What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-09 compared with 2021-08-09 · 163 added, 156 removed, 305 unchanged (51% of the section changed)

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Forward-looking statements are necessarily estimates reflecting the judgment of CMCT’s management and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements.

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.

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, and the winding-down or termination of governmental assistance programs implemented to address the pandemic, (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 the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 16, 2021 and amended on April 30, 2021 (the “2020 Form 10-K”).

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

The following discussion of our financial condition as of June 30, 2021 and results of operations for the three and six months ended June 30, 2021 and 2020 should be read in conjunction with the 2020 Form 10-K.

The following discussion of our financial condition as of September 30, 2021 and results of operations for the three and nine months ended September 30, 2021 and 2020 should be read in conjunction with the 2020 Form 10-K.

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 the 2020 Form 10-K and in Part II, Item 1A of this Quarterly Report.

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We primarily own and operate Class A and creative office real assets in vibrant and improving metropolitan communities throughout the United States.

We, supported by the broad real estate capabilities of CIM Group, seek to focus on the acquisition, ownership, operation and development of cash flowing creative office, multifamily, retail, parking, infill industrial and limited service hospitality real assets in communities qualified by CIM Group.

We, supported by the broad real estate capabilities of CIM Group, seek to focus on the acquisition, ownership, operation and development of creative office, multifamily, retail, parking, in-fill industrial and limited service hospitality real assets that generate consistent, positive cash flow in communities qualified by CIM Group.

These communities are located in areas that include traditional downtown areas and suburban main streets, which have high barriers to entry, high population density, positive population trends and a propensity for growth.

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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.

We intend that no acquisition will exceed more than 10% of our gross asset value.

We intend that no acquisition will exceed 10% of our gross asset value at the time of acquisition but management may ultimately determine to execute on more significant acquisitions.

We are operated by affiliates of CIM Group.

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and world economy initially showed signs of recovery from the impact of COVID-19 as vaccination rates increased, virus caseloads declined and businesses, schools and public services began to reopen.

However, the emergence of variant strains of COVID-19 has threatened to slow or reverse these trends in the third quarter of 2021 and beyond.

However, the emergence of variant strains of COVID-19 and the concomitant disruption to the global supply chain have threatened to slow or reverse these trends in the fourth quarter of 2021 and beyond.

As a result, there continues to be uncertainty regarding the continued impact of COVID-19 on the U.S.

and international economies.

The information provided in the table below provides insight into the effects of COVID-19 on our rent collections for the three months ended June 30, 2021 for our parking tenants .

For the three months ended June 30, 2021, rent collections for our office and retail tenants were generally consistent with such rent collections prior to the effects of COVID-19.

The information provided in the table below provides insight into the effects of COVID-19 on our rent collections for the three months ended September 30, 2021 for our parking tenants .

For the three months ended September 30, 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.

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Parking Tenants (1)

Three Months Ended June 30, 2021

Three Months Ended September 30, 2021

Rent Collected (2)

Recorded as Bad Debt — %

Uncollected Rent 19.5 %

Total 100.0 %

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(1) There have been no significant changes in parking tenant rent collections subsequent to June 30, 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 August 2, 2021, divided by the aggregate contractual rent charged for the applicable period.

(1) There have been no significant changes in parking tenant rent collections subsequent to September 30, 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 November 4, 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 June 30, 2021, the hotel segment net operating loss of our hotel was $2,000.

Based on current expectations, we anticipate that the net operating income of our hotel for the second half of 2021 will be lower as compared to pre-COVID-19 levels for the comparable periods.

For the three months ended September 30, 2021, the hotel segment net operating income of our hotel was $877,000.

Based on current expectations, we anticipate that the net operating income of our hotel for the fourth quarter of 2021 will be lower as compared to pre-COVID-19 levels for the

comparable periods.

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 June 30, 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 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 provided up to an additional five months of subsidy of scheduled principal and interest payments (up to $9,000 per month, per loan) which was received 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.

Our loans originated and serviced under the SBA 7(a) Small Business Loan Program through September 30, 2021 consist primarily of loans to borrowers in the limited service hospitality sector.

Certain of our borrowers experienced significant reductions in cash flows as COVID-19 caused reductions in travel.

However, 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.

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

As a result of the potential negative impact on the cash flow of our borrowers caused by COVID-19, we increased our loan loss reserves commencing with the second half of 2020.

Governmental support for the limited service hospitality industry is expected to substantially end by the end of 2021.

As a result, certain of our borrowers may experience difficulty in repaying our loans and, accordingly, we may increase our loan loss reserves and ultimately experience an increase in loan losses.

The situation surrounding COVID-19 remains fluid, and we have been actively managing our response in collaboration with tenants, government officials and business partners and assessing the impact to our financial position and operating results, as well as the additional potential adverse developments in our business.

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) raising capital i n June 2021 through the Rights Offering pursuant to which we received gross proceeds of $78.8 million before issuance costs of $1.9 million, (v) 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 Paycheck Protection Program Liquidity Facility (the “PPPLF”) established for lenders who originate loans pursuant to the Paycheck Protection Program (the “PPP”) and entering into the 2018 Credit Facility Modification in September 2020, and (vi) 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 our 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, the distribution and acceptance of vaccines and their impact on the timing and speed of economic recovery, the spread of new variants of COVID-19 concerns regarding additional surges of COVID-19 as a result thereof, the impacts on the U.S.

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 of 2020, (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) raising capital i n June 2021 through the Rights Offering pursuant to which we received gross proceeds of $78.8 million before issuance costs of $2.0 million, (v) 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 Paycheck Protection Program Liquidity Facility (the “PPPLF”) established for lenders who originate loans pursuant to the Paycheck Protection Program (the “PPP”) and entering into the 2018 Credit Facility Modification in September 2020, and (vi) 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 our 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, the distribution and acceptance of vaccines and their impact on the timing and speed of economic recovery, the spread of new variants of COVID-19 and concerns regarding additional surges of COVID-19 as a result thereof, the impacts on the U.S.

and international economies and the extent to which federal, state and local governments provide relief or assistance to those affected by COVID-19.

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

As of June 30, 2021, our real estate portfolio consisted of 12 assets, all of which were fee-simple properties.

As of June 30, 2021, our nine office properties, totaling approximately 1.3 million rentable square feet, were 78.0% 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 $46.52 for the six months ended June 30, 2021.

In July 2021, the Company acquired from an unrelated third party a 100% fee-simple interest in one additional office property totaling approximately 4,900 square feet of office space.

As of September 30, 2021, our real estate portfolio consisted of 13 assets, all of which were fee-simple properties.

As of September 30, 2021, our ten office properties, totaling approximately 1.3 million rentable square feet, were 77.7% 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 $61.67 for the nine months ended September 30, 2021.

CIM Commercial is a Maryland corporation and REIT.

We primarily own and operate Class A and creative office real assets in vibrant and improving metropolitan communities throughout the United States.

We, supported by the broad real estate capabilities of CIM Group, seek to focus on the acquisition, ownership, operation and development of creative office, multifamily, retail, parking, infill industrial and limited service hospitality real assets that generate consistent, positive cash flow in communities throughout the United States that are qualified by CIM Group as described below.

We believe that the critical mass of redevelopment in such areas creates positive externalities, which enhance the value of real estate assets in the area.

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.

Our investments in real estate assets may take different forms, including direct investments, side-

by-side investments or co-investments with vehicles managed by CIM Group.

We intend that no acquisition will exceed more than 10% of our gross asset value.

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.

Our investments in real estate assets may take different forms, including direct equity or preferred investments, engaging in real estate development activities, side-by-side investments or co-investments with vehicles managed or owned by CIM Group and/or originating loans that are secured directly or indirectly by properties primarily located in Qualified Communities that meet our strategy.

We intend that no investment will exceed 10% of our gross asset value at the time of investment but management may ultimately determine to execute on more significant acquisitions.

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, when we believe the proceeds generated from the sale of an asset can be redeployed in one or more assets that will generate better returns or when, among other things, the market value of such asset is equal to or exceeds our view of its intrinsic value.

We have a portfolio of attractive assets with significant same store growth opportunity, and we may have opportunities to dispose of some of those assets at attractive prices.

To the extent that we do so, we will seek to redeploy proceeds in the same profile of assets that we are pursuing with the capital we have raised from the Rights Offering.

Such review may result in dispositions when, among other things, an asset no longer fits our overall objectives or strategies, we believe the proceeds generated from the sale of an asset can be redeployed in one or more assets that will generate better returns, or the market value of such asset is equal to or exceeds our view of its intrinsic value.

We currently have a portfolio of attractive assets with significant same store growth opportunity, and,in the event we execute on any opportunities to dispose of some of those assets at attractive prices we will seek to redeploy proceeds in the same profile of assets described in the preceding paragraph.

CIM Group Operations

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and or (v) cash flows from operations.

fees owed to the Operator in respect of fees incurred during the year ended December 31, 2020, and 89,338 shares of Series A Preferred Stock as payment in lieu of cash, for the asset management fee for the three months ended March 31, 2021.

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, and 89,338 shares of Series A Preferred Stock as payment in lieu of cash, for the asset management fee for the three months ended March 31, 2021.

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 three months ended March 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 continue to seek to pay some or part of the asset management fees for the year ending December 31, 2021 in shares of Series A Preferred Stock .

Additionally, we have issued shares of Series A Preferred Stock to the Operator as payment for the quarterly asset management fees for the second and third quarters of 2021 and it is likely that the we will seek to pay some or part of the fourth quarter asset management fees 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 June 30,

As of September 30,

Occupancy (1) 77.7 % 79.5 %

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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 June 30, 2021 and 2020 were approximately $1.3 million and $2.3 million, respectively.

(2) Total abatements, representing lease incentives in the form of free rent, for the 12 months ended September 30, 2021 and 2020 were approximately $1.3 million and $1.8 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

September 30,

2021 December 31,

2021 March 31, 2022 June 30, 2022

2021 March 31, 2022 June 30, 2022 September 30, 2022

Expiring Cash Rents:

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(1) Month-to-month tenants occupying a total of 4,938 square feet are included in the expiring leases in the first quarter listed.

(2) Represents annualized rent, as of June 30, 2021, under leases expiring during the periods above.

During the three and six months ended June 30, 2021, we executed leases with terms longer than 12 months totaling 21,913 and 26,466 square feet, respectively.

The table below sets forth information on certain of our executed leases during the three and six months ended June 30, 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:

(2) Represents annualized rent, as of September 30, 2021, under leases expiring during the periods above.

During the three and nine months ended September 30, 2021, we executed leases with terms longer than 12 months totaling 32,646 and 61,514 square feet, respectively.

The table below sets forth information on certain of our executed leases during the three and nine months ended September 30, 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 June 30, 2021 4 16,754 $ 44.64 $ 51.75

Six months ended June 30, 2021 6 19,797 $ 46.97 $ 51.27

Three months ended September 30, 2021 5 20,203 $ 53.13 $ 58.05

Nine months ended September 30, 2021 11 40,000 $ 50.08 $ 53.02

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Fluctuations in submarkets, buildings and terms of leases may cause large variations in these numbers and make predicting the changes in rent in any specific period difficult.

Our rental and occupancy rates are impacted by general economic

conditions, including the pace of regional and economic growth, and access to capital.

Our rental and occupancy rates are impacted by general economic conditions, including the pace of regional and economic growth, and access to capital.

Therefore, we cannot give any assurance that leases will be renewed or that available space will be re-leased at rental rates equal to or above the current market rates.

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

For the Six Months

Ended June 30,

For the Nine Months

Ended September 30,

Occupancy 48.2 % 34.1 %

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

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%.

In addition, as a SBA 7(a) licensee, we originated loans as an authorized lender under the PPP, which was enacted during the year ended December 31, 2020 and completed during 2021.

The PPP provides lenders who originated loans 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, the borrower is required to repay the remaining obligation.

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%.

We obtained all funds to originate loans under the PPP from the Federal Reserve on a basis that correlated 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 June 30, 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 31.0% of our annualized rental income for the three months ended June 30, 2021.

No other tenant accounted for greater than 10.0% of our annualized rental income for the three months ended June 30, 2021.

In addition, seven of our office properties were located in California, which accounted for 84.0% of our annualized rental income for the three months ended June 30, 2021.

As of September 30, 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 September 30, 2021.

No other tenant accounted for greater than 10.0% of our annualized rental income for the three months ended September 30, 2021.

In addition, eight of our office properties were located in California, which accounted for 83.1% of our annualized rental income for the three months ended September 30, 2021.

2021 Results of Operations

Comparison of the Three Months Ended June 30, 2021 to the Three Months Ended June 30, 2020

Comparison of the Three Months Ended September 30, 2021 to the Three Months Ended September 30, 2020

Net Income (Loss) and FFO

Three Months Ended June 30, Change

Three Months Ended September 30, Change

2021 2020 $ %

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Net income (loss) $ 1,624 $ (5,330) $ 6,954 (130.5) %

Net income (loss) increased to $527,000, or by $4.6 million, for the three months ended June 30, 2021, compared to a net loss of $4.0 million for the three months ended June 30, 2020.

The increase is primarily attributable to an increase of $5.2 million in our lending segment net operating income as well as a decrease of $116,000 in asset management and other fees to related parties, a decrease of $161,000 in expense reimbursements to related parties - corporate, a decrease of $128,000 in depreciation and amortization, and a decrease of $216,000 in interest expense, partially offset by an increase of $1.7 million in provision for income taxes.

Net income (loss) increased to $1.6 million, or by $7.0 million, for the three months ended September 30, 2021, compared to a net loss of $5.3 million for the three months ended September 30, 2020.

The increase is primarily attributable to an increase of $6.6 million in our segment net operating income, primarily as a result of increases in hotel and lending segment net operating income.

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.

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

Three Months Ended June 30,

Three Months Ended September 30,

Net loss attributable to common stockholders $ (3,216) $ (9,678)

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FFO attributable to common stockholders $ 1,845 $ (4,405)

FFO attributable to common stockholders was $859,000 for the three months ended June 30, 2021, an increase of $3.8 million compared to a loss of $2.9 million for the three months ended June 30, 2020.

The increase in FFO is primarily attributable to an increase of $5.2 million in our lending segment net operating income.

FFO attributable to common stockholders was $1.8 million for the three months ended September 30, 2021, an increase of $6.3 million compared to a loss of $4.4 million for the three months ended September 30, 2020.

The increase in FFO is primarily attributable to an increase of $6.6 million in our segment net operating income, primarily as a result of increases in hotel and lending segment net operating income.

Summary Segment Results

During the three months ended June 30, 2021 and 2020, CIM Commercial operated in three segments:

During the three months ended September 30, 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 (dollar amounts in thousands).

Three Months Ended June 30, Change

Three Months Ended September 30, Change

2021 2020 $ %

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Depreciation and amortization $ (5,061) $ (5,273) $ 212 (4.0) %

Loss on early extinguishment of debt $ — $ (281) $ 281 100.0 %

(Provision) benefit for income taxes $ (946) $ 18 $ (964) (5,355.6) %

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

Office revenue decreased to $13.4 million, or by 3.0%, for the three months ended June 30, 2021 compared to $13.8 million for the three months ended June 30, 2020.

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

Office revenue decreased to $13.0 million, or by 3.9%, for the three months ended September 30, 2021 compared to $13.5 million for the three months ended September 30, 2020.

The decrease is primarily due to a reduction in lease termination fee income as compared to the three months ended September 30, 2020.

Hotel Revenue:

Hotel revenue increased to $3.5 million, or by 212.1%, for the three months ended June 30, 2021, compared to $1.1 million for the three months ended June 30, 2020, primarily due to an increase in occupancy, average daily rate, and food, beverage, and other sundry hotel services during the second quarter of 2021 as compared to the second quarter of 2020 as a result of the easing of government restrictions associated with COVID-19.

However, the outbreak of COVID-19 will likely continue to negatively affect the operations of our hotel through the remainder of 2021 as described in “—COVID-19” above.

Hotel revenue increased to $5.5 million, or by 210.9%, for the three months ended September 30, 2021, compared to $1.8 million for the three months ended September 30, 2020, primarily due to an increase in occupancy, average daily rate, and food, beverage, and other sundry hotel services during the third quarter of 2021 as compared to the third

quarter of 2020 as a result of the easing of government restrictions associated with COVID-19.

However, the outbreak of COVID-19 will likely continue to negatively affect the operations of our hotel at least through the remainder of 2021, as compared to pre-COVID levels for the comparable periods, 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 increased to $5.8 million, or by 265.4%, for the three months ended June 30, 2021, compared to $1.6 million for the three months ended June 30, 2020.

The increase is primarily due to an increase in premium income from the sale of the guaranteed portion of our SBA 7(a) loans, which benefited from an increase in the SBA guaranty support from a maximum of 75% per loan to 90% per loan and higher market premiums (noting that the level of guaranty support from the SBA is not permanent and may be changed back to 75% at any time by act of Congress).

In addition, there was an increase in interest income resulting from an increase in our average outstanding lending portfolio during the three months ended June 30, 2021 compared to the three months ended June 30, 2020.

Lending revenue increased to $5.8 million, or by 191.4%, for the three months ended September 30, 2021, compared to $2.0 million for the three months ended September 30, 2020.

The increase is primarily due to an increase in premium income from the sale of the guaranteed portion of our SBA 7(a) loans, which benefited from an increase in the SBA guaranty support from a maximum of 75% per loan to 90% per loan, a reduction in fees charged in the secondary market and higher market premiums.

In addition, there was an increase in interest income resulting from an increase in our average outstanding lending portfolio during the three months ended September 30, 2021 compared to the three months ended September 30, 2020.

As a result of the conclusion of the enhanced government support provided by the CARES Act, the SBA guaranty support has now reverted back to 75% from 90% and the reduction of fees charged in the secondary market ended as of October 1, 2021.

This will likely cause future loan originations to decline and the premiums achieved on sales of the guaranteed portion of our SBA 7(a) loans to decrease, in each case possibly by a material amount.

Office Expenses:

Office expenses increased to $5.8 million, or by 4.8%, for the three months ended June 30, 2021, compared to $5.5 million for the three months ended June 30, 2020.

The increase is primarily due to an increase in operating expenses at our office property in Oakland, California.

Office expenses decreased to $5.5 million, or by 9.9%, for the three months ended September 30, 2021, compared to $6.1 million for the three months ended September 30, 2020.

The decrease is primarily due to tax refunds related to prior tax years and adjustments to payroll allocation reimbursements related to certain properties, both of which reduced office expenses for three months ended September 30, 2021, partially offset by increased expenses related to a new office property purchased in Austin, Texas during the fourth quarter of 2020.

Hotel Expenses:

Hotel expenses increased to $3.5 million, or by 55.9%, for the three months ended June 30, 2021, compared to $2.2 million for the three months ended June 30, 2020, primarily as a result of increased occupancy at the hotel as compared to the second quarter of 2020.

The outbreak of COVID-19 is expected to cause hotel expenses to remain lower through the remainder of 2021 as compared to pre-COVID-19 levels for the comparable periods.

Hotel expenses increased to $4.6 million, or by 62.5%, for the three months ended September 30, 2021, compared to $2.8 million for the three months ended September 30, 2020, primarily as a result of increased occupancy at the hotel as compared to the third quarter of 2020.

The outbreak of COVID-19 is expected to cause hotel expenses to remain lower through the remainder of 2021 as compared to pre-COVID-19 levels for the comparable period.

Lending Expenses:

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

Lending expenses decreased to $792,000, or by 53.6%, for the three months ended June 30, 2021, compared to $1.7 million for the three months ended June 30, 2020.

The decrease was primarily due to an increase in allocated expenses incurred during the three months ended June 30, 2020 related to the development of the loan origination platform for the PPP.

Lending expenses decreased to $904,000, or by 47.2%, for the three months ended September 30, 2021, compared to $1.7 million for the three months ended September 30, 2020.

The decrease was due to an increase in allocated expenses incurred during the three months ended September 30, 2020 related to the one-time retirement payment to our former president, a decrease in allocated executive time resulting in a reduction in allocated payroll during the three months ended September 30, 2021, a reduction in the provision for loan losses of $379,000 due to an increase in the general reserve made during the three months ended September 30, 2020 and a reduction in interest expense of $189,000.

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 $2.3 million for the three months ended June 30, 2021, a decrease of 4.9%, compared to $2.4 million for the three months ended June 30, 2020.

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 September 30, 2021, a decrease of 5.2%, compared to $2.4 million for the three months ended September 30, 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 as compared to the second quarter of 2020 due to lower appraised values of our same store properties, partially offset by the purchase of an office property and incremental capital expenditures incurred subsequent to June 30, 2020.

The lower fees reflect a decrease in the adjusted fair value of CIM Urban’s assets as compared to the third quarter of 2020 due to lower appraised values of our same store properties, partially offset by the purchase of an office property and incremental capital expenditures incurred subsequent to the three months ended September 30, 2020.

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

The amendment became effective as of April 1, 2020.

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

The Administrator did not earn an Incentive Fee for the three months ended September 30, 2021.

Based on our performance for the nine months ended September 30, 2021 and 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:

The Administrator receives compensation and or reimbursement for performing certain services for CIM Commercial and its subsidiaries that are not covered by the Incentive Fee.

Expense reimbursements to related parties-corporate were $454,000 for the three months ended June 30, 2021, a decrease of 26.2%, compared to $615,000 for the three months ended June 30, 2020.

Expense reimbursements to related parties-corporate were $533,000 for the three months ended September 30, 2021, a decrease of 16.6%, compared to $639,000 for the three months ended September 30, 2020.

The decrease was primarily due to reductions in allocated payroll.

Interest Expense:

Interest expense, which has not been allocated to our operating segments, was $2.5 million for the three months ended June 30, 2021, a decrease of 8.0% compared to $2.7 million for the three months ended June 30, 2020.

The decrease is primarily due to a decrease in the LIBOR component of the interest rates on our variable interest debt, primarily due to a lower average outstanding principal balance on our 2018 Revolving Credit Facility compared to the three months ended June 30, 2020, partially offset by an increase in interest expense on our revolving credit facility resulting from the 2018 Credit Facility Modification.

Interest expense, which has not been allocated to our operating segments, was $2.1 million for the three months ended September 30, 2021, a decrease of 15.9% compared to $2.5 million for the three months ended September 30, 2020.

The decrease is primarily due to a lower average outstanding principal balance on our 2018 Revolving Credit Facility compared to the three months ended September 30, 2020.

General and Administrative Expenses:

General and administrative expenses, which have not been allocated to our operating segments, were $835,000 for the three months ended June 30, 2021 , a decrease of 7.5% compared to $903,000 for the three months ended June 30, 2020.

General and administrative expenses, which have not been allocated to our operating segments, were $753,000 for the three months ended September 30, 2021 , a decrease of 24.6% compared to $999,000 for the three months ended September 30, 2020.

The decrease is primarily due to a decrease in accounting and consulting fees.

Depreciation and Amortization Expense:

Depreciation and amortization expense was $5.1 million for the three months ended June 30, 2021, a decrease of $128,000 compared to $5.2 million for the three months ended June 30, 2020.

Depreciation and amortization expense was $5.1 million for the three months ended September 30, 2021, a decrease of $212,000 compared to $5.3 million for the three months ended September 30, 2020.

(Provision) Benefit for Income Taxes:

Provision for income taxes was $996,000 for the three months ended June 30, 2021 as compared to a benefit for income taxes of $691,000 for the three months ended June 30, 2020.

The change in provision for income taxes is due to an increase in taxable income at our taxable REIT subsidiaries during the three months ended June 30, 2021 related to the operating results of our lending division.

Comparison of the Six Months Ended June 30, 2021 to the Six Months Ended June 30, 2020

Six Months Ended June 30, Change

Provision for income taxes was $946,000 for the three months ended September 30, 2021 as compared to a benefit for income taxes of $18,000 for the three months ended September 30, 2020.

The change in provision for income taxes is due to an increase in taxable income at our taxable REIT subsidiaries during the three months ended September 30, 2021 related to the operating results of our lending division.

Comparison of the Nine Months Ended September 30, 2021 to the Nine Months Ended September 30, 2020

Nine Months Ended September 30, Change

2021 2020 $ %

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Net loss $ (1,520) $ (10,627) $ 9,107 (85.7) %

Net loss decreased to $3.1 million, or by $2.2 million, for the six months ended June 30, 2021, compared to net loss of $5.3 million for the six months ended June 30, 2020.

The decrease is primarily attributable to an increase of $3.2 million in total segment net operating income as well as a decrease of $502,000 in asset management and other fees to related parties, a decrease of $368,000 in expense reimbursements to related parties - corporate, a decrease of $349,000 in depreciation and amortization, and a decrease of $651,000 in interest expense, partially offset by an increase of $750,000 in general and administrative expenses and an increase of $2.1 million in provision for income taxes.

Net loss decreased to $1.5 million, or by $9.1 million, for the nine months ended September 30, 2021, compared to net loss of $10.6 million for the nine months ended September 30, 2020.

The decrease is primarily attributable to an increase of $9.8 million in total segment net operating income, primarily due to an increase in lending segment net operating income.

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

Six Months Ended June 30,

Nine Months Ended September 30,

Net loss attributable to common stockholders $ (15,632) $ (24,606)

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FFO attributable to common stockholders $ (465) $ (8,878)

FFO attributable to common stockholders was $(2.3) million for the six months ended June 30, 2021, an increase of $2.2 million compared to $(4.5) million for the six months ended June 30, 2020.

The increase in FFO is primarily attributable to an increase of $3.2 million in total segment net operating income.

FFO attributable to common stockholders was $(465,000) for the nine months ended September 30, 2021, an increase of $8.4 million compared to $(8.9) million for the nine months ended September 30, 2020.

The increase in FFO is primarily attributable to an increase of $9.8 million in total segment net operating income, primarily due to an increase in lending segment net operating income.

Summary Segment Results

During the six months ended June 30, 2021 and 2020, CIM Commercial operated in three segments:

During the nine months ended September 30, 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 (dollar amounts in thousands).

Six Months Ended June 30, Change

Nine Months Ended September 30, Change

2021 2020 $ %

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

Office revenue decreased to $26.9 million, or by 6.2%, for the six months ended June 30, 2021 compared to $28.7 million for the six months ended June 30, 2020.

Office revenue decreased to $39.9 million, or by 5.5%, for the nine months ended September 30, 2021 compared to $42.2 million for the nine months ended September 30, 2020.

The decrease is primarily due to lower revenues at an office property in Los Angeles, California, and lower revenues at an office property in Beverly Hills, California due to decreases in occupancy as compared to the nine months ended September 30, 2020, partially offset by an increase in revenues related to an office property in Austin, Texas that was purchased in November 2020.

Hotel Revenue:

Hotel revenue decreased to $5.4 million, or by 42.8%, for the six months ended June 30, 2021, compared to $9.4 million for the six months ended June 30, 2020, primarily due to decreases in occupancy, average daily rate, and food, beverage, and other sundry hotel services during the period January 2021 through June 2021 as compared to March 2020 through June 2020 as a result of COVID-19 (see “—COVID-19” above).

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

Hotel revenue decreased to $10.8 million, or by 2.7%, for the nine months ended September 30, 2021, compared to $11.1 million for the nine months ended September 30, 2020, primarily due to decreases in occupancy, average daily rate, and food, beverage, and other sundry hotel services during the period from March 2020 through September 2021 as a result of COVID-19 (see “—COVID-19” above).

The outbreak of COVID-19 will likely continue to negatively affect the operations of our hotel at least through the remainder 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 increased to $9.3 million, or by 133.9%, for the six months ended June 30, 2021, compared to $4.0 million for the six months ended June 30, 2020.

Lending revenue increased to $15.1 million, or by 153.0%, for the nine months ended September 30, 2021, compared to $6.0 million for the nine months ended September 30, 2020.

The increase is primarily due to an increase in premium income from the sale of the guaranteed portion of our SBA 7(a) loans, which benefited from an increase in the SBA guaranty support from a maximum of 75% per loan to 90% per loan, a reduction in fees charged in the secondary market and higher market premiums.

In addition, there was an increase in interest income resulting from an increase in our average outstanding lending portfolio during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

As a result of the conclusion of the enhanced government support provided by the CARES Act, the SBA guaranty support has now reverted back to 75% from 90% and the reduction of fess charged in the secondary market ended as of October 1, 2021.

This will likely cause future loan originations to decline and the premiums achieved on sales of the guaranteed portion of our SBA 7(a) loans to decrease, in each case possibly by a material amount.

Office Expenses:

Office expenses decreased to $11.5 million, or by 1.2%, for the six months ended June 30, 2021, compared to $11.6 million for the six months ended June 30, 2020.

Office expenses decreased to $17.0 million, or by 4.2%, for the nine months ended September 30, 2021 and September 30, 2020.

Hotel Expenses:

Hotel expenses decreased to $6.2 million, or by 29.3%, for the six months ended June 30, 2021, compared to $8.7 million for the six months ended June 30, 2020, primarily as a result of decreased occupancy at the hotel during the period January 2021 through June 2021 as compared to March 2020 through June 2020 as a result of COVID-19.

The outbreak of COVID-19 is expected to cause hotel expenses to remain lower through the remainder of 2021 as compared to pre-COVID-19 levels for the comparable periods.

Hotel expenses decreased to $10.8 million, or by 6.8%, for the nine months ended September 30, 2021, compared to $11.5 million for the nine months ended September 30, 2020, primarily as a result of decreased occupancy at the hotel during the period from March 2020 through September 2021 as a result of COVID-19.

The outbreak of COVID-19 is expected to cause hotel expenses to remain lower through the remainder of 2021 as compared to pre-COVID-19 levels for the comparable period.

Lending Expenses:

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

Lending expenses decreased to $2.2 million, or by 29.9%, for the six months ended June 30, 2021, compared to $3.1 million for the six months ended June 30, 2020, primarily due to a decrease in costs incurred and expense reimbursements to related parties due to allocated expenses during the six months ended June 30, 2020 related to the development of the loan origination platform for the PPP and assistance with origination of SBA 7(a) loans under the PPP not recurring during the six months ended June 30, 2021.

Lending expenses decreased to $3.1 million, or by 36.1%, for the nine months ended September 30, 2021, compared to $4.8 million for the nine months ended September 30, 2020.

The decrease was due to an increase in allocated expenses incurred during the nine months ended September 30, 2020 related to the one-time retirement payment to our former president, a decrease in allocated executive time resulting in a reduction in allocated payroll during the nine months ended September 30, 2021, a reduction in the provision for loan losses of $293,000 due to an increase in the general reserve made during the nine months ended September 30, 2020 and a reduction in interest expense of $297,000.

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 $4.5 million for the six months ended June 30, 2021, a decrease of $502,000, compared to $5.0 million for the six months ended June 30, 2020.

Asset management fees totaled $4.5 million for the six months ended June 30, 2021, compared to $4.7 million for the six months ended June 30, 2020.

Asset management fees and other fees to related parties, which have not been allocated to our operating segments, were $6.8 million for the nine months ended September 30, 2021, a decrease of 8.5%, compared to $7.4 million for the nine months ended September 30, 2020.

Asset management fees totaled $6.8 million for the nine months ended September 30, 2021, compared to $7.1 million for the nine months ended September 30, 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.

CIM Commercial also paid a Base Service Fee to the Administrator, a related party, which totaled $0 for the six months ended June 30, 2021 compared to $282,000 for the six months ended June 30, 2020.

CIM Commercial also paid a Base Service Fee to the Administrator, a related party, which totaled $0 for the nine months ended September 30, 2021 compared to $282,000 for the nine months ended September 30, 2020.

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

The amendment was effective as of April 1, 2020.

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

Based on our performance for the nine months ended September 30, 2021 and 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:

The Administrator receives 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.

Expense reimbursements to related parties-corporate were $1.1 million for the six months ended June 30, 2021, a decrease of 25.8%, compared to $1.4 million for the six months ended June 30, 2020.

Expense reimbursements to related parties-corporate were $1.6 million for the nine months ended September 30, 2021, a decrease of 22.9%, compared to $2.1 million for the nine months ended September 30, 2020.

The decrease was primarily due to reductions in allocated payroll.

Interest Expense:

Interest expense, which has not been allocated to our operating segments, was $4.9 million for the six months ended June 30, 2021, a decrease of $651,000 compared to $5.6 million for the six months ended June 30, 2020.

The decrease is primarily due to a lower average outstanding principal balance on our 2018 revolving credit facility during the six months ended June 30, 2021 compared to the six months ended June 30, 2020, partially offset by an increase in interest expense on our revolving credit facility resulting from the 2018 Credit Facility Modification.

Interest expense, which has not been allocated to our operating segments, was $7.0 million for the nine months ended September 30, 2021, a decrease of 13.0% compared to $8.1 million for the nine months ended September 30, 2020.

The decrease is primarily due to a lower average outstanding principal balance on our 2018 revolving credit facility during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, partially offset by an increase in interest expense on our revolving credit facility resulting from the 2018 Credit Facility Modification which was in effect from September 2020 through August 2021.

General and Administrative Expenses:

General and administrative expenses, which have not been allocated to our operating segments, were $2.9 million for the six months ended June 30, 2021, an increase of $750,000 compared to $2.1 million for the six months ended June 30, 2020.

The increase is primarily due to an increase in legal fees as compared to the six months ended June 30, 2020.

General and administrative expenses, which have not been allocated to our operating segments, were $3.6 million for the nine months ended September 30, 2021, an increase of 16.1% compared to $3.1 million for the nine months ended September 30, 2020.

The increase is primarily due to an increase in legal fees as compared to the nine months ended September 30, 2020.

Depreciation and Amortization Expense:

Depreciation and amortization expense was $10.1 million for the six months ended June 30, 2021, a decrease of $349,000 compared to $10.5 million for the six months ended June 30, 2020.

Depreciation and amortization expense was $15.2 million for the nine months ended September 30, 2021, a decrease of 3.6% compared to $15.7 million for the nine months ended September 30, 2020.

(Provision) Benefit for Income Taxes:

Provision for income taxes was $1.4 million for the six months ended June 30, 2021 compared to a benefit for income taxes of $713,000 for the six months ended June 30, 2020.

The increase in provision for income taxes is due to an increase in taxable income at our taxable REIT subsidiaries during the six months ended June 30, 2021 related to the operating results of our lending division.

Provision for income taxes was $2.3 million for the nine months ended September 30, 2021 compared to a benefit for income taxes of $731,000 for the nine months ended September 30, 2020.

increase in provision for income taxes is due to an increase in taxable income at our taxable REIT subsidiaries during the nine months ended September 30, 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 six months ended June 30, 2021 and June 30, 2020 .

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 occupancy and 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 nine months ended September 30, 2021 and 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 increased by $12.6 million for the six months ended June 30, 2021, as compared to the same period in 2020.

The increase was primarily due to an increase of $38.3 million in proceeds from the sale of guaranteed loans, partially offset by an increase of $36.2 million in loans

funded, an increase of $8.6 million resulting from a lower level of working capital used compared to the prior period, and a $2.8 million decrease in net loss adjusted for depreciation and amortization expense and write-offs of uncollectible receivables.

Net cash provided by operating activities increased by $6.7 million for the nine months ended September 30, 2021, as compared to the same period in 2020.

The increase was primarily due to an increase of $65.2 million in proceeds from the sale of guaranteed loans, offset by an increase of $70.7 million in loans funded, an increase of $8.1 million resulting from a lower level of working capital used compared to the prior period, and a $6.4 million decrease in net loss adjusted for depreciation and amortization expense and write-offs of uncollectible receivables.

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 $18.5 million for the six months ended June 30, 2021, as compared to the same period in 2020.

The decrease was primarily due to a decrease of $8.7 million in cash used to fund additions to investments in real estate, and a $9.9 million increase of principal collected on loans net of loans funded during the six months ended June 30, 2021.

Net cash used in investing activities decreased by $26.2 million for the nine months ended September 30, 2021, as compared to the same period in 2020.

The decrease was primarily due to a decrease of $8.5 million in cash used to fund additions to investments in real estate and real estate acquisitions, and a $17.8 million increase of principal collected on loans net of loans funded during the nine months ended September 30, 2021.

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

Net cash provided by financing activities decreased by $55.4 million for the six months ended June 30, 2021, as compared to the same period in 2020.

Net cash used in financing activities increased by $56.4 million for the nine months ended September 30, 2021, as compared to the same period in 2020.

The change was primarily due to an increase of $121.8 million in debt repayments, net of proceeds from incremental borrowings, and a decrease of $11.1 million from net proceeds from the issuance of Preferred Stock and warrants, partially offset by an increase of $78.3 million from the net proceeds from the issuance of Common Stock in connection with the Rights Offering.

Liquidity and Capital Resources

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

On a short-term basis, our principal demands for funds will be for the acquisition of assets, development or repositioning of properties, or re-leasing of space in existing properties, capital expenditures, interest and principal on current and any future debt financings, SBA 7(a) loan originations, and paying distributions on our Preferred Stock and Common Stock.

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;

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and or (v) cash flows from operations.

With respect to the $75.0 million outstanding under the 2018 revolving credit facility that is scheduled to mature in October 2022, we expect to extend its maturity to October 2023, subject to satisfying certain conditions, and/or refinance such indebtedness.

Based on our projected performance and current capital market conditions, we expect that we can implement either or both options.

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.

Additionally, our outstanding commitments to fund loans were $61.1 million as of June 30, 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 these loans.

Additionally, our outstanding commitments to fund loans were $24.4 million as of September 30, 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% (although the government guarantee has now reverted to 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 these loans.

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

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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.

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 I, Item 1A of the 2020 Form 10-K.

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 I, Item 1A of the 2020 Form 10-K.

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

We have one mortgage loan agreement with an outstanding balance of $97.1 million as of June 30, 2021.

We have one mortgage loan agreement with an outstanding balance of $97.1 million as of September 30, 2021.

Revolving Credit Facilities

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 June 30, 2021 and December 31, 2020, the variable interest rate was 2.13% and 2.20%, respectively.

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

As of August 2, 2021, June 30, 2021, and December 31, 2020, $82.0 million, $107.0

million and $166.5 million, respectively, was outstanding under the 2018 revolving credit facility and approximately $112.5 million, $87.5 million, and $28.0 million, respectively, was available for future borrowings.

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 September 30, 2021 and December 31, 2020, the variable interest rate was 2.13% and 2.20%, respectively.

The 2018 revolving credit facility matures in October 2022 and provides for one one-year extension option under certain conditions, including providing notice of the election and paying an extension fee of 0.15% of each lender’s commitment being extended on the effective date of such extension.

As of November 4, 2021, September 30, 2021, and December 31, 2020, $75.0 million, $75.0 million and $166.5 million, respectively, was outstanding under the 2018 revolving credit facility and approximately $91.0 million, $91.0 million, and $28.0 million, respectively, was available for future borrowings.

In May 2020, to further enhance our 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.

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The 2020 unsecured revolving credit facility matures in May 2022.

As of both August 2, 2021 and June 30, 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.

As of both November 4, 2021 and September 30, 2021, no amounts were outstanding under the 2020 unsecured revolving credit facility and $10.0 million was available for future borrowings.

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

Advances under the PPPLF carry an interest rate of 0.35%, are made on a dollar-for-dollar basis based on the amount of loans originated under the PPP and are secured by loans made by us under the PPP.

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We borrowed money under the PPPLF to finance all the loans we originated under the PPP.

As of August 2, 2021 and June 30, 2021, $11.7 million and $12.4 million, respectively, was outstanding under the PPPLF.

As of July 31, 2021, no new extensions of credit may be made under the PPPLF, unless the Federal Reserve Board and the United States Department of the Treasury decide to extend the PPPLF.

As of November 4, 2021 and September 30, 2021, $6.8 million and $7.6 million, respectively, was outstanding under the PPPLF.

As the PPP has ended, no new extensions of credit may be made under the PPPLF.

Other Financing Activity

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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 August 2, 2021, June 30, 2021, and December 31, 2020, was $11.7 million, $11.9 million and $14.2 million, respectively.

The outstanding balance of SBA 7(a) loan-backed notes on November 4, 2021, September 30, 2021, and December 31, 2020, was $9.2 million, $10.2 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.

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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 June 30, 2021.

As a SBA 7(a) licensee, we are an authorized lender under the PPP and have originated $26.4 million loans under the program.

As of August 2, 2021 and June 30, 2021, we had $11.7 million and $12.4 million, respectively, outstanding in PPP loans.

The aggregate principal balance of the junior subordinated notes was $27.1 million as of September 30, 2021.

As a SBA 7(a) licensee, we were an authorized lender under the PPP and originated $26.4 million loans under the program.

As of November 4, 2021 and September 30, 2021, we had $6.8 million and $7.6 million, respectively, outstanding in

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.

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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 June 30, 2021, there were 4,603,287 Series A Preferred Warrants to purchase 1,194,159 shares of Common Stock outstanding.

As of September 30, 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 June 30, 2021, we had issued 6,956,163 shares of Series A Preferred Stock and 31,025 shares of Series D Preferred Stock and received aggregate net proceeds of $157.9 million after commissions, fees and allocated costs.

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 September 30, 2021, we had issued 7,166,128 shares of Series A Preferred Stock and 56,857 shares of Series D Preferred Stock and received aggregate net proceeds of $163.3 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.

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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 August 2, 2021, no sales of Common Stock have been made under the ATM program.

In June 2021, we conducted the Rights Offering pursuant to which we issued an aggregate of 8,521,589 shares of Common Stock at a subscription price of $9.25 per share for aggregate gross proceeds of $78.8 million before issuance costs of $1.9 million.

As of November 4, 2021, no sales of Common Stock have been made under the ATM program.

During the nine months ended September 30, 2021, we conducted the Rights Offering pursuant to which we issued an aggregate of 8,521,589 shares of Common Stock at a subscription price of $9.25 per share for aggregate gross proceeds of $78.8 million before issuance costs of $2.0 million.

Dividends and Redemptions

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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 $2,226,000 had been paid as of June 30, 2021.

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 $3,979,000 had been paid as of September 30, 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.

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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 June 30, 2021, we redeemed 19,901 shares of Series A Preferred Stock and no shares of Series D Preferred Stock or Series L Preferred Stock.

During the three months ended September 30, 2021, we redeemed 27,564 shares of Series A Preferred Stock and no shares of Series D Preferred Stock or Series L Preferred Stock.

Off-Balance Sheet Arrangements

As of June 30, 2021, we did not have any off-balance sheet arrangements.

As of September 30, 2021, we did not have any off-balance sheet arrangements.

Recently Issued Accounting Pronouncements

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis