Creative Media & Community Trust Corp 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 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 “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, (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. 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, 2022 (the “2021 Form 10-K”). The forward-looking statements included herein are based on current expectations and there can be no assurance that these expectations will be attained. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond CMCT’s control. Although we believe that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could be inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this Form 10-Q will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by CMCT or any other person that CMCT’s objectives and plans will be achieved. Readers are cautioned not to place undue reliance on forward-looking statements. Forward-looking statements speak only as of the date they are made. CMCT does not undertake to update them to reflect changes that occur after the date they are made. The following discussion of our financial condition as of June 30, 2022 and results of operations for the three and six months ended June 30, 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 Creative Media & Community Trust Corporation and its subsidiaries. Definitions We use certain defined terms throughout this Quarterly Report on Form 10-Q that have the following meanings: The phrase “ADR” represents average daily rate. It is calculated as trailing 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. This amount reflects total cash rent before abatements. Where applicable, annualized rent has been grossed up by adding annualized expense reimbursements to base rent. The phrase “RevPAR” represents revenue per available room. It is calculated as trailing 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. 36 Table of Contents Executive Summary Business Overview 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 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. 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. 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. 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. COVID - 19 In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic. Since then, COVID-19 has spread worldwide, causing significant disruptions to the U.S. and world 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 may continue to impact, the operations of our hotel in Sacramento, California. 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 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. Properties As of June 30, 2022, our real estate portfolio consisted of 17 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 June 30, 2022, our 12 office properties, totaling approximately 1.4 million rentable square feet, were 78.1% occupied and our one hotel with an ancillary parking garage, which has a total of 503 rooms, had RevPAR of $127.98 for the six months ended June 30, 2022. Additionally, as of June 30, 2022, we had three development sites (one being used as a parking lot). Strategy 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. 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 37 Table of Contents 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. 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 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. 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 CIM Group believes that a vast majority of the risks associated with acquiring real estate are mitigated by accumulating local market knowledge of the community where the asset is located. As a result, CIM Group typically spends significant resources over a period of between six months and five years evaluating communities prior to making any acquisitions. The distinct districts that CIM Group identifies through this process as targets for acquisitions are referred to as “Qualified Communities.” Qualified Communities typically have dedicated resources to become, or are currently, vibrant communities where people can live, work, shop and be entertained, all within walking distance or close proximity to public transportation. These areas, which include traditional downtown areas and suburban main streets, generally have high barriers to entry, high population density, positive population trends, a propensity for growth and support for investment. CIM Group believes that the critical mass of redevelopment in such Qualified Communities creates positive externalities, which enhance the value of real estate assets in the area. CIM Group targets acquisitions of diverse types of real estate assets, including retail, residential, office, parking, hotel, signage and mixed-use through CIM Group’s extensive network and its current opportunistic activities. CIM Group seeks to maximize the value of its holdings through active onsite property management and leasing. CIM Group has extensive in-house research, acquisition, credit analysis, development, finance, leasing and onsite property management capabilities, which leverage its deep understanding of metropolitan communities to position properties for multiple uses and to maximize operating income. As a vertically-integrated owner and operator, CIM Group has in-house onsite property management and leasing capabilities. Property managers prepare annual capital and operating budgets and monthly operating reports, monitor results and oversee vendor services, maintenance and capital improvement schedules. 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 financing, leasing, marketing and property positioning, as well as hold/sell analyses and performance tracking relative to the overall business plan. 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 repositions or ultimate disposition activities. 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. 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. 38 Table of Contents Financing Strategy We may finance our future activities through one or more of the following methods: (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; (iii) the addition of senior recourse or non-recourse debt using target acquisitions as well as existing assets as collateral; (iv) the sale of existing assets; and or (v) cash flows from operations. 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 (includes property partially owned through the Unconsolidated Joint Venture): As of June 30, 2022 2021 Occupancy (1) 78.1 % 78.0 % Annualized rent per occupied square foot (1)(2) $ 54.13 $ 52.32 ______________________ (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) 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 June 30, 2022 and 2021 were approximately $2.2 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 September 30, 2022 December 31, 2022 March 31, 2023 June 30, 2023 Expiring Cash Rents: Expiring square feet (1) 55,126 42,368 29,477 45,916 Expiring rent per square foot (2) $ 49.45 $ 49.64 $ 51.12 $ 53.03 ______________________ (1) Month-to-month tenants occupying a total of 15,552 square feet are included in the expiring leases in the first quarter listed. (2) Represents gross monthly base rent, as of June 30, 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 and six months ended June 30, 2022, we executed leases with terms longer than 12 months totaling 39,392 and 60,870 square feet, respectively. The table below sets forth information on certain of our executed leases during the three and six months ended June 30, 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: Number of Leases (1) Rentable Square Feet New Cash Rents per Square Foot (2) Expiring Cash Rents per Square Foot (2) Three months ended June 30, 2022 7 26,766 $ 35.11 $ 33.18 Six months ended June 30, 2022 14 41,737 $ 44.60 $ 43.57 ______________________ (1) Based on the number of tenants that signed leases. 39 Table of Contents (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 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 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 Six Months Ended June 30, 2022 2021 Occupancy 73.3 % 38.8 % ADR $ 174.48 $ 119.99 RevPAR $ 127.98 $ 46.52 Seasonality Our revenues and expenses for our hotel property are subject to seasonality during the year. Generally, our hotel revenues are greater in the first and second quarters than the third and fourth quarters. This seasonality can be expected to cause quarterly fluctuations in revenues, segment net operating income, net income and cash provided by operating activities. In addition, the hotel industry is cyclical and demand generally follows, on a lagged basis, key macroeconomic factors. Lending Segment 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 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. Originations under the PPP have ended and we had a remaining outstanding balance of $205,000 in PPP loans outstanding as of June 30, 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 provided lenders who originated loans under the program with a 100% guaranty of repayment (provided certain conditions are met) and provided small businesses with uncollateralized and unguaranteed loans at an interest rate of 1.00%. 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%. As of June 30, 2022, substantially all loans originated under the PPP have been repaid (with a concomitant reduction in our obligations to the Federal Reserve). 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. 40 Table of Contents Property Concentration Kaiser Foundation Health Plan, Incorporated (“Kaiser”), which occupied space in one of our Oakland, California properties, accounted for 29.2% of our annualized rental income for the three months ended June 30, 2022. 2022 Results of Operations Comparison of the Three Months Ended June 30, 2022 to the Three Months Ended June 30, 2021 Net Income and FFO Three Months Ended June 30, Change 2022 2021 $ % (dollars in thousands) Total revenues $ 26,403 $ 22,673 $ 3,730 16.5 % Total expenses $ 23,411 $ 21,150 $ 2,261 10.7 % Net income $ 2,931 $ 527 $ 2,404 456.2 % Net income increased to $2.9 million, or by $2.4 million, for the three months ended June 30, 2022, compared to net income of $527,000 for the three months ended June 30, 2021. The increase was primarily due to an increase in office segment net operating income of $314,000 , an increase in hotel segment net operating income of $3.2 million, a decrease in asset management fees of $1.3 million and a decrease in provision for income taxes of $675,000, partially offset by a decrease in lending segment net operating income of $3.4 million. 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. 41 Table of Contents 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 June 30, 2022 2021 Net loss attributable to common stockholders (1) $ (2,349) $ (4,210) Depreciation and amortization 4,974 5,069 FFO attributable to common stockholders (1) $ 2,625 $ 859 ______________________ (1) During the three months ended June 30, 2022 and 2021, we recognized $106,000 and $13,000, respectively, of redeemable preferred stock redemptions and $4,000 and $106,000, 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 $2.6 million for the three months ended June 30, 2022, an increase of $1.8 million compared to $859,000 for the three months ended June 30, 2021. The increase in FFO is primarily attributable to an increase in office segment net operating income of $314,000 , an increase in hotel segment net operating income of $3.2 million, a decrease in asset management fees of $1.3 million and a decrease in provision for income taxes of $675,000, partially offset by a decrease in lending segment net operating income of $3.4 million as well as an increase in redeemable preferred stock dividends declared or accumulated of $540,000 . Summary Segment Results During the three months ended June 30, 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). Three Months Ended June 30, Change 2022 2021 $ % Revenues: Office $ 14,077 $ 13,356 $ 721 5.4 % Hotel $ 9,576 $ 3,477 $ 6,099 175.4 % Lending $ 2,750 $ 5,839 $ (3,089) (52.9) % Expenses: Office $ 6,437 $ 5,770 $ 667 11.6 % Hotel $ 6,329 $ 3,479 $ 2,850 81.9 % Lending $ 1,061 $ 792 $ 269 34.0 % Income From Unconsolidated Entity Office $ 260 $ — $ 260 100.0 % Non-Segment Revenue and Expenses: Interest and other income $ — $ 1 $ (1) (100.0) % Asset management and other fees to related parties $ (920) $ (2,260) $ 1,340 (59.3) % Expense reimbursements to related parties - corporate $ (526) $ (454) $ (72) 15.9 % Interest expense $ (2,284) $ (2,491) $ 207 (8.3) % General and administrative $ (880) $ (835) $ (45) 5.4 % Depreciation and amortization $ (4,974) $ (5,069) $ 95 (1.9) % Provision for income taxes $ (321) $ (996) $ 675 (67.8) % 42 Table of Contents Revenues Office Revenue: Office revenue includes rental revenue, expense reimbursements and lease termination income from office properties. Office revenue increased to $14.1 million, or by 5.4%, for the three months ended June 30, 2022 compared to $13.4 million for the three months ended June 30, 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 June 30, 2022 as compared to the three months ended June 30, 2021. Hotel Revenue: Hotel revenue increased to $9.6 million, or by 175.4%, for the three months ended June 30, 2022, compared to $3.5 million for the three months ended June 30, 2021, primarily due to an increase in occupancy and average daily rate during the second quarter of 2022 as compared to the second quarter of 2021 as a result of the hospitality industry recovering from the impact of 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 decreased to $2.8 million, or by 52.9%, for the three months ended June 30, 2022, compared to $5.8 million for the three months ended June 30, 2021. The decrease is primarily due to lower premium income as a result of lower loan sale volume and a reduction in the market premium achieved during the three months ended June 30, 2022, compared to the three months ended June 30, 2021. We expect lending revenue to be lower materially for the second half of 2022, when compared to the second half of 2021 because of lower loan origination volume compared to 2021, a year when the SBA temporarily increased guaranteed percentages for SBA 7(a) loan originations, decreased demand for variable rate loans in the current inflationary economic environment, which we believe tends to lead borrowers to seek fixed rate loan products, and lower revenue from servicing assets retained for servicing the government guaranteed portion of our loans due to expected increases in prepayment. These factors were partially offset by acceleration of income-recognition from any principal discounts recorded on our loans due to increased prepayment. Expenses Office Expenses: Office expenses increased to $6.4 million, or by 11.6%, for the three months ended June 30, 2022, compared to $5.8 million for the three months ended June 30, 2021. The increase is primarily due to an increase in operating expenses at an office property in Austin, Texas, primarily as a result of increased real estate tax expense, as well as at an office property in Beverly Hills, California and an office property in Oakland, California, primarily as a result of higher maintenance expenses. Hotel Expenses: Hotel expenses increased to $6.3 million, or by 81.9%, for the three months ended June 30, 2022, compared to $3.5 million for the three months ended June 30, 2021, primarily as a result of increased occupancy at the hotel as compared to the first quarter of 2021 as a result of the hospitality industry recovering from the impact of COVID-19. Lending Expenses: Lending expenses represent expenses from our lending subsidiaries, including interest expense, general and administrative expenses and fees to related parties. Lending expenses increased to $1.1 million, or by 34.0%, for the three months ended June 30, 2022, compared to $792,000 for the three months ended June 30, 2021. The increase was primarily due to an increase in salary expenses (largely due to a reduction in costs being capitalized as a result of lower loan origination volume) as well as an increase in general and administrative expenses. Income From Unconsolidated Entity: Income from our unconsolidated entity included in office segment net operating income was $260,000 for the three months ended June 30, 2022. As our investment in the unconsolidated entity was made in February 2022, there was no comparable income for the three months ended June 30, 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 $920,000 for the three months ended June 30, 2022, a decrease of 59.3%, compared to $2.3 million for the three months ended June 30, 2021. The decrease was a result of the Fee Waiver which became effective January 1, 2022 and resulted in the 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 the Company and its subsidiaries that are not covered by the Incentive Fee. Expense reimbursements to related parties-corporate were $526,000 for the three months ended June 30, 2022, an increase of 15.9%, compared to $454,000 for the three months ended June 30, 2021 due to increases in allocated payroll. Interest Expense: Interest expense, which has not been allocated to our operating segments, was $2.3 million for the three months ended June 30, 2022, a decrease of 8.3% compared to $2.5 million for the three months ended June 30, 2021. The decrease is primarily due to a lower average outstanding principal balance on our 2018 Revolving Credit Facility compared to 43 Table of Contents the three months ended June 30, 2021, partially offset by increases in the LIBOR component of interest rates on our variable-rate debt for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. General and Administrative Expenses: General and administrative expenses, which have not been allocated to our operating segments, were $880,000 for the three months ended June 30, 2022, consistent with $835,000 for the three months ended June 30, 2021. Depreciation and Amortization Expense: Depreciation and amortization expense was consistent at $5.0 million for both the three months ended June 30, 2022 and 2021. Provision for Income Taxes: Provision for income taxes was $321,000 for the three months ended June 30, 2022 as compared to $996,000 for the three months ended June 30, 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 June 30, 2022 as compared to the three months ended June 30, 2021. 2022 Results of Operations Comparison of the Six Months Ended June 30, 2022 to the Six Months Ended June 30, 2021 Net Income (Loss) and FFO Six Months Ended June 30, Change 2022 2021 $ % Total revenues $ 51,185 $ 41,552 $ 9,633 23.2 % Total expenses $ 45,704 $ 43,326 $ 2,378 5.5 % Net income (loss) $ 5,233 $ (3,144) $ 8,377 (266.4) % Net income increased to $5.2 million, or by $8.4 million, for the six months ended June 30, 2022, compared to net loss of $3.1 million for the six months ended June 30, 2021. The increase is primarily attributable to an increase of $541,000 in office segment net operating income, an increase of $6.5 million in hotel segment net operating income, a decrease of $2.7 million in asset management fees, a decrease of $859,000 in general and administrative expenses, a decrease of $585,000 in interest expense and a decrease of $742,000 in provision for income taxes, partially offset by a decrease of $3.7 million in lending segment net operating income. Funds from Operations The following table sets forth a historical reconciliation of net loss attributable to common stockholders to FFO attributable to common stockholders (in thousands): Six Months Ended June 30, 2022 2021 Net loss attributable to common stockholders $ (5,160) $ (12,416) Depreciation and amortization 9,978 10,106 FFO attributable to common stockholders $ 4,818 $ (2,310) ______________________ (1) During the six months ended June 30, 2022 and 2021, we recognized $181,000 and $26,000, respectively, of redeemable preferred stock redemptions and $19,000 and $163,000, 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. 44 Table of Contents FFO attributable to common stockholders was $4.8 million for the six months ended June 30, 2022, an increase of $7.1 million compared to $(2.3) million for the six months ended June 30, 2021. The increase in FFO is primarily attributable to an increase of $541,000 in office segment net operating income, an increase of $6.5 million in hotel segment net operating income, a decrease of $2.7 million in asset management and other fees to related parties, a decrease of $859,000 in general and administrative expenses, a decrease of $585,000 in interest expense and a decrease of $742,000 in provision for income taxes, partially offset by a decrease of $3.7 million in lending segment net operating income and by an increase in redeemable preferred dividends declared or accumulated of $1.1 million. Summary Segment Results During the six months ended June 30, 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). Six Months Ended June 30, Change 2022 2021 $ % Revenues: Office $ 28,182 $ 26,883 $ 1,299 4.8 % Hotel $ 17,369 $ 5,355 $ 12,014 224.4 % Lending $ 5,634 $ 9,313 $ (3,679) (39.5) % Expenses: Office $ 12,648 $ 11,510 $ 1,138 9.9 % Hotel $ 11,728 $ 6,164 $ 5,564 90.3 % Lending $ 2,197 $ 2,160 $ 37 1.7 % Income From Unconsolidated Entity Office $ 380 $ — $ 380 100.0 % Non-Segment Revenue and Expenses: Interest and other income $ — $ 1 $ (1) (100.0) % Asset management and other fees to related parties $ (1,841) $ (4,519) $ 2,678 (59.3) % Expense reimbursements to related parties - corporate $ (948) $ (1,059) $ 111 (10.5) % Interest expense $ (4,347) $ (4,932) $ 585 (11.9) % General and administrative $ (2,017) $ (2,876) $ 859 (29.9) % Depreciation and amortization $ (9,978) $ (10,106) $ 128 (1.3) % Provision for income taxes $ (628) $ (1,370) $ 742 (54.2) % Revenues Office Revenue: Office revenue includes rental revenue, expense reimbursements and lease termination income from office properties. Office revenue increased to $28.2 million, or by 4.8%, for the six months ended June 30, 2022 compared to $26.9 million for the six months ended June 30, 2021. The increase is primarily due to increased rental revenue at an office property in Austin, Texas as a result of higher occupancy as compared to the six months ended June 30, 2021. Hotel Revenue: Hotel revenue increased to $17.4 million, or by 224.4%, for the six months ended June 30, 2022, compared to $5.4 million for the six months ended June 30, 2021, primarily due to an increase in occupancy and average daily rate during the six months ended June 30, 2022 as compared to the six months ended June 30, 2021 as a result of the hospitality industry recovering from the impact of 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 decreased to $5.6 million, or by 39.5%, for the six months ended June 30, 2022, compared to $9.3 million for the six months ended June 30, 2021. The decrease is primarily due to lower premium income as a result of lower loan sale volume and a reduction in the market premium achieved during the six months ended June 45 Table of Contents 30, 2022, compared to the six months ended June 30, 2021. We expect lending revenue to be lower materially for the second half of 2022, when compared to the second half of 2021 because of lower loan origination volume compared to 2021, a year when the SBA temporarily increased guaranteed percentages for SBA 7(a) loan originations, decreased demand for variable rate loans in the current inflationary economic environment, which we believe tends to lead borrowers to seek fixed rate loan products, and lower revenue from servicing assets retained for servicing the government guaranteed portion of our loans due to expected increases in prepayment. These factors were partially offset by acceleration of income-recognition from any principal discounts recorded on our loans due to increased prepayment. Expenses Office Expenses: Office expenses increased to $12.6 million, or by 9.9%, for the six months ended June 30, 2022, compared to $11.5 million for the six months ended June 30, 2021. The increase is primarily due to an increase in operating expenses at an office property in Austin, Texas, primarily as a result of increased real estate tax expense, and an office property in Oakland, California, primarily as a result of higher maintenance expenses. and an office property in Oakland, California as compared to the six months ended June 30, 2021. Hotel Expenses: Hotel expenses increased to $11.7 million, or by 90.3%, for the six months ended June 30, 2022, compared to $6.2 million for the six months ended June 30, 2021, primarily as a result of increased occupancy at the hotel during as a result of the hospitality industry recovering from the impact of 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 were $2.2 million, for both the six months ended June 30, 2022 and 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 $1.8 million for the six months ended June 30, 2022, a decrease of 59.3%, compared to $4.5 million for the six months ended June 30, 2021. The decrease was a result of the Fee Waiver which became effective January 1, 2022 and resulted in the 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 the Company and its subsidiaries that are not covered by the Incentive Fee. Expense reimbursements to related parties-corporate were $948,000 for the six months ended June 30, 2022, a decrease of 10.5%, compared to $1.1 million for the six months ended June 30, 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 $4.3 million for the six months ended June 30, 2022, a decrease of 11.9% compared to $4.9 million for the six months ended June 30, 2021. The decrease is primarily due to a lower average outstanding principal balance on our 2018 revolving credit facility during the six months ended June 30, 2022 compared to the six months ended June 30, 2021, partially offset by increases in the LIBOR component of interest rates on our variable-rate debt for the six months ended June 30, 2022 as compared to six months ended June 30, 2021. General and Administrative Expenses: General and administrative expenses, which have not been allocated to our operating segments, were $2.0 million for the six months ended June 30, 2022, a decrease of 29.9% compared to $2.9 million for the six months ended June 30, 2021. The decrease is primarily due to a decrease in legal fees as compared to the six months ended June 30, 2021. Depreciation and Amortization Expense: Depreciation and amortization expense was $10.0 million for the six months ended June 30, 2022, consistent with $10.1 million for the six months ended June 30, 2021. Provision for Income Taxes: Provision for income taxes was $628,000 for the six months ended June 30, 2022, a decrease of 54.2% compared to $1.4 million for the six months ended June 30, 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 six months ended June 30, 2022 as compared to the six months ended June 30, 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. 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 46 Table of Contents increased by $7.4 million for the six months ended June 30, 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, write-offs of uncollectible receivables and income from our unconsolidated entity of $6.9 million, primarily as a result of increases in segment net operating income and a decrease in asset management fees, partially offset by a $1.5 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 $30.9 million for the six months ended June 30, 2022, as compared to the same period in 2021. The increase in cash used in investing activities was primarily due to an increase of $3.8 million in capital expenditures, primarily as a result of increased office leasing activity resulting in more tenant improvements, and acquisitions of real estate of $8.1 million, compared to no purchases during the same period in 2021, and a cash outlay of $22.4 million related to our investment in the Unconsolidated Joint Venture during the six months ended June 30, 2022. Additionally, as a result of the ending of the PPP loan originations in 2021, there was a decrease in net cash used in investing activities related to net loan fundings of $3.4 million. Our cash flows from financing activities are generally impacted by borrowings and capital activities. Net cash provided by financing activities was $4.5 million during the six months ended June 30, 2022, compared to net cash provided by financing activities of $12.9 million in the same period in 2021. The decrease in net cash provided by financing activities of $8.4 million was primarily as a result of net proceeds from issuance of Common Stock during the six months ended June 30, 2021 of $78.5 million related to our rights offering completed in June 2021 as compared to the six months ended June 30, 2022 in which the Company repurchased $303,000 worth of its Common Stock and had no proceeds from Common Stock issuances. Partially offsetting the aforementioned decrease in net cash provided by financing activities, the Company had net proceeds from debt of $6.5 million during the six months ended June 30, 2022 compared to net debt paydowns of $64.0 million during the six months ended June 30, 2021. Liquidity and Capital Resources General 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, paying distributions on our Preferred Stock and Common Stock and making redemption payments on our Preferred 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; (ii) credit facilities and term loans; (iii) the addition of senior recourse or non-recourse debt using target acquisitions as well as existing assets as collateral; (iv) the sale of existing assets; and or (v) cash flows from operations. With respect to the $50.0 million outstanding under the 2018 Revolving Credit Facility as of August 3, 2022 that is scheduled to mature in October 2022, we are working with a bank to refinance such indebtedness prior to its maturity date. There can, however, be no assurance that such refinancing will occur. In the interim, in order to preserve flexibility with respect to our liquidity, we submitted an extension notice in July 2022 to extend the maturity of the 2018 Revolving Credit Facility to October 2023. The extension is subject to the satisfaction of certain conditions that we expect to be able to satisfy (if the refinancing does not occur). 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 have been 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 of Common Stock 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 $7.1 million as of June 30, 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 75% (as the government guarantee has now reverted to 75% from 90%) 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 47 Table of Contents some commitments are expected to expire without being drawn upon, total commitment amounts do not necessarily represent future cash requirements. We may not have sufficient funds on hand or may not be able to obtain additional financing to cover all of our long-term cash requirements. The nature of our business, and the requirements imposed by REIT rules that we distribute a substantial majority of our REIT taxable income on an annual basis in the form of dividends, may cause us to have substantial liquidity needs over the long-term. 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 Mortgages We have one mortgage loan agreement with an outstanding balance of $97.1 million as of June 30, 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 June 30, 2022 and December 31, 2021, the variable interest rate was 3.72% 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. 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 August 3, 2022, June 30, 2022, and December 31, 2021, $50.0 million, $75.0 million and $60.0 million, respectively, was outstanding under the 2018 revolving credit facility and approximately $150.9 million, $125.9 million, and $117.6 million, respectively, 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. The maturity date of PPPLF borrowings is the same as the maturity date of the loans pledged to secure the extension of credit, generally two years. At maturity, both principal and accrued interest are due. 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). We borrowed money under the PPPLF to finance all the loans we originated under the PPP. As of June 30, 2022, $205,000 was outstanding under the PPPLF. Other Financing Activity On May 30, 2018, we completed a securitization of the unguaranteed portion of certain of our SBA 7(a) loans receivable with the issuance of $38.2 million of unguaranteed SBA 7(a) loan-backed notes. The SBA 7(a) loan-backed notes mature on March 20, 2043, with monthly payments due as payments on the collateralized loans are received. Based on the anticipated repayments of our collateralized SBA 7(a) loans, at issuance, we estimated the weighted average life of the SBA 7(a) loan-backed notes to be approximately two years. The SBA 7(a) loan-backed notes bear interest at the lower of the one-month LIBOR plus 1.40% or the prime rate less 1.08%. The outstanding balance of SBA 7(a) loan-backed notes on August 3, 2022, June 30, 2022, and December 31, 2021, was $3.8 million, $4.0 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. The junior subordinated balance is due at maturity on March 30, 2035. The junior subordinated notes may be redeemed at par at our option. The aggregate principal balance of the junior subordinated notes was $27.1 million as of June 30, 2022. As an SBA 7(a) licensee, we are an authorized lender under the PPP and originated loans under the program. As of June 30, 2022, we had $205,000 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. 48 Table of Contents Securities Offerings We conducted a continuous public offering of Series A Preferred Units from October 2016 through January 2020, where each Series A Preferred Unit consisted of one share of Series A Preferred Stock and one Series A Preferred Warrant. During the tenure of the offering, we issued 4,603,287 Series A Preferred Units and received net proceeds of $105.2 million after commissions, fees and allocated costs. The Series A Preferred Warrants are exercisable beginning on the first anniversary of the date of their original issuance until and including the fifth anniversary of the date of such issuance. At the time of issuance, the exercise price of each Series A Preferred Warrant was equal to a 15.0% premium to the per share estimated NAV of our Common Stock most recently published and designated as the applicable NAV by us at the time of issuance. However, in accordance with the terms of the Series A Preferred Warrants, the exercise price of each Series A Preferred Warrant issued prior to the Reverse Stock Split was automatically adjusted to reflect the effect of the Reverse Stock Split and, in the discretion of our Board of Directors, the exercise price and the number of shares issuable upon exercise of each Series A Preferred Warrant issued prior to the Special Dividend was adjusted to reflect the effect of the Special Dividend. As of June 30, 2022, there were 4,294,512 Series A Preferred Warrants to purchase 1,113,569 shares of Common Stock outstanding. From February 2020 through June 2022, we conducted a continuous public offering of our Series A Preferred Stock and Series D Preferred Stock. In June 2022, we concluded the offering of our Series A Preferred Stock and Series D Preferred Stock and have since conducted a continuous public offering of our Series A1 Preferred Stock of up to approximately $692.3 million. We intend to use the net proceeds from the offerings for general corporate purposes, acquisitions of shares of our Common Stock and Preferred Stock, whether through one or more tender offers, share repurchases or otherwise, and acquisitions consistent with our acquisition and asset management strategies. As of June 30, 2022, we had issued 192,440 shares of Series A1 Preferred Stock, 8,251,657 shares of Series A Preferred Stock and 56,857 shares of Series D Preferred Stock and received aggregate net proceeds of $192.2 million after commissions, fees and allocated costs. On March 16, 2020, we established an “at the market” (“ATM”) program through which we may, from time to time in our discretion, offer and sell shares of Common Stock having an aggregate offering price of up to $25.0 million through an investment banking firm acting as the sales agent. Sales of Common Stock under the ATM program may be made directly on or through Nasdaq, among other methods. We intend to use the net proceeds from shares sold under the ATM program, if any, for general corporate purposes, acquisitions of shares of our Preferred Stock, whether through one or more tender offers, share repurchases or otherwise, and acquisitions consistent with our acquisition and asset management strategies. As of August 3, 2022, no sales of Common Stock have been made under the ATM program. Dividends on and Redemptions of Preferred Stock Holders of Series A1 Preferred Stock, 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 as follows: (1) at the of greater of (i) an annual rate of 6.0% of the Series A1 Preferred Stock Stated Value (i.e., the equivalent of $0.3750 per share per quarter) and (ii) the Federal Funds (Effective) Rate for such quarter and plus 2.5% of the Series A1 Preferred Stock Stated Value divided by four, up to a maximum of 2.5% of the Series A1 Preferred Stock Stated Value per quarter, (2) 5.50% of the Series A Preferred Stock Stated Value (i.e., the equivalent of $0.34375 per share per quarter), (3) 5.65% of the Series D Preferred Stock Stated Value (i.e., the equivalent of $0.35313 per share per quarter), and (4) 5.50% of the Series L Preferred Stock Stated Value (i.e., the equivalent of $1.56035 per share per year), respectively. However, if we fail to timely declare distributions or fail to timely pay any distribution on the Series L Preferred Stock, the annual dividend rate of the Series L Preferred Stock will temporarily increase by 1.00% per year, up to a maximum annual rate of 8.50% of the Series L Preferred Stock Stated Value. Dividends on each share of Preferred Stock begin accruing on, and are cumulative from, the date of issuance. Prior to the payment of any distributions on Series L Preferred Stock in respect of a given year, we must first declare and pay dividends on the Common Stock in respect of such year in an aggregate amount equal to the Initial Dividend announced by our Board of Directors at the end of the prior fiscal year. On December 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 $3,972,000 had been paid as of June 30, 2022. We expect to pay dividends on the Series A1 Preferred Stock, 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 49 Table of Contents 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 A1 Preferred Stock, Series A Preferred Stated Value and Series D Preferred Stated Value, respectively. From and after the fifth anniversary of the date of original issuance of any share of our Preferred Stock, we generally (subject to certain conditions) have the right (but not the obligation) to redeem, and the holder of such share may require us to redeem, such share at a redemption price equal to 100% of the stated value of such share, plus any accrued but unpaid dividends in respect of such share as of the effective date of the redemption. The redemption price in respect of any share of Preferred Stock, whether redeemed at our option or at the option of a holder, may be paid in cash or in shares of Common Stock in our sole discretion. During the three months ended June 30, 2022, we redeemed 88,225 shares of Series A Preferred Stock and no shares of Series A1 Preferred Stock, Series D Preferred Stock or Series L Preferred Stock. Off-Balance Sheet Arrangements As of June 30, 2022, we did not have any off-balance sheet arrangements. Recently Issued Accounting Pronouncements Our recently issued accounting pronouncements are described in Note 2 to the consolidated financial statements included in this Quarterly Report on Form 10-Q.