts, interest rate caps or floor contracts, rate lock arrangements, futures or forward contracts, options or repurchase agreements. Our actual hedging decisions will be determined in light of the facts and circumstances existing at the time of the hedge and may differ from time to time.
To the extent that we use derivative financial instruments to hedge against exchange rate and interest rate fluctuations, we will be exposed to credit risk, market risk, basis risk and legal enforceability risks. In this context, credit risk is the failure of the counterparty to perform under the terms of the derivative contract. If the fair value of a derivative contract is positive, the counterparty owes us, which creates credit risk for us. Market risk includes the adverse effect on the value of the financial instrument resulting from a change in interest rates. Basis risk occurs when the index upon which the contract is based is more
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or less variable than the index upon which the hedged asset or liability is based, thereby making the hedge less effective. Finally, legal enforceability risks encompass general contractual risks, including the risk that the counterparty will breach the terms of, or fail to perform its obligations under, the derivative contract. If we are unable to manage these risks effectively, our results of operations, financial condition and ability to pay distributions to our stockholders will be adversely affected.
Changes in banks’ inter-bank lending rate reporting practices or the method pursuant to which the London Interbank Offered Rate (“LIBOR”) is determined may adversely affect the value of the financial obligations to be held or issued by us that are linked to LIBOR.
LIBOR and other indices which are deemed “benchmarks” are the subject of recent national, international, and other regulatory guidance and proposals for reform. Some of these reforms are already effective while others are still to be implemented. These reforms may cause such benchmarks to perform differently than in the past, or have other consequences which cannot be predicted. As published by the Federal Reserve Bank of New York, it currently appears that, over time, U.S. Dollar LIBOR may be replaced by the Secured Overnight Financing Rate (“SOFR”). In March 2021, the Financial Conduct Authority (“FCA”) confirmed its intention to cease publishing one week and two-month LIBOR after December 31, 2021 and all remaining LIBOR after June 30, 2023. At this time, it is not known whether or when SOFR or other alternative reference rates will attain market traction as replacements for LIBOR. However, the manner and timing of this shift is currently unknown. Market participants are still considering how various types of financial instruments and securitization vehicles would react to a discontinuation of LIBOR. It is possible that not all of our assets and liabilities will transition away from LIBOR at the same time, and it is possible that not all of our assets and liabilities will transition to the same alternative reference rate, in each case increasing the difficulty of hedging. The process of transition involves operational risks. It is also possible that no transition will occur for many financial instruments. At this time, it is not possible to predict the effect of any such changes, any establishment of alternative reference rates or any other reforms to LIBOR that may be implemented. Uncertainty as to the nature of such potential changes, alternative reference rates or other reforms may adversely affect the market for or value of any securities on which the interest or dividend is determined by reference to LIBOR, loans, derivatives and other financial obligations or on our overall financial condition or results of operations. More generally, any of the above changes or any other consequential changes to LIBOR or any other “benchmark” as a result of international, national or other proposals for reform or other initiatives, or any further uncertainty in relation to the timing and manner of implementation of such changes, could have a material adverse effect on the value of and return on any securities based on or linked to a “benchmark.”
U.S. Federal Income and Other Tax Risks
Failure to maintain our qualification as a REIT for U.S. federal income tax purposes would adversely affect our operations and our ability to make distributions.
We are currently taxed as a REIT under the Code. Our ability to maintain our qualification as a REIT will depend upon our ability to meet requirements regarding our organization and ownership, distributions of our income, the nature and diversification of our income and assets and other tests imposed by the Code. Future legislative, judicial or administrative changes to the U.S. federal income tax laws could be applied retroactively, which could result in our disqualification as a REIT. If we fail to continue to qualify as a REIT for any taxable year, we will be subject to U.S. federal income tax on our taxable income at corporate rates. In addition, we would generally be disqualified from treatment as a REIT for the four taxable years following the year of losing our REIT status. Losing our REIT status would reduce our net earnings available for the acquisition of assets or distribution to our stockholders because of the additional tax liability. In addition, distributions to our stockholders would no longer qualify for the dividends paid deduction, and we would no longer be required to make distributions. If we lose our REIT status, we might be required to borrow funds or liquidate some assets in order to pay the applicable tax. Our failure to continue to qualify as a REIT would adversely affect the return on our stockholders’ investment.
Certain of our business activities are potentially subject to the prohibited transaction tax, which could reduce the return on our stockholders’ investment.
Our ability to dispose of a property during the first few years following its acquisition is restricted to a substantial extent as a result of our REIT status. Whether property is inventory or otherwise held primarily for sale to customers in the ordinary course of a trade or business depends on the particular facts and circumstances surrounding each property. Properties we own, directly or through any subsidiary entity, including CMFT OP, but generally excluding our taxable REIT subsidiaries, may, depending on how we conduct our operations, be treated as inventory or property held primarily for sale to customers in the ordinary course of a trade or business. Under applicable provisions of the Code regarding prohibited transactions by REITs, we would be subject to a 100% tax on any gain recognized on the sale or other disposition of any property (other than foreclosure property) that we own, directly or through any subsidiary entity, including CMFT OP, but generally excluding our taxable REIT subsidiaries, that is deemed to be inventory or property held primarily for sale to customers in the ordinary course of trade or business. Any taxes we pay would reduce our cash available for distribution to our stockholders. Our concern over paying
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the prohibited transactions tax may cause us to forgo disposition opportunities that would otherwise be advantageous if we were not a REIT. As of December 31, 2021, our dispositions were not subject to the prohibited transaction tax.
Re-characterization of sale-leaseback transactions may cause us to lose our REIT status.
We may purchase properties and lease them back to the sellers of such properties. We would characterize such a sale-leaseback transaction as a “true lease,” which treats the lessor as the owner of the property for U.S. federal income tax purposes. In the event that any sale-leaseback transaction is challenged by the IRS and re-characterized as a financing transaction or loan for U.S. federal income tax purposes, deductions for depreciation and cost recovery relating to such property would be disallowed. If a sale-leaseback transaction were so re-characterized, we might fail to satisfy the REIT qualification “asset tests” or the “income tests” and, consequently, lose our REIT status effective with the year of re-characterization. Alternatively, such a re-characterization could cause the amount of our REIT taxable income to be recalculated, which might also cause us to fail to meet the distribution requirement for a taxable year and thus lose our REIT status.
Our stockholders may have current tax liability on distributions they elect to reinvest in our common stock.
If our stockholders participate in our DRIP, they will be deemed to have received, and for U.S. federal income tax purposes will be taxed on, the amount reinvested in shares of our common stock that does not represent a return of capital. In addition, our stockholders may be treated, for U.S. federal tax purposes, as having received an additional distribution to the extent the shares are purchased at a discount from fair market value. Such an additional deemed distribution could cause our stockholders to be subject to additional income tax liability. Unless our stockholders are a tax-exempt entity, they may have to use funds from other sources to pay their tax liability arising as a result of the distributions reinvested in our shares.
Dividends payable by REITs generally do not qualify for the reduced tax rates available for some dividends.
Income from “qualified dividends” payable to U.S. stockholders that are individuals, trusts and estates are generally subject to tax at preferential rates. Dividends payable by REITs, however, generally are not eligible for the preferential tax rates applicable to qualified dividend income (but under the Tax Cuts and Jobs Act, U.S. stockholders that are individuals, trusts and estates generally may deduct up to 20% of ordinary dividends from a REIT for taxable years beginning after December 31, 2017, and before January 1, 2026). Although these rules do not adversely affect the taxation of REITs or dividends payable by REITs, to the extent that the preferential rates continue to apply to regular corporate qualified dividends, investors who are individuals, trusts and estates may perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could materially and adversely affect the value of the shares of REITs.
We may be subject to adverse legislative or regulatory tax changes that could increase our tax liability or reduce our operating flexibility.
In recent years, numerous legislative, judicial and administrative changes have been made in the provisions of U.S. federal income tax laws applicable to investments similar to an investment in shares of our common stock. Additional changes to the tax laws are likely to continue to occur, and we cannot assure our stockholders that any such changes will not adversely affect our taxation and our ability to continue to qualify as a REIT, or the taxation of a stockholder. Any such changes could have an adverse effect on an investment in our shares or on the market value or the resale potential of our assets. Although REITs generally receive better tax treatment than entities taxed as regular corporations, it is possible that future legislation would result in a REIT having fewer tax advantages, and it could become more advantageous for a company that acquires real estate to elect to be treated for U.S. federal income tax purposes as a regular corporation. As a result, our charter provides our Board with the power, under certain circumstances, to revoke or otherwise terminate our REIT election and cause us to be taxed as a regular corporation, without the vote of our stockholders. Our Board has fiduciary duties to us and our stockholders and could only cause such changes in our tax treatment if it determines in good faith that such changes are in the best interest of our stockholders.
In addition, the Tax Cuts and Jobs Act made significant changes to the U.S. federal income tax rules for taxation of individuals and businesses, generally effective for taxable years beginning after December 31, 2017, including a number of provisions of the Code that affect the taxation of REITs and their stockholders. Among the changes made by the Tax Cuts and Jobs Act are permanently reducing the generally applicable corporate tax rate, generally reducing the tax rate applicable to individuals and other noncorporate taxpayers for tax years beginning after December 31, 2017 and before January 1, 2026, eliminating or modifying certain previously allowed deductions (including substantially limiting interest deductibility and, for individuals, the deduction for non-business state and local taxes), and, for taxable years beginning after December 31, 2017 and before January 1, 2026, providing for preferential rates of taxation through a deduction of up to 20% (subject to certain limitations) on most ordinary REIT dividends and certain trade or business income of non-corporate taxpayers. The Tax Cuts and Jobs Act also imposes new limitations on the deduction of net operating losses and requires us to recognize income for tax purposes no later than when we take it into account on our financial statements, which may result in us having to make
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additional taxable distributions to our stockholders in order to comply with REIT distribution requirements or avoid taxes on retained income and gains. The Tax Cuts and Jobs Act also made numerous large and small changes to the tax rules that do not affect the REIT qualification rules directly but may otherwise affect us or our stockholders.
While the changes in the Tax Cuts and Jobs Act generally appear to be favorable with respect to REITs, the extensive changes to non-REIT provisions in the Code may have unanticipated effects on us or our stockholders.
In addition, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) made technical corrections, or temporary modifications, to certain provisions of the Tax Cuts and Jobs Act.
We urge our stockholders to consult with their own tax advisor with respect to the status of the Tax Cuts and Jobs Act, the CARES Act, and other legislative, regulatory or administrative developments and proposals and their potential effect on holding our common stock.
In certain circumstances, we may be subject to certain federal, state and local taxes as a REIT, which would reduce our cash available for distribution to our stockholders.
Even if we maintain our status as a REIT, we may be subject to certain federal, state and local taxes. For example, as discussed above,net income from the sale of properties that are “dealer” properties sold by a REIT (a “prohibited transaction” under the Code) will be subject to a 100% excise tax. Additionally, if we are not able to make sufficient distributions to eliminate our REIT taxable income, we may be subject to tax as a corporation on our undistributed REIT taxable income. We may also decide to retain income we earn from the sale or other disposition of our property and pay income tax directly on such income. In that event, our stockholders would be treated as if they earned that income and paid the tax on it directly. However, stockholders that are tax-exempt, such as charities or qualified pension plans, would have no benefit from their deemed payment of such tax liability. We may also be subject to state and local taxes on our income or property, either directly or at the level of our operating partnership or at the level of the other entities through which we indirectly own our assets. Any federal, state or local taxes we pay will reduce our cash available for distribution to our stockholders.
If our operating partnership or certain other subsidiaries fail to maintain their status as disregarded entities or partnerships, their income may be subject to taxation, which would reduce the cash available to us for distribution to our stockholders.
We intend to cause CMFT OP, our operating partnership, to maintain its current status as an entity separate from us (a disregarded entity), or in the alternative, a partnership for U.S. federal income tax purposes. Our operating partnership would lose its status as a disregarded entity for U.S. federal income tax purposes if it issues interests to any subsidiary we establish that is not a disregarded entity for tax purposes (a “regarded entity”) or a person other than us. If our operating partnership issues interests to any subsidiary we establish that is a regarded entity for tax purposes or a person other than us, we would characterize our operating partnership as a partnership for U.S. federal income tax purposes. As a disregarded entity or partnership, our operating partnership is not subject to U.S. federal income tax on its income. However, if the IRS were to successfully challenge the status of our operating partnership as a disregarded entity or partnership, CMFT OP would be taxable as a corporation. In such event, this would reduce the amount of distributions that the operating partnership could make to us. This could also result in our losing REIT status, and becoming subject to a corporate-level tax on our income. This would substantially reduce the cash available to us to make distributions to our stockholders and the return on their investment.
In addition, if certain of our other subsidiaries through which CMFT OP owns its properties, in whole or in part, lose their status as disregarded entities or partnerships for U.S. federal income tax purposes, such subsidiaries would be subject to taxation as corporations, thereby reducing cash available for distributions to our operating partnership. Such a re-characterization of CMFT OP’s subsidiaries also could threaten our ability to maintain REIT status.
To maintain our qualification as a REIT we must meet annual distribution requirements, which may force us to forgo otherwise attractive opportunities or borrow funds during unfavorable market conditions. This could delay or hinder our ability to meet our investment objectives and reduce our stockholders’ overall return.
In order to maintain our qualification as a REIT, we must distribute annually to our stockholders at least 90% of our REIT taxable income (which does not equal net income as calculated in accordance with GAAP), determined without regard to the deduction for dividends paid and excluding any net capital gain. We will be subject to U.S. federal income tax on our undistributed taxable income and net capital gain and to a 4% nondeductible excise tax on any amount by which dividends we pay with respect to any calendar year are less than the sum of (a) 85% of our ordinary income, (b) 95% of our capital gain net income and (c) 100% of our undistributed income from prior years.
Further, to maintain our qualification as a REIT, we must ensure that we meet the REIT gross income tests annually and that at the end of each calendar quarter, at least 75% of the value of our assets consists of cash, cash items, government
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securities and qualified REIT real estate assets, including certain mortgage loans and certain kinds of mortgage-related securities. The remainder of our investment in securities (other than government securities, qualified real estate assets and stock of a taxable REIT subsidiary (“TRS”)) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our assets (other than government securities, qualified real estate assets and stock of a TRS) can consist of the securities of any one issuer, no more than 20% of the value of our total assets can be represented by securities of one or more TRSs and no more than 25% of the value of our total assets can be represented by certain debt securities of publicly offered REITs. If we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences. As a result, we may be required to liquidate assets from our portfolio or not make otherwise attractive investments in order to maintain our qualification as a REIT. These actions could have the effect of reducing our income and amounts available for distribution to our stockholders.
The foregoing requirements could cause us to distribute amounts that otherwise would be spent on real estate assets and it is possible that we might be required to borrow funds, possibly at unfavorable rates, or sell assets to fund these dividends or make taxable stock dividends. Although we intend to make distributions sufficient to meet the annual distribution requirements and to avoid U.S. federal income and excise taxes on our earnings, it is possible that we might not always be able to do so.
Our mezzanine loans may not qualify as real estate assets and could adversely affect our status as a REIT.
We have invested and may continue to invest in mezzanine loans, for which the IRS has provided a safe harbor, but not rules of substantive law. Pursuant to the safe harbor, if a mezzanine loan meets certain requirements, the IRS will treat the mezzanine loan as a real estate asset for purposes of the REIT asset tests, and interest derived from the mezzanine loan will be treated as qualifying mortgage interest for purposes of the REIT 75% income test. To the extent that any mezzanine loans do not meet all of the requirements for reliance on the safe harbor, such loans may not be real estate assets and could adversely affect our qualification as a REIT.
We may fail to qualify as a REIT or become subject to a penalty tax if the IRS successfully challenges our treatment of our mezzanine loans and certain preferred equity investments as debt for U.S. federal income tax purposes.
There is limited case law and administrative guidance addressing whether instruments similar to our mezzanine loans and preferred equity investments will be treated as equity or debt for U.S. federal income tax purposes. We treat our mezzanine loans and our preferred equity investments as debt for U.S. federal income tax purposes, but we do not obtain private letter rulings from the IRS or opinions of counsel on the characterization of such investments for U.S. federal income tax purposes. If such investments were treated as equity for U.S. federal income tax purposes, we would be treated as owning the assets held by the partnership or limited liability company that issued the mezzanine loan or preferred equity, and we would be treated as receiving our proportionate share of the income of that entity. If that partnership or limited liability company owned nonqualifying assets, earned nonqualifying income, or earned prohibited transaction income, we may not be able to satisfy all of the REIT income or asset tests or could be subject to prohibited transaction tax. Accordingly, we could be required to pay prohibited transaction tax or fail to qualify as a REIT if the IRS does not respect our classification of our mezzanine loans and certain preferred equity investments as debt for U.S. federal income tax purposes unless we are able to qualify for a statutory REIT “savings” provision, which may require us to pay a significant penalty tax to maintain our REIT qualification.
Non-U.S. stockholders may be subject to U.S. federal withholding tax and may be subject to U.S. federal income tax upon the disposition of our shares.
Gain recognized by a non-U.S. stockholder upon the sale or exchange of our common stock generally will not be subject to U.S. federal income taxation unless such stock constitutes a “U.S. real property interest” (“USRPI”) under the Foreign Investment in Real Property Tax Act of 1980 (“FIRPTA”). Our common stock will not constitute a USRPI so long as we are a “domestically-controlled qualified investment entity.” A domestically-controlled qualified investment entity includes a REIT if at all times during a specified testing period, less than 50% in value of such REIT’s stock is held directly or indirectly by non-U.S. stockholders. We believe that we are a domestically-controlled qualified investment entity. However, because our common stock is and will be freely transferable, no assurance can be given that we are or will be a domestically-controlled qualified investment entity.
Even if we do not qualify as a domestically-controlled qualified investment entity at the time a non-U.S. stockholder sells or exchanges our common stock, gain arising from such a sale or exchange would not be subject to U.S. taxation under FIRPTA as a sale of a USRPI if: (a) our common stock is “regularly traded,” as defined by applicable Treasury Regulations, on an established securities market, and (b) such non-U.S. stockholder owned, actually or constructively, 10% or less of our common stock at any time during the five-year period ending on the date of the sale.
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Distributions to tax-exempt stockholders may be classified as unrelated business taxable income.
If (1) we are a “pension-held REIT,” (2) a tax-exempt stockholder has incurred (or is deemed to have incurred) debt to purchase or hold shares of our common stock or (3) a holder of shares of our common stock is a certain type of tax-exempt stockholder, dividends on, and gains recognized on the sale of, shares by such tax-exempt stockholder may be subject to U.S. federal income tax as UBTI under the Code.
Complying with REIT requirements may limit our ability to hedge our liabilities effectively and may cause us to incur tax liabilities.
The REIT provisions of the Code may limit our ability to hedge our liabilities. Any income from a hedging transaction we enter into to manage risk of interest rate changes, price changes or currency fluctuations with respect to borrowings made or to be made to acquire or carry real estate assets or to offset certain other positions, if properly identified under applicable Treasury Regulations, does not constitute “gross income” for purposes of the 75% or 95% gross income tests. To the extent that we enter into other types of hedging transactions, the income from those transactions will likely be treated as non-qualifying income for purposes of one or both of the gross income tests. As a result of these rules, we may need to limit our use of advantageous hedging techniques or implement those hedges through a TRS. This could increase the cost of our hedging activities because our TRSs would be subject to tax on gains or expose us to greater risks associated with changes in interest rates than we would otherwise want to bear. In addition, losses in a TRS generally will not provide any tax benefit, except for being carried forward against future taxable income of such TRS.
Our property taxes could increase due to property tax rate changes or reassessment, which would impact our cash flows.
Even if we continue to qualify as a REIT for U.S. federal income tax purposes, we will be required to pay some state and local taxes on our properties. The real property taxes on our properties may increase as property tax rates change or as our properties are assessed or reassessed by taxing authorities. Therefore, the amount of property taxes we pay in the future may increase substantially. If the property taxes we pay increase and if any such increase is not reimbursable under the terms of our lease, then our cash flows will be negatively impacted, which in turn could have a material adverse effect on our business, financial condition, results of operations, cash flows or our ability to satisfy our debt service obligations or to maintain our level of distributions on our common stock.
The share transfer and ownership restrictions applicable to REITs and contained in our charter may inhibit market activity in our shares of stock and restrict our business combination opportunities.
In order to continue to qualify as a REIT, five or fewer individuals, as defined in the Code, may not own, actually or constructively, more than 50% in value of our issued and outstanding shares of stock at any time during the last half of each taxable year, other than the first year for which a REIT election is made. Attribution rules in the Code determine if any individual or entity actually or constructively owns our shares of stock under this requirement. Additionally, at least 100 persons must beneficially own our shares of stock during at least 335 days of a taxable year for each taxable year, other than the first year for which a REIT election is made. To help ensure that we meet these tests, among other purposes, our charter restricts the acquisition and ownership of our shares of stock.
Our charter, with certain exceptions, authorizes our directors to take such actions as are necessary and desirable to preserve our qualification as a REIT. Unless exempted by our Board, for so long as we continue to qualify as a REIT, our charter prohibits, among other limitations on ownership and transfer of shares of our stock, any person from beneficially or constructively owning (applying certain attribution rules under the Code) more than 9.8% in value of the aggregate of our outstanding shares of stock and more than 9.8% (in value or in number of shares, whichever is more restrictive) of any class or series of our shares of stock. The Board, in its sole discretion and upon receipt of certain representations and undertakings, may exempt a person (prospectively or retrospectively) from the ownership limits. However, our Board may not, among other limitations, grant an exemption from these ownership restrictions to any proposed transferee whose ownership, direct or indirect, in excess of the 9.8% ownership limit would result in the termination of our qualification as a REIT. These restrictions on transferability and ownership will not apply, however, if our Board determines that it is no longer in our best interest to continue to qualify as a REIT or that compliance with the restrictions is no longer required in order for us to continue to so qualify as a REIT.
These ownership limits could delay or prevent a transaction or a change in control that might involve a premium price for our common stock or otherwise be in the best interest of our stockholders.
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If we elect to treat one or more of our subsidiaries as a TRS, it will be subject to corporate-level taxes, and our dealings with our TRSs may be subject to a 100% excise tax.
A REIT may own up to 100% of the stock of one or more TRSs. Both the subsidiary and the REIT must jointly elect to treat the subsidiary as a TRS. A TRS will be subject to applicable U.S. federal, state, local and foreign income tax on its taxable income, including corporate income tax on the TRS’s income, and is, as a result, less tax efficient than with respect to income we earn directly. The after-tax net income of our TRSs would be available for distribution to us. A TRS may hold assets and earn income that would not be qualifying assets or income if held or earned directly by a REIT, including gross income from operations pursuant to management contracts. In addition, the rules, which are applicable to us as a REIT, as described in the preceding risk factors, also impose a 100% excise tax on certain transactions between a TRS and its parent REIT that are not conducted on an arm’s-length basis. For example, to the extent that the rent paid by one of our TRSs exceeds an arm’s-length rental amount, such amount would be potentially subject to a 100% excise tax. While we intend that all transactions between us and our TRSs would be conducted on an arm’s-length basis, and therefore, any amounts paid by our TRSs to us would not be subject to the excise tax, no assurance can be given that the IRS would not disagree with such conclusion and levy an excise tax on such transactions.
If a stockholder that is an employee benefit plan, individual retirement account (“IRA”), annuity described in Sections 403(a) or (b) of the Code, Archer Medical Savings Account, health savings account, Coverdell education savings account, or other arrangement that is subject to the Employee Retirement Income Securities Act (“ERISA”) or Section 4975 of the Code (referred to generally as “Benefit Plans and IRAs”) fails to meet the fiduciary and other standards under ERISA or the Code as a result of an investment in shares of our common stock, such stockholder could be subject to civil and criminal, if the failure is willful, penalties.
There are special considerations that apply to Benefit Plans and IRAs investing in shares of our common stock. Stockholders that are Benefit Plans and IRAs should consider:
whether their investment is consistent with the applicable provisions of ERISA and the Code, or any other applicable governing authority in the case of a plan not subject to ERISA or the Code;
whether their investment is made in accordance with the documents and instruments governing the Benefit Plan or IRA, including any investment policy;
whether their investment satisfies the prudence, diversification and other requirements of Sections 404(a)(1)(B) and 404(a)(1)(C) of ERISA or any similar rule under other applicable laws or regulations;
whether their investment will impair the liquidity needs, the minimum and other distribution requirements, or the tax withholding requirements that may be applicable to such Benefit Plan or IRA;
whether their investment will constitute a prohibited transaction under Section 406 of ERISA or Section 4975 of the Code or any similar rule under other applicable laws or regulations;
whether their investment will produce or result in unrelated business taxable income, as defined in Sections 511 through 514 of the Code, to the Benefit Plan or IRA;
whether their investment will impair the Benefit Plan’s or IRA’s need to value its assets annually (or more frequently) in accordance with ERISA, the Code and the applicable provisions of the Benefit Plan or IRA; and
whether their investment will cause our assets to be treated as “plan assets” of the Benefit Plan or IRA.
Failure to satisfy the fiduciary standards of conduct and other applicable requirements of ERISA, the Code, or other applicable statutory or common law may result in the imposition of civil and criminal (if the violation is willful) penalties, and can subject the fiduciary to equitable remedies. In addition, if an investment in our common stock constitutes a prohibited transaction under ERISA or the Code, the “party-in-interest” (within the meaning of ERISA) or “disqualified person” (within the meaning of the Code) who authorized or directed the investment may have to compensate the plan for any losses the plan suffered as a result of the transaction or restore to the plan any profits made by such person as a result of the transaction, or may be subject to excise taxes with respect to the amount involved. In the case of a prohibited transaction involving an IRA, the IRA may be disqualified and all of the assets of the IRA may be deemed distributed and subject to tax.
In addition to considering their fiduciary responsibilities under ERISA and the prohibited transaction rules of ERISA and the Code, stockholders that are Benefit Plans and IRAs should consider the effect of the plan assets regulation, U.S. Department of Labor Regulation Section 2510.3-101, as modified by ERISA Section 3(42). To avoid our assets from being considered “plan assets” under the plan assets regulation, our Charter prohibits “benefit plan investors” from owning 25% or more of the shares of our common stock prior to the time that the common stock qualifies as a class of publicly-offered securities, within the meaning of the plan assets regulation. However, we cannot assure our stockholders that those provisions in our Charter will be effective in limiting benefit plan investors’ ownership to less than the 25% limit. For example, the limit could be unintentionally exceeded if a benefit plan investor misrepresents its status as a benefit plan investor. If our underlying
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assets were to be considered “plan assets” of a benefit plan investor subject to ERISA, (i) we would be an ERISA fiduciary and subject to certain fiduciary requirements of ERISA with which it would be difficult for us to comply and (ii) we could be restricted from entering into favorable transactions if the transaction, absent an exemption, would constitute a prohibited transaction under ERISA or the Code. Even if our assets are not considered to be “plan assets,” a prohibited transaction could occur if we or any of our affiliates is a fiduciary (within the meaning of ERISA) of a Benefit Plan or IRA stockholder.
Due to the complexity of these rules and the potential penalties that may be imposed, it is important that stockholders that are Benefit Plans and IRAs consult with their own advisors regarding the potential applicability of ERISA, the Code and any similar applicable law.
Specific rules apply to foreign, governmental and church plans.
As a general rule, certain employee benefit plans, including foreign pension plans, governmental plans established or maintained in the United States (as defined in Section 3(32) of ERISA), and certain church plans (as defined in Section 3(33) of ERISA), are not subject to ERISA’s requirements and are not “benefit plan investors” for purposes of investing in “plan assets” subject to ERISA’s requirements. Any such plan that is qualified and exempt from taxation under Sections 401(a) and 501(a) of the Code may nonetheless be subject to the prohibited transaction rules set forth in Section 503 of the Code and, under certain circumstances in the case of church plans, Section 4975 of the Code. Also, some foreign plans and governmental plans may be subject to foreign, state, or local laws which are, to a material extent, similar to the provisions of ERISA or Section 4975 of the Code. Each fiduciary of a plan subject to any such similar law should make its own determination as to the need for, and the availability of, any exemption relief.
If stockholders invest in our common stock through an IRA or other retirement plan, they may be limited in their ability to withdraw required minimum distributions.
If stockholders invest in our common stock with assets of a retirement plan or IRA, federal law may require them to withdraw required minimum distributions from such plan or account in the future. Our common stock will be highly illiquid, and our share redemption program only offers limited liquidity. If stockholders require liquidity, they may generally sell their shares, but such sale may be at a price less than the price at which they initially purchased their common stock. If stockholders fail to withdraw required minimum distributions from their plan or account, they may be subject to certain taxes and tax penalties.
Our investments in construction loans require us to make estimates about the fair value of land improvements that may be challenged by the IRS.
We have invested, and may continue to invest in construction loans, the interest from which is qualifying income for purposes of the REIT income tests, provided that the loan value of the real property securing the construction loan is equal to or greater than the highest outstanding principal amount of the construction loan during any taxable year. For purposes of construction loans, the loan value of the real property is the fair value of the land plus the reasonably estimated cost of the improvements or developments (other than personal property) that secure the loan and that are to be constructed from the proceeds of the loan. There can be no assurance that the IRS would not challenge our estimate of the loan value of the real property.
Taxable Mortgage Pools and Excess Inclusion Income
An entity, or a portion of an entity, may be classified as a taxable mortgage pool (a “TMP”) under the Internal Revenue Code if:
substantially all of its assets consist of debt obligations or interests in debt obligations;
more than 50% of those debt obligations are real estate mortgages or interests in real estate mortgages as of specified testing dates;
the entity has issued debt obligations (liabilities) that have two or more maturities; and
the payments required to be made by the entity on its debt obligations (liabilities) “bear a relationship” in large part to the payments to be received by the entity on the debt obligations that it holds as assets.
Our financing and securitization arrangements may give rise to TMPs with the consequences described below.
Where an entity, or a portion of an entity, is classified as a TMP, it is generally treated as a taxable corporation for federal income tax purposes. However, in the case of a REIT, or a portion of a REIT, or a disregarded subsidiary of a REIT, that is a TMP, special rules apply. The TMP is not treated as a corporation that is subject to corporate income tax, and the TMP
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classification does not directly affect the tax qualification of the REIT. Rather, the consequences of the TMP classification generally would be limited to the stockholders of the REIT, except as noted below.
A portion of the REIT’s income from the TMP, which might be noncash accrued income, could be treated as excess inclusion income. Section 860E(c) of the Internal Revenue Code defines the term “excess inclusion” with respect to a residual interest in a REMIC. The IRS, however, has yet to issue guidance on the computation of excess inclusion income on equity interests in a TMP held by a REIT. Generally, excess inclusion income with respect to our investment in any TMP and any taxable year will equal the excess of (i) the amount of income we accrue on our investment in the TMP over (ii) the amount of income we would have accrued if our investment were a debt instrument having an issue price equal to the fair market value of our investment on the day we acquired it and a yield to maturity equal to 120% of the long-term applicable federal rate in effect on the date we acquired our interest. The term “applicable federal rate” refers to rates that are based on weighted average yields for treasury securities and are published monthly by the IRS for use in various tax calculations.
If we undertake financing or securitization transactions that are TMPs, the amount of excess inclusion income we recognize in any taxable year could represent a significant portion of our total taxable income for that year. Under IRS guidance, the REIT’s excess inclusion income, including any excess inclusion income from a residual interest in a REMIC, must be allocated among its stockholders in proportion to distributions paid. We are required to notify our stockholders of the amount of “excess inclusion income” allocated to them. A stockholder’s share of our excess inclusion income:
cannot be offset by any net operating losses otherwise available to the stockholder;
is subject to tax as unrelated business taxable income in the hands of most types of stockholders that are otherwise generally exempt from federal income tax, including qualified employee pension and profit sharing trusts and individual retirement accounts; and
results in the application of U.S. federal income tax withholding at the maximum rate (30%), without reduction for any otherwise applicable income tax treaty or other exemption, to the extent allocable to most types of foreign stockholders.
To the extent that excess inclusion income is allocated from a TMP to a tax-exempt stockholder of a REIT that is not subject to unrelated business income tax (such as a government entity), the REIT will be subject to tax on this income at the highest applicable corporate tax rate. In this case, we are authorized to reduce and intend to reduce distributions to such stockholders by the amount of such tax paid by the REIT that is attributable to such stockholder’s ownership. The manner in which excess inclusion income is calculated, or would be allocated to stockholders, including allocations among shares of different classes of stock, remains unclear under current law. As required by IRS guidance, we intend to make such determinations using a reasonable method.
Tax-exempt investors, foreign investors and taxpayers with net operating losses should carefully consider the tax consequences described above, and are urged to consult their tax advisors.
ITEM 1B.    UNRESOLVED STAFF COMMENTS
None.
ITEM 2.    PROPERTIES    
See Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Real Estate Portfolio Information for a discussion of the properties we hold for rental operations and Part IV, Item 15. Exhibits, Financial Statement Schedules — Schedule III — Real Estate and Accumulated Depreciation of this Annual Report on Form 10-K for a detailed listing of such properties.
ITEM 3.    LEGAL PROCEEDINGS
In the ordinary course of business, we may become subject to litigation or claims. We are not aware of any material pending legal proceedings, other than ordinary routine litigation incidental to our business, to which we are a party or to which our properties are the subject.
ITEM 4.     MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5.    MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
As of March 21, 2022, we had approximately 437.4 million shares of common stock outstanding, held by a total of 76,748 stockholders of record. The number of stockholders is based on the records of DST Systems, Inc., which serves as our registrar and transfer agent.
There is no established trading market for our common stock. Therefore, there is a risk that a stockholder may not be able to sell our stock at a time or price acceptable to the stockholder, or at all. Unless and until our shares are listed on a national securities exchange, we do not expect that a public market for the shares will develop. Pursuant to the DRIP Offerings, we issue shares of our common stock at the most recently disclosed estimated per share NAV as determined by our Board. As of December 31, 2021, the most recent estimated per share NAV was $7.20 per share, which was established on May 25, 2021 using a valuation date of March 31, 2021.
To assist fiduciaries of tax-qualified pension, stock bonus or profit-sharing plans, employee benefit plans and annuities described in Section 403(a) or (b) of the Code or an individual retirement account or annuity described in Section 408 of the Code subject to the annual reporting requirements of ERISA and IRA trustees or custodians in preparation of reports relating to an investment in the shares, we will publicly disclose and provide reports, as requested, of the per share estimated value of our common stock to those fiduciaries who request such reports. Furthermore, in order for FINRA members and their associated persons to participate in the Offering, we are required pursuant to FINRA Rule 5110 to disclose in each annual report distributed to stockholders a per share estimated value of the shares, the method by which it was developed and the date of the data used to develop the estimated value. In addition, pursuant to FINRA Rule 2231, we are required to publish an updated estimated per share NAV on at least an annual basis. The Board will make decisions regarding the valuation methodology to be employed, who will perform valuations of our assets and the frequency of such valuations; provided, however, that the determination of the estimated per share NAV must be conducted by, or with the material assistance or confirmation of, a third-party valuation expert and must be derived from a methodology that conforms to standard industry practice. The Board established an updated estimated per share NAV on May 25, 2021 of $7.20 per share using a valuation date of March 31, 2021, using a methodology that conformed to standard industry practice. However, as set forth above, there is no public trading market for the shares at this time and stockholders may not receive $7.20 per share if a market did exist. We have not made any adjustments to the valuation of our estimated per share NAV for the impact of other transactions occurring subsequent to May 25, 2021, including, but not limited to, the consummation of the CIM Income NAV Merger on December 16, 2021.
In determining the estimated per share NAV as of March 31, 2021, our Board considered information and analysis, including valuation materials that were provided by our independent valuation expert, information provided by CMFT Management, and the estimated per share NAV recommendation made by the valuation, compensation and affiliate transactions committee of our Board, which committee is comprised of all of our independent directors. See our Current Report on Form 8-K, filed with the SEC on May 26, 2021, for additional information regarding our independent valuation expert and its valuation materials.
Share Redemption Program
The Board has adopted a share redemption program that enables our stockholders to sell their shares to us in limited circumstances, subject to the conditions and limitations described below.
Our common stock is currently not listed on a national securities exchange, and while we intend to pursue a listing of our common stock on a national securities exchange, we will not list our stock unless and until such time as our board of directors believe that the listing of our stock would be in the best interest of our stockholders. In order to provide stockholders with the benefit of interim liquidity, stockholders may present all, or a portion, of their shares consisting of at least the lesser of (1) 25% of the stockholder’s shares; or (2) a number of shares with an aggregate redemption price of at least $2,500, to us for redemption at any time in accordance with the procedures outlined below. At that time, we may, subject to the conditions and limitations described below, redeem the shares presented for redemption for cash to the extent that we have sufficient funds available to us to fund such redemption. We will not pay to our sponsor, our Board, or our manager or its affiliates any fees to complete any transactions under our share redemption program.
The per share redemption price (other than for shares purchased pursuant to our DRIP and as provided below for redemptions due to a stockholder’s death) depends on the length of time the stockholder has held such shares as follows: after two years from the purchase date, 97.5% of the most recently determined estimated per share NAV; and after three years from
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the purchase date, 100% of the most recently determined estimated per share NAV. The redemption price for shares purchased pursuant to our DRIP will be 100% of the most recently determined estimated per share NAV. In each case, the redemption price will be adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to our common stock. The estimated per share NAV for purposes of our share redemption program as of December 31, 2021 was $7.20 per share, which estimated per share NAV was determined by our Board on May 25, 2021 using a valuation date of March 31, 2021. As a result of our Board’s determination of an updated estimated per share NAV of our shares of common stock on May 25, 2021, the estimated per share NAV of $7.20 as of March 31, 2021 will serve as the most recent estimated per share NAV for purposes of the share redemption program, effective May 25, 2021 until such time as the Board determines a new estimated per share NAV. We have not made any adjustments to the valuation of our estimated per share NAV for the impact of other transactions occurring subsequent to May 25, 2021, including, but not limited to, the consummation of the CIM Income NAV Merger on December 16, 2021.
In determining the redemption price, we consider shares to have been redeemed from a stockholder’s account on a first-in, first-out basis. The Board will announce any redemption price adjustment and the time period of its effectiveness as a part of its regular communications with our stockholders. If we have made one or more special distributions to our stockholders of all or a portion of the net proceeds from such sales, the per share redemption price will be reduced by the net sale proceeds per share distributed to stockholders prior to the redemption date. The Board will, in its sole discretion, determine which distributions, if any, constitute a special distribution. While our Board does not have specific criteria for determining a special distribution, we expect that a special distribution will only occur upon the sale of a property and the subsequent distribution of the net sale proceeds.
Upon receipt of a request for redemption, we may conduct a Uniform Commercial Code (“UCC”) search to ensure that no liens are held against the shares. Any costs for conducting the UCC search will be borne by us.
In the event of the death of a stockholder, we must receive a written redemption request from the stockholder’s estate within 12 months after the stockholder’s death in order to be eligible for a redemption due to a stockholder’s death. Shares redeemed in connection with a stockholder’s death will be redeemed at a purchase price per share equal to 100% of the estimated per share NAV.
In the event that a stockholder requests a redemption of all of their shares, and such stockholder is participating in our DRIP, the stockholder will be deemed to have notified us, at the time they submit their redemption request, that such stockholder is terminating its participation in our DRIP, and has elected to receive future distributions in cash. This election will continue in effect even if less than all of such stockholder’s shares are redeemed unless they notify us that they wish to resume their participation in our DRIP.
We will limit the number of shares redeemed pursuant to our share redemption program as follows: (1) we will not redeem in excess of 5% of the weighted average number of shares outstanding during the trailing 12 months prior to the end of the fiscal quarter for which the redemptions are being paid; and (2) funding for the redemption of shares will be limited, among other things, to the net proceeds we receive from the sale of shares under our DRIP, net of shares redeemed to date. In an effort to accommodate redemption requests throughout the calendar year, we intend to limit quarterly redemptions to approximately 1.25% of the weighted average number of shares outstanding during the trailing 12-month period ending on the last day of the fiscal quarter, and funding for redemptions for each quarter generally will be limited, among other things, to the net proceeds we receive from the sale of shares in the respective quarter under our DRIP; however, our management may waive these quarterly limitations in its sole discretion, subject to the 5% cap on the number of shares we may redeem during the respective trailing 12-month period. Any of the foregoing limits might prevent us from accommodating all redemption requests made in any quarter, in which case quarterly redemptions will be made pro rata, except as described below. Our management also reserves the right, in its sole discretion at any time, and from time to time, to reject any request for redemption for any reason.
We will redeem our shares no later than the end of the month following the end of each fiscal quarter. Requests for redemption must be received on or prior to the end of the fiscal quarter in order for us to repurchase the shares in the month following the end of that fiscal quarter. A stockholder may withdraw their request to have shares redeemed, but all such requests generally must be submitted prior to the last business day of the applicable fiscal quarter. Any redemption capacity that is not used as a result of the withdrawal or rejection of redemption requests may be used to satisfy the redemption requests of other stockholders received for that fiscal quarter, and such redemption payments may be made at a later time than when that quarter’s redemption payments are made.
We will determine whether we have sufficient funds and/or shares available as soon as practicable after the end of each fiscal quarter, but in any event prior to the applicable payment date. If we cannot purchase all shares presented for redemption in any fiscal quarter, based upon insufficient cash available from DRIP and/or the limit on the number of shares we may redeem during any quarter or year, we will give priority to the redemption of deceased stockholders’ shares. While deceased
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stockholders’ shares 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 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 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 would be honored on a pro rata basis. We next will give priority to requests for full redemption of accounts with a balance of 250 shares or less at the time we receive the request, in order to reduce the expense of maintaining small accounts. Thereafter, we will honor the remaining redemption requests on a pro rata basis. Following such quarterly redemption period, if a stockholder would like to resubmit the unsatisfied portion of the prior request for redemption, such stockholder must submit a new request for redemption of such shares prior to the last day of the new quarter. Unfulfilled requests for redemption will not be carried over automatically to subsequent redemption periods.
Our share redemption program is only intended to provide interim liquidity for stockholders until a liquidity event occurs, which may include the sale of the Company, the sale of all or substantially all of our assets, a merger or similar transaction, an alternative strategy that will result in a significant increase in opportunities for stockholders to redeem their shares or the listing of the shares of our common stock for trading on a national securities exchange. We cannot guarantee that a liquidity event will occur.
The shares we redeem under our share redemption program are canceled and returned to the status of authorized but unissued shares. We do not intend to resell such shares to the public unless they are first registered with the SEC under the Securities Act and under appropriate state securities laws or otherwise sold in compliance with such laws.
The Board may choose to amend, suspend or terminate our share redemption program in its sole discretion if it believes that such action is in the best interest of our stockholders. Additionally, we will be required to discontinue sales of shares under our Secondary DRIP Offering on the date we sell all of the shares registered for sale under the Secondary DRIP Offering, unless we register additional DRIP shares to be offered pursuant to an effective registration statement with the SEC and applicable states. Because the redemption of shares will be funded with the net proceeds we receive from the sale of shares under our Secondary DRIP Offering, net of shares redeemed to date, the discontinuance or termination of our Secondary DRIP Offering will adversely affect our ability to redeem shares under the share redemption program. We will notify our stockholders of such developments (1) in our next annual or quarterly report or (2) by means of a separate mailing, accompanied by disclosure in a current or periodic report under the Exchange Act.
During the year ended December 31, 2021, we received valid redemption requests under our share redemption program totaling approximately 86.2 million shares, of which we redeemed approximately 3.0 million shares as of December 31, 2021 for $22.0 million (at an average redemption price of $7.20 per share) and approximately 1.3 million shares subsequent to December 31, 2021 for $9.4 million (at an average redemption price of $7.20 per share). The remaining redemption requests relating to approximately 81.9 million shares went unfulfilled. During the year ended December 31, 2020, we received valid redemption requests under our share redemption program totaling approximately 48.3 million shares, of which we redeemed approximately 3.8 million shares as of December 31, 2020 for $28.5 million (at an average redemption price of $7.60 per share). The remaining redemption requests relating to approximately 44.5 million shares went unfulfilled. A valid redemption request is one that complies with the applicable requirements and guidelines of our current share redemption program set forth above. We funded such redemptions with proceeds from our DRIP Offerings. During the years ended December 31, 2021 and 2020, we issued approximately 3.6 million and 4.2 million shares of common stock, respectively, under the DRIP Offerings, for proceeds of $25.8 million and $34.2 million, respectively, which were recorded as redeemable common stock on the consolidated balance sheets, net of any redemptions paid, prior to the suspension of the share redemption program on August 30, 2020 and subsequent to the reinstatement of the share redemption program on April 1, 2021.
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In general, we redeem shares on a quarterly basis. During the three-month period ended December 31, 2021, we redeemed shares, including those redeemable due to a stockholder’death, as follows:
PeriodTotal Number
of Shares
Redeemed
Average Price
Paid per Share
Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs
Maximum Number of
Shares that May Yet Be
Purchased Under the
Plans or Programs
October 1, 2021 - October 31, 2021— $— — (1)
November 1, 2021 - November 30, 20211,334,682 $7.20 1,334,682 (1)
December 1, 2021 - December 31, 202113,527 $7.20 13,527 (1)
Total1,348,209 1,348,209 
 ____________________________________
(1)A description of the maximum number of shares that may be purchased under our share redemption program is included in the narrative preceding this table.
See Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Share Redemptions in this Annual Report on Form 10-K, and Note 15 — Stockholders’ Equity to our consolidated financial statements in this Annual Report on Form 10-K for additional share redemption information.
Distributions
We elected to be taxed, and conduct our operations to qualify, as a REIT for federal income tax purposes, commencing with our taxable year ended December 31, 2012. As a REIT, we have made, and intend to continue to make, distributions each taxable year equal to at least 90% of our taxable income (computed without regard to the dividends paid deduction and excluding net capital gains). One of our primary goals is to pay regular (monthly) distributions to our stockholders.
See Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Distributions in this Annual Report on Form 10-K for additional information on distributions.
For federal income tax purposes, distributions to stockholders are characterized as ordinary dividends, capital gain distributions, or nondividend distributions. To the extent that we make a distribution in excess of our current or accumulated earnings and profits, the distribution will be a nontaxable return of capital, reducing the tax basis in each U.S. stockholder’s shares. In addition, the amount of distributions in excess of U.S. stockholders’ tax basis in their shares will be taxable as a capital gain realized from the sale of those shares. See Note 16 — Income Taxes to our consolidated financial statements in this Annual Report on Form 10-K for the character of the distributions paid during the years ended December 31, 2021, 2020 and 2019.
The following table shows the distributions declared on a per share basis during the years ended December 31, 2021, 2020 and 2019 (in thousands, except per share data):
Year Ending December 31,Total Distributions
Declared
Distributions Declared
per Common Share
2021$134,045 $0.364 
2020$119,305 $0.38 
2019$194,463 $0.625 
ITEM 6.    RESERVED
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, 2020 and 2019, 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, 2020.
Overview
We are primarily focused on originating, acquiring, financing and managing shorter duration senior secured loans, other related credit investments and core commercial real estate. Our investment strategy allows us to adapt over time in order to
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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. We are continuing our strategy as a credit focused REIT, balancing our existing core of necessity commercial real estate assets leased to creditworthy tenants under long-term net leases with a portfolio of commercial mortgage loans and other credit investments. Assuming the successful repositioning of our portfolio and subject to market conditions, we then expect to pursue a listing of our common stock on a national securities exchange, though we can provide no assurances that a listing will happen on that timeframe or at all.
We were formed on July 27, 2010, and we elected to be taxed, and conduct our operations to qualify, as a REIT for U.S. federal income tax purposes. We have no paid employees and are externally managed by CMFT Management and, with respect to investments in securities and certain other of our investments, our Investment Advisor, each of which is an affiliate of CIM, a community-focused real estate and infrastructure owner, operator, lender and developer.
As of December 31, 2021, we owned 514 properties, which consisted of 432 retail properties, 56 anchored shopping centers, 14 industrial properties and 12 office properties, representing 40 industry sectors and comprising 22.7 million rentable square feet of commercial space located in 45 states. In addition, during the year ended December 31, 2021, we completed foreclosure proceedings and took control of the assets which were previously secured by our mezzanine loans. As of December 31, 2021, we owned condominium developments with a net book value of $171.1 million.
As of December 31, 2021, our loan portfolio consisted of 317 loans with a net book value of $2.6 billion. As of December 31, 2021, we had $36.5 million of unsettled liquid senior loan purchases included in cash and cash equivalents, and investments in real estate-related securities of $105.5 million.
In furtherance of our strategy, during the year ended December 31, 2021, we disposed of 117 properties and an outparcel of land, encompassing 3.8 million gross rentable square feet. In addition, on December 20, 2021, certain subsidiaries of the Company entered into the Purchase and Sale Agreement to sell 79 shopping centers and two single-tenant properties, for which we will receive, in the aggregate, approximately $1.32 billion in total consideration at closing. As a result, we classified the 81 properties with a carrying value of $1.3 billion as held for sale in the consolidated balance sheets as of December 31, 2021. Subsequent to December 31, 2021, the sale of 56 properties closed under the Purchase and Sale Agreement for total consideration of $811.8 million, as further discussed in Note 19 — Subsequent Events to the consolidated financial statements in this Annual Report on Form 10-K. The remaining 25 properties are expected to close in the second quarter of 2022.
Our operating results and cash flows are primarily influenced by rental and other property income from our commercial properties, interest income from our credit investments, interest expense on our indebtedness and investment and operating expenses. As 94.2% of our rentable square feet was under lease, including any month-to-month agreements, as of December 31, 2021 with a weighted average remaining lease term of 8.6 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, including due to circumstances related to COVID-19. 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 CMFT Management 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. In addition, our manager reviews our investment portfolios and is in regular contact with our borrowers, monitoring performance of the collateral and enforcing our rights as necessary.
Recent Developments
COVID-19
We are closely monitoring the negative impacts that the COVID-19 pandemic and the efforts to mitigate its spread are having on the economy, our tenants and our business. The extent to which the COVID-19 pandemic continues to impact our operations and those of our tenants will depend on future developments, including, among other factors, the duration, spread and resurgences of the virus, including certain variants thereof, along with related travel advisories and restrictions, the recovery time of the disrupted supply chains and industries, the impact of labor market interruptions, the impact of government interventions, the pace, scope and efficacy of vaccination programs, and general uncertainty as to the impact of COVID-19, including related variants, on the global economy.
During the year ended December 31, 2021, the majority of lease concessions provided were in the form of rent abatements to certain tenants in response to the impact of the COVID-19 pandemic on those tenants.
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As of March 21, 2022, we have collected approximately 99.6% of rental payments billed to tenants during the three months ended December 31, 2021. Additionally, as of March 21, 2022, we had granted rent deferrals with an aggregate deferral amount of $7.0 million. No rent deferrals were granted during the three months ended December 31, 2021. As of March 21, 2022, we collected approximately 100% of deferred rental amounts due through December 31, 2021.
Merger
On December 16, 2021, we completed the CIM Income NAV Merger. Through the CIM Income NAV Merger, we acquired 115 properties with a total of 5.1 million square feet, with an aggregate gross real estate value of approximately $844.8 million. The combined company after the CIM Income NAV Merger retained the name “CIM Real Estate Finance Trust, Inc.” The CIM Income NAV Merger qualified as a “reorganization” under, and within the meaning of, Section 368(a) of the Code.
Operating Highlights and Key Performance Indicators
2021 Activity
Operating Results:
Net income of $86.5 million, or $0.24 per share.
Declared distributions of $0.36 per share.
Credit Portfolio Activity:
Invested $406.7 million in liquid senior loans and sold liquid senior loans for an aggregate gross sales price of $70.6 million.
Invested $1.8 billion in first mortgage loans and received principal repayments of $326.1 million.
Invested $321.2 million in CMBS and preferred units and sold CMBS for an aggregate gross sales price of $256.8 million.
Completed foreclosure proceedings to take control of the assets which previously secured our mezzanine loans, including 75 condominium units and 21 rental units across four buildings.
Real Estate Portfolio Activity:
Completed the CIM Income NAV Merger, which included the acquisition of 115 properties with an aggregate value of $844.8 million and the assumption of debt totaling $437.9 million.
Disposed of 117 properties, consisting of 113 retail properties, three anchored shopping center and one industrial property, and an outparcel of land for an aggregate sales price of $490.3 million.
Entered into a Purchase and Sale Agreement to dispose of 79 shopping centers and two single-tenant properties for total consideration of approximately $1.32 billion.
Financing Activity:
Entered into two repurchase agreements that provide up to $880.0 million to finance a portfolio of existing and future commercial real estate mortgage loans.
Increased total debt by $2.1 billion, from $2.1 billion to $4.2 billion.
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Portfolio Information
The following table shows the carrying value of our portfolio by investment type as of December 31, 2021 and 2020 (dollar amounts in thousands):
 As of December 31,
20212020
Asset CountCarrying ValueAsset CountCarrying Value
Loan Held-For-Investment
Mezzanine loans$— — %8$147,475 3.5 %
First mortgage loans221,968,585 29.8 %4341,546 8.1 %
Liquid senior loans295655,516 9.9 %194473,603 11.3 %
Less: Current expected credit losses(15,201)(0.2)%(70,358)(1.7)%
Total loans-held-for-investment and related receivable, net3172,608,900 39.5 %206892,266 21.2 %
Real Estate-Related Securities
CMBS and marketable security341,981 0.6 %438,194 0.9 %
Preferred units163,490 1.0 %— — %
Real Estate
Total real estate assets and intangible lease liabilities, net5143,887,348 58.9 %5163,278,905 77.9 %
Total Investment Portfolio835$6,601,719 100.0 %726$4,209,365 100.0 %
Credit Portfolio Information
The following table details overall statistics for our credit portfolio as of December 31, 2021 (dollar amounts in thousands):
First Mortgage Loans and Preferred Units (1)
Liquid Senior LoansCMBS and Marketable Security
Number of investments23 295 
Principal balance$2,049,212 $659,007 $59,981 
Net book value$2,022,145 $650,245 $41,981 
Unfunded or unsettled loan commitments$209,368 $38,469 $— 
Weighted-average interest rate3.5 %3.7 %4.0 %
Weighted-average maximum years to maturity (2)
4.25.126.0 
____________________________________
(1)As of December 31, 2021, 100% of our CRE loans by principal balance earned a floating rate of interest, primarily indexed to U.S. dollar LIBOR and SOFR.
(2)Maximum maturity date assumes all extension options are exercised by the borrower; however, our CRE loans may be repaid prior to such date.
As of December 31, 2021, our Credit Segment’s investment portfolio, excluding CMBS and liquid senior loans, had the following characteristics based on carrying values:
Collateral Property TypeAs of December 31, 2021
Office$930,587 45.8 %
Mixed Use190,743 9.3 %
Multifamily846,356 41.7 %
Retail64,389 3.2 %
$2,032,075 100.0 %
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Geographic LocationAs of December 31, 2021
South$818,153 40.3 %
West622,055 30.6 %
East511,535 25.2 %
Midwest80,332 3.9 %
$2,032,075 100.0 %
Real Estate Portfolio Information
As of December 31, 2021, we owned 514 properties located in 45 states, the gross rentable square feet of which was 94.2% leased, including any month-to-month agreements, with a weighted average lease term remaining of 8.6 years. During the year ended December 31, 2021, we disposed of 117 properties, for an aggregate gross sales price of $490.3 million. Additionally, during the year ended December 31, 2021, we sold condominium units for an aggregate gross sales price of $42.3 million.
The following table shows the property statistics of our real estate assets as of December 31, 2021 and 2020:
 As of December 31,
 20212020
Number of commercial properties514 516 
Rentable square feet (in thousands) (1)
22,720 21,309 
Percentage of rentable square feet leased94.2 %94.1 %
Percentage of investment-grade tenants (2)
37.4 %38.0 %
____________________________________
(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.
The following table summarizes our real estate acquisition activity during the years ended December 31, 2021 and 2020:
  
Year Ended December 31,
 20212020
Commercial properties acquired 115 150 
Purchase price of acquired properties (in thousands)$911,262 $798,500 
Rentable square feet (in thousands) (1)
5,124 3,945 
____________________________________
(1)     Includes square feet of buildings on land parcels subject to ground leases.
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The following table shows the tenant diversification of our real estate portfolio, based on annualized rental income, as of December 31, 2021:
20212021Percentage of
TotalLeasedAnnualizedAnnualized2021
NumberSquare FeetRental IncomeRental IncomeAnnualized
Tenant
of Leases (1)
(in thousands) (2)
(in thousands)
per Square Foot (2)
Rental Income
Lowe’s17 2,196 $14,833 $6.75 %
CVS46 574 12,666 22.07 %
United Oil64 10,928 170.75 %
Walgreens29 426 10,445 24.52 %
LA Fitness11 492 9,677 19.67 %
PetSmart30 524 8,208 15.66 %
Dick’s Sporting Goods13 596 7,481 12.55 %
Home Depot555 7,408 13.35 %
Bob Evans190 6,866 36.14 %
Cabela’s403 6,544 16.24 %
Other865 15,390 198,990 12.93 68 %
1,023 21,410 $294,046 $13.73 100 %
____________________________________
(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 tenant industry diversification of our real estate portfolio, based on annualized rental income, as of December 31, 2021:
20212021Percentage of
TotalLeasedAnnualizedAnnualized2021
NumberSquare FeetRental IncomeRental IncomeAnnualized
Industry
of Leases (1)
(in thousands) (2)
(in thousands)
per Square Foot (2)
Rental Income
Sporting Goods, Hobby, and Musical Instrument Stores63 2,910 $33,108 $11.38 11 %
Health and Personal Care Stores115 1,198 27,414 22.88 %
Grocery Stores40 1,901 23,564 12.40 %
Building Material and Supplies Dealers25 2,796 22,795 8.15 %
General Merchandise Stores, including Warehouse Clubs and Superstores77 2,195 21,219 9.67 %
Restaurants and Other Eating Places137 623 19,178 30.78 %
Manufacturing16 1,753 16,214 9.25 %
Department Stores48 1,861 15,916 8.55 %
Gasoline Stations13 96 13,375 139.32 %
Arts, Entertainment, and Recreation23 675 11,980 17.75 %
Other466 5,402 89,283 16.53 30 %
1,023 21,410 $294,046 $13.73 100 %
____________________________________
(1)     Includes leases which are master lease agreements.
(2)     Includes square feet of the buildings on land parcels subject to ground leases.
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The following table shows the geographic diversification of our real estate portfolio, based on annualized rental income, as of December 31, 2021:
20212021Percentage of
TotalRentableAnnualizedAnnualized2021
Number ofSquare FeetRental IncomeRental IncomeAnnualized
LocationProperties
(in thousands) (1)
(in thousands)
per Square Foot (1)
Rental Income
Ohio48 2,427 $28,465 $11.73 10 %
California46 706 25,541 36.18 %
Texas52 1,493 20,373 13.65 %
Illinois25 1,889 19,258 10.19 %
Georgia18 1,488 16,430 11.04 %
Florida25 1,144 15,181 13.27 %
North Carolina29 1,219 15,167 12.44 %
Wisconsin17 1,408 14,752 10.48 %
Indiana21 1,172 13,395 11.43 %
Alabama16 862 10,637 12.34 %
Other217 8,912 114,847 12.89 39 %
514 22,720 $294,046 $12.94 100 %
____________________________________
(1)     Includes square feet of the buildings on land parcels subject to ground leases.
The following table shows the property type diversification of our real estate portfolio, based on annualized rental income, as of December 31, 2021:
20212021Percentage of
TotalRentableAnnualizedAnnualized2021
Number ofSquare FeetRental IncomeRental IncomeAnnualized
Property TypeProperties
(in thousands) (1)
(in thousands)
per Square Foot (1)
Rental Income
Retail432 11,586 $163,540 $14.12 56 %
Anchored shopping centers56 8,256 97,810 11.85 33 %
Office12 1,327 23,148 17.44 %
Industrial14 1,551 9,548 6.16 %
514 22,720 $294,046 $12.94 100 %
____________________________________
(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 $7,200 to $4.5 million (average of $269,000). Certain leases provide for limited increases in rent as a result of fixed increases or increases in the consumer price index.
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The following table shows lease expirations of our real estate portfolio, as of December 31, 2021, during each of the next ten years and thereafter, assuming no exercise of renewal options:
2021
TotalLeasedAnnualized2021Percentage of
NumberSquare Feet Rental IncomeAnnualized2021
of LeasesExpiringExpiringRental IncomeAnnualized
Year of Lease Expiration
Expiring (1)
(in thousands) (2)
(in thousands)
per Square Foot (2)
Rental Income
202266 536 $5,866 $10.94 %
2023121 1,352 19,818 14.66 %
2024134 1,782 22,651 12.71 %
2025105 1,299 17,246 13.28 %
2026120 2,003 25,511 12.74 %
202783 1,797 20,797 11.57 %
202848 917 13,216 14.41 %
202952 1,125 15,169 13.48 %
203040 660 12,440 18.85 %
203161 2,575 26,192 10.17 %
Thereafter193 7,364 115,140 15.64 39 %
1,023 21,410 $294,046 $13.73 100 %
____________________________________
(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 economic metrics of our real estate assets as of and for the years ended December 31, 2021 and 2020:
20212020
Economic Metrics
Weighted-average lease term (in years) (1)
8.68.8
Lease rollover (1)(2):
Annual average
6.2%6.3%
Maximum for a single year
8.7%8.7%
____________________________________
(1)Based on annualized rental income of our real estate portfolio as of December 31, 2021 and 2020.
(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 the effects of the COVID-19 pandemic, and national economic conditions affecting real estate in general, that may reasonably be expected to have a material impact on our results from the acquisition, management and operation of properties other than those listed in Part I, Item 1A. Risk Factors. Currently, we are unable to predict the impact that the COVID-19 pandemic will have on our financial condition, results of operations and cash flows in future periods due to numerous uncertainties.
For a comparison of the years ended December 31, 2020 and 2019, 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, 2020.
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
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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 (loss). 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 Years Ended December 31, 2021 and 2020
The following table reconciles net income (loss), calculated in accordance with GAAP, to net operating income (dollar amounts in thousands):
Total
For the Year Ended December 31,
20212020Change
Net income (loss)$86,490 $(23,518)$110,008 
Loss on extinguishment of debt4,895 4,841 54 
Interest expense and other, net83,899 64,116 19,783 
Gain on investment in unconsolidated entities(606)— (606)
Operating income174,678 45,439 129,239 
Merger termination fee income— (7,380)7,380 
Merger-related expenses, net1,404 1,884 (480)
Gain on disposition of real estate and condominium developments, net(83,045)(27,518)(55,527)
Increase in provision for credit losses2,881 68,356 (65,475)
Real estate impairment18,078 16,737 1,341 
Depreciation and amortization95,190 80,973 14,217 
Transaction-related expenses315 355 (40)
Management fees47,020 40,025 6,995 
Expense reimbursements to related parties11,624 8,920 2,704 
General and administrative expenses15,078 12,042 3,036 
Interest income(70,561)(29,393)(41,168)
Net operating income$212,662 $210,440 $2,222 
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.
Credit Segment
Interest Income
The increase in interest income of $41.2 million for the year ended December 31, 2021, compared to the year ended December 31, 2020, was due to an increase in the overall size of our investment portfolio. As of December 31, 2021, we held investments in CRE loans held-for-investment of $2.0 billion, liquid senior loans of $655.5 million, CMBS and other securities of $42.0 million, and an investment in preferred units of $63.5 million. As of December 31, 2020, we held investments in CRE loans held-for-investment of $489.0 million, liquid senior loans of $473.6 million, and CMBS of $38.2 million.
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Provision for Credit Losses
The decrease in provision for credit losses of $65.5 million during the year ended December 31, 2021, as compared to the year ended December 31, 2020, was primarily due to the foreclosure of the assets which previously secured our mezzanine loans. During the year ended December 31, 2020, the borrower on our eight mezzanine loans remained delinquent on the required reserve payments and became delinquent on principal and interest, resulting in the recording of $56.5 million in credit losses related to the mezzanine loans. Upon completing foreclosure proceedings in January 2021, we took control of the assets which previously secured the loans. The decrease was partially offset by an increase in the provision to credit losses due to the increased number of loan investments entered into during the year ended December 31, 2021.
Real Estate Segment
A total of 292 properties were acquired before January 1, 2020 and represent our “same store” properties during the years ended December 31, 2021 and 2020. “Non-same store” properties, for purposes of the table below, includes properties acquired or disposed of on or after January 1, 2020.
The following table details the components of net operating income broken out between same store and non-same store properties (dollar amounts in thousands):
TotalSame StoreNon-Same Store
For the Year Ended December 31,For the Year Ended December 31,For the Year Ended December 31,
20212020Change20212020Change20212020Change
Rental and other property income$295,164 $261,530 $33,634 $217,806 $217,360 $446 $77,358 $44,170 $33,188 
Property operating expenses47,559 23,399 24,160 25,601 20,290 5,311 21,958 3,109 18,849 
Real estate tax expenses34,943 27,691 7,252 23,904 24,520 (616)11,039 3,171 7,868 
Total property operating expenses82,502 51,090 31,412 49,505 44,810 4,695 32,997 6,280 26,717 
Net operating income$212,662 $210,440 $2,222 $168,301 $172,550 $(4,249)$44,361 $37,890 $6,471 
Loss on Extinguishment of Debt
The loss on extinguishment of debt remained consistent for the year ended December 31, 2021, as compared to the year ended December 31, 2020.
Interest Expense and Other, Net
Interest expense and other, net also includes amortization of deferred financing costs.
The increase in interest expense and other, net, of $19.8 million for the year ended December 31, 2021, as compared to the year ended December 31, 2020, was primarily due to an increase in the average aggregate amount of debt outstanding from $1.8 billion as of December 31, 2020 to $2.8 billion as of December 31, 2021 as a result of entering into additional repurchase agreements, originating the Mortgage Loan and Class A Notes (as such terms are defined in Note 10 — Credit Facilities, Notes Payable and Repurchase Facilities to our consolidated financial statements in the Annual Report on Form 10-K), and assuming the CIM Income NAV Credit Facility (as defined below) and fixed rate debt as part of the CIM Income NAV Merger. This increase was partially offset by a decrease in the weighted average interest rate from 3.4% as of December 31, 2020 to 2.6% as of December 31, 2021.
Merger Termination Fee Income
In connection with its termination of the Agreement and Plan of Merger by and among the Company, Cole Office & Industrial REIT (CCIT II), Inc. (“CCIT II”) and the other parties thereto, CCIT II paid a termination fee of $7.4 million during the year ended December 31, 2020. No such fees were received during the year ended December 31, 2021.
Merger-Related Expenses, Net
The decrease in merger-related expenses, net of $480,000 during the year ended December 31, 2021, as compared to the year ended December 31, 2020, was primarily due to incurring expenses related to the CIM Income NAV Merger of $1.4 million during the year ended December 31, 2021, compared to incurring expenses related to the mergers with Cole Office & Industrial REIT (CCIT III), Inc. and Cole Credit Property Trust V, Inc. (the “CCIT III and CCPT V Mergers”) of $1.9 million during the year ended December 31, 2020.
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Gain on Disposition of Real Estate and Condominium Developments, Net
The increase in gain on disposition of real estate and condominium developments, net of $55.5 million during the year ended December 31, 2021, as compared to the year ended December 31, 2020, was primarily due to the disposition of 117 properties for a gain of $77.2 million and the disposition of condominium units for a gain of $5.9 million during the year ended December 31, 2021, compared to the disposition of 30 properties for a gain of $27.5 million during the year ended December 31, 2020 and no condominium unit dispositions during the year ended December 31, 2020.
Real Estate Impairment
The increase in impairments during the year ended December 31, 2021, as compared to the year ended December 31, 2020, was due to certain condominium units and 12 properties that were deemed to be impaired, resulting in impairment charges of $18.1 million during the year ended December 31, 2021, compared to 12 properties that were deemed to be impaired, resulting in impairment charges of $16.7 million during the year ended December 31, 2020.
Depreciation and Amortization
The increase in depreciation and amortization expenses of $14.2 million during the year ended December 31, 2021, as compared to the year ended December 31, 2020, was primarily due to the acquisition of 146 properties in connection with the CCIT III and CCPT V Mergers that closed in December 2020, partially offset by the disposition of 117 properties subsequent to December 31, 2020.
Transaction-Related Expenses
Transaction-related expenses remained consistent during the year ended December 31, 2021, as compared to the year ended December 31, 2020.
Management Fees
We pay CMFT Management a management fee pursuant to the Management Agreement, payable quarterly in arrears, equal to the greater of (a) $250,000 per annum ($62,500 per quarter) and (b) 1.50% per annum (0.375% per quarter) of the Company’s Equity (as defined in the Management Agreement). Furthermore, as discussed in Note 13 — Related-Party Transactions and Arrangements to our consolidated financial statements in this Annual Report on Form 10-K, pursuant to the Investment Advisory and Management Agreement, for management of investments in the Managed Assets (as defined in the Investment Advisory and Management Agreement), CMFT Securities pays the Investment Advisor the Investment Advisory Fee, payable quarterly in arrears, equal to 1.50% per annum (0.375% per quarter) of CMFT Securities’ Equity (as defined in the Investment Advisory and Management Agreement). Because the Managed Assets are excluded from the calculation of management fees payable by the Company to CMFT Management pursuant to the Management Agreement, the total management and advisory fees payable by the Company to its external advisors are not increased as a result of the Investment Advisory and Management Agreement. In addition, pursuant to the Sub-Advisory Agreement, in connection with providing investment management services with respect to the corporate credit-related securities held by CMFT Securities, on a quarterly basis, the Investment Advisor designates 50% of the sum of the Investment Advisory Fee payable to the Investment Advisor as sub-advisory fees.
The increase in management fees of $7.0 million during the year ended December 31, 2021, as compared to the year ended December 31, 2020, was primarily due to increased equity from the issuance of common stock in connection with the CCIT III and CCPT V Mergers that closed in December 2020 and the issuance of common stock in connection with the CIM Income NAV Merger that closed in December 2021.
Expense Reimbursements to Related Parties
Pursuant to the Investment Advisory and Management Agreement, CMFT Securities reimburses the Investment Advisor for costs and expenses incurred by the Investment Advisor on its behalf. Additionally, we may be required to reimburse certain expenses incurred by CMFT Management in providing management services, subject to limitations as set forth in the Management Agreement (as discussed in Note 13 — Related-Party Transactions and Arrangements to our consolidated financial statements in this Annual Report on Form 10-K).
The increase in expense reimbursements to related parties of $2.7 million during the year ended December 31, 2021, as compared to the year ended December 31, 2020, was primarily due to increased operating expense reimbursements due to CMFT Management, primarily as a result of acquiring 146 properties as part of the CCIT III and CCPT V Mergers that closed in December 2020.
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General and Administrative Expenses
The primary general and administrative expense items are banking fees and escrow and trustee fees.
The increase in general and administrative expenses of $3.0 million for the year ended December 31, 2021, compared to the year ended December 31, 2020, was primarily due to increased expenses related to the CCIT III and CCPT V Mergers completed in December 2020 and the foreclosure proceedings completed in January 2021 to take control of the assets which previously secured the Company’s mezzanine loans, as discussed in Note 8 — Loans Held-For-Investment to our consolidated financial statements in this Annual Report on Form 10-K.
Net Operating Income
Same store property net operating income decreased $4.2 million during the year ended December 31, 2021, as compared to the year ended December 31, 2020. The change was primarily due to a decrease in occupancy from 92.9% as of December 31, 2020 to 92.4% as of December 31, 2021, along with increases in property operating expenses.
Non-same store property net operating income increased $6.5 million during the year ended December 31, 2021, as compared to the same period in 2020. The increase is primarily due to the acquisition of 150 commercial properties during the year ended December 31, 2020 and the acquisition of 115 properties during the year ended December 31, 2021, partially offset by a decrease in net operating income for the 30 properties disposed of during the year ended December 31, 2020. The increase is further offset due to recognizing a full period of net operating income during the year ended December 31, 2020 compared to recognizing a partial period of net operating income during the year ended December 31, 2021 for the 77 properties acquired prior to 2020 and disposed of during the year ended December 31, 2021.
Distributions
Prior to April 1, 2020, on a quarterly basis, our Board authorized a daily distribution for the succeeding quarter. Our Board authorized the following daily distribution amounts per share for the periods indicated below:
Period CommencingPeriod EndingDaily Distribution Amount
April 14, 2012December 31, 2012$0.001707848
January 1, 2013December 31, 2015$0.001712523
January 1, 2016December 31, 2016$0.001706776
January 1, 2017December 31, 2019$0.001711452
January 1, 2020March 31, 2020$0.001706776
On April 20, 2020, our Board decided to make a determination as to the amount and timing of distributions on a monthly, instead of a quarterly, basis until such time that we had greater visibility into the impact that the COVID-19 pandemic would have on our tenants’ ability to continue to pay rent on their leases on a timely basis or at all, the degree to which federal, state or local governmental authorities grant rent relief or other relief or amnesty programs applicable to our tenants, our ability to access the capital markets, and on the United States and worldwide financial markets and economy. On March 25, 2021, the Board resumed declaring distributions on a quarterly basis, which are paid out on a monthly basis.
Since April 2020, our Board authorized the following monthly distribution amounts per share, payable to shareholders as of the record date for the applicable month, for the periods indicated below:
Period CommencingPeriod EndingMonthly Distribution Amount
April 2020May 2020$0.0130
June 2020June 2020$0.0161
July 2020July 2020$0.0304
August 2020December 2021$0.0303
January 2022June 2022$0.0305
As of December 31, 2021, we had distributions payable of $13.3 million.
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The following table presents distributions and source of distributions for the periods indicated below (dollar amounts in thousands):
Year Ended December 31,
20212020
AmountPercentAmountPercent
Distributions paid in cash$105,978 80 %$90,655 73 %
Distributions reinvested25,784 20 %34,191 27 %
Total distributions$131,762 100 %$124,846 100 %
Source of distributions:
Net cash provided by operating activities (1)(2)
$131,762 100 %$120,193 96 %
Proceeds from the issuance of common stock— — %4,653 (3)%
Total sources$131,762 100 %$124,846 100 %
____________________________________
(1)Net cash provided by operating activities for the years ended December 31, 2021 and 2020 was $148.2 million and $110.6 million, respectively.
(2)Our distributions covered by cash flows from operating activities for the year ended December 31, 2020 include cash flows from operating activities in excess of distributions from prior periods of $9.6 million.
(3)In accordance with GAAP, certain real estate acquisition-related fees and expenses, such as expenses and fees incurred in connection with property acquisitions accounted for as business combinations, are expensed, and therefore reduce net cash flows from operating activities. Therefore, for consistency, proceeds from the issuance of common stock used as a source of distributions for the year ended December 31, 2020 include the amount by which real estate acquisition-related fees and expenses have reduced net cash flows from operating activities in those prior periods.
Share Redemptions
Our share redemption program permits our stockholders to sell their shares of common stock back to us, subject to certain conditions and limitations. Funding for the redemption of shares will be limited to the cumulative net proceeds we receive from the sale of shares under the Secondary DRIP Offering, net of shares redeemed to date. In addition, we will generally limit quarterly redemptions to approximately 1.25% of the weighted average number of shares outstanding during the trailing 12-month period ending on the last day of the fiscal quarter for which the redemptions are being paid, and to the net proceeds we receive from the sale of shares in the respective quarter under the Secondary DRIP Offering. Any of the foregoing limits might prevent us from accommodating all redemption requests made in any fiscal quarter or in any 12-month period. In addition, our Board may choose to amend the terms of, suspend or terminate our share redemption program at any time in its sole discretion if it believes that such action is in the best interest of us and our stockholders. Any material modifications or suspension of the share redemption program will be disclosed to our stockholders as promptly as practicable in our reports filed with the SEC and via our website. In connection with the CCIT III and CCPT V Mergers, our Board suspended our share redemption program on August 30, 2020, and therefore, no shares were redeemed from our stockholders after that date until March 25, 2021, when our Board reinstated the share redemption program, effective April 1, 2021. During the year ended December 31, 2021, we received valid redemption requests under our share redemption program totaling approximately 86.2 million shares, of which we redeemed approximately 3.0 million shares as of December 31, 2021 for $22.0 million (at an average redemption price of $7.20 per share) and approximately 1.3 million shares subsequent to December 31, 2021 for $9.4 million (at an average redemption price of $7.20 per share). The remaining redemption requests relating to approximately 81.9 million shares went unfulfilled. During the year ended December 31, 2020, we received valid redemption requests under our share redemption program totaling approximately 48.3 million shares, of which we redeemed approximately 3.8 million shares as of December 31, 2020 for $28.5 million (at an average redemption price of $7.60 per share). The remaining redemption requests relating to approximately 44.5 million shares went unfulfilled. A valid redemption request is one that complies with the applicable requirements and guidelines of the share redemption program then in effect. The share redemptions were funded with proceeds from the Secondary DRIP Offering and available borrowings.
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.
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Liquidity and Capital Resources
General
We expect to utilize proceeds from real estate dispositions, sales proceeds and principal payments received on credit investments, cash flows from operations and future proceeds from secured or unsecured financing to complete future acquisitions and loan originations, repayment of certain indebtedness and for general corporate uses. The sources of our operating cash flows will primarily be provided by the rental and other property income received from current and future leased properties and interest income from our portfolio of credit investments.
As of December 31, 2021, and as a result of the CIM Income NAV Merger, our subsidiary assumed CIM Income NAV’s obligations pursuant to the credit agreement by and among CIM Income NAV Operating Partnership, LP, the operating partnership of CIM Income NAV (“CIM Income NAV OP”), JPMorgan Chase, as administrative agent, and the lender parties thereto (the “CIM Income NAV Credit Agreement”), including as guarantor under a guaranty provided by CIM Income NAV. The CIM Income NAV Credit Agreement allows for borrowings of up to $425.0 million (the “CIM Income NAV Credit Facility”). The CIM Income NAV Credit Facility includes $212.5 million in term loans (the “CIM Income NAV Term Loans”) and up to $212.5 million in revolving loans (the “CIM Income NAV Revolving Loans”). As of December 31, 2021, we had cash and cash equivalents of $107.4 million, which included $36.5 million of unsettled liquid senior loan purchases.
As of December 31, 2021, CMFT Corporate Credit Securities, LLC, our indirect wholly-owned subsidiary, had a revolving credit and security agreement with Citibank N.A. (“Citibank”), as administrative agent (the “Credit and Security Agreement”) that provided for borrowings secured by substantially all of the assets held by CMFT Corporate Credit Securities, LLC, which shall primarily consist of liquid senior secured loans subject to certain eligibility criteria under the Credit and Security Agreement.
As of December 31, 2021, our indirect wholly-owned subsidiaries (collectively, “CMFT Lending Subs”), had Master Repurchase Agreements with Citibank, Barclays Bank PLC (“Barclays”), Wells Fargo Bank, N.A. (“Wells Fargo”), and Deutsche Bank AG (“Deutsche Bank”) (collectively, the “Repurchase Agreements”) to provide financing primarily through each bank’s purchase of our CRE mortgage loans and future funding advances (the “Citibank Repurchase Facility,” the “Barclays Repurchase Facility,” the “Wells Fargo Repurchase Facility,” and the “Deutsche Bank Repurchase Facility,” respectively, and collectively, the “Repurchase Facilities”).
The following table details our outstanding financing arrangements as of December 31, 2021 (in thousands):
Portfolio Financing Outstanding Principal BalanceMaximum Capacity
Notes payable – fixed rate debt$471,967 $471,967 
Notes payable – variable rate debt70,268 70,268 
First lien mortgage loan650,000 650,000 
ABS mortgage notes770,775 774,000 
Credit facilities910,000 975,000 
Repurchase facilities1,298,414 1,780,000 
Total portfolio financing$4,171,424 $4,721,235 
As of December 31, 2021, we believe that we were in compliance with the financial covenants of the Mortgage Loan, the ABS Mortgage Notes, and the Repurchase Agreements, as well as the financial covenants under our various fixed and variable rate debt agreements, with the exception of one mortgage note, as further discussed in Note 10 — Credit Facilities, Notes Payable and Repurchase Facilities to our consolidated financial statements in this Annual Report on Form 10-K.
Short-term Liquidity and Capital Resources
On a short-term basis, our principal demands for funds will be for the acquisition of real estate-related securities, real estate and real estate-related assets and the payment of acquisition-related fees and expenses, operating expenses, distributions, redemptions and interest and principal on current and any future debt financings, including principal repayments of $681.1 million within the next 12 months.
We expect to meet our short-term liquidity requirements through cash proceeds from real estate asset dispositions, net cash provided by operations and proceeds from the Secondary DRIP Offering, as well as secured or unsecured borrowings from banks and other lenders to finance our future acquisitions and loan originations. Operating cash flows are expected to increase
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as we complete future acquisitions. We believe that the resources stated above will be sufficient to satisfy our operating requirements for the foreseeable future, and we do not anticipate a need to raise funds from sources other than those described above within the next 12 months. Management intends to use the proceeds from the disposition of properties to, among other things, acquire additional high-quality net-lease properties and credit investments in furtherance of our investment objectives and for other general corporate purposes.
Long-term Liquidity and Capital Resources
On a long-term basis, our principal demands for funds will be for the acquisition of real estate-related securities, real estate and real estate-related credit investments and the payment of tenant improvements, acquisition-related expenses, operating expenses, distributions and redemptions to stockholders and interest and principal on any current and future indebtedness. Generally, we expect to meet our long-term liquidity requirements through proceeds from cash flows from operations, proceeds from secured or unsecured borrowings from banks and other lenders, and proceeds raised pursuant to the Secondary DRIP Offering.
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 Offerings 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.
Contractual Obligations
As of December 31, 2021, we had debt outstanding with a carrying value of $4.2 billion and a weighted average interest rate of 2.6%. See Note 10 — Credit Facilities, Notes Payable and Repurchase Facilities to our consolidated financial statements in this Annual Report on Form 10-K for certain terms of our debt outstanding.
Our contractual obligations as of December 31, 2021 were as follows (in thousands):
Payments due by period (1)
TotalLess Than 1
Year
1-3 Years3-5 YearsMore Than
5 Years
Principal payments — fixed rate debt$471,967 $76,323 $378,694 $16,950 $— 
Interest payments — fixed rate debt (2)
28,937 17,058 11,810 69 — 
Principal payments — variable rate debt70,268 70,268 — — — 
Interest payments — variable rate debt (3)
1,353 1,353 — — — 
Principal payments — first lien mortgage loan (4)
650,000 — 650,000 — — 
Interest payments — first lien mortgage loan (4)
29,897 18,590 11,307 — — 
Principal payments — ABS mortgage notes (5)
770,775 7,740 4,515 — 758,520 
Interest payments — ABS mortgage notes (5)
195,958 21,427 43,031 42,972 88,528 
Principal payments — credit facilities (6)
910,000 413,500 496,500 — — 
Interest payments — credit facilities (6)
34,185 15,292 18,893 — — 
Principal payments — repurchase facilities (7)
1,298,414 113,223 1,185,191 — — 
Interest payments — repurchase facilities (7)
56,965 23,012 33,953 — — 
Total$4,518,719 $777,786 $2,833,894 $59,991 $847,048 
____________________________________
(1)The table does not include amounts due to CMFT Management or its affiliates pursuant to our Management Agreement because such amounts are not fixed and determinable. The table also does not include $209.4 million of unfunded commitments related to our existing CRE loans held-for-investment which are subject to the satisfaction of borrower milestones.
(2)As of December 31, 2021, we had $45.6 million of variable rate debt effectively fixed through the use of interest rate swap agreements. We used the effective interest rates fixed under our interest rate swap agreements to calculate the debt payment obligations in future periods.
(3)As of December 31, 2021, we had variable rate debt outstanding of $70.3 million with a weighted average interest rate of 5.5%. We used the weighted average interest rate to calculate the debt payment obligations in future periods.
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(4)As of December 31, 2021, the amounts outstanding under the Mortgage Loan totaled $650.0 million and had a weighted average interest rate of 2.9%.
(5)As of December 31, 2021, the amounts outstanding under the ABS Mortgage Notes totaled $770.8 million and had a weighted average interest rate of 2.8%.
(6)As of December 31, 2021, the amounts outstanding under the Credit Securities Revolver (as defined in Note 10 — Credit Facilities, Notes Payable and Repurchase Facilities to our consolidated financial statements in this Annual Report on Form 10-K) totaled $496.5 million and had a weighted average interest rate of 1.9% and the amounts outstanding under the CIM Income NAV Revolving Loans totaled $201.0 million and had a weighted average interest rate of 2.0%. As of December 31, 2021, the CIM Income NAV Term Loans outstanding totaled $212.5 million, $140.0 million of which is subject to interest rate swap agreements (the “Swapped Term Loans”). As of December 31, 2021, the weighted average all-in interest rate for the Swapped Term Loans was 4.4%. The remaining $72.5 million outstanding under our credit facilities had a weighted average interest rate of 1.9% as of December 31, 2021.
(7)As of December 31, 2021, the amount outstanding under the Citibank Repurchase Facility was $322.4 million at a weighted average interest rate of 1.8%, the amount outstanding under the Barclays Repurchase Facility was $349.8 million at a weighted average interest rate of 2.1%, the amount outstanding under the Wells Fargo Repurchase Facility was $532.8 million at a weighted average interest rate of 1.5%, and the amount outstanding under the Deutsche Bank Repurchase Facility was $93.4 million at a weighted average interest rate of 2.0%.
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, 2021, our ratio of debt to total gross assets net of gross intangible lease liabilities was 58.0% and our ratio of debt to the fair market value of our gross assets net of gross intangible lease liabilities was 58.8%. Fair market value of our senior loans is based on the estimated market value as of September 30, 2021, and for those assets acquired from October 1, 2021 through December 31, 2021 is based on the purchase price. Fair market value of the remaining credit investments is based on the market value as of December 31, 2021. Fair market value of our real estate assets is based on the estimated market value as of March 31, 2021 that were used to determine our estimated per share NAV, and for those real estate assets acquired from April 1, 2021 through December 31, 2021 is based on the purchase price.
Cash Flow Analysis
Year Ended December 31, 2021 Compared to Year Ended December 31, 2020
Operating Activities. Net cash provided by operating activities increased by $37.6 million for the year ended December 31, 2021, as compared to the year ended December 31, 2020. The increase was primarily due to the acquisition of 146 properties in connection with the CCIT III and CCPT V Mergers that closed in December 2020 along with the acquisition of 115 properties in connection with the CIM Income NAV Merger that closed in December 2021. In addition, net increases in credit investments of $1.8 billion during the year ended December 31, 2021 drove higher interest income. The increase was partially offset by the disposition of 117 properties and an outparcel of land during the year ended December 31, 2021. See “— Results of Operations” for a more complete discussion of the factors impacting our operating performance.
Investing Activities. Net cash used in investing activities was $1.5 billion for the year ended December 31, 2021, as compared to net cash used in investing activities of $466.1 million for the year ended December 31, 2020. The change was primarily due to an increase in net investment in loans held-for-investment of $1.4 billion resulting from the origination and acquisition of CRE loans held-for-investment. The change was partially offset by an increase in net proceeds from the disposition of real estate assets of $249.7 million resulting from the disposal of 117 properties during the year ended December 31, 2021, as compared to the disposal of 30 properties during the year ended December 31, 2020.
Financing Activities. Net cash provided by financing activities was $1.3 billion for the year ended December 31, 2021, as compared to net cash provided by financing activities of $10.6 million for the year ended December 31, 2020. The change was primarily due to an increase in net proceeds on the credit facilities, notes payable and repurchase facilities of $1.4 billion as a result of entering into and upsizing the Repurchase Facilities, the Mortgage Loan and the Class A Notes (as defined in Note 10 — Credit Facilities, Notes Payable and Repurchase Facilities to our consolidated financial statements in this Annual Report on Form 10-K) and the repayment of debt obligations as part of the CIM Income NAV Merger during the year ended December 31, 2021, coupled with a decrease in redemptions of common stock of $26.0 million as a result of the Board’s suspension of the share redemption program from August 30, 2020 through March 31, 2021. The change was partially offset by increased deferred financing costs paid as a result of entering into new debt agreements described above.
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Election as a REIT
We elected to be taxed, and operate our business to qualify, as a REIT for federal income tax purposes commencing with our taxable year ended December 31, 2012. To maintain our qualification as a REIT, we must continue to meet certain requirements relating to our organization, sources of income, nature of assets, distributions of income to our stockholders and recordkeeping. As a REIT, we generally are not subject to federal income tax on taxable income that we distribute to our stockholders so long as we distribute at least 90% of our annual taxable income (computed without regard to the dividends paid deduction and excluding net capital gains).
If we fail to maintain our qualification as a REIT for any reason in a taxable year and applicable relief provisions do not apply, we will be subject to tax on our taxable income at regular corporate rates. We will not be able to deduct distributions paid to our stockholders in any year in which we fail to maintain our qualification as a REIT. We also will be disqualified for the 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.
Inflation
We are exposed to inflation risk as income from long-term leases is the primary source of our cash flows from operations. There are, and we expect that there will continue to be, provisions in many of our tenant leases that are intended to protect us from, and mitigate the risk of, the impact of inflation. These provisions include rent steps and clauses enabling us to receive payment of additional rent calculated as a percentage of the tenant’s gross sales above pre-determined thresholds. In addition, most of our leases require the tenant to pay all or a majority of the property’s operating expenses, including real estate taxes, special assessments and sales and use taxes, utilities, insurance and building repairs. However, because of the long-term nature of leases for real property, such leases may not reset frequently enough to adequately offset the effects of inflation.
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 and is an officer/director of certain of its affiliates, is the vice president of our manager. One of our directors, Avraham Shemesh, who is also a founder and principal of CIM and is an officer/director of certain of its affiliates, is the president and treasurer of our manager. Nathan D. DeBacker, our chief financial officer and treasurer, is a vice president of our manager and is an officer of certain of its affiliates. As such, there may be conflicts of interest where CMFT Management or its affiliates, while serving in the capacity as sponsor, general partner, officer, director, key personnel and/or advisor for CIM 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 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
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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.
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 properties, 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.
Current Expected Credit Losses
The current expected credit loss (“CECL”) is our current estimate of potential credit losses related to our loans held-for-investment . 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 senior loans, we use a probability of default and loss given default method. 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 loan loss data from 1998 through 2021. 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;
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The expected repayments over the contractual term of each loan. As part of our quarterly review of our loan portfolio, we assess the expected repayment date of each loan, which is used to determine the contractual term for purposes of computing our CECL reserve; and
The current credit quality and performance expectations of our loan portfolio, as well as market conditions over the relevant time period and its impact on our loan portfolio are estimated by management.
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.
ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk
The market risk associated with financial instruments and derivative financial instruments is the risk of loss from adverse changes in market prices or interest rates. Our market risk arises primarily from interest rate risk relating to variable rate borrowings. To meet our short and long-term liquidity requirements, we borrow funds at a combination of fixed and variable rates. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows and to manage our overall borrowing costs. To achieve these objectives, from time to time, we may enter into interest rate hedge contracts such as swaps, collars and treasury lock agreements in order to mitigate our interest rate risk with respect to various debt instruments. We do not intend to hold or issue these derivative contracts for trading or speculative purposes. We do not have any foreign operations and thus we are not exposed to foreign currency fluctuations.
Interest Rate Risk
Interest rates are highly sensitive to many factors, including fiscal and monetary policies and domestic and international economic and political considerations, as well as other factors beyond our control. We are subject to interest rate risk in connection with our investments and the related financing obligations. In general, we seek to match the interest rate characteristics of our investments with the interest rate characteristics of any related financing obligations such as repurchase agreements, bank credit facilities, term loans, revolving facilities and securitizations.
As of December 31, 2021, we had an aggregate of $2.8 billion of variable rate debt, excluding any debt subject to interest rate swap agreements and interest rate cap agreements, and therefore, we are exposed to interest rate changes in LIBOR. As of December 31, 2021, an increase or decrease of 50 basis points in interest rates would result in an increase or decrease in interest expense of $13.9 million per year.
As of December 31, 2021, we had five interest rate swap agreements and five interest rate cap agreements outstanding, which mature on various dates from January 2022 through July 2023, with an aggregate notional amount of $938.1 million and an aggregate fair value of the net derivative liability of $2.3 million. The fair value of these interest rate swap agreements and interest rate cap agreements is dependent upon existing market interest rates and spreads. As of December 31, 2021, an increase of 50 basis points in interest rates would result in a change of $835,000 to the fair value of the net derivative liability, resulting in a net derivative liability of $1.5 million. A decrease of 50 basis points in interest rates would result in a $635,000 change to the fair value of the net derivative liability, resulting in a net derivative liability of $2.9 million.
As the information presented above includes only those exposures that existed as of December 31, 2021, it does not consider exposures or positions arising after that date. The information presented herein has limited predictive value. Future actual realized gains or losses with respect to interest rate fluctuations will depend on cumulative exposures, hedging strategies employed and the magnitude of the fluctuations.
These amounts were determined by considering the impact of hypothetical interest rate changes on our borrowing costs and assume no other changes in our capital structure.
In July 2017, the Financial Conduct Authority (“FCA”) that regulates LIBOR announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. As a result, the Federal Reserve Board and the Federal Reserve Bank of New York organized the Alternative Reference Rates Committee which identified the SOFR as its preferred alternative to U.S. dollar LIBOR in derivatives and other financial contracts. On December 31, 2021, the FCA ceased publishing one week and two-month LIBOR, and the FCA intends to cease publishing all remaining LIBOR after June 30, 2023. This announcement has several implications, including setting the spread that may be used to automatically convert contracts from LIBOR to SOFR. Additionally, banking regulators are encouraging banks to discontinue new LIBOR debt issuances by December 31, 2021. The Company anticipates that LIBOR will continue to be available at least until June 30, 2023. Any changes adopted by
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FCA or other governing bodies in the method used for determining LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR. If that were to occur, our interest payments could change. In addition, uncertainty about the extent and manner of future changes may result in interest rates and/or payments that are higher or lower than if LIBOR were to remain available in its current form.
We have interest rate swap agreements and interest rate cap agreements maturing on various dates from January 2022 through July 2023, as further discussed above, that are indexed to LIBOR. As such, we are monitoring and evaluating the related risks, which include interest on loans or amounts received and paid on derivative instruments. These risks arise in connection with transitioning contracts to a new alternative rate, including any resulting value transfer that may occur. The value of loans or derivative instruments tied to LIBOR could also be impacted if LIBOR is limited or discontinued. For some instruments, the method of transitioning to an alternative reference rate may be challenging, especially if we cannot agree with the respective counterparty about how to make the transition.
If a contract is not transitioned to an alternative rate and LIBOR is discontinued, the impact on our contracts is likely to vary by contract. If LIBOR is discontinued or if the methods of calculating LIBOR change from their current form, interest rates on our current or future indebtedness may be adversely affected.
While we expect LIBOR to be available in substantially its current form until at least the end of June 30, 2023, it is possible that LIBOR will become unavailable prior to that point. This could result, for example, if sufficient banks decline to make submissions to the LIBOR administrator. In that case, the risks associated with the transition to an alternative reference rate will be accelerated and magnified.
Alternative rates and other market changes related to the replacement of LIBOR, including the introduction of financial products and changes in market practices, may lead to risk modeling and valuation challenges, such as adjusting interest rate accrual calculations and building a term structure for an alternative rate.
The introduction of an alternative rate also may create additional basis risk and increased volatility as alternative rates are phased in and utilized in parallel with LIBOR.
Credit Risk
Concentrations of credit risk arise when a number of tenants are engaged in similar business activities, or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations, including those to us, to be similarly affected by changes in economic conditions. We are subject to tenant, geographic and industry concentrations. Any downturn of the economic conditions in one or more of these tenants, states or industries could result in a material reduction of our cash flows or material losses to us.
The factors considered in determining the credit risk of our tenants include, but are not limited to: payment history; credit status and change in status, including the impact of the COVID-19 pandemic (credit ratings for public companies are used as a primary metric); change in tenant space needs (i.e., expansion/downsize); tenant financial performance; economic conditions in a specific geographic region; and industry specific credit considerations. We believe that the credit risk of our portfolio is reduced by the high quality of our existing tenant base, reviews of prospective tenants’ risk profiles prior to lease execution and consistent monitoring of our portfolio to identify potential problem tenants and mitigation options.
Our loans and investments are also subject to credit risk. The performance and value of our loans and investments depend upon the owners’ ability to operate the properties that serve as our collateral so that they produce cash flows adequate to pay interest and principal due to us. To monitor this risk, our manager reviews our investment portfolios and in certain instances is in regular contact with our borrowers, monitoring performance of the collateral and enforcing our rights as necessary.
ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data filed as part of this report are set forth beginning on page F-1 in this Annual Report on Form 10-K.
ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There were no changes in or disagreements with our independent registered public accountants during the year ended December 31, 2021.
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ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms, and that such information is accumulated and communicated to us, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, we recognize that no controls and procedures, no matter how well designed and operated, can provide absolute assurance of achieving the desired control objectives.
As required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act, an evaluation as of December 31, 2021 was conducted under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures, as of December 31, 2021, were effective at a reasonable assurance level.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected.
Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on this evaluation, management has concluded that our internal control over financial reporting was effective as of December 31, 2021.
Changes in Internal Control Over Financial Reporting
No change occurred in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the quarter ended December 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B.    OTHER INFORMATION
None.
ITEM 9C.    DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
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PART III
ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this Item will be presented in our definitive proxy statement for our 2022 annual meeting of stockholders, which is expected to be filed with the SEC within 120 days after December 31, 2021, and is incorporated herein by reference.
ITEM 11.    EXECUTIVE COMPENSATION
The information required by this Item will be presented in our definitive proxy statement for our 2022 annual meeting of stockholders, which is expected to be filed with the SEC within 120 days after December 31, 2021, and is incorporated herein by reference.
ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this Item will be presented in our definitive proxy statement for our 2022 annual meeting of stockholders, which is expected to be filed with the SEC within 120 days after December 31, 2021, and is incorporated herein by reference.
ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The information required by this Item will be presented in our definitive proxy statement for our 2022 annual meeting of stockholders, which is expected to be filed with the SEC within 120 days after December 31, 2021, and is incorporated herein by reference.
ITEM 14.    PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this Item will be presented in our definitive proxy statement for our 2022 annual meeting of stockholders, which is expected to be filed with the SEC within 120 days after December 31, 2021, and is incorporated herein by reference.
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PART IV
ITEM 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Financial Statements
The list of the consolidated financial statements contained herein is set forth on page F-1 hereof.
Financial Statement Schedules
Schedule III – Real Estate Assets and Accumulated Depreciation is set forth beginning on page S-1 hereof.
Schedule IV – Mortgage Loans on Real Estate is set forth beginning on page S-3 hereof.
All other schedules for which provision is made in the applicable accounting regulations of the SEC are not required under the related instructions or are not applicable and therefore have been omitted.
Exhibits
The following exhibits are included, or incorporated by reference, in this Annual Report on Form 10-K for the year ended December 31, 2021 (and are numbered in accordance with Item 601 of Regulation S-K).
Exhibit No.Description
2.1
2.2
2.3
2.4
2.5
2.6
2.7
2.8
2.9
2.10
3.1
3.2
4.1
4.2
4.3
4.4
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
21.1*
23.1*
31.1*
31.2*
32.1**
101.INS*XBRL Instance Document.
101.SCH*XBRL Taxonomy Extension Schema Document.
101.CAL*XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*XBRL Taxonomy Extension Presentation Linkbase Document.
104*Cover Page Interactive Data File (formatted as InLine XBRL and contained in Exhibit 101).
 ____________________________________
*Filed herewith.
**In accordance with Item 601(b)(32) of Regulation S-K, this Exhibit is not deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section. Such certifications will not be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.
ITEM 16.    FORM 10-K SUMMARY
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized this 30th day of March, 2022.
 
 CIM Real Estate Finance Trust, Inc.
(Registrant)
By:/s/ NATHAN D. DEBACKER
Nathan D. DeBacker
Chief Financial Officer and Treasurer
(Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.

       
Signature Title Date
     
 /s/ RICHARD S. RESSLER Chairman of the Board of Directors, Chief Executive Officer and President March 30, 2022
Richard S. Ressler(Principal Executive Officer)
/s/ NATHAN D. DEBACKER Chief Financial Officer and Treasurer March 30, 2022
Nathan D. DeBacker (Principal Financial Officer)
/s/ JEFFREY R. SMITHVice President of AccountingMarch 30, 2022
Jeffrey R. Smith(Principal Accounting Officer)
 /s/ T. PATRICK DUNCAN Independent Director March 30, 2022
T. Patrick Duncan
 /s/ ALICIA K. HARRISON Independent Director March 30, 2022
Alicia K. Harrison
 /s/ W. BRIAN KRETZMER Independent Director March 30, 2022
W. Brian Kretzmer
 /s/ HOWARD A. SILVERIndependent DirectorMarch 30, 2022
Howard A. Silver
/s/ CALVIN E. HOLLISIndependent DirectorMarch 30, 2022
Calvin E. Hollis
 /s/ ROGER D. SNELL Independent Director March 30, 2022
Roger D. Snell
 /s/ AVRAHAM SHEMESH Director March 30, 2022
Avraham Shemesh
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Financial StatementsPage
 
F-2
F-4
F-5
F-6
F-7
F-8
F-9
S-1
S-18

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of CIM Real Estate Finance Trust, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of CIM Real Estate Finance Trust, Inc. and subsidiaries (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2021, and the related notes and the schedules listed in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
Change in Accounting Principle
As discussed in Note 2 to the financial statements, the Company changed its method of accounting for credit losses in the year ended December 31, 2020 due to adoption of Accounting Standard Update, or ASU, 2016-13 “Financial Instruments – Credit Losses – Measurement of Credit Losses on Financial Instruments (Topic 326).” The assessment of current expected credit losses is also communicated as a critical audit matter below.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Real Estate Assets: Determination of Impairment Indicators — Refer to Notes 2 and 4 to the financial statements
Critical Audit Matter Description
The Company’s evaluation of real estate assets for impairment involves an initial assessment of each real estate asset to determine whether events or changes in circumstances exist that may indicate that the carrying amounts of real estate assets are no longer recoverable. Possible indications of impairment may include bankruptcy or other credit concerns of a property’s major tenants, changes in anticipated holding periods, vacancies, a significant decrease in a property’s revenues due to lease terminations, or other circumstances. When events or changes in circumstances exist, the Company evaluates its real estate assets for impairment by comparing undiscounted future cash flows expected to be generated over the life of each asset to the
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respective carrying amount. If the carrying amount of an asset exceeds the undiscounted future cash flows, an analysis is performed to determine the fair value of the asset.
The Company makes significant assumptions to evaluate real estate assets for possible indications of impairment. Changes in these assumptions could result in additional impairment charges in the future.
Given the Company’s evaluation of possible indications of impairment of real estate assets requires management to make significant assumptions, performing audit procedures to evaluate whether management appropriately identified events or changes in circumstances indicating that the carrying amounts of real estate assets may not be recoverable required a high degree of auditor judgment.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the evaluation of real estate assets for possible indications of impairment included the following, among others:
We evaluated management’s impairment indicator analysis by testing real estate assets for possible indications of impairment, including searching for adverse asset-specific and/or market conditions, such as vacancies, tenants bankruptcies and other credit concerns, among others, as well as assessing changes in holding periods, including expected asset dispositions.
We independently reviewed properties experiencing a significant decrease in revenue due to lease terminations, and evaluated whether such properties demonstrated continuing losses indicative of impairment.
We performed inquiries with management, including property accounting, leasing and portfolio oversight to determine whether factors were identified in the current period that may be an impairment indicator, including changes in expected holding periods, or changes in market rental rates, and corroborated these inquiries through review of third-party market reports and inspection of meeting minutes of the Board of Directors.
Assessment of Current Expected Credit Losses (“CECL”) Reserve – Refer to Notes 2 and 8 to the financial statements
Critical Audit Matter Description
The Company estimates its CECL reserve using the Weighted Average Remaining Maturity (“WARM”) method for its first mortgage loans, and the probability of default and loss given default method for its liquid senior loans. Significant judgments are required in estimating the CECL reserve, including the evaluation of historical loan loss data, the evaluation of expected repayments of each loan, and the impact of expected economic conditions on the loan portfolio.
We identified the assessment of the CECL reserve as a critical audit matter based on the significant judgment required when evaluating the CECL reserve. This required a high degree of auditor judgment and an increased extent of effort, including evaluating the CECL methodology and analytical models, and evaluating the key inputs and assumptions used in the models.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the CECL reserve for the loans held-for-investment portfolio included the following, among others:
We tested the accuracy and evaluated the appropriateness of the historical loan loss data as an input to each applicable model.
We tested the evaluation of expected loan repayments, the impact of expected economic conditions on the loan portfolio, and other assumptions used in determining the CECL reserve.
We reviewed the service auditor's report for the third-party WARM method CECL model, which is used to calculate the expected loss for its first mortgage loans.
We evaluated the appropriateness of each model and significant assumptions used and independently calculated each model’s computational accuracy.
/s/ Deloitte & Touche LLP
Phoenix, Arizona  
March 30, 2022
We have served as the Company’s auditor since 2010.
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CIM REAL ESTATE FINANCE TRUST, INC.
CONSOLIDATED BALANCE SHEETS
 (in thousands, except share and per share amounts)
December 31, 2021December 31, 2020
ASSETS
Real estate assets:
Land$655,273 $881,896 
Buildings, fixtures and improvements1,706,9022,490,030 
Intangible lease assets314,832389,564 
Condominium developments171,080 — 
Total real estate assets, at cost2,848,0873,761,490 
Less: accumulated depreciation and amortization(235,481)(453,385)
Total real estate assets, net2,612,606 3,308,105
Investments in unconsolidated entities109,547— 
Real estate-related securities ($41,981 and $38,194 held at fair value as of December 31, 2021 and December 31, 2020, respectively)
105,47138,194 
Loans held-for-investment and related receivables, net2,624,101962,624 
Less: Current expected credit losses(15,201)(70,358)
Total loans held-for-investment and related receivables, net2,608,900892,266 
Cash and cash equivalents107,381121,385 
Restricted cash36,7927,023 
Rents and tenant receivables, net61,46874,419 
Prepaid expenses and other assets13,75910,406 
Deferred costs, net7,2144,293 
Assets held for sale1,299,6383,518 
Total assets$6,962,776 $4,459,609 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Notes payable, repurchase facilities and credit facilities, net$4,143,205 $2,144,993 
Accrued expenses and accounts payable45,87230,419 
Due to affiliates14,59414,723 
Intangible lease liabilities, net24,89632,718 
Distributions payable13,25210,969 
Deferred rental income, derivative liabilities and other liabilities21,28227,361 
Total liabilities4,263,101 2,261,183 
Commitments and contingencies
Redeemable common stock170,714 — 
STOCKHOLDERS’ EQUITY
Preferred stock, $0.01 par value per share; 10,000,000 shares authorized, none issued and outstanding
— — 
Common stock, $0.01 par value per share; 490,000,000 shares authorized, 437,373,981 and 362,001,968 shares issued and outstanding as of December 31, 2021 and December 31, 2020, respectively
4,374 3,620 
Capital in excess of par value3,529,126 3,157,859 
Accumulated distributions in excess of earnings(1,008,561)(961,006)
Accumulated other comprehensive income (loss)2,949 (2,047)
Total stockholders’ equity2,527,888 2,198,426 
Non-controlling interests1,073 — 
Total equity2,528,961 2,198,426 
Total liabilities, redeemable common stock, non-controlling interests and stockholders’ equity$6,962,776 $4,459,609 
The accompanying notes are an integral part of these consolidated financial statements.
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CIM REAL ESTATE FINANCE TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
 (in thousands, except share and per share amounts)
Year Ended December 31,
 202120202019
Revenues:
Rental and other property income$295,164 $261,530 $393,224 
Interest income70,561 29,393 20,132 
Total revenues365,725 290,923 413,356 
Operating expenses:
General and administrative15,078 12,042 10,167 
Property operating47,559 23,399 33,462 
Real estate tax34,943 27,691 32,196 
Expense reimbursements to related parties11,624 8,920 9,436 
Management fees47,020 40,025 37,245 
Transaction-related315 355 1,530 
Depreciation and amortization95,190 80,973 107,867 
Real estate impairment18,078 16,737 72,939 
Increase in provision for credit losses2,881 68,356 — 
Total operating expenses272,688 278,498 304,842 
Gain on disposition of real estate and condominium developments, net83,045 27,518 180,666 
Merger-related expenses, net(1,404)(1,884)— 
Merger termination fee income— 7,380 — 
Operating income174,678 45,439 289,180 
Other expense:
Gain on investment in unconsolidated entities606 — — 
Interest expense and other, net(83,899)(64,116)(98,933)
Loss on extinguishment of debt(4,895)(4,841)(7,227)
Total other expense(88,188)(68,957)(106,160)
Net income (loss)86,490 (23,518)183,020 
Net income allocated to noncontrolling interest— — 121 
Net income (loss) attributable to the Company$86,490 $(23,518)$182,899 
Weighted average number of common shares outstanding:
Basic and diluted365,726,453 311,808,605 311,302,909 
Net income (loss) per common share:
Basic and diluted$0.24 $(0.08)$0.59 
The accompanying notes are an integral part of these consolidated financial statements.
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CIM REAL ESTATE FINANCE TRUST, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 (in thousands)
Year Ended December 31,
 202120202019
Net income (loss)$86,490 $(23,518)$183,020 
Other comprehensive income (loss)
Unrealized gain on real estate-related securities231 1,657 — 
Reclassification adjustment for realized gain (loss) included in income as other income1,419 (510)— 
Unrealized gain (loss) on interest rate swaps32 (11,607)(11,456)
Amount of loss (gain) reclassified from other comprehensive income (loss) into income as interest expense and other, net3,314 12,321 (3,475)
Total other comprehensive income (loss)4,996 1,861 (14,931)
Comprehensive income (loss)91,486 (21,657)168,089 
Comprehensive income allocated to noncontrolling interest— — 121 
Comprehensive income (loss) attributable to the Company$91,486 $(21,657)$167,968 
The accompanying notes are an integral part of these consolidated financial statements.
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CIM REAL ESTATE FINANCE TRUST, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
 (in thousands, except share amounts)
 Common StockCapital in 
Excess
of Par Value
Accumulated
Distributions in Excess of Earnings
Accumulated Other Comprehensive Income (Loss)Total
Stockholders’
Equity
Non-Controlling InterestsTotal Equity
 Number of
Shares
Par Value
Balance, January 1, 2019311,381,396 $3,114 $2,607,330 $(804,617)$11,023 $1,816,850 $— $1,816,850 
Issuance of common stock9,335,895 93 82,295 — — 82,388 — 82,388 
Equity-based compensation18,499 — 138 — — 138 — 138 
Distributions declared on common stock — $0.625 per common share
— — — (194,463)— (194,463)— (194,463)
Redemptions of common stock(9,528,065)(95)(83,993)— — (84,088)— (84,088)
Changes in redeemable common stock— — 1,155 — — 1,155 — 1,155 
Comprehensive income (loss)— — — 182,899 (14,931)167,968 — 167,968 
Balance, December 31, 2019311,207,725 $3,112 $2,606,925 $(816,181)$(3,908)$1,789,948 $— $1,789,948 
Cumulative effect of accounting changes— — — (2,002)— (2,002)— (2,002)
Issuance of common stock4,211,747 42 34,149 — — 34,191 — 34,191 
Issuance of common stock in connection with the CCPT V and CCIT III Mergers52,574,431 526 383,793 — — 384,319 — 384,319 
Equity-based compensation22,059 — 160 — — 160 — 160 
Distributions declared on common stock — $0.38 per common share
— — — (119,305)— (119,305)— (119,305)
Redemptions of common stock(6,013,994)(60)(48,006)— — (48,066)— (48,066)
Changes in redeemable common stock— — 180,838 — — 180,838 — 180,838 
Comprehensive (loss) income— — — (23,518)1,861 (21,657)— (21,657)
Balance, December 31, 2020362,001,968 $3,620 $3,157,859 $(961,006)$(2,047)$2,198,426 $— $2,198,426 
Issuance of common stock3,574,120 36 25,748 — — 25,784 — 25,784 
Issuance of common stock in connection with the CIM Income NAV Merger74,819,899 748 537,955 — — 538,703 — 538,703 
Equity-based compensation39,000 — 289 — — 289 — 289 
Distributions declared on common stock — $0.364 per common share
— — — (134,045)— (134,045)— (134,045)
Redemptions of common stock(3,061,006)(30)(22,011)— — (22,041)— (22,041)
Changes in redeemable common stock— — (170,714)— — (170,714)— (170,714)
Non-controlling interests assumed in connection with the CIM Income NAV Merger— — — — — — 1,073 1,073 
Comprehensive income— — — 86,490 4,996 91,486 — 91,486 
Balance, December 31, 2021437,373,981 $4,374 $3,529,126 $(1,008,561)$2,949 $2,527,888 $1,073 $2,528,961 
The accompanying notes are an integral part of these consolidated financial statements.
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CIM REAL ESTATE FINANCE TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS 
(in thousands)
Year Ended December 31,
 202120202019
Cash flows from operating activities:
Net income (loss)$86,490 $(23,518)$183,020 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization, net92,988 79,546 106,262 
Amortization of deferred financing costs10,073 4,245 5,167 
Amortization of fair value adjustments of mortgage notes payable assumed(149)(92)(90)
Amortization and accretion on deferred loan fees(2,998)(1,909)(2,441)
Amortization of premiums and discounts on credit investments(8,144)(668)— 
Capitalized interest income on real estate-related securities(974)(539)(8,546)
Equity-based compensation289 160 138 
Straight-line rental income(5,723)(6,738)(6,564)
Write-offs for uncollectible lease-related receivables(694)5,664 952 
Gain on disposition of real estate assets and condominium developments, net(83,045)(27,518)(180,666)
Loss on sale of credit investments, net 1,378 227 — 
Gain on investment in unconsolidated entities(606)— — 
Amortization of fair value adjustment and gain on interest rate swaps(2,814)(13)(18)
Impairment of real estate assets18,078 16,737 72,939 
Increase in provision for credit losses2,881 68,356 — 
Loss on interest rate caps42 — — 
Return on investment in unconsolidated entities497 — — 
Write-off of deferred financing costs3,815 633 2,271 
Changes in assets and liabilities:
Rents and tenant receivables, net28,230 (12,536)16,034 
Prepaid expenses and other assets(2,538)1,276 (6,456)
Accrued expenses and accounts payable8,388 8,420 3,214 
Deferred rental income and other liabilities3,541 (508)(987)
Due to affiliates(831)(656)9,302 
Net cash provided by operating activities148,174 110,569 193,531 
Cash flows from investing activities:
Cash acquired in connection with mergers10,244 13,810 — 
Investment in unconsolidated entities(53,525)— — 
Investment in real estate-related securities(321,169)(76,644)— 
Investment in liquid senior loans(406,694)(582,654)(2,750)
Investment in real estate assets and capital expenditures(76,283)(48,995)(23,887)
Origination and acquisition of loans held-for-investment, net(1,805,324)(238,563)(217,014)
Origination and exit fees received on loans held-for-investment17,030 3,200 1,697 
Principal payments received on loans held-for-investment326,062 119,443 17,186 
Principal payments received on real estate-related securities38 2,571 — 
Net proceeds from sale of real estate-related securities256,841 37,593 — 
Net proceeds from disposition of real estate assets and condominium developments513,528 263,797 1,399,953 
Net proceeds from sale of liquid senior loans69,959 39,902 — 
Payment of property escrow deposits— (875)(350)
Refund of property escrow deposits— 875 350 
Proceeds from the settlement of insurance claims63 400 110 
Net cash (used in) provided by investing activities(1,469,230)(466,140)1,175,295 
Cash flows from financing activities:
Redemptions of common stock(22,041)(48,066)(84,088)
Distributions to stockholders(105,978)(90,655)(112,083)
Proceeds from notes payable, repurchase facilities and credit facilities3,159,650 576,880 424,500 
Repayments of notes payable, repurchase facilities and credit facilities(1,648,775)(422,110)(1,141,978)
Termination of interest rate swaps(6,401)— — 
Payment of loan deposits(800)(65)— 
Refund of loan deposits865 — — 
Deferred financing costs paid(39,699)(5,360)(1,211)
Distributions to noncontrolling interest— — (285)
Net cash provided by (used in) financing activities1,336,821 10,624 (915,145)
Net increase (decrease) in cash and cash equivalents and restricted cash15,765 (344,947)453,681 
Cash and cash equivalents and restricted cash, beginning of period128,408 473,355 19,674 
Cash and cash equivalents and restricted cash, end of period$144,173 $128,408 $473,355 
Reconciliation of cash and cash equivalents and restricted cash to the consolidated balance sheets:
Cash and cash equivalents$107,381 $121,385 $466,024 
Restricted cash36,792 7,023 7,331 
Total cash and cash equivalents and restricted cash$144,173 $128,408 $473,355 
The accompanying notes are an integral part of these consolidated financial statements.
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CIM REAL ESTATE FINANCE TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — ORGANIZATION AND BUSINESS
CIM Real Estate Finance Trust, Inc. (the “Company”) is a non-exchange traded real estate investment trust (“REIT”) formed as a Maryland corporation on July 27, 2010, that elected to be taxed, and operates its business to qualify, as a REIT for U.S. federal income tax purposes beginning with its taxable year ended December 31, 2012. The Company operates a diversified portfolio of core commercial real estate primarily consisting of net leased properties located throughout the United States and short duration senior secured loans and other credit investments. As of December 31, 2021, the Company owned 514 properties, comprising 22.7 million rentable square feet of commercial space located in 45 states. As of December 31, 2021, the rentable square feet at these properties was 94.2% leased, including month-to-month agreements, if any. As of December 31, 2021, the Company’s loan portfolio consisted of 317 loans with a net book value of $2.6 billion, and investments in real estate-related securities of $105.5 million. On January 7, 2021, the Company completed foreclosure proceedings to take control of the assets which previously secured its eight mezzanine loans, including 75 condominium units and 21 rental units across four buildings. As of December 31, 2021, the Company owned condominium developments with a net book value of $171.1 million.
A majority of the Company’s business is conducted through CIM Real Estate Finance Operating Partnership, LP, a Delaware limited partnership, of which the Company is the sole general partner and owns, directly or indirectly, 100% of the partnership interests.
The Company is externally managed by CIM Real Estate Finance Management, LLC, a Delaware limited liability company (“CMFT Management”), which is an affiliate of CIM Group, LLC (“CIM”). CIM is a community-focused real estate and infrastructure owner, operator, lender and developer. CIM is headquartered in Los Angeles, CA, with offices in Atlanta, GA, Bethesda, MD, Chicago, IL, Dallas, TX, New York, NY, Orlando, FL, Phoenix, AZ, and Tokyo, Japan. CIM also maintains additional offices across the Unites States, as well as in Korea, Hong Kong, and the United Kingdom to support its platform.
CCO Group, LLC is a subsidiary of CIM and owns and controls CMFT Management, the Company’s manager, and is the indirect owner of CCO Capital, LLC (“CCO Capital”), the Company’s dealer manager, and CREI Advisors, LLC (“CREI Advisors”), the Company’s property manager. CCO Group, LLC and its subsidiaries (collectively, “CCO Group”) serve as the Company’s sponsor. The Company relies upon CIM Capital IC Management, LLC, the Company’s investment advisor (the “Investment Advisor”), to provide substantially all of the Company’s day-to-day management with respect to investments in securities and certain other investments.
On January 26, 2012, the Company commenced its initial public offering on a “best efforts” basis of up to a maximum of $2.975 billion in shares of common stock (the “Offering”). The Company ceased issuing shares in the Offering on April 4, 2014. At the completion of the Offering, a total of approximately 297.4 million shares of common stock had been issued, including approximately 292.3 million shares of common stock sold to the public pursuant to the primary portion of the Offering and approximately 5.1 million shares of common stock issued pursuant to the distribution reinvestment plan (“DRIP”) portion of the Offering. The remaining approximately 404,000 unsold shares from the Offering were deregistered.
The Company registered $247.0 million of shares of common stock under the DRIP (the “Initial DRIP Offering”) pursuant to a Registration Statement on Form S-3 (Registration No. 333-192958), which was filed with the U.S. Securities and Exchange Commission (the “SEC”) on December 19, 2013 and automatically became effective with the SEC upon filing. The Company ceased issuing shares under the Initial DRIP Offering effective as of June 30, 2016. At the completion of the Initial DRIP Offering, a total of approximately $241.7 million of shares of common stock had been issued. The remaining $5.3 million of unsold shares from the Initial DRIP Offering were deregistered.
The Company registered an additional $600.0 million of shares of common stock under the DRIP (the “Secondary DRIP Offering,” and together with the Initial DRIP Offering, the “DRIP Offerings,” and the DRIP Offerings collectively with the Offering, the “Offerings”) pursuant to a Registration Statement on Form S-3 (Registration No. 333-212832), which was filed with the SEC on August 2, 2016 and automatically became effective with the SEC upon filing. The Company began to issue shares under the Secondary DRIP Offering on August 2, 2016 and continued to issue shares under the Secondary DRIP Offering until, on August 30, 2020, the Company’s board of directors (the “Board”) suspended the Secondary DRIP Offering in connection with the entry of the Company into the merger agreements with Cole Office & Industrial REIT (CCIT III), Inc. (“CCIT III”) and Cole Credit Property Trust V, Inc. (“CCPT V”) (the “CCIT III and CCPT V Mergers”). On March 25, 2021, the Board reinstated the Secondary DRIP Offering, effective April 1, 2021.
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CIM REAL ESTATE FINANCE TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The Board establishes an updated estimated per share net asset value (“NAV”) of the Company’s common stock on at least an annual basis for purposes of assisting broker-dealers that participated in the Offering in meeting their customer account reporting obligations under Financial Industry Regulatory Authority Rule 2231. Distributions are reinvested in shares of the Company’s common stock under the DRIP at the estimated per share NAV as determined by the Board. Additionally, the estimated per share NAV as determined by the Board serves as the per share NAV for purposes of the share redemption program. As of December 31, 2021, the estimated per share NAV of the Company’s common stock was $7.20, which was established by the Board on May 25, 2021 using a valuation date of March 31, 2021. Commencing on May 26, 2021, $7.20 served as the per share NAV under the DRIP. The Board previously established a per share NAV as of August 31, 2015, September 30, 2016, December 31, 2016, December 31, 2017, December 31, 2018, December 31, 2019, March 31, 2020 and June 30, 2020. The Company’s estimated per share NAVs are not audited or reviewed by its independent registered public accounting firm.
Completed Merger
On December 16, 2021, the Company completed the merger previously disclosed in the Current Report on Form 8-K filed with the SEC on September 22, 2021, with CIM Income NAV, Inc. (“CIM Income NAV”), pursuant to the Agreement and Plan of Merger, dated September 21, 2021 (the “CIM Income NAV Merger Agreement”), by and among the Company, Cypress Merger Sub, LLC, a wholly owned subsidiary of the Company (“Cypress Merger Sub”), and CIM Income NAV, with Cypress Merger Sub surviving as a wholly owned subsidiary of the Company (the “CIM Income NAV Merger”). In accordance with the applicable provisions of the Maryland General Corporation Law (the “MGCL”), the separate existence of CIM Income NAV ceased. Through the CIM Income NAV Merger, the Company acquired 115 properties, including two properties owned through a consolidated joint venture arrangement (the “Consolidated Joint Venture”), with a total of 5.1 million square feet, all of which had an aggregate gross real estate value of approximately $911.3 million. The combined company after the CIM Income NAV Merger retained the name “CIM Real Estate Finance Trust, Inc.” The CIM Income NAV Merger qualified as a “reorganization” under, and within the meaning of, Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”). The Company considered ASC 805, Business Combinations (“ASC 805”) and determined it was appropriate to account for this transaction as an asset acquisition. For more information on the CIM Income NAV Merger, see Note 4 — Real Estate Assets.
At the effective time of the CIM Income NAV Merger and subject to the terms and conditions of the CIM Income NAV Merger Agreement, each issued and outstanding share of CIM Income NAV’s Class D common stock, $0.01 par value per share (the “Class D Common Stock”), was converted into the right to receive 2.574 shares of the Company’s common stock, each issued and outstanding share of CIM Income NAV’s Class T common stock, $0.01 par value per share (the “Class T Common Stock”), was converted into the right to receive 2.510 shares of the Company’s common stock, each issued and outstanding share of CIM Income NAV’s Class S common stock, $0.01 par value per share (the “Class S Common Stock”), was converted into the right to receive 2.508 shares of the Company’s common stock, and each issued and outstanding share of CIM Income NAV’s Class I common stock, $0.01 par value per share (the “Class I Common Stock” and, together with the Class D Common Stock, Class T Common Stock and Class S Common Stock, the “CIM Income NAV Common Stock”), was converted into the right to receive 2.622 shares of the Company’s common stock, in each case, subject to the treatment of fractional shares in accordance with the CIM Income NAV Merger Agreement (the “CIM Income NAV Merger Consideration”). At the effective time of the CIM Income NAV Merger and subject to the terms and conditions of the CIM Income NAV Merger Agreement, each issued and outstanding share of CIM Income NAV common stock granted under CIM Income NAV’s 2018 Equity Incentive Plan, whether vested or unvested, was cancelled in exchange for an amount equal to the CIM Income NAV Merger Consideration for the applicable share class.
Concurrently with the entry into the CIM Income NAV Merger Agreement, CIM Income NAV and its advisor entered into a Termination Agreement (the “Termination Agreement”), pursuant to which the Advisory Agreement, dated November 27, 2018 (the “CIM Income NAV Advisory Agreement”), by and between CIM Income NAV and its advisor was terminated at the effective time of the CIM Income NAV Merger. Pursuant to the Termination Agreement, CIM Income NAV’s advisor agreed to waive any subordinated performance fee or disposition fee it otherwise would have been entitled to pursuant to the CIM Income NAV Advisory Agreement related to the CIM Income NAV Merger.
Purchase and Sale Agreement
On December 20, 2021, certain subsidiaries of the Company entered into an Agreement of Purchase and Sale, as amended (the “Purchase and Sale Agreement”), with American Finance Trust, Inc. (now known as The Necessity Retail REIT, Inc.) (NASDAQ: AFIN) (“AFIN”), American Finance Operating Partnership, L.P. (now known as The Necessity Retail REIT Operating Partnership, L.P.) (“AFIN OP”), and certain of their subsidiaries (collectively, the “Purchaser”) to sell to the Purchaser 79 shopping centers and two single-tenant properties encompassing approximately 9.5 million gross rentable square feet of commercial space across 27 states for total consideration of $1.32 billion (the “Purchase Price”). The Purchase Price
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CIM REAL ESTATE FINANCE TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

includes the Purchaser’s option to seek the assumption of certain existing debt, and Purchaser’s issuance of up to $53.4 million in value of AFIN’s Class A common stock, par value $0.01 per share (“AFIN Common Stock”), or Class A units in AFIN OP (“AFIN OP Units”), subject to certain limits described more fully in the Purchase and Sale Agreement.
Subsequent to December 31, 2021, the sale of 56 of the properties under contract for sale pursuant to the Purchase and Sale Agreement closed for total consideration of $811.8 million, which consists of $758.4 million in cash proceeds and $53.4 million of AFIN Common Stock, which shares are restricted and subject to certain registration rights as described in the Purchase and Sale Agreement. The remaining 25 properties are expected to close in the second quarter of 2022.
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The summary of significant accounting policies presented below is designed to assist in understanding the Company’s consolidated financial statements. These accounting policies conform to accounting principles generally accepted in the United States of America (“GAAP”) in all material respects, and have been consistently applied in preparing the accompanying consolidated financial statements.
Principles of Consolidation and Basis of Presentation
The accompanying consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and the Consolidated Joint Venture in which the Company has a controlling financial interest. All intercompany balances and transactions have been eliminated in consolidation.
The Company evaluates its relationships and investments to determine if it has variable interests. A variable interest is an investment or other interest that will absorb portions of an entity’s expected losses or receive portions of the entity’s expected residual returns. If the Company determines that it has a variable interest in an entity, it evaluates whether such interest is in a variable interest entity (“VIE”). VIEs are entities where investors lack sufficient equity at risk for the entity to finance its activities without additional subordinated financial support or where equity investors, as a group, lack one of the following characteristics: (a) the power to direct the activities that most significantly impact the entity’s economic performance, (b) the obligation to absorb the expected losses of the entity, or (c) the right to receive the expected returns of the entity. The Company consolidates any VIEs when it is determined to be the primary beneficiary of the VIE’s operations.
For legal entities being evaluated for consolidation, the Company must first determine whether the interests that it holds and fees it receives qualify as variable interests in the entity. A variable interest is an investment or other interest that will absorb portions of an entity’s expected losses or receive portions of the entity’s expected residual returns. The Company’s evaluation includes consideration of fees paid to the Company where the Company acts as a decision maker or service provider to the entity being evaluated. If the Company determines that it holds a variable interest in an entity, it evaluates whether that entity is a VIE.
A VIE must be consolidated by its primary beneficiary, which is generally defined as the party who has a controlling financial interest in the VIE. The Company qualitatively assesses whether it is (or is not) the primary beneficiary of a VIE. Consideration of various factors include, but are not limited to, the Company’s ability to direct the activities that most significantly impact the entity’s economic performance and its obligation to absorb losses from or right to receive benefits of the VIE that could potentially be significant to the VIE. The Company consolidates any VIEs when the Company is determined to be the primary beneficiary of the VIE and the difference between consolidating the VIE and accounting for it using the equity method could be material to the Company’s consolidated financial statements. The Company continually evaluates the need to consolidate any VIEs based on standards set forth in GAAP as described above.
As of December 31, 2021, the Company determined that it had a controlling interest in the Consolidated Joint Venture and therefore met the requirements for consolidation.
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CIM REAL ESTATE FINANCE TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Adjustments
Certain amounts in the Company’s prior period consolidated financial statements have been reclassified to conform to the current period presentation. In addition, the classification of debt prepayment costs has been corrected in the consolidated statements of cash flows from operating activities, as previously reported, to financing activities. This adjustment is not considered material to the prior period financial statements. Other than as shown below, these adjustments had no effect on previously reported totals or subtotals. The adjustments have been made to the consolidated financial statements of operations and the consolidated statements of cash flows for the years ended December 31, 2020 and 2019 as follows (in thousands):
Year Ended December 31, 2020Year Ended December 31, 2019
As previously reportedAdjustmentsAs RevisedAs previously reportedAdjustmentsAs Revised
Consolidated Statements of Operations
General and administrative$15,385 $(3,343)$12,042 $13,729 $(3,562)$10,167 
Management fees$44,743 $(4,718)$40,025 $42,339 $(5,094)$37,245 
Transaction-related$905 $(550)$355 $2,278 $(748)$1,530 
Interest expense and other, net$(64,116)$— $(64,116)$(98,965)$32 $(98,933)
Merger-related expenses, net$(2,193)$309 $(1,884)$— $— $— 
Expense reimbursements to related parties$— $8,920 $8,920 $— $9,436 $9,436 
Consolidated Statements of Cash Flows
Accrued expenses and accounts payable$4,212 $4,208 $8,420 $(1,742)$4,956 $3,214 
Net cash provided by operating activities$106,361 $4,208 $110,569 $188,575 $4,956 $193,531 
Repayments of notes payable, repurchase facilities and credit facilities$(417,902)$(4,208)$(422,110)$(1,137,022)$(4,956)$(1,141,978)
Net cash provided by financing activities$14,832 $(4,208)$10,624 $(910,189)$(4,956)$(915,145)
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 
Real Estate Assets
Real estate assets are stated at cost, less accumulated depreciation and amortization. The Company considers the period of future benefit of each respective asset to determine the appropriate useful life. The estimated useful lives of the Company’s real estate assets by class are generally as follows:
Buildings40 years
Site improvements15 years
Tenant improvementsLesser of useful life or lease term
Intangible lease assetsLease term
Recoverability of Real Estate Assets
The Company continually monitors events and changes in circumstances that could indicate that the carrying amounts of its real estate assets may not be recoverable. Impairment indicators that the Company considers include, but are not limited to: bankruptcy or other credit concerns of a property’s major tenant, such as a history of late payments, lease concessions and other factors; a significant decrease in a property’s revenues due to lease terminations; vacancies; co-tenancy clauses; reduced lease rates; and changes in anticipated holding periods. When indicators of potential impairment are present, the Company assesses the recoverability of the assets by determining whether the carrying amount of the assets will be recovered through the undiscounted future cash flows expected from the use of the assets and their eventual disposition. In the event that such expected undiscounted future cash flows do not exceed the carrying amount, the Company will adjust the real estate assets to their respective fair values and recognize an impairment loss. Generally, fair value is determined using a discounted cash flow analysis and recent comparable sales transactions. During the year ended December 31, 2021, as part of the Company’s
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CIM REAL ESTATE FINANCE TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

quarterly impairment review procedures, the Company recorded impairment charges of $6.0 million related to 12 properties, of which impairment at eight properties was due to sales prices that were less than their respective carrying values and impairment at four properties was due to vacancy. Additionally, the Company recorded impairment charges of $12.1 million related to condominium units due to an increase in budgeted costs for certain units under development. The Company’s impairment assessment as of December 31, 2021 was based on the most current information available to the Company, including expected holding periods. If the Company’s expected holding periods for assets change, subsequent tests for impairment could result in additional impairment charges in the future. The Company cannot provide any assurance that additional material impairment charges with respect to the Company’s real estate assets will not occur during 2022 or in future periods. During the year ended December 31, 2020, the Company recorded impairment charges of $16.7 million related to 11 properties due to revised cash flow estimates as a result of market conditions and one property due to a tenant bankruptcy. The assumptions and uncertainties utilized in the evaluation of the impairment of real estate assets are discussed in detail in Note 3 — Fair Value Measurements. See also Note 4 — Real Estate Assets for further discussion regarding real estate investment activity.
Assets Held for Sale
When a real estate asset is identified by the Company as held for sale, the Company will cease recording depreciation and amortization of the assets related to the property and estimate its fair value, net of selling costs. If, in management’s opinion, the fair value, net of selling costs, of the asset is less than the carrying amount of the asset, an adjustment to the carrying amount is then recorded to reflect the estimated fair value of the property, net of selling costs. As of December 31, 2021, in connection with the Purchase and Sale Agreement, the Company identified 81 properties with a fair value of $1.3 billion as held for sale, which the Company intends to sell in phases during the first and second quarters of 2022. No impairment losses were recorded as a part of this transaction for the year ended December 31, 2021. As of December 31, 2020, the Company identified one property with a fair value of $3.5 million as held for sale, which was sold during the year ended December 31, 2021. No gain or loss was recognized on this disposition.
Disposition of Real Estate Assets
Gains and losses from dispositions are recognized once the various criteria relating to the terms of sale and any subsequent involvement by the Company with the asset sold are met. A discontinued operation includes only the disposal of a component of an entity and represents a strategic shift that has (or will have) a major effect on an entity’s financial results. The Company’s dispositions during the years ended December 31, 2021 and 2020 did not qualify for discontinued operations presentation and thus, the results of the properties and condominiums that were sold will remain in operating income, and any associated gains or losses from the disposition are included in gain on disposition of real estate and condominium developments, net. See Note 4 — Real Estate Assets for a discussion of the disposition of individual properties and condominiums during the year ended December 31, 2021.
Allocation of Purchase Price of Real Estate Assets
Upon the acquisition of real properties, the Company allocates the purchase price to acquired tangible assets, consisting of land, buildings and improvements, and to identified intangible assets and liabilities, consisting of the value of above- and below-market leases and the value of in-place leases and other intangibles, based in each case on their relative fair values. The Company utilizes independent appraisals to assist in the determination of the fair values of the tangible assets of an acquired property (which includes land and buildings). The information in the appraisal, along with any additional information available to the Company’s management, is used in estimating the amount of the purchase price that is allocated to land. Other information in the appraisal, such as building value and market rents, may be used by the Company’s management in estimating the allocation of purchase price to the building and to intangible lease assets and liabilities. The appraisal firm has no involvement in management’s allocation decisions other than providing this market information.
The fair values of above- and below-market lease intangibles are recorded based on the present value (using a discount rate which reflects the risks associated with the leases acquired) of the difference between (1) the contractual amounts to be paid pursuant to the in-place leases and (2) an estimate of fair market lease rates for the corresponding in-place leases, which is generally obtained from independent appraisals, measured over a period equal to the remaining non-cancelable term of the lease including, for below-market leases, any bargain renewal periods. The above- and below-market lease intangibles are capitalized as intangible lease assets or liabilities, respectively. Above-market leases are amortized as a reduction to rental income over the remaining terms of the respective leases. Below-market leases are amortized as an increase to rental income over the remaining terms of the respective leases, including any bargain renewal periods. In considering whether or not the Company expects a tenant to execute a bargain renewal option, the Company evaluates economic factors and certain qualitative factors at the time of acquisition, such as the financial strength of the tenant, the remaining lease term, the tenant mix of the leased property, the Company’s relationship with the tenant and the availability of competing tenant space. If a lease were to be terminated prior to
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its stated expiration, all unamortized amounts of above- or below-market lease intangibles relating to that lease would be recorded as an adjustment to rental income.
The fair values of in-place leases include estimates of direct costs associated with obtaining a new tenant and opportunity costs associated with lost rental and other property income, which are avoided by acquiring a property with an in-place lease. Direct costs associated with obtaining a new tenant include leasing commissions, legal and other related expenses and are estimated in part by utilizing information obtained from independent appraisals and management’s consideration of current market costs to execute a similar lease. The intangible values of opportunity costs, which are calculated using the contractual amounts to be paid pursuant to the in-place leases over a market absorption period for a similar lease, are capitalized as intangible lease assets and are amortized to expense over the remaining term of the respective leases. If a lease were to be terminated prior to its stated expiration, all unamortized amounts of in-place lease assets relating to that lease would be expensed.
The Company has acquired, and may continue to acquire, certain properties subject to contingent consideration arrangements that may obligate the Company to pay additional consideration to the seller based on the outcome of future events. Additionally, the Company may acquire certain properties for which it funds certain contingent consideration amounts into an escrow account pending the outcome of certain future events. The outcome may result in the release of all or a portion of the escrowed funds to the Company or the seller or a combination thereof.
The Company estimates the fair value of assumed mortgage notes payable based upon indications of current market pricing for similar types of debt financing with similar maturities. Assumed mortgage notes payable are initially recorded at their estimated fair value as of the assumption date, and any difference between such estimated fair value and the mortgage note’s outstanding principal balance is amortized or accreted to interest expense over the term of the respective mortgage note payable.
The determination of the fair values of the real estate assets and liabilities acquired requires the use of significant assumptions with regard to the current market rental rates, rental growth rates, capitalization and discount rates, interest rates and other variables. The use of alternative estimates may result in a different allocation of the Company’s purchase price, which could materially impact the Company’s results of operations.
Certain acquisition-related expenses related to asset acquisitions are capitalized and allocated to tangible and intangible assets and liabilities, as described above. Acquisition-related manager expense reimbursements are expensed as incurred and are included in expense reimbursements to related parties in the accompanying consolidated statements of operations. Other acquisition-related expenses continue to be expensed as incurred and are included in transaction-related expenses in the accompanying consolidated statements of operations.
Investments in Unconsolidated Entities
As a result of the CIM Income NAV Merger, the Company has an investment in CIM UII Onshore, L.P. (“CIM UII Onshore”) with a carrying value of $56.0 million as of December 31, 2021, which represents less than 5% ownership of CIM UII Onshore. The Company accounts for its investment under the equity method. The equity method of accounting requires the investment to be initially recorded at cost, including transaction costs incurred to finalize the investment, and subsequently adjusted for the Company’s share of equity in CIM UII Onshore’s earnings and distributions. The Company records its share of CIM UII Onshore’s profits or losses on a quarterly basis as an adjustment to the carrying value of the investment on the Company’s consolidated balance sheet and is recognized as a profit or loss on the consolidated statements of operations. The Company recorded its share of CIM UII Onshore’s gain totaling $606,000 during the year ended December 31, 2021 in the consolidated statements of operations. During the year ended December 31, 2021, the Company received distributions of $497,000 related to its investment in CIM UII Onshore, all of which was recognized as a return on investment.
During the year ended December 31, 2021, CMFT MT JV Holdings, LLC, an indirect wholly-owned subsidiary of the Company, entered into an unconsolidated joint venture arrangement (the “Unconsolidated Joint Venture”). Through the Unconsolidated Joint Venture, the Company, through its investment in CIM NP JV Holdings, LLC (“NP JV Holdings”), in which the Company has 50% ownership, has a 45% membership interest in NewPoint JV, LLC (the “NewPoint JV”) pursuant to the terms of the Operating Agreement entered into between NP JV Holdings and NewPoint Bridge Lending, LLC, a Delaware limited liability company (“NewPoint Bridge Lending”). The Company accounts for its investment under the equity method. The equity method of accounting requires the investment to be initially recorded at cost, including transaction costs incurred to finalize the investment, and is subsequently adjusted for the Company’s share of equity in NewPoint JV’s earnings and distributions. The Company records its share of NewPoint JV’s profits or losses on a quarterly basis as an adjustment to the carrying value of the investment on the Company’s consolidated balance sheet and is recognized as a profit or loss on the consolidated statements of operations. As of December 31, 2021, the Company’s aggregate investment in NewPoint JV of
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$53.5 million is included in investment in unconsolidated entities on the consolidated balance sheets. The Company did not receive any distributions related to its investment in the NewPoint JV during the year ended December 31, 2021.
Noncontrolling Interest in Consolidated Joint Venture
As a result of the CIM Income NAV Merger, the Company has a controlling interest in the Consolidated Joint Venture and, therefore, meets the requirements for consolidation. The Company recorded the noncontrolling interest of $1.1 million as of December 31, 2021 on the consolidated balance sheets.
Cash and Cash Equivalents and Restricted Cash
Cash and cash equivalents include cash in bank accounts, as well as investments in highly-liquid money market funds. The Company deposits cash with several high quality financial institutions. These deposits are guaranteed by the Federal Deposit Insurance Company (“FDIC”) up to an insurance limit of $250,000. At times, the Company’s cash and cash equivalents may exceed federally insured levels. Although the Company bears risk on amounts in excess of those insured by the FDIC, it has not experienced and does not anticipate any losses due to the high quality of the institutions where the deposits are held. Included in cash and cash equivalents was $36.5 million and $41.0 million of unsettled liquid senior loan purchases as of December 31, 2021 and 2020, respectively.
The Company had $36.8 million and $7.0 million in restricted cash as of December 31, 2021 and December 31, 2020, respectively. Included in restricted cash was $7.8 million and $3.6 million held by lenders in lockbox accounts, as of December 31, 2021 and 2020, respectively. As part of certain debt agreements, rents from certain encumbered properties are deposited directly into a lockbox account, from which the monthly debt service payment is disbursed to the lender and the excess is disbursed to the Company. Also included in restricted cash was $29.0 million and $3.4 million of construction reserves, amounts held by lenders in escrow accounts for real estate taxes and other lender reserves for certain properties, in accordance with the associated lender’s loan agreement as of December 31, 2021 and 2020, respectively.
Real Estate-Related Securities
Real estate-related securities consists primarily of the Company’s investment in commercial mortgage-backed securities (“CMBS”), preferred units, and marketable securities. The Company determines the appropriate classification for real estate-related securities at the time of purchase and reevaluates such designation as of each balance sheet date.
As of December 31, 2021, the Company classified its investments in CMBS and marketable securities as available-for-sale as the Company is not actively trading the securities; however, the Company may sell them prior to their maturity. These investments are carried at their estimated fair value with unrealized gains and losses reported in other comprehensive income (loss). During the year ended December 31, 2021, the Company invested $257.7 million in CMBS. During the same period, the Company sold CMBS with a carrying value of $257.8 million resulting in net proceeds of $256.4 million and a loss of $1.4 million. As of December 31, 2021, the Company had investments in two CMBS with an estimated aggregate fair value of $41.9 million. In addition, as a result of the CIM Income NAV Merger, the Company had investments in a marketable security with an estimated aggregate fair value of $110,000 as of December 31, 2021.
The Company monitors its available-for-sale securities for changes in fair value. Current expected credit losses are recorded when the Company acquires CMBS, and any subsequent impairment is recognized when the Company determines that a decline in the estimated fair value of a security below its amortized cost has resulted from a credit loss or other factors. The Company records impairments related to credit losses through current expected credit losses. However, the allowance is limited by the amount that the fair value is less than the amortized cost basis. The Company considers many factors in determining whether a credit loss exists, including, but not limited to, the extent to which the fair value is less than the amortized cost basis, recent events specific to the security, industry or geographic area, the payment structure of the security, the failure of the issuer of the security to make scheduled interest or principal payments, and external credit ratings and recent changes in such ratings. The analysis of determining whether a credit loss exists requires significant judgments and assumptions. The use of alternative judgments and assumptions could result in a different conclusion. During the year ended December 31, 2021 and 2020, the Company did not record current expected credit losses related to CMBS.
During the year ended December 31, 2021, the Company invested $63.5 million in preferred units related to a multi-family, office and retail building in Fort Lauderdale, Florida with a preferred dividend rate of 8.9% and a maturity date of June 1, 2022. Upon maturity, the preferred units will be redeemed in exchange for debt. As of December 31, 2021, the Company classified the investment as held-to-maturity as the Company has the intent and ability to hold the preferred units to maturity and included the investment in real estate-related securities on the consolidated balance sheets. Investments classified as held-to-maturity are
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initially recognized at cost and are subsequently measured using amortized cost. The Company evaluates their held-to-maturity investments for any other-than-temporary impairment each reporting period.
The amortized cost of real estate-related securities is adjusted for amortization of premiums and accretion of discounts to maturity computed under the effective interest method and is recorded in the accompanying consolidated statements of operations in interest income. Upon the sale of a security, the realized net gain or loss is computed on the specific identification method.
Interest earned is either received in cash or capitalized to real estate-related securities in the Company’s consolidated balance sheets. Interest is capitalized when certain conditions are met as specified in each security agreement. During the year ended December 31, 2021, the Company capitalized $974,000 of interest income to real estate-related securities. No such amounts were capitalized during the year ended December 31, 2020.
Loans Held-for-Investment
The Company has acquired, and may continue to acquire, loans related to real estate assets. Additionally, the Company may acquire and originate credit investments, including commercial mortgage loans, mezzanine loans, preferred equity, and other loans and securities related to commercial real estate assets, as well as corporate loan opportunities that are consistent with the Company’s investment strategy and objectives. The Company intends to hold the loans held-for-investment for the foreseeable future or until maturity. Loans held-for-investment are carried on the Company’s consolidated balance sheets at amortized cost, net of any current expected credit losses. Discounts or premiums, origination fees and exit fees are amortized as a component of interest income using the effective interest method over the life of the respective loans, or on a straight-line basis when it approximates the effective interest method. Upon the sale of a loan, the realized net gain or loss is computed on the specific identification method.
Interest earned is either received in cash or capitalized to loans held-for-investment and related receivables, net in the Company’s consolidated balance sheets. Interest is capitalized when certain conditions are met as specified in each loan agreement. During the year ended December 31, 2020, the Company recorded $29.4 million in interest income, of which $539,000 was capitalized to loans held-for-investment and related receivables, net. No such amounts were capitalized during the year ended December 31, 2021.
Accrual of interest income is suspended on nonaccrual loans. Loans that are past due 90 days or more as to principal or interest, or where reasonable doubt exists as to timely collection, are generally considered nonperforming and placed on nonaccrual status. Interest collected is recognized on a cash basis by crediting income when received. Loans may be restored to accrual status when all principal and interest are current and full repayment of the remaining contractual principal and interest are reasonably assured. As of December 31, 2021, the Company did not have nonaccrual loans.
Current Expected Credit Losses
The Company adopted Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments - Credit Losses (Topic 326) (“ASU 2016-13”), on January 1, 2020. Current expected credit losses required under ASU 2016-13 reflects the Company’s current estimate of potential credit losses related to the Company’s loans held-for-investment included in the consolidated balance sheets. Initial current expected credit losses recorded on January 1, 2020 are reflected as a direct charge to retained earnings on the Company’s consolidated statements of stockholders’ equity; however, subsequent changes to current expected credit losses are recognized through net income on the Company’s consolidated statements of operations. While ASU 2016-13 does not require any particular method for determining current expected credit losses, it does specify it should be based on relevant information about past events, including historical loss experience, current portfolio and market conditions, and reasonable and supportable forecasts for the duration of each respective loan. In addition, other than a few narrow exceptions, ASU 2016-13 requires that all financial instruments subject to the credit loss model have some amount of loss reserve to reflect the GAAP principal underlying the credit loss model that all loans, debt securities, and similar assets have some inherent risk of loss, regardless of credit quality, subordinate capital, or other mitigating factors.
The Company estimates the current expected credit loss for its 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. This method requires the Company to reference historic loan loss data across a comparable data set and apply such loss rate to each loan investment over their expected remaining term, taking into consideration expected economic conditions over the relevant timeframe. The Company considers loan investments that are both (i) expected to be substantially repaid through the operation or sale of the underlying collateral, and (ii) for which the borrower is experiencing financial difficulty, to be “collateral-dependent” loans. For such loans
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that the Company determines that foreclosure of the collateral is probable, the Company measures the expected losses based on the difference between the fair value of the collateral less costs to sell and the amortized cost basis of the loan as of the measurement date. For collateral-dependent loans that the Company determines foreclosure is not probable, the Company applies a practical expedient to estimate expected losses using the difference between the collateral’s fair value (less costs to sell the asset if repayment is expected through the sale of the collateral) and the amortized cost basis of the loan. For the Company’s liquid senior loans, the Company uses a probability of default and loss given default method using a comparable data set. The Company may use other acceptable alternative approaches in the future depending on, among other factors, the type of loan, underlying collateral, and availability of relevant historical market loan loss data.
The Company adopted ASU 2016-13 using the modified retrospective method for all financial assets measured at amortized cost. Prior to adoption, the Company had no current expected credit losses on its consolidated balance sheets. The Company recorded a cumulative-effective adjustment to the opening retained earnings in its consolidated statement of stockholders’ equity as of January 1, 2020 of $2.0 million.
Quarterly, the Company evaluates the risk of all loans and assigns a risk rating based on a variety of factors, grouped as follows: (i) loan and credit structure, including the as-is loan-to-value (“LTV”) ratio and structural features; (ii) quality and stability of real estate value and operating cash flow, including debt yield, dynamics of the geography, property type and local market, physical condition, stability of cash flow, leasing velocity and quality and diversity of tenancy; (iii) performance against underwritten business plan; and (iv) quality, experience and financial condition of sponsor, borrower and guarantor(s).
Based on a 5-point scale, the Company’s loans are rated “1” through “5,” from least risk to greatest risk, respectively, which ratings are defined as follows:
1-Outperform — Most satisfactory asset quality and liquidity, good leverage capacity. A “1” rating maintains predictable and strong cash flows from operations. The trends and outlook for the credit's operations, balance sheet, and industry are neutral to favorable. Collateral, if appropriate, exceeds performance metrics;
2-Meets or Exceeds ExpectationsAcceptable asset quality, moderate excess liquidity, modest leverage capacity. A “2” rating could have some financial/non-financial weaknesses which are offset by strengths; however, the credit demonstrates an ample current cash flow from operations. The trends and outlook for the credit's operations, balance sheet, and industry are generally positive or neutral. Collateral performance, if appropriate, meets or exceeds substantially all performance metrics included in original or current underwriting / business plan;
3-SatisfactoryAcceptable asset quality, somewhat strained liquidity, minimal leverage capacity. A “3” rating is at times characterized by acceptable cash flows from operations. The trends and conditions of the credit's operations and balance sheet are neutral. Collateral performance, if appropriate, meets or is on track to meet underwriting; business plan can reasonably be achieved;
4-Underperformance — The debt investment possesses credit deficiencies or potential weaknesses which deserve management’s close and continued attention. The portfolio company’s operations and/or balance sheet have demonstrated an adverse trend or deterioration which, while serious, has not reached the point where the liquidation of debt is jeopardized. These weaknesses are generally considered correctable by the borrower in the normal course of business but may weaken the asset or inadequately protect the Company’s credit position if not checked or corrected. Collateral performance, if appropriate, falls short of original underwriting, material differences exist from business plan, or both; technical milestones have been missed; defaults may exist, or may soon occur absent material improvement; and
5-Default/Possibility of Loss — The debt investment is protected inadequately by the current enterprise value or paying capacity of the obligor or of the collateral, if any. The underlying company’s operations have well-defined weaknesses based upon objective evidence, such as recurring or significant decreases in revenues and cash flows. Major variance from business plan; loan covenants or technical milestones have been breached; timely exit from loan via sale or refinancing is questionable; risk of principal loss. Collateral performance, if appropriate, is significantly worse than underwriting.
The Company generally assigns a risk rating of “3” to all newly originated or acquired loans-held-for-investment during a most recent quarter, except in the case of specific circumstances warranting an exception.
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Deferred Financing Costs
Deferred financing costs represent commitment fees, legal fees and other costs associated with obtaining commitments for financing. These costs are amortized to interest expense over the terms of the respective financing agreements using the straight-line method, which approximates the effective interest method. Unamortized deferred financing costs are written off when the associated debt is extinguished or repaid before maturity. The presentation of all deferred financing costs, other than those associated with the revolving loan portion of the credit facilities, are classified such that the debt issuance costs related to a recognized debt liability are presented on the consolidated balance sheets as a direct deduction from the carrying amount of the related debt liability rather than as an asset. Debt issuance costs related to securing a revolving line of credit are presented as an asset and amortized ratably over the term of the line of credit arrangement. As such, the Company’s current and corresponding prior period total deferred costs, net in the accompanying consolidated balance sheets relate only to the revolving loan portion of the credit facilities and the historical presentation, amortization and treatment of unamortized costs are still applicable. As of December 31, 2021 and 2020, the Company had $7.2 million and $4.3 million, respectively, of deferred financing costs, net of accumulated amortization, related to the revolving loan portion of the credit facilities. Costs incurred in seeking financing transactions that do not close are expensed in the period in which it is determined the financing will not close.
Due to Affiliates
CMFT Management, and certain of its affiliates, received and will continue to receive, fees, reimbursements and compensation in connection with services provided relating to the Offerings and the acquisition, management, financing and leasing of the properties of the Company.
Derivative Instruments and Hedging Activities
The Company accounts for its derivative instruments at fair value. Accounting for changes in the fair value of a derivative instrument depends on the intended use of the derivative instrument and the designation of the derivative instrument. The change in fair value of the derivative instrument that is designated as a cash flow hedge is recorded as other comprehensive income. The changes in fair value for derivative instruments that are not designated as hedges or that do not meet the hedge accounting criteria are recorded as a gain or loss to operations.
Redeemable Common Stock
Under the Company’s share redemption program, the Company’s obligation to redeem shares of its outstanding common stock is limited, among other things, to the net proceeds received by the Company from the sale of shares under the DRIP, net of shares redeemed to date. The Company records the maximum amount that is redeemable under the share redemption program as redeemable common stock outside of permanent equity in its consolidated balance sheets. Changes in the amount of redeemable common stock from period to period are recorded as an adjustment to capital in excess of par value.
Leases
The Company has lease agreements with lease and non-lease components. The Company has elected to not separate non-lease components from lease components for all classes of underlying assets (primarily real estate assets) and will account for the combined components as rental and other property income. Non-lease components included in rental and other property income include certain tenant reimbursements for maintenance services (including common-area maintenance services or “CAM”), real estate taxes, insurance and utilities paid for by the lessor but consumed by the lessee. As a lessor, the Company has further determined that this policy will be effective only on a lease that has been classified as an operating lease and the revenue recognition pattern and timing is the same for both types of components. The Company is not a party to any material leases where it is the lessee.
Significant judgments and assumptions are inherent in not only determining if a contract contains a lease, but also the lease classification, terms, payments, and, if needed, discount rates. Judgments include the nature of any options, including if they will be exercised, evaluation of implicit discount rates and the assessment and consideration of “fixed” payments for straight-line rent revenue calculations.
The Company has an investment in a real estate property that is subject to a ground lease, for which a lease liability and right of use (“ROU”) asset of $2.3 million and $2.4 million was recorded as of December 31, 2021 and 2020, respectively. See Note 17 — Leases for a further discussion regarding this ground lease.
Lease costs represent the initial direct costs incurred in the origination, negotiation and processing of a lease agreement. Such costs include outside broker commissions and other independent third-party costs and are amortized over the life of the
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lease on a straight-line basis. Costs related to salaries and benefits, supervision, administration, unsuccessful origination efforts and other activities not directly related to completed lease agreements are expensed as incurred. Upon successful lease execution, leasing commissions are capitalized.
Development Activities
Project costs and expenses, including interest incurred, associated with the development, construction and lease-up of a real estate project are capitalized as construction in progress. During the year ended December 31, 2021, the Company capitalized $1.8 million of interest expense associated with the development of condominiums acquired via foreclosure, which is included in condominium developments in the accompanying consolidated balance sheets. There were no development projects during the year ended December 31, 2020.
Revenue Recognition
Revenue from leasing activities
Rental and other property income is primarily derived from fixed contractual payments from operating leases and, therefore, is generally recognized on a straight-line basis over the term of the lease, which typically begins the date the tenant takes control of the space. When the Company acquires a property, the terms of existing leases are considered to commence as of the acquisition date for the purpose of this calculation. Variable rental and other property income consists primarily of tenant reimbursements for recoverable real estate taxes and operating expenses which are included in rental and other property income in the period when such costs are incurred, with offsetting expenses in real estate taxes and property operating expenses, respectively, within the consolidated statements of operations. The Company defers the recognition of variable rental and other property income, such as percentage rents, until the specific target that triggers the contingent rental income is achieved.
The Company continually reviews whether collection of lease-related receivables, including any straight-line rent, and current and future operating expense reimbursements from tenants are probable. The determination of whether collectability is probable takes into consideration the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located. Upon the determination that the collectability of a receivable is not probable, the Company will record a reduction to rental and other property income for amounts previously recorded and a decrease in the outstanding receivable. Revenue from leases where collection is deemed to be not probable is recorded on a cash basis until collectability becomes probable. Management’s estimate of the collectability of lease-related receivables is based on the best information available at the time of estimate. The Company does not use a general reserve approach and lease-related receivables are adjusted and taken against rental and other property income only when collectability becomes not probable. As of December 31, 2021 and 2020, the Company identified certain tenants where collection was no longer considered probable and decreased outstanding receivables by $4.6 million and $6.7 million, respectively.
Revenue from lending activities
Interest income from the Company’s loans held-for-investment and real estate-related securities is comprised of interest earned on loans and the accretion and amortization of net loan origination fees and discounts. Interest income on loans is accrued as earned, with the accrual of interest suspended when the related loan becomes a nonaccrual loan. Interest income on the Company’s liquid senior loans is accrued as earned beginning on the settlement date.
Income Taxes
The Company elected to be taxed, and currently qualifies, as a REIT for federal income tax purposes under Sections 856 through 860 of the Code, commencing with the taxable year ended December 31, 2012. The Company will generally not be subject to federal corporate income tax to the extent it distributes its taxable income to its stockholders, and so long as it, among other things, distributes at least 90% of its annual taxable income (computed without regard to the dividends paid deduction and excluding net capital gains). REITs are subject to a number of other organizational and operational requirements. Even if the Company maintains its qualification for taxation as a REIT, it or its subsidiaries may be subject to certain state and local taxes on its income and property, and federal income and excise taxes on its undistributed income.
Earnings (Loss) and Distributions Per Share
Earnings (loss) per share are calculated based on the weighted average number of common shares outstanding during each period presented. Diluted income (loss) per share considers the effect of any potentially dilutive share equivalents, of which the
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Company had none for each of the years ended December 31, 2021, 2020 or 2019. Distributions per share are calculated based on the authorized monthly distribution rate.
Reportable Segments
The Company’s segment information reflects how the chief operating decision makers review information for operational decision-making purposes. The Company has two reportable segments:
Credit — engages primarily in acquiring and originating loans, either directly or through co-investments in joint ventures, related to real estate assets. The Company may acquire first and second lien mortgage loans, mezzanine loans, bridge loans, wraparound mortgage loans, construction mortgage loans on real property and loans on leasehold interest mortgages. This segment also includes investments in real estate-related securities and liquid senior loans.
Real estate — engages primarily in acquiring and managing income-producing retail properties that are primarily single-tenant properties or anchored shopping centers, which are leased to creditworthy tenants under long-term net leases. The commercial properties are geographically diversified throughout the United States and have similar economic characteristics.
See Note 18 — Segment Reporting for a further discussion regarding these segments.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by various standard setting bodies that may have an impact on the Company’s accounting and reporting. Except as otherwise stated below, the Company is currently evaluating the effect that certain new accounting requirements may have on the Company’s accounting and related reporting and disclosures in the Company’s consolidated financial statements.
In April 2020, the Financial Accounting Standards Board (the “FASB”) issued a question and answer document (the “Lease Modification Q&A”) focused on the application of lease accounting guidance to lease concessions provided as a result of the COVID-19 pandemic. Due to the business disruptions and challenges severely affecting the global economy caused by the COVID-19 pandemic, many lessors may be required to provide rent deferrals and other lease concessions to lessees. While the lease modification guidance in ASU No. 2016-02, Leases (Topic 842) (“ASC 842”) addresses routine changes to lease terms resulting from negotiations between the lessee and the lessor, this guidance did not contemplate concessions being so rapidly executed to address the sudden liquidity constraints of some lessees arising from COVID-19 related impacts. Under existing lease guidance, the Company would have to determine, on a lease by lease basis, if a lease concession was the result of a new arrangement reached with the tenant (treated within the lease modification accounting framework) or if a lease concession was under the enforceable rights and obligations within the existing lease agreement (precluded from applying the lease modification accounting framework). The Lease Modification Q&A allows the Company, if certain criteria have been met, to bypass the lease by lease analysis, and instead elect to either apply the lease modification accounting framework or not, with such election applied consistently to leases with similar characteristics and similar circumstances. 
The Company has elected to apply this guidance to avoid performing a lease by lease analysis for the lease concessions that (1) were granted as relief due to COVID-19 related impacts and (2) result in the cash flows remaining substantially the same or less than the original contract and will account for these lease concessions as if no changes were made to the leases. During the year ended December 31, 2021, the majority of the lease concessions provided by the Company were in the form of rental abatements, to certain tenants in response to the impact of the COVID-19 pandemic on those tenants.
As of March 21, 2022, the Company has collected approximately 99.6% of rental payments billed to tenants during the three months ended December 31, 2021. Additionally, as of March 21, 2022, the Company had granted rent deferrals with an aggregate deferral amount of $7.0 million. No rent deferrals were granted during the three months ended December 31, 2021. As of March 21, 2022, the Company collected approximately 100% of deferred rental amounts due through December 31, 2021.
In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848) (“ASU 2021-01”). The amendments in ASU 2021-01 clarify that certain optional expedients and exceptions for contract modifications and hedge accounting apply to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of the discontinuation of the use of the London Interbank Offered Rate (“LIBOR”) as a benchmark interest rate due to reference rate reform. ASU 2021-01 is effective immediately for all entities with the option to apply retrospectively as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, and can be applied prospectively to any new contract modifications made on or after January 7, 2021. The Company currently uses LIBOR as its benchmark interest rate for its derivative instruments, and has not entered into any new contracts on or after the
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

effective date of ASU 2021-01. The Company has evaluated the impact of this ASU’s adoption, and does not believe this ASU will have a material impact on its consolidated financial statements.
NOTE 3 — FAIR VALUE MEASUREMENTS
GAAP defines fair value, establishes a framework for measuring fair value, and requires disclosures about fair value measurements. GAAP emphasizes that fair value is intended to be a market-based measurement, as opposed to a transaction-specific measurement.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. Depending on the nature of the asset or liability, various techniques and assumptions can be used to estimate the fair value. Assets and liabilities are measured using inputs from three levels of the fair value hierarchy, as follows:
Level 1 — Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. An active market is defined as a market in which transactions for the assets or liabilities occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2 — Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active (markets with few transactions), inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data correlation or other means (market corroborated inputs).
Level 3 — Unobservable inputs, which are only used to the extent that observable inputs are not available, reflect the Company’s assumptions about the pricing of an asset or liability.
The following describes the methods the Company uses to estimate the fair value of the Company’s financial assets and liabilities:
Real estate-related securities — The Company generally determines the fair value of its real estate-related securities by utilizing broker-dealer quotations, reported trades or valuation estimates from pricing models to determine the reported price. Pricing models for real estate-related securities are generally discounted cash flow models that usually consider the attributes applicable to a particular class of security (e.g., credit rating, seniority), current market data, and estimated cash flows for each class and incorporate deal collateral performance such as prepayment speeds and default rates, as available. Depending upon the significance of the fair value inputs used in determining these fair values, these securities are valued using Level 1, Level 2 or Level 3 inputs. As of December 31, 2021, the Company concluded that its CMBS and Preferred Units fell under Level 3.
The Company’s marketable security is carried at fair value and valued using Level 1 inputs. The estimated fair value of the Company’s marketable security is based on quoted market prices that are readily and regularly available in an active market.
Credit facilities and notes payable — The fair value is estimated by discounting the expected cash flows based on estimated borrowing rates available to the Company as of the measurement date. Current and prior period liabilities’ carrying and fair values exclude net deferred financing costs. These financial instruments are valued using Level 2 inputs. As of December 31, 2021, the estimated fair value of the Company’s debt was $4.11 billion, compared to a carrying value of $4.17 billion. The estimated fair value of the Company’s debt as of December 31, 2020 was $2.14 billion, compared to a carrying value of $2.15 billion.
Derivative instruments — The Company’s derivative instruments are comprised of interest rate swaps and interest rate caps. All derivative instruments are carried at fair value and are valued using Level 2 inputs. The fair value of these instruments is determined using interest rate market pricing models. In addition, credit valuation adjustments are incorporated into the fair values to account for the Company’s potential nonperformance risk and the performance risk of the respective counterparties.
Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with those derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by the Company and its counterparties. However, as of December 31, 2021 and 2020, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and determined that the credit valuation adjustments are not significant to the overall valuation of the Company’s derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.
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Loans held-for-investment — The Company’s loans held-for-investment are recorded at cost upon origination and adjusted by net loan origination fees and discounts. The Company estimates the fair value of its loans held-for-investment by performing a present value analysis for the anticipated future cash flows using an appropriate market discount rate taking into consideration the credit risk. The Company has determined that its CRE loans held-for-investment are classified in Level 3 of the fair value hierarchy. The Company’s liquid senior loans are classified as Level 2 or Level 3 depending on the number of market quotations or indicative prices from pricing services that are available, and whether the depth of the market is sufficient to transact at those prices in amounts approximating the Company’s investment position at the measurement date. As of December 31, 2021, $560.4 million and $94.1 million of the Company’s liquid senior loans were classified in Level 2 and Level 3 of the fair value hierarchy, respectively. As of December 31, 2020, $359.6 million and $114.1 million of the Company’s liquid senior loans were classified in Level 2 and Level 3 of the fair value hierarchy, respectively. As of December 31, 2021, the estimated fair value of the Company’s loans held-for-investment and related receivables, net was $2.63 billion, compared to its carrying value of $2.61 billion. As of December 31, 2020, the estimated fair value of the Company’s loans held-for-investment was $907.8 million, compared to its carrying value of $892.3 million.
Other financial instruments — The Company considers the carrying values of its cash and cash equivalents, restricted cash, tenant receivables, accounts payable and accrued expenses, other liabilities, due to affiliates and distributions payable to approximate their fair values because of the short period of time between their origination and their expected realization as well as their highly-liquid nature. Due to the short-term maturities of these instruments, Level 1 inputs are utilized to estimate the fair value of these financial instruments.
Considerable judgment is necessary to develop estimated fair values of financial assets and liabilities. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize, or be liable for, upon disposition of the financial assets and liabilities. The Company evaluates its hierarchy disclosures each quarter and depending on various factors, it is possible that an asset or liability may be classified differently from quarter to quarter. The Company does not expect that changes in classifications between levels will be frequent.
Items Measured at Fair Value on a Recurring Basis
In accordance with the fair value hierarchy described above, the following tables show the fair value of the Company’s financial assets and liabilities that are required to be measured at fair value on a recurring basis as of December 31, 2021 and 2020 (in thousands):
Balance as of
December 31, 2021
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Financial assets:
CMBS$41,871 $— $— $41,871 
Preferred Units63,490 — — 63,490 
Marketable security110 110 — — 
Interest rate caps179 — 179 — 
Total financial assets
$105,650 $110 $179 $105,361 
Financial liabilities:
Interest rate swaps$(2,466)$— $(2,466)$— 
Total financial liabilities$(2,466)$— $(2,466)$— 
  
Balance as of
December 31, 2020
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Financial assets:
CMBS$38,194 $— $27,461 $10,733 
Total financial assets
$38,194 $— $27,461 $10,733 
Financial liabilities:
Interest rate swaps$(12,308)$— $(12,308)$— 
Total financial liabilities$(12,308)$— $(12,308)$— 
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following are reconciliations of the changes in financial assets with Level 3 inputs in the fair value hierarchy for the years ended December 31, 2021 and 2020 (in thousands):
Level 3
Beginning Balance, January 1, 2020
$— 
Total gains and losses:
Unrealized gain included in other comprehensive income, net
747 
Purchases and payments received:
Purchases
26,883 
Premiums (discounts), net
(16,875)
Principal payments received
(22)
Balance, December 31, 2020$10,733 
Total gains and losses:
Unrealized gain included in other comprehensive income (loss), net2,197 
Purchases and payments received:
Purchases
97,981 
Discounts, net(4,701)
Capitalized interest income974 
Principal payments received
(42)
Sales(1,781)
Ending Balance, December 31, 2021
$105,361 
Items Measured at Fair Value on a Non-Recurring Basis (Including Impairment Charges)
Certain financial and nonfinancial assets and liabilities are measured at fair value on a nonrecurring basis and are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment. The Company’s process for identifying and recording impairment related to real estate assets and intangible assets is discussed in Note 2 — Summary of Significant Accounting Policies.
As discussed in Note 4 — Real Estate Assets, during the year ended December 31, 2021, real estate assets related to 12 properties were deemed to be impaired and their carrying values were reduced to an estimated fair value of $48.9 million resulting in impairment charges of $6.0 million. Additionally, during the year ended December 31, 2021, certain condominium units were deemed to be impaired and their carrying values were reduced to their estimated fair value, resulting in impairment charges of $12.1 million. During the year ended December 31, 2020, real estate assets related to 12 properties were deemed to be impaired and their carrying values were reduced to an estimated fair value of $86.4 million, resulting in impairment charges of $16.7 million. During the year ended December 31, 2019, real estate assets related to 34 properties were deemed to be impaired and their carrying values were reduced to an estimated fair value of $384.4 million, resulting in impairment charges of $72.9 million. The Company estimates fair values using Level 3 inputs and a combined income and market approach, specifically using discounted cash flow analysis and recent comparable sales transactions. The evaluation of real estate assets for potential impairment requires the Company’s management to exercise significant judgment and to make certain key assumptions, including, but not limited to, the following: (1) terminal capitalization rates; (2) discount rates; (3) the number of years the property will be held; (4) property operating expenses; and (5) re-leasing assumptions, including the number of months to re-lease, market rental income and required tenant improvements. There are inherent uncertainties in making these estimates such as market conditions and the future performance and sustainability of the Company’s tenants. The Company determined that the selling prices used to determine the fair values were Level 2 inputs.
The following summarizes the ranges of discount rates and terminal capitalization rates used for the Company’s impairment test for the real estate assets during the years ended December 31, 2021 and 2020:
Year Ended December 31, 2021Year Ended December 31, 2020
Discount RateTerminal Capitalization RateDiscount RateTerminal Capitalization Rate
8.0% - 10.5%
7.5% - 9.2%
7.9% - 9.7%
7.4% - 9.2%
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table presents the impairment charges by asset class recorded during the years ended December 31, 2021, 2020 and 2019 (in thousands):
Year Ended December 31,
202120202019
Asset class impaired:
Land$1,089 $3,738 $12,648 
Buildings, fixtures and improvements4,755 12,310 56,572 
Intangible lease assets311 737 4,056 
Intangible lease liabilities(162)(48)(337)
Condominium developments12,085 — — 
Total impairment loss$18,078 $16,737 $72,939 
NOTE 4 — REAL ESTATE ASSETS
2021 Property Acquisitions
During the year ended December 31, 2021, the Company acquired 115 commercial properties in connection with the CIM Income NAV Merger for an aggregate purchase price of $911.3 million (the “2021 Property Acquisitions”), which includes $5.0 million of external acquisition-related expenses that were capitalized. The Company funded the 2021 Property Acquisitions acquired in connection with the CIM Income NAV Merger with the CIM Income NAV Merger Consideration. Five of the 2021 Property Acquisitions with a fair value of $66.5 million were classified as held for sale in connection with the Purchase and Sale Agreement as of December 31, 2021.
The following table summarizes the purchase price allocation for the 2021 Property Acquisitions (in thousands):
2021 Property Acquisitions
Land$160,364 
Buildings, fixtures and improvements591,908 
Acquired in-place leases and other intangibles (1)
94,118 
Acquired above-market leases (2)
6,831 
Intangible lease liabilities (3)
(8,425)
Assets held for sale66,466 
Total purchase price$911,262 
______________________
(1)    The amortization period for acquired in-place leases and other intangibles is 10.2 years.
(2)    The amortization period for acquired above-market leases is 13.5 years.
(3)    The amortization period for acquired intangible lease liabilities is 14.8 years.
Assets Acquired Via Foreclosure
During the year ended December 31, 2021, the Company completed foreclosure proceedings to take control of the assets which previously secured its eight mezzanine loans, including 75 condominium units and 21 rental units across four buildings, including certain units that are under development. No land was acquired in connection with the foreclosure.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table summarizes the purchase price allocation for the real estate acquired via foreclosure (in thousands):
As of December 31, 2021
Buildings, fixtures and improvements$192,182 
Acquired in-place leases and other intangibles134 
Intangible lease liabilities(326)
Total purchase price$191,990 
In connection with the foreclosure, the Company assumed $102.6 million of mortgage notes payable related to the assets, as further discussed in Note 10 — Credit Facilities, Notes Payable and Repurchase Facilities.
2021 Condominium Development Project
During the year ended December 31, 2021, the Company capitalized $9.8 million of expenses as construction in progress associated with the development of condominiums acquired via foreclosure, which is included in condominium developments in the accompanying consolidated balance sheets.
2021 Condominium Dispositions
During the year ended December 31, 2021, the Company disposed of condominium units for an aggregate sales price of $42.3 million, resulting in proceeds of $37.8 million after closing costs and a gain of $5.9 million. The Company has no continuing involvement with these condominium units. The gain on sale of condominium units is included in gain on disposition of real estate and condominium developments, net in the consolidated statements of operations.
2021 Property Dispositions and Real Estate Assets Held for Sale
During the year ended December 31, 2021, the Company disposed of 117 properties, consisting of 113 retail properties, three anchored shopping centers and one industrial property, and an outparcel of land for an aggregate gross sales price of $490.3 million, resulting in net proceeds of $475.8 million after closing costs and a gain of $77.2 million. The Company has no continuing involvement with these properties. The gain on sale of real estate is included in gain on disposition of real estate and condominium developments, net in the consolidated statements of operations.
On December 20, 2021, certain subsidiaries of the Company entered into the Purchase and Sale Agreement to sell 79 shopping centers and two single-tenant properties. As of December 31, 2021, these 81 properties were classified as held for sale with a carrying value of $1.3 billion included in assets held for sale in the accompanying consolidated balance sheets. The Company disposed of certain of these properties in phases subsequent to December 31, 2021, as further discussed in Note 19 — Subsequent Events.
2021 Impairment
The Company performs quarterly impairment review procedures, primarily through continuous monitoring of events and changes in circumstances that could indicate that the carrying value of certain of its real estate assets may not be recoverable. See Note 2 — Summary of Significant Accounting Policies for a discussion of the Company’s accounting policies regarding impairment of real estate assets.
During the year ended December 31, 2021, 12 properties totaling approximately 275,000 square feet with a carrying value of $54.9 million were deemed to be impaired and their carrying values were reduced to an estimated fair value of $48.9 million, resulting in impairment charges of $6.0 million, which were recorded in the consolidated statements of operations. Additionally, during the year ended December 31, 2021, certain condominium units were deemed to be impaired and their carrying values were reduced to their estimated fair value, resulting in impairment charges of $12.1 million, which were recorded in the consolidated statements of operations. See Note 3 — Fair Value Measurements for a further discussion regarding these impairment charges.
2020 Property Acquisitions
During the year ended December 31, 2020, the Company acquired 150 commercial properties, including 146 properties acquired in connection with the CCIT III and CCPT V Mergers, for an aggregate purchase price of $798.5 million (the “2020 Property Acquisitions”), which includes $7.9 million of external acquisition-related expenses that were capitalized. The Company funded the 2020 Property Acquisitions acquired in connection with the CCIT III and CCPT V Mergers with the
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

consideration paid in the CCIT III and CCPT V Mergers, which consisted of the right to receive 1.098 and 2.892 shares of the Company’s common stock, respectively, for each issued and outstanding share of common stock of CCIT III and CCPT V, and funded the remaining acquisitions with proceeds from real estate dispositions and available borrowings.
The following table summarizes the purchase price allocation for the 2020 Property Acquisitions (in thousands):
2020 Property Acquisitions
Land$166,395 
Buildings, fixtures and improvements571,777 
Acquired in-place leases and other intangibles (1)
74,888 
Acquired above-market leases (2)
2,367 
Intangible lease liabilities (3)
(16,927)
Total purchase price$798,500 
______________________
(1) The amortization period for acquired in-place leases and other intangibles is 8.9 years.
(2) The amortization period for acquired above-market leases is 6.5 years.
(3) The amortization period for acquired intangible lease liabilities is 9.7 years.
2020 Property Dispositions and Real Estate Asset Held for Sale
During the year ended December 31, 2020, the Company disposed of 30 properties, consisting of 20 retail properties and 10 anchored shopping centers for an aggregate gross sales price of $270.4 million, resulting in net proceeds of $263.8 million after closing costs and disposition fees due to CMFT Management or its affiliates, and a recorded gain of $27.5 million. The Company has no continuing involvement with these properties. The gain on sale of real estate is included in gain on disposition of real estate and condominium developments, net in the consolidated statements of operations.
As of December 31, 2020, there was one property classified as held for sale with a carrying value of $3.5 million included in assets held for sale in the accompanying consolidated balance sheets. Subsequent to December 31, 2020, the Company disposed of the property.
2020 Impairment
During the year ended December 31, 2020, 12 properties totaling approximately 824,000 square feet with a carrying value of $103.1 million were deemed to be impaired and their carrying values were reduced to an estimated fair value of $86.4 million, resulting in impairment charges of $16.7 million, which were recorded in the consolidated statements of operations. See Note 3 — Fair Value Measurements for a further discussion regarding these impairment charges.
2019 Property Acquisition
During the year ended December 31, 2019, the Company acquired a 100% interest in one commercial property for an aggregate purchase price of $6.2 million (the “2019 Property Acquisition”), which includes $165,000 of external acquisition-related expenses that were capitalized. The Company funded the 2019 Property Acquisition with proceeds from real estate dispositions and available borrowings.
The following table summarizes the purchase price allocation for the 2019 Property Acquisition (in thousands):
2019 Property Acquisition
Land$1,501 
Buildings, fixtures and improvements3,804 
Acquired in-place leases and other intangibles (1)
860 
Total purchase price$6,165 
______________________
(1)    The amortization period for acquired in-place leases and other intangibles is 20.1 years.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

2019 Property Dispositions
During the year ended December 31, 2019, the Company disposed of a total of 497 properties, consisting of 482 retail properties, one industrial property and 14 anchored shopping centers, excluding a related outparcel of land, for an aggregate gross sales price of $1.65 billion, resulting in net proceeds of $1.40 billion after closing costs and disposition fees due to CMFT Management or its affiliates, and a recorded gain of $180.7 million. The Company has no continuing involvement with these properties. The gain on sale of real estate is included in gain on disposition of real estate and condominium developments, net in the consolidated statements of operations.
2019 Impairment
During the year ended December 31, 2019, 34 properties totaling approximately 3.4 million square feet with a carrying value of $457.3 million were deemed to be impaired and their carrying values were reduced to an estimated fair value of $384.4 million, resulting in impairment charges of $72.9 million, which were recorded in the consolidated statements of operations. See Note 3 — Fair Value Measurements for a further discussion regarding these impairment charges.
Consolidated Joint Venture
As of December 31, 2021, the Company has an interest in a Consolidated Joint Venture that owns and manages two properties, with total assets of $6.8 million, which included $7.2 million of land, building and improvements and $641,000 of intangible assets, net of accumulated depreciation and amortization of $1.2 million, and total liabilities of $47,000. The Consolidated Joint Venture did not have any debt outstanding as of December 31, 2021. The Company has the ability to control operating and financial policies of the Consolidated Joint Venture. There are restrictions on the use of these assets as the Company would generally be required to obtain the approval of the partner (the “Consolidated Joint Venture Partner”) in accordance with the joint venture agreement for any major transactions. The Company and the Consolidated Joint Venture Partner are subject to the provisions of the joint venture agreement, which includes provisions for when additional contributions may be required to fund certain cash shortfalls.
NOTE 5 — INTANGIBLE LEASE ASSETS AND LIABILITIES
Intangible lease assets and liabilities consisted of the following as of December 31, 2021 and 2020 (in thousands, except weighted average life remaining):
As of December 31,
20212020
Intangible lease assets:
In-place leases and other intangibles, net of accumulated amortization of $73,923 and $132,967, respectively (with a weighted average life remaining of 11.4 years and 9.7 years, respectively)
$224,931 $217,431 
Acquired above-market leases, net of accumulated amortization of $3,204 and $22,054, respectively (with a weighted average life remaining of 13.3 years and 7.6 years, respectively)
12,774 17,112 
Total intangible lease assets, net$237,705 $234,543 
Intangible lease liabilities:
Acquired below-market leases, net of accumulated amortization of $9,043 and $31,933, respectively (with a weighted average life remaining of 11.5 years and 7.5 years, respectively)    
$24,896 $32,718 
Amortization of the above-market leases is recorded as a reduction to rental and other property income, and amortization expense for the in-place leases and other intangibles is included in depreciation and amortization in the accompanying consolidated statements of operations. Amortization of below-market leases is recorded as an increase to rental and other property income in the accompanying consolidated statements of operations.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table summarizes the amortization related to the intangible lease assets and liabilities for the years ended December 31, 2021, 2020, and 2019 (in thousands):
Year Ended December 31,
202120202019
In-place lease and other intangible amortization$28,994 $23,262 $32,058 
Above-market lease amortization$2,379 $3,095 $4,315 
Below-market lease amortization$5,393 $5,309 $6,253 
As of December 31, 2021, the estimated amortization relating to the intangible lease assets and liabilities is as follows (in thousands):
Amortization
Year Ending December 31, In-Place Leases and Other IntangiblesAbove-Market LeasesBelow-Market Leases
2022$27,097 $1,262 $2,818 
202325,862 1,256 2,758 
202424,382 1,113 2,632 
202521,383 1,008 2,560 
202620,711 1,336 2,662 
Thereafter105,496 6,799 11,466 
Total$224,931 $12,774 $24,896 
NOTE 6 — INVESTMENTS IN UNCONSOLIDATED ENTITIES
As a result of the CIM Income NAV Merger, the Company acquired a limited partnership interest in CIM UII Onshore. CIM UII Onshore’s sole purpose is to invest all of its assets in CIM Urban Income Investments, L.P. (“CIM Urban Income”), which is a private institutional fund that acquires, owns and operates substantially stabilized, diversified real estate and real estate-related assets in urban markets primarily located throughout North America. This investment was made to gain exposure to the urban real assets invested in by CIM Urban Income. The Company accounts for its investment using the equity method.
During the year ended December 31, 2021, the Company recognized an equity method net gain of $606,000 related to its investment in CIM UII Onshore. The Company recognized distributions of $497,000 related to its investment in CIM UII Onshore during the year ended December 31, 2021, all of which was recognized as a return on investment. As of December 31, 2021, the carrying value of the Company’s investment was $56.0 million, which represents less than 5% ownership of CIM UII Onshore, and approximates fair value and is included in investments in unconsolidated entities on the consolidated balance sheets.
Additionally, during the year ended December 31, 2021, the Company entered into the Unconsolidated Joint Venture. The primary purpose of the Unconsolidated Joint Venture is to source, underwrite, close and service on an ongoing basis multifamily bridge loans, participation interests, and other debt instruments such as loans. Through the Unconsolidated Joint Venture, the Company has a 45% interest in the NewPoint JV and accounts for its investment under the equity method. As of December 31, 2021, the carrying value of the Company’s investment in the NewPoint JV was $53.5 million, which approximates fair value and is included in investment in unconsolidated entities on the consolidated balance sheets. The Company did not receive any distributions related to its investment in the NewPoint JV during the year ended December 31, 2021.
NOTE 7 — REAL ESTATE-RELATED SECURITIES
As of December 31, 2021, the Company had real estate-related securities with an aggregate estimated fair value of $105.5 million, which included two CMBS, a marketable security and an investment in preferred units. The two CMBS mature on November 2033 and June 2058 and have interest rates earning a zero coupon rate and 6.9%, respectively. The preferred units mature on June 1, 2022 and have an interest rate of 8.9%. The following is a summary of the Company’s real estate-related securities as of December 31, 2021 and 2020 (in thousands):
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Real Estate-Related Securities
Amortized Cost BasisUnrealized GainFair Value
CMBS and marketable security$39,184 $2,797 $41,981 
Preferred units63,490 — 63,490 
Total real estate-related securities$102,674 $2,797 $105,471 
The following table provides the activity for the real estate-related securities during the year ended December 31, 2021 and 2020 (in thousands):
Amortized Cost BasisUnrealized GainFair Value
Real estate-related securities as of January 1, 2020$— $— $— 
Face value of real estate-related securities acquired91,440 — 91,440 
Premiums and discounts on purchase of real estate-related securities, net of acquisition costs(14,796)— (14,796)
Amortization of discount on real estate-related securities57 — 57 
Sale of real estate-related securities(37,083)(510)(37,593)
Principal payments received on real estate-related securities(2,571)— (2,571)
Unrealized gain on real estate-related securities— 1,657 1,657 
Real estate-related securities as of January 1, 2021$37,047 $1,147 $38,194 
Face value of real estate-related securities acquired264,246 — 264,246 
Investment in preferred units63,490 63,490 
Premiums and discounts on purchase of real estate-related securities, net of acquisition costs(5,982)— (5,982)
Amortization of discount on real estate-related securities1,197 — 1,197 
Capitalized interest income on real estate-related securities974 — 974 
Principal payments received on real estate-related securities(38)— (38)
Sale of real estate-related securities(258,260)1,419 (256,841)
Unrealized gain on real estate-related securities— 231 231 
Real estate-related securities as of December 31, 2021$102,674 $2,797 $105,471 
During the year ended December 31, 2021, the Company invested $321.8 million in CMBS, marketable securities, and preferred units. During the same period, the Company sold CMBS and marketable securities with an aggregate carrying value of $258.3 million resulting in net proceeds of $256.8 million and a loss of $1.4 million. Unrealized gains and losses on CMBS and marketable securities are recorded in other comprehensive income (loss), with a portion of the amount subsequently reclassified into interest expense and other, net in the accompanying consolidated statements of operations as securities are sold and gains and losses are recognized. During the years ended December 31, 2021 and 2020, the Company recorded $231,000 and $1.7 million, respectively, of unrealized gains on its real estate-related securities included in other comprehensive income (loss) in the accompanying consolidated statements of comprehensive income (loss).
The scheduled maturities of the Company’s real estate-related securities as of December 31, 2021 are as follows (in thousands):
Real estate-related securities
Amortized Cost Estimated Fair Value
Due within one year$63,600 $63,600 
Due after one year through five years— — 
Due after five years through ten years— — 
Due after ten years39,074 41,871 
Total$102,674 $105,471 
Actual maturities of real estate-related securities can differ from contractual maturities because borrowers on certain corporate credit securities may have the right to prepay their respective debt obligations at any time. In addition, factors such as prepayments and interest rates may affect the yields on such securities.
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CIM REAL ESTATE FINANCE TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

In estimating credit losses related to real estate-related securities, management considers a variety of factors, including (1) whether the Company has the intent to sell the impaired security before the recovery of its amortized cost basis, (2) whether the Company expects to hold the investment for a period of time sufficient to allow for anticipated recovery in fair value, and (3) whether the Company expects to recover the entire amortized cost basis of the security. As of December 31, 2021, the Company had no credit losses related to real estate-related securities.
NOTE 8 — LOANS HELD-FOR-INVESTMENT
The Company’s loans held-for-investment consisted of the following as of December 31, 2021 and 2020 (dollar amounts in thousands):
As of December 31,
20212020
Mezzanine loans$— $147,475 
First mortgage loans (1)
1,968,585 341,546 
Total CRE loans held-for-investment and related receivables, net 1,968,585 489,021 
Liquid senior loans655,516 473,603 
Loans held-for-investment and related receivables, net$2,624,101 $962,624 
Less: Current expected credit losses$(15,201)$(70,358)
Total loans held-for-investment and related receivable, net$2,608,900 $892,266 
____________________________________
(1) As of December 31, 2021, first mortgage loans included $20.1 million of contiguous mezzanine loan components that, as a whole, have expected credit quality similar to that of a first mortgage loan.
During the year ended December 31, 2021, the Company invested $406.7 million in liquid senior loans. During the same period, the Company received $157.0 million of principal payments on liquid senior loans and sold $70.6 million of liquid senior loans, resulting in proceeds of $70.0 million after closing costs and a gain of $41,000. The gain was recorded as a decrease to interest expense and other, net in the consolidated statements of operations. As of December 31, 2021, the Company had $36.5 million of unsettled liquid senior loan purchases included in cash and cash equivalents in the accompanying consolidated balance sheets.
As of December 31, 2021, the Company had $209.4 million of unfunded commitments related to CRE loans held-for-investment, the funding of which is subject to the satisfaction of borrower milestones. These commitments are not reflected in the accompanying consolidated balance sheets.
The following table details overall statistics for the Company’s loans held-for-investment as of December 31, 2021 and 2020 (dollar amounts in thousands):
CRE Loans (1) (2)
Liquid Senior Loans
As of December 31,As of December 31,
2021202020212020
Number of loans22 12 295 194 
Principal balance$1,985,722 $481,438 $659,007 $477,777 
Net book value$1,958,655 $428,393 $650,245 $463,873 
Weighted-average interest rate3.3 %7.5 %3.7 %3.8 %
Weighted-average maximum years to maturity4.32.25.14.9
____________________________________
(1)    As of December 31, 2021, 100% of the Company’s CRE loans by principal balance earned a floating rate of interest, primarily indexed to U.S. dollar LIBOR and SOFR.
(2)    Maximum maturity date assumes all extension options are exercised by the borrowers; however, the Company’s CRE loans may be repaid prior to such date.
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CIM REAL ESTATE FINANCE TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Activity relating to the Company’s loans held-for-investment portfolio was as follows for the years ended December 31, 2021 and 2020 (dollar amounts in thousands):
Principal Balance
Deferred Fees / Other Items (1)
Loan Fees ReceivableNet Book Value
Balance, January 1, 2020$300,135 $(6,047)$7,542 $301,630 
Loan originations and acquisitions820,015 (5)820,015 
Cure payments receivable— 7,351 — 7,351 
Sale of loans(42,031)1,392 — (40,639)
Principal repayments received(119,443)— — (119,443)
Capitalized interest539 — — 539 
Deferred fees and other items— (8,969)(380)(9,349)
Accretion and amortization of fees and other items— 2,520 — 2,520 
Current expected credit losses— (70,358)— (70,358)
Balance, January 1, 2021$959,215 $(74,116)$7,167 $892,266 
Loan originations and acquisitions2,219,064 — — 2,219,064 
Cure payments receivable (2)
— (7,351)— (7,351)
Sale of loans(70,567)649 — (69,918)
Principal repayments received (3)
(326,195)133 — (326,062)
Capitalized interest (2)
(9,469)— — (9,469)
Deferred fees and other items— (19,235)— (19,235)
Accretion and amortization of fees and other items— 5,103 — 5,103 
Foreclosure of assets (2)
(127,320)3,832 (7,167)(130,655)
Current expected credit losses (4)
— 55,157 — 55,157 
Balance, December 31, 2021$2,644,728 $(35,828)$— $2,608,900 
____________________________________
(1)Other items primarily consist of current expected credit losses (as discussed below), purchase discounts or premiums, accretion of exit fees and deferred origination expenses.
(2)During the year ended December 31, 2021, the Company completed foreclosure of the assets which previously secured its eight mezzanine loans.
(3)Includes the repayment of a $69.2 million first mortgage loan prior to the maturity date.
(4)Includes the reversal of current expected credit losses related to the mezzanine loans upon foreclosure of the assets which previously secured the loans, as further discussed below in “Current Expected Credit Losses,” partially offset by the increase in current expected credit losses related to the Company’s loans held-for-investment during the year ended December 31, 2021.
Current Expected Credit Losses
Current expected credit losses reflect the Company’s current estimate of potential credit losses related to the loans held-for-investment included in the Company’s consolidated balance sheets. Refer to Note 2 — Summary of Significant Accounting Policies for further discussion of the Company’s current expected credit losses.
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CIM REAL ESTATE FINANCE TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table presents the activity in the Company’s current expected credit losses by loan type for the year ended December 31, 2021 (dollar amounts in thousands):
Mezzanine LoansFirst Mortgage LoansLiquid Senior LoansTotal
Current expected credit losses as of January 1, 2021$58,038 $2,590 $9,730 $70,358 
Foreclosure of assets (1)
(58,038)— — (58,038)
Provision for (reversal of) credit losses— 1,295 (727)568 
Current expected credit losses as of March 31, 2021— 3,885 9,003 12,888 
Provision for (reversal of) credit losses— 2,581 (2,458)123 
Current expected credit losses as of June 30, 2021— 6,466 6,545 13,011 
Reversal of provision for credit losses— (1,179)(613)(1,792)
Current expected credit losses as of September 30, 2021— 5,287 5,932 11,219 
Provision for (reversal of) credit losses — 4,643 (661)3,982 
Current expected credit losses as of December 31, 2021$— $9,930 $5,271 $15,201 
____________________________________
(1)    During the year ended December 31, 2021, the Company completed foreclosure of the assets which previously secured its eight mezzanine loans.
Changes to current expected credit losses are recognized through net income (loss) on the Company’s consolidated statements of operations.
Troubled Debt Restructuring
An individual financial instrument is classified as a troubled debt restructuring when there is a reasonable expectation that the financial instrument’s contractual terms will be modified in a manner that grants concessions to the borrower who is experiencing financial difficulties. Concessions could include term extensions, payment deferrals, interest rate reductions, principal forgiveness, forbearance, or other actions designed to maximize the Company’s collection on the financial instrument. Current expected credit losses for financial instruments that are troubled debt restructurings are determined individually.
The Company also classifies a financial instrument as a troubled debt restructuring when receivables from third parties, real estate, or other assets are transferred from the debtor to the creditor in order to fully or partially satisfy a debt, such as in the event of a foreclosure or repossession. During the year ended December 31, 2019, the borrower on the Company’s eight  mezzanine loans became delinquent on certain required reserve payments. Throughout 2020, the borrower remained delinquent on the required reserve payments and became delinquent on principal and interest. As a result, the Company classified the loans as a troubled debt restructuring and commenced foreclosure proceedings during the year ended December 31, 2020. Upon completing foreclosure in January 2021, the Company took control of the assets which previously secured the loans, including 75 condominium units and 21 rental units across four buildings. As a result of the foreclosure, the Company recorded a $58.0 million decrease to its provision for credit losses related to its mezzanine loans during the three months ended March 31, 2021. During the year ended December 31, 2021, the Company recorded a $2.9 million net increase to the provision for credit losses related to its first mortgage loans and liquid senior loans to reflect the estimated fair value of such loans, bringing the total current expected credit losses to $15.2 million as of December 31, 2021.
Risk Ratings
As further described in Note 2 — Summary of Significant Accounting Policies, the Company evaluates its loans-held-for-investment portfolio on a quarterly basis. Each quarter, the Company assesses the risk factors of each loan, and assigns a risk rating based on several factors. Factors considered in the assessment include, but are not limited to, loan and credit structure, current LTV, debt yield, collateral performance, and the quality and condition of the sponsor, borrower, and guarantor(s). Loans are rated “1” (less risk) through “5” (greater risk), which ratings are defined in Note 2 — Summary of Significant Accounting Policies.
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CIM REAL ESTATE FINANCE TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The Company’s primary credit quality indicator is its risk ratings, which are further discussed above. The following table presents the net book value of the Company’s loans-held-for-investment portfolio as of December 31, 2021 by year of origination, loan type, and risk rating (dollar amounts in thousands):
Amortized Cost of Loans Held-For-Investment by Year of Origination (1)
As of December 31, 2021
Number of Loans202120202019Total
First mortgage loans by internal risk rating:
1$— $— $— $— 
2— — — — 
3221,777,068 143,932 47,585 1,968,585 
4— — — — 
5— — — — 
Total first mortgage loans221,777,068 143,932 47,585 1,968,585 
Liquid senior loans by internal risk rating:
1— — — — 
23— 8,279 — 8,279 
3288342,982 289,535 3,038 635,555 
44— 11,682 — 11,682 
5— — — — 
Total liquid senior loans295342,982 309,496 3,038 655,516 
Less: Current expected credit losses(15,201)
Total loans-held-for-investment and related receivables, net
317$2,608,900 
Weighted Average Risk Rating (2)
3.0 
____________________________________
(1)Date loan was originated or acquired by the Company. Origination dates are subsequently updated to reflect material loan modifications.
(2)Weighted average risk rating calculated based on carrying value at period end.
NOTE 9 — DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In the normal course of business, the Company uses certain types of derivative instruments for the purpose of managing or hedging its interest rate risk. During the year ended December 31, 2021, three of the Company’s interest rate swap agreements matured, and in connection with the origination of the Mortgage Loan (as defined below in Note 10 — Credit Facilities, Notes Payable and Repurchase Facilities), the Company terminated two interest rate swap agreements. The Company also entered into five interest rate cap agreements, and in connection with the CIM Income NAV Merger, the Company assumed five interest rate swap agreements during the year ended December 31, 2021. As of December 31, 2021, the Company had five non-designated interest rate cap agreements and five interest rate swap agreements designated as hedging instruments.
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CIM REAL ESTATE FINANCE TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table summarizes the terms of the Company’s interest rate cap agreements and interest rate swap agreements designated as hedging instruments as of December 31, 2021 and 2020 (dollar amounts in thousands):
   Outstanding Notional  Fair Value of Liabilities as of
Balance SheetAmount as ofInterestEffectiveMaturityDecember 31,December 31,
LocationDecember 31, 2021
Rates (1)
DatesDates20212020
Interest Rate CapsPrepaid expenses and other assets$752,553 

2.86%
to
5.45%
5/7/2021 to
7/15/2021
5/9/2022
to
7/15/2023
$179 $— 
Interest Rate SwapsDeferred rental income, derivative liabilities and other liabilities$185,565 

3.31%
to
4.84%
12/16/2016 to
9/30/2019
1/1/2022
to
9/6/2022
$(2,466)$(12,308)
____________________________________
(1)The interest rate consists of the underlying index swapped or capped to a fixed rate as of December 31, 2021.
Additional disclosures related to the fair value of the Company’s derivative instruments are included in Note 3 — Fair Value Measurements. The notional amount under the derivative instruments is an indication of the extent of the Company’s involvement in each instrument, but does not represent exposure to credit, interest rate or market risks.
Accounting for changes in the fair value of a derivative instrument depends on the intended use and designation of the derivative instrument. The Company has interest rate caps that are used to manage exposure to interest rate movements, but do not meet the requirements to be designated as hedging instruments. The change in fair value of the derivative instruments that are not designated as hedges is recorded directly to earnings in interest expense and other, net on the accompanying consolidated statements of operations. During the year ended December 31, 2021, the Company had interest rate swaps designated as cash flow hedges in order to hedge the variability of the anticipated cash flows on its variable rate debt. The change in fair value of the derivative instruments designated as hedges is recorded in other comprehensive income (loss), with a portion of the amount subsequently reclassified to interest expense as interest payments are made on the Company’s variable rate debt. For the years ended December 31, 2021 and 2020, the amount of losses reclassified from other comprehensive income (loss) as an increase to interest expense was $3.3 million and $12.3 million, respectively. For the year ended December 31, 2019, the amount of gain reclassified from other comprehensive income (loss) as a decrease to interest expense was $3.5 million. The total unrealized gain on interest rate swaps of $152,000 as of December 31, 2021 is included in accumulated other comprehensive income (loss) in the accompanying consolidated statement of stockholders’ equity. The total unrealized loss on interest rate swaps of $3.2 million and $3.9 million as of December 31, 2020 and 2019, respectively, is included in accumulated other comprehensive income (loss) in the accompanying consolidated statement of stockholders’ equity. During the next 12 months, the Company estimates that $2.6 million will be reclassified from other comprehensive income (loss) as an increase to interest expense. The Company includes cash flows from interest rate swap agreements in net cash flows provided by operating activities on its consolidated statements of cash flows, as the Company’s accounting policy is to present cash flows from hedging instruments in the same category in its consolidated statements of cash flows as the category for cash flows from the hedged items.
The Company has agreements with each of its derivative counterparties that contain provisions whereby if the Company defaults on certain of its unsecured indebtedness, the Company could also be declared in default on its derivative obligations, resulting in an acceleration of payment. If the Company had breached any of these provisions, it could have been required to settle its obligations under the agreements at their aggregate termination value, inclusive of interest payments and accrued interest of $2.6 million as of December 31, 2021. In addition, the Company is exposed to credit risk in the event of non-performance by its derivative counterparties. The Company believes it mitigates its credit risk by entering into agreements with creditworthy counterparties. The Company records credit risk valuation adjustments on its derivative instruments based on the credit quality of the Company and the respective counterparty. There were no termination events or events of default related to the derivative instruments as of December 31, 2021.
NOTE 10 — CREDIT FACILITIES, NOTES PAYABLE AND REPURCHASE FACILITIES
As of December 31, 2021, the Company had $4.1 billion of debt outstanding, including net deferred financing costs, with a weighted average years to maturity of 3.1 years and a weighted average interest rate of 2.6%. The weighted average years to maturity is computed using the scheduled repayment date as specified in each loan agreement where applicable. The weighted average interest rate is computed using the interest rate in effect until the scheduled repayment date.
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CIM REAL ESTATE FINANCE TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table summarizes the debt balances as of December 31, 2021 and 2020, and the debt activity for the year ended December 31, 2021 (in thousands):
During the Year Ended December 31, 2021
 Balance as of December 31, 2020
Debt Issuances & Assumptions (1)
Repayments & Modifications (2)
Accretion & (Amortization)Balance as of December 31, 2021
Notes payable – fixed rate debt$578,096 $85,377 $(191,506)$— $471,967 
Notes payable – variable rate debt— 102,553 (32,285)— 70,268 
First lien mortgage loan— 650,000 — — 650,000 
ABS mortgage notes— 774,000 (3,225)— 770,775 
Credit facilities1,336,500 913,500 (5)(1,340,000)— 910,000 
Repurchase facilities235,380 1,174,650 (111,616)— 1,298,414 
Total debt
2,149,976 3,700,080 (1,678,632)— 4,171,424 
Net premiums (3)
149 — — (149)— 
Deferred costs – credit facility (4)
(3,543)(153)1,955 1,598 (143)
Deferred costs – fixed rate debt and first lien mortgage loan(1,589)(14,055)133 3,833 (11,678)
Deferred costs – variable rate debt— (1,346)— 1,075 (271)
Deferred costs – ABS mortgage notes— (17,050)— 923 (16,127)
Total debt, net
$2,144,993 $3,667,476 $(1,676,544)$7,280 $4,143,205 
____________________________________
(1)Includes deferred financing costs incurred during the period.
(2)In connection with the repayment of certain mortgage notes, the Company recognized a loss on extinguishment of debt of $4.9 million during the year ended December 31, 2021.
(3)Net premiums on mortgage notes payable were recorded upon the assumption of the respective debt instruments. Amortization of these net premiums is recorded as a reduction to interest expense over the remaining term of the respective debt instruments using the effective-interest method.
(4)Deferred costs related to the term portion of the CMFT Credit Facility (as defined below).
(5)Includes credit facility borrowings of $352.5 million assumed upon completion of the CIM Income NAV Merger during the year ended December 31, 2021.
Notes Payable
As of December 31, 2021, the fixed rate debt outstanding of $472.0 million included $45.6 million of variable rate debt that is fixed through interest rate swap agreements, which has the effect of fixing the variable interest rates per annum through the maturity date of the variable rate debt. The fixed rate debt has interest rates ranging from 3.6% to 4.6% per annum. The fixed rate debt outstanding matures on various dates from January 2022 through February 2025. Should a loan not be repaid by its scheduled repayment date, the applicable interest rate may increase as specified in the respective loan agreement. The aggregate balance of gross real estate assets, net of gross intangible lease liabilities, securing the fixed rate debt outstanding was $822.1 million as of December 31, 2021. Each of the mortgage notes payable comprising the fixed rate debt is secured by the respective properties on which the debt was placed.
Upon completing foreclosure proceedings to take control of the assets which previously secured the Company’s mezzanine loans in January 2021, the Company assumed $102.6 million in variable rate debt related to the underlying properties. As of December 31, 2021, the variable rate debt outstanding of $70.3 million had a weighted average interest rate of 5.5%. The variable rate debt outstanding matures on May 9, 2022.
First Lien Mortgage Loan
On July 15, 2021, JPMorgan Chase Bank, N.A., as administrative agent (“JPMorgan Chase”), and DBR Investments Co. Limited originated a $650.0 million first lien mortgage loan (the “Mortgage Loan”) to 114 single purpose entities (the “Borrowers”), each of which is an affiliate of the Company and is managed on a day-to-day basis by affiliates of CIM. As of
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CIM REAL ESTATE FINANCE TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

December 31, 2021, the Mortgage Loan is secured by, among other things, cross-collateralized and cross-defaulted first priority mortgages, deeds of trust, security agreements or other similar security instruments on the Borrowers’ fee simple interests in 113 properties, comprised of 50 anchored shopping centers, 61 single-tenant retail properties, one office property and one industrial property. As of December 31, 2021, the aggregate balance of gross real estate assets, net of gross intangible lease liabilities, securing the notes was $1.3 billion. Amounts outstanding on the Mortgage Loan totaled $650.0 million with a weighted average interest rate of 2.9% as of December 31, 2021. The Mortgage Loan is a floating-rate, interest-only, non-recourse loan with a two-year initial term ending on August 9, 2023, with three one-year extension options, subject to certain conditions.
ABS Mortgage Notes
On July 28, 2021, the Company issued $774.0 million aggregate principal amount of ABS Mortgage Notes, Series 2021-1 (the “Class A Notes”) in six classes, as shown below:
Class of NotesInitial Principal BalanceNote RateAnticipated Repayment DateRated Final Payment Date
Credit Rating(1)
A-1 (AAA)$146,400,000 2.09%July 2028July 2051AAA (sf)
A-2 (AAA)$219,600,000 2.57%July 2031July 2051AAA (sf)
A-3 (AA)$39,200,000 2.51%July 2028July 2051AA (sf)
A-4 (AA)$58,800,000 3.04%July 2031July 2051AA (sf)
A-5 (A)$124,000,000 2.91%July 2028July 2051A (sf)
A-6 (A)$186,000,000 3.44%July 2031July 2051A (sf)
____________________________________
(1)Reflects credit rating from Standard & Poor’s Financial Services LLC (“Standard & Poor’s”).
The collateral pool for the Class A Notes is comprised of 170 of the Company’s double- and triple-net leased single tenant properties, together with the related leases and certain other rights and interests. The aggregate balance of gross real estate assets, net of gross intangible lease liabilities, securing the Class A Notes was $1.0 billion. As of December 31, 2021, amounts outstanding on the Class A Notes totaled $770.8 million with a weighted average interest rate of 2.8%. The Company may prepay the Class A Notes in full on or after the payment date beginning in July 2026 for the Class A-1 (AAA) Notes, the Class A-3 (AA) Notes and the Class A-5 (A) Notes, and on or after the payment date in July 2028 for the Class A-2 (AAA) Notes, the Class A-4 (AA) Notes and the Class A-6 (A) Notes.
Credit Facilities
The Company had a second amended and restated unsecured credit agreement (the “CMFT Second Amended and Restated Credit Agreement”) with JPMorgan Chase, and the other lenders party thereto that provided for borrowings of up to $1.24 billion (the “CMFT Credit Facility”).
On December 21, 2020, as a result of CCPT V’s merger with the Company, a subsidiary of the Company assumed CCPT V’s obligations pursuant to the credit agreement by and among Cole Operating Partnership V, LP, the operating partnership of CCPT V (“CCPT V OP”), JPMorgan Chase, as administrative agent, and the lender parties thereto (the “CCPT V Credit Agreement”). The CCPT V Credit Agreement allowed for borrowings of up to $350.0 million (the “CCPT V Credit Facility”).
The CMFT Credit Facility and the CCPT V Credit Facility (collectively, the “CMFT and CCPT V Credit Facilities”) were set to mature on March 15, 2022. During the year ended December 31, 2021, and with the proceeds from the Mortgage Loan and the sale of the Class A Notes, the Company paid down the $1.11 billion outstanding balance under the CMFT and CCPT V Credit Facilities and terminated the CMFT and CCPT V Credit Facilities.
On December 16, 2021, as a result of the CIM Income NAV Merger, a subsidiary of the Company assumed CIM Income NAV’s obligations pursuant to the credit agreement by and among CIM Income NAV Operating Partnership, LP, the operating partnership of CIM Income NAV (“CIM Income NAV OP”), JPMorgan Chase, as administrative agent, and the lender parties thereto (the “CIM Income NAV Credit Agreement”), including as guarantor under a guaranty provided by CIM Income NAV, and as modified by a modification agreement dated as of September 6, 2017 and subsequently modified following the consummation of the CIM Income NAV Merger by a second modification agreement on December 16, 2021. The CIM Income NAV Credit Agreement allows for borrowings of up to $425.0 million (the “CIM Income NAV Credit Facility”). The CIM Income NAV Credit Facility includes $212.5 million in term loans (the “CIM Income NAV Term Loans”) and up to $212.5 million in revolving loans (the “CIM Income NAV Revolving Loans”). The CIM Income NAV Term Loans mature on
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CIM REAL ESTATE FINANCE TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

September 6, 2022. The CIM Income NAV Revolving Loans were initially set to mature on March 6, 2022, however, the Company extended the maturity date of the CIM Income NAV Revolving Loans to September 6, 2022.
Depending upon the type of loan specified and overall leverage ratio, the CIM Income NAV Credit Facility bears interest at (i) the one-month, three-month or six-month LIBOR multiplied by the statutory reserve rate plus an interest rate spread ranging from 1.60% to 2.10% for term loans and 1.70% to 2.20% for revolving loans; or (ii) a base rate ranging from 0.60% to 1.10% for term loans and 0.70% to 1.20% for revolving loans, plus the greater of: (a) JPMorgan Chase’s Prime Rate (as defined in the CIM Income NAV Credit Agreement); (b) the greater of (1) the Federal Funds Effective Rate (as defined in the CIM Income NAV Credit Agreement) and (2) the Overnight Bank Funding Rate (as defined in the CIM Income NAV Credit Agreement) plus 0.50%; or (c) the one-month LIBOR multiplied by the statutory reserve rate plus 1.0%.
As of December 31, 2021, $201.0 million was outstanding under the CIM Income NAV Revolving Loans. As of December 31, 2021, the CIM Income NAV Term Loans outstanding totaled $212.5 million, $140.0 million of which is subject to interest rate swap agreements (the “Swapped Term Loans”).` The interest rate swap agreements had the effect of fixing the Eurodollar Rate per annum of the Swapped Term Loans at an all-in rate of 4.4%. As of December 31, 2021, the Company had $413.5 million outstanding under the CIM Income NAV Credit Facility at a weighted average interest rate of 2.8% and $11.5 million in unused capacity, subject to borrowing availability. The Company had available borrowings of $11.5 million as of December 31, 2021.
The CIM Income NAV Credit Agreement contains provisions with respect to covenants, events of default and remedies customary for facilities of this nature. In particular, the CIM Income NAV Credit Agreement requires the Company to maintain a minimum consolidated net worth greater than or equal to the total of (i) $367.1 million, plus (ii) 75% of the aggregate increases in stockholders’ equity of the Company, minus (iii) the aggregate amount of any redemptions or similar transactions (but not to exceed the amount in clause (ii) above) and a leverage ratio less than or equal to 60%. The CIM Income NAV Credit Agreement requires the Company to maintain a fixed charge coverage ratio greater than 1.50 to 1.00, an unsecured debt to unencumbered asset value ratio equal to or less than 60%, an unsecured debt service coverage ratio greater than 1.75 to 1.00, a secured debt ratio equal to or less than 40% and the amount of secured debt that is real estate recourse debt at no greater than 15% of total asset value. The Company believes it was in compliance with the financial covenants under the CIM Income NAV Credit Agreement, as well as the financial covenants under the Company’s various fixed and variable rate debt agreements, as of December 31, 2021.
On December 31, 2019 (the “Closing Date”), CMFT Corporate Credit Securities, LLC, an indirect wholly-owned, bankruptcy-remote subsidiary of the Company, entered into a revolving credit and security agreement (the “Credit and Security Agreement”) with the lenders from time to time parties thereto, Citibank, N.A. (“Citibank”), as administrative agent, CMFT Securities Investments, LLC, a wholly-owned subsidiary of the Company (“CMFT Securities”), as equityholder and as collateral manager, Citibank (acting through its Agency & Trust division), as both a collateral agent and as a collateral custodian, and Virtus Group, LP, as collateral administrator. During the year ended December 31, 2021, the Company amended the Credit and Security Agreement (the “Second Amended Credit and Security Agreement”) by increasing available borrowings under the Credit Securities Revolver to an aggregate principal amount up to $550.0 million (the “Credit Securities Revolver”). The Credit Securities Revolver may be increased from time to time pursuant to the Second Amended Credit and Security Agreement. As of December 31, 2021, the amounts borrowed and outstanding under the Credit Securities Revolver totaled $496.5 million at a weighted average interest rate of 1.9%.
Borrowings under the Second Amended Credit and Security Agreement will bear interest equal to the three-month LIBOR for the relevant interest period, plus an applicable rate. The applicable rate is 1.70% per annum during the reinvestment period and 2.00% per annum during the amortization period (and, in each case, an additional 2.00% per annum following an event of default under the Second Amended Credit and Security Agreement). The reinvestment period begins on the Closing Date and concludes on the earlier of (i) the date that is three years after the Closing Date, (ii) the final maturity date and (iii) the date on which the total assets under management of the Company and its wholly-owned subsidiaries is less than $1.25 billion (the “Reinvestment Period”). The final maturity date is the earliest to occur of: (i) the date that the Credit Securities Revolver is paid down and (ii) the second anniversary after the Reinvestment Period concludes. Borrowings under the Second Amended Credit and Security Agreement are secured by substantially all of the assets held by CMFT Corporate Credit Securities, LLC, which shall primarily consist of liquid senior secured loans subject to certain eligibility criteria under the Second Amended Credit and Security Agreement.
The Company believes it was in compliance with the financial covenants under the Company’s various fixed and variable rate debt agreements, as of December 31, 2021.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Repurchase Facilities
As of December 31, 2021, indirect wholly-owned subsidiaries of the Company (collectively, the “CMFT Lending Subs”), had Master Repurchase Agreements with Citibank, Barclays Bank PLC (“Barclays”), Wells Fargo Bank, N.A. (“Wells Fargo”), and Deutsche Bank AG (“Deutsche Bank”) (collectively, the “Repurchase Agreements”) to provide financing primarily through each bank’s purchase of the Company’s CRE mortgage loans and future funding advances (the “Repurchase Facilities”).
The following table is a summary of the Repurchase Facilities as of December 31, 2021 (dollar amounts in thousands):
Repurchase FacilityDate of Agreement
Maturity Date(1)
Maximum Facility Size(2)
Weighted Average Interest RateCarrying Value of Loans Financed under Repurchase FacilityAmount Financed
Citibank6/4/20208/17/2024$400,000 1.8%(3)$447,752 $322,416 
Barclays9/21/20209/21/2024500,000 2.1%(3)439,982 349,800 
Wells Fargo5/20/20215/19/2024580,000 1.5%(3)649,935 532,825 
Deutsche Bank10/8/202110/8/2022300,000 2.0%(4)118,829 93,373 
Total$1,780,000 $1,656,498 $1,298,414 
__________________________________
(1)The repurchase facilities with Citibank, Barclays and Wells Fargo were set to mature on various dates between June 2023 and May 2024, with up to two one-year extension options, while the repurchase facility with Deutsche Bank (“Deutsche Bank Repurchase Facility”) is set to mature on October 8, 2022, with four one-year extension options, all of which are subject to certain conditions set forth in the Repurchase Agreements. During the year ended December 31, 2021, the Company extended the maturity dates of the repurchase facility with Citibank (the “Citibank Repurchase Facility”) and the repurchase facility with Barclays (the “Barclays Repurchase Facility”).
(2)During the year ended December 31, 2021, the Company increased the Citibank Repurchase Facility to provide up to $400.0 million in financing and increased the repurchase facility with Wells Fargo (the “Wells Fargo Repurchase Facility”) to provide up to $580.0 million in financing. Subsequent to December 31, 2021, the Company increased the repurchase facility with Barclays to provide up to $1.25 billion of financing and further increased the Wells Fargo Repurchase Facility to provide up to $750.0 million in financing.
(3)Advances under the repurchase agreement accrue interest at per annum rates based on the one-month LIBOR, plus a spread ranging from 1.25% to 2.15% to be determined on a case-by-case basis between Citibank, Barclays or Wells Fargo and the CMFT Lending Subs.
(4)During the year ended December 31, 2021, the Company entered into an Amended and Restated Master Repurchase Agreement with Deutsche Bank, which modified the interest rate provisions of the existing repurchase agreement to provide that advances may be made based on one-month Term SOFR (as such term is defined in the repurchase agreement) plus a spread designated by Deutsche Bank and to provide for the conversion of the interest rate used for certain existing advances under the existing Deutsche Bank Repurchase Facility from the one-month LIBOR to one-month SOFR plus a spread ranging from 1.90% to 2.00%.
The Repurchase Agreements provide for simultaneous agreements by Citibank, Barclays, Wells Fargo and Deutsche Bank to re-sell such purchased CRE mortgage loans back to CMFT Lending Subs at a certain future date or upon demand. In connection with the Repurchase Agreements, the Company (as the guarantor) entered into guaranties with Citibank, Barclays, Wells Fargo, and Deutsche Bank (the “Guaranties”), under which the Company agreed to guarantee up to 25% of the CMFT Lending Subs’ obligations under the Repurchase Agreements.
The Repurchase Agreements and the Guaranties contain representations, warranties, covenants, conditions precedent to funding, events of default and indemnities that are customary for agreements of these types. In addition, the Guaranties contain financial covenants that require the Company to maintain: (i) minimum liquidity of not less than the lower of (a) $50.0 million and (b) the greater of (A) $10.0 million and (B) 5% of the Company’s recourse indebtedness, as defined in the Guaranties; (ii) minimum consolidated net worth greater than or equal to $1.0 billion plus (a) 75% of the equity issued by the Company following the respective closing dates of the Repurchase Agreements (the “Repurchase Closing Dates”) minus (b) the aggregate amount of any redemptions or similar transaction by the Company from the Repurchase Closing Dates; (iii) maximum leverage ratio of total indebtedness to total equity less than or equal to 80%; and (iv) minimum interest coverage ratio of EBITDA (as defined in the Guaranties) to interest expense equal to or greater than 1.40. The Company believes it was in compliance with the financial covenants under the Repurchase Agreements as of December 31, 2021.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Maturities
Liquidity and Financial Condition — The Company had $650.7 million of debt maturing within the next 12 months following the date these financial statements are issued. The Company plans to enter into new financing arrangements or refinance existing arrangements to meet its obligations as they become due, which management believes is probable based on the current loan-to-value ratios, the occupancy of the Company’s properties and assessment of the current lending environment. The Company plans to use cash on hand, proceeds from real estate asset dispositions, net cash provided by operations, borrowings available under the credit facilities and the entry into new financing arrangements, which management believes will be sufficient to meet its obligations as they become due in the ordinary course of business for at least 12 months following the date these financial statements are issued.
The following table summarizes the scheduled aggregate principal repayments for the Company’s outstanding debt subsequent to December 31, 2021 (in thousands):
Year Ending December 31,Principal Repayments
2022$681,054 
2023942,117 
20241,772,783 
202516,950 
2026— 
Thereafter758,520 
Total$4,171,424 
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

NOTE 11 — SUPPLEMENTAL CASH FLOW DISCLOSURES
Supplemental cash flow disclosures for the years ended December 31, 2021, 2020 and 2019 are as follows (in thousands):
Year Ended December 31,
202120202019
Supplemental Disclosures of Non-Cash Investing and Financing Activities:
Distributions declared and unpaid$13,252 $10,969 $16,510 
Accrued capital expenditures$5,902 $160 $1,165 
Real estate acquired via foreclosure$191,990 $— $— 
Foreclosure of assets securing the mezzanine loans$(79,968)$— $— 
Mortgage notes payable assumed in connection with foreclosure of assets securing the mezzanine loans$102,553 $— $— 
Mortgage note payable assumed by buyer in connection with disposition of real estate assets$(31,801)$— $(205,765)
Change in interest income capitalized to loans held-for-investment$(9,469)$539 $8,546 
Accrued deferred financing costs$12 $— $— 
Common stock issued through distribution reinvestment plan$25,784 $34,191 $82,388 
Common stock issued in connection with mergers$538,703 $384,319 $— 
Change in fair value of derivative instruments$5,907 $727 $(14,913)
Change in fair value of real estate-related securities$1,650 $1,147 $— 
Interest rate swaps assumed in mergers$(2,719)$(9,115)$— 
Debt assumed in mergers$437,877 $379,737 $— 
Real estate assets acquired in mergers$906,254 $761,326 $— 
Assets assumed in mergers$69,058 $4,424 $— 
Liabilities assumed in mergers$5,184 $6,389 $— 
Non-controlling interest assumed in mergers$1,073 $— $— 
Supplemental Cash Flow Disclosures:
Interest paid$72,533 $60,990 $97,418 
Cash paid for taxes$1,093 $1,243 $1,218 
NOTE 12 — COMMITMENTS AND CONTINGENCIES
Litigation
In the ordinary course of business, the Company may become subject to litigation and claims. The Company is not aware of any material pending legal proceedings, other than ordinary routine litigation incidental to the Company’s business, to which the Company is a party or of which the Company’s properties are the subject.
Unfunded Commitments
As of December 31, 2021, the Company had $209.4 million of unfunded commitments related to its existing CRE loans held-for-investment and $41.0 million of unfunded commitments related to NewPoint JV. These commitments are not reflected in the accompanying consolidated balance sheet.
Unsettled Liquid Senior Loans
As of December 31, 2021, the Company had $36.5 million of unsettled liquid senior loan acquisitions, $22.0 million of which settled subsequent to December 31, 2021. Additionally, the Company had $1.0 million of unsettled liquid senior loan sales, $1.0 million of which settled subsequent to December 31, 2021. Unsettled acquisitions are included in cash and cash equivalents in the accompanying consolidated balance sheet.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Environmental Matters
In connection with the ownership and operation of real estate, the Company may potentially be liable for costs and damages related to environmental matters. In addition, the Company may own or acquire certain properties that are subject to environmental remediation. Generally, the seller of the property, the tenant of the property and/or another third party is responsible for environmental remediation costs related to a property. Additionally, in connection with the purchase of certain properties, the respective sellers and/or tenants may agree to indemnify the Company against future remediation costs. The Company also carries environmental liability insurance on its properties that provides limited coverage for any remediation liability and/or pollution liability for third-party bodily injury and/or property damage claims for which the Company may be liable. The Company is not aware of any environmental matters which it believes are reasonably likely to have a material effect on its results of operations, financial condition or liquidity.
NOTE 13 — RELATED-PARTY TRANSACTIONS AND ARRANGEMENTS
The Company has incurred fees and expenses payable to CMFT Management and certain of its affiliates in connection with the acquisition, management and disposition of its assets. On August 20, 2019, the Company and CMFT Management entered into an Amended and Restated Management Agreement (the “Management Agreement”), which amended and restated that certain Advisory Agreement between the parties dated January 24, 2012, as amended (the “Prior Advisory Agreement”). Following the effective date of the Management Agreement, CMFT Management is no longer entitled to receive the advisory fee, acquisition fees, subordinated performance fee, or disposition fees pursuant to the Prior Advisory Agreement, as described below; provided, however, that for the Company’s properties under contract to be sold or specifically identified in a broker agreement as being marketed for sale as of the effective date of the Management Agreement, CMFT Management was entitled to receive a disposition fee in accordance with the terms of the Prior Advisory Agreement. In addition, CMFT Management generally was entitled to reimbursement for costs and expenses to the extent incurred on behalf of the Company in accordance with the Management Agreement; provided, however, that the limits on reimbursement for organization and offering expenses, acquisition expenses and operating expenses as defined and provided in the Prior Advisory Agreement were no longer applicable.
Management and investment advisory fees
The Company pays CMFT Management a management fee, payable quarterly in arrears, equal to the greater of (a) $250,000 per annum ($62,500 per quarter) and (b) 1.50% per annum (0.375% per quarter) of the Company’s Equity (as defined in the Management Agreement).
CMFT Securities has an investment advisory and management agreement dated December 6, 2019 (the “Investment Advisory and Management Agreement”) with the Investment Advisor. CMFT Securities was formed for the purpose of holding any securities investments and certain other investments made by the Company. The Investment Advisor, a wholly-owned subsidiary of CIM, is registered as an investment advisor under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). Pursuant to the Investment Advisory and Management Agreement, the Investment Advisor manages the day-to-day business affairs of CMFT Securities and its investments in corporate credit and real estate-related securities (collectively, the “Managed Assets”), subject to the supervision of the Board. In connection with the services provided by the Investment Advisor, CMFT Securities pays the Investment Advisor an investment advisory fee (the “Investment Advisory Fee”), payable quarterly in arrears, equal to 1.50% per annum (0.375% per quarter) of CMFT Securities’ Equity (as defined in the Investment Advisory and Management Agreement). Because the Managed Assets are excluded from the calculation of management fees payable by the Company to CMFT Management pursuant to the Management Agreement, the total management and advisory fees payable by the Company to its external advisors are not increased as a result of the Investment Advisory and Management Agreement.
In addition, the Investment Advisor has a sub-advisory agreement dated December 6, 2019 (the “Sub-Advisory Agreement”) with OFS Capital Management, LLC (the “Sub-Advisor”) to act as an investment sub-advisor to CMFT Securities. The Sub-Advisor is registered as an investment adviser under the Advisers Act and is an affiliate of the Investment Advisor. The Sub-Advisor principally provides investment management services with respect to the corporate credit-related securities held by CMFT Securities and its subsidiaries. The Sub-Advisor may allocate a portion of these corporate credit-related securities to its other clients, including affiliates of CIM. On a quarterly basis, the Investment Advisor designates 50% of the sum of the Investment Advisory Fee and incentive compensation attributable to the assets for which Sub-Advisor has provided investment management services payable to the Investment Advisor as sub-advisory fees.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Incentive compensation
CMFT Management is entitled to receive incentive compensation, payable with respect to each quarter, which is generally equal to the excess of (a) the product of (i) 20% and (ii) the excess of (A) Core Earnings (as defined in the Management Agreement) of the Company for the previous 12-month period, over (B) the product of (1) the Company’s Consolidated Equity (as defined in the Management Agreement) in the previous 12-month period, and (2) 7% per annum, over (b) the sum of any incentive compensation paid to CMFT Management with respect to the first three calendar quarters of such previous 12-month period (or such lesser number of completed calendar quarters preceding the applicable period, if applicable). During the year ended December 31, 2021 and 2020, no incentive compensation fees were incurred.
In addition, the Investment Advisor is eligible to receive a portion of the incentive compensation payable to CMFT Management pursuant to the Management Agreement. In the event that the incentive compensation is earned and payable with respect to any quarter, CMFT Management calculates the portion of the incentive compensation that was attributable to the Managed Assets and payable to the Investment Advisor.
Expense reimbursements to related parties
The Company reimburses CMFT Management, the Investment Advisor or their affiliates for certain expenses paid or incurred in connection with the services provided to the Company. The Company will reimburse CMFT Management, the Investment Advisor, or their affiliates for salaries and benefits paid to personnel who provide services to the Company, excluding the Company’s executive officers and any portfolio management, acquisitions or investment professionals.
Acquisition fees and expenses
Pursuant to the Prior Advisory Agreement, through August 20, 2019, the Company paid CMFT Management or its affiliates acquisition fees of up to 2.0% of: (1) the contract purchase price of each property or asset the Company acquired; (2) the amount paid in respect of the development, construction or improvement of each asset the Company acquired; (3) the purchase price of any loan the Company acquired; and (4) the principal amount of any loan the Company originated. In addition, the Company reimbursed CMFT Management or its affiliates for acquisition-related expenses incurred in the process of acquiring properties, so long as the total acquisition fees and expenses relating to the transaction do not exceed 6.0% of the contract purchase price, unless otherwise approved by a majority of the Board, including a majority of the Company’s independent directors, as commercially competitive, fair and reasonable to the Company. Other transaction-related expenses, such as advisor reimbursements for disposition activities, are expensed as incurred and are included in transaction-related expenses on the consolidated statements of operations.
Advisory fees and expenses
Pursuant to the Prior Advisory Agreement, through August 20, 2019, the Company paid CMFT Management a monthly advisory fee based upon the Company’s monthly average invested assets, which, effective January 1, 2019, was based on the estimated market value of such assets used to determine the Company’s estimated per share NAV as of December 31, 2018, and for those assets acquired subsequent to December 31, 2018, was based on the purchase price. The monthly advisory fee was equal to the following amounts: (1) an annualized rate of 0.75% paid on the Company’s average invested assets that are between $0 and $2.0 billion; (2) an annualized rate of 0.70% paid on the Company’s average invested assets that are between $2.0 billion and $4.0 billion; and (3) an annualized rate of 0.65% paid on the Company’s average invested assets that are over $4.0 billion.
Disposition fees
Pursuant to the Prior Advisory Agreement, through August 20, 2019, if CMFT Management or its affiliates provided a substantial amount of services (as determined by a majority of the Company’s independent directors) in connection with the sale of one or more properties (or the Company’s entire portfolio), the Company paid CMFT Management or its affiliates a disposition fee in an amount equal to up to one-half of the real estate or brokerage commission paid by the Company to third parties on the sale of such property, not to exceed 1.0% of the contract price of the property sold; provided, however, in no event would the total disposition fees paid to CMFT Management, its affiliates and unaffiliated third parties exceed the lesser of the customary competitive real estate commission or an amount equal to 6.0% of the contract sales price. For the Company’s properties under contract to be sold or specifically identified in a broker agreement as being marketed for sale as of August 20, 2019, CMFT Management was entitled to receive a disposition fee in accordance with the terms of the Prior Advisory Agreement.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Subordinated performance fees
Pursuant to the Prior Advisory Agreement, through August 20, 2019, if the Company was sold or its assets were liquidated, CMFT Management was entitled to receive a subordinated performance fee equal to 15.0% of the net sale proceeds remaining after stockholders received, from regular distributions plus special distributions paid from proceeds of such sale, a return of their net capital invested and an 8.0% annual cumulative, non-compounded return. Alternatively through August 20, 2019, if the Company’s shares were listed on a national securities exchange, CMFT Management was entitled to a subordinated performance fee equal to 15.0% of the amount by which the market value of the Company’s outstanding stock plus all distributions paid by the Company prior to listing, exceeded the sum of the total amount of capital raised from stockholders and the amount of distributions necessary to generate an 8.0% annual cumulative, non-compounded return to stockholders. As an additional alternative, upon termination of the Prior Advisory Agreement, CMFT Management was entitled to a subordinated performance fee similar to the fee to which CMFT Management would have been entitled had the portfolio been liquidated (based on an independent appraised value of the portfolio) on the date of termination. During each of the years ended December 31, 2021, 2020 and 2019, no subordinated performance fees were incurred related to any such events.
The Company recorded fees and expense reimbursements as shown in the table below for services provided by CMFT Management or its affiliates related to the services described above during the periods indicated (in thousands):
Year Ended December 31,
 202120202019
Management fees$47,020 $40,025 $14,622 
Acquisition fees$— $— $1,362 
Disposition fees$— $434 $3,967 
Advisory fees$— $— $22,623 
Expense reimbursements to related parties$11,624 $8,920 $9,436 
Due to Affiliates
Of the amounts shown above, $14.6 million and $14.7 million had been incurred, but not yet paid, for services provided by CMFT Management or its affiliates in connection with the management and operating activities during the years ended December 31, 2021 and 2020, respectively, and such amounts were recorded as liabilities of the Company as of such dates.
Development Management Agreements
On January 7, 2021, the Company completed foreclosure proceedings to take control of the assets which previously secured its mezzanine loans, including 75 condominium units and 21 rental units across four buildings in New York. Upon foreclosure, and with the approval of the valuation, compensation and affiliate transactions committee of the Board, CIM NY Management, LLC, an affiliate of the Company’s manager, CMFT Management, entered into a Development Management Agreement with the indirect wholly owned subsidiaries of the Company that own each of the four buildings (the “Building Owners”), wherein CIM NY Management, LLC will act as project manager in overseeing the development and construction of property improvements in accordance with each respective Development Management Agreement (the “Development Services”). In consideration for the Development Services, CIM NY Management, LLC will receive a development management fee from the Building Owners equal to 4% of the aggregate gross project costs expended during the term of the Development Management Agreement, subject to the conditions in each respective Development Management Agreement. Additionally, CIM NY Management, LLC is reimbursed by the Building Owners for expenses incurred in connection with the Development Services, including services provided that are incidental to but not part thereof the Development Services. The Development Management Agreement shall remain in effect until the project completion date, and is terminable by either party with fifteen days prior notice to the other party, with or without cause.
Affiliated Investments
In September 2021, the Company co-invested in $68.4 million in preferred units and $138.8 million in a mortgage loan to a third-party for the purchase of a multi-family, office and retail building in Fort Lauderdale, Florida with CIM Real Assets & Credit Fund, a fund that is advised by affiliates of CMFT Management (“CIM RACR”). The Company invested $63.5 million in the preferred units and originated $129.0 million of the mortgage loan, both of which were still outstanding as of December 31, 2021. CIM RACR invested $4.9 million in the preferred units and originated $9.8 million of the mortgage loan. Subsequent to December 31, 2021, the Company and CIM RACR upsized their investment in the mortgage loan with an additional $6.4 million and $490,000 invested, respectively.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

In November 2021 the Company entered into the Unconsolidated Joint Venture (the “MT-FT JV”) with CMMT Holdings, LLC, a fund that is advised by an affiliate of CMFT Management, for the purposes of investing in the Newpoint JV. The Company owns 50% of the equity interests of the MT-FT JV and has committed to fund capital to the MT-FT JV up to $112.5 million, of which $53.5 million has been funded. For more information on the NewPointJV, see Note 2 — Summary of Significant Accounting Policies.
As a result of the CIM Income NAV Merger, the Company has an investment in CIM UII Onshore, a fund that is advised by an affiliate of CMFT Management, with a carrying value of $56.0 million as of December 31, 2021. See Note 2 — Summary of Significant Accounting Policies for more information on the CIM UII Onshore investment.
In October 2021, the Company invested in a $130.0 million senior loan, with an initial advance of $119.0 million, to a third-party, the proceeds of which were used to finance the acquisition of a property from a fund that is advised by an affiliate of CMFT Management. As of December 31, 2021, $119.0 million of the senior loan was outstanding. An affiliate of CMFT Management serves as the property manager for this property and has entered into a subordination agreement with the Company in connection with the loan. In December 2021, the Company invested in a $155.0 million senior loan, with an initial advance of $154.0 million, to a third-party, the proceeds of which were used to finance the acquisition of a property from a fund that is advised by an affiliate of CMFT Management. As of December 31, 2021, $154.0 million of the senior loan was outstanding.
Subsequent to December 31, 2021, the Company and CIM RACR co-invested $10.0 million and $1.9 million, respectively, in a corporate senior loan to a third-party. The Sub-Advisor provided investment management services related to this corporate senior loan pursuant to the Sub-Advisory Agreement.
NOTE 14 — ECONOMIC DEPENDENCY
Under various agreements, the Company has engaged and may in the future engage CMFT Management or its affiliates to provide certain services that are essential to the Company, including asset management services, supervision of the management and leasing of properties owned by the Company, asset acquisition and disposition decisions, as well as other administrative responsibilities for the Company including accounting services and stockholder relations. As a result of these relationships, the Company is dependent upon CMFT Management or its affiliates. In the event that these companies are unable to provide the Company with these services, the Company would be required to find alternative providers of these services.
NOTE 15 — STOCKHOLDERS’ EQUITY
As of December 31, 2021, 2020 and 2019, the Company was authorized to issue $600.0 million of shares of common stock under the Secondary DRIP Offering. All shares of such stock have a par value of $0.01 per share. The par value of stockholder proceeds raised from the DRIP Offerings is classified as common stock, with the remainder allocated to capital in excess of par value.
On August 11, 2010, the Company sold 20,000 shares of common stock, at $10.00 per share, to Cole Holdings Corporation (“CHC”). On April 5, 2013, the ownership of such shares was transferred to CREInvestments, LLC, an affiliate of CMFT Management. On February 7, 2014, the ownership of such shares was transferred to VEREIT Operating Partnership, L.P. (“VEREIT OP”), a former affiliated entity of the Company’s sponsor. On February 1, 2018, the ownership of such shares was transferred by VEREIT OP to CMFT Management.
On December 21, 2020, in connection with the consummation of the CCIT III and CCPT V Mergers, the Company issued 52.6 million shares of common stock for consideration of $7.31 per share. In addition, on December 16, 2021, in connection with the consummation of the CIM Income NAV Merger, the Company issued 74.8 million shares of common stock for consideration of $7.20 per share.
Distribution Reinvestment Plan
Pursuant to the DRIP, the Company allows stockholders to elect to have their distributions reinvested in additional shares of the Company’s common stock at the most recent estimated per share NAV as determined by the Board. The Board may terminate or amend the Secondary DRIP Offering at the Company’s discretion at any time upon ten days’ prior written notice to the stockholders. In connection with the CCIT III and CCPT V Mergers, on August 30, 2020, the Board approved the suspension of the DRIP, and, therefore, distributions paid after that date were paid in cash to all stockholders until the DRIP was reinstated, effective April 1, 2021, by the Board on March 25, 2021. During the years ended December 31, 2021, 2020 and 2019, approximately 3.6 million, 4.2 million and 9.3 million shares were purchased under the DRIP Offerings for
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

approximately $25.8 million, $34.2 million and $82.4 million, respectively, which were recorded as redeemable common stock on the consolidated balance sheets.
Share Redemption Program
The Company’s share redemption program permits its stockholders to sell their shares back to the Company after they have held them for at least one year, subject to the significant conditions and limitations described below.
The share redemption program provides that the Company will redeem shares of its common stock from requesting stockholders, subject to the terms and conditions of the share redemption program. The Company will limit the number of shares redeemed pursuant to the share redemption program as follows: (1) the Company will not redeem in excess of 5% of the weighted average number of shares outstanding during the trailing 12 months prior to the end of the fiscal quarter for which the redemptions are being paid; and (2) funding for the redemption of shares will be limited, among other things, to the net proceeds the Company receives from the sale of shares under the DRIP Offerings, net of shares redeemed to date. In an effort to accommodate redemption requests throughout the calendar year, the Company intends to limit quarterly redemptions to approximately 1.25% of the weighted average number of shares outstanding during the trailing 12-month period ending on the last day of the fiscal quarter, and funding for redemptions for each quarter generally will be limited to the net proceeds the Company receives from the sale of shares in the respective quarter under the DRIP Offerings. 
Except for redemptions due to a stockholder’s death, bankruptcy or other exigent circumstances, the redemption price per share will equal the per share value shown on the stockholder’s most recent customer account statement. The redemption price will be adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to the Company’s common stock if any such event is not already reflected in the per share value shown on the stockholder’s most recent customer account statement.
Upon receipt of a request for redemption, the Company may conduct a Uniform Commercial Code search to ensure that no liens are held against the shares. If the Company cannot purchase all shares presented for redemption in any fiscal quarter, based upon insufficient cash available and/or the limit on the number of shares the Company may redeem during any quarter or year, the Company will give priority to the redemption of deceased stockholders’ shares. The Company next will give priority to requests for full redemption of accounts with a balance of 250 shares or less at the time the Company receives the request, in order to reduce the expense of maintaining small accounts. Thereafter, the Company will honor the remaining quarterly redemption requests on a pro rata basis. Following such quarterly redemption period, the unsatisfied portion of the prior redemption request must be resubmitted, prior to the last day of the new quarter. Unfulfilled requests for redemption will not be carried over automatically to subsequent redemption periods.
The Company redeems shares no later than the end of the month following the end of each fiscal quarter. Requests for redemption must be received on or prior to the end of the fiscal quarter in order for the Company to repurchase the shares in the month following the end of that fiscal quarter. The Board may amend, suspend or terminate the share redemption program at any time. In connection with the CCIT III and CCPT V Mergers, the Board approved the suspension of the Company’s share redemption program on August 30, 2020, and, therefore, no shares were redeemed from the Company’s stockholders after that date until the share redemption program was reinstated, effective April 1, 2021, by the Board on March 25, 2021. During the years ended December 31, 2021, 2020 and 2019, the Company redeemed approximately 3.1 million, 6.0 million and 9.5 million shares, respectively, under the share redemption program for $22.0 million, $48.1 million and $84.1 million, respectively. During the year ended December 31, 2021, redemption requests relating to approximately 81.9 million shares went unfulfilled.
Distributions Payable and Distribution Policy
Prior to April 1, 2020, on a quarterly basis, the Board authorized a daily distribution for the succeeding quarter. The Board authorized the following daily distribution amounts per share for the periods indicated below:
Period CommencingPeriod EndingDaily Distribution Amount
April 14, 2012December 31, 2012$0.001707848
January 1, 2013December 31, 2015$0.001712523
January 1, 2016December 31, 2016$0.001706776
January 1, 2017December 31, 2019$0.001711452
January 1, 2020March 31, 2020$0.001706776
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CIM REAL ESTATE FINANCE TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

On April 20, 2020, the Board decided to make a determination as to the amount and timing of distributions on a monthly, instead of a quarterly, basis until such time that the Company has greater visibility into the impact that the COVID-19 pandemic would have on tenants’ ability to continue to pay rent on their leases on a timely basis or at all, the degree to which federal, state or local governmental authorities grant rent relief or other relief or amnesty programs applicable to the Company’s tenants, the Company’s ability to access the capital markets, and on the United States and worldwide financial markets and economy. On March 25, 2021, the Board resumed declaring distributions on a quarterly basis, which are paid out on a monthly basis.
Since April 2020, the Board authorized the following monthly distribution amounts per share, payable to shareholders as of the record date for the applicable month, for the periods indicated below:
Period CommencingPeriod EndingMonthly Distribution Amount
April 2020May 2020$0.0130
June 2020June 2020$0.0161
July 2020July 2020$0.0304
August 2020December 2021$0.0303
January 2022June 2022$0.0305
As of December 31, 2021, the Company had distributions payable of $13.3 million.
Equity-Based Compensation
On August 10, 2018, the Board approved the adoption of the Company’s 2018 Equity Incentive Plan (the “Plan”), under which 400,000 of the Company’s shares of common stock were reserved for issuance and awards of approximately 306,000 shares of common stock are available for future grant at December 31, 2021. Under the Plan, the Board or a committee designated by the Board has the authority to grant restricted stock awards or deferred stock awards to non-employee directors of the Company, which will further align such directors’ interests with the interests of the Company’s stockholders. The Board or committee also has the authority to determine the terms of any award granted pursuant to the Plan, including vesting schedules, restrictions and acceleration of any restrictions. The Plan may be amended or terminated by the Board at any time. The Plan expires on August 9, 2028.
As of December 31, 2021, the Company has granted awards of approximately 94,000 restricted shares in the aggregate to the independent members of the Board under the Plan. As of December 31, 2021, 73,000 of the restricted shares had vested based on one year of continuous service. The remaining 21,000 restricted shares issued had not vested or been forfeited as of December 31, 2021. The fair value of the Company’s share awards is determined using the Company’s per share NAV on the date of grant. Compensation expense related to the restricted shares is recognized over the vesting period. The Company recorded compensation expense of $289,000 and $160,000 for the years ended December 31, 2021 and 2020, respectively, related to the restricted shares which is included in general and administrative expenses in the accompanying consolidated statements of operations. As of December 31, 2021, there was $113,000 of total unrecognized compensation expense related to these restricted shares, which will be recognized ratably over the remaining period of service prior to October 2022.
NOTE 16 — INCOME TAXES
For federal income tax purposes, distributions to stockholders are characterized as ordinary dividends, capital gain distributions, or nondividend distributions. Nondividend distributions will reduce U.S stockholders’ basis (but not below zero) in their shares.
The following table shows the character of the distributions the Company paid on a percentage basis for the years ended December 31, 2021, 2020 and 2019:
Year Ended December 31,
Character of Distributions:202120202019
Ordinary dividends22 %— %39 %
Nondividend distributions36 %100 %%
Capital gain distributions42 %— %54 %
Total100 %100 %100 %
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CIM REAL ESTATE FINANCE TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

During the years ended December 31, 2021, 2020 and 2019, the Company incurred state and local income and franchise taxes of $1.1 million, $568,000, and $1.5 million, respectively, which were recorded in general and administrative expenses in the consolidated statements of operations.
The Company had no unrecognized tax benefits as of or during the years ended December 31, 2021 and 2020. Any interest and penalties related to unrecognized tax benefits would be recognized within the provision for income taxes in the accompanying consolidated statements of operations. The Company files income tax returns in the U.S. federal jurisdiction, as well as various state jurisdictions, and is subject to routine examinations by the respective tax authorities.
NOTE 17 — LEASES
The Company’s real estate assets are leased to tenants under operating leases for which the terms, expirations and extension options vary. The Company’s operating leases do not convey to the lessee the right to purchase the underlying asset upon expiration of the lease period. To determine whether a contract contains a lease, the Company reviews contracts to determine if the agreement conveys the right to control the use of an asset. The Company accounts for lease and non-lease components as a single, combined operating lease component. Non-lease components primarily consist of maintenance services, including CAM, real estate taxes, insurance and utilities paid for by the lessor but consumed by the lessee. Non-lease components are considered to be variable rental and other property income and are recognized in the period incurred.
As of December 31, 2021, the Company’s leases had a weighted-average remaining term of 8.6 years. Certain leases include provisions to extend the lease agreements, options for early termination after paying a specified penalty, rights of first refusal to purchase the property at competitive market rates, and other negotiated terms and conditions. The Company retains substantially all of the risks and benefits of ownership of the real estate assets leased to tenants. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
As of December 31, 2021, the future minimum rental income from the Company’s real estate assets under non-cancelable operating leases, assuming no exercise of renewal options for the succeeding five fiscal years and thereafter, was as follows (in thousands):
Year Ending December 31,Future Minimum Rental Income
2022$240,497 
2023226,953 
2024218,500 
2025209,384 
2026196,607 
Thereafter1,266,227 
Total$2,358,168 
A certain amount of the Company’s rental and other property income is from tenants with leases which are subject to contingent rent provisions. These contingent rents are subject to the tenant achieving periodic revenues in excess of specified levels. For the years ended December 31, 2021, 2020 and 2019, the amount of the contingent rent earned by the Company was not significant.
Rental and other property income during the years ended December 31, 2021, 2020 and 2019 consisted of the following (in thousands):
Year Ended December 31,
 202120202019
Fixed rental and other property income (1)
$252,422 $221,445 $342,453 
Variable rental and other property income (2)
42,742 40,085 50,771 
Total rental and other property income$295,164 $261,530 $393,224 
__________________________________
(1)Consists primarily of fixed contractual payments from operating leases with tenants recognized on a straight-line basis over the lease term, including amortization of acquired above- and below-market leases, and is net of uncollectible lease-related receivables.
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CIM REAL ESTATE FINANCE TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(2)Consists primarily of tenant reimbursements for recoverable real estate taxes and property operating expenses, and percentage rent.
The Company has one property subject to a non-cancelable operating ground lease with a remaining term of 11.7 years, with a lease liability (in deferred rental income, derivative liabilities and other liabilities) and a related ROU asset (in prepaid expenses and other assets) of $2.3 million in the consolidated balance sheets. The lease liability and ROU asset were initially measured at the present value of the future minimum lease payments using a discount rate of 4.3%. This reflects the Company’s incremental borrowing rate, which was calculated based on the interest rate the Company would incur to borrow on a fully collateralized basis over a term similar to the lease.
The Company recognized $250,000 of ground lease expense during the year ended December 31, 2021, of which $242,000 was paid in cash during the period it was recognized. As of December 31, 2021, the Company’s scheduled future minimum rental payments related to its operating ground lease is approximately $250,000 annually for 2022 through 2026, and $1.7 million thereafter through the maturity date of the lease in August 2033.
NOTE 18 — SEGMENT REPORTING
As of December 31, 2021, the Company determined that it has two reportable segments: real estate and credit. Corporate/other represents all corporate level and unallocated items and includes the Company’s other asset management activities and operating expenses. There were no changes in the structure of the Company’s internal organization that prompted the change in reportable segments. Prior period amounts have been revised to conform to the current year presentation shown below.
The following tables present segment reporting for the years ended December 31, 2021, 2020 and 2019 (in thousands):
Year Ended December 31, 2021
Real EstateCredit
Corporate/Other (1) (2)
Company Total
Rental and other property income$294,729 $— $435 $295,164 
Interest income— 70,561 — 70,561 
Total revenues294,729 70,561 435 365,725 
General and administrative317 1,268 13,493 15,078 
Property operating32,033 — 15,526 47,559 
Real estate tax29,109 — 5,834 34,943 
Expense reimbursements to related parties— — 11,624 11,624 
Management fees33,248 13,772 — 47,020 
Transaction-related126 — 189 315 
Depreciation and amortization95,190 — — 95,190 
Real estate impairment 5,993 — 12,085 18,078 
Increase in provision for credit losses— 2,881 — 2,881 
Total operating expenses196,016 17,921 58,751 272,688 
Gain on disposition of real estate and condominium developments, net77,178 — 5,867 83,045 
Merger-related expenses, net— — (1,404)(1,404)
Operating income (loss)175,891 52,640 (53,853)174,678 
Other expense:
Gain on investment in unconsolidated entities— — 606 606 
Interest expense and other, net(37,022)(21,278)(25,599)(83,899)
Loss on extinguishment of debt(1,628)— (3,267)(4,895)
Segment net income (loss) $137,241 $31,362 $(82,113)$86,490 
Segment net income (loss) attributable to non-controlling interest— — — — 
Segment net income (loss) attributable to the Company137,241 31,362 (82,113)86,490 
Total assets as of December 31, 2021$3,821,085 $2,859,017 $282,674 $6,962,776 
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CIM REAL ESTATE FINANCE TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

__________________________________
(1)Includes condominium and rental units acquired via foreclosure during the year ended December 31, 2021.
(2)Includes the Company’s investment in CIM UII Onshore acquired as a part of the CIM Income NAV Merger.
Year Ended December 31, 2020
Real EstateCreditCorporate/OtherCompany Total
Rental and other property income$261,530 $— $— $261,530 
Interest income— 29,393 — 29,393 
Total revenues261,530 29,393 — 290,923 
General and administrative291 2,080 9,671 12,042 
Property operating23,399 — — 23,399 
Real estate tax27,691 — — 27,691 
Expense reimbursements to related parties— — 8,920 8,920 
Management fees32,164 7,861 — 40,025 
Transaction-related346 — 355 
Depreciation and amortization80,973 — — 80,973 
Real estate impairment 16,737 — — 16,737 
Increase in provision for credit losses— 68,356 — 68,356 
Total operating expenses181,601 78,306 18,591 278,498 
Gain on disposition of real estate and condominium developments, net27,518 — — 27,518 
Merger-related expenses, net— — (1,884)(1,884)
Merger termination fee— — 7,380 7,380 
Operating income (loss)107,447 (48,913)(13,095)45,439 
Other expense:
Interest expense and other, net(21,380)(5,101)(37,635)(64,116)
Loss on extinguishment of debt(4,394)— (447)(4,841)
Segment net income (loss) 81,673 (54,014)(51,177)(23,518)
Segment net income (loss) attributable to the Company$81,673 $(54,014)$(51,177)$(23,518)
Total assets as of December 31, 2020$3,405,590 $949,764 $104,255 $4,459,609 
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CIM REAL ESTATE FINANCE TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Year Ended December 31, 2019
Real EstateCreditCorporate/OtherCompany Total
Rental and other property income$393,224 $— $— $393,224 
Interest income— 20,132 — 20,132 
Total revenues393,224 20,132 — 413,356 
General and administrative428 10 9,729 10,167 
Property operating33,462 — — 33,462 
Real estate tax32,196 — — 32,196 
Expense reimbursements to related parties— — 9,436 9,436 
Merger-related35,557 1,688 — 37,245 
Management fees35,557 1,688 — 37,245 
Transaction-related288 1,242 — 1,530 
Depreciation and amortization107,867 — — 107,867 
Real estate impairment 72,939 — — 72,939 
Total operating expenses282,737 2,940 19,165 304,842 
Gain on disposition of real estate and condominium developments, net180,666 — — 180,666 
Operating income (loss)291,153 17,192 (19,165)289,180 
Other expense:
Interest expense and other, net(45,606)(19)(53,308)(98,933)
Loss on extinguishment of debt(6,482)— (745)(7,227)
Segment net income (loss)239,065 17,173 (73,218)183,020 
Segment net income (loss) attributable to non-controlling interest121 — — 121 
Segment net income (loss) attributable to the Company$238,944 $17,173 $(73,218)$182,899 
Total assets as of December 31, 2019$2,895,609 $551,805 $221,209 $3,668,623 
NOTE 19 — SUBSEQUENT EVENTS
Redemptions of Shares of Common Stock
Subsequent to December 31, 2021, the Company redeemed approximately 1.3 million shares for $9.4 million (at an average redemption price of $7.20 per share). The remaining redemption requests received during the three months ended December 31, 2021 totaling approximately 23.1 million shares went unfulfilled.
Property Dispositions
Subsequent to December 31, 2021, the sale of 56 of the properties under contract for sale pursuant to the Purchase and Sale Agreement closed for total consideration of $811.8 million, which consists of $758.4 million in cash proceeds and $53.4 million of AFIN Common Stock, which shares are restricted and subject to certain registration rights as described in the Purchase and Sale Agreement. The remaining 25 properties are expected to close in the second quarter of 2022.
In addition to the properties disposed of pursuant to the Purchase and Sale Agreement, the Company disposed of six properties subsequent to December 31, 2021 for an aggregate gross sales price of $48.9 million, resulting in net proceeds of $25.4 million after closing costs and mortgage note payoffs and a net gain of approximately $13.9 million. The Company has no continuing involvement with these properties. Additionally, the Company disposed of condominium units for an aggregate gross sales price of $17.6 million and a net gain of $2.6 million.
CRE Loans
Subsequent to December 31, 2021, the Company originated three first mortgage loans and upsized an existing first mortgage loan for an aggregate principal balance of $877.8 million and unfunded commitments of $165.8 million, the funding of which is subject to the satisfaction of borrower milestones.
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CIM REAL ESTATE FINANCE TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Corporate Senior Loans
Subsequent to December 31, 2021, the Company invested $10.0 million in a corporate senior loan to a third-party.
Liquid Senior Loans
Subsequent to December 31, 2021, the Company settled $38.0 million of net liquid senior loan transactions, $21.0 million of which were traded as of December 31, 2021.
Repurchase Facilities
Subsequent to December 31, 2021, the Company amended the master repurchase agreement with Barclays to increase the maximum financing amount of the Barclays Repurchase Facility from $500.0 million to up to $1.25 billion. Additionally, subsequent to December 31, 2021, the Company amended the master repurchase agreement with Wells Fargo to increase the maximum financing amount of the Wells Fargo Repurchase Facility from $580.0 million to up to $750.0 million.
CMBS Purchases
Subsequent to December 31, 2021, the Company purchased $40.3 million in CMBS.
Preferred Units
Subsequent to December 31, 2021, the Company upsized its investment in preferred units with an additional $4.8 million invested.
Unconsolidated Entities
Subsequent to December 31, 2021, the Company contributed an additional $24.8 million in capital to the NewPoint JV.
F-51

CIM REAL ESTATE FINANCE TRUST, INC.
SCHEDULE III – REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION
(in thousands)
Initial Costs to CompanyGross Amount at
Buildings,TotalWhich CarriedAccumulated
Fixtures andAdjustmentAt December 31, 2021DepreciationDateDate
Description (a)EncumbrancesLandImprovementsto Basis (b)(c) (d) (e)(e) (f) (g)AcquiredConstructed
Real Estate Held for Investment the Company has Invested in Under Operating Leases:
24 Hour Fitness
Orlando,FL(h)$2,825 $6,157 $— $8,982 $12/16/20212018
AAA Office Park
Hamilton, NJ(h)5,427 22,970 — 28,397 33 12/16/20212016
Aaron’s Rents:
Arkadelphia, AR$— 183 491 — 674 28 12/21/20202014
Academy Sports:
Cartersville, GA7,092 4,517 4,574 — 9,091 175 12/21/20202014
Valdosta, GA5,838 2,482 5,922 (8,404)(i)— — 5/10/20132012
Actuant Campus:
Columbus, WI13,279 2,090 14,633 — 16,723 467 12/21/20202014
Advance Auto Parts:
Fairmont, NC720 253 868 — 1,121 32 12/21/20202004
Hampton,VA720 645 655 — 1,300 27 12/21/20202015
Ravenswood,WV(h)271 657 — 928 12/16/20211996
Sedalia,MO(h)396 700 — 1,096 12/16/20212013
AK Steel
West Chester, OH(h)1,421 21,044 — 22,465 27 12/16/20212007
Albany Square:
Albany, GA4,579 1,606 7,113 (8,719)(i)— — 2/26/20142013
Almeda Crossing:
Houston, TX16,880 4,738 26,245 (30,983)(i)— — 8/7/20142006
Amcor Rigid Plastics
Ames,IA8,250 1,287 16,701 — 17,988 19 12/16/20211996
Apex Technologies
Mason,OH(h)1,288 11,127 — 12,415 14 12/16/20212013
Aspen Dental:
Rogers,AR1,220 289 1,611 — 1,900 54 12/21/20202015
At Home:
Pearland, TX11,465 3,663 10,305 — 13,968 344 12/21/20201994
AutoZone:
Vandalia,OH532 797 73 — 870 — 12/16/20212014
Bank of America
Fairview Park,OH(h)714 1,220 — 1,934 12/16/20212014
Bass Pro Shop:
Portage, IN(h)1,428 8,414 — 9,842 358 12/21/20201983
Tallahassee, FL(h)945 5,713 — 6,658 1,351 8/20/20132013
Beavercreek Shopping Center:
Beavercreek, OH16,270 5,504 25,178 (30,682)(i)— — 10/31/20132013
Becton, Dickinson and Company:
Broken Bow, NE1,180 244 1,733 100 2,077 393 6/19/20142007
Bed Bath & Beyond/Golf Smith:
Schaumburg, IL7,213 4,786 6,149 (10,935)(i)— — 3/8/20131997
Biolife Plasma Services
Fort Wayne,IN— 963 3,848 — 4,811 12/16/20212007
Moorehead,MN— 955 4,109 — 5,064 12/16/20212008
BJ's Wholesale Club:
Fort Myers, FL20,260 5,331 21,692 — 27,023 613 12/21/20202018
Roanoke, VA15,860 4,509 14,545 — 19,054 439 11/25/20202018
Blankenbaker Plaza:
Louisville, KY4,950 4,861 10,497 (15,358)(i)— — 12/21/20202007
S-1

CIM REAL ESTATE FINANCE TRUST, INC.
SCHEDULE III – REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION — (Continued)
(in thousands)
Initial Costs to CompanyGross Amount at
Buildings,TotalWhich CarriedAccumulated
Fixtures andAdjustmentAt December 31, 2021DepreciationDateDate
Description (a)EncumbrancesLandImprovementsto Basis (b)(c) (d) (e)(e) (f) (g)AcquiredConstructed
Bob Evans:
Akron, OH$— $447 $1,537 $— $1,984 $224 4/28/20172007
Anderson, IN— 912 1,455 — 2,367 216 4/28/20171984
Austintown, OH— 305 1,426 — 1,731 223 4/28/20171995
Birch Run, MI— 733 1,192 — 1,925 182 4/28/20172008
Blue Ash, OH— 628 1,429 — 2,057 242 4/28/20171994
Chardon, OH— 333 682 — 1,015 113 4/28/20172003
Chillicothe, OH— 557 1,524 — 2,081 231 4/28/20171998
Columbus, OH— 523 1,376 — 1,899 216 4/28/20172003
Dayton, OH— 325 1,438 — 1,763 231 4/28/20171998
Defiance,OH(h)501 2,781 — 3,282 12/16/20212011
Dover,OH(h)552 1,930 — 2,482 12/16/20212013
Dundee,MI(h)526 1,298 — 1,824 12/16/20212011
Florence, KY— 496 1,876 — 2,372 295 4/28/20171991
Gallipolis, OH2,768 529 2,963 — 3,492 82 12/21/20202003
Hagerstown, MD2,596 490 2,789 — 3,279 81 12/21/20201989
Hamilton,OH(h)446 2,359 — 2,805 12/16/20212014
Holland, MI— 314 1,367 — 1,681 213 4/28/20172004
Hummelstown,PA(h)1,029 2,283 — 3,312 12/16/20212013
Huntersville, NC— 751 657 — 1,408 99 4/28/20172008
Hurricane, WV— 297 1,654 — 1,951 234 4/28/20171993
Mansfield, OH2,312 495 2,423 — 2,918 72 12/21/20202004
Mayfield Heights,OH(h)847 1,278 — 2,125 12/16/20212003
Milford, OH— 271 1,498 — 1,769 236 4/28/20171987
Monroe, MI2,244 623 2,177 — 2,800 66 12/21/20201998
Monroeville, PA— 1,340 848 — 2,188 122 4/28/20171995
Nicholasville, KY— 731 693 — 1,424 102 4/28/20171989
North Canton, OH— 859 1,393 — 2,252 219 4/28/20172006
Northwood, OH2,589 514 2,760 — 3,274 79 12/21/20201998
Peoria, IL913 620 524 — 1,144 22 12/21/20201995
Piqua, OH2,065 413 2,187 — 2,600 64 12/21/20201989
Ripley, WV— 269 1,304 — 1,573 198 4/28/20171988
Tipp City, OH— 554 1,120 — 1,674 181 4/28/20171989
Warsaw, IN— 684 1,222 — 1,906 184 4/28/20171993
Boston Commons:
Springfield, MA5,360 3,101 7,042 (10,143)(i)— — 8/19/20142004
Bottom Dollar Grocery:
Ambridge, PA— 519 2,985 — 3,504 625 11/5/20132012
BrightView Health
Danville, VA— 274 1,514 (1,062)726 54 4/29/20142014
Brynwood Square:
Rockford, IL3,860 1,747 11,393 (13,140)(i)— — 12/21/20201999
Burger King:
Midwest City,OK765 736 810 — 1,546 12/16/20212014
Yukon, OK1,234 500 1,141 — 1,641 36 12/21/20201989
Burlington Coat Factory:
Bangor, ME— 1,820 2,549 — 4,369 121 12/21/20202014
Cabela's:
Acworth, GA22,152 4,979 18,775 — 23,754 2,208 9/25/20172014
Avon, OH12,636 2,755 10,751 — 13,506 1,285 9/25/20172016
La Vista, NE21,479 3,260 16,923 — 20,183 1,915 9/25/20172006
Sun Prairie, WI16,257 3,373 14,058 — 17,431 1,744 9/25/20172015
S-2

CIM REAL ESTATE FINANCE TRUST, INC.
SCHEDULE III – REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION — (Continued)
(in thousands)
Initial Costs to CompanyGross Amount at
Buildings,TotalWhich CarriedAccumulated
Fixtures andAdjustmentAt December 31, 2021DepreciationDateDate
Description (a)EncumbrancesLandImprovementsto Basis (b)(c) (d) (e)(e) (f) (g)AcquiredConstructed
Caliber Collision Center:
Fredericksburg, VA$3,703 $1,807 $2,292 $— $4,099 $102 7/22/20202019
Houston,TX(h)581 6,284 — 6,865 12/16/20212016
Lake Jackson,TX2,955 800 2,974 — 3,774 102 12/21/20202006
Richmond, VA4,324 1,453 3,323 — 4,776 153 7/30/20202020
San Antonio,TX(h)371 5,284 — 5,655 12/16/20212015
San Antonio,TX4,021 691 4,458 — 5,149 140 12/21/20202019
San Antonio, TX1,317 622 832 — 1,454 161 6/4/20142014
Venice,FL(h)878 4,181 — 5,059 12/16/20212015
Williamsburg, VA3,786 1,418 2,800 — 4,218 129 6/12/20202020
Wylie, TX3,217 816 2,690 — 3,506 531 2/10/20152014
Camping World:
Fort Myers, FL11,424 3,226 11,832 — 15,058 405 12/21/20201987
Pensacola, FL— 2,152 3,831 (1,307)4,676 200 4/29/20142014
Carlisle Crossing:
Carlisle, PA11,580 4,491 15,817 (20,308)(i)— — 9/18/20142006
CarMax
Tinley Park,IL15,800 7,296 22,949 — 30,245 28 12/16/20211998
Carrier Rental Systems
Houston,TX2,783 935 3,199 — 4,134 12/16/20212006
Cash & Carry:
Salt Lake City, UT3,988 863 4,149 — 5,012 124 12/21/20202006
Chase:
Hanover Township, NJ1,470 2,192 — — 2,192 — 12/18/20132012
Chick-Fil-A
Dickson City, PA1,998 1,113 7,946 (7,817)1,242 248 6/30/20142013
Consumer Cellular
Tempe, AZ(h)4,460 8,642 — 13,102 12 12/16/20211998
Tempe, AZ(h)4,577 10,423 — 15,000 13 12/16/20211998
Costco:
Tallahassee, FL5,146 9,497 — — 9,497 — 12/11/20122006
Cottonwood Commons:
Albuquerque, NM19,250 4,986 28,881 (33,867)(i)— — 7/19/20132013
Coventry Crossing:
Coventry , RI6,000 3,462 5,899 (9,361)(i)— — 9/12/20132008
Crosspoint:
Hagerstown, MD16,240 12,285 14,359 (26,644)(i)— — 9/30/20142000
Crossroads Annex:
Lafayette, LA5,300 1,659 7,091 (8,750)(i)— — 12/4/20132013
Crossroads Commons:
Plover, WI3,230 1,000 4,515 (5,515)(i)— — 12/10/20132012
CVS:
Arnold, MO4,055 2,043 2,367 — 4,410 490 12/13/20132013
Asheville, NC(h)1,108 1,084 — 2,192 277 4/26/20121998
Austin, TX1,819 1,433 2,251 — 3,684 12/16/20211997
Austin, TX4,421 1,076 3,475 — 4,551 714 12/13/20132013
Bloomington, IN4,511 1,620 2,957 — 4,577 612 12/13/20132012
Blue Springs, MO2,993 395 2,722 — 3,117 563 12/13/20132013
Bridgeton, MO4,055 2,056 2,362 — 4,418 489 12/13/20132013
Charleston, SC(h)869 1,009 — 1,878 258 4/26/20121998
S-3

CIM REAL ESTATE FINANCE TRUST, INC.
SCHEDULE III – REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION — (Continued)
(in thousands)
Initial Costs to CompanyGross Amount at
Buildings,TotalWhich CarriedAccumulated
Fixtures andAdjustmentAt December 31, 2021DepreciationDateDate
Description (a)EncumbrancesLandImprovementsto Basis (b)(c) (d) (e)(e) (f) (g)AcquiredConstructed
CVS (continued):
Chesapeake, VA$3,307 $1,044 $3,053 $— $4,097 $644 12/13/20132013
Chicago, IL(h)1,832 4,255 — 6,087 935 3/20/20132008
Cicero, IN3,516 487 3,099 — 3,586 640 12/13/20132013
Corpus Christi, TX(h)648 2,557 — 3,205 631 4/19/20121998
Danville, IN— 424 2,105 76 2,605 429 7/16/20141998
Eminence, KY3,546 872 2,511 — 3,383 513 12/13/20132013
Erie,PA(h)944 1,954 — 2,898 12/16/20211999
Goose Creek, SC2,888 1,022 1,980 — 3,002 406 12/13/20132013
Greenwood, IN4,302 912 3,549 61 4,522 762 7/11/20131999
Hanover Township, NJ— 4,746 — — 4,746 — 12/18/20132012
Hazlet, NJ6,067 3,047 3,610 — 6,657 743 12/13/20132013
Honesdale, PA4,190 1,206 3,342 — 4,548 708 12/13/20132013
Independence, MO2,476 359 2,242 — 2,601 465 12/13/20132013
Indianapolis, IN3,434 1,110 2,484 — 3,594 514 12/13/20132013
Irving, TX2,125 745 3,034 — 3,779 718 10/5/20122000
Janesville, WI3,112 736 2,545 — 3,281 526 12/13/20132013
Katy, TX3,195 1,149 2,462 — 3,611 498 12/13/20132013
Lincoln, NE— 2,534 3,014 — 5,548 621 12/13/20132013
London, KY4,227 1,445 2,661 — 4,106 568 9/10/20132013
Mansfield,OH(h)371 2,169 — 2,540 12/16/20211998
Middletown, NY— 665 5,483 — 6,148 1,118 12/13/20132013
North Wilkesboro, NC2,349 332 2,369 73 2,774 496 10/25/20131999
Poplar Bluff, MO3,778 1,861 2,211 — 4,072 460 12/13/20132013
Riverton, NJ(h)1,217 5,553 — 6,770 159 12/21/20202007
Salem, NH5,327 3,456 2,351 — 5,807 480 11/18/20132013
San Antonio, TX3,367 1,893 1,848 — 3,741 387 12/13/20132013
Sand Springs, OK3,636 1,765 2,283 — 4,048 476 12/13/20132013
Santa Fe, NM6,352 2,243 4,619 — 6,862 940 12/13/20132013
Sedalia, MO2,641 466 2,318 — 2,784 481 12/13/20132013
St. John, MO3,823 1,546 2,601 — 4,147 538 12/13/20132013
Temple Hills, MD3,920 1,817 2,989 71 4,877 629 9/30/20132001
Vineland, NJ3,613 813 2,926 — 3,739 624 12/13/20132010
Waynesboro, VA3,329 986 2,708 — 3,694 560 12/13/20132013
West Monroe, LA3,479 1,738 2,136 — 3,874 445 12/13/20132013
Wisconsin Rapids,WI(h)707 3,262 — 3,969 12/16/20212013
Darien Towne Center:
Darien, IL12,560 6,718 11,951 (18,669)(i)— — 12/17/20131994
Davita
Austell,GA(h)777 913 — 1,690 12/16/20212009
Decatur Commons:
Decatur, AL7,000 2,478 9,333 (11,811)(i)— — 7/10/20132004
Derby Marketplace:
Derby, KS6,620 3,169 6,494 (9,663)(i)— — 12/21/20202015
Dick’s Petsmart Center:
Oshkosh, WI4,550 1,445 6,599 (8,044)(i)— — 9/23/20162015
Dick’s Sporting Goods:
Oklahoma City, OK4,490 685 10,587 — 11,272 2,666 12/31/20122012
S-4

CIM REAL ESTATE FINANCE TRUST, INC.
SCHEDULE III – REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION — (Continued)
(in thousands)
Initial Costs to CompanyGross Amount at
Buildings,TotalWhich CarriedAccumulated
Fixtures andAdjustmentAt December 31, 2021DepreciationDateDate
Description (a)EncumbrancesLandImprovementsto Basis (b)(c) (d) (e)(e) (f) (g)AcquiredConstructed
Dollar General:
Erie,IL(h)$549 $531 $— $1,080 $12/16/20212016
Glasford,IL(h)204 929 — 1,133 12/16/20212016
Glouster, OH$— 220 1,276 — 1,496 43 12/21/20202015
New Richland,MN(h)327 685 — 1,012 12/16/20212016
Parchment, MI— 168 1,162 — 1,330 223 6/25/20142014
Pine River,MN(h)215 963 — 1,178 12/16/20212016
Russell, KS— 54 899 — 953 181 8/5/20142014
St. Louis, MO— 229 1,102 — 1,331 236 12/31/20132013
Stacy,MN658 149 899 — 1,048 12/16/20212014
Starbuck,MN(h)345 733 — 1,078 12/16/20212016
Topeka,KS794 314 964 — 1,278 12/16/20212014
Trimble,MO(h)311 830 — 1,141 12/16/20212016
Wheaton,MN(h)205 854 — 1,059 12/16/20212016
Winthrop,MN(h)216 767 — 983 12/16/20212016
Duluth Trading:
Arlington, TX(h)1,574 3,918 — 5,492 12/16/20212018
Denton, TX3,759 1,662 2,918 — 4,580 94 12/21/20202017
Madison, AL3,845 1,174 3,603 — 4,777 114 12/21/20202019
Noblesville, IN3,756 1,212 3,436 — 4,648 119 12/21/20202003
Wichita,KS(h)1,433 2,757 — 4,190 12/16/20212019
East West Commons:
Austell, GA12,940 10,094 16,034 (26,095)(i)33 — 9/30/20142002
Enid Crossing
Enid,OK(h)— — — (i)— — 12/16/20212013
Evergreen Marketplace:
Evergreen Park, IL5,010 2,823 6,239 (9,062)(i)— — 9/6/20132013
Fairlane Green II:
Allen Park, MI— 1,409 14,634 (16,043)(i)— — 12/21/20202015
Family Dollar:
Bearden, AR 52 760 — 812 31 12/21/20202014
Centreville,AL(h)110 669 — 779 12/16/20212013
Danville,VA(h)468 422 — 890 12/16/20212013
Darby,MT881 356 865 — 1,221 12/16/20212014
Denton,NC(h)433 434 — 867 12/16/20212012
DeRidder,LA(h)290 790 — 1,080 12/16/20212014
Hampton,AR651 112 689 — 801 12/16/20212014
Londonderry,OH(h)154 1,166 — 1,320 12/16/20212014
Hobbs, NM840 243 1,084 — 1,327 45 12/21/20202006
Morgan, UT690 235 1,068 — 1,303 42 12/21/20202013
New Roads, LA600 190 674 — 864 33 12/21/20202015
Roswell, NM760 199 921 — 1,120 42 12/21/20202014
Salina, UT750 211 1,262 — 1,473 47 12/21/20202014
Tatum,NM700 220 675 — 895 12/16/20212014
West Portsmouth,OH(h)290 664 — 954 12/16/20212004
FedEx
Elko,NV(h)290 2,000 — 2,290 12/16/20212012
Spirit Lake,IA(h)117 1,509 — 1,626 12/16/20212013
S-5

CIM REAL ESTATE FINANCE TRUST, INC.
SCHEDULE III – REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION — (Continued)
(in thousands)
Initial Costs to CompanyGross Amount at
Buildings,TotalWhich CarriedAccumulated
Fixtures andAdjustmentAt December 31, 2021DepreciationDateDate
Description (a)EncumbrancesLandImprovementsto Basis (b)(c) (d) (e)(e) (f) (g)AcquiredConstructed
Flower Foods:
Orlando, FL$580 $418 $387 $— $805 $75 9/11/20142013
Waldorf, MD— 398 1,045 — 1,443 225 9/11/20142013
Food 4 Less:
Atwater, CA4,430 1,383 5,271 345 6,999 1,222 11/27/20132002
Fountain Square:
Brookfield, WI12,150 6,508 28,634 (35,142)(i)— — 1/17/20172006
Fourth Creek Landing:
Statesville, NC5,470 1,375 7,795 (9,170)(i)— — 3/26/20132012
Fresh Market Center:
Glen Ellyn, IL4,693 2,767 6,403 (9,170)(i)— — 9/30/20142014
Fresh Thyme:
Indianapolis,IN4,443 954 8,280 — 9,234 10 12/16/20212016
Indianapolis, IN(h)1,087 6,019 — 7,106 1,265 10/31/20142014
Lafayette, IN(h)1,173 6,316 — 7,489 184 12/21/20202006
Northville, MI(h)1,598 7,796 — 9,394 1,311 12/21/20152015
Worthington,OH(h)2,899 6,989 — 9,888 12/16/20212016
Ypsilanti, MI(h)3,168 5,719 — 8,887 186 12/21/20202017
Fresh Thyme & DSW:
Fort Wayne, IN3,110 1,740 4,153 (5,893)(i)— — 9/30/20141985
Giant Eagle:
Seven Fields, PA9,230 1,574 13,659 355 15,588 2,699 5/7/20142005
Harbor Town Center:
Manitowoc, WI9,633 3,568 13,209 (16,777)(i)— — 4/24/20152005
Haverty Furniture:
Midland, TX1,380 709 1,294 — 2,003 436 8/7/20132012
HEB Center:
Waxahachie, TX7,000 3,465 7,952 (11,417)(i)— — 6/27/20121997
H&E Equipment Services
Albuquerque,NM(h)1,355 4,622 — 5,977 12/16/20212016
Fort Myers, FL(h)1,245 4,841 — 6,086 12/16/20212017
Suwanee,GA(h)1,818 2,813 — 4,631 12/16/20212016
Hobby Lobby:
Cadillac, MI(h)628 4,597 — 5,225 12/16/20212016
Lewisville, TX6,220 2,184 8,977 — 11,161 2,005 11/26/20132013
Sedalia, MO(h)781 3,645 — 4,426 12/16/20212007
Watertown, SD(h)1,055 4,226 — 5,281 12/16/20212017
Wilmar, MN(h)1,079 4,615 — 5,694 12/16/20212017
Home Depot:
Lincoln, NE10,347 6,339 5,937 — 12,276 992 10/22/20151993
North Canton, OH8,750 2,203 12,012 360 14,575 2,954 12/20/20121998
Houma Crossing:
Houma, LA9,270 1,076 20,028 (21,104)(i)— — 12/21/20202008
S-6

CIM REAL ESTATE FINANCE TRUST, INC.
SCHEDULE III – REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION — (Continued)
(in thousands)
Initial Costs to CompanyGross Amount at
Buildings,TotalWhich CarriedAccumulated
Fixtures andAdjustmentAt December 31, 2021DepreciationDateDate
Description (a)EncumbrancesLandImprovementsto Basis (b)(c) (d) (e)(e) (f) (g)AcquiredConstructed
Jewel-Osco:
Plainfield, IL$8,925 $— $— $11,151 $11,151 $850 11/14/20182001
Spring Grove,IL(h)991 11,361 — 12,352 13 12/16/20212007
Wood Dale,IL(h)4,069 7,800 — 11,869 10 12/16/20212005
Jo-Ann
Roseville,MI(h)984 2,705 — 3,689 12/16/20212013
Kloeckner
University Park,IL(h)862 13,540 — 14,402 16 12/16/20212016
Kohl's:
Chartlottesville, VA11,020 3,929 12,280 — 16,209 2,376 7/28/20142011
Eagan, MN4,690 3,581 3,751 — 7,332 151 12/21/20201996
Easton, MD3,808 2,962 2,661 — 5,623 402 12/2/20151992
Kroger:
Bay City, MI3,170 718 5,057 — 5,775 188 12/21/20201994
Shelton, WA9,097 1,180 11,040 — 12,220 2,471 4/30/20141994
Kum & Go:
Cedar Rapids,IA(h)771 2,493 — 3,264 12/16/20212011
Conway, AR3,254 510 2,577 — 3,087 493 6/13/20142014
LA Fitness:
Bloomfield Township, MI5,150 2,287 10,075 — 12,362 2,425 6/21/20132008
Columbus, OH6,620 1,013 6,734 — 7,747 1,244 4/29/20152014
Garland, TX5,010 2,005 6,861 41 8,907 1,448 12/20/20132013
Houston, TX7,200 5,764 5,994 — 11,758 1,320 9/30/20132013
New Lenox, IL4,610 1,965 6,257 — 8,222 987 12/21/20152015
Pawtucket,RI(h)5,945 8,012 — 13,957 12/16/20212015
Riverside, CA8,380 2,557 9,951 — 12,508 2,244 8/2/20132010
Rock Hill,SC(h)780 7,590 — 8,370 12/16/20212015
Lafayette Pavilions:
Lafayette, IN19,710 7,632 42,497 (50,129)(i)— — 2/6/20152006
Levin Furniture
Monroeville,PA(h)1,385 9,017 — 10,402 11 12/16/20212004
Lawton Marketplace:
Lawton, OK11,980 3,598 25,228 (28,826)(i)— — 12/21/20202001
Lord Salisbury Center:
Salisbury, MD10,510 6,949 12,179 (19,128)(i)— — 3/11/20162005
Lowe's:
Adrian, MI5,180 2,604 5,036 30 7,670 1,450 9/27/20131996
Alpharetta, GA11,730 7,979 9,630 403 18,012 1,872 5/29/20151998
Asheboro, NC7,107 1,098 6,722 — 7,820 1,368 6/23/20141994
Cincinnati, OH11,910 14,092 — — 14,092 — 2/10/20142001
Columbia, SC9,988 3,943 6,353 750 11,046 1,671 9/12/20131994
Covington, LA7,310 10,233 — — 10,233 — 8/20/20142002
Fremont,OH(h)3,244 6,071 — 9,315 10 12/16/20211996
Hermitage, PA8,290 2,279 12,579 — 14,858 400 12/21/20202016
S-7

CIM REAL ESTATE FINANCE TRUST, INC.
SCHEDULE III – REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION — (Continued)
(in thousands)
Initial Costs to CompanyGross Amount at
Buildings,TotalWhich CarriedAccumulated
Fixtures andAdjustmentAt December 31, 2021DepreciationDateDate
Description (a)EncumbrancesLandImprovementsto Basis (b)(c) (d) (e)(e) (f) (g)AcquiredConstructed
Lowe’s (continued):
Lilburn, GA$11,520 $8,817 $9,380 $385 $18,582 $1,813 5/29/20151999
Mansfield, OH7,975 873 8,256 26 9,155 1,721 6/12/20141992
Marietta, GA14,634 7,471 8,404 392 16,267 1,649 5/29/20151997
North Dartmouth,MA(h)6,774 17,384 — 24,158 29 12/16/20212004
Oxford, AL10,908 1,668 7,622 369 9,659 2,044 6/28/20131999
Tuscaloosa, AL7,960 4,908 4,786 9,703 1,123 10/29/20131993
Woodstock, GA15,075 7,316 8,879 392 16,587 1,739 5/29/20151997
Zanesville, OH9,292 2,161 8,375 297 10,833 1,859 12/11/20131995
Marshalls
Wilkesboro,NC(h)1,321 1,384 — 2,705 12/16/20212016
Mattress Firm:
Ashtabula, OH1,150 301 1,965 (2,266)(i)— — 3/23/20162015
Draper, UT1,300 860 1,419 — 2,279 48 12/21/20202014
Gadsden,AL(h)572 765 — 1,337 12/16/20212012
Lake City, FL1,150 517 1,241 — 1,758 38 12/21/20202004
Mattress Firm & Aspen Dental:
Vienna, WV1,310 774 2,466 (3,240)(i)— — 9/15/20142014
Mattress Firm & Five Guys:
Muskegon, MI1,700 813 1,766 (2,579)(i)— — 8/29/20142014
Mattress Firm & Panera
Elyria,OH(h)— — — (i)— — 12/16/20212015
McAlister's Deli:
Lawton, OK2,151 805 1,057 — 1,862 224 5/1/20142013
McGowin Park:
Mobile, AL42,765 2,243 69,357 (71,600)(i)— — 4/26/20172016
Melody Mountain:
Ashland, KY6,020 1,286 9,879 (11,165)(i)— — 9/1/20152013
Merchants Tire & Auto:
Wake Forest, NC2,850 782 1,730 — 2,512 286 9/1/20152005
Mind’s Eye:
Macomb Township,MI(h)738 110 — 848 — 12/16/20212009
Mister Car Wash:
Athens, AL2,566 383 1,150 — 1,533 143 9/12/20172008
Decatur, AL1,257 257 559 — 816 75 9/12/20172005
Decatur, AL2,858 486 1,253 — 1,739 178 9/12/20172014
Decatur, AL1,466 359 1,152 — 1,511 161 9/12/20172007
Hartselle, AL1,055 360 569 — 929 78 9/12/20172007
Hudson,FL(h)1,229 1,562 — 2,791 12/16/20212007
Madison, AL3,913 562 1,139 — 1,701 164 9/12/20172012
Spring Hill,FL(h)1,123 2,770 — 3,893 12/16/20212008
Morganton Heights:
Morganton, NC22,695 7,032 29,763 (36,795)(i)— — 4/29/20152013
S-8

CIM REAL ESTATE FINANCE TRUST, INC.
SCHEDULE III – REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION — (Continued)
(in thousands)
Initial Costs to CompanyGross Amount at
Buildings,TotalWhich CarriedAccumulated
Fixtures andAdjustmentAt December 31, 2021DepreciationDateDate
Description (a)EncumbrancesLandImprovementsto Basis (b)(c) (d) (e)(e) (f) (g)AcquiredConstructed
National Tire & Battery:
Cedar Hill, TX $469 $1,951 $— $2,420 $452 12/18/20122006
Conyers,GA$1,657 743 1,846 — 2,589 12/16/20211995
Cypress, TX2,858 910 2,224 — 3,134 395 9/1/20152005
Flower Mound, TX3,045 779 2,449 — 3,228 417 9/1/20152005
Fort Worth, TX — 730 2,309 — 3,039 394 9/1/20152005
Montgomery, IL3,082 516 2,494 — 3,010 582 1/15/20132007
North Richland Hills, TX2,731 513 2,579 — 3,092 452 9/1/20152005
Pasadena, TX2,918 908 2,307 — 3,215 409 9/1/20152005
Pearland, TX3,037 1,016 2,040 — 3,056 354 9/1/20152005
Plano, TX3,210 1,292 2,197 — 3,489 381 9/1/20152005
Tomball, TX3,008 838 2,229 — 3,067 385 9/1/20152005
Natural Grocers:
Idaho Falls, ID3,628 833 2,316 — 3,149 484 2/14/20142013
Prescott,AZ(h)1,087 3,580 — 4,667 12/16/20212012
Waupaca, WI4,623 1,286 3,727 — 5,013 115 12/21/20202017
Nordstrom Rack:
Tampa, FL8,060 3,371 6,402 (9,773)(i)— — 4/16/20122010
North Lake Square
Gainesville,GA13,365 — — — (i)— — 12/16/20212016
Northern Tool
Hoover,AL(h)1,037 2,474 — 3,511 12/16/20212014
O'Reilly Automotive:
Bennettsville, SC1,205 361 1,207 — 1,568 42 12/21/20202015
Clayton, GA1,324 501 945 — 1,446 146 1/29/20162015
Decatur,GA(h)578 1,043 — 1,621 12/16/20212007
Fayetteville,NC(h)331 1,620 — 1,951 12/16/20212012
Flowood, MS1,369 506 1,288 — 1,794 42 12/21/20202014
Iron Mountain, MI1,234 249 1,400 — 1,649 48 12/21/20202014
Owenboro Towne Center:
Owensboro, KY11,760 3,807 16,259 (20,066)(i)— — 1/12/20161996
Parkway Centre South:
Grove City, OH14,073 7,027 18,223 (25,250)(i)— — 7/15/20162005
Patriot Urgent Care:
Eldersburg, MD— 557 876 — 1,433 130 4/28/20172000
Pecanland Plaza:
Monroe, LA9,270 2,206 18,957 (21,163)(i)— — 10/13/20152008
PetSmart:
Lexington,NC(h)620 3,692 — 4,312 12/16/20212016
McAllen,TX2,924 2,352 1,309 — 3,661 12/16/20211995
Wilkesboro, NC1,470 447 1,710 — 2,157 448 4/13/20122011
PetSmart/Old Navy:
Reynoldsburg, OH3,370 1,295 4,077 (5,372)(i)— — 12/14/20122012
S-9

CIM REAL ESTATE FINANCE TRUST, INC.
SCHEDULE III – REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION — (Continued)
(in thousands)
Initial Costs to CompanyGross Amount at
Buildings,TotalWhich CarriedAccumulated
Fixtures andAdjustmentAt December 31, 2021DepreciationDateDate
Description (a)EncumbrancesLandImprovementsto Basis (b)(c) (d) (e)(e) (f) (g)AcquiredConstructed
Pick 'N Save:
Heber City, UT$6,570 $1,160 $9,111 $81 $10,352 $295 12/21/20202016
Pewaukee, WI5,990 1,323 6,761 257 8,341 1,522 8/13/20141999
Sheboygan, WI— 2,003 10,695 — 12,698 2,624 9/6/20122012
South Milwaukee, WI4,840 1,126 5,706 — 6,832 1,205 11/6/20132005
Pier 7 Juicy Seafood & Bar:
Lancaster, TX— 1,203 1,620 — 2,823 405 10/23/20122011
Plainfield Marketplace:
Plainfield, IL11,120 3,167 14,788 (17,955)(i)— — 12/3/20152002
Plaza San Mateo:
Albuquerque, NM5,270 2,867 11,582 (14,449)(i)— — 5/2/20142014
Popeyes:
Independence, MO1,182 333 680 — 1,013 133 6/27/20142005
Poplar Springs Plaza:
Duncan, SC4,977 1,862 5,277 (7,139)(i)— — 5/24/20131995
Proctor & Gamble
Fayetteville, AR(h)1,904 9,974 — 11,878 16 12/16/20212006
Raising Cane's:
Avondale,AZ(h)1,774 2,381 — 4,155 12/16/20212013
Murphy, TX1,970 495 2,853 — 3,348 88 12/21/20201994
Reno, NV3,352 1,841 2,259 — 4,100 72 12/21/20202014
Republic Services:
Scottsdale,AZ(h)11,460 36,231 — 47,691 48 12/16/20212016
Rolling Acres Plaza:
Lady Lake, FL15,950 7,540 26,839 (34,379)(i)— — 9/1/20162005
Safeway:
Juneau, AK10,960 6,174 8,791 — 14,965 285 12/21/20202017
Sam's Club
Timonium,MD(h)6,325 10,574 — 16,899 13 12/16/20212000
Schumacher Homes:
Troy, OH— 992 1,577 (1,383)1,186 109 10/23/20122011
Sherwin Williams
Pigeon Forge,TN(h)489 658 — 1,147 12/16/20212019
Shippensburg Market Place:
Shippensburg, PA4,420 1,917 9,263 (11,180)(i)— — 9/18/20142002
Shoe Carnival & Buffalo Wild Wings:
Salina, KS1,640 991 1,909 (2,900)(i)— — 12/21/20202014
Shoppes at Stroud:
Stroud Township, PA13,300 3,754 22,614 (26,368)(i)— — 10/29/20142007
Shoppes of Gary Farms:
Bowling Green, KY8,680 3,529 14,197 (17,726)(i)— — 12/21/20202005
Shops at Abilene:
Abilene, TX14,050 5,142 19,684 (24,826)(i)— — 12/21/20202014
Siemens:
Milford, OH14,410 4,137 23,153 — 27,290 1,041 12/21/20201991
S-10

CIM REAL ESTATE FINANCE TRUST, INC.
SCHEDULE III – REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION — (Continued)
(in thousands)
Initial Costs to CompanyGross Amount at
Buildings,TotalWhich CarriedAccumulated
Fixtures andAdjustmentAt December 31, 2021DepreciationDateDate
Description (a)EncumbrancesLandImprovementsto Basis (b)(c) (d) (e)(e) (f) (g)AcquiredConstructed
Sleepy's
Roanoke Rapids,NC(h)$339 $1,240 $— $1,579 $12/16/20212015
Snider Fleet Solutions:
Decatur,AL$1,311 365 1,461 — 1,826 12/16/20211998
Southwest Plaza:
Springfield, IL15,160 2,992 48,935 (51,927)(i)— — 9/18/20142003
Spinx:
Simpsonville, SC1,825 591 969 — 1,560 219 1/24/20132012
Springfield Commons:
Springfield, OH11,111 3,745 15,049 (18,794)(i)— — 5/5/20151995
Sprouts:
Bixby, OK6,280 1,320 7,117 — 8,437 1,550 7/26/20132013
Lawrence, KS6,920 762 8,111 — 8,873 242 12/21/20202001
Steinhafels:
Greenfield, WI7,481 1,783 7,643 — 9,426 224 12/21/20201991
Madison,WI(h)3,227 8,531 — 11,758 10 12/16/20212017
Stoneridge Village:
Jefferson City, MO6,419 1,830 9,351 (11,181)(i)— — 6/30/20142012
Stop & Shop:
North Kingstown, RI— 639 2,057 — 2,696 62 12/21/20201979
Summerfield Crossing:
Riverview, FL9,040 6,130 6,753 (12,883)(i)— — 7/12/20132013
Sunbelt Rentals:
Canton, OH1,120 147 1,679 138 1,964 476 10/24/20132013
Sunoco:
Palm Beach Gardens, FL— 1,050 2,667 — 3,717 582 4/12/20132009
Palm City, FL3,539 667 1,698 — 2,365 372 4/12/20132011
Palm Springs, FL3,576 580 1,907 — 2,487 417 4/12/20132011
Sebastian, FL— 490 2,128 — 2,618 465 4/12/20132009
Titusville, FL— 626 2,534 — 3,160 554 4/12/20132009
SuperValu
Oglesby, IL(h)2,505 11,777 — 14,282 17 12/16/20211996
Sutters Creek:
Rocky Mount, NC2,330 1,458 2,616 (4,074)(i)— — 1/31/20142012
Tailwinds
Denton,TX(h)1,064 15,231 — 16,295 17 12/16/20212017
Take 5:
Andrews, TX898 230 862 — 1,092 25 12/21/20201994
Bedford, TX916 283 837 — 1,120 30 12/21/20202009
Burleson, TX1,141 471 936 — 1,407 31 12/21/20201994
Burleson, TX842 201 837 — 1,038 26 12/21/20202010
Burleson, TX655 394 407 — 801 25 12/21/20202003
Cedar Hill, TX804 250 705 — 955 22 12/21/20201985
Hereford, TX842 50 995 — 1,045 28 12/21/20201993
Irving, TX468 120 445 — 565 14 12/21/20201989
S-11

CIM REAL ESTATE FINANCE TRUST, INC.
SCHEDULE III – REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION — (Continued)
(in thousands)
Initial Costs to CompanyGross Amount at
Buildings,TotalWhich CarriedAccumulated
Fixtures andAdjustmentAt December 31, 2021DepreciationDateDate
Description (a)EncumbrancesLandImprovementsto Basis (b)(c) (d) (e)(e) (f) (g)AcquiredConstructed
Take 5 (continued):
Irving, TX$842 $210 $818 $— $1,028 $25 12/21/20201987
Lubbock, TX1,291 151 1,428 — 1,579 40 12/21/20202002
Midland, TX1,702 192 1,861 — 2,053 52 12/21/20201995
Mineral Wells, TX1,141 131 1,263 — 1,394 36 12/21/20202019
Target Center:
Columbia, SC6,390 3,234 7,297 (10,531)(i)— — 3/31/20142012
Tellico Greens
Loudon,TN2,982 — — — (i)— — 12/16/20212008
Teradata
Miami Township,OH(h)1,615 5,250 — 6,865 12/16/20212010
Terrell Mill Village:
Marietta, GA8,730 3,079 11,185 (14,264)(i)— — 1/31/20142012
TGI Friday's:
Chesapeake, VA2,731 1,217 1,388 — 2,605 279 6/27/20142003
Wilmington, DE2,798 1,685 969 — 2,654 198 6/27/20141991
The Center at Hobbs Brook:
Sturbridge, MA20,310 11,241 29,152 (40,393)(i)— — 6/29/20161999
The Market at Clifty Crossing:
Columbus, IN7,080 2,669 16,308 (18,977)(i)— — 10/31/20141989
The Market at Polaris:
Columbus, OH6,280 11,828 41,702 (53,530)(i)— — 12/6/20132005
The Marquis:
Williamsburg, VA8,556 2,615 11,406 (14,021)(i)— — 9/21/20122007
The Plant:
San Jose, CA123,000 67,596 108,203 (175,799)(i)— — 4/15/20132008
The Ridge at Turtle Creek:
Hattiesburg, MS9,854 2,749 12,434 (15,183)(i)— — 2/27/20152011
The Toro Company
Windom,MN(h)292 10,651 — 10,943 15 12/16/20212016
Time Warner
Streetsboro,OH3,543 1,009 5,602 — 6,611 12/16/20212003
Tire Kingdom:
Bluffton, SC2,409 645 1,688 — 2,333 280 9/1/20152005
Summerville, SC2,207 1,208 1,233 — 2,441 212 9/1/20152005
Tire Kingdom & Starbucks:
Mount Pleasant, SC2,389 1,291 3,149 (4,440)(i)— — 9/1/20152005
Title Resource Group
Mount Laurel,NJ(h)3,129 8,491 — 11,620 15 12/16/20212004
TJ Maxx
Danville,IL(h)463 2,048 — 2,511 12/16/20212013
Tractor Supply:
Ashland, VA2,480 500 2,696 175 3,371 587 11/22/20132013
Augusta, KS1,960 407 2,315 175 2,897 497 1/10/20142013
Blytheville, AR2,618 780 2,660 175 3,615 101 12/21/20202002
S-12

CIM REAL ESTATE FINANCE TRUST, INC.
SCHEDULE III – REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION — (Continued)
(in thousands)
Initial Costs to CompanyGross Amount at
Buildings,TotalWhich CarriedAccumulated
Fixtures andAdjustmentAt December 31, 2021DepreciationDateDate
Description (a)EncumbrancesLandImprovementsto Basis (b)(c) (d) (e)(e) (f) (g)AcquiredConstructed
Tractor Supply (continued):
Cambridge, MN$1,610 $807 $1,272 $203 $2,282 $386 5/14/20122012
Canon City, CO2,480 597 2,527 175 3,299 582 11/30/20122012
Carlyle, IL2,394 707 2,386 175 3,268 99 12/21/20202015
Fortuna, CA3,630 568 3,819 175 4,562 783 6/27/20142014
Logan, WV3,049 597 3,232 175 4,004 107 12/21/20202006
Lumberton, NC1,930 611 2,007 175 2,793 500 5/24/20132013
Marion, IN1,840 1,536 1,099 175 2,810 248 2/19/20142004
Midland, NC1,930 865 2,182 175 3,222 86 12/21/20202013
Monticello, FL2,160 448 1,916 175 2,539 475 6/20/20132013
Shelbyville, IL2,379 586 2,576 175 3,337 96 12/21/20202017
South Hill, VA2,020 630 2,179 175 2,984 509 6/24/20132011
Weaverville, NC3,340 867 3,138 277 4,282 716 9/13/20132006
Woodward, OK1,960 446 1,973 175 2,594 464 11/19/20132013
Trader Joe's:
Asheville, NC4,460 2,770 3,766 — 6,536 848 10/22/20132013
Columbia, SC4,180 2,308 2,597 — 4,905 670 3/28/20132012
Wilmington, NC3,710 2,016 2,519 — 4,535 713 6/27/20132012
Triangle Town Place
Raleigh,NC16,400 — — — (i)— — 12/16/20212004
Turfway Crossing:
Florence, KY8,350 2,261 10,323 (12,584)(i)— — 5/27/20142002
Ulta Salon:
Albany, GA1,530 441 1,757 — 2,198 360 5/8/20142013
Greeley, CO1,930 596 2,035 — 2,631 369 3/31/20152014
United Oil:
Bellflower, CA1,960 1,246 788 — 2,034 145 9/30/20142001
Brea, CA2,940 2,393 658 — 3,051 120 9/30/20141984
Carson, CA5,469 2,354 4,821 — 7,175 148 12/21/20201958
El Cajon, CA1,893 1,533 568 — 2,101 104 9/30/20142008
El Cajon, CA1,683 1,225 368 — 1,593 67 9/30/20142000
El Monte, CA— 766 510 — 1,276 93 9/30/20141994
Escondido, CA— 3,514 1,062 — 4,576 195 9/30/20142002
Fallbrook, CA3,613 1,266 3,458 — 4,724 96 12/21/20201958
Glendale, CA— 4,871 795 — 5,666 146 9/30/20141999
Harbor City, CA3,367 1,359 3,047 — 4,406 87 12/21/20202014
Hawthorne, CA2,035 896 1,764 — 2,660 51 12/21/20202001
Inglewood, CA— 1,809 878 — 2,687 161 9/30/20141997
La Habra, CA2,454 1,971 571 — 2,542 104 9/30/20142000
Lakewood, CA3,741 2,499 2,400 — 4,899 75 12/21/20201973
Lawndale, CA2,244 1,462 862 — 2,324 158 9/30/20142001
Long Beach, CA2,806 1,088 2,582 — 3,670 75 12/21/20201990
Long Beach, CA— 2,778 883 — 3,661 162 9/30/20141972
Los Angeles, CA— 2,334 717 — 3,051 131 9/30/20142002
Los Angeles, CA— 3,552 1,242 — 4,794 227 9/30/20142002
S-13

CIM REAL ESTATE FINANCE TRUST, INC.
SCHEDULE III – REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION — (Continued)
(in thousands)
Initial Costs to CompanyGross Amount at
Buildings,TotalWhich CarriedAccumulated
Fixtures andAdjustmentAt December 31, 2021DepreciationDateDate
Description (a)EncumbrancesLandImprovementsto Basis (b)(c) (d) (e)(e) (f) (g)AcquiredConstructed
United Oil (continued):
Los Angeles, CA$— $2,745 $669 $— $3,414 $122 9/30/20141998
Los Angeles, CA— 3,930 428 — 4,358 79 9/30/20142005
Los Angeles, CA3,292 1,927 1,484 — 3,411 272 9/30/20142007
Los Angeles, CA2,806 2,182 701 — 2,883 128 9/30/20141964
Los Angeles, CA3,853 2,435 2,614 — 5,049 76 12/21/20201982
Los Angeles, CA4,205 2,016 3,486 — 5,502 97 12/21/20201965
Madera, CA— 1,500 3,804 — 5,304 447 9/27/20192018
Norco, CA3,224 1,852 1,489 — 3,341 273 9/30/20141995
Poway, CA— 3,072 705 — 3,777 129 9/30/20141960
San Clemente, CA4,272 2,036 3,561 — 5,597 101 12/21/20201973
San Diego, CA2,312 1,362 1,662 — 3,024 50 12/21/20201959
San Diego, CA3,643 1,547 3,218 — 4,765 91 12/21/20202011
San Diego, CA4,975 2,409 4,105 — 6,514 122 12/21/20201976
San Diego, CA— 2,977 1,448 — 4,425 265 9/30/20141984
San Diego, CA2,663 1,877 883 — 2,760 161 9/30/20142006
San Diego, CA— 1,824 382 — 2,206 71 9/30/20142006
Santa Ana, CA2,596 1,629 1,766 — 3,395 53 12/21/20202000
Santa Clarita, CA— 4,787 733 — 5,520 134 9/30/20142001
Sun City, CA— 1,136 1,421 — 2,557 260 9/30/20141984
Vista, CA2,312 2,063 334 — 2,397 61 9/30/20141986
Vista (Vista), CA2,244 2,028 418 — 2,446 77 9/30/20142010
Whittier, CA2,521 1,629 985 — 2,614 181 9/30/20141997
University Marketplace:
Marion, IN3,400 850 6,722 (7,572)(i)— — 3/22/20132012
Urban Air Adventure Park:
Waukesha, WI7,115 3,408 12,918 666 16,992 2,428 9/29/20142007
Vacant:
Appleton, WI— 895 1,026 (1,194)727 22 11/18/20152015
Cherokee, IA— 217 3,326 (2,867)676 12/23/20152015
Richmond,VA(h)925 10 — 935 — 12/16/20212014
Sanford, FL— 1,031 1,807 (1,858)980 33 10/23/20121999
Valentine, NE— 395 3,549 (2,765)1,179 6/30/20142014
Walker, LA— 899 3,910 (85)4,724 758 6/27/20141999
Willmar, MN— 200 1,279 — 1,479 220 3/25/20152014
York,PA(h)— 5,145 — 5,145 — 12/16/20211978
Valeo North American HQ:
Troy, MI(h)1,880 9,813 — 11,693 19 12/16/20212007
Valeo Production Facility:
East Liberty,OH(h)357 4,989 — 5,346 12/16/20212016
Valvoline HQ:
Lexington, KY(h)5,558 41,234 — 46,792 51 12/16/20212016
Ventura Place:
Albuquerque, NM5,760 5,203 7,998 (13,201)(i)— — 4/29/20152008
S-14

CIM REAL ESTATE FINANCE TRUST, INC.
SCHEDULE III – REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION — (Continued)
(in thousands)
Initial Costs to CompanyGross Amount at
Buildings,TotalWhich CarriedAccumulated
Fixtures andAdjustmentAt December 31, 2021DepreciationDateDate
Description (a)EncumbrancesLandImprovementsto Basis (b)(c) (d) (e)(e) (f) (g)AcquiredConstructed
WakeMed MyCare 365:
Raleigh, NC$— $329 $556 $— $885 $20 12/21/20202014
Walmart:
Anderson, SC9,741 2,424 9,719 — 12,143 1,495 11/5/20152015
Florence, SC9,023 2,013 9,225 — 11,238 1,413 11/5/20152015
Perry, GA7,440 2,270 11,053 — 13,323 2,678 6/4/20131999
Randallstown,MD(h)8,382 23,365 — 31,747 29 12/16/20212012
Summerville, SC4,280 2,410 2,098 (4,508)(i)— — 9/18/20152015
Tallahassee, FL11,331 14,823 — — 14,823 — 12/11/20122008
York, SC8,865 1,913 11,410 — 13,323 2,746 6/4/20131998
Walgreens:
Austintown, OH3,643 637 4,173 — 4,810 884 8/19/20132002
Clinton, MI4,139 1,977 4,232 — 6,209 130 12/21/20201997
Connelly Springs, NC— 1,349 3,628 — 4,977 788 8/27/20132012
Coweta,OK2,584 897 3,303 — 4,200 12/16/20212009
Danville, VA4,908 989 4,547 — 5,536 1,100 12/24/20122012
Dearborn Heights, MI6,187 2,236 3,411 — 5,647 745 7/9/20132008
East Chicago, IN— 331 5,242 — 5,573 970 8/8/20142005
Fort Madison, IA3,554 514 3,723 — 4,237 796 9/20/20132008
Harrison, AR4,671 1,237 5,424 — 6,661 158 12/21/20202007
Huntsville, AL3,273 1,931 2,457 (4,388)(i)— — 3/15/20132001
Indianapolis, IN4,526 1,212 5,484 — 6,696 159 12/21/20201996
Kannapolis, NC— 1,480 5,031 — 6,511 1,106 6/12/20132012
Las Vegas, NV3,943 2,325 3,262 70 5,657 704 9/26/20131999
Lawton, OK2,824 860 2,539 106 3,505 563 7/3/20131998
Lees Summit, MO4,114 1,205 4,884 — 6,089 147 12/21/20202014
Little Rock, AR4,489 548 4,676 — 5,224 885 6/30/20142011
Lubbock, TX 3,610 565 3,257 103 3,925 774 10/11/20122000
Lubbock, TX3,180 531 2,951 102 3,584 697 10/11/20121998
Metropolis, IL4,182 284 4,991 — 5,275 924 8/8/20142009
Reidsville,NC(h)722 5,117 — 5,839 12/16/20212008
Sacramento, CA3,299 324 2,669 — 2,993 528 6/30/20142008
San Antonio, TX7,051 1,417 7,932 — 9,349 218 12/21/20202005
Siloam Springs, AR3,776 936 4,367 — 5,303 131 12/21/20201999
Slidell, LA2,977 757 3,557 — 4,314 111 12/21/20202000
Springfield, IL— 830 3,619 — 4,449 896 5/14/20122007
St. Louis,MO2,534 355 3,149 — 3,504 12/16/20212007
Suffolk, VA4,115 1,261 3,461 — 4,722 901 5/14/20122007
Whiteville, NC— 829 4,090 — 4,919 120 12/21/20202007
Walgreens/KeyBank:
Newburgh, NY5,000 3,280 5,441 (8,721)(i)— — 9/16/20132010
Wallace Commons:
Salisbury, NC7,590 3,265 8,058 (11,323)(i)— — 12/21/20122009
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CIM REAL ESTATE FINANCE TRUST, INC.
SCHEDULE III – REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION — (Continued)
(in thousands)
Initial Costs to CompanyGross Amount at
Buildings,TotalWhich CarriedAccumulated
Fixtures andAdjustmentAt December 31, 2021DepreciationDateDate
Description (a)EncumbrancesLandImprovementsto Basis (b)(c) (d) (e)(e) (f) (g)AcquiredConstructed
Wallace Commons II:
Salisbury, NC$5,990 $2,231 $8,479 $(10,710)(i)$— $— 2/28/20142013
Waterford South Park:
Clarksville, IN7,114 2,946 8,564 (11,510)(i)— — 4/12/20132006
Weasler Engineering
West Bend, WI(h)1,019 13,390 — 14,409 19 12/16/20212016
Wendy's:
Grafton, VA1,616 539 894 — 1,433 176 6/27/20141985
Westminster, CO1,010 596 1,108 — 1,704 217 6/27/20141986
Western Crossing:
Jacksonville, NC6,190 3,382 7,775 (11,157)(i)— — 12/21/20201995
West Marine:
Chicago, IL5,370 4,442 8,698 — 13,140 248 12/21/20202005
Mystic,CT(h)1,966 1,968 — 3,934 12/16/20212014
Panama City, FL1,930 676 2,220 — 2,896 469 4/24/20152014
Pensacola, FL1,960 1,107 3,397 — 4,504 696 2/27/20152015
Westover Market:
San Antonio, TX2,790 2,705 7,959 (10,664)(i)— — 7/10/20132013
Winn-Dixie:
Amite, LA1,670 1,479 1,691 — 3,170 98 12/21/20202000
$1,892,744 $994,149 $2,825,703 $(1,457,677)$2,362,175 $158,354 

____________________________________
(a)Initial costs exclude subsequent impairment charges.
(b)Consists of capital expenditures and real estate development costs, and impairment charges.
(c)The aggregate cost for federal income tax purposes was $3.9 billion.
(d)The following is a reconciliation of total real estate carrying value for the years ended December 31 (in thousands):
202120202019
Balance, beginning of period$3,371,926 $2,530,311 $4,444,041 
Additions
Acquisitions752,272 738,172 5,305 
Improvements3,785 192,591 13,832 
Assets placed back into service— 200,758 — 
Total additions$756,057 $1,131,521 $19,137 
Less: Deductions
Cost of real estate sold426,436 83,144 1,448,915 
Other (including provisions for impairment of real estate assets)1,339,372 206,762 483,952 
Total deductions1,765,808 289,906 1,932,867 
Balance, end of period$2,362,175 $3,371,926 $2,530,311 
(e)Gross intangible lease assets of $314.8 million and the associated accumulated amortization of $77.1 million are not reflected in the table above.
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CIM REAL ESTATE FINANCE TRUST, INC.
SCHEDULE III – REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION — (Continued)
(in thousands)
(f)The following is a reconciliation of accumulated depreciation for the years ended December 31 (in thousands):
202120202019
Balance, beginning of period$298,364 $243,122 $385,245 
Additions
Acquisitions - Depreciation expense for building, acquisitions costs and tenant improvements acquired61,868 56,218 73,790 
Improvements - Depreciation expense for tenant improvements and building equipment5,140 2,280 2,352 
Total additions$67,008 $58,498 $76,142 
Deductions
Cost of real estate sold43,600 10,108 144,820 
Other (including provisions for impairment of real estate assets)163,418 (6,852)73,445 
Total deductions207,018 3,256 218,265 
Balance, end of period$158,354 $298,364 $243,122 
(g)The Company’s assets are depreciated or amortized using the straight-line method over the useful lives of the assets by class. Generally, buildings are depreciated over 40 years, site improvements are amortized over 15 years and tenant improvements are amortized over the remaining life of the lease or the useful life, whichever is shorter.
(h)Property is included in the CIM Income NAV Credit Facility’s borrowing base. As of December 31, 2021, the Company had $413.5 million outstanding under the CIM Income NAV Credit Facility.
(i)Asset held for sale or partially held for sale as of December 31, 2021.
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Table of Contents
CIM REAL ESTATE FINANCE TRUST, INC.
SCHEDULE IV – MORTGAGE LOANS ON REAL ESTATE
(in thousands)

Principal
Amount of
Loans Subject
FinalPeriodicFaceCarryingto Delinquent
InterestMaturityPaymentPriorAmount ofAmount ofPrincipal or
Loan TypeDescription / Location
Rate (a) (b)
Date (c)
Terms (d)
LiensMortgagesMortgages"Interest"
First mortgage loanOffice / Duluth, Georgia
L + 3.15%
2/1/2025P/IN/A$47,878 $47,585 — 
First mortgage loanOffice / Dallas, Texas
L + 3.75%
9/8/2025P/IN/A72,170 71,427 — 
First mortgage loanOffice / Orlando, Florida
L + 4.00%
10/9/2025P/IN/A72,930 72,505 — 
First mortgage loanMultifamily / Indianapolis, Indiana
L + 4.35%
2/9/2026P/IN/A80,911 80,332 — 
First mortgage loanOffice / San Diego, California
L + 4.55%
2/7/2027P/IN/A99,525 98,536 — 
First mortgage loanOffice / Houston, Texas
L + 2.00%
11/7/2024P/IN/A86,739 86,739 — 
First mortgage loanOffice / Houston, Texas
L + 2.55%
11/7/2024P/IN/A11,493 11,493 — 
First mortgage loanOffice / San Diego, California
L + 3.80%
6/5/2026P/IN/A105,000 104,304 — 
First mortgage loanOffice / Irvine, California
L + 3.45%
7/7/2026P/IN/A154,182 152,573 — 
First mortgage loanOffice / Bethesda, Maryland
L + 3.75%
9/16/2026P/IN/A52,500 51,868 — 
First mortgage loanMixed use / Fort Lauderdale, Florida
L + 1.47%
10/7/2025P/IN/A128,955 127,253 — 
First mortgage loanMultifamily / Los Angeles, California
L + 2.50%
10/7/2025P/IN/A119,401 118,510 — 
First mortgage loanRetail / Queens, New York
L + 4.15%
11/7/2026P/IN/A65,000 64,389 — 
First mortgage loanMultifamily / San Jose, California
L + 2.90%
11/7/2024P/IN/A149,100 148,131 — 
First mortgage loanMultifamily / Arlington, Virginia
S + 2.75%
12/15/2026P/IN/A82,190 81,522 — 
First mortgage loan (e)
Multifamily / Brooklyn, New York
L + 3.50%
12/17/2026P/IN/A81,000 80,200 — 
First mortgage loanOffice / McLean, Virginia
L + 3.30%
2/5/2027P/IN/A121,000 119,530 — 
First mortgage loanMultifamily / Gainesville, Florida
S + 3.20%
1/7/2027P/IN/A67,498 66,962 — 
First mortgage loanOffice / Medford, Massachusetts
S + 2.90%
1/7/2026P/IN/A115,500 114,027 — 
First mortgage loanMultifamily / Miami, Florida
S + 2.60%
1/7/2027P/IN/A154,000 152,839 — 
First mortgage loanMultifamily / Nashville, Tennessee
S + 3.00%
1/7/2027P/IN/A118,750 117,860 — 
Total loans$1,985,722 $1,968,585 $— 
Current expected credit losses (f)
— (9,930)— 
Total loans, net$1,985,722 $1,958,655 $— 
____________________________________
(a)L = one month LIBOR rate.
(b)S = one month Term SOFR rate.
(c)Final maturity date assumes all extension options are exercised.
(d)P/I = principal and interest.
(e)As of December 31, 2021, the first mortgage loan included $20.1 million of contiguous mezzanine loan components that, as a whole, have expected credit quality similar to that of a first mortgage loan.
(f)As of December 31, 2021, the Company’s current expected credit losses related to its loans held-for-investment totaled $15.2 million, $9.9 million of which was related to the CRE loans.
The following table reconciles mortgage loans on real estate for the years ended December 31 (in thousands):
S-18

Table of Contents
CIM REAL ESTATE FINANCE TRUST, INC.
SCHEDULE IV – MORTGAGE LOANS ON REAL ESTATE
(in thousands)

Year Ended December 31,
202120202019
Balance, beginning of period$428,393 $298,880 $89,762 
Additions during period:
New loans1,810,166 231,212 217,014 
Capitalized interest— 539 8,546 
Accretion of fees and other items2,998 1,909 2,441 
Total additions$1,813,164 $233,660 $228,001 
Less: Deductions during period:
Collections of principal(169,094)(47,670)(17,186)
Capitalized interest(9,469)— — 
Foreclosures(138,006)— — 
Deferred fees and other items(17,031)(3,200)(1,697)
Total deductions$(333,600)$(50,870)$(18,883)
Cure payments receivable$— $7,351 $— 
Provision for (reversal of) credit losses50,698 (60,628)— 
Net balance, end of period$1,958,655 $428,393 $298,880 
S-19