CIM REAL ESTATE FINANCE TRUST, INC. [CMRF] Filings

10-Q 1 cmft-20230930.htm 10-Q cmft-20230930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023


☐			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)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol

Name of Each Exchange on Which Registered

None

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 ☒ No ☐

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 ☒ No ☐

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

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☐

Emerging growth company

☐

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 6, 2023, there were approximately 436.8 million shares of common stock, par value $0.01 per share, of CIM Real Estate Finance Trust, Inc. outstanding.

Table of Contents

CIM REAL ESTATE FINANCE TRUST, INC.

INDEX



PART I — FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets as of Se ptember 30, 2023 and December 31, 2022			3

Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2023 and 2022			4

Condensed Consolidated Statements of Comprehensive (Loss) Income for the three and nine months ended September 30, 2023 and 2022			5

Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended S eptember 30, 2023 and 2022			6

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022			8

Notes to Condensed Consolidated Financial Statements			10

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			47

Item 3. Quantitative and Qualitative Disclosures About Market Risk			63

Item 4. Controls and Procedures			64

PART II — OTHER INFORMATION

Item 1. Legal Proceedings			66

Item 1A. Risk Factors			66

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			66

Item 3. Defaults Upon Senior Securities			66

Item 4. Mine Safety Disclosures			66

Item 5. Other Information			67

Item 6. Exhibits			68

Signature			69

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

CIM REAL ESTATE FINANCE TRUST, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts) (Unaudited)


	September 30, 2023		December 31, 2022
ASSETS
Real estate assets:
Land	$	322,912	$	578,970
Buildings, fixtures and improvements	833,123		1,462,726
Intangible lease assets	157,088		276,684
Condominium developments	106,476		130,494
Total real estate assets, at cost	1,419,599		2,448,874
Less: accumulated depreciation and amortization	(163,598)		(270,946)
Total real estate assets, net	1,256,001		2,177,928
Investment in unconsolidated entities	110,788		100,604
Real estate-related securities, at fair value, net of credit loss allowances of $25,748 and $0 as of September 30, 2023 and December 31, 2022, respectively	639,144		576,391
Loans held-for-investment and related receivables, net	4,217,646		4,043,898
Less: Current expected credit losses	(110,710)		(42,344)
Total loans held-for-investment and related receivables, net	4,106,936		4,001,554
Cash and cash equivalents	486,383		118,978
Restricted cash	23,342		57,616
Rents and tenant receivables, net	16,492		33,968


Prepaid expenses, derivative assets and other assets	8,024		26,243
Deferred costs, net	14,030		16,429
Accrued interest receivable	26,902		22,343

Total assets	$	6,688,042	$	7,132,054
LIABILITIES AND STOCKHOLDERS’ EQUITY
Repurchase facilities, notes payable and credit facilities, net	$	4,056,206	$	4,422,833
Accrued expenses and accounts payable	39,690		25,666

Due to affiliates	14,792		16,086
Intangible lease liabilities, net	13,647		19,054
Distributions payable	15,304		14,828
Deferred rental income and other liabilities	4,596		7,274
Total liabilities	4,144,235		4,505,741
Commitments and contingencies (Note 11)
Redeemable common stock	169,383		170,238
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, 437,267,415 and 437,397,414 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively	4,373		4,373
Capital in excess of par value	3,529,885		3,529,523
Accumulated distributions in excess of earnings	(1,092,042)		(1,029,287)
Accumulated other comprehensive loss	(67,792)		(48,526)
Total stockholders’ equity	2,374,424		2,456,083
Non-controlling interests	—		(8)
Total equity	2,374,424		2,456,075
Total liabilities, redeemable common stock, non-controlling interests and stockholders’ equity	$	6,688,042	$	7,132,054

The accompanying notes are an integral part of these condensed consolidated financial statements.

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CIM REAL ESTATE FINANCE TRUST, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share amounts) (Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Revenues:
Rental and other property income	$	25,073	$	43,559	$	89,536	$	170,803
Interest income	113,766		66,222		336,887		142,669
Total revenues	138,839		109,781		426,423		313,472
Expenses:
General and administrative	4,267		3,435		12,486		10,590
Interest expense, net	66,417		42,996		192,199		105,660
Property operating	6,165		4,432		11,748		17,408
Real estate tax	1,581		1,793		3,629		10,530
Expense reimbursements to related parties	3,349		3,428		10,598		10,899
Management fees	12,816		12,915		38,254		39,613
Transaction-related	82		9		158		462
Depreciation and amortization	9,193		16,948		33,622		54,104
Real estate impairment	6,910		527		11,724		19,814
Increase in provision for credit losses	50,219		5,664		101,309		15,315
Total expenses	160,999		92,147		415,727		284,395




Other income (expense):
Gain on disposition of real estate and condominium developments, net	5,968		4,454		52,154		118,135
Gain on investment in unconsolidated entities	3,136		2,195		8,172		8,858
Unrealized (loss) gain on equity security	(2,073)		(9,030)		3,281		(15,440)
Other income, net	5,172		3,630		6,346		7,207
Loss on extinguishment of debt	(1,085)		(3,344)		(5,624)		(19,584)
Total other income (loss)	11,118		(2,095)		64,329		99,176
Net (loss) income	$	(11,042)	$	15,539	$	75,025	$	128,253
Net income allocated to noncontrolling interest	—		129		8		66
Net (loss) income attributable to the Company	$	(11,042)	$	15,410	$	75,017	$	128,187
Weighted average number of common shares outstanding:
Basic and diluted	437,339,532		437,298,345		437,391,323		437,339,348
Net (loss) income per common share:
Basic and diluted	$	(0.03)	$	0.04	$	0.17	$	0.29

The accompanying notes are an integral part of these condensed consolidated financial statements.

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CIM REAL ESTATE FINANCE TRUST, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(in thousands) (Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net (loss) income	$	(11,042)	$	15,539	$	75,025	$	128,253
Other comprehensive loss
Unrealized loss on real estate-related securities	(944)		(8,709)		(32,860)		(24,496)

Amount of loss reclassified from other comprehensive loss into income as an increase in provision for credit losses	—		—		13,594		—
Unrealized gain on interest rate swaps	—		78		—		2,361
Amount of gain reclassified from other comprehensive loss into income as interest expense, net	—		(2,613)		—		(2,551)
Total other comprehensive loss	(944)		(11,244)		(19,266)		(24,686)

Comprehensive (loss) income	(11,986)		4,295		55,759		103,567
Comprehensive income attributable to noncontrolling interest	—		129		8		66
Comprehensive (loss) income attributable to the Company	$	(11,986)	$	4,166	$	55,751	$	103,501

The accompanying notes are an integral part of these condensed consolidated financial statements.

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CIM REAL ESTATE FINANCE TRUST, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share amounts) (Unaudited)


	Common Stock			Capital in Excess of Par Value		Accumulated Distributions in Excess of Earnings		Accumulated Other Comprehensive (Loss) Income		Total Stockholders’ Equity		Non-Controlling Interests		Total Equity
	Number of Shares	Par Value
Balance as of January 1, 2023	437,397,414	$	4,373	$	3,529,523	$	(1,029,287)	$	(48,526)	$	2,456,083	$	(8)	$	2,456,075
Issuance of common stock	1,637,923	17		10,746		—		—		10,763		—		10,763
Equity-based compensation	—	—		120		—		—		120		—		120
Distributions declared on common stock — $0.11 per common share	—	—		—		(45,929)		—		(45,929)		—		(45,929)
Redemptions of common stock	(1,605,529)	(16)		(10,532)		—		—		(10,548)		—		(10,548)
Changes in redeemable common stock	—	—		(213)		—		—		(213)		—		(213)

Comprehensive income (loss)	—	—		—		54,184		(26,310)		27,874		8		27,882
Balance as of March 31, 2023	437,429,808	$	4,374	$	3,529,644	$	(1,021,032)	$	(74,836)	$	2,438,150	$	—	$	2,438,150
Issuance of common stock	1,637,602	16		10,743		—		—		10,759		—		10,759
Equity-based compensation	—	—		120		—		—		120		—		120
Distributions declared on common stock — $0.11 per common share	—	—		—		(45,927)		—		(45,927)		—		(45,927)
Redemptions of common stock	(1,685,438)	(16)		(11,057)		—		—		(11,073)		—		(11,073)
Changes in redeemable common stock	—	—		315		—		—		315		—		315

Comprehensive income	—	—		—		31,875		7,988		39,863		—		39,863
Balance as of June 30, 2023	437,381,972	$	4,374	$	3,529,765	$	(1,035,084)	$	(66,848)	$	2,432,207	$	—	$	2,432,207
Issuance of common stock	1,612,843	16		10,579		—		—		10,595		—		10,595
Equity-based compensation	—	—		120		—		—		120		—		120
Distributions declared on common stock — $0.11 per common share	—	—		—		(45,916)		—		(45,916)		—		(45,916)
Redemptions of common stock	(1,727,400)	(17)		(11,332)		—		—		(11,349)		—		(11,349)
Changes in redeemable common stock	—	—		753		—		—		753		—		753

Comprehensive loss	—	—		—		(11,042)		(944)		(11,986)		—		(11,986)
Balance as of September 30, 2023	437,267,415	$	4,373	$	3,529,885	$	(1,092,042)	$	(67,792)	$	2,374,424	$	—	$	2,374,424

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CIM REAL ESTATE FINANCE TRUST, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share amounts) (Unaudited) — Continued


	Common Stock			Capital in Excess of Par Value		Accumulated Distributions in Excess of Earnings		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity		Non-Controlling Interests		Total Equity
	Number of Shares	Par Value
Balance as of January 1, 2022	437,373,981	$	4,374	$	3,529,126	$	(1,008,561)	$	2,949	$	2,527,888	$	1,073	$	2,528,961

Issuance of common stock	1,329,825	13		9,561		—		—		9,574		—		9,574
Equity-based compensation	—	—		37		—		—		37		—		37
Distributions declared on common stock — $0.09 per common share	—	—		—		(40,018)		—		(40,018)		—		(40,018)
Redemptions of common stock	(1,345,814)	(13)		(9,676)		—		—		(9,689)		—		(9,689)
Changes in redeemable common stock	—	—		115		—		—		115		—		115
Distributions to non-controlling interests	—	—		—		—		—		—		(14)		(14)
Comprehensive income (loss)	—	—		—		39,092		(3,397)		35,695		9		35,704
Balance as of March 31, 2022	437,357,992	$	4,374	$	3,529,163	$	(1,009,487)	$	(448)	$	2,523,602	$	1,068	$	2,524,670
Issuance of common stock	1,325,282	13		9,529		—		—		9,542		—		9,542
Equity-based compensation	22,892	—		120		—		—		120		—		120
Distributions declared on common stock — $0.09 per common share	—	—		—		(40,018)		—		(40,018)		—		(40,018)
Redemptions of common stock	(1,395,095)	(14)		(10,030)		—		—		(10,044)		—		(10,044)
Changes in redeemable common stock	—	—		503		—		—		503		—		503
Distributions to non-controlling interests	—	—		—		—		—		—		(16)		(16)
Comprehensive income (loss)	—	—		—		73,685		(10,045)		63,640		(72)		63,568
Balance as of June 30, 2022	437,311,071	$	4,373	$	3,529,285	$	(975,820)	$	(10,493)	$	2,547,345	$	980	$	2,548,325
Issuance of common stock	1,326,177	13		9,535		—		—		9,548		—		9,548
Equity-based compensation	—	—		120		—		—		120		—		120
Distributions declared on common stock — $0.09 per common share	—	—		—		(40,010)		—		(40,010)		—		(40,010)
Redemptions of common stock	(1,374,510)	(13)		(9,884)		—		—		(9,897)		—		(9,897)
Changes in redeemable common stock	—	—		348		—		—		348		—		348
Distributions to non-controlling interests	—	—		—		—		—		—		(1,117)		(1,117)
Comprehensive income (loss)	—	—		—		15,410		(11,244)		4,166		129		4,295
Balance as of September 30, 2022	437,262,738	$	4,373	$	3,529,404	$	(1,000,420)	$	(21,737)	$	2,511,620	$	(8)	$	2,511,612

The accompanying notes are an integral part of these condensed consolidated financial statements.

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CIM REAL ESTATE FINANCE TRUST, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands) (Unaudited)


	Nine Months Ended September 30,
	2023		2022
Cash flows from operating activities:
Net income	$	75,025	$	128,253
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization, net	33,498		54,155
Amortization of deferred financing costs	7,834		9,130

Amortization and accretion on deferred loan fees	(7,128)		(7,337)
Amortization of premiums and discounts on credit investments	(20,187)		(2,762)
Capitalized interest income on real estate-related securities and loans held-for-investment	(863)		(888)
Equity-based compensation	360		277
Straight-line rental income	(2,396)		(4,855)
Write-offs for uncollectible lease-related receivables	(177)		(1,088)
Gain on disposition of real estate assets and condominium developments, net	(52,154)		(118,135)
Loss on sale of credit investments, net	288		464
Gain on investment in unconsolidated entities	(8,172)		(8,858)
Gain on sale of marketable security	—		(22)
Unrealized (gain) loss on equity security	(3,281)		15,462
Amortization of fair value adjustment and gain on interest rate swaps	—		(2,417)
Loss (gain) on interest rate caps	5,022		(4,252)
Impairment of real estate assets	11,724		19,814
Increase in provision for credit losses	101,309		15,315
Write-off of deferred financing costs	4,606		8,092
Return on investment in unconsolidated entities	7,641		4,217
Changes in assets and liabilities:
Rents and tenant receivables, net	4,576		66,914
Prepaid expenses and other assets	13,197		(18,998)
Accrued interest receivable	(4,559)		(13,226)
Accrued expenses and accounts payable	8,272		(3,466)
Deferred rental income and other liabilities	(2,678)		(10,380)

Due to affiliates	(1,294)		(38)
Net cash provided by operating activities	170,463		125,371
Cash flows from investing activities:
Investment in unconsolidated entities	(14,454)		(79,475)
Return of investment in unconsolidated entities	4,801		625
Investment in real estate-related securities	(143,157)		(433,219)
Investment in liquid corporate senior loans	(105,068)		(160,928)
Investment in real estate assets and capital expenditures	(9,394)		(16,524)
Investment in corporate senior loans	(106,161)		(74,801)
Investment in first mortgage loans	(212,703)		(1,310,406)
Origination and exit fees received on loans held-for-investment	788		13,977
Principal payments received on loans held-for-investment	183,983		156,920
Principal payments received on real estate-related securities	57,452		16,157
Net proceeds from sale of real estate-related securities	—		132
Net proceeds from disposition of real estate assets and condominium developments	948,141		1,278,609
Net proceeds from sale of liquid corporate senior loans	74,522		52,868


Redemption of investment in unconsolidated entities	—		60,663
Proceeds from the settlement of insurance claims	—		619
Net cash provided by (used in) investing activities	$	678,750	$	(494,783)

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CIM REAL ESTATE FINANCE TRUST, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands) (Unaudited) — Continued


	Nine Months Ended September 30,
	2023		2022
Cash flows from financing activities:
Redemptions of common stock	$	(32,970)	$	(29,630)
Distributions to stockholders	(105,179)		(91,297)
Proceeds from borrowings	366,521		2,303,006
Repayments of borrowings, and prepayment penalties	(739,334)		(1,748,868)
Termination of interest rate swaps	—		(239)


Distributions to non-controlling interests	—		(1,147)
Deferred financing costs paid	(5,120)		(18,809)
Net cash (used in) provided by financing activities	(516,082)		413,016
Net increase in cash and cash equivalents and restricted cash	333,131		43,604
Cash and cash equivalents and restricted cash, beginning of period	176,594		144,173
Cash and cash equivalents and restricted cash, end of period	$	509,725	$	187,777
Reconciliation of cash and cash equivalents and restricted cash to the condensed consolidated balance sheets:
Cash and cash equivalents	$	486,383	$	124,836
Restricted cash	23,342		62,941
Total cash and cash equivalents and restricted cash	$	509,725	$	187,777
Supplemental Disclosures of Non-Cash Investing and Financing Activities:
Distributions declared and unpaid	$	15,304	$	13,337
Accrued capital expenditures	$	261	$	1,590
Construction reserve allocation	$	(190)	$	—
Accrued deferred financing costs	$	—	$	1,868



Mortgage notes payable assumed by buyer in connection with disposition of real estate assets	$	—	$	(356,477)
Equity security received in connection with disposition of real estate assets	$	—	$	(53,388)

Common stock issued through distribution reinvestment plan	$	32,117	$	28,664
Change in fair value of derivative instruments	$	—	$	2,252
Change in fair value of real estate-related securities	$	(19,266)	$	(24,497)
Conversion of preferred units to loans held-for-investment	$	—	$	68,242
Supplemental Cash Flow Disclosures:
Interest paid	$	182,692	$	79,201
Cash paid for taxes	$	1,043	$	1,318

The accompanying notes are an integral part of these condensed consolidated financial statements.

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CIM REAL ESTATE FINANCE TRUST, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2023 (Unaudited)

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 seeks to attain attractive risk-adjusted returns and create long term value for its investors by investing in a diversified portfolio of senior secured mortgage loans, creditworthy long-term net-leased property investments and other senior loan and liquid credit investments. As of September 30, 2023, the Company’s loan portfolio consisted of 346 loans with a net book value of $4.1 billion, and investments in real estate-related securities of $639.1 million. As of September 30, 2023, the Company owned 194 properties, comprising approximately 6.2 million rentable square feet of commercial space located in 37 states. As of September 30, 2023, the rentable square feet at these properties was 99.8% leased, including month-to-month agreements, if any. As of September 30, 2023, the Company owned condominium developments with a net book value of $106.5 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 Group”). CIM Group is a community-focused real estate and infrastructure owner, operator, lender and developer. CIM Group is headquartered in Los Angeles, CA, with offices in Atlanta, GA, Chicago, IL, Dallas, TX, New York, NY, Orlando, FL, Phoenix, AZ and Tokyo, Japan. CIM Group also maintains additional offices across the United States, as well as in Korea, Hong Kong and the United Kingdom to support its platform.

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. Collectively, CMFT Management, the Company’s manager, and the Investment Advisor, together with certain other affiliates of CIM Group, serve as the Company’s sponsor, which is referred to as the Company’s “sponsor” or “CIM”.

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 “Initial Offering”). The Company ceased issuing shares in the Initial Offering on April 4, 2014. At the completion of the Initial 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 Initial Offering and approximately 5.1 million shares of common stock issued pursuant to the distribution reinvestment plan (“DRIP”) portion of the Initial Offering. The remaining approximately 404,000 unsold shares from the Initial 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 Initial 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 continues to issue shares under the Secondary DRIP Offering.

The Company’s board of directors (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 Initial

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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 for participants in 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 September 30, 2023, the estimated per share NAV of the Company’s common stock was $6.57, which was established by the Board on December 19, 2022 using a valuation date of September 30, 2022. On November 9, 2023, the Board established an updated estimated per share NAV of the Company’s common stock, using a valuation date of September 30, 2023, of $6.31 per share. Commencing on November 14, 2023, distributions are reinvested in shares of the Company’s common stock under the DRIP at a price of $6.31 per share and $6.31 per share serves as the most recent estimated per share NAV for purposes of the share redemption program. The Company’s estimated per share NAVs are not audited or reviewed by its independent registered public accounting firm.

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The summary of significant accounting policies presented below is designed to assist in understanding the Company’s condensed 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 condensed consolidated financial statements.

Principles of Consolidation and Basis of Presentation

The condensed consolidated financial statements of the Company have been prepared in accordance with the rules and regulations of the SEC regarding interim financial reporting, including the instructions to Form 10-Q and Article 10 of Regulation S-X, and do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the statements for the interim periods presented include all adjustments, which are of a normal and recurring nature, necessary for a fair presentation of the results for such periods. Results for these interim periods are not necessarily indicative of full year results. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company’s audited consolidated financial statements as of and for the year ended December 31, 2022, and related notes thereto, set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. The condensed consolidated financial statements should also be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in this Quarterly Report on Form 10-Q.

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

In determining whether the Company has controlling interests in an entity and is required to consolidate the accounts in that entity, the Company analyzes its credit and real estate investments in accordance with standards set forth in GAAP to determine whether the entities are variable interest entities (“VIEs”), and if so, whether the Company is the primary beneficiary. The Company’s judgment with respect to its level of influence or control over an entity and whether the Company is the primary beneficiary of a VIE involves consideration of various factors, including the form of the Company’s ownership interest, the Company’s voting interest, the size of the Company’s investment (including loans), and the Company’s ability to participate in major policy-making decisions. The Company’s ability to correctly assess its influence or control over an entity affects the presentation of these credit and real estate investments on the Company’s condensed consolidated financial statements.

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Reclassifications

Certain amounts in the Company’s prior period condensed consolidated financial statements have been reclassified to conform to the current period presentation. The Company has chosen to break out the details of $43.0 million and $105.7 million of interest expense, net from other income, net into expenses in the Company’s condensed consolidated statement of operations for the three and nine months ended September 30, 2022, respectively, driven by the Company’s current investment portfolio composition being predominantly comprised of credit investments. This reclassification of interest expense, net did not have an impact on net income or cash flow from operating activities. In addition, the Company has chosen to break out the details of $17.7 million of accrued interest receivable from prepaid expenses, derivative assets and other assets in the Company’s condensed consolidated balance sheet as of September 30, 2022, which resulted in a corresponding breakout of $13.2 million from prepaid expenses and other assets to accrued interest receivable in the Company’s condensed consolidated statement of cash flows for the nine months ended September 30, 2022. The reclassifications had no effect on previously reported totals or subtotals.

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 condensed 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:


Buildings			40 years
Site improvements			15 years
Tenant improvements			Lesser of useful life or lease term
Intangible lease assets			Lease 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; changes in anticipated holding periods; significant increases to budgeted costs for units under development; and a reduction in prevailing market values for assets being considered for disposition. 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 nine months ended September 30, 2023, as part of the Company’s quarterly impairment review procedures, the Company recorded impairment charges of $11.6 million related to five properties due to sales prices or revised cash flow estimates that were less than their respective carrying values. Additionally, during the nine months ended September 30, 2023, one condominium unit was deemed to be impaired and its carrying value was reduced to its estimated fair value, resulting in impairment charges of $156,000. The Company’s impairment assessment as of September 30, 2023 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. During the nine months ended September 30, 2022, the Company recorded impairment charges of $11.9 million related to 19 properties, all of which was due to sales prices that were less than their respective carrying values. Additionally, during the nine months ended September 30, 2022, certain condominium units were deemed to be impaired and their carrying values were reduced to their estimated fair value, resulting in impairment charges of $7.9 million. The assumptions and uncertainties utilized in the evaluation of the impairment of real

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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 September 30, 2023, the Company did not identify any real estate assets as held for sale.

Dispositions 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. Given the Company’s current asset portfolio and strategy, the Company’s dispositions during the nine months ended September 30, 2023 and 2022 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 dispositions 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 nine months ended September 30, 2023.

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 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 condensed consolidated statements of operations. Other acquisition-related expenses continue to be expensed as incurred and are included in transaction-related expenses in the accompanying condensed consolidated statements of operations.

Investment in Unconsolidated Entities

CMFT MT JV Holdings, LLC, an indirect wholly-owned subsidiary of the Company, is engaged in an unconsolidated joint venture arrangement through CIM NP JV Holdings, LLC (“NP JV Holdings”) (the “Unconsolidated Joint Venture”), of which it owns 50% of the outstanding equity. Through the Unconsolidated Joint Venture, which holds approximately 90% of the membership interest in NewPoint JV, LLC (the “NewPoint JV”) pursuant to the terms of the Operating Agreement entered into between the Unconsolidated Joint Venture and NewPoint Bridge Lending, LLC, the Company indirectly owns approximately 45% of the outstanding equity of the NewPoint JV on a fully diluted basis. 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 NP JV Holdings’ earnings and distributions, including unrealized gains and losses as a result of changes in fair value of the NewPoint JV. The Company records its share of NP JV Holdings’ profits or losses on a quarterly basis as an adjustment to the carrying value of the investment on the Company’s condensed consolidated balance sheet and such share is recognized as a profit or loss on the condensed consolidated statements of operations. The Company recorded a gain of $3.1 million and $8.2 million, respectively,

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which represented its share of NP JV Holdings’ gain, during the three and nine months ended September 30, 2023, respectively, in the condensed consolidated statements of operations. The Company recorded a gain of $2.2 million and $3.7 million, respectively, which represented its share of NP JV Holdings’ gain, during the three and nine months ended September 30, 2022. During the nine months ended September 30, 2023, the Company contributed an additional $14.5 million in NP JV Holdings. The Company also received $12.4 million in distributions during the nine months ended September 30, 2023, $5.8 million of which can be called back by NewPoint JV through NP JV Holdings as a capital call on a future date. As of September 30, 2023 and December 31, 2022, the Company’s aggregate investment in NP JV Holdings of $110.8 million and $100.6 million, respectively, is included in investment in unconsolidated entities on the condensed consolidated balance sheets. For more information, refer to Note 6 — Investment in Unconsolidated Entities.

On March 31, 2022, the Company fully redeemed its $60.7 million investment in CIM UII Onshore, L.P. (“CIM UII Onshore”). Prior to redemption, the Company had less than 5% ownership of CIM UII Onshore and accounted 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. Prior to redemption, the Company recorded 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 such share is recognized as a profit or loss on the consolidated statements of operations. During the nine months ended September 30, 2022, the Company recorded its share of CIM UII Onshore’s gain totaling $5.2 million. The Company received distributions of $531,000 related to its investment in CIM UII Onshore, all of which was recognized as a return on investment during the nine months ended September 30, 2022.

Restricted Cash

The Company had $23.3 million and $57.6 million in restricted cash as of September 30, 2023 and December 31, 2022, respectively. Included in restricted cash was $1.7 million and $15.4 million held by lenders in lockbox accounts, as of September 30, 2023 and December 31, 2022, 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 $2.0 million and $22.6 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 September 30, 2023 and December 31, 2022, respectively. In addition, the Company had a $19.6 million deposit held as cash collateral included in restricted cash as of September 30, 2023 and December 31, 2022 to be applied by Barclays Bank PLC (“Barclays”) as repayment of certain eligible assets transferred under the master repurchase agreement with Barclays. Subsequent to September 30, 2023, Barclays applied the $19.6 million deposit held as cash collateral as repayment towards certain eligible assets financed under the repurchase facility with Barclays.

Real Estate-Related Securities

Real estate-related securities consists primarily of the Company’s investments in commercial mortgage-backed securities (“CMBS”) and equity 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 September 30, 2023, the Company classified its investments in CMBS 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 loss. During the nine months ended September 30, 2023, the Company invested $143.2 million in CMBS. As of September 30, 2023, the Company had investments in 24 CMBS with an estimated aggregate fair value of $597.6 million. The amortized cost of the Company’s available-for-sale securities is adjusted for amortization of premiums and accretion of discounts to maturity computed under the effective interest method.

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In addition, the Company had an investment in an equity security with an estimated aggregate fair value of $41.5 million as of September 30, 2023, which is comprised of Global Net Lease, Inc.’s common stock (“GNL Common Stock”). The GNL Common Stock was converted from RTL Common Stock, which was received as consideration in connection with the RTL Purchase and Sale Agreement (both of which are defined in Note 4 — Real Estate Assets), upon the consummation of the transactions pursuant to the agreement and plan of merger by and among Global Net Lease, Inc. (NASDAQ: GNL) (“GNL”) and The Necessity Retail REIT, Inc. (NASDAQ: RTL) (“RTL”), among others. The RTL Common Stock was cancelled in accordance with the terms of the aforementioned agreement and plan of merger and was converted into 0.670 shares of GNL Common Stock during the three months ended September 30, 2023. This investment is carried at its estimated fair value with unrealized gains and losses reported on the condensed consolidated statements of operations. During the three and nine months ended September 30, 2023, the Company recorded $1.4 million and $4.1 million, respectively, of dividend income on GNL Common Stock. During the three and nine months ended September 30, 2022, the Company recorded $1.4 million and $2.7 million, respectively, of dividend income on GNL Common Stock. Dividend income is included in other income, net on the condensed consolidated statements of operations. The Company also recorded $2.1 million of unrealized loss and $3.3 million of unrealized gain on GNL Common Stock during the three and nine months ended September 30, 2023, respectively, and recorded $9.0 million and $15.5 million of unrealized loss on GNL Common Stock during the three and nine months ended September 30, 2022, respectively, all of which is included in unrealized (loss) gain on equity security in the condensed consolidated statements of operations.

The Company monitors its available-for-sale securities for changes in fair value. A loss 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, such as market conditions. Such losses that are credit related are recorded as a current expected credit loss in increase in provision for credit losses on the Company’s condensed consolidated statements of operations. Subsequent cumulative adverse changes in expected cash flows on the Company’s available-for-sale securities are recognized as an increase to current expected credit losses. However, the allowance is limited to the amount by which the available-for-sale security’s amortized cost exceeds its fair value. Favorable changes in expected cash flows are recognized as a decrease to current expected credit losses. For additional information regarding the Company’s process for estimating current expected credit losses for its real estate-related securities, see the Current Expected Credit Losses section below.

Interest earned is either received in cash or capitalized to real estate-related securities in the Company’s condensed consolidated balance sheets. Interest is capitalized when certain conditions are met as specified in each security agreement. During the three and nine months ended September 30, 2023, the Company capitalized $292,000 and $863,000, respectively, of interest income to real estate-related securities. During the three and nine months ended September 30, 2022, the Company capitalized $280,000 and $826,000, respectively, of interest income to real estate-related securities.

Loans Held-for-Investment

The Company’s loans held-for-investment include loans related to real estate assets, as well as credit investments, including commercial mortgage loans 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 condensed consolidated balance sheets at amortized cost, net of any current expected credit losses, and is adjusted for amortization of premiums and accretion of discounts to maturity.

Interest earned is either received in cash or capitalized to loans held-for-investment and related receivables, net in the Company’s condensed consolidated balance sheets. Interest is capitalized when certain conditions are met as specified in each loan agreement. During the nine months ended September 30, 2022, the Company capitalized $62,000 of interest income to loans held-for-investment.

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. See the Revenue Recognition section below for additional information regarding the Company’s revenue from lending activities. As of September 30, 2023, the Company had two first mortgage loan investments on nonaccrual status with an aggregate carrying value of $206.0 million, which represented approximately 8% of the carrying value of the Company’s first mortgage loan portfolio. As of September 30, 2023, one of the Company’s liquid corporate senior loan investments was on a nonaccrual status with a carrying value of $2.9 million, which represented less than 1% of the carrying value of the Company’s liquid corporate senior loans portfolio. For more information regarding these loans, refer to Note 8 — Loans Held-For-Investment.

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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 (“CECL”) required under ASU 2016-13 reflects the Company’s current estimate of potential credit losses related to the Company’s loans held-for-investment and CMBS included in the condensed consolidated balance sheets. Changes to current expected credit losses are recognized through net income on the Company’s condensed consolidated statements of operations. While ASU 2016-13 does not require any particular method for determining current expected credit losses, it does specify current expected credit losses 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 first mortgage 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 (“FASB”) 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 its 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 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 corporate senior loans and corporate 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.

Quarterly, the Company evaluates the risk of all loans held-for-investment 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 Expectations — Acceptable 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-Satisfactory — Acceptable 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

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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.

In estimating credit losses related to real estate-related securities, management considers a variety of factors, 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. Credit losses, if any, are estimated by calculating the difference between (i) the present value of estimated cash flows expected to be collected from the security discounted at the yield determined as of the initial acquisition date or, if since revised, as of the last date previously revised, to (ii) the net amortized cost basis of the security. Significant judgment is used in estimating future cash flows for the Company’s real estate-related securities.

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.

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 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 nine months ended September 30, 2023 and 2022, the Company capitalized $9.1 million and $10.9 million, respectively, of expenses associated with the development of condominiums acquired via foreclosure, which is included in condominium developments in the accompanying condensed consolidated balance sheets. Included in the amounts capitalized during the nine months ended September 30, 2023 and 2022 was $1.0 million and $1.1 million, respectively, of capitalized interest expense.

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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 condensed 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.

Revenue from lending activities

Interest income from the Company’s loans held-for-investment and available-for-sale securities is recognized using the effective interest method (or the modified straight-line method when it is materially consistent with the effective interest method). Interest income is comprised of interest earned on loans and the accretion and amortization of net loan origination fees and discounts recognized through the life of each investment. 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 corporate senior loans is accrued as earned beginning on the settlement date. Upon the sale of a security, the realized net gain or loss is computed on the specific identification method.

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 when received or as a reduction in the amortized cost basis, based on specific facts and circumstances, until accrual is resumed when the loan becomes contractually current and the Company believes all future principal and interest will be received according to the contractual loan terms.

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 primarily floating rate first and second lien mortgage loans, either directly or through co-investments in joint ventures, related to real estate assets. This segment also includes investments in real estate-related securities, liquid corporate senior loans and corporate senior loans.

Real estate — engages primarily in acquiring and managing geographically diversified income-producing retail, industrial and office properties that are primarily single-tenant properties, which are leased to creditworthy tenants under long-term net leases.

See Note 16 — 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

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that certain new accounting requirements may have on the Company’s accounting and related reporting and disclosures in the Company’s condensed consolidated financial statements.

On March 31, 2022, the FASB issued ASU No. 2022-02, Troubled Debt Restructurings and Vintage Disclosures (Topic 326) (“ASU 2022-02”). ASU 2022-02 eliminates the recognition and measurement guidance for troubled debt restructurings (“TDRs”) and, instead, requires that an entity evaluate (consistent with the accounting for other loan modifications) whether the modification represents a new loan or a continuation of an existing loan. The ASU also enhances existing disclosure requirements and introduces new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. The ASU became effective for the Company beginning January 1, 2023 and is generally to be applied prospectively. ASU 2022-02 did not have an impact on the Company’s condensed consolidated financial statements for the nine months ended September 30, 2023.

In June 2022, the FASB issued ASU No. 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (“ASU 2022-03”). The amendments in this update clarify the guidance in Topic 820 when measuring the fair value of an equity security subject to contractual sale restrictions and introduce new disclosure requirements related to such equity securities. The amendments are effective for fiscal years beginning after December 15, 2023, with early adoption permitted. The Company does not believe the adoption of ASU 2022-03 will have an impact on its condensed consolidated financial statements and disclosures.

In August 2023, the FASB issued ASU No. 2023-05, Business Combinations-Joint Venture Formations (Subtopic 805-60): Recognition and Initial Measurement (“ASU 2023-05”). ASU 2023-05 applies to the formation of a joint venture and requires a joint venture to initially measure all contributions received upon its formation at fair value. The guidance is intended to reduce diversity in practice and provide users of joint venture financial statements with more decision-useful information. The amendments are effective prospectively for all joint venture formations with a formation date on or after January 1, 2025. The Company does not believe the adoption of ASU 2023-05 will have a material impact on its condensed consolidated financial statements and disclosures.

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 CMBS by utilizing broker-dealer quotations, reported trades or valuation estimates from pricing models to determine the reported price. Pricing models for CMBS 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 September 30,

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2023, the Company concluded that $438.1 million of its CMBS fell under Level 2 and $159.6 million of its CMBS fell under Level 3.

The Company’s equity security investment is valued using Level 1 inputs. The estimated fair value of the Company’s equity 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 September 30, 2023, the estimated fair value of the Company’s debt was $3.95 billion, compared to a carrying value of $4.07 billion. The estimated fair value of the Company’s debt as of December 31, 2022 was $4.32 billion, compared to a carrying value of $4.44 billion.

Derivative instruments — The Company’s derivative instruments are comprised of 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 September 30, 2023 and December 31, 2022, 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.

Loans held-for-investment — The Company’s loans held-for-investment are recorded at cost upon origination net of 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 commercial real estate (“CRE”) loans held-for-investment and corporate senior loans are classified in Level 3 of the fair value hierarchy. The Company’s liquid corporate 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 September 30, 2023, $576.7 million and $65.6 million of the Company’s liquid corporate senior loans were classified in Level 2 and Level 3 of the fair value hierarchy, respectively. As of December 31, 2022, $494.4 million and $168.0 million of the Company’s liquid corporate senior loans were classified in Level 2 and Level 3 of the fair value hierarchy, respectively. As of September 30, 2023, the estimated fair value of the Company’s loans held-for-investment and related receivables, net was $4.14 billion, compared to its carrying value of $4.11 billion. As of December 31, 2022, the estimated fair value of the Company’s loans held-for-investment and related receivables, net was $3.98 billion, compared to its carrying value of $4.00 billion.

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.

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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 that are required to be measured at fair value on a recurring basis as of September 30, 2023 and December 31, 2022 (in thousands):


	Balance as of September 30, 2023		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial assets:
CMBS	$	597,614	$	—	$	438,056	$	159,558
Equity security	41,530		41,530		—		—
Interest rate cap	18		—		18		—

Total financial assets	$	639,162	$	41,530	$	438,074	$	159,558


	Balance as of December 31, 2022		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial assets:
CMBS	$	538,142	$	—	$	348,241	$	189,901

Equity security	38,249		38,249		—		—
Interest rate caps	5,040		—		5,040		—
Total financial assets	$	581,431	$	38,249	$	353,281