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Item 7. Management’s Discussion and Analysis

2022-03-16 compared with 2021-03-16 · 153 added, 223 removed, 201 unchanged (65% of the section changed)

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The following discussion focuses on recent developments expected to have current and future impacts on the results of our business, trends and uncertainties within our industry and business model that may impact our financial results, our recent results of operations, and our liquidity and capital resources.

The following discussion does not address certain items regarding the year ended December 31, 2018 or compare our financial operating performance in the years ended December 31, 2019 and 2018.

A discussion and analysis of our financial operating performance in the year ended December 31, 2018 and a comparison of such performance to that of the year ended December 31, 2019 can be found in “Item 7.

Management's Discussion and Analysis” of our Annual Report on Form 10-K for the year ended December 31, 2019.

You should read the following discussion in conjunction with the consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K.

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Business Overview

CIM Commercial is a Maryland corporation and REIT.

Our principal business is to acquire, own, and operate Class A and creative office assets in vibrant and improving metropolitan communities throughout the United States (including improving and developing such assets).

Creative Media & Community Trust 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 seek to acquire, operate and develop premier multifamily and creative office assets that cater to rapidly growing industries such as technology, media and entertainment in vibrant and emerging communities throughout the United States.

We seek to apply the expertise of CIM Group to the acquisition, development and operation of top-tier multifamily properties situated in dynamic markets with similar business and employment characteristics to its creative office investments.

All of our multifamily and creative office assets are and will generally be located in communities qualified by CIM Group as described further below.

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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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.

CIM is headquartered in Los Angeles, CA, with offices in Atlanta, GA, Bethesda, MD, Chicago, IL, Dallas, TX, New York, NY, Orlando, FL, Phoenix, AZ, and Tokyo, Japan.

CIM also maintains additional offices across the United States, as well as in Korea, Hong Kong and the United Kingdom to support its platform.

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

COVID-19 has spread worldwide, causing significant disruptions to the U.S.

Since then, COVID-19 has spread worldwide, causing significant disruptions to the U.S.

and world economies.

On March 4, 2020 and March 13, 2020, a state of emergency was declared for the state of California and for the United States, respectively.

In response to the issuance of U.S.

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

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 likely continue through 2021.

The information provided in the two tables below provides insight into the effects of COVID-19 on our rent collections for the second, third and fourth quarters of the year ended December 31, 2020 for our office and retail tenants and parking tenants .

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:

Office and Retail Tenants (1) Q4 2020 Q3 2020 Q2 2020

Rent Collected (2) 98.3 % 97.4 % 96.7 %

Rent Abated — % 0.1 % 0.1 %

Rent Deferred — % 0.2 % 0.6 %

Security Deposit Applied — % — % 1.0 %

Recorded as Bad Debt 0.5 % 1.2 % 0.9 %

Uncollected Rent 1.2 % 1.1 % 0.7 %

Total 100.0 % 100.0 % 100.0 %

Parking Tenants (1) Q4 2020 Q3 2020 Q2 2020

Rent Collected (2) 22.8 % 37.4 % 54.1 %

Rent Abated 12.9 % 3.9 % 12.7 %

Recorded as Bad Debt 64.3 % 58.7 % 33.2 %

Uncollected Rent — % — % — %

Total 100.0 % 100.0 % 100.0 %

(1) There have been no significant changes in rent collections subsequent to December 31, 2020 .

(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 March 5, 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 clients).

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.

Prior to the spread of COVID-19, the net operating income of our hotel constituted approximately 22% of our total segment net operating income, as measured using Q4 2019 figures.

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

Q2 2020 Q2 2019 Q3 2020 Q3 2019 Q4 2020 Q4 2019

Occupancy (1) 12.5 % 81.7 % 24.1 % 77.2 % 26.8 % 71.9 %

ADR (1) $ 124.49 $ 173.08 $ 120.97 $ 148.06 $ 120.86 $ 156.63

RevPAR (1) $ 15.61 $ 141.42 $ 29.16 $ 114.33 $ 32.39 $ 112.61

(1) There have been no significant changes in occupancy, ADR, and RevPAR for the first quarter of 2021 in comparison to the fourth quarter of 2020.

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

Loans originated and serviced under the SBA 7(a) Small Business Loan Program through December 31, 2020 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 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 three 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, during the second half of 2020, we increased our loan loss reserves.

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.

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) increasing liquidity by entering into the 2020 Credit Facility (as defined below) in May 2020, accessing (beginning in June 2020) funds through the Federal Reserve through the PPP Liquidity Facility (the “PPPLF”) established for lenders who originate loans pursuant to the PPP and entering into the 2018 Credit Facility Modification (as defined below) in September 2020, and (v) amending our Master Services Agreement to eliminate the Base Service Fee as described in Note 13 to the consolidated financial statements included in this Annual Report on Form 10-K.

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 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).

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.

During the early part of 2021, the U.S.

and world economies 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 in the second half of 2021 and the concomitant disruption to the global supply chain have disrupted the recovery of the U.S.

and world economies.

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

and international economies.

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 impact, the operations of our hotel in Sacramento, California.

For the year ended December 31, 2021, our hotel segment net operating income was $1.9 million.

Based on current expectations, we anticipate that the net operating income of our hotel for 2022 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 diminished.

Our loans originated and serviced under the SBA 7(a) Small Business Loan Program through December 31, 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).

Those subsidies were not extended further.

The extent to which COVID-19 will continue to impact our operations and those of our tenants, business partners and borrowers will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of any future COVID-19 outbreaks 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.

We cannot predict the significance, extent or duration of any adverse impact of COVID-19 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 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 during 2022.

As of December 31, 2021, our real estate portfolio consisted of 14 assets, all of which were fee-simple properties.

As of December 31, 2020, our nine office properties, totaling approximately 1.3 million rentable square feet, were 79.3% 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 $46.60 for the year ended December 31, 2020.

As of December 31, 2021, our eleven 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 $73.23 for the year ended December 31, 2021.

Rental Rate Trends

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As of December 31,

2020 2019 2018

Occupancy (1)

77.7 % 79.3 %

Annualized rent per occupied square foot (1)(2)

$ 52.57 $ 50.94

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

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This amount reflects total cash rent before abatements.

Total abatements, representing lease incentives in the form of free rent, for the years ended December 31, 2020, 2019 and 2018 were $1.6 million, $1.8 million and $5.1 million, respectively.

Total abatements, representing lease incentives in the form of free rent, for the years ended December 31, 2021 and 2020 were $1.5 million and $1.6 million, respectively.

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

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Expiring square feet (1)

29,832 12,979 51,424 56,726

Expiring rent per square foot (2)

$ 59.27 $ 64.10 $ 43.35 $ 41.83

(1) Month-to-month tenants occupying a total of 5,785 square feet are included in the expiring leases in the first quarter listed.

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Number of Rentable Rents per Square Rents per Square

Leases (1) Square Feet Foot (2) Foot (2)

Square Feet Foot (2)

Twelve Months Ended December 31, 2021 15 50,828 $ 48.32 $ 52.66

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For the Year Ended

2020 2019 2018

Occupancy 53.6 % 32.3 %

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Lending Segment

Through our SBA 7(a) lending platform, 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.

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

Additionally, as an SBA 7(a) licensee, we originated loans under the PPP.

During 2021 the lending segment benefited from a temporary increase in the SBA guarantee support from a maximum of 75% per loan to 90% per loan and higher market premiums.

In addition, there was an increase in interest income resulting from an increase in our average outstanding lending portfolio during 2021 compared to the prior year.

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% as of October 1, 2021 for loans approved after September 30, 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.

2021 Results of Operations

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Total expenses $ 88,785 $ 92,945 $ (4,160) (4.5) %

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

Net (loss) income $ (15,015) $ 345,521 $ (360,536) (104.3) %

Net loss increased to $(15.0) million, or by $(360.5) million, for the year ended December 31, 2020, compared to $345.5 million for the year ended December 31, 2019, primarily due to the 2019 Asset Sales and the adverse impact of

Refer to “Summary Segment Results” below for a more complete discussion of the factors impacting our performance.

Net loss $ (851) $ (15,015) $ 14,164 (94.3) %

Net loss decreased to $851,000, or by $14.2 million, for the year ended December 31, 2021, compared to $15.0 million for the year ended December 31, 2020, primarily due to the increases in net operating income at our lending and hotel segments.

Funds from Operations

We believe that funds from operations (“FFO”), a non-GAAP measure, 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.

FFO represents net income (loss) attributable to common stockholders, computed in accordance with GAAP, which reflects the deduction of redeemable preferred stock dividends accumulated, 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 National Association of Real Estate Investment Trusts (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.

FFO attributable to common stockholders was $133,000 for the year ended December 31, 2021, an increase of $12.2 million compared to $(12.1) million for the year ended December 31, 2020.

The increase was primarily due to an increase of $14.4 million in segment net operating income resulting from improved performance at the lending and hotel segments for the year ended December 31, 2021, compared to the year ended December 31, 2020.

The following table sets forth a historical reconciliation of net loss attributable to common stockholders to FFO attributable to holders of our Common Stock:

Year Ended December 31,

(in thousands)

Net loss attributable to common stockholders (1) (2)

$ (19,979) $ (33,467)

Depreciation and amortization 20,112 21,406

Impairment of real estate — —

Gain on sale of depreciable assets — —

FFO attributable to common stockholders (1) (2)

$ 133 $ (12,061)

(1) During the year ended December 31, 2020, we recognized $281,000 of loss on early extinguishment of debt.

Such losses are included in, and have the effect of reducing, net (loss) 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.

(2) During the years ended December 31, 2021 and 2020, we recognized $113,000 and $72,000, respectively, of redeemable preferred stock redemptions and $253,000 and $377,000 respectively, of redeemable preferred stock deemed dividends.

Such amounts are included in, and have the effect of reducing, net (loss) attributable to common stockholders and FFO attributable to common stockholders, because redeemable preferred stock redemptions are not an adjustment prescribed by NAREIT.

Summary Segment Results

During the years ended December 31, 2020 and 2019, CIM Commercial operated in three segments:

During the years ended December 31, 2021 and 2020, we operated in three segments:

office and hotel properties and lending.

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

Impairment of real estate $ — $ (69,000) $ 69,000 (100.0) %

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

Benefit (provision) for income taxes $ 722 $ (882) $ 1,604 (181.9) %

(Provision) benefit for income taxes $ (2,992) $ 722 $ (3,714) (514.4) %

Office Revenue:

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Office revenue decreased by 3.9% for the year ended December 31, 2021 compared to the year ended December 31, 2020.

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

The decrease is primarily due to lower revenues at an office property in Beverly Hills, California, an office property in Los Angeles, California and an office property in Oakland, California, all due to decreases in occupancy as compared to the prior year, partially offset by an increase in revenues at an office property in Austin, Texas due to an increase in occupancy and an increase in revenues related to another office property in Austin, Texas that was purchased in November 2020.

Hotel Revenue:

Hotel revenue decreased by 65.6% for the year ended December 31, 2020 compared to the year ended December 31, 2019.

The decrease is primarily due to decreases in occupancy, ADR, and food, beverage, and other sundry services during the period from March 2020 through December 2020 as compared to the same period in the prior year as a result of COVID-19.

Hotel revenue increased by 34.1% for the year ended December 31, 2021 compared to the year ended December 31, 2020.

The increase is due to increases in occupancy, ADR, and food, beverage, and other sundry services during 2021 as compared to the prior year primarily as a result of easing travel restrictions related to COVID-19 (see “—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 by 24.1% for the year ended December 31, 2020 compared to the year ended December 31, 2019.

The decrease is primarily due to a decrease in interest income, primarily due to a decrease in prime rate, as well as a decrease in premium income from the sale of the guaranteed portion of our SBA 7(a) loans due to lower loan origination and sales volume as compared to the prior year.

Lending revenue increased by 137.8% for the year ended December 31, 2021 compared to the year ended December 31, 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.

In addition, there was an increase in interest income resulting from an increase in our average outstanding lending portfolio during 2021 compared to the prior year.

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.

Interest and Other Income:

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Interest and other income decreased by $103,000 for the year ended December 31, 2021 compared to the year ended December 31, 2020.

The decrease was primarily due to interest earned on the proceeds from the 2019 Asset Sales received

during the year ended December 31, 2019 until the payment of the Special Dividend in August 2019, as well as interest earned during the fourth quarter of 2019 on the funds used for the tender offer that resulted in our purchase of 2,693,580 shares of Series L Preferred Stock in 2019 (the “Series L Tender Offer”).

The decrease is due to higher cash average balances in our interest bearing accounts during the year ended December 31, 2020 as compared to the year ended December 31, 2021.

Office Expenses:

Office expenses decreased by 35.5% for the year ended December 31, 2020 compared to the year ended December 31, 2019.

The decrease is primarily due to the 2019 Asset Sales.

Office expenses remained relatively unchanged for the year ended December 31, 2021 compared to the year ended December 31, 2020.

Hotel Expenses:

Hotel expenses decreased by 46.6% for the year ended December 31, 2020 compared to the year ended December 31, 2019, primarily as a result of decreased occupancy at the hotel during the year ended December 31, 2020 as a result of COVID-19.

Hotel expenses increased by 13.1% for the year ended December 31, 2021 compared to the year ended December 31, 2020, primarily as a result of increased occupancy and food, beverage and other sundry services during 2021 as compared to the prior year as a result of easing travel restrictions related to COVID-19 (see “—COVID-19” above).

Lending Expenses:

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

Lending expenses increased by 9.3% for the year ended December 31, 2020 compared to the year ended December 31, 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 PPP and assistance with origination of SBA 7(a) loans under the PPP, 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.

Lending expenses decreased by 35.3% for the year ended December 31, 2021 compared to the year ended December 31, 2020 primarily due to an increase in allocated expenses incurred during the year ended December 31, 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 year ended December 31, 2021, a reduction in the provision for loan losses of $362,000 due to an increase in the general reserve made during the year ended December 31, 2020 and a reduction in interest expense of $460,000 resulting from a reduction to principal outstanding on our SBA 7(a) loan backed notes.

Asset Management and Other Fees to Related Parties:

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Asset management fees totaled $9.0 million for the year ended December 31, 2021 compared to $9.5 million for the year ended December 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 in the year ended December 31, 2020 as compared to the year ended December 31, 2019 due the 2019 Asset Sales and lower appraised values of the same store properties, partially offset by incremental capital expenditures incurred in the year ended December 31, 2020.

CIM Commercial paid a Base Service Fee to the Administrator, a related party, which totaled $282,000 for the quarter ended March 31, 2020 compared to $1.1 million for the year ended December 31, 2019.

On May 11, 2020, the Master Services Agreement was amended to replace the Base Service Fee with the Incentive Fee effective as of April 1, 2020.

The Administrator did not earn an Incentive Fee during the year ended December 31, 2020.

Based on the expected performance of the Company for 2021, we do not anticipate that any Incentive Fee will be payable in respect of the year ended December 31, 2021.

Asset management fees were 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 in the year ended December 31, 2021 as compared to the year ended December 31, 2020 primarily due to a decrease in the aggregate fair value of CIM Urban’s investments in real estate resulting from valuation changes at the end of 2020.

We expect asset management fees and other fees to related parties to decrease during the year ended December 31, 2022, when compared to the year ended December 31, 2021, as a result of the Fee Waiver.

We paid a Base Service Fee to the Administrator, a related party, which totaled $282,000 for the year ended December 31, 2020.

On May 11, 2020, the Master Services Agreement was amended to replace the Base Service Fee with the Prior Incentive Fee effective as of April 1, 2020.

The Administrator did not earn any Prior Incentive Fee during the year ended December 31, 2021.

Based on the expected performance of the Company for 2022, we do not anticipate that any Revised Incentive Fee will be payable in respect of the year ended December 31, 2022.

Expense Reimbursements to Related Parties—Corporate :

The Administrator received compensation and or reimbursement for performing certain services (other than the Base 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.

The Administrator received compensation and or reimbursement for performing certain services (other than the Base Services) for us and our subsidiaries that are not covered by the Base Service Fee or the Prior Incentive Fee, as the case may be.

Expense reimbursements to related parties—corporate decreased by 8.6% for the year ended December 31, 2021 compared to the year ended December 31, 2020, primarily due to reductions in allocated payroll.

Interest Expense:

Interest expense, which has not been allocated to our operating segments, increased by 1.8% for the year ended December 31, 2020 compared to the year ended December 31, 2019.

The increase is primarily due to a higher average outstanding principal balance on our 2018 Credit Facility during the year ended December 31, 2020 compared to the year ended December 31, 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 $205.5 million in connection with the sale of three office properties and a parking garage in Oakland, California, the prepayment of a $46.0 million mortgage loan in connection with the sale of an office property in Washington, D.C., and the assumption of a $28.2 million 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 $39.5 million in connection with the sale of an office property in Oakland, California, which was consummated in May 2019.

Interest expense, which has not been allocated to our operating segments, decreased by 14.6% for the year ended December 31, 2021 compared to the year ended December 31, 2020.

The decrease is primarily due to a lower average outstanding principal balance on our 2018 Credit Facility during the year ended December 31, 2021 compared to the year ended December 31, 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.

Although we do not know how much variable rate indebtedness we will incur in 2022, we expect our interest expense to increase in 2022 as a result of expected increases in interest rates.

We expect that such increases will be partially offset by expected increases in interest income earned on our loans receivable (which earn interest at a variable rate).

General and Administrative Expenses:

General and administrative expenses, which have not been allocated to our operating segments, increased by 8.8% for the year ended December 31, 2021 compared to the year ended December 31, 2020.

The increase is primarily due to a non-recurring reduction of general and administrative expenses that occurred during the year ended December 31, 2019.

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

We expect general and administrative expenses to decrease during the year ended December 31, 2022, when compared to the year ended December 31, 2021, as a result of cost saving measures implemented by our Administrator and the nonrecurring nature of some of the 2021 legal expenses.

Transaction Costs:

Transaction costs were $0 for the year ended December 31, 2020, a decrease of $574,000 compared to $574,000 for the year ended December 31, 2019, which were incurred as a result of the 2019 Program to Unlock Embedded Value in Our Portfolio and Improve Trading Liquidity of Our Common Stock.

Transaction costs were $143,000 for the year ended December 31, 2021, an increase of 100.0% compared to the year ended December 31, 2020, due to abandoned project costs incurred in 2021 related to potential real estate transactions.

Depreciation and Amortization Expense:

Depreciation and amortization expense decreased by 21.8% for the year ended December 31, 2020 compared to the year ended December 31, 2019.

The decrease is primarily due to the 2019 Asset Sales.

Depreciation and amortization expense decreased by 6.0% for the year ended December 31, 2021 compared to the year ended December 31, 2020 primarily as a result of fully depreciating certain tenant improvement assets during 2021.

Loss on Early Extinguishment of Debt:

Loss on early extinguishment of debt was $281,000 for the year ended December 31, 2020 compared to $30.0 million for the year ended December 31, 2019.

The loss on early extinguishment of debt of $281,000 for the year ended December 31, 2020 was related to the write off of a portion of the deferred financing costs for the 2018 Credit Facility (as defined below) 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 $205.5 million in connection with the sale of three office properties and a parking garage in Oakland, California, we prepaid a $46.0 million mortgage loan in connection with the sale of an office property in Washington, D.C., and a $28.2 million 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 $39.5 million at such time, was legally defeased in connection with the sale of the related property.

The loss on early extinguishment of debt for the year ended December 31, 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 year ended December 31, 2020 and $69.0 million for the year ended December 31, 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., we determined that the book values of such properties exceeded their estimated fair values and recognized impairment charges totaling $69.0 million for the year ended December 31, 2019.

Our determination of the fair value of such properties was based on the sales price negotiated with the third-party buyer.

Gain on sale of real estate :

Gain on sale of real estate was $0 for the year ended December 31, 2020 and $433.1 million for the year ended December 31, 2019.

We recognized a gain on sale of real estate of $289.8 million in connection with the sale of three office properties and a parking garage in Oakland, California, $45.7 million in connection with the sale of an office property in Washington, D.C., and $42.1 million in connection with the sale of an office property in San Francisco, California, all of which were consummated in March 2019, a gain on sale of real estate of $55.2 million in connection with the sale of an office property in Oakland, California, which was consummated in May 2019, and 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 $722,000 for the year ended December 31, 2020 and $(882,000) for the year ended December 31, 2019.

The change is primarily is due to a decrease in taxable income at our taxable REIT subsidiaries during the year ended December 31, 2020 resulting principally from the effects of COVID-19 on our hotel in Sacramento, California.

Loss on early extinguishment of debt was $0 for the year ended December 31, 2021 compared to $281,000 for the year ended December 31, 2020.

The loss on early extinguishment of debt of $281,000 for the year ended December 31, 2021 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.

(Provision) benefit for Income Taxes:

Provision for income taxes was $3.0 million for the year ended December 31, 2021 compared to a benefit for income taxes of $722,000 for the year ended December 31, 2020.

The change is primarily is due to an increase in taxable income at our taxable REIT subsidiaries during the year ended December 31, 2021 resulting principally from the operations 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 year ended December 31, 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 decreased by $28.2 million for the year ended December 31, 2020, as compared to the same period in 2019.

The decrease was primarily due to the 2019 Asset Sales, which resulted in a $32.4 million decrease in net 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.

The change in cash flows from operating activities was also driven by a decrease of $14.3 million in proceeds from the sale of guaranteed loans, partially offset by an increase of $12.6 million resulting from a lower level of working capital used compared to the prior period.

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 for the year ended December 31, 2020 was $38.3 million compared to net cash provided by investing activities of $917.2 million in the corresponding period in 2019.

The decrease was primarily due to

$941.0 million of cash generated from the 2019 Asset Sales during the year ended December 31, 2019 and a $15.5 million increase in loans funded.

Net cash provided by operating activities increased by $33.5 million for the year ended December 31, 2021, as compared to the same period in 2020.

The increase was primarily due to the net proceeds from sale of guaranteed loans net of loan fundings, held for sale, which resulted in a $14.4 million increase, and the decrease in net loss of $14.2 million for the year ended December 31, 2021, as compared to the same period in 2020 as a result of increased hotel and lending segment net operating income.

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

Net cash used in investing activities was $12.7 million for the year ended December 31, 2021 compared to $38.3 million for the year ended December 31, 2020.

The decrease in cash used in investing activities was primarily due to a decrease in additions to investments in real estate and acquisitions of real estate of $13.9 million, collectively, mainly as a result of the development of an office building at 3601 S Congress Avenue which was completed during 2020.

Additionally, we had an increase of $22.7 million in principal collected on loans receivable partially offset by an increase in cash used to fund loans of $10.9 million during the year ended December 31, 2021 as compared to 2020, both primarily as a result of the PPP originations and collection of principal on the related loans.

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

Net cash provided by financing activities for the year ended December 31, 2020 was $33.2 million compared to net cash used in financing activities of $1.0 billion in the corresponding period in 2019.

The change was primarily due to the $613.3 million payment of special cash dividends during the year ended December 31, 2019.

Additionally, we had an outflow of $268.2 million for investments in marketable securities in connection with the legal defeasance of certain mortgage loans and had increased debt repayments, net of debt proceeds, of $54.4 million, in each case during the year ended December 31, 2019.

Funds from Operations

We believe that funds from operations (“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.

We calculate FFO in accordance with the standards established by the National Association of Real Estate Investment Trusts (the “NAREIT”).

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.

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.

FFO attributable to common stockholders was $(12.1) million for the year ended December 31, 2020, an increase of $1.9 million compared to $(14.0) million for the year ended December 31, 2019.

The change was primarily due to a decrease of $29.7 million in loss on early extinguishment of debt primarily attributable to the 2019 Asset Sales during the year ended December 31, 2019, and a $5.8 million decrease in redeemable preferred stock redemptions primarily in connection with the Series L Tender Offer, partially offset by a decrease of $34.6 million in segment net operating income for the year ended December 31, 2020, compared to the year ended December 31, 2019 primarily as a result of the 2019 Asset Sales and the adverse effects of COVID-19.

The following table sets forth a historical reconciliation of net (loss) income attributable to common stockholders to FFO attributable to holders of our Common Stock:

Year Ended December 31,

2020 2019 2018 2017 2016

(in thousands)

Net (loss) income attributable to common stockholders (1) (2)

$ (33,467) $ 322,696 $ (14,298) $ 377,813 $ 34,538

Depreciation and amortization 21,406 27,374 53,228 58,364 71,968

Impairment of real estate — 69,000 — 13,100 —

Gain on sale of depreciable assets — (433,104) — (408,098) (39,666)

FFO attributable to common stockholders (1) (2)

$ (12,061) $ (14,034) $ 38,930 $ 41,179 $ 66,840

(1) During the years ended December 31, 2020, 2019, 2018, 2017 and 2016, we recognized $281,000, $30.0 million, $808,000, $8.2 million, and $417,000, respectively, of loss on early extinguishment of debt.

(2) During the years ended December 31, 2020 and 2019, we recognized $72,000 and $5.9 million, respectively, of redeemable preferred stock redemptions and $377,000 and $0, respectively, of redeemable preferred stock deemed dividends.

The $5.9 million of redeemable preferred stock redemptions recognized in 2019 was primarily in

connection with the Series L Tender Offer.

Such amount is included in, and has the effect of reducing, net (loss) income attributable to common stockholders and FFO attributable to common stockholders, because redeemable preferred stock redemptions are not an adjustment prescribed by NAREIT.

Net cash used in financing activities for the year ended December 31, 2021 was $43.6 million compared to cash provided by financing activities of $33.2 million for the year ended December 31, 2020.

The change was due to $100.3 million increase in payment of unsecured revolving lines of credit, revolving credit facilities, mortgages payable, term notes and principal on SBA 7(a) loan-backed notes, a $42.1 million decrease in proceeds from unsecured revolving lines of credit, revolving credit facilities and term notes, as well as a $12.1 million decrease in proceeds from issuance of preferred stock partially offset by net proceeds of $76.9 million from issuance of Common Stock related to the Rights Offering (as defined below) during the year ended December 31, 2021.

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 $100.0 million outstanding under the 2018 revolving credit facility as of March 10, 2022 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.

In November 2022, holders of the Series L Preferred Stock will have the right to require us to redeem all or any of the shares of Series L Preferred Stock held by such holders.

At the same time, we will also have the right to redeem any or all shares of our Series L Preferred Stock.

The redemption price, whether the redemption is at the request of a holder or by us, will be equal to 100% of the stated value of the Series L Preferred Stock plus any accrued and unpaid dividend.

We can pay the redemption price, at our option and in our sole discretion, either in cash or in equal value through the issuance of shares of our Common Stock.

We do not know whether holders of Series L Preferred Stock will exercise their redemption rights and, if so, in what amounts.

We are currently actively evaluating our options with respect to whether we will exercise our redemption right with respect to any or all shares of Series L Preferred Stock as well as other alternatives.

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 $2.2 million had been paid as of December 31, 2020 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 $2.2 million had been paid as of December 31, 2020.

Additionally, our outstanding commitments to fund loans were $32.6 million as of December 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% (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.

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.

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Sources and Uses of Funds

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 five 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.

We have one mortgage loan agreement with an outstanding balance of $97.1 million as of December 31, 2021.

Revolving Credit Facilities

In October 2018, CIM Commercial entered into a secured revolving credit facility with a bank syndicate that, as amended, allows CIM Commercial to borrow up to $209.5 million, subject to a borrowing base calculation (the “2018 Credit Facility”).

In September 2020, the 2018 Credit Facility was amended (the “2018 Credit Facility Modification”) to mitigate the effect that COVID‑19 had on CIM Commercial’s ability to borrow under the 2018 Credit Facility during the period from September 2, 2020 through June 30, 2021 (the “Deferral Period”).

The 2018 Credit Facility bears interest (i) during the Deferral Period, at (A) the base rate plus 1.05% or (B) LIBOR plus 2.05% and (ii) after the Deferral Period, at (A) the base rate plus 0.55% or (B) LIBOR plus 1.55%.

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 December 31, 2021 and 2020, the variable interest rate was 2.15% and 2.20%, respectively.

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

The 2018 Credit Facility is secured by deeds of trust on certain of our properties.

During the Deferral Period, our borrowing capacity is subject to a $15.0 million reserve, which may be reduced by certain capital expenditures made in respect of our properties securing the 2018 Credit Facility, and the requirement that we maintain a minimum balance of “liquid assets” of $15.0 million, which are defined as (1) unencumbered cash and cash equivalents and (2) up to $5.0 million unfunded availability under the 2018 Credit Facility.

Other than as described in the preceding sentence, the

2018 Credit Facility contains customary covenants and is not subject to any financial covenants (though the amount we may borrow under the 2018 Credit Facility is determined by a borrowing base calculation).

The 2018 Credit Facility matures in October 2022 and provides for one one-year extension option under certain conditions.

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.

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.

As of March 10, 2022, December 31, 2021, and December 31, 2020, $100.0 million, $60.0 million and $166.5 million, respectively, was outstanding under the 2018 Credit Facility and approximately $77.6 million, $117.6 million, and $28.0 million, respectively, was available for future borrowings.

In May 2020, to further enhance its liquidity position and maintain financial flexibility, CIM Commercial entered into an unsecured revolving credit facility with a bank (the “2020 Credit Facility”) pursuant to which CIM Commercial can borrow up to a maximum of $10.0 million.

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

Outstanding advances under the 2020 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 Credit Facility, which fee is subject to a cap of $112,000 in the aggregate.

The 2020 Credit Facility contains certain customary covenants, including a maximum leverage ratio and a minimum fixed charge coverage ratio, as well as certain other conditions.

The 2020 Credit Facility matures in May 2022.

As of both March 11, 2021 and December 31, 2020, $0 was outstanding under the 2020 Credit Facility and $10.0 million was available for future borrowings.

In June 2020, we borrowed 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 Paycheck Protection Program and are secured by loans made by us under the Paycheck Protection Program.

As of both March 10, 2022 and December 31, 2021, no amounts were outstanding under the 2020 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.

The PPPLF contains customary covenants but is not subject to any financial covenants.

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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 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 March 11, 2021 and December 31, 2020, $19.8 million and $14.5 million, respectively, was outstanding under the PPPLF.

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

As of December 31, 2021, $5.0 million was outstanding 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 March 11, 2021, December 31, 2020, and December 31, 2019, was $13.9 million, $14.2 million and $22.3 million, respectively.

The Company has 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 outstanding balance of SBA 7(a) loan-backed notes on March 10, 2022, December 31, 2021, and December 31, 2020, w as $6.5 million, $7.7 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.

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

As a SBA 7(a) licensee, we are an authorized lender under the PPP and have originated $16.0 million loans under the program with $14.5 million outstanding as of December 31, 2020.

During January and February 2021, we funded $8.2 million of additional PPP loans.

As of March 11, 2021, we had $19.8 million 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.

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

As of December 31, 2021, we had $5.1 million outstanding in PPP loans.

We expect that all of the outstanding PPP loans will be forgiven, either in part or in full, by the SBA or be repaid by the borrower, including both principal and accrued interest.

Securities Offerings

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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.

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 December 31, 2021, there were 4,541,852 Series A Preferred Warrants to purchase 1,178,125 shares of Common Stock outstanding.

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As of March 10, 2022, no sales of Common Stock have been made under the ATM program.

During the twelve months ended December 31, 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.

Dividends on and Redemptions of Preferred Stock

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On December 29, 2021, we announced an Initial Dividend on shares of our Common Stock for fiscal year 2022 in the aggregate amount of $7,010,799,

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.

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During the year ended December 31, 2021, we redeemed 223,295 shares of Series A Preferred Stock and no shares of Series D Preferred Stock and Series L Preferred Stock.

Summary of Material Contractual Obligations

The following summarizes our material contractual obligations as of December 31, 2020:

Payments Due by Period

Total 2021 2022 - 2023 2024 - 2025 Thereafter

(in thousands)

Mortgages payable $ 97,100 $ — $ — $ — $ 97,100

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

Secured borrowings (1) 8,457 583 896 951 6,027

Other (1) (2) 55,784 1,692 16,233 1,720 36,139

Interest and fees:

Debt (3) 46,691 9,354 14,174 10,820 12,343

Other contractual obligations:

Borrower advances 3,963 3,963 — — —

Loan commitments 34,067 34,067 — — —

Tenant improvements 7,638 5,369 2,269 — —

Total material contractual obligations $ 420,200 $ 55,028 $ 200,072 $ 13,491 $ 151,609

(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 December 31, 2020.

For the 2018 Credit Facility, we use the balance outstanding and the applicable rates in effect as of December 31, 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 December 31, 2020.

Off Balance Sheet Arrangements

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As a result, actual results could differ from our estimates, and those differences could be material.

We believe the following critical accounting policies, among others, affect our more significant estimates and assumptions used in preparing our consolidated financial statements.

We believe the following critical accounting policy, among others, affects our more significant estimates and assumptions used in preparing our consolidated financial statements.

For a discussion of recently issued accounting literature, see Note 2 to our consolidated financial statements included in this Annual Report on Form 10-K.

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As described in Note 2 to the consolidated financial statements included in this Annual Report on Form 10-K, investments in real estate are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

If, and when, such events or changes in circumstances are present, the

recoverability of assets to be held and used is measured by a comparison of the carrying amount to the future undiscounted cash flows expected to be generated by the assets and its eventual disposition.

If, and when, such events or changes in circumstances are present, the recoverability of assets to be held and used is measured by a comparison of the carrying amount to the future undiscounted cash flows expected to be generated by the assets and its eventual disposition.

If the undiscounted cash flows are less than the carrying amount of the assets, an impairment is recognized to the extent the carrying amount of the assets exceeds the estimated fair value of the assets.

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Our process for evaluating real estate impairment requires management to make significant assumptions related to certain inputs, including rental rates, lease-up period, occupancy, estimated holding periods, capital expenditures, growth rates, market discount rates and terminal capitalization rates.

For our hotel property, additional inputs considered include RevPAR, and ADR.

These inputs require a subjective evaluation based on the specific property and market.

Changes in the assumptions could have a significant impact on either the fair value, the amount of impairment charge, if any, or both.

Loan Loss Reserves

As described in Note 2 and Note 4 to the consolidated financial statements included in this Annual Report on Form 10-K, as of December 31, 2020 and 2019, we had loans receivable of $83.1 million and $68.1 million, respectively, and loan loss reserves of $885,000 and $598,000, respectively.

On a quarterly basis, and more frequently if indicators exist, we evaluate the collectability of our loans receivable.

Our evaluation of collectability involves significant judgment, estimates, and a review of the ability of the borrower to make principal and interest payments, the underlying collateral and the borrowers’ business models and future operations in accordance with ASC 450-20, Contingencies-Loss Contingencies , and ASC 310-10, Receivables .

For the years ended December 31, 2020, 2019 and 2018, we recorded a net recovery of $16,000, and net impairment losses of $66,000 and $147,000, respectively, on our loans receivable.

There were no material loans receivable subject to credit risk which were considered to be impaired as of December 31, 2020 or 2019.

We also establish a general loan loss reserve when available information indicates that it is probable a loss has occurred based on the carrying value of the portfolio and the amount of the loss can be reasonably estimated.

Significant judgment is required in determining the general loan loss reserve, including estimates of the likelihood of default and the estimated fair value of the collateral.

The general loan loss reserve includes those loans, which may have negative characteristics which have not yet become known to us.

In addition to the reserves established on loans not considered impaired that have been evaluated under a specific evaluation, we establish the general loan loss reserve using a consistent methodology to determine a loss percentage to be applied to loan balances.

These loss percentages are based on many factors, primarily cumulative and recent loss history and general economic conditions.

The evaluation of the collectability of our loans receivable is highly subjective and is based in part on factors that could differ materially from actual results in future periods.

If these factors change, we may recognize an impairment loss, which could be material.

FINRA Estimated Per Share Value

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As a result, in no event would a holder of Series A Preferred Stock or Series D Preferred Stock, as the case may be, be entitled to receive an amount greater than the Maximum Value upon the redemption of such shares or our liquidation.

determined that the estimated value of each of the Series A Preferred Stock and Series D Preferred Stock, as of December 31, 2020, was equal to $25.00 per share, plus accrued and unpaid dividends.

Accordingly, although the estimated value of the Series A Preferred Stock and Series D Preferred Stock, calculated based on the Calculated Assets and Liabilities as described above, exceeded the Maximum Value, we determined that the estimated value of each of the Series A Preferred Stock and Series D Preferred Stock, as of December 31, 2021, was equal to $25.00 per share, plus accrued and unpaid dividends.

As of December 31, 2021, there were 8,126,597 and 7,903,302 shares of Series A Preferred Stock issued and outstanding, respectively, 56,857 shares of Series D Preferred Stock issued and outstanding, 8,080,740 and 5,387,160 shares of Series L Preferred Stock issued and outstanding, respectively, and 23,369,331 shares of Common Stock issued and outstanding.

14 unchanged sentences

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What changed 10-K

Item 7. Management’s Discussion and Analysis