What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-05-10 compared with 2020-11-09 · 222 added, 440 removed, 159 unchanged (81% of the section changed)

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These risks and uncertainties include those associated with (i) the scope, severity and duration of the current pandemic of COVID-19, and actions taken to contain the pandemic or mitigate its impact, (ii) the adverse effect of COVID-19 on the financial condition, results of operations, cash flows and performance of CMCT and its tenants and business partners, the real estate market and the global economy and financial markets, among others, (iii) the timing, form and operational effects of CMCT’s development activities, (iv) the ability of CMCT to raise in place rents to existing market rents and to maintain or increase occupancy levels, (v) fluctuations in market rents, including as a result of COVID-19, and (vi) general economic, market and other conditions.

Additional important factors that could cause CMCT’s actual results to differ materially from CMCT’s expectations are discussed under the section “Risk Factors” in CMCT’s Annual Report on Form 10-K for the year ended December 31, 2019 and elsewhere in this Quarterly Report.

The forward-looking statements included herein are based on current expectations and there can be no assurance that these expectations will be attained.

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CMCT does not undertake to update them to reflect changes that occur after the date they are made.

All references to our Common Stock and related share and per share amounts have been adjusted to give retroactive effect to the Reverse Stock Split, except as otherwise indicated.

The following discussion of our financial condition as of September 30, 2020 and results of operations for the three and nine months ended September 30, 2020 and 2019 should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2019.

The following discussion of our financial condition as of March 31, 2021 and results of operations for the three months ended March 31, 2021 and 2020 should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2020.

For a more detailed description of the risks affecting our financial condition and results of operations, see “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020 and in Part II, Item 1A of this Quarterly Report.

Capitalized terms used herein, but not otherwise defined, shall have the meaning ascribed to those terms in “Part I — Financial Information” of this Quarterly Report on Form 10-Q, including the notes to the consolidated financial statements contained therein.

The terms “we,” “us,” “our” and the “Company” refer to CIM Commercial Trust Corporation and its subsidiaries.

We use certain defined terms throughout this Quarterly Report on Form 10-Q that have the following meanings:

The phrase “ADR” represents average daily rate.

It is calculated as trailing 12-month room revenue divided by the number of rooms occupied.

For sold properties, ADR is presented for the Company’s period of ownership only.

The phrase “annualized rent” represents gross monthly base rent, or gross monthly contractual rent under parking and retail leases, multiplied by 12.

This amount reflects total cash rent before abatements.

Where applicable, annualized rent has been grossed up by adding annualized expense reimbursements to base rent.

The phrase “RevPAR” represents revenue per available room.

It is calculated as trailing 12-month room revenue divided by the number of available rooms.

For sold properties, RevPAR is presented for the Company’s period of ownership only.

Executive Summary

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We are operated by affiliates of CIM Group.

CIM Group is a vertically-integrated owner and operator of real assets with multi-disciplinary expertise and in-house research, acquisition, credit analysis, development, finance, leasing, and onsite property management capabilities.

CIM Group is headquartered in Los Angeles, California and has offices in Atlanta, Georgia;

Chicago, Illinois;

Dallas, Texas;

New York, New York;

Orlando, Florida;

Phoenix, Arizona;

the San Francisco Bay Area;

the Washington D.C.

and Tokyo, Japan.

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

Headquartered in Los Angeles, CA, CIM has offices across the United States and in Tokyo, Japan.

In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic.

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federal guidelines to contain the spread of COVID-19, U.S.

state and local jurisdictions, including those in which the Company operates, implemented various containment and or mitigation measures, including shelter-in-place orders and the temporary closure of non-essential businesses.

state and local jurisdictions, including those in which we operate, implemented various containment and or mitigation measures, including shelter-in-place orders and the temporary closure of non-essential businesses.

COVID-19 has triggered a period of significant global economic slowdown, and the impact of COVID-19 on the U.S.

economy will continue through the remainder of 2020 and into 2021.

The economic downturn caused by COVID-19 has negatively affected and will likely continue to negatively affect the operations of our office portfolio to the extent of, among other things:

(i) the inability of our tenants to pay rents, (ii) the deferral of rent payments by our tenants, (iii) tenants’ requests to modify terms of their leases in a way that will reduce the economic value of their leases, (iv) an increase in early lease terminations or a decrease in lease renewals and (v) our inability to re-lease vacant space in our office portfolio due to “shelter in place” or similar orders or a systemic shift in the demand for office space as a result of COVID-19.

The information provided in the two tables below provides insight into the effects of COVID-19 on our rent collections for the three months ended September 30, 2020 and for the month of October 2020.

While we provided similar information for the previous two quarters, we undertake no obligation to provide updated rent collection, concession or allowance information in the futur e.

The following information is for the three months ended September 30, 2020, is presented based on collections and agreements with tenants reached as of September 30, 2020, and is preliminary and unaudited:

Tenant Type Rental and Other Property Income Billed to Tenants % Collected % Collected by Applying the Security Deposit % Deferred % Recorded as Bad Debt % Abated

Office and Retail (1) $ 14,250,689 95.5 % 0.1 % 0.2 % 1.5 % — %

Parking $ 1,157,579 34.9 % — % — % 62.6 % — %

(1) As of November 4, 2020, the Company collected an additional 1.4% of the $14,250,689 rental and other property income billed to its office and retail tenants for the three months ended September 30, 2020.

The following information is for the month of October 2020, is presented based on collections and agreements with tenants reached as of October 31, 2020, and is preliminary and unaudited:

Tenant Type Rental and Other Property Income Billed to Tenants % Collected % Collected by Applying the Security Deposit % Deferred % Recorded as Bad Debt (2) % Abated

Office and Retail (1) $ 4,333,864 92.8 % — % — % — % — %

Parking $ 351,202 19.2 % — % — % — % — %

(1) As of November 4, 2020, the Company collected an additional 0.2% of the $4,333,864 rental and other property income billed to its office and retail tenants for the month of October 2020.

(2) As of November 4, 2020, the estimate for the percentage recorded as bad debt has not yet been determined.

For the three and nine months ended September 30, 2020, we recorded bad debt expense related to COVID-19 of $1,361,000 and $1,856,000, respectively.

Of the $1,361,000 of bad debt expense related to COVID-19 for the thr ee months ended September 30, 2020, $422,000 was related to rental and other property income billed to tenants in prior quarters.

Our rent collection rates may deteriorate the longer COVID-19 persists, which could lead to increased reserves and write-offs of both cash and deferred rent receivables.

To the extent the Company receives requests from tenants to defer or abate their rent payments, the Company will evaluate each tenant’s rent relief request on an individual basis, considering a number of factors.

No significant abatement or modifications have been reached for the three and nine months ended September

30, 2020 or for October 2020, and the Company’s management believes that any such requests that will be granted with respect to October 2020 rental payments will not result in a significant impact to the Company’s results of operations.

Not all tenant requests will be granted and the Company has not, and generally does not intend to, forego its contractual economic rights under its lease agreements.

Rent collections, rent relief requests and relief to-date may not be indicative of collections or requests in any future period.

Additionally, the spread of COVID-19 in the United States and the resulting restrictions on travel, meetings and social gatherings that have been implemented from time to time have impacted, and are expected to continue to materially impact so long as they persist, the operations of our hotel in Sacramento, California.

For the fourth quarter of 2019, the net operating income of our hotel constituted approximately 22% of our total segment net operating income.

Based on current expectations, it is highly likely that the net operating income of our hotel will continue to be negative for the fourth quarter of 2020, and likely for at least the first half of 2021.

As a result, contributions by the hotel to our funds from operations during such periods will be significantly diminished.

The following table sets forth the occupancy, average daily rate (“ADR”) and revenue per available room (“RevPAR”) for our hotel in Sacramento, California for the specified periods:

Three Months Ended June 30, Three Months Ended September 30, October,

economy will likely continue through the first half of 2021.

The information provided in the table below provides insight into the effects of COVID-19 on our rent collections for the three months ended March 31, 2021 for our parking tenants .

For the three months ended March 31, 2021, rent collections for our office and retail tenants were generally consistent with such rent collections prior to the effects of COVID-19.

We undertake no obligation to provide rent colle ction, concession or allowance information for any futur e period.

The information presented below is preliminary and unaudited, and we undertake no obligation to update such information other than as may be required by law:

Parking Tenants (1)

Three Months Ended March 31, 2021

Rent Collected (2)

Rent Abated 8.6 %

Recorded as Bad Debt 68.9 %

Total 100.0 %

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Occupancy 12.5 % 81.7 % 24.1 % 77.2 % 29.4 % 86.3 %

ADR $ 124.49 $ 173.08 $ 120.97 $ 148.06 $ 121.48 $ 162.39

RevPAR $ 15.61 $ 141.42 $ 29.16 $ 114.33 $ 35.67 $ 140.07

Our lending division has also been adversely impacted by COVID-19.

Loans originated and serviced under the SBA 7(a) Small Business Loan Program through September 30, 2020 consist primarily of loans to borrowers in the limited service hospitality sector.

Currently, our borrowers are experiencing significant reductions in cash flow as the travel and leisure industry decline caused by COVID-19 has severely impacted limited service hospitality properties.

The overwhelming majority of our borrowers received relief under the CARES Act through September 30, 2020.

However, if no further relief is provided by Congress, we expect that borrowers under our SBA 7(a) Small Business Loan Program will continue to be materially and adversely affected by the economic impact of COVID-19, potentially leading to substantially higher delinquencies on our loans.

As such, during the third quarter of 2020, we increased our loan loss reserves.

(1) There have been no significant changes in parking tenant rent collections subsequent to March 31, 2021 .

(2) Rent collected is calculated as the aggregate contractual rent collected for each month in the applicable period presented from the beginning of that month through May 6, 2021, divided by the aggregate contractual rent charged for the applicable period.

Rent collection percentages are calculated based on contractual rents (excluding percentage rents and contractually obligated reimbursements by our tenants).

Additionally, the spread of COVID-19 in the United States and the resulting restrictions on travel, meetings and social gatherings that have been implemented from time to time have impacted, a nd are expected to continue to materially impact so long as they persist, the operations of our hotel in Sacramento, California.

For the three months ended March 31, 2021, the hotel segment net operating loss of our hotel was $807,000.

Based on current expectations, it is highly likely that the net operating income of our hotel will continue to be negative for at least the first half of 2021.

As a result, contributions by the hotel to our funds from operations during such periods will be significantly diminished.

Our lending division has also suffered adverse impacts relating to COVID-19.

Loans originated and serviced under the SBA 7(a) Small Business Loan Program through March 31, 2021 consist primarily of loans to borrowers in the limited service hospitality sector.

Since the onset of COVID-19 in the United States, our borrowers have been experiencing significant reductions in cash flow as the travel and leisure industry decline caused by COVID-19 has continued to severely impact limited service hospitality properties.

The substantial majority of our borrowers received relief under the Coronavirus Aid, Relief and

Economic Security Act (the “CARES Act”) during the year ended December 31, 2020 through subsidy in the form of six months of monthly loan payments made on the borrower’s behalf pursuant to Section 1112 of the CARES Act.

Further, Section 1112 of the CARES Act was extended and, beginning February 1, 2021, the CARES Act provides up to an additional five months of subsidy of scheduled principal and interest payments (up to $9,000 per month, per loan) for the substantial majority of our borrowers.

As a result of the potential negative impact on the cash flow of our borrowers, we increased our loan loss reserves commencing with the second half of 2020.

Depending upon the length of continuation of market disruptions for the limited service hospitality industry, we may have additional increases in our loan loss reserves and ultimately an increase in loan losses, and such losses may be material.

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We have taken steps to adapt to the difficult business environment in which we operate and to strengthen our business to position our business to thrive post COVID-19.

These steps include (i) reducing our corporate overhead expenses by realigning certain support functions and reducing employee compensation at our Operator, including not appointing a replacement for our President who retired during the third quarter, (ii) focusing on appropriate cost-reduction measures at our properties, (iii) temporarily suspending the vast majority of activities related to the repositioning of our office building at 4750 Wilshire Boulevard in Los Angeles, California, and renovations at the Sheraton Grand Hotel in Sacramento, California, (iv) increasing liquidity by entering into the new 2020 unsecured revolving credit facility in May, accessing the PPPLF in June and entering into the 2018 Credit Facility Modification (as defined below) in September, and (v) amending our Master Services Agreement to eliminate the Base Service Fee .

The extent to which COVID-19 will continue to impact the Company’s operations and those of its tenants and business partners will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the COVID-19 pandemic and actions taken to contain the pandemic or mitigate its impact and the extent to which federal, state and local governments provide relief or assistance to those affected by COVID-19 (including extending the CARES Act).

The Company cannot predict the significance, extent or duration of any adverse impact of COVID-19 on its business, financial condition, results of operations, cash flow or its ability to satisfy its debt service obligations or to maintain its level of distributions on its Common Stock or Preferred Stock.

However, the Company’s business, financial condition, results of operations, and liquidity have been adversely affected and will likely continue to be adversely affected for the remainder of 2020 and at least through the first half of 2021.

As of September 30, 2020, our real estate portfolio consisted of 11 assets, all of which were fee-simple properties.

As of September 30, 2020, our eight office properties and one development site which is being used as a parking lot, totaling approximately 1.3 million rentable square feet, were 79.5% occupied (during the nine months ended September 30, 2020, we completed the development of a former surface parking lot at 3601 S Congress Avenue into approximately 44,000 square feet of additional office space, which was 0% occupied as of September 30, 2020 and is included in the occupancy percentage as of September 30, 2020), and one hotel with an ancillary parking garage, which has a total of 503 rooms, had RevPAR of $51.37 for the nine months ended September 30, 2020.

These steps include (i) reducing our corporate overhead expenses by realigning certain support functions and reducing employee compensation at our Operator, including not appointing a replacement for our President who retired during the third quarter, (ii) focusing on appropriate cost-reduction measures at our properties, (iii) temporarily suspending the vast majority of activities related to the repositioning of our office building at 4750 Wilshire Boulevard in Los Angeles, California, and renovations at the Sheraton Grand Hotel in Sacramento, California, (iv) increasing liquidity by entering into the 2020 unsecured revolving credit facility in May 2020, accessing (beginning in June 2020) funds through the Federal Reserve through the PPPLF established for lenders who originate loans pursuant to the PPP and entering into the 2018 Credit Facility Modification in September 2020, and (v) amending our Master Services Agreement to eliminate the Base Service Fee as described in Note 12 to the consolidated financial statements included in this Quarterly Report on Form 10-Q.

The extent to which COVID-19 will continue to impact our operations and those of its tenants and business partners will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of COVID-19 and actions taken to contain the pandemic or mitigate its impact and the extent to which federal, state and local governments provide relief or assistance to those affected by COVID-19 (including extending the CARES Act).

We cannot predict the significance, extent or duration of any adverse impact of COVID-19 on its business, financial condition, results of operations, cash flow or its ability to satisfy its debt service obligations or to maintain its level of distributions on its Common Stock or Preferred Stock.

However, our business, financial condition, results of operations, and liquidity have been adversely affected and will likely continue to be adversely affected for at least through the first half of 2021.

As of March 31, 2021, our real estate portfolio consisted of 12 assets, all of which were fee-simple properties.

As of March 31, 2021, our nine office properties, totaling approximately 1.3 million rentable square feet, were 78.7% occupied, our one development site was being used as a parking lot, and our one hotel with an ancillary parking garage, which has a total of 503 rooms, had RevPAR of $34.60 for the three months ended March 31, 2021.

Our strategy is principally focused on the acquisition of Class A and creative office assets in vibrant and improving metropolitan communities throughout the United States (including improving and developing such assets) in a manner that will prudently grow our NAV and cash flow per share of Common Stock.

Our strategy is centered around CIM Group’s community qualification process.

We believe this strategy provides us with a significant competitive advantage when making real estate acquisitions.

The qualification process generally takes between six months and five years and is a critical component of CIM Group’s evaluation.

As part of the community qualification process, CIM Group examines the characteristics of a market to determine whether the district possesses certain characteristics prior to the extensive efforts CIM Group’s investment professionals undertake when reviewing potential acquisitions in its qualified communities (“Qualified Communities”).

Qualified Communities generally fall into one of two categories:

(i) transitional metropolitan districts that have dedicated resources to become vibrant metropolitan communities and (ii) well-established, thriving metropolitan areas (typically major central business districts).

Qualified Communities are distinct districts which have dedicated resources to become or are currently vibrant communities where people can live, work, shop and be entertained, all within walking distance or close proximity to public transportation.

These areas also generally have high barriers to entry, high population density, positive population trends and support for investment.

We seek to utilize the CIM Group platform to acquire, improve and or develop real estate assets primarily within communities qualified by CIM Group as described below.

We believe that these assets will provide greater returns than similar assets in other markets, as a result of the population growth, public commitment and significant private investment that characterize these areas.

Over time, we seek to expand our real estate assets in communities targeted by CIM Group, supported by CIM Group’s broad real estate capabilities.

We may also participate more actively in other real estate strategies and property types in order to leverage CIM Group’s platform and capabilities for the benefit of all classes of stockholders.

This may include, without limitation, engaging in real estate development activities as well as investing in other property types such as multifamily, retail or hospitality directly, side-by-side with one or more funds of CIM Group, through direct deployment of capital in one or more funds managed by affiliates of CIM Group, or deploying capital in or originating loans that are secured directly or indirectly by properties primarily located in CIM Group’s qualified communities that meet our strategy.

Such loans may include limited and or non-recourse junior (mezzanine, B-note or 2nd lien) and senior acquisition, bridge or repositioning loans.

As a matter of prudent management, we regularly evaluate each asset within our portfolio as well as our strategies.

Such review may result in dispositions when an asset no longer fits our overall objectives or strategies, or when our view of the market value of such asset is equal to or exceeds its intrinsic value.

CIM Group Operations

CIM Group believes that a vast majority of the risks associated with acquiring real estate are mitigated by accumulating local market knowledge of the community where the asset is located.

CIM Group typically spends significant time and resources qualifying targeted communities prior to making any acquisitions.

As a result, CIM Group typically spends significant resources over a period of between six months and five years evaluating communities prior to making any acquisitions.

The distinct districts that CIM Group identifies through this process as targets for acquisitions are referred to as “Qualified Communities”.

Qualified Communities typically have dedicated resources to become, or are currently, vibrant communities where people can live, work, shop and be entertained, all within walking distance or close proximity to public transportation.

These areas, which include traditional downtown areas and suburban main streets, generally have high barriers to entry, high population density, positive population trends, a propensity for growth and support for investment.

CIM Group believes that the critical mass of redevelopment in such Qualified Communities creates positive externalities, which enhance the value of real estate assets in the area.

CIM Group targets acquisitions of diverse types of real estate assets, including retail, residential, office, parking, hotel, signage and mixed-use through CIM Group’s extensive network and its current opportunistic activities.

Since 1994, CIM Group has identified 135 Qualified Communities and has deployed capital in 75 of these communities.

Although we may not deploy capital exclusively in Qualified Communities, it is expected that most of our assets will be identified through this systematic process.

CIM Group seeks to maximize the value of its holdings through active onsite property management and leasing.

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In addition, they ensure that revenue objectives are met, lease terms are followed, receivables are collected, preventative maintenance programs are implemented, vendors are evaluated and expenses are controlled.

In addition, CIM Group’s Real Assets Management Committee reviews and approves strategic plans for each asset, including financial, leasing, marketing, property positioning and disposition plans.

In addition, CIM Group’s real assets management committee (the “Real Assets Management Committee”) reviews and approves strategic plans for each asset, including financial, leasing, marketing, property positioning and disposition plans.

The Real Assets Management Committee reviews and approves the annual business plan for each property, including its capital and operating budget.

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The Investments and Development teams interact as a cohesive team when sourcing, underwriting, acquiring, executing and managing the business plan of an opportunistic acquisition.

We seek to utilize the CIM Group platform to acquire, improve and or develop real estate assets within CIM Group’s Qualified Communities.

We believe that these assets will provide greater returns than similar assets in other markets, as a result of the population growth, public commitment, and significant private investment that characterize these areas.

Over time, we

seek to expand our real estate assets in communities targeted by CIM Group, supported by CIM Group’s broad real estate capabilities, as part of our plan to prudently grow NAV and cash flow per share of Common Stock.

As a matter of prudent management, we also regularly evaluate each asset within our portfolio as well as our strategies.

While we are principally focused on Class A and creative office assets in vibrant and improving metropolitan communities throughout the United States (including improving and developing such assets), we may also participate more actively in other CIM Group real estate strategies and product types, including, but not limited to, multi-family residential and or real estate debt, in order to broaden our participation in CIM Group’s platform and capabilities for the benefit of all classes of stockholders.

This may include, without limitation, engaging in real estate development activities as well as investing in other product types directly, side-by-side with one or more funds of CIM Group.

Financing Strategy

We may finance our future activities through one or more of the following methods:

(i) offerings of shares of Common Stock, Preferred Stock or other equity and or debt securities of the Company;

(ii) credit facilities and term loans;

(iii) the addition of senior recourse or non-recourse debt using target acquisitions as well as existing assets as collateral;

(iv) the sale of existing assets;

and or (v) cash flows from operations.

We issued to the Operator an aggregate of 203,349 shares of our Common Stock and 287,199 shares of our Series A Preferred Stock, par value $0.001 per share (“Series A Preferred Stock”), as payment, in lieu of cash, for all asset management fees owed to the Operator in respect of fees incurred during the year ended December 31, 2020.

Additionally, we issued to the Administrator 11,273 shares of Series A Preferred Stock, in lieu of cash as payment of the Base Service Fee (as defined below) in respect of the first fiscal quarter of the year ended December 31, 2020.

All of such securities were issued pursuant to the

exemption from registration contained in Section 4(a)(2) of the Securities Act.

It is likely that we will seek to pay some or part of the asset management fees for part of the year ending December 31, 2021 in shares of Series A Preferred Stock .

Rental Rate Trends

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The following table sets forth occupancy rates and annualized rent per occupied square foot across our office portfolio as of the specified periods:

As of September 30,

As of March 31,

Occupancy (1) 78.7 % 85.8 %

Annualized rent per occupied square foot (1)(2) $ 51.88 $ 50.20

(1) We sold eight office properties, one development site, and one parking garage during the nine months ended September 30, 2019 (the “2019 Asset Sales”).

Excluding these properties, the occupancy and annualized rent per occupied square foot wer e 87.2% and $47.96, respectively, as of September 30, 2019.

During the nine months ended September 30, 2020, we completed the development of a former surface parking lot at 3601 S Congress Avenue into approximately 44,000 square feet of additional office space, which was 0% occupied as of September 30, 2020 and was included in the occupancy percentage as of September 30, 2020.

(2) Represents gross monthly base rent under leases commenced as o f the specified periods, multiplied by twelve.

This amount reflects total cash rent before abatements.

Total abatements, representing lease incentives in the form of free rent, for the twelve months ended September 30, 2020 and 2019 were approximately $1,793,000 and $1,768,000, respectively.

Where applicable, annualized rent has been grossed up b y adding annualized expense reimbursements to base rent.

Annualized rent for certain office properties includes rent attributable to retail.

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(1) The information presented in this table represents historical information as of the date indicated without giving effect to any property sales occurring thereafter.

(2) Total abatements, representing lease incentives in the form of free rent, for the 12 months ended March 31, 2021 and 2020 were approximately $1.3 million and $2.1 million, respectively.

Over the next four quarters, we expect to see expiring cash rents as set forth in the table below:

For the Three Months Ended

2020 March 31,

2021 June 30,

2021 September 30,

2021 December 31,

2021 March 31, 2022

Expiring Cash Rents:

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Expiring rent per square foot (2) $ 52.16 $ 45.10 $ 58.32 $ 59.09

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(1) Month-to-month tenants occupying a total of 14,968 square feet are included in the expiring leases in the first quarter listed.

(2) Represents gross monthly base rent, as of September 30, 2020, under leases expiring during the periods above, multiplied by twelve.

This amount reflects total cash rent before abatements.

Where applicable, annualized rent has been grossed up by adding annualized expense reimbursements to base rent.

Annualized rent for certain office properties includes rent attributable to retail.

During the three and nine months ended September 30, 2020, we executed leases with terms longer than 12 months totaling 9,759 and 45,236 square feet, respectively.

The table below sets forth information on certain of our executed leases during the three and nine months ended September 30, 2020, excluding space that was vacant for more than one year, month-to-month leases, leases with an original term of less than 12 months, related party leases, and space where the previous tenant was a related party:

(2) Represents annualized rent, as of March 31, 2021, under leases expiring during the periods above.

During the three months ended March 31, 2021, we executed leases with terms longer than 12 months totaling 4,553 square feet.

The table below sets forth information on certain of our executed leases during the three months ended March 31, 2021, excluding space that was vacant for more than one year, month-to-month leases, leases with an original term of less than 12 months, related party leases, and space where the previous tenant was a related party:

Leases (1) Rentable

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Foot (2) Expiring

Three months ended September 30, 2020 3 8,159 $ 35.79 $ 35.53

Nine months ended September 30, 2020 10 39,916 $ 53.46 $ 44.48

Three months ended March 31, 2021 2 3,043 $ 59.76 $ 48.66

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(1) Based on the number of tenants that signed leases.

(2) Cash rents represent gross monthly base rent, multiplied by twelve.

(2) Cash rents represent gross monthly base rent, multiplied by 12.

This amount reflects total cash rent before abatements.

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Additionally, decreased demand and other negative trends or unforeseeable events, such as COVID-19, that impair our ability to timely renew or re-lease space could have a material adverse effect on 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 on our Common Stock or Preferred Stock.

Tenants accounting for over 10% of revenues

Rental and other property income from Kaiser, which occupied space in two of our Oakland, California properties, accounted for approximately 27.9% and 22.2% of our office segment revenues for the three months ended September 30, 2020 and 2019, respectively, and approximately 26.1% and 15.6% for the nine months ended September 30, 2020 and 2019, respectively.

Rental and other property income from Governmental Tenants, which primarily occupied space in our properties located in Washington, D.C., which were sold during the year ended December 31, 2019, accounted for approximately 2.5% and 11.2% of our office segment revenues for the three months ended September 30, 2020 and 2019, respectively, and approximately 2.3% and 20.0% for the nine months ended September 30, 2020 and 2019, respectively.

Hotel Statistics:

The following table sets forth the occupancy, ADR and RevPAR for our hotel in Sacramento, California for the specified periods:

For the Nine Months

Ended September 30,

For the Three Months

Ended March 31,

Occupancy 29.8 % 65.8 %

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This seasonality can be expected to cause quarterly fluctuations in revenues, segment net operating income, net income and cash provided by operating activities.

In addition, the hotel industry is cyclical and demand generally follows, on a lagged basis, key macroeconomic factors, such as those resulting from COVID-19.

For information regarding the effects of COVID-19 on our hotel and its renovations, see “—COVID-19” above.

Additionally, our operating results have been and will be adversely affected by the continued effects of COVID-19 and renovations of the guest rooms, food and beverage amenities, public areas, meeting rooms and other amenities at our hotel (which renovations were suspended in March 2020 but may be resumed in 2021), as well as the temporary closure of the nearby Sacramento Convention Center until its expected phased reopening beginning in mid-2021.

In addition, the hotel industry is cyclical and demand generally follows, on a lagged basis, key macroeconomic factors.

Lending Segment

Through our SBA 7(a) Small Business Loan Program, we are a national lender that primarily originates loans to small businesses.

Through our loans originated under the SBA’s 7(a) Guaranteed Loan Program, we are a national lender that primarily originates loans to small businesses.

We identify loan origination opportunities through personal contacts, internet referrals, attendance at trade shows and meetings, direct mailings, advertisements in trade publications and other marketing methods.

We also generate loans through referrals from real estate and loan brokers, franchise representatives, existing borrowers, lawyers and accountants.

Enacted in March 2020, Section 1112 provided for subsidy loan payments on all loans originated under the SBA 7(a) Small Business Loan Program in ‘regular’ servicing, which subsidies were not required to be repaid by the borrowers.

The subsidy payments were paid by the SBA and reflected the initial six months of payments, including scheduled principal and interest payments, for any new loan originated from the implementation of the CARES Act through September 27, 2020.

The overwhelming majority of borrowers under our SBA 7(a) Small Business Loan Program qualified for relief under Section 1112.

The relief ended for most of our borrowers effective September 30, 2020.

As an SBA 7(a) licensee, we are an authorized lender under the Paycheck Protection Program and during the nine months ended September 30, 2020, we originated $16,016,000 of loans under the program, all of which was still outstanding as of both November 4, 2020 and September 30, 2020, respectively.

The Paycheck Protection Program provides small businesses with uncollateralized and unguaranteed loans at an interest rate of 1.00%, with repayment deferred for a period of six months following origination.

The loans will be fully forgiven, subject to certain limitations, when used by the borrower for payroll costs, interest on mortgages, rent, and utilities.

In addition, as a SBA 7(a) licensee, we are an authorized lender under the PPP, which was enacted during the year ended December 31, 2020.

The PPP provides lenders under the program with a 100% guaranty of repayment (provided certain conditions are met) and provides small businesses with uncollateralized and unguaranteed loans at an interest rate of 1.00%.

Loans originated under the PPP will be fully forgiven, subject to certain limitations, when used by the borrower for payroll costs, interest on mortgages, rent, and utilities.

For those loans that are forgiven, the SBA will remit 100% of the remaining outstanding principal plus accrued interest to us.

For those loans whose borrowers do not meet the criteria required for forgiveness, repayment obligations commence after the applicable deferment period in equal installments over the remaining term to maturity.

A substantial portion of the loans that we originated under the Paycheck Protection Program have a two-year term and originally had a deferment period of six months;

however, as a result of amendments to the Paycheck Protection Program, these loans now are deferred for up to 16 months.

All loans approved by the SBA after June 5, 2020 have a five-year term and deferment period of 16 months.

For information regarding the effects of COVID-19 on our lending segment, see “—COVID-19” above.

For those loans whose borrowers do not meet the criteria required for forgiveness, the borrower is required to repay the remaining obligation.

Upon a borrower default of any remaining balance due, if any, the SBA will remit the balance due to us.

The loans that we originated under the PPP have a two-year term if originated prior to June 5, 2020 and have a five-year term if originated after June 5, 2020.

We obtain funds to originate loans under the PPP from the Federal Reserve on a basis that correlates to the outstanding principal balance due from our borrowers pursuant to the PPP on a dollar-for-dollar basis with a cost of funds of 0.35%.

Property Concentration

As of March 31, 2021, we had certain tenant and geographic concentrations in our property holdings.

Kaiser, which occupied office space in one of our Oakland, California properties accounted for 30.9% of our annualized rental income for the three months ended March 31, 2021.

No other tenant accounted for greater than 10.0% of our annualized rental income for the three months ended March 31, 2021.

In addition, seven of our office properties were located in California, which accounted for 84.1% of our annualized rental income for the three months ended March 31, 2021.

2021 Results of Operations

Comparison of the Three Months Ended September 30, 2020 to the Three Months Ended September 30, 2019

Net (Loss) Income

Three Months Ended September 30, Change

Comparison of the Three Months Ended March 31, 2021 to the Three Months Ended March 31, 2020

Net Loss and FFO

Three Months Ended March 31, Change

2021 2020 $ %

2 unchanged sentences

Total expenses $ 22,176 $ 26,813 $ (4,637) (17.3) %

Gain on sale of real estate $ — $ 302 $ (302) (100.0) %

Net (loss) income $ (5,330) $ 2,856 $ (8,186) (286.6) %

Net (loss) income decreased to $(5,330,000), or by $8,186,000, for the three months ended September 30, 2020, compared to net income of $2,856,000 for the three months ended September 30, 2019.

The decrease is primarily attributable to a decrease of $6,285,000 in segment net operating income (primarily as a result of the adverse impact of COVID-19), a decrease of $1,346,000 in interest and other income not allocated to our operating segments, an increase of $435,000 in interest expense not allocated to our operating segments, and a gain on sale of real estate of $302,000 recognized during the three months ended September 30, 2019, partially offset by a decrease of $340,000 in transaction costs and a decrease of $312,000 of in asset management and other fees to related parties.

Funds from Operations (“FFO”)

Net loss $ (3,671) $ (1,256) $ (2,415) 192.3 %

Net loss increased to $3.7 million, or by $2.4 million, for the three months ended March 31, 2021, compared to a net loss of $1.3 million for the three months ended March 31, 2020.

The decrease is primarily attributable to a decrease of $2.4 million in segment net operating income (primarily as a result of the adverse impact of COVID-19).

We believe that FFO is a widely recognized and appropriate measure of the performance of a REIT and that it is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs, many of which present FFO when reporting their results.

8 unchanged sentences

Three Months Ended

September 30,

(in thousands)

1 unchanged sentence

Depreciation and amortization 5,037 5,258

Gain on sale of depreciable assets — (302)

FFO attributable to common stockholders $ (3,169) $ (1,529)

(1) In connection with the 2018 Credit Facility Modification entered into in September 2020, we recognized a $281,000 loss on early extinguishment of debt related to the write off of certain unamortized loan costs resulting from such debt modification.

Such loss on early extinguishment of debt is included in, and has the effect of reducing, net income attributable to common stockholders and FFO attributable to common stockholders, because loss on early extinguishment of debt is not an adjustment prescribed by NAREIT.

FFO attributable to common stockholders was $(4,405,000) for the three months ended September 30, 2020, a decrease of $7,661,000 compared to $3,256,000 for the three months ended September 30, 2019.

The decrease in FFO is primarily attributable to a decrease of $6,285,000 in segment net operating income (primarily as a result of the adverse impact of COVID-19), a decrease of $1,346,000 in interest and other income not allocated to our operating segments, and an increase of $435,000 in interest expense not allocated to our operating segments, partially offset by a decrease of $340,000 in transaction costs and a decrease of $312,000 of in asset management and other fees to related parties.

FFO attributable to common stockholders was $(3.2) million for the three months ended March 31, 2021, a decrease of $1.6 million compared to $(1.5) million for the three months ended March 31, 2020.

The decrease in FFO is primarily attributable to a decrease of $(2.4) million in segment net operating income (primarily as a result of the adverse impact of COVID-19), partially offset by a decrease of $0.9 million in redeemable preferred stock dividends declared or accumulated due to a switch in timing as to when we declared dividends on the Series A Preferred Stock and Series D Preferred Stock.

Summary Segment Results

During the three months ended September 30, 2020 and 2019, CIM Commercial operated in three segments:

During the three months ended March 31, 2021 and 2020, CIM Commercial operated in three segments:

office and hotel properties and lending.

Set forth and described below are summary segment results for our operating segments.

Three Months Ended September 30, Change

Three Months Ended March 31, Change

2021 2020 $ %

6 unchanged sentences

Lending $ 1,368 $ 1,373 $ (5) (0.4) %

Office Revenue:

Office revenue includes rental revenue, expense reimbursements and lease termination income from office properties.

Office revenue decreased to $13,529,000, or by 19.9%, for the three months ended September 30, 2020 compared to $16,885,000 for the three months ended September 30, 2019.

The decrease is primarily d ue to the sale of two office properties in Washington, D.C., which was consummated in July 2019, and lower revenues at an office property in Beverly Hills, California due to a decrease in occupancy as compared to the third quarter of 2019.

Additionally, the economic downturn caused by COVID-19 has negatively affected and will continue to negatively affect the operations of our office portfolio for the fiscal year ending December 31, 2020 and at least through the first half of 2021 as described in “—COVID-19” above.

Hotel Revenue:

Hotel revenue decreased to $1,762,000, or by 79.3%, for the three months ended September 30, 2020, compared to $8,511,000 for the three months ended September 30, 2019, primarily due to a decrease in occupancy, average daily rate, and food, beverage, and other sundry hotel services during the third quarter of 2020 as compared to the third quarter of 2019 as a result of COVID-19.

The outbreak of COVID-19 (see “—COVID-19” above), the temporary closure of the nearby Sacramento Convention Center until its expected reopening in early 2021, and renovations of the guest rooms, food and beverage amenities, public areas, meeting rooms and other amenities at the hotel during 2020, to the extent such renovations are resumed, are expected to cause hotel revenue to decline materially during the remainder of 2020 as compared to the fourth quarter of 2019.

Lending Revenue:

Lending revenue represents revenue from our lending subsidiaries, including interest income on loans and other loan related fee income.

Lending revenue decreased to $1,981,000, or by 17.8%, for the three months ended September 30, 2020, compared to $2,411,000 for the three months ended September 30, 2019.

The decrease is primarily due to a decrease in interest income resulting from a decrease in the prime rate.

Non-Segment Revenue and Expenses:

Interest and other income $ — $ 1 $ (1) (100.0) %

Interest and other income represents revenue generated outside of our reportable segments.

Interest and other income decreased to $62,000 for the three months ended September 30, 2020, compared to $1,408,000 for the three months ended September 30, 2019.

The decrease primarily relates to interest earned during the three months ended September 30, 2019 on the proceeds from certain of the 2019 Asset Sales.

Office Expenses:

Office expenses decreased to $6,087,000, or by 16.0%, for the three months ended September 30, 2020, compared to $7,246,000 for the three months ended September 30, 2019.

The decrease is primarily due to the sale of two office properties in Washington, D.C., which was consummated in July 2019.

Hotel Expenses:

Hotel expenses decreased to $2,831,000, or by 53.7%, for the three months ended September 30, 2020, compared to $6,112,000 for the three months ended September 30, 2019, primarily as a result of decreased occupancy at the hotel due to COVID-19.

The outbreak of COVID-19 (see “—COVID-19” above) is expected to cause hotel expenses to decrease during the remainder of 2020 as compared to the fourth quarter of 2019.

Lending Expenses:

Lending expenses represent expenses from our lending subsidiaries, including interest expense, general and administrative expenses and fees to related party.

Lending expenses increased to $1,712,000, or by 12.5%, for the three months ended September 30, 2020, compared to $1,522,000 for the three months ended September 30, 2019, primarily due to additions to our general reserves (included in general and administrative expenses) as a result of COVID-19 and an increase in costs incurred and expense reimbursements as a result of the allocation of $230,000 to the lending segment for a portion of the payment made to our former President who retired effective September 16, 2020, partially offset by a decrease in interest expense as a result of a reduction in the outstanding balances of our SBA 7(a) loan-backed notes and secured borrowings.

Asset management and other fees to related parties $ (2,259) $ (2,645) $ 386 (14.6) %

Asset management fees and other fees to related parties, which have not been allocated to our operating segments, were $2,387,000 for the three months ended September 30, 2020, a decrease of $312,000, compared to $2,699,000 for the three months ended September 30, 2019.

Asset management fees totaled $2,387,000 for the three months ended September 30, 2020, compared to $2,424,000 for the three months ended September 30, 2019.

Asset management fees are calculated based on a percentage of the daily average adjusted fair value of CIM Urban’s assets, which are appraised in the fourth quarter of each year.

CIM Commercial also paid a Base Service Fee to the Administrator, a related party, which totaled $275,000 for the three months ended September 30, 2019.

On May 11, 2020, the Master Services Agreement was amended to replace the Base Service Fee with the Incentive Fee.

The amendment is effective as of April 1, 2020.

The Administrator did not earn an Incentive Fee for the three months ended September 30, 2020.

Based on the expected performance of the Company for the remainder of 2020, we will pay no Incentive Fee in 2020;

it is also very likely that we will not pay any Incentive Fee in 2021.

Expense reimbursements to related parties - corporate $ (605) $ (812) $ 207 (25.5) %

The Administrator received compensation and or reimbursement for performing certain services for CIM Commercial and its subsidiaries that are not covered by the Base Service Fee or the Incentive Fee, as the case may be.

For the three months ended September 30, 2020 and 2019, we expensed $639,000 and $630,000 for such services, respectively.

Interest expense $ (2,441) $ (2,876) $ 435 (15.1) %

Interest expense, which has not been allocated to our operating segments, was $2,473,000 for the three months ended September 30, 2020, an increase of $435,000 compared to $2,038,000 for the three months ended September 30, 2019.

The increase is primarily due to a higher average outstanding principal balance on our 2018 revolving credit facility during the three months ended September 30, 2020 compared to the three months ended September 30, 2019, as well as an increase in interest expense on our 2018 revolving credit facility resulting from the 2018 Credit Facility Modification.

General and Administrative Expenses:

General and administrative expenses, which have not been allocated to our operating segments, were $999,000 for the three months ended September 30, 2020, an increase of $192,000 compared to $807,000 for the three months ended September 30, 2019.

The increase is primarily due to a non-recurring reduction to general and administrative expenses that occurred during the three months ended September 30, 2019.

Transaction Costs:

Transaction costs totaled $0 for the three months ended September 30, 2020 and $340,000 for the three months ended September 30, 2019.

Depreciation and Amortization Expense:

Depreciation and amortization expense was $5,273,000 for the three months ended September 30, 2020, an increase of $93,000 compared to $5,180,000 for the three months ended September 30, 2019.

Loss on Early Extinguishment of Debt:

Loss on early extinguishment of debt was $281,000 for the three months ended September 30, 2020, compared to $0 for the three months ended September 30, 2019.

The loss on early extinguishment of debt was related to the write off of a portion of the deferred financing costs for the 2018 Credit Facility as a result of the reduction in total borrowing capacity in connection with the 2018 Credit Agreement Modification.

Gain on sale of real estate :

There was no gain on sale of real estate for the three months ended September 30, 2020 and $302,000 for the three months ended September 30, 2019.

We recognized a gain on sale of real estate of $302,000 in connection with the sale of two office properties and one development site in Washington, D.C, which was consummated in July 2019.

(Benefit) Provision for Income Taxes:

(Benefit) provision for income taxes was $(18,000) for the three months ended September 30, 2020 and $87,000 for the three months ended September 30, 2019.

The decrease is due to a decrease in taxable income at our taxable REIT subsidiaries (“TRSs”) during the three months ended September 30, 2020 resulting primarily from the effects of COVID-19 on our hotel in Sacramento, California.

Comparison of the Nine Months Ended September 30, 2020 to the Nine Months Ended September 30, 2019

Net (Loss) Income

Nine Months Ended September 30, Change

2020 2019 $ %

(dollars in thousands)

Total revenues $ 59,379 $ 113,348 $ (53,969) (47.6) %

Total expenses $ 70,737 $ 198,720 $ (127,983) (64.4) %

Gain on sale of real estate $ — $ 433,104 $ (433,104) (100.0) %

Net (loss) income $ (10,627) $ 347,046 $ (357,673) (103.1) %

Net (loss) income decreased to $(10,627,000), or by $(357,673,000), for the nine months ended September 30, 2020, compared to net income of $347,046,000 for the nine months ended September 30, 2019.

The decrease is primarily attributable to the gain on sale of real estate of $433,104,000 recognized during the nine months ended September 30, 2019 as well as a decrease of $30,546,000 in segment net operating income (primarily as a result of both the 2019 Asset Sales and the adverse impact of COVID-19), partially offset by $69,000,000 in impairment of real estate recognized during the nine months ended September 30, 2019, and a $29,982,000 loss on early extinguishment of debt recognized during the nine months ended September 30, 2019.

FFO represents net income (loss) attributable to common stockholders, computed in accordance with GAAP, which reflects the deduction of redeemable preferred stock dividends declared or accumulated, redeemable preferred stock deemed dividends, and redeemable preferred stock redemptions, excluding gains (or losses) from sales of real estate, impairment of real estate, and real estate depreciation and amortization.

We calculate FFO in accordance with the standards established by the NAREIT.

Like any metric, FFO should not be used as the only measure of our performance because it excludes depreciation and amortization and captures neither the changes in the value of our real estate properties that result from use or market conditions nor the level of capital expenditures and leasing commissions necessary to maintain the operating performance of our

properties, all of which have real economic effect and could materially impact our operating results.

Other REITs may not calculate FFO in accordance with the standards established by the NAREIT;

accordingly, our FFO may not be comparable to the FFOs of other REITs.

Therefore, FFO should be considered only as a supplement to net income (loss) as a measure of our performance and should not be used as a supplement to or substitute measure for cash flows from operating activities computed in accordance with GAAP.

FFO should not be used as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to pay dividends.

The following table sets forth a reconciliation of net (loss) income attributable to common stockholders to FFO attributable to common stockholders:

Nine Months Ended

September 30,

(in thousands)

Net (loss) income attributable to common stockholders (1) $ (24,606) $ 334,269

General and administrative $ (2,041) $ (1,223) $ (818) 66.9 %

Depreciation and amortization $ (5,037) $ (5,258) $ 221 (4.2) %

Impairment of real estate — 69,000

Gain on sale of depreciable assets — (433,104)

FFO attributable to common stockholders (1) $ (8,878) $ (7,840)

In connection with the sale of certain properties during the nine months ended September 30, 2019, we recognized a $29,982,000 loss on early extinguishment of debt related to the legal defeasance and prepayment of mortgage loans collateralized by such properties.

Such losses on early extinguishment of debt are included in, and have the effect of reducing, net income attributable to common stockholders and FFO attributable to common stockholders, because loss on early extinguishment of debt is not an adjustment prescribed by NAREIT.

FFO attributable to common stockholders was $(8,878,000) for the nine months ended September 30, 2020, a decrease of $(1,038,000) compared to $(7,840,000) for the nine months ended September 30, 2019.

The decrease in FFO was primarily attributable to a decrease of $30,546,000 in segment net operating income (primarily as a result of both the 2019 Asset Sales and the adverse impact of COVID-19), a decrease of $3,128,000 in interest and other income not allocated to our operating segments, an increase of $247,000 in expense reimbursements to related parties—corporate, an increase of $679,000 in redeemable preferred stock dividends declared or accumulated, and an increase of $541,000 in interest expense not allocated to our operating segments, partially offset by a decrease of $29,701,000 in loss on early extinguishment of debt, a decrease of $3,088,000 in asset management and other fees to related parties not allocated to our operating segments, and a decrease of $1,417,000 in provision for income taxes.

Summary Segment Results

During the nine months ended September 30, 2020 and 2019, CIM Commercial operated in three segments:

office and hotel properties and lending.

Set forth and described below are summary segment results for our operating segments.

Nine Months Ended September 30, Change

2020 2019 $ %

(dollars in thousands)

Office $ 42,189 $ 72,380 $ (30,191) (41.7) %

Hotel $ 11,129 $ 29,430 $ (18,301) (62.2) %

Lending $ 5,963 $ 8,312 $ (2,349) (28.3) %

Office $ 17,735 $ 30,074 $ (12,339) (41.0) %

Hotel $ 11,545 $ 19,628 $ (8,083) (41.2) %

Lending $ 4,793 $ 4,666 $ 127 2.7 %

(Provision) benefit for income taxes $ (374) $ 22 $ (396) (1,800.0) %

Office Revenue:

Office revenue includes rental revenue, expense reimbursements and lease termination income from office properties.

Office revenue decreased to $42,189,000, or by 41.7%, for the nine months ended September 30, 2020 compared to $72,380,000 for the nine months ended September 30, 2019.

The decrease is primarily due to the 2019 Asset Sales, lower revenues at an office property in Los Angeles, California, and lower revenues at an office property in Beverly Hills, California due to a decrease in occupancy as compared to the prior year.

Office revenue decreased to $13.5 million, or by 9.2%, for the three months ended March 31, 2021 compared to $14.9 million for the three months ended March 31, 2020.

The decrease is primarily due to lower revenues at an office property in Beverly Hills, California and an office property in Los Angeles, California due to decreases in occupancy as compared to the first quarter of 2020.

Hotel Revenue:

Hotel revenue decreased to $11,129,000, or by 62.2%, for the nine months ended September 30, 2020, compared to $29,430,000 for the nine months ended September 30, 2019, primarily due to decreases in occupancy, average daily rate, and food, beverage, and other sundry hotel services during the period starting in March 2020 through September 2020 as compared to the same period in the prior year as a result of COVID-19 (see “—COVID-19” above).

The outbreak of COVID-19, the temporary closure of the nearby Sacramento Convention Center until its expected reopening in early 2021, and renovations of the guest rooms, food and beverage amenities, public areas, meeting rooms and other amenities at the hotel during 2020, to the extent such renovations are resumed, are expected to cause hotel revenue to decline materially during the remainder of 2020 as compared to the fourth quarter of 2019.

Hotel revenue decreased to $1.9 million , or by 77.2%, for the three months ended March 31, 2021, compared to $8.3 million for the three months ended March 31, 2020, primarily due to a decrease in occupancy, average daily rate, and food, beverage, and other sundry hotel services during the first quarter of 2021 as compared to the first quarter of 2020 as a result of COVID-19.

The outbreak of COVID-19 will continue to negatively affect the operations of our hotel at least through the first half of 2021 as described in “—COVID-19” above.

Lending Revenue:

Lending revenue represents revenue from our lending subsidiaries, including interest income on loans and other loan related fee income.

Lending revenue decreased to $5,963,000, or by 28.3%, for the nine months ended September 30, 2020, compared to $8,312,000 for the nine months ended September 30, 2019.

The decrease is primarily due to a decrease in premium income from the sale of the guaranteed portion of our SBA 7(a) loans and a decrease in interest income resulting from a decrease in the prime rate.

Interest and Other Income:

Interest and other income represents revenue generated outside of our reportable segments.

Interest and other income decreased to $98,000 for the nine months ended September 30, 2020, compared to $3,226,000 for the nine months ended September 30, 2019.

The decrease primarily relates to interest earned during the nine months ended September 30, 2019 on the proceeds from certain of the 2019 Asset Sales.

Lending revenue represents revenue from our lending subsidiaries, including interest income on loans and other lo an related fee income.

Lending revenue increased to $3.5 million, or by 45.7%, for the three months ended March 31, 2021, compared to $2.4 million for the three months ended March 31, 2020.

The increase is primarily due to an increase in our origination of loans during the three months ended March 31, 2021, partially offset by a decrease in interest income resulting from a decline in the prime rate from 4.75% during the first quarter of 2020 to 3.25% during the first quarter of 2021.

Office Expenses:

Office expenses decreased to $17,735,000, or by 41.0%, for the nine months ended September 30, 2020, compared to $30,074,000 for the nine months ended September 30, 2019.

The decrease is primarily due to the 2019 Asset Sales.

Off ice expenses decreased to $5.7 million, or by 6.6%, for the three months ended March 31, 2021, compared to $6.1 million for the three months ended March 31, 2020.

The decrease is primarily due to a decrease in administrative payroll expenses at our office property in Oakland, California.

Hotel Expenses:

Hotel expenses decreased to $11,545,000, or by 41.2%, for the nine months ended September 30, 2020, compared to $19,628,000 for the nine months ended September 30, 2019, primarily as a result of decreased occupancy at the hotel during the period starting March 2020 through September 2020 as compared to the same period in the prior year as a result of COVID-19.

The outbreak of COVID-19 (see “—COVID-19” above) is expected to cause hotel expenses to decrease during the remainder of 2020 as compared to the fourth quarter of 2019.

Hotel expenses decreased to $2.7 million, or by 58.6%, for the three months ended March 31, 2021, compared to $6.5 million for the three months ended March 31, 2020, primarily as a result of decreased occupancy at the hotel due to the effects of COVID-19.

The outbreak of COVID-19 is expected to cause hotel expenses to decrease through at least the first half of 2021 as described in “—COVID-19” above.

Lending Expenses:

Lending expenses represent expenses from our lending subsidiaries, including interest expense, general and administrative expenses and fees to related party.

Lending expenses increased to $4,793,000, or by 2.7%, for the nine months ended September 30, 2020, compared to $4,666,000 for the nine months ended September 30, 2019, primarily due to an increase in costs incurred and expense reimbursements to related parties due to an increase in allocated expenses related to the development of the loan origination platform for the Paycheck Protection Program and assistance with origination of SBA 7(a) loans under the Paycheck Protection Program, additions to our general reserves (included in general and administrative expenses) as a result of COVID-19, an increase in costs incurred and expense reimbursements as a result of the allocation of $230,000 to the lending segment for a portion of the payment made to our former President who retired effective September 16, 2020, and an increase in general and administrative expense related to an increase in loan loss reserves, partially offset by decrease in interest expense as a result of a reduction in the outstanding balances of our SBA 7(a) loan-backed notes and secured borrowings.

Lending expenses remained constant at $1.4 million for the three months ended both March 31, 2021 and March 31, 2020.

Asset Management and Other Fees to Related Parties:

Asset management fees and other fees to related parties, which have not been allocated to our operating segments, were $7,408,000 for the nine months ended September 30, 2020, a decrease of $3,088,000, compared to $10,496,000 for the nine months ended September 30, 2019.

Asset management fees totaled $7,126,000 for the nine months ended September 30, 2020, compared to $9,669,000 for the nine months ended September 30, 2019.

Asset management fees and other fees to related parties, which have not been allocated to our operating segments, were $2.3 million for the three months ended March 31, 2021, a decrease of 14.6%, compared to $2.6 million for the three months ended March 31, 2020.

Asset management fees totaled $2.3 million for the three months ended March 31, 2021, compared to $2.4 million for the three months ended March 31, 2020.

Asset management fees are calculated based on a percentage of the daily average adjusted fair value of CIM Urban’s assets, which are appraised in the fourth quarter of each year.

The lower fees reflect a decrease in the adjusted fair value of CIM Urban’s assets due to the 2019 Asset Sales, partially offset by incremental capital expenditures incurred in the first nine months of 2020.

CIM Commercial also paid a Base Service Fee to the Administrator, a related party, which totaled $282,000 for the nine months ended September 30, 2020 compared to $827,000 for the nine months ended September 30, 2019.

The lower fees reflect a decrease in the adjusted fair value of CIM Urban’s assets as compared to the first quarter of 2020 due to lower appraised values of our same store properties, partially offset by the purchase of an office property in Austin, Texas in November 2020 and incremental capital expenditures incurred subsequent to March 31, 2020.

CIM Commercial also paid a Base Service Fee to the Administrator, a related party, which totaled $282,000 for the three months ended March 31, 2020.

On May 11, 2020, the Master Services Agreement was amended to replace the Base Service Fee with the Incentive Fee.

The amendment is effective as of April 1, 2020.

The Administrator did not earn an Incentive Fee for the three months ended September 30, 2020.

Based on the expected performance of the Company for the remainder of 2020, we will pay no Incentive Fee in 2020;

it is also very likely that we will not pay any Incentive Fee in 2021.

The amendment became effective as of April 1, 2020.

The Administrator did not earn an Incentive Fee for the three months ended March 31, 2021.

Based on our expected performance for the remainder of 2021, it is very likely that we will not pay any Incentive Fee in 2021.

Expense Reimbursements to Related Parties — Corporate:

For the nine months ended September 30, 2020 and 2019, we expensed $2,066,000 and $1,819,000 for such services, respectively.

Interest Expense:

Interest expense, which has not been allocated to our operating segments, was $8,056,000 for the nine months ended September 30, 2020, an increase of $541,000 compared to $7,515,000 for the nine months ended September 30, 2019.

The increase is primarily due to a higher average outstanding principal balance on our 2018 revolving credit facility during the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, as well as an increase in interest expense on our revolving credit facility resulting from the 2018 Credit Facility Modification, partially offset by a decrease in the LIBOR component of our interest rates and the legal defeasance of mortgage loans with an aggregate outstanding principal balance of $205,500,000 in connection with the sale of three office properties and a parking garage in Oakland, California, the prepayment of a $46,000,000 mortgage loan in connection with the sale of an office property in Washington, D.C., and the assumption of a $28,200,000 mortgage loan by the buyer of an office property in San Francisco, California, all of which were consummated in March 2019, and the legal defeasance of a mortgage loan with an outstanding principal balance of $39,500,000 in connection with the sale of an office property in Oakland, California, which was consummated in May 2019.

General and Administrative Expenses:

General and administrative expenses, which have not been allocated to our operating segments, were $3,125,000 for the nine months ended September 30, 2020, an increase of $180,000 compared to $2,945,000 for the nine months ended September 30, 2019.

The increase is primarily due to a non-recurring reduction to general and administrative expenses that occurred during the nine months ended September 30, 2019.

Transaction Costs:

Transaction costs totaled $0 for the nine months ended September 30, 2020 and $600,000 for the nine months ended September 30, 2019.

The Administrator received compensation and or rei mbursement for performing certain services for CIM Commercial and its subsidiaries that are not covered by the Base Service Fee or the Incentive Fee, as the case may be.

Expense reimbursements to related parties-corporate were $605,000 for the three months ended March 31, 2021, a decrease of 25.5%, compared to $812,000 for the three months ended March 31, 2020.

The decrease was primarily due to reductions in allocated payroll.

I nterest Expense:

Interest expense, which has not been allocated to our operating segments, was $2.4 million for the three months ended March 31, 2021, a decrease of 15.1% compared to $2.9 million for the three months ended March 31, 2020.

The decrease is primarily due to a decrease in the LIBOR component of the interest rates on our variable interest debt, partially offset by a higher average outstanding principal balance on our 2018 Revolving Credit Facility and an increase in the non-LIBOR component of the interest rate on our 2018 Revolving Credit Facility resulting from the 2018 Credit Facility Modification as compared to the three months ended March 31, 2020.

General and Administrativ e Expenses:

General and administrative expenses, which have not been allocated to our operating segments, were $2.0 million for the three months ended March 31, 2021, an increase of 66.9% compared to $1.2 million for the three months ended March 31, 2020.

The increase is primarily due to an increase in legal fees.

Depreciation and Amortization Expense:

Depreciation and amortization expense was $15,728,000 for the nine months ended September 30, 2020, a decrease of $6,267,000 compared to $21,995,000 for the nine months ended September 30, 2019.

The decrease is primarily due to the 2019 Asset Sales, and the impairment of two office properties and one development site in Washington, D.C., which decreased the carrying amounts of such properties and the depreciation thereon until such properties were held for sale in late June 2019 and sold in late July 2019.

Loss on Early Extinguishment of Debt:

Loss on early extinguishment of debt was $281,000 for the nine months ended September 30, 2020, compared to $29,982,000 for the nine months ended September 30, 2019.

The loss on early extinguishment of debt of $281,000 for the nine months ended September 30, 2020 was related to the write off of a portion of

the deferred financing costs for the 2018 Credit Facility as a result of the reduction in total borrowing capacity in connection with the 2018 Credit Agreement Modification.

In March 2019, we legally defeased mortgage loans with an aggregate outstanding principal balance of $205,500,000 in connection with the sale of three office properties and a parking garage in Oakland, California, we prepaid a $46,000,000 mortgage loan in connection with the sale of an office property in Washington, D.C., and a $28,200,000 mortgage loan was assumed by the buyer of an office property in San Francisco, California.

In May 2019, one mortgage loan, with an outstanding principal balance of $39,500,000 at such time, was legally defeased in connection with the sale of the related property.

The loss on early extinguishment of debt for the nine months ended September 30, 2019 consists of the costs associated with the aforementioned legal defeasances, repayment, and assumption of mortgage loans, the write-off of unamortized deferred loan costs, and, with regards to the legal defeasances, the difference between the purchase price of the U.S.

government securities and the outstanding principal balance of the mortgage loans that were legally defeased.

Impairment of Real Estate:

Impairment of real estate was $0 for the nine months ended September 30, 2020 and $69,000,000 for the nine months ended September 30, 2019.

In connection with our negotiation of an agreement with an unrelated third-party for the sale of 100% fee-simple interests in two office properties and one development site in Washington, D.C., which sale was consummated in July 2019, we determined that the book value of such properties exceeded their estimated fair value and recognized impairment charges totaling $69,000,000 during the nine months ended September 30, 2019.

Our determination of the fair values of such properties was based on negotiations with the third-party buyer and the contract sales price.

Gain on sale of real estate :

Gain on sale of real estate was $0 for the nine months ended September 30, 2020 and $433,104,000 for the nine months ended September 30, 2019.

We recognized a gain on sale of real estate of $289,779,000 in connection with the sale of three office properties and a parking garage in Oakland, California, $45,710,000 in connection with the sale of an office property in Washington, D.C., and $42,092,000 in connection with the sale of an office property in San Francisco, California, all of which were consummated in March 2019, and a gain on sale of real estate of $302,000 in connection with the sale of an office property in Oakland, California, which was consummated in May 2019.

(Benefit) Provision for Income Taxes:

(Benefit) provision for income taxes was $(731,000) for the nine months ended September 30, 2020 and $686,000 for the nine months ended September 30, 2019.

The decrease is due to a decrease in taxable income at our TRSs during the nine months ended September 30, 2020 resulting primarily from the effects of COVID-19 on our hotel in Sacramento, California.

Depreciation and amortization expense was $5.0 million for the three months ended March 31, 2021, a decrease of $221,000 compared to $5.3 million for the three months ended March 31, 2020.

Provision for Income Taxes:

Provision for income taxes was $374,000 for the three months ended March 31, 2021 as compared to a benefit for income taxes of $22,000 for the three months ended March 31, 2020.

The increase in provision for income taxes is due to an increase in taxable income at our taxable REIT subsidiaries during the three months ended March 31, 2021 related to the operating results of our lending division.

Cash Flow Analysis

Our cash flows from operating activities are primarily dependent upon the real estate assets owned, occupancy level of our real estate assets, the rental rates achieved through our leases, the ADR of our hotel, the collectability of rent and recoveries from our tenants, and loan related activity, many of which were negatively impacted by the effects of COVID-19 during the three months ended March 31, 2021.

Our cash flows from operating activities are also impacted by fluctuations in operating expenses and other general and administrative costs.

Net cash provided by operating activities decreased by $1.3 million for the three months ended March 31, 2021, as compared to the same period in 2020.

The decrease was primarily due to a $1.9 million increase in net loss income adjusted for depreciation and amortization expense and write-offs of uncollectible receivables, and

an increase of $4.9 million in loans funded, partially offset by an increase of $5.3 million in proceeds from the sale of guaranteed loans.

Our cash flows from investing activities are primarily related to property acquisitions and sales, expenditures for development or repositioning of properties, capital expenditures and cash flows associated with loans originated at our lending segment.

Net cash used in investing activities decreased by $1.7 million for the three months ended March 31, 2021, as compared to the same period in 2020.

The decrease was primarily due to a decrease of $5.3 million in cash used to fund additions to investments in real estate, and a $5.3 million increase of principal collected on loans during the three months ended March 31, 2021.

This was partially offset by an increase of $8.9 million in loans funded during the three months ended March 31, 2021.

Our cash flows from financing activities are generally impacted by borrowings and capital activities.

Net cash used in financing activities decreased by $3.3 million for the three months ended March 31, 2021, as compared to the same period in 2020.

The change was primarily due to an increase of $6.9 million in proceeds from debt, net of debt payments, partially offset by a decrease of $3.2 million from net proceeds from the issuance of Preferred Stock and warrants, and a $0.2 million increase in payments of Common Stock dividends and Preferred Stock dividends and redemptions.

Liquidity and Capital Resources .

Liquidity Needs

We currently have substantial cash on hand, and may finance our future activities through one or more of the following methods:

(i) offerings of shares of Common Stock, preferred stock, senior unsecured securities, and or other equity and debt securities;

(i) offerings of shares of Common Stock, Preferred Stock or other equity and or debt securities of the Company;

(ii) credit facilities and term loans;

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and or (v) cash flows from operations.

Our long-term liquidity needs will consist primarily of funds necessary for acquisitions of assets, development or repositioning of properties, or re-leasing of space in existing properties (including, without limitation, (i) a repositioning of an existing office building at 4750 Wilshire Boulevard in Los Angeles, California, which repositioning is expected to cost approximately $14,500,000, of which $2,037,000 had been paid as of September 30, 2020, provided, however, the vast majority of such repositioning has been temporarily suspended due to COVID-19, and (ii) renovations of the guest rooms, food and beverage amenities, public areas, meeting rooms and other amenities at the Sheraton Grand Hotel in Sacramento, California, which renovations are expected to cost approximately $26,300,000, of which $2,246,000 had been paid as of September 30, 2020, provided, however, the vast majority of such renovations have been temporarily suspended due to COVID-19), capital expenditures, refinancing of indebtedness, SBA 7(a) loan originations, paying distributions on our Preferred Stock or any other preferred stock we may issue, any future repurchase and or redemption of our Preferred Stock (if we choose, or are required, to pay the redemption price in cash instead of in shares of our Common Stock) and distributions on our Common Stock.

We may not have sufficient funds on hand or may not be able to obtain additional financing to cover all of these long-term cash requirements.

Our long-term liquidity needs will consist primarily of funds necessary for acquisitions of assets, development or repositioning of properties, or re-leasing of space in existing properties, capital expenditures, refinancing of indebtedness, SBA 7(a) loan originations, paying distributions on our Preferred Stock or any other preferred stock we may issue, any future repurchase and or redemption of our Preferred Stock (if we choose, or are required, to pay the redemption price in cash instead of in shares of our Common Stock) and distributions on our Common Stock.

Existing development and repositioning activities expected to be completed in the near‑term, despite their temporary suspension since March 2020 as a result of COVID-19, include (i) our repositioning of an existing office building at 4750 Wilshire Boulevard in Los Angeles, California, which repositioning is expected to cost approximately $14.5 million, of which $2.3 million had been paid as of March 31, 2021 and (ii) renovations of the guest rooms, food and beverage amenities, public areas, meeting rooms and other amenities at the Sheraton Grand Hotel in Sacramento, California, which renovations are expected to cost approximately $26.3 million, of which $2.9 million had been paid as of March 31, 2021.

Additionally, our outstanding commitments to fund loans were $60.0 million as of March 31, 2021, substantially all of which reflect prime-based loans to be originated by our subsidiary engaged in SBA 7(a) Small Business Loan Program lending.

The majority of these commitments have government guarantees of 90% (but no less than 75%) and we believe that we will be able to sell the guaranteed portion of these loans in a liquid secondary market upon fully funding the loans.

Since some commitments are expected to expire without being drawn upon, total commitment amounts do not necessarily represent future cash requirements.

We may not have sufficient funds on hand or may not be able to obtain additional financing to cover all of our long-term cash requirements.

The nature of our business, and the requirements imposed by REIT rules that we distribute a substantial majority of our REIT taxable income on an annual basis in the form of dividends, may cause us to have substantial liquidity needs over the long-term.

We will seek to satisfy our long-term liquidity needs through one or more of the methods described in the immediately preceding paragraph.

However, our ability to use any of these methods are highly uncertain and cannot be predicted, and could be affected by various risks and uncertainties, including, but not limited to, the effects of COVID-19 and other risks detailed in “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q.

If we cannot obtain additional funding for our long-term liquidity needs, and depending on the impact of COVID-19 on the revenues and expenses of our operating segments, our assets may generate lower cash flows or decline in value, or both, which may cause us to sell assets at a time when we would not otherwise do so which could have a material adverse effect on

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 on our Common Stock or Preferred Stock.

While we will seek to satisfy such needs through one or more of the methods described in the first paragraph of this section, our ability to take such actions is highly uncertain and cannot be predicted, and could be affected by various risks and uncertainties, including, but not limited to, the effects of COVID-19 and other risks detailed in “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q.

If we cannot obtain funding for our long-term liquidity needs, our assets may generate lower cash flows or decline in value, or both, which may cause us to sell assets at a time when we would not otherwise do so which could have a material adverse effect on 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 on our Common Stock or Preferred Stock.

Sources and Uses of Funds

In June 2016, we entered into six mortgage loan agreements with an aggregate principal amount of $392,000,000.

In 2017 and 2019, in connection with the sales of certain office properties, $294,900,000 in aggregate principal of these loans was defeased or assumed by the respective buyers in connection with the sale of the properties that were collateral for such loans.

In June 2016, we entered into six mortgage loan agreements with an aggregate principal amount of $392.0 million.

In 2017 and 2019, in connection with the sales of certain office properties, $294.9 million in aggregate principal of these loans

was defeased or assumed by the respective buyers in connection with the sale of the properties that were collateral for such loans.

Revolving Credit Facilities

In October 2018, CIM Commercial entered into the 2018 revolving credit facility with a bank syndicate.

In September 2020, the 2018 revolving credit facility was amended (the “2018 Credit Facility Modification”) primarily in order to modify the calculation of the borrowing base to mitigate the effect that COVID-19 has had on CIM Commercial’s ability to borrow under the facility.

As modified, CIM Commercial can borrow up to a maximum of $209,500,000, subject to a borrowing base calculation.

The 2018 revolving credit facility is secured by deeds of trust on certain properties.

Outstanding advances under the 2018 revolving credit facility bear interest (a) during the Deferral Period (as defined below), which is currently in effect, at (i) the base rate plus 1.05% or (ii) LIBOR plus 2.05% and (b) following the Deferral Period, at (i) the base rate plus 0.55% or (ii) LIBOR plus 1.55%.

As of September 30, 2020 and December 31, 2019, the variable interest rate was 2.21% and 3.29%, respectively.

The 2018 revolving credit facility is also subject to an unused commitment fee of 0.15% or 0.25% depending on the amount of aggregate unused commitments.

In October 2018, we entered into the 2018 revolving credit facility that, as amended, allows us to borrow up to $209.5 million, subject to a borrowing base calculation As of March 31, 2021 and December 31, 2020, the variable interest rate was 2.16% and 2.20%, respectively.

The 2018 revolving credit facility matures in October 2022 and provides for one one-year extension option under certain conditions.

The 2018 revolving credit facility contains customary covenants and is not subject to any financial covenants, but is subject to a borrowing base calculation that determines the amount we can borrow.

Under the terms of the 2018 Credit Facility Modification, the borrowing base calculation was modified for the period from September 2, 2020 through June 30, 2021 (the “Deferral Period”).

The Deferral Period is also subject to (i) an increase in the applicable interest rate as described at the beginning of this paragraph, (ii) the addition of a reserve amount of $15,000,000 against our borrowing availability, which may be reduced by certain capital expenditures made in respect of our properties securing the 2018 Credit Facility, and (iii) the requirement that we maintain a minimum balance of “liquid assets” of $15,000,000, defined as a combination of (a) unencumbered cash and cash equivalents and (b) up to $5,000,000 unfunded availability under the 2018 revolving credit facility.

As of November 4, 2020, September 30, 2020, and December 31, 2019, $166,500,000, $166,500,000 and $153,000,000, respectively, was outstanding under the 2018 revolving credit facility and approximately $28,000,000, $28,000,000, and $73,900,000, respectively, was available for future borrowings.

In May 2020, to further enhance its liquidity position and maintain financial flexibility, CIM Commercial entered into the 2020 unsecured revolving credit facility with a bank pursuant to which CIM Commercial can borrow up to a maximum of $10,000,000.

As of May 6, 2021, March 31, 2021, and December 31, 2020, $172.0 million, $171.5 million and $166.5 million, respectively, was outstanding under the 2018 revolving credit facility and approximately $22.5 million, $23.0 million, and $28.0 million, respectively, was available for future borrowings.

In May 2020, to further enhance its liquidity position and maintain financial flexibility, we entered into the 2020 unsecured revolving credit facility pursuant to which we can borrow up to a maximum of $10.0 million.

Outstanding advances under the 2020 unsecured revolving credit facility bear interest at the rate of 1.00%.

CIM Commercial also pays a revolving credit facility fee of 1.12% with each advance under the 2020 unsecured revolving credit facility, which fee is subject to a cap of $112,000 in the aggregate.

The 2020 unsecured revolving credit facility matures in May 2022.

The 2020 unsecured revolving credit facility contains certain customary covenants including a maximum leverage ratio and a minimum fixed charge coverage ratio, as well as certain other conditions.

As of both November 4, 2020 and September 30, 2020, $0 was outstanding under the 2020 unsecured revolving credit facility and $10,000,000 was available for future borrowings.

As of both May 6, 2021 and March 31, 2021, $0 was outstanding under the 2020 unsecured revolving credit facility and $10.0 million was available for future borrowings.

In June 2020, we borrowed funds from the Federal Reserve through the PPPLF.

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The maturity date of a PPPLF borrowing will be accelerated if, among other things, we have been reimbursed by the SBA for a loan forgiveness (to the extent of the forgiveness), we have received payment from the SBA representing exercise of the loan guarantee or we have received payment from the underlying borrower (to the extent of the payment received).

No new extensions of credit will be made under the PPPLF after September 30, 2020 unless the Federal Reserve Board and the United States Department of the Treasury decide to extend the PPPLF.

No new extensions of credit will be made under the PPPLF after June 30, 2021 unless the Federal Reserve Board and the United States Department of the Treasury decide to extend the PPPLF.

We borrowed money under the PPPLF to finance all the loans we originated under the Paycheck Protection Program.

As of both November 4, 2020 and September 30, 2020, $16,016,000 was outstanding under the PPPLF.

As of May 6, 2021 and March 31, 2021, $15.4 million and $18.1 million, respectively, was outstanding under the PPPLF.

Other Financing Activity

On May 30, 2018, we completed a securitization of the unguaranteed portion of certain of our SBA 7(a) loans receivable with the issuance of $38,200,000 of unguaranteed SBA 7(a) loan-backed notes.

On May 30, 2018, we completed a securitization of the unguaranteed portion of certain of our SBA 7(a) loans receivable with the issuance of $38.2 million of unguaranteed SBA 7(a) loan-backed notes.

The SBA 7(a) loan-backed notes mature on March 20, 2043, with monthly payments due as payments on the collateralized loans are received.

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The SBA 7(a) loan-backed notes bear interest at the lower of the one-month LIBOR plus 1.40% or the prime rate less 1.08%.

The outstanding balance of SBA 7(a) loan-backed notes on November 4, 2020, September 30, 2020, and December 31, 2019, was $14,941,000, $15,123,000 and $22,282,000, respectively.

The outstanding balance of SBA 7(a) loan-backed notes on May 6, 2021, March 31, 2021, and December 31, 2020, was $12.8 million, $12.9 million and $14.2 million, respectively.

We have junior subordinated notes with a variable interest rate that resets quarterly based on the three-month LIBOR plus 3.25%, with quarterly interest‑only payments.

The junior subordinated balance is due at maturity on March 30, 2035.

The junior subordinated notes may be redeemed at par at our option.

The aggregate principal balance of the junior subordinated notes was $27.1 million as of March 31, 2021.

As a SBA 7(a) licensee, we are an authorized lender under the PPP and have originated $26.2 million loans under the program.

During the three months ended March 31, 2021, we funded $10.2 million of additional PPP loans.

As of May 6, 2021 and March 31, 2021, we had $15.5 million and $17.3 million, respectively, outstanding in PPP loans.

We expect a significant portion of these loans will be forgiven and repaid, either in part or in full, by the SBA, including both principal and accrued interest.

Securities Offerings

We conducted a continuous public offering of Series A Preferred Units from October 2016 through January 2020, where each Series A Preferred Unit consisted of one share of Series A Preferred Stock and one Series A Preferred Warrant to purchase 0.25 of a share of Common Stock.

Since February 2020, we have been conducting a continuous public offering of up to approximately $785,000,000 of our Series A Preferred Stock and Series D Preferred Stock.

Since such time, our Series A Preferred Stock is no longer being issued as a unit with an accompanying Series A Preferred Warrant.

Each share of Series A Preferred Stock and Series D Preferred Stock has a stated value of $25.00 per share, subject to adjustment.

The selling price of the Series D Preferred Stock was $25.00 per share for all sales that occurred from the beginning of the offering to and including June 28, 2020 and is expected to be, and since June 29, 2020, has been, $24.50 per share through the end of the life of the offering.

Holders of Series A Preferred Stock and Series D Preferred Stock are entitled to receive, if, as and when authorized by our Board of Directors, and declared by us out of legally available funds, cumulative cash dividends on each share at an annual rate of 5.5% of the Series A Preferred Stock Stated Value (i.e., the equivalent of $0.34375 per share per quarter) and 5.65% of the Series D Preferred Stock Stated Value (i.e., the equivalent of $0.35313 per share per quarter), respectively.

As of September 30, 2020, we had issued 5,896,536 shares of Series A Preferred Stock, 4,603,287 Series A Preferred Warrants, and 18,737 shares of Series D Preferred Stock and received net proceeds of $134,660,000 ($133,610,000 of which was allocated to the Series A Preferred Stock, $614,000 of which was allocated to the Series A Preferred Warrants, and $436,000 of which was allocated to the Series D Preferred Stock) after commissions, fees, and allocated costs and, additionally, had issued 106,518 shares of Series A Preferred Stock as payment for services to the Administrator, for which $0 in cash proceeds were received .

As of September 30, 2020, there were 5,915,816 shares of Series A Preferred Stock, 4,603,287 Series A Preferred Warrants to purchase 1,194,159 shares of Common Stock, and 18,737 shares of Series D Preferred Stock outstanding.

As of September 30, 2020, 87,238 shares of Series A Preferred Stock and no shares of Series D Preferred Stock had been redeemed.

On November 21, 2017, we issued 8,080,740 shares of Series L Preferred Stock having an initial stated value of $28.37 per share, subject to adjustment.

In November 2019, pursuant to a tender offer, we repurchased 2,693,580 shares of Series L Preferred Stock.

Holders of Series L Preferred Stock are entitled to receive, if, as and when authorized by our Board of Directors, and declared by us out of legally available funds, cumulative cash dividends on each share of Series L Preferred Stock at an annual rate of 5.5% of the Series L Preferred Stock Stated Value (i.e., the equivalent of $1.56035 per share per year).

If the Company fails to timely declare distributions or fails to timely pay distributions on the Series L Preferred Stock, the annual dividend rate of the Series L Preferred Stock will temporarily increase by 1.0% per year, up to a maximum rate of 8.5% per annum.

However, prior to the payment of any distributions on Series L Preferred Stock in respect of a given year, the Company must first declare and pay dividends on the Common Stock in respect of such year in an aggregate amount equal to the Initial Dividend announced by our Board of Directors at the end of the prior fiscal year.

On December 20, 2019, our Board of Directors announced an Initial Dividend on shares of our Common Stock for fiscal year 2020 in the aggregate amount of $4,380,645, of which $3,319,274 had been paid as of September 30, 2020.

On March 16, 2020, the Company established an ATM program through which it may, from time to time in its discretion, offer and sell shares of Common Stock having an aggregate offering price of up to $25,000,000 through an investment banking firm acting as the sales agent.

During the tenure of the offering, we issued 4,603,287 Series A Preferred Units and received net proceeds of $105.2 million after commissions, fees and allocated costs.

The Series A Preferred Warrants are exercisable beginning on the first anniversary of the date of their original issuance until and including the fifth anniversary of the date of such issuance.

At the time of issuance, the exercise price of each Series A

Preferred Warrant was equal to a 15.0% premium to the per share estimated NAV of our Common Stock most recently published and designated as the Applicable NAV by us at the time of issuance.

However, in accordance with the terms of the Series A Preferred Warrants, the exercise price of each Series A Preferred Warrant issued prior to the Reverse Stock Split was automatically adjusted to reflect the effect of the Reverse Stock Split and, in the discretion of our Board of Directors, the exercise price and the number of shares issuable upon exercise of each Series A Preferred Warrant issued prior to the Special Dividend was adjusted to reflect the effect of the Special Dividend.

As of March 31, 2021, there were 4,603,287 Series A Preferred Warrants to purchase 1,194,159 shares of Common Stock outstanding.

Since February 2020, we have conducted a continuous public offering of up to approximately $785.0 million of our Series A Preferred Stock and Series D Preferred Stock.

We intend to use the net proceeds from the offering for general corporate purposes, acquisitions of shares of our Common Stock and Preferred Stock, whether through one or more tender offers, share repurchases or otherwise, and acquisitions consistent with our acquisition and asset management strategies.

As of March 31, 2021, we had issued 6,526,081 shares of Series A Preferred Stock and 23,190 shares of Series D Preferred Stock and received aggregate net proceeds of $148.2 million after commissions, fees and allocated costs.

On March 16, 2020, we established an “at the market” (“ATM”) program through which we may, from time to time in our discretion, offer and sell shares of Common Stock having an aggregate offering price of up to $25.0 million through an investment banking firm acting as the sales agent.

Sales of Common Stock under the ATM program may be made directly on or through Nasdaq, among other methods.

The Company intends to use the net proceeds from shares sold under the ATM program, if any, for general corporate purposes, acquisitions of shares of our preferred stock, whether through one or more tender offers, share repurchases or otherwise, and acquisitions consistent with our acquisition and asset management strategies.

As of November 4, 2020, no sales of Common Stock have been made under the ATM program.

The Company will determine whether to utilize the ATM program based on, among other things, its funding needs, the pace of its offering of Preferred Stock, the market price of its Common Stock, the costs of other funding alternatives and the return on potential acquisitions or redevelopments for which the proceeds of the offering may be used.

If current conditions continue for an extended period of time, raising capital may be more challenging than under conditions prior to COVID-19.

Available Borrowings and Cash Balances

We have typically financed our capital needs through offerings of shares of Preferred Stock, long-term secured mortgages, unsecured term loan facilities, unsecured or secured short-term credit facilities, and cash flows from operations.

As of September 30, 2020 and December 31, 2019, we had total indebtedness of $326,546,000 and $307,421,000, respectively.

As of November 4, 2020, September 30, 2020 and December 31, 2019, $166,500,000, $166,500,000 and $153,000,000, respectively, was outstanding under our 2018 revolving credit facility and approximately $28,000,000, $28,000,000 and $73,900,000, respectively, was available for future borrowings.

As of both November 4, 2020 and September 30, 2020, $0 was outstanding under the 2020 unsecured revolving credit facility and $10,000,000 was available for future borrowings.

Our cash and cash equivalents and restricted cash totaled $41,988,000 and $35,947,000 as of September 30, 2020 and December 31, 2019, respectively.

Cash Flow Analysis

Our cash flows from operating activities are primarily dependent upon the real estate assets owned, occupancy level of our real estate assets, the rental rates achieved through our leases, the RevPAR of our hotel, the collectability of rent and recoveries from our tenants, and loan related activity, many of which have been negatively impacted by the effects of COVID-19 during the nine months ended September 30, 2020.

Our cash flows from operating activities are also impacted by fluctuations in operating expenses and other general and administrative costs.

Net cash provided by operating activities totaled $7,169,000 for the nine months ended September 30, 2020 compared to $32,563,000 for the nine months ended September 30, 2019.

The decrease was primarily due to a $29,537,000 decrease in net (loss) income adjusted for the gain on sale of real estate, depreciation and amortization expense, impairment of real estate, and loss on early extinguishment of debt and a decrease of $12,557,000 in proceeds from the sale of guaranteed loans, partially offset by an increase of $17,196,000 resulting from a lower level of working capital used compared to the prior period, an increase of $3,556,000 in loans funded, and an increase of $1,123,000 in principal collected on loans subject to secured borrowings.

Net cash used in investing activities for the nine months ended September 30, 2020 was $31,894,000 compared to net cash provided by investing activities of $920,501,000 in the corresponding period in 2019.

The decrease was primarily due to $941,032,000 of cash generated from the sale of real estate during the nine months ended September 30, 2019, and a $17,202,000 increase in loans funded during the nine months ended September 30, 2020.

This was partially offset by a decrease of $6,736,000 in cash used to fund additions to investments in real estate during the nine months ended September 30, 2020.

Our cash flows from financing activities are generally impacted by borrowings and capital activities.

Net cash provided by financing activities for the nine months ended September 30, 2020 was $30,766,000 compared to net cash used in financing activities of $1,006,191,000 in the corresponding period in 2019.

The decrease was primarily due to the $613,294,000 payment of special cash dividends for the nine months ended September 30, 2019.

The source of funds used to pay dividends of $17,783,000 for the nine months ended September 30, 2020, which include an annual Series L dividend of $8,406,000 paid in January 2020, and dividends of $642,434,000 for the nine months ended September 30, 2019, which include an annual Series L dividend of $14,045,000 paid in January 2019, were, in both of the aforementioned periods, cash provided by operating activities and cash on hand at the beginning of the respective periods.

We had net debt borrowings inclusive of secured borrowings and SBA 7(a) loan-backed notes of the lending business, of $18,757,000 for the nine months ended September 30, 2020, compared with net debt payments of $117,602,000 for the nine months ended September 30, 2019.

Additionally, for the nine months ended September 30, 2019, we had an outflow of $268,194,000 for investments in marketable securities in connection with the legal defeasance of certain mortgage loans and an outflow of $5,660,000 for prepayment penalties and other payments related to the early extinguishment of debt in connection with the 2019 Asset Sales.

Summarized Contractual Obligations, Commitments and Contingencies

The following summarizes our contractual obligations as of September 30, 2020:

Payments Due by Period

Contractual Obligations Total 2020 2021 - 2022 2023 - 2024 Thereafter

(in thousands)

Mortgage payable $ 97,100 $ — $ — $ — $ 97,100

2018 revolving credit facility 166,500 — 166,500 — —

Secured borrowings (1) 8,552 107 884 939 6,622

Other (1) (2) 58,209 450 17,875 1,827 38,057

Interest and fees:

Debt (3) 48,910 2,362 18,024 10,909 17,615

Other Contractual Obligations:

Borrower advances 3,614 3,614 — — —

Loan commitments 5,864 5,864 — — —

Tenant improvements 4,375 859 1,059 2,457 —

Total contractual obligations $ 393,124 $ 13,256 $ 204,342 $ 16,132 $ 159,394

(1) Secured borrowings, borrowed funds from the Federal Reserve through the PPPLF, and principal payments on SBA 7(a) loan-backed notes (which are included in Other) are generally dependent upon cash flows received from the underlying loans.

Our estimate of their repayment is based on scheduled payments on the underlying loans.

Our estimate will differ from actual amounts to the extent we experience prepayments and or loan liquidations or charge-offs.

No payment is due unless payments are received from the borrowers on the underlying loans.

(2) Represents the junior subordinated notes, SBA 7(a) loan-backed notes, and borrowed funds from the Federal Reserve through the PPPLF.

(3) Excludes premiums and discounts.

For the mortgage payable, borrowed funds from the Federal Reserve through the PPPLF and junior subordinated notes, the interest expense is calculated based on the effective interest rate on the related debt as of September 30, 2020.

For our 2018 revolving credit facility, we use the balance outstanding and the applicable rates in effect as of September 30, 2020, to calculate interest expense and the unused commitment fees.

For our secured borrowings related to our government guaranteed loans, we use the variable rate in effect as of September 30, 2020.

We intend to use the net proceeds from shares sold under the ATM program, if any, for general corporate purposes, acquisitions of shares of our Preferred Stock, whether through one or more tender offers, share repurchases or otherwise, and acquisitions consistent with our acquisition and asset management strategies.

As of May 10, 2021, no sales of Common Stock have been made under the ATM program.

Dividends and Redemptions

Holders of Series A Preferred Stock, Series D Preferred Stock and Series L Preferred Stock are entitled to receive, if, as and when authorized by our Board of Directors, and declared by us out of legally available funds, cumulative cash dividends on each share at an annual rate of 5.50% of the Series A Preferred Stock Stated Value (i.e., the equivalent of $0.34375 per share per quarter), 5.65% of the Series D Preferred Stock Stated Value (i.e., the equivalent of $0.35313 per share per quarter), and 5.50% of the Series L Preferred Stock Stated Value (i.e., the equivalent of $1.56035 per share per year), respectively.

However, if we fail to timely declare distributions or fail to timely pay any distribution on the Series L Preferred Stock, the annual dividend rate of the Series L Preferred Stock will temporarily increase by 1.00% per year, up to a maximum annual rate of 8.50% of the Series L Preferred Stock Stated Value.

Dividends on each share of Preferred Stock begin accruing on, and are cumulative from, the date of issuance.

Prior to the payment of any distributions on Series L Preferred Stock in respect of a given year, we must first declare and pay dividends on the Common Stock in respect of such year in an aggregate amount equal to the Initial Dividend announced by our Board of Directors at the end of the prior fiscal year.

On December 22, 2020, we announced an Initial Dividend on shares of our Common Stock for fiscal year 2021 in the aggregate amount of $4,448,223, of which $1,112,000 had been paid as of March 31, 2021.

We expect to pay dividends on the Series A Preferred Stock and Series D Preferred Stock in arrears on a monthly basis, and on the Series L Preferred Stock in arrears on a yearly basis, unless our results of operations, our general financing conditions, general economic conditions, applicable requirements of the MGCL or other factors make it imprudent to do so.

The timing and amount of dividends declared and paid on our Preferred Stock will be determined by our Board of Directors, in its sole discretion, and may vary from time to time.

Holders of our Common Stock are entitled to receive dividends, if, as and when authorized by the Board of Directors and declared by us out of legally available funds.

In determining our dividend policy, the Board of Directors considers many factors including the amount of cash resources available for dividend distributions, capital spending plans, cash flow, our financial position, applicable requirements of the MGCL, any applicable contractual restrictions, and future growth in NAV and cash flow per share prospects.

Consequently, the dividend rate on a quarterly basis does not necessarily correlate directly to any individual factor.

From the date of issuance until the fifth anniversary of the date of issuance, holders of Series A Preferred Stock and Series D Preferred Stock may require us to redeem such shares at a discount to the Series A Preferred Stated Value and Series D Preferred Stated Value, respectively.

From and after the fifth anniversary of the date of original issuance of any share of our Preferred Stock, we generally (subject to certain conditions) have the right (but not the obligation) to redeem, and the holder of such share may require us to redeem, such share at a redemption price equal to 100% of the stated value of such share, plus any accrued but unpaid dividends in respect of such share as of the effective date of the redemption.

The redemption price in respect of any share of Preferred Stock, whether redeemed at our option or at the option of a holder, may be paid in cash or in shares of

Common Stock in our sole discretion.

During the three months ended March 31, 2021, we redeemed 136,476 shares of Series A Preferred Stock and no shares of Series D Preferred Stock and Series L Preferred Stock.

Off-Balance Sheet Arrangements

As of September 30, 2020, we did not have any off-balance sheet arrangements.

As of March 31, 2021, we did not have any off-balance sheet arrangements.

Recently Issued Accounting Pronouncements

Our recently issued accounting pronouncements are described in Note 2 to the consolidated financial statements included in this Quarterly Report on Form 10-Q.

Series A Preferred Stock — Holders of Series A Preferred Stock are entitled to receive, if, as and when authorized by our Board of Directors, and declared by us out of legally available funds, cumulative cash dividends on each share of Series A Preferred Stock at an annual rate of 5.5% of the Series A Preferred Stock Stated Value (i.e., the equivalent of $0.34375 per share per quarter).

Dividends on each share of Series A Preferred Stock begin accruing on, and are cumulative from, the date of issuance.

We expect to pay dividends on the Series A Preferred Stock in arrears on a monthly basis in accordance with the foregoing provisions, unless our results of operations, our general financing conditions, general economic conditions, applicable requirements of the MGCL or other factors make it imprudent to do so.

The timing and amount of payment of dividends on the Series A Preferred Stock will be determined by our Board of Directors, in its sole discretion, and may vary from time to time.

Cash dividends on our Series A Preferred Stock paid in respect of the nine months ended September 30, 2020 consist of the following:

Declaration Date Payment Date Number of Shares Cash Dividends

(in thousands)

June 3, 2020 October 15, 2020 5,809,298 $ 673

June 3, 2020 September 15, 2020 5,696,822 $ 652

June 3, 2020 August 17, 2020 5,466,743 $ 629

March 2, 2020 July 15, 2020 5,324,109 $ 594

March 2, 2020 June 15, 2020 5,033,203 $ 563

March 2, 2020 May 15, 2020 4,853,969 $ 554

January 28, 2020 April 15, 2020 4,827,633 $ 547

January 28, 2020 March 16, 2020 4,684,453 $ 530

January 28, 2020 February 18, 2020 4,581,353 $ 516

On September 2, 2020, we declared a quarterly cash dividend of $0.34375 per share of our Series A Preferred Stock, or portion thereof for issuances during the period from October 1, 2020 to December 31, 2020.

As a result, $0.114583 per share will be paid on November 16, 2020 to holders of record of Series A Preferred Stock at the close of business on November 5, 2020, $0.114583 per share will be paid on December 15, 2020 to holders of record of Series A Preferred Stock at the close of business on December 5, 2020, and $0.114583 per share will be paid on January 15, 2021 to holders of record of Series A Preferred Stock at the close of business on January 5, 2021.

Series D Preferred Stock — Holders of Series D Preferred Stock are entitled to receive, if, as and when authorized by our Board of Directors, and declared by us out of legally available funds, cumulative cash dividends on each share of Series D Preferred Stock at an annual rate of 5.65% of the Series D Preferred Stock Stated Value (i.e., the equivalent of $0.35313 per share per quarter) (the “Series D Dividend”).

Dividends on each share of Series D Preferred Stock begin accruing on, and are cumulative from, the date of issuance.

We expect to pay the Series D Dividend in arrears on a monthly basis in accordance with the foregoing provisions, unless our results of operations, our general financing conditions, general economic conditions, applicable requirements of the MGCL or other factors make it imprudent to do so.

The timing and amount of the Series D Dividend will be determined by our Board of Directors, in its sole discretion, and may vary from time to time.

Cash dividends on our Series D Preferred Stock paid in respect of the nine months ended September 30, 2020 consist of the following:

Declaration Date Payment Date Number of Shares Cash Dividends

(in thousands)

June 3, 2020 October 15, 2020 18,737 $ 2

June 3, 2020 September 15, 2020 18,737 $ 2

June 3, 2020 August 17, 2020 6,900 $ 1

March 2, 2020 July 15, 2020 6,900 $ 1

March 2, 2020 June 15, 2020 6,900 $ 1

March 2, 2020 May 15, 2020 6,580 $ 1

March 2, 2020 April 15, 2020 5,980 $ 1

March 2, 2020 March 16, 2020 5,600 $ 0

On September 2, 2020, we declared a quarterly cash dividend of $0.353125 per share of our Series D Preferred Stock, or portion thereof for issuances during the period from October 1, 2020 to December 31, 2020.

As a result, $0.117708 per share will be paid on November 16, 2020 to holders of record of Series D Preferred Stock at the close of business on November 5, 2020, $0.117708 per share will be paid on December 15, 2020 to holders of record of Series D Preferred Stock at the close of business on December 5, 2020, and $0.117708 per share will be paid on January 15, 2021 to holders of record of Series D Preferred Stock at the close of business on January 5, 2021.

Series L Preferred Stock — Holders of Series L Preferred Stock are entitled to receive, if, as and when authorized by our Board of Directors, and declared by us out of legally available funds, cumulative cash dividends on each share of Series L Preferred Stock at an annual rate of 5.5% of the Series L Preferred Stock Stated Value (i.e., the equivalent of $1.56035 per share per year).

Dividends on each share of Series L Preferred Stock began accruing on, and are cumulative from, the date of issuance.

We expect to pay dividends on the Series L Preferred Stock in arrears on an annual basis in accordance with the foregoing provisions, unless our results of operations, our general financing conditions, general economic conditions, applicable requirements of the MGCL or other factors make it imprudent to do so.

Accumulated cash dividends on our Series L Preferred Stock for the nine months ended September 30, 2020 are included in the numerator for purposes of calculating basic and diluted net (loss) income attributable to common stockholders per share and consist of the following:

Accumulation Period

Start Date End Date Number of Shares Dividends Accumulated

(in thousands)

July 1, 2020 September 30, 2020 5,387,160 $ 2,101

April 1, 2020 June 30, 2020 5,387,160 $ 2,101

January 1, 2020 March 31, 2020 5,387,160 $ 2,101

Common Stock — Holders of our Common Stock are entitled to receive dividends, if, as and when authorized by the Board of Directors and declared by us out of legally available funds.

In determining our dividend policy, the Board of Directors considers many factors including the amount of cash resources available for dividend distributions, capital spending plans, cash flow, financial position, applicable requirements of the MGCL, any applicable contractual restrictions, and future growth in NAV and cash flow per share prospects.

Consequently, the dividend rate on a quarterly basis does not necessarily correlate directly to any individual factor.

Cash dividends per share of Common Stock declared during the nine months ended September 30, 2020 consist of the following:

Declaration Date Payment Date Type Cash Dividend Per Common Share

September 2, 2020 September 29, 2020 Regular Quarterly $ 0.075

June 3, 2020 June 29, 2020 Regular Quarterly $ 0.075

March 2, 2020 March 25, 2020 Regular Quarterly $ 0.075

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis