What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-10 compared with 2021-11-09 · 169 added, 262 removed, 206 unchanged (68% of the section changed)

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This Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”), which are intended to be covered by the safe harbors created thereby.

Such forward-looking statements can be identified by the use of forward-looking terminology such as “may,” “will,” “project,” “target,” “expect,” “intend,” “might,” “believe,” “anticipate,” “estimate,” “could,” “would,” “continue,” “pursue,” “potential,” “forecast,” “seek,” “plan,” or “should” or the negative thereof or other variations or similar words or phrases.

Such forward-looking statements include, among others, statements about CMCT’s plans and objectives relating to future growth and availability of funds, and the trading liquidity of CMCT’s Common Stock.

Such forward-looking statements can be identified by the use of forward-looking terminology such as “may,” “will,” “project,” “target,” “expect,” “intend,” “might,” “believe,” “anticipate,” “estimate,” “could,” “would,” “continue,” “pursue,” “potential,” “forecast,” “seek,” “plan,” or “should” or “goal” or the negative thereof or other variations or similar words or phrases.

Such forward-looking statements include, among others, statements about CMCT’s plans and objectives relating to future growth and outlook, and the trading liquidity of CMCT’s Common Stock.

Such forward-looking statements are based on particular assumptions that management of CMCT has made in light of its experience, as well as its perception of expected future developments and other factors that it believes are appropriate under the circumstances.

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, 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”).

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, (vi) the effects of inflation and higher interest rates on the operations and profitability of CMCT and (vii) general economic, market and other conditions.

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

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

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.

The following discussion of our financial condition as of March 31, 2022 and results of operations for the three months ended March 31, 2022 and 2021 should be read in conjunction with the 2021 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 2021 Form 10-K and in Part II, Item 1A of this Quarterly Report.

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

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

The terms “we,” “us,” “our” and the “Company” refer to Creative Media & Community Trust Corporation and its subsidiaries.

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

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It is calculated as trailing 3-month room revenue divided by the number of rooms occupied.

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

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

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It is calculated as trailing 3-month room revenue divided by the number of available rooms.

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

Executive Summary

Business Overview

CIM Commercial is a Maryland corporation and REIT.

Creative Media & Community Trust Corporation (formerly known as CIM Commercial Trust Corporation) 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, in-fill industrial and limited service hospitality real assets that generate consistent, positive cash flow in communities qualified by CIM Group.

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 real estate 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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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 10% of our gross asset value at the time of acquisition but management may ultimately determine to execute on more significant acquisitions.

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.

We are operated by affiliates of CIM Group.

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.

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and world economies.

and has triggered a period of significant global economic slowdown.

In the first half of 2021, the U.S.

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 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 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.

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

Parking Tenants (1)

Three Months Ended 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 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 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 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.

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 may continue to impact, the operations of our hotel in Sacramento, California.

For the three months ended March 31, 2022, our hotel segment net operating income was $2.4 million, which was lower than the comparable pre-COVID-19 period.

As a result, the net operating income of our hotel for 2022 may be lower as compared to pre-COVID-19 years and contributions by the hotel to our funds from operations may be diminished in 2022 when compared to pre-COVID-19 years.

Our loans originated and serviced under the SBA 7(a) Small Business Loan Program through March 31, 2022 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.

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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 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.

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 new outbreaks involving variants of COVID-19 and actions taken to contain or mitigate such outbreaks, the distribution and acceptance of vaccines, 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 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 the remainder of 2021.

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 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 may continue to be adversely affected during 2022.

As of March 31, 2022, our real estate portfolio consisted of 16 assets, all of which were fee-simple properties, including one office property which we own through our investment in an unconsolidated joint venture (the “Unconsolidated Joint Venture”).

As of March 31, 2022, our 12 office properties, totaling approximately 1.4 million rentable square feet, were 78.9% occupied and our one hotel with an ancillary parking garage, which has a total of 503 rooms, had RevPAR of $119.78

for the three months ended March 31, 2022.

Additionally, as of March 31, 2022, we had two development sites (one being used as a parking lot),

We are a Maryland corporation and REIT.

Our portfolio of investments currently consists of Class A and creative office real assets in vibrant and improving metropolitan communities throughout the United States.

We also own one hotel in northern California and a lending platform that originates loans under the Small Business Administration (“SBA”) 7(a) loan program.

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

Our investments in multifamily and creative office assets may take different forms, including direct equity or preferred investments, 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 (“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, 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.

We intend to dispose of assets that do not fit into our strategy over time and opportunistically (i.e., we do not have any specific time frame with respect to such dispositions).

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

Such review may result in dispositions when, among other things, 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.

If we dispose of any of these assets, we intend to reinvest the proceeds in assets that fit our strategy.

CIM Group Operations

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

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

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

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

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

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

CIM Group’s organizational structure provides for continuity through multi-disciplinary teams responsible for an asset from the time of the original investment recommendation, through the implementation of the asset’s business plan, and any disposition activities.

CIM Group’s Investments and Development teams are separate groups that work very closely together on transactions requiring development expertise.

While the Investments team is responsible for acquisition analysis, both the Investments and Development teams perform due diligence, evaluate and determine underwriting assumptions and participate in the development management and ongoing asset management of CIM Group’s opportunistic assets.

In addition, CIM Group’s real assets management committee (the “Real Assets Management Committee”) reviews and approves strategic plans for each asset, including financing, leasing, marketing and property positioning, as well as hold/sell analyses and performance tracking relative to the overall business plan.

CIM Group’s Investments and Development teams are separate groups that work very closely together on transactions requiring development or redevelopment.

While the Investments team is ultimately responsible for acquisition analysis, both the Investments and Development teams perform due diligence, evaluate and determine underwriting assumptions and participate

in the development management and ongoing asset management of CIM Group’s assets under development.

The Development team is also responsible for the oversight and or execution of securing entitlements and the development/repositioning process.

In instances where CIM Group is not the lead developer, CIM Group’s in-house Development team continues to provide development and construction oversight to co-sponsors through a shadow team that oversees the progress of the development from beginning to end to ensure adherence to the budgets, schedules, quality and scope of the project in order to maintain CIM Group’s vision for the final product.

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

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

Financing Strategy

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

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

(i) offerings of shares of our common stock, par value $0.001 per share (“Common Stock”), preferred stock or other equity and or debt securities of the Company;

(ii) credit facilities and term loans;

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and or (v) cash flows from operations.

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.

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

Office Statistics:

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

As of September 30,

The following table sets forth occupancy rates and annualized rent per occupied square foot across our office portfolio as of the specified periods (includes property partially owned through the Unconsolidated Joint Venture):

As of March 31,

Occupancy (1) 78.9 % 78.7 %

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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 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:

(2) Represents gross monthly base rent under leases commenced as of the specified periods, multiplied by 12.

This amount reflects total cash rent before abatements.

Total abatements, representing lease incentives in the form of free rent, for the twelve months ended March 31, 2022 and 2021 were approximately $1.8 million and $1.3 million, respectively.

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

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

Over the next four quarters, we expect to see expiring cash rents as set forth in the table below (includes property partially owned through the Unconsolidated Joint Venture):

For the Three Months Ended

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

June 30, 2022 September 30, 2022 December 31, 2022 March 31, 2023

Expiring Cash Rents:

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(1) Month-to-month tenants occupying a total of 9,376 square feet are included in the expiring leases in the first quarter listed.

(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:

(2) Represents gross monthly base rent, as of March 31, 2022, under leases expiring during the periods above, multiplied by 12.

This amount reflects total cash rent before abatements.

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

During the three months ended March 31, 2022, we executed leases with terms longer than 12 months totaling 21,478 square feet.

The table below sets forth information on certain of our executed leases during the three months ended March 31, 2022, excluding space that was vacant for more than one year, month-to-month leases, leases with an original term of less than 12 months, related party leases, and space where the previous tenant was a related party:

Leases (1) Rentable

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Foot (2) Expiring

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

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

Three months ended March 31, 2022 7 14,971 $ 61.58 $ 62.14

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

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

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

This amount reflects total cash rent before abatements.

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

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.

Fluctuations in submarkets, buildings and terms of leases 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.

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.

Additionally, decreased demand and other negative trends or unforeseeable events, such as COVID-19, that impair our ability to timely renew or re-lease space could have a material adverse effect on our business, financial condition, results of operations, cash flow or our ability to satisfy our debt service obligations or to maintain our level of distributions on our Common Stock or Preferred Stock.

Additionally, decreased demand and other negative trends or unforeseeable events that impair our ability to timely renew or re lease space could have a material adverse effect on our business, financial condition, results of operations, cash flow or our ability to satisfy our debt service obligations or to maintain our level of distributions on our Common Stock or Preferred Stock.

Hotel Statistics:

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

For the Nine Months

Ended September 30,

For the Three Months

Ended March 31,

Occupancy 69.2 % 29.8 %

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

Additionally, our operating results have been and will be adversely affected by the continued effects of COVID-19.

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

Lending Segment

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

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

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

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

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.

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

While originations under the PPP have ended, we still had $3.4 million outstanding in PPP loans as of March 31, 2022.

The SBA 7(a) Loan Program is the SBA’s most common loan program and is considered to be the best SBA assisted loan option when real estate is part of a business purchase.

The maximum loan amount for an SBA 7(a) loan is $5.0 million.

Key eligibility factors are based on what the business does to generate its income, its credit history, and where the business operates.

We assist in the identification of which type of loan is best suited for a potential borrower’s needs.

Our SBA 7(a) term loans have monthly repayment terms of principal and interest and are originated with variable interest rates based on the prime rate.

Most of our SBA 7(a) loans have maturities of approximately 25 years.

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%.

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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.

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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%.

While we have focused on originating real estate loans almost exclusively to the limited service and mid-scale hospitality industry, we intend to increase our efforts to originate other real estate collateralized loans.

These loans are anticipated to be concentrated in industries in which we previously had positive experience, including convenience store, RV park and single purpose building owner-occupied restaurant operations and may include owner-occupied industrial operations/warehouse buildings.

Property Concentration

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.

Kaiser Foundation Health Plan, Incorporated (“Kaiser”), which occupied space in one of our Oakland, California properties, accounted for 29.4% of our annualized rental income for the three months ended March 31, 2022.

2021 Results of Operations

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

Comparison of the Three Months Ended March 31, 2022 to the Three Months Ended March 31, 2021

Net Income (Loss) and FFO

Three Months Ended September 30, Change

Three Months Ended March 31, Change

2022 2021 $ %

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Net income (loss) $ 2,302 $ (3,671) $ 5,973 (162.7) %

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.

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

Net income (loss) increased to $2.3 million, or by $6.0 million, for the three months ended March 31, 2022, compared to a net loss of $3.7 million for the three months ended March 31, 2021.

The increase is primarily attributable to an increase of $3.1 million in our segment net operating income primarily as a result of increases in hotel segment and office segment net operating income as well as a decrease in asset management and other fees to related parties of $1.3 million and a decrease in general and administrative expenses of $904,000 .

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”).

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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.

in accordance with GAAP.

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

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

Three Months Ended September 30,

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

Three Months Ended March 31,

Net loss attributable to common stockholders (1)

Depreciation and amortization 5,061 5,273

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

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 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 September 30, Change

$ (2,811) $ (8,206)

Office $ 12,998 $ 13,529 $ (531) (3.9) %

Hotel $ 5,478 $ 1,762 $ 3,716 210.9 %

Lending $ 5,773 $ 1,981 $ 3,792 191.4 %

Office $ 5,485 $ 6,087 $ (602) (9.9) %

Hotel $ 4,601 $ 2,831 $ 1,770 62.5 %

Lending $ 904 $ 1,712 $ (808) (47.2) %

Non-Segment Revenue and Expenses:

Interest and other income $ — $ 62 $ (62) (100.0) %

Asset management and other fees to related parties $ (2,262) $ (2,387) $ 125 (5.2) %

Expense reimbursements to related parties - corporate $ (533) $ (639) $ 106 (16.6) %

Interest expense $ (2,080) $ (2,473) $ 393 (15.9) %

General and administrative $ (753) $ (999) $ 246 (24.6) %

Depreciation and amortization 5,004 5,037

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

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

Office Revenue:

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

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 $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 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 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 $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 $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 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 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 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 $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 $2.1 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 $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 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 $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 $ %

(dollars in thousands)

Total revenues $ 65,801 $ 59,379 $ 6,422 10.8 %

Total expenses $ 65,005 $ 70,737 $ (5,732) (8.1) %

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

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):

Nine Months Ended September 30,

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

Depreciation and amortization 15,167 15,728

FFO attributable to common stockholders (1)

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.

$ 2,193 $ (3,169)

(1) During the three months ended March 31, 2022 and 2021, we recognized $74,000 and $13,000, respectively, of redeemable preferred stock redemptions and $15,000 and $57,000, 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.

FFO attributable to common stockholders was $2.2 million for the three months ended March 31, 2022, an increase of $5.4 million compared to a loss of $3.2 million for the three months ended March 31, 2021.

The increase in FFO is primarily attributable to an increase of $3.1 million in our segment net operating income, primarily as a result of increases in hotel segment net operating income as well as a decrease in asset management and other fees to related parties of $1.3 million and a decrease in general and administrative expenses of $904,000 .

Summary Segment Results

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

During the three months ended March 31, 2022 and 2021, we 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).

Nine Months Ended September 30, Change

Three Months Ended March 31, Change

2022 2021 $ %

5 unchanged sentences

Lending $ 1,136 $ 1,368 $ (232) (17.0) %

Income From Unconsolidated Entity

Office $ 120 $ — $ 120 100.0 %

Non-Segment Revenue and Expenses:

Interest and other income $ 1 $ 98 $ (97) (99.0) %

Asset management and other fees to related parties $ (921) $ (2,259) $ 1,338 (59.2) %

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Depreciation and amortization $ (5,004) $ (5,037) $ 33 (0.7) %

(Provision) benefit for income taxes $ (2,316) $ 731 $ (3,047) (416.8) %

Provision for income taxes $ (307) $ (374) $ 67 (17.9) %

Office Revenue:

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

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.

Office revenue increased to $14.1 million, or by 4.3%, for the three months ended March 31, 2022 compared to $13.5 million for the three months ended March 31, 2021.

The increase is primarily due to increased rental revenue at an office property in Austin, Texas as a result of higher occupancy for the three months ended March 31, 2022 as compared to the three months ended March 31, 2021.

Hotel Revenue:

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.

Hotel revenue increased to $7.8 million, or by 315.0%, for the three months ended March 31, 2022, compared to $1.9 million for the three months ended March 31, 2021, primarily due to an increase in occupancy, average daily rate, and food, beverage, and other sundry hotel services during the first quarter of 2022 as compared to the first quarter of 2021 as a result of the easing of government restrictions associated with COVID-19.

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 $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.

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.

Lending revenue decreased to $2.9 million, or by 17.0%, for the three months ended March 31, 2022, compared to $3.5 million for the three months ended March 31, 2021.

The decrease is primarily due to lower premium income as a result of lower loan sale volume during the three months ended March 31, 2022, compared to the three months ended March 31, 2021.

Office Expenses:

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

Office expenses increased to $6.2 million, or by 8.2%, for the three months ended March 31, 2022, compared to $5.7 million for the three months ended March 31, 2021.

The increase is primarily due to an increase in operating expenses at an office property in Austin, Texas and an office property in Oakland, California for the three months ended March 31, 2022 as compared to the three months ended March 31, 2021.

Hotel Expenses:

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.

Hotel expenses increased to $5.4 million, or by 101.1%, for the three months ended March 31, 2022, compared to $2.7 million for the three months ended March 31, 2021, primarily as a result of increased occupancy at the hotel as compared to the first quarter of 2021 as a result of the easing of government restrictions associated with COVID-19.

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 $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.

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

Lending expenses decreased to $1.1 million, or by 17.0%, for the three months ended March 31, 2022, compared to $1.4 million for the three months ended March 31, 2021.

The decrease was primarily due to a decrease in interest expense as a result of net paydowns of SBA 7(a) loans receivable and PPP loans which resulted in corresponding paydowns on our borrowings under our SBA 7(a) loan-backed notes and the PPPLF.

Income From Unconsolidated Entity:

Income from our unconsolidated entity included in office segment net operating income was $120,000 for the three months ended March 31, 2022.

As our investment in the unconsolidated entity was made in February 2022, there was no comparable income for the three months ended March 31, 2021.

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 $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.

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 September 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 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.

Asset management fees and other fees to related parties, which have not been allocated to our operating segments, were $921,000 for the three months ended March 31, 2022, a decrease of 59.2%, compared to $2.3 million for the three months ended March 31, 2021.

The decrease was a result of the Fee Waiver which became effective January 1, 2022 and replaced the previous asset management fee with a new Base Fee calculated at an annual rate of 1% (or 0.25% per quarter) of the average net asset value attributable to common stockholders at the beginning and end of the period.

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 $1.6 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 Administrator receives compensation and or reimbursement for performing certain services for the Company and its subsidiaries that are not covered by the Incentive Fee.

Expense reimbursements to related parties-corporate were $422,000 for the three months ended March 31, 2022, a decrease of 30.2%, compared to $605,000 for the three months ended March 31, 2021.

The decrease was primarily due to reductions in allocated payroll.

Interest Expense:

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.

Interest expense, which has not been allocated to our operating segments, was $2.1 million for the three months ended March 31, 2022, a decrease of 15.5% compared to $2.4 million for the three months ended March 31, 2021.

The decrease is primarily due to a lower average outstanding principal balance on our 2018 Revolving Credit Facility compared to the three months ended March 31, 2021.

General and Administrative Expenses:

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.

General and administrative expenses, which have not been allocated to our operating segments, were $1.1 million for the three months ended March 31, 2022, a decrease of 44.3% compared to $2.0 million for the three months ended March 31, 2021.

The decrease is primarily due to a decrease in legal fees.

Depreciation and Amortization Expense:

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 $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.

Depreciation and amortization expense was consistent at $5.0 million for the both three months ended March 31, 2022 and 2021.

Provision for Income Taxes:

Provision for income taxes was $307,000 for the three months ended March 31, 2022 as compared to a $374,000 for the three months ended March 31, 2021.

The decrease in provision for income taxes is due to a decrease in taxable income at our taxable REIT subsidiaries, largely due to the operations of the lending division during the three months ended March 31, 2022 as compared to the three months ended March 31, 2021.

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 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 $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 $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.

Net cash provided by operating activities increased by $4.0 million for the three months ended March 31, 2022, as compared to the same period in 2021.The increase was primarily due to an increase in net income adjusted for depreciation and amortization expense and write-offs of uncollectible receivables of $5.3 million, primarily as a result of increases in hotel and office segment net operating income, partially offset by a $1.2 million decrease in net proceeds from sale of guaranteed loans net of loan fundings, held for sale.

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 increased by $29.5 million for the three months ended March 31, 2022, as compared to the same period in 2021.

The increase in cash used in investing activities was primarily due to an increase of $4.3 million in additions to investments in real estate and acquisitions of real estate and a cash outlay of $22.4 million related to the Unconsolidated Joint Venture, the investment that was made during the three months ended March 31, 2022, as compared to the same period in 2021.

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

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.

Net cash provided by financing activities was $21.4 million during the three months ended March 31, 2022, compared to net cash used in financing activities of $231,000 in the same period in 2021.

The change was primarily due to an increase of $19.8 million in net proceeds from debt, primarily due to an increase in net borrowings under our 2018 Revolving Credit Facility, and an increase of $3.0 million in proceeds from issuance of preferred stock, net of redemptions, partially offset by an increase of $1.2 million in payments of common stock and preferred stock dividends during the three months ended March 31, 2022, as compared to the same period in 2021.

Liquidity and Capital Resources

6 unchanged sentences

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 $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.

With respect to the $90.0 million outstanding under the 2018 Revolving Credit Facility as of May 3, 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 will be able to 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 accumulated and unpaid dividends.

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.

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 $16.4 million as of March 31, 2022, 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.

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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 2021 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 September 30, 2021.

We have one mortgage loan agreement with an outstanding balance of $97.1 million as of March 31, 2022.

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

As of March 31, 2022 and December 31, 2021, the variable interest rate was 2.49% and 2.15%, 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.

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

The 2020 unsecured revolving credit facility matures in May 2022.

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.

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 will be able to implement either or both options.

As of May 3, 2022, March 31, 2022, and December 31, 2021, $90.0 million, $90.0 million and $60.0 million, respectively, was outstanding under the 2018 revolving credit facility and approximately $106.2 million, $106.2 million, and $117.6 million, respectively, was available for future borrowings.

In May 2020, 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 bore interest at the rate of 1.00%.

As of and March 31, 2022, no amounts were outstanding under the 2020 Credit Facility.

The 2020 Credit Facility matured on May 1, 2022.

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

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

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.

As of March 31, 2022, $3.7 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 November 4, 2021, September 30, 2021, and December 31, 2020, was $9.2 million, $10.2 million and $14.2 million, respectively.

The outstanding balance of SBA 7(a) loan-backed notes on May 3, 2022, March 31, 2022, and December 31, 2021, was $5.1 million, $6.2 million and $7.7 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 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.

The aggregate principal balance of the junior subordinated notes was $27.1 million as of March 31, 2022.

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

As of March 31, 2022, we had $3.4 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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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 September 30, 2021, there were 4,603,287 Series A Preferred Warrants to purchase 1,194,159 shares of Common Stock outstanding.

As of March 31, 2022, there were 4,458,589 Series A Preferred Warrants to purchase 1,156,393 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 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.

As of March 31, 2022, we had issued 7,949,521 shares of Series A Preferred Stock and 56,857 shares of Series D Preferred Stock and received aggregate net proceeds of $181.0 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 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

As of May 3, 2022, no sales of Common Stock have been made under the ATM program.

Dividends on and Redemptions of Preferred Stock

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

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

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

Dividends on each share of Preferred Stock begin accruing on, and are

cumulative from, the date of issuance.

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

On December 22, 2020, we announced an Initial Dividend on shares of our Common Stock for fiscal year 2021 in the aggregate amount of $4,448,223, of which $3,979,000 had been paid as of September 30, 2021.

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, of which $1,986,000 had been paid as of March 31, 2022.

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 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.

During the three months ended March 31, 2022, we redeemed 49,341 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 September 30, 2021, we did not have any off-balance sheet arrangements.

As of March 31, 2022, 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