Creative Media & Community Trust Corp 10-Q

Item 1. Financial Statements CREATIVE MEDIA & COMMUNITY TRUST CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets (In thousands, except share and per share amounts) (Unaudited) September 30, 2022 December 31, 2021 ASSETS Investments in real estate, net $ 503,790 $ 497,984 Investment in unconsolidated entity 12,149 — Cash and cash equivalents 14,794 22,311 Restricted cash 12,006 11,340 Loans receivable, net 66,627 73,543 Accounts receivable, net 3,930 3,396 Deferred rent receivable and charges, net 36,408 36,095 Other intangible assets, net 4,665 5,251 Other assets 11,228 10,946 TOTAL ASSETS $ 665,597 $ 660,866 LIABILITIES, REDEEMABLE PREFERRED STOCK, AND EQUITY LIABILITIES: Debt, net $ 216,442 $ 201,145 Accounts payable and accrued expenses 24,339 26,751 Intangible liabilities, net 78 237 Due to related parties 3,984 4,541 Other liabilities 19,537 16,861 Total liabilities 264,380 249,535 COMMITMENTS AND CONTINGENCIES (Note 14) REDEEMABLE PREFERRED STOCK: Series A cumulative redeemable preferred stock, $ 0.001 par value; 36,000,000 shares authorized; 1,266,400 and 1,265,200 shares issued and outstanding, respectively, as of September 30, 2022 and 1,633,965 and 1,631,965 shares issued and outstanding, respectively, as of December 31, 2021; liquidation preference of $ 25.00 per share, subject to adjustment 29,073 37,782 EQUITY: Series A cumulative redeemable preferred stock, $ 0.001 par value; 36,000,000 shares authorized; 7,553,938 and 7,134,335 shares issued and outstanding, respectively, as of September 30, 2022 and 6,492,632 and 6,271,337 shares issued and outstanding, respectively, as of December 31, 2021; liquidation preference of $ 25.00 per share, subject to adjustment 178,287 156,431 Series A1 cumulative redeemable preferred stock, $ 0.001 par value; 28,000,000 shares authorized; 2,859,441 shares issued and outstanding as of September 30, 2022 and no shares issued or outstanding as of December 31, 2021; liquidation preference of $ 25.00 per share, subject to adjustment 69,490 — Series D cumulative redeemable preferred stock, $ 0.001 par value; 27,000,000 shares authorized; 56,857 shares issued and outstanding as of September 30, 2022 and 56,857 shares issued and outstanding as of December 31, 2021; liquidation preference of $ 25.00 per share, subject to adjustment 1,396 1,396 Series L cumulative redeemable preferred stock, $ 0.001 par value; 9,000,000 shares authorized; 8,080,740 and 2,951,876 shares issued and outstanding, respectively, as of September 30, 2022 and 8,080,740 and 5,387,160 shares issued and outstanding, respectively, as of December 31, 2021; liquidation preference of $ 28.37 per share, subject to adjustment 83,745 152,834 Common stock, $ 0.001 par value; 900,000,000 shares authorized; 22,737,853 shares issued and outstanding as of September 30, 2022 and 23,369,331 shares issued and outstanding as of December 31, 2021. 23 24 Additional paid-in capital 862,360 866,746 Distributions in excess of earnings ( 823,523 ) ( 804,227 ) Total stockholders’ equity 371,778 373,204 Noncontrolling interests 366 345 Total equity 372,144 373,549 TOTAL LIABILITIES, REDEEMABLE PREFERRED STOCK, AND EQUITY $ 665,597 $ 660,866 The accompanying notes are an integral part of these consolidated financial statements. 1 Table of Contents CREATIVE MEDIA & COMMUNITY TRUST CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations (In thousands, except per share amounts) (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 REVENUES: Rental and other property income $ 14,194 $ 12,838 $ 42,484 $ 39,496 Hotel income 7,965 5,212 24,476 10,074 Interest and other income 2,694 6,199 9,078 16,231 Total Revenues 24,853 24,249 76,038 65,801 EXPENSES: Rental and other property operating 13,334 9,958 37,557 27,363 Asset management and other fees to related parties 916 2,262 2,757 6,781 Expense reimbursements to related parties—corporate 511 533 1,459 1,592 Expense reimbursements to related parties—lending segment 539 55 1,612 1,219 Interest 2,193 2,185 6,766 7,490 General and administrative 1,907 1,625 4,975 5,393 Transaction costs 201 — 201 — Depreciation and amortization 5,093 5,061 15,071 15,167 Total Expenses 24,694 21,679 70,398 65,005 (Loss) income from unconsolidated entity ( 204 ) — 176 — (LOSS) INCOME BEFORE PROVISION FOR INCOME TAXES ( 45 ) 2,570 5,816 796 Provision for income taxes 187 946 815 2,316 NET (LOSS) INCOME ( 232 ) 1,624 5,001 ( 1,520 ) Net (income) loss attributable to noncontrolling interests ( 5 ) — ( 19 ) 4 NET (LOSS) INCOME ATTRIBUTABLE TO THE COMPANY ( 237 ) 1,624 4,982 ( 1,516 ) Redeemable preferred stock dividends declared or accumulated (Note 10) ( 6,584 ) ( 4,723 ) ( 16,763 ) ( 13,810 ) Redeemable preferred stock deemed dividends (Note 10) — ( 90 ) ( 19 ) ( 253 ) Redeemable preferred stock redemptions (Note 10) ( 4,863 ) ( 27 ) ( 5,044 ) ( 53 ) NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS $ ( 11,684 ) $ ( 3,216 ) $ ( 16,844 ) $ ( 15,632 ) NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS PER SHARE: Basic $ ( 0.50 ) $ ( 0.14 ) $ ( 0.72 ) $ ( 0.88 ) Diluted $ ( 0.50 ) $ ( 0.14 ) $ ( 0.72 ) $ ( 0.88 ) WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING: Basic 23,209 23,349 23,303 17,784 Diluted 23,209 23,350 23,303 17,784 The accompanying notes are an integral part of these consolidated financial statements. 2 Table of Contents CREATIVE MEDIA & COMMUNITY TRUST CORPORATION AND SUBSIDIARIES Consolidated Statements of Equity (In thousands, except share and per share amounts) (Unaudited) Nine Months Ended September 30, 2022 Common Stock Preferred Stock Shares Par Value Shares Par Value Additional Paid-in Capital Distributions in Excess of Earnings Total Stockholders’ Equity Non-controlling Interests Total Equity Balances, December 31, 2021 23,369,331 $ 24 11,715,354 $ 310,661 $ 866,746 $ ( 804,227 ) $ 373,204 $ 345 $ 373,549 Stock based compensation expense — — — — 55 — 55 — 55 Common dividends ($ 0.085 per share) — — — — — ( 1,986 ) ( 1,986 ) — ( 1,986 ) Dividends to holders of Series A Preferred Stock ($ 0.34375 per share) — — — — — ( 2,896 ) ( 2,896 ) — ( 2,896 ) Dividends to holders of Series D Preferred Stock ($ 0.35313 per share) — — — — — ( 21 ) ( 21 ) — ( 21 ) Reclassification of Series A Preferred stock to permanent equity — — 329,921 8,304 ( 637 ) — 7,667 — 7,667 Redeemable preferred stock accretion — — — — — ( 15 ) ( 15 ) — ( 15 ) Redemption of Series A Preferred Stock — — ( 49,341 ) ( 1,228 ) 108 ( 75 ) ( 1,195 ) — ( 1,195 ) Net income — — — — — 2,297 2,297 5 2,302 Balances, March 31, 2022 23,369,331 $ 24 11,995,934 $ 317,737 $ 866,272 $ ( 806,923 ) $ 377,110 $ 350 $ 377,460 Contributions to noncontrolling interests — — — — — — — 5 5 Distributions to noncontrolling interests — — — — — — — ( 3 ) ( 3 ) Stock based compensation expense 30,984 — — — 37 — 37 — 37 Repurchase of common stock ( 41,374 ) — — — ( 303 ) — ( 303 ) — ( 303 ) Common dividends ($ 0.085 per share) — — — — — ( 1,986 ) ( 1,986 ) — ( 1,986 ) Issuance of Series A1 Preferred Stock — — 192,440 4,770 ( 416 ) — 4,354 — 4,354 Dividends to holders of Series A1 Preferred Stock ($ 0.37500 per share) — — — — — ( 79 ) ( 79 ) — ( 79 ) Dividends to holders of Series A Preferred Stock ($ 0.34375 per share) — — — — — ( 2,960 ) ( 2,960 ) — ( 2,960 ) Dividends to holders of Series D Preferred Stock ($ 0.35313 per share) — — — — — ( 21 ) ( 21 ) — ( 21 ) Reclassification of Series A Preferred stock to permanent equity — — 430,082 10,857 ( 1,189 ) — 9,668 — 9,668 Redeemable preferred stock accretion — — — — — ( 4 ) ( 4 ) — ( 4 ) Redemption of Series A Preferred Stock — — ( 88,225 ) ( 2,188 ) 201 ( 106 ) ( 2,093 ) — ( 2,093 ) Net income — — — — — 2,922 2,922 9 2,931 Balances, June 30, 2022 23,358,941 $ 24 12,530,231 $ 331,176 $ 864,602 $ ( 809,157 ) $ 386,645 $ 361 $ 387,006 Stock based compensation expense — — — — 55 — 55 — 55 Repurchase of common stock ( 621,088 ) ( 1 ) — — ( 4,411 ) — ( 4,412 ) — ( 4,412 ) Common dividends ($ 0.085 per share) — — — — — ( 1,933 ) ( 1,933 ) — ( 1,933 ) Issuance of Series A1 Preferred Stock — — 2,667,001 64,720 ( 3,940 ) — 60,780 — 60,780 Dividends to holders of Series A1 Preferred Stock ($ 0.37500 per share) — — — — — ( 1,708 ) ( 1,708 ) — ( 1,708 ) Dividends to holders of Series A Preferred Stock ($ 0.34375 per share) — — — — — ( 2,880 ) ( 2,880 ) — ( 2,880 ) Dividends to holders of Series D Preferred Stock ($ 0.35313 per share) — — — — — ( 22 ) ( 22 ) — ( 22 ) Dividends to holders of Series L Preferred Stock ($ 1.12 per share) — — — — — ( 2,723 ) ( 2,723 ) — ( 2,723 ) Repurchase of Series L Preferred Stock — — ( 2,435,284 ) ( 69,089 ) 6,451 ( 4,779 ) ( 67,417 ) — ( 67,417 ) Reclassification of Series A Preferred stock to permanent equity — — 299,303 7,574 ( 536 ) — 7,038 — 7,038 Redeemable preferred stock accretion — — — — — — — — — Redemption of Series A Preferred Stock — — ( 58,742 ) ( 1,463 ) 139 ( 84 ) ( 1,408 ) — ( 1,408 ) Net (loss) income — — — — — ( 237 ) ( 237 ) 5 ( 232 ) Balances, September 30, 2022 22,737,853 $ 23 13,002,509 $ 332,918 $ 862,360 $ ( 823,523 ) $ 371,778 $ 366 $ 372,144 3 Table of Contents CREATIVE MEDIA & COMMUNITY TRUST CORPORATION AND SUBSIDIARIES Consolidated Statements of Equity (In thousands, except share and per share amounts) (Unaudited) — Continued Nine Months Ended September 30, 2021 Common Stock Preferred Stock Shares Par Value Shares Par Value Additional Paid-in Capital Distributions in Excess of Earnings Total Stockholders’ Equity Non-controlling Interests Total Equity Balances, December 31, 2020 14,827,410 $ 15 9,784,067 $ 262,036 $ 794,127 $ ( 778,519 ) $ 277,659 $ 455 $ 278,114 Distributions to noncontrolling interests — — — — — — — ( 114 ) ( 114 ) Stock-based compensation expense — — — — 60 — 60 — 60 Common dividends ($ 0.075 per share) — — — — — ( 1,112 ) ( 1,112 ) — ( 1,112 ) Dividends to holders of Series A Preferred Stock ($ 0.34375 per share) — — — — — ( 2,350 ) ( 2,350 ) — ( 2,350 ) Issuance of Series D Preferred Stock — — 4,045 99 ( 3 ) — 96 — 96 Dividends to holders of Series D Preferred Stock ($ 0.35313 per share) — — — — — ( 9 ) ( 9 ) — ( 9 ) Reclassification of Series A Preferred Stock to permanent equity — — 366,991 9,144 ( 901 ) — 8,243 — 8,243 Redeemable preferred stock accretion — — — — — ( 57 ) ( 57 ) — ( 57 ) Redemption of Series A Preferred Stock — — ( 29,462 ) ( 733 ) 61 ( 13 ) ( 685 ) — ( 685 ) Net loss — — — — — ( 3,670 ) ( 3,670 ) ( 1 ) ( 3,671 ) Balances, March 31, 2021 14,827,410 $ 15 10,125,641 $ 270,546 $ 793,344 $ ( 785,730 ) $ 278,175 $ 340 $ 278,515 Stock-based compensation expense 20,332 — — — 50 — 50 — 50 Common dividends ($ 0.075 per share) (1) — — — — — ( 1,114 ) ( 1,114 ) — ( 1,114 ) Dividends to holders of Series A Preferred Stock ($ 0.34375 per share) — — — — — ( 2,511 ) ( 2,511 ) — ( 2,511 ) Issuance of Series D Preferred Stock — — 7,835 192 ( 7 ) — 185 — 185 Dividends to holders of Series D Preferred Stock ($ 0.35313 per share) — — — — — ( 13 ) ( 13 ) — ( 13 ) Reclassification of Series A Preferred Stock to permanent equity — — 556,587 13,915 ( 1,434 ) — 12,481 — 12,481 Redeemable Preferred Stock deemed dividends — — — — — ( 106 ) ( 106 ) — ( 106 ) Redemption of Series A Preferred Stock — — ( 18,501 ) ( 460 ) 42 ( 13 ) ( 431 ) — ( 431 ) Issuance of Common Stock 8,521,589 9 — — 76,934 — 76,943 — 76,943 Net income (loss) — — — — — 530 530 ( 3 ) 527 Balances, June 30, 2021 23,369,331 $ 24 10,671,562 $ 284,193 $ 868,929 $ ( 788,957 ) $ 364,189 $ 337 $ 364,526 Contributions to noncontrolling interests — — — — — — — 9 9 Distributions to noncontrolling interests — — — — — — — ( 4 ) ( 4 ) Stock-based compensation expense — — — — 55 — 55 — 55 Common dividends ($ 0.075 per share) — — — — — ( 1,753 ) ( 1,753 ) — ( 1,753 ) Dividends to holders of Series A Preferred Stock ($ 0.34375 per share) — — — — — ( 2,597 ) ( 2,597 ) — ( 2,597 ) Issuance of Series D Preferred Stock — — 25,832 632 ( 20 ) — 612 — 612 Dividends to holders of Series D Preferred Stock ($ 0.35313 per share) — — — — — ( 20 ) ( 20 ) — ( 20 ) Reclassification of Series A Preferred Stock to permanent equity — — 593,300 15,132 ( 1,304 ) — 13,828 — 13,828 Redeemable Preferred Stock deemed dividends — — — — — ( 90 ) ( 90 ) — ( 90 ) Redemption of Series A Preferred Stock — — ( 25,564 ) ( 634 ) 54 ( 27 ) ( 607 ) — ( 607 ) Rights Offering costs — — — — ( 78 ) — ( 78 ) — ( 78 ) Net income — — — — — 1,624 1,624 — 1,624 Balances, September 30, 2021 23,369,331 $ 24 11,265,130 $ 299,323 $ 867,636 $ ( 791,820 ) $ 375,163 $ 342 $ 375,505 The accompanying notes are an integral part of these consolidated financial statements. 4 Table of Contents CREATIVE MEDIA & COMMUNITY TRUST CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows (In thousands) (Unaudited) Nine Months Ended September 30, 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 5,001 $ ( 1,520 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization, net 15,181 15,211 Amortization of deferred debt origination costs 850 791 Amortization of premiums and discounts on debt 30 ( 9 ) Unrealized premium adjustment 1,278 2,231 Amortization of deferred costs and accretion of fees on loans receivable, net ( 399 ) ( 426 ) Write-offs (recoveries) of uncollectible receivables 215 ( 119 ) Deferred income taxes 15 110 Stock-based compensation 147 165 Income from unconsolidated entity ( 176 ) — Loans funded, held for sale to secondary market ( 27,205 ) ( 94,803 ) Proceeds from sale of guaranteed loans 27,875 82,400 Principal collected on loans subject to secured borrowings 631 651 Commitment fees remitted and other operating activity ( 961 ) ( 2,200 ) Return on investment from unconsolidated entity 176 — Changes in operating assets and liabilities: Accounts receivable ( 587 ) ( 639 ) Other assets ( 867 ) ( 1,983 ) Accounts payable and accrued expenses 2,601 2,272 Deferred leasing costs ( 1,717 ) ( 792 ) Other liabilities 2,677 5,185 Due to related parties 3,526 7,369 Net cash provided by operating activities 28,291 13,894 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ( 6,394 ) ( 1,781 ) Acquisition of real estate ( 10,776 ) ( 2,933 ) Investment in unconsolidated entity ( 22,408 ) — Distributions from unconsolidated entity 10,259 — Loans funded ( 8,751 ) ( 24,676 ) Principal collected on loans 14,436 23,667 Net cash used in investing activities ( 23,634 ) ( 5,723 ) CASH FLOWS FROM FINANCING ACTIVITIES: Payment of revolving credit facilities, mortgages payable, term notes and principal on SBA 7(a) loan-backed notes ( 94,952 ) ( 132,759 ) Proceeds from revolving credit facilities and term notes 110,000 30,396 Payment of principal on secured borrowings ( 631 ) ( 651 ) Payment of deferred preferred stock offering costs ( 845 ) ( 483 ) Payment of deferred costs — ( 2 ) Payment of common dividends ( 5,725 ) ( 3,979 ) Repurchase of Common Stock ( 4,715 ) — Proceeds from issuance of Common Stock — 78,825 Payment of Common Stock offering costs — ( 540 ) Net proceeds from issuance of Preferred Stock 77,631 20,899 Payment of preferred stock dividends ( 20,075 ) ( 15,440 ) Repurchase of Series L Preferred Stock ( 67,417 ) — Redemption of Preferred Stock ( 4,781 ) ( 1,832 ) Noncontrolling interests’ distributions ( 3 ) ( 109 ) Noncontrolling interests’ contributions 5 — Net cash used in financing activities ( 11,508 ) ( 25,675 ) (Continued) 5 Table of Contents CREATIVE MEDIA & COMMUNITY TRUST CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows (Continued) (In thousands) (Unaudited) Nine Months Ended September 30, 2022 2021 NET DECREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH ( 6,851 ) ( 17,504 ) CASH AND CASH EQUIVALENTS AND RESTRICTED CASH: Beginning of period 33,651 43,649 End of period $ 26,800 $ 26,145 RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH TO THE CONSOLIDATED BALANCE SHEETS: Cash and cash equivalents $ 14,794 $ 14,552 Restricted cash 12,006 11,593 Total cash and cash equivalents and restricted cash $ 26,800 $ 26,145 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for interest $ 5,995 $ 6,585 Federal income taxes paid $ 905 $ 2,100 SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES: Accrued capital expenditures, tenant improvements and real estate developments $ 3,561 $ 1,118 Accrued preferred stock offering costs $ 477 $ 738 Accrual of dividends payable to preferred stockholders $ 5,285 $ 3,403 Preferred stock offering costs offset against redeemable preferred stock $ 1,029 $ 296 Reclassification of Series A Preferred Stock from temporary equity to permanent equity $ 24,373 $ 34,552 Redeemable preferred stock deemed dividends $ 19 $ 253 Accrued redeemable preferred stock fees $ 509 $ 677 Equity-based payment for management fees $ 4,083 $ 4,652 Accrued Common Stock offering costs included in additional paid-in capital $ — $ 1,420 The accompanying notes are an integral part of these consolidated financial statements. 6 Table of Contents CREATIVE MEDIA & COMMUNITY TRUST CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2022 (Unaudited) 1. ORGANIZATION AND OPERATIONS Creative Media & Community Trust Corporation (formerly known as CIM Commercial Trust Corporation) (the “Company”), is a Maryland corporation and real estate investment trust (“REIT”). The Company primarily owns and operates Class A and creative office real assets in vibrant and improving metropolitan communities throughout the United States. The Company also owns one hotel in northern California and a lending platform that originates loans under the Small Business Administration (“SBA”) 7(a) loan program. The Company seeks 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. The Company seeks to apply the expertise of CIM Group, L.P. (“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. The Company’s common stock, $ 0.001 par value per share (“Common Stock”), is currently traded on the Nasdaq Global Market (“Nasdaq”) under the ticker symbol “CMCT”, and on the Tel Aviv Stock Exchange (the “TASE”) under the ticker symbol “CMCT-L.” The Company’s Series L preferred stock, $ 0.001 par value per share (“Series L Preferred Stock”), is currently traded on Nasdaq and on the TASE, in each case under the ticker symbol “CMCTP.” The Company has authorized for issuance 900,000,000 shares of common stock and 100,000,000 shares of preferred stock (“Preferred Stock”). Since June 2022, the Company has been conducting a continuous public offering with respect to shares of its Series A1 Preferred Stock, par value $ 0.001 per share with an initial stated value of $ 25.00 per share, subject to adjustment (Note 10). 2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES For more information regarding the Company’s significant accounting policies and estimates, please refer to “Basis of Presentation and Summary of Significant Accounting Policies” contained in Note 2 to the Company’s consolidated financial statements for the year ended December 31, 2021, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 16, 2022. Interim Financial Information —The accompanying interim consolidated financial statements of the Company have been prepared by the Company’s management in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Certain information and note disclosures required for annual financial statements have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, the interim consolidated financial statements do not include all of the information and notes required by GAAP for complete financial statements. The accompanying financial information reflects all adjustments which are, in the opinion of the Company’s management, of a normal recurring nature and necessary for a fair presentation of the Company’s financial position, results of operations and cash flows for the interim periods. Operating results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022 given, among other things, the uncertain impact of the novel coronavirus (“COVID-19”) on the Company’s operations during the remainder of the year. The accompanying interim consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto, included in the 2021 Form 10-K. Principles of Consolidation —The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. In determining whether the Company has controlling interests in an entity and the requirement to consolidate the accounts in that entity, the Company analyzes its investments in real estate in accordance with standards set forth in GAAP to determine whether they are variable interest entities (“VIEs”), and if so, whether the Company is the primary beneficiary. The Company’s judgment with respect to its level of influence or control over an entity and whether the Company is the primary beneficiary of a VIE involves consideration of various factors, including the form of the Company’s ownership interest, the Company’s voting interest, the size of the Company’s investment (including loans), and the Company’s ability to participate in major policy-making decisions. The Company’s ability to correctly assess its influence or control over an entity affects the presentation of these investments in real estate on the Company’s consolidated financial statements. As of September 30, 2022, the Company has determined that the trust formed for the benefit of the note holders (the “Trust”) for the securitization of the unguaranteed portion of certain of the Company’s SBA 7(a) loans receivable is considered a VIE. Applying the consolidation requirements for VIEs, the Company determined that it is the primary beneficiary based on its power to direct activities through its role as servicer and its obligations to absorb losses and right to receive benefits. In addition, as of September 30, 2022, the Company has determined that its Unconsolidated Joint Venture (as defined below) is considered a VIE. Applying the consolidation requirements for 7 Table of Contents CREATIVE MEDIA & COMMUNITY TRUST CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2022 (Unaudited) – (Continued) VIEs, the Company determined that it is not the primary beneficiary based on its lack of power to direct activities and its obligations to absorb losses and right to receive benefits. Investments in Real Estate —Investments in real estate are stated at depreciated cost. Depreciation and amortization are recorded on a straight-line basis over the estimated useful lives as follows: Buildings and improvements 15 - 40 years Furniture, fixtures, and equipment 3 - 5 years Tenant improvements Lesser of useful life or lease term The fair value of real estate acquired is recorded to acquired tangible assets, consisting primarily of land, land improvements, building and improvements, tenant improvements, furniture, fixtures, and equipment, and identified intangible assets and liabilities, consisting of the value of acquired above-market and below-market leases, in-place leases and ground leases, if any, based in each case on their respective fair values. Loan premiums, in the case of above-market rate loans, or loan discounts, in the case of below-market rate loans, are recorded based on the fair value of any loans assumed in connection with acquiring the real estate. Capitalized Project Costs The Company capitalizes project costs, including pre-construction costs, interest expense, property taxes, insurance, and other costs directly related and essential to the development, redevelopment, or construction of a project, while activities are ongoing to prepare an asset for its intended use. Costs incurred after a project is substantially complete and ready for its intended use are expensed as incurred. Improvements and replacements are capitalized when they extend the useful life, increase capacity, or improve the efficiency of the asset. Ordinary repairs and maintenance are expensed as incurred. Recoverability of Investments in Real Estate —The Company continually monitors events and changes in circumstances that could indicate that the carrying amounts of its real estate assets may not be recoverable. Investments in real estate are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If, and when, such events or changes in circumstances are present, the recoverability of assets to be held and used requires significant judgment and estimates and is measured by a comparison of the carrying amount to the future undiscounted cash flows expected to be generated by the assets and their eventual disposition. If the undiscounted cash flows are less than the carrying amount of the assets, an impairment is recognized to the extent the carrying amount of the assets exceeds the estimated fair value of the assets. The process for evaluating real estate impairment requires management to make significant assumptions related to certain inputs, including rental rates, lease-up period, occupancy, estimated holding periods, capital expenditures, growth rates, market discount rates and terminal capitalization rates. These inputs require a subjective evaluation based on the specific property and market. Changes in the assumptions could have a significant impact on either the fair value, the amount of impairment charge, if any, or both. Any asset held for sale is reported at the lower of the asset’s carrying amount or fair value, less costs to sell. When an asset is identified by the Company as held for sale, the Company will cease recording depreciation and amortization of the asset. The Company did no t recognize any impairment of long-lived assets during the three and nine months ended September 30, 2022 and 2021 (Note 3). Investment in Unconsolidated Entity —In February 2022, the Company invested in an unconsolidated joint venture arrangement (the “Unconsolidated Joint Venture”) with a CIM-managed separate account (the “CIM JV Partner”) to purchase an office property in Los Angeles, California for a gross purchase price of approximately $ 51.0 million, of which the Company initially contributed approximately $ 22.4 million and the CIM JV Partner initially contributed the remaining balance. The Company accounts for its approximately 44 % investment in the Unconsolidated Joint Venture under the equity method, as the Company has the ability to exercise significant influence over the investment. The Unconsolidated Joint Venture records its assets and liabilities at fair value. As such, the Company records its share of the Unconsolidated Joint Venture’s unrealized gains or losses as well as its share of the revenues and expenses on a quarterly basis as an adjustment to the carrying value of the investment on the Company’s consolidated balance sheet and such share is recognized within the Company’s income from unconsolidated entity on the consolidated statements of operations. The Company recorded a loss of $ 204,000 and income of $ 176,000 related to its investment in the Unconsolidated Joint Venture during the three and nine months ended September 30, 2022, respectively, in the consolidated statements of operations. In connection with the closing of the financing of the property owned by the Unconsolidated Joint Venture, the Company received a distribution from the Unconsolidated Joint Venture of $ 10.4 million during the three months ended September 30, 2022, $ 176,000 of which was recognized as a return on investment and $ 10.3 million of which was recognized as a return of investment, bringing its investment in the Unconsolidated Joint 8 Table of Contents CREATIVE MEDIA & COMMUNITY TRUST CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2022 (Unaudited) – (Continued) Venture to $ 12.1 million as of September 30, 2022. The Company’s ownership percentage remains unchanged after the distribution. Revenue Recognition —At the inception of a revenue-producing contract, the Company determines if a contract qualifies as a lease and if not, then as a customer contract. Based on this determination, the appropriate treatment in accordance with GAAP is applied to the contract, including its revenue recognition. Revenue from leasing activities The Company operates as a lessor of real estate assets. When the Company enters into a contract or amends an existing contract, the Company evaluates if the contracts meet the definition of a lease using the following criteria: • One party (lessor) must hold an identified asset; • The counterparty (lessee) must have the right to obtain substantially all of the economic benefits from the use of the asset throughout the period of the contract; and • The counterparty (lessee) must have the right to direct the use of the identified asset throughout the period of the contract. The Company determined that all of the Company’s contracts with its tenants explicitly identify the premises and that any substitution rights to relocate tenants to other premises within the same building stated in the contract are not substantive. Additionally, so long as payments are made timely under such contracts, the Company’s tenants have the right to obtain substantially all the economic benefits from the use of the identified asset and can direct how and for what purpose the premises are used to conduct their operations. Therefore, all of the Company’s contracts with its tenants constitute leases. All leases are classified as operating leases and minimum rents are recognized on a straight-line basis over the terms of the leases when collectability is probable and the tenant has taken possession or controls the physical use of the leased asset. The excess of rents recognized over amounts contractually due pursuant to the underlying leases is recorded as deferred rent. If the lease provides for tenant improvements, the Company determines whether the tenant improvements, for accounting purposes, are owned by the tenant or the Company. When the Company is the owner of the tenant improvements, the tenant is not considered to have taken physical possession or have control of the physical use of the leased asset until the tenant improvements are substantially completed. When the tenant is considered the owner of the improvements, any tenant improvement allowance that is funded is treated as an incentive. Lease incentives paid to tenants are included in other assets and amortized as a reduction to rental revenue on a straight-line basis over the term of the related lease. As of September 30, 2022 and December 31, 2021, lease incentives of $ 4.1 million and $ 4.0 million, respectively, are presented net of accumulated amortization of $ 3.0 million and $ 2.7 million, respectively. Reimbursements from tenants, consisting of amounts due from tenants for common area maintenance, real estate taxes, insurance, and other recoverable costs, are recognized as revenue and are included in rental and other property income in the period the expenses are incurred, with the corresponding expenses included in rental and other property operating expense. Tenant reimbursements are recognized and presented on a gross basis when the Company is primarily responsible for fulfilling the promise to provide the specified good or service and control that specified good or service before it is transferred to the tenant. The Company has elected not to separate lease and non-lease components as the pattern of revenue recognition does not differ for the two components, and the non-lease component is not the primary component in the Company’s leases. In addition to minimum rents, certain leases, including the Company’s parking leases with third-party operators, provide for additional rents based upon varying percentages of tenants’ sales in excess of annual minimums. Percentage rent is recognized once lessees’ specified sales targets have been met. 9 Table of Contents CREATIVE MEDIA & COMMUNITY TRUST CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2022 (Unaudited) – (Continued) For the three and nine months ended September 30, 2022 and 2021, the Company recognized rental income as follows (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Rental and other property income Fixed lease payments (1) $ 11,649 $ 9,747 $ 34,833 $ 34,257 Variable lease payments (2) 2,545 3,091 7,651 5,239 Rental and other property income $ 14,194 $ 12,838 $ 42,484 $ 39,496 ______________________ (1) Fixed lease payments include contractual rents under lease agreements with tenants recognized on a straight-line basis over the lease term, including amortization of acquired above-market leases, below-market leases and lease incentives. (2) Variable lease payments include expense reimbursements billed to tenants and percentage rent, net of bad debt expense from the Company’s operating leases plus cash payments from tenants deemed not probable of collection. Collectability of Lease-Related Receivables The Company continually reviews whether collection of lease-related receivables, including any straight-line rent, and current and future operating expense reimbursements from tenants is probable. The determination of whether collectability is probable takes into consideration the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located. Upon the determination that the collectability of a receivable is not probable, the Company will record a reduction to rental and other property income and a decrease in the outstanding receivable. Revenue from leases where collection is deemed to be not probable is recorded on a cash basis until collectability becomes probable. Management’s estimate of the collectability of lease-related receivables is based on the best information available at the time of estimate. The Company does not use a general reserve approach. As of September 30, 2022 and December 31, 2021, the Company had identified certain tenants where collection was no longer considered probable and decreased outstanding receivables by $ 337,000 and $ 579,000 , respectively, across all operating leases. Revenue from lending activities Interest income included in interest and other income is comprised of interest earned on loans and the Company’s short-term investments and the accretion of loan discounts. Interest income on loans is accrued as earned with the accrual of interest suspended when the related loan becomes a Non-Accrual Loan (as defined below). Revenue from hotel activities The Company recognizes revenue from hotel activities separate from its leasing activities. At contract inception, the Company assesses the goods and services promised in its contracts with customers and identifies a performance obligation for each promise to transfer to the customer a good or service (or bundle of goods or services) that is distinct. To identify the performance obligations, the Company considers all of the goods or services promised in the contract regardless of whether they are explicitly stated or implied by customary business practices. Various performance obligations of hotel revenues can be categorized as follows: • cancellable and noncancelable room revenues from reservations and • ancillary services including facility usage and food or beverage. Cancellable reservations represent a single performance obligation of providing lodging services at the hotel. The Company satisfies its performance obligation and recognizes revenues associated with these reservations over time as services are rendered to the customer. The Company satisfies its performance obligation and recognizes revenues associated with noncancelable reservations at the earlier of (i) the date on which the customer cancels the reservation or (ii) over time as services are rendered to the customer. Ancillary services include facilities usage and providing food and beverage. The Company satisfies its performance obligation and recognizes revenues associated with these services at a point in time when the good or service is delivered to the customer. 10 Table of Contents CREATIVE MEDIA & COMMUNITY TRUST CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2022 (Unaudited) – (Continued) At inception of a contract with a customer for hotel goods and services, the contractual price is equivalent to the transaction price as there are no elements of variable consideration to estimate. The Company presents hotel revenues net of sales, occupancy, and other taxes. Below is a reconciliation of the hotel revenue from contracts with customers to the total hotel segment revenue disclosed in Note 16 (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Hotel properties Hotel income $ 7,965 $ 5,212 $ 24,476 $ 10,074 Rental and other property income 453 251 1,275 716 Interest and other income 38 15 74 43 Hotel revenues $ 8,456 $ 5,478 $ 25,825 $ 10,833 Tenant recoveries outside of the lease agreements Tenant recoveries outside of the lease agreements are related to construction projects in which the Company’s tenants have agreed to fully reimburse the Company for all costs related to construction. These services include architectural, permit expediter and construction services. At inception of the contract with the customer, the contractual price is equivalent to the transaction price as there are no elements of variable consideration to estimate. While these individual services are distinct, in the context of the arrangement with the customer, all of these services are bundled together and represent a single package of construction services requested by the customer. The Company satisfies its performance obligation and recognizes revenues associated with these services over time as the construction is completed. No such amounts were recognized for tenant recoveries outside of the lease agreements for each of the three and nine months ended September 30, 2022 and 2021. As of September 30, 2022, there were no remaining performance obligations associated with tenant recoveries outside of the lease agreements. Loans Receivable —The Company’s loans receivable are carried at their unamortized principal balance less unamortized acquisition discounts and premiums, retained loan discounts and loan loss reserves. Acquisition discounts or premiums, origination fees and retained loan discounts are amortized as a component of interest and other income using the effective interest method over the life of the respective loans, or on a straight-line basis when it approximates the effective interest method. All loans were originated pursuant to programs sponsored by the Small Business Administration (the “SBA”). The programs consist of loans originated under the SBA 7(a) Small Business Loan Program (the “SBA 7(a) Program”) and, commencing with the quarter ended June 30, 2020 and ending during the quarter ended September 30, 2022, the Paycheck Protection Program (the “PPP”). Pursuant to the SBA 7(a) Program, the Company sells the portion of the loan that is guaranteed by the SBA. Upon sale of the SBA guaranteed portion of the loans, which are accounted for as sales, the unguaranteed portion of the loan retained by the Company is recorded at fair value and a discount is recorded as a reduction in basis of the retained portion of the loan. Unamortized retained loan discounts were $ 9.6 million and $ 9.6 million as of September 30, 2022 and December 31, 2021, respectively. A loan receivable is generally classified as non-accrual (a “Non-Accrual Loan”) if (i) it is past due as to payment of principal or interest for a period of 60 days or more, (ii) any portion of the loan is classified as doubtful or is charged-off or (iii) the repayment in full of the principal and or interest is in doubt. Generally, loans are charged-off when management determines that the Company will be unable to collect any remaining amounts due under the loan agreement, either through liquidation of collateral or other means. Interest income, included in interest and other income, on a Non-Accrual Loan is recognized on the cost recovery basis. Loan Loss Reserves —On a quarterly basis, the Company evaluates the collectability of its loans receivable. The Company’s evaluation of collectability involves significant judgment, estimates, and a review of the ability of the borrower to make principal and interest payments, the underlying collateral and the borrowers’ business models and future operations. For the three and nine months ended September 30, 2022, the Company recorded no net impairment losses on its loans receivable. For the three and nine months ended September 30, 2021, the Company recorded a net impairment of $ 7,000 and $ 11,000 , respectively, on its loans receivable. There were no material loans receivable subject to credit risk which were considered to be 11 Table of Contents CREATIVE MEDIA & COMMUNITY TRUST CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2022 (Unaudited) – (Continued) impaired as of September 30, 2022 or December 31, 2021. The Company considers a loan to be impaired when the Company does not expect to collect all of the contractual interest and principal payments as scheduled in the loan agreements. The Company also establishes a general loan loss reserve when available information indicates that it is probable a loss has occurred based on the carrying value of the portfolio and the amount of the loss can be reasonably estimated. Significant judgment is required in determining the general loan loss reserve, including estimates of the likelihood of default and the estimated fair value of the collateral. The general loan loss reserve includes those loans, which may have negative characteristics which have not yet become known to the Company. In addition to the reserves established on loans not considered impaired that have been evaluated under a specific evaluation, the Company establishes the general loan loss reserve using a consistent methodology to determine a loss percentage to be applied to loan balances. These loss percentages are based on many factors, primarily cumulative and recent loss history and general economic conditions. As of September 30, 2022 and December 31, 2021, the Company had loan loss reserves of $ 1.1 million and $ 943,000 , respectively. Deferred Rent Receivable and Charges —Deferred rent receivable and charges consist of deferred rent, deferred leasing costs, deferred offering costs (Note 10) and other deferred costs. Deferred leasing costs, which represent lease commissions and other direct costs associated with the acquisition of tenants, are capitalized and amortized on a straight-line basis over the terms of the related leases. Deferred offering costs represent direct costs incurred in connection with the Company’s offerings of Series A1 Preferred Stock (as defined below), Series A Preferred Units (as defined below), and, after January 2020, Series A Preferred Stock (as defined below) and Series D Preferred Stock (as defined below), excluding costs specifically identifiable to a closing, such as commissions, dealer-manager fees, and other offering fees and expenses. Generally, for a specific issuance of securities, issuance-specific offering costs are recorded as a reduction of proceeds raised on the issuance date and offering costs incurred but not directly related to a specifically identifiable closing of a security are deferred. Deferred offering costs are first allocated to each issuance of a security on a pro-rata basis equal to the ratio of the number of securities issued in a given issuance to the maximum number of securities that are expected to be issued in the related offering. In the case of the Series A Preferred Units, which were issued prior to February 2020, the issuance-specific offering costs and the deferred offering costs allocated to such issuance were further allocated to the Series A Preferred Stock and Series A Preferred Warrants issued in such issuance based on the relative fair value of the instruments on the date of issuance. The deferred offering costs allocated to the Series A Preferred Stock and Series A Preferred Warrants are reductions to temporary equity and permanent equity, respectively. As of September 30, 2022 and December 31, 2021, deferred rent receivable and charges consist of the following (in thousands): September 30, 2022 December 31, 2021 Deferred rent receivable $ 20,993 $ 20,870 Deferred leasing costs, net of accumulated amortization of $ 9,481 and $ 8,971 , respectively 8,511 8,453 Deferred offering costs 6,413 6,281 Other deferred costs 491 491 Deferred rent receivable and charges, net $ 36,408 $ 36,095 Redeemable Preferred Stock —Beginning on the date of original issuance of any given shares of Series A1 Preferred Stock, par value $ .001 per share (“Series A1 Preferred Stock”), with an initial stated value of $ 25.00 per share, subject to adjustment (the “Series A1 Preferred Stock Stated Value”), Series A Preferred Stock, par value $ 0.001 per share (“Series A Preferred Stock”) with an initial stated value of $ 25.00 per share, subject to adjustment (the “Series A Preferred Stock Stated Value”), or Series D Preferred Stock, par value $ 0.001 per share (“Series D Preferred Stock”), with an initial stated value of $ 25.00 per share, subject to adjustment (the “Series D Preferred Stock Stated Value”), and from and after the fifth anniversary date of the original issuance of the Series L Preferred Stock, the holder of such shares has the right to require the Company to redeem such shares, subject to certain limitations as discussed in Note 10. The Company records the activity related to the Series A1 Preferred Stock, Series A Preferred Warrants, Series D Preferred Stock and Series L Preferred Stock in permanent equity. In the event a holder of Series A Preferred Stock requests redemption of such shares and such redemption takes place prior to the first anniversary of the date of original issuance, the Company is required to pay such redemption in cash. As a result, the Company recorded issuances of Series A Preferred Stock in temporary equity. On the first anniversary of the date of original issuance of a particular share of Series A Preferred Stock, the Company reclassifies such share of Series A Preferred Stock from temporary equity to permanent equity because the feature giving rise to temporary equity classification, the requirement to satisfy redemption requests in cash, lapses on the first anniversary date. 12 Table of Contents CREATIVE MEDIA & COMMUNITY TRUST CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2022 (Unaudited) – (Continued) Noncontrolling Interests —Noncontrolling interests represent the interests in various properties owned by third-parties. Restricted Cash —The Company’s mortgage loan and hotel management agreements provide for depositing cash into restricted accounts reserved for capital expenditures, free rent, tenant improvement and leasing commission obligations. Restricted cash also includes cash required to be segregated in connection with certain of the Company’s loans receivable. Use of Estimates —The preparation of consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. The Company bases such estimates on historical experience, information available at the time, and assumptions the Company believes to be reasonable under the circumstances and at such time, including the impact of extraordinary events such as COVID-19. Actual results could differ from those estimates. Recently Issued Accounting Pronouncements —In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments , which was subsequently amended by ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses (“ASU 2018-19”) in November 2018. Subsequently, the FASB issued ASU No. 2019-04, ASU No. 2019-05, ASU No. 2019-10, ASU No. 2019-11 and ASU No. 2020-02 to provide additional guidance on the credit losses standard. ASU 2016-13 and the related updates improve financial reporting requiring more timely recognition of credit losses on loans and other financial instruments that are not accounted for at fair value through net income, including loans held-for-investment, held-to-maturity debt securities, net investment in leases and other such commitments. ASU 2016-13 requires that financial assets measured at amortized cost be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The amendments in ASU 2016-13 require the Company to measure all expected credit losses based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the financial assets and eliminates the “incurred loss” methodology under current GAAP. ASU 2018-19 clarified that receivables arising from operating leases are not within the scope of Topic 326. Instead, impairment of receivables arising from operating leases should be accounted for in accordance with ASU No. 2016-02, Leases (Topic 842). For smaller reporting companies, public entities that are not SEC filers, and entities that are not public business entities, the ASU is effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2022. Early adoption is permitted for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2018. The Company has been evaluating the impact of adoption of ASU 2016-13 and does not believe this ASU will have a material impact on its condensed consolidated financial statements. The Company expects to adopt ASU 2016-13 and the related updates beginning on January 1, 2023. On April 10, 2020, the FASB issued a question-and-answer document (the “Q&A”) to address stakeholder questions on the application of the lease accounting guidance for lease concessions related to the effects of COVID-19. The lease modification guidance in Topic 842, Leases , (or Topic 840, Leases ) would require the Company to determine, on a lease by lease basis, if a lease concession was the result of a new arrangement reached with the tenant (treated within the lease modification accounting framework) or if a lease concession was made pursuant to the enforceable rights and obligations of the existing lease agreement (precluded from applying the lease modification accounting framework). However, the Q&A provides that the Company may bypass the lease by lease analysis if certain criteria are met, and instead elect to either consistently apply, or consistently not apply, the lease modification framework to groups of leases with similar characteristics and similar circumstances. The Company has elected not to apply the lease modification guidance to concessions related to the effects of COVID-19 that do not result in a substantial increase in the Company’s rights as lessor, including concessions that result in the total payments required by the modified lease being substantially the same as or less than the total payments required by the original lease. 13 Table of Contents CREATIVE MEDIA & COMMUNITY TRUST CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2022 (Unaudited) – (Continued) 3. INVESTMENTS IN REAL ESTATE Investments in real estate consist of the following (in thousands): September 30, 2022 December 31, 2021 Land $ 151,718 $ 141,236 Land improvements 2,701 2,644 Buildings and improvements 454,868 454,431 Furniture, fixtures, and equipment 4,374 4,398 Tenant improvements 35,033 29,733 Work in progress 11,363 10,260 Investments in real estate 660,057 642,702 Accumulated depreciation ( 156,267 ) ( 144,718 ) Net investments in real estate $ 503,790 $ 497,984 For the three months ended September 30, 2022 and 2021, the Company recorded depreciation expense of $ 4.3 million and $ 4.3 million, respectively. For the nine months ended September 30, 2022 and 2021, the Company recorded depreciation expense of $ 12.8 million and $ 12.7 million, respectively. 2022 Transactions — During the nine months ended September 30, 2022, the Company acquired a 100 % fee-simple interest in the following properties from unrelated third-parties which were accounted for as asset acquisitions. Asset Date of Purchase Property Type Acquisition Square Feet Price (in thousands) 3109 S Western Avenue, Los Angeles, CA (1) (5) Multifamily (5) August 4, 2022 5,900 $ 700 1007 E 7th Street, Austin, TX (2) (6) Office (6) July 1, 2022 1,352 $ 1,900 3022 S Western Avenue, Los Angeles, CA (3) (7) Multifamily (7) May 20, 2022 6,000 $ 5,650 3101 S Western Avenue, Los Angeles, CA (4) (8) Multifamily (8) February 11, 2022 3,752 $ 2,260 (1) Transaction costs that were capitalized as a component of the assets acquired and liabilities assumed in connection with the acquisition of this property totaled $ 11,000 , which are not included in the purchase price above. (2) Transaction costs that were capitalized as a component of the assets acquired and liabilities assumed in connection with the acquisition of this property totaled $ 50,000 , which are not included in the purchase price above. (3) Transaction costs that were capitalized as a component of the assets acquired and liabilities assumed in connection with the acquisition of this property totaled $ 191,000 , which are not included in the purchase price above. (4) Transaction costs that were capitalized as a component of the assets acquired and liabilities assumed in connection with the acquisition of this property totaled $ 14,000 , which are not included in the purchase price above. (5) The Company intends to redevelop approximately seven commercial units totaling 5,635 rentable square feet and six parking stalls starting in 2024. (6) The property is located on a land site of approximately 7,450 square feet. The Company intends to complete pre-development and entitlement work to provide optionality for future development. (7) The property is located on a land site of approximately 28,300 square feet. The Company intends to entitle the property and develop approximately 119 residential units starting in 2024. (8) The property is located on a land site of approximately 11,300 square feet. The Company intends to entitle the property and develop approximately 40 residential units starting in 2023. In addition, please see “Investments in Unconsolidated Entities” (Note 4) for information on the Company’s acquisition of an approximate 44 % interest in an office property in February 2022. There were no dispositions during the nine months ended September 30, 2022. 14 Table of Contents CREATIVE MEDIA & COMMUNITY TRUST CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2022 (Unaudited) – (Continued) 2021 Transactions — During the nine months ended September 30, 2021, the Company acquired a 100 % fee-simple interest in the following properties from unrelated third-parties. The purchases were accounted for as asset acquisitions. Asset Date of Purchase Property Type Acquisition Square Feet Price (in thousands) 1037 N Sycamore, Los Angeles, CA (1) Office July 13, 2021 4,900 $ 2,900 (1) Transaction costs that were capitalized as a component of the assets acquired and liabilities assumed in connection with the acquisition of this property totaled $ 33,000 , which are not included in the purchase price above. There were no dispositions during the nine months ended September 30, 2021. The results of operations of the properties the Company acquired have been included in the consolidated statements of operations from the date of acquisition. The purchase price of the acquisitions completed during the nine months ended September 30, 2022 were less than 10% of the Company’s total assets as of the respective most recent annual consolidated financial statements filed at or prior to the date of acquisitions. The following table summarizes the purchase price allocation of the aforementioned acquisitions during the nine months ended September 30, 2022 and 2021. Nine Months Ended September 30, 2022 2021 (in thousands) Land $ 10,480 $ 1,839 Land improvements 54 33 Buildings and improvements 164 1,061 Tenant improvements 47 — Acquired in-place leases (1) 68 — Acquired below-market leases (3) ( 37 ) — Net assets acquired $ 10,776 $ 2,933 15 Table of Contents CREATIVE MEDIA & COMMUNITY TRUST CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2022 (Unaudited) – (Continued) 4. INVESTMENT IN UNCONSOLIDATED ENTITY In February 2022, the Company invested in the Unconsolidated Joint Venture with the CIM JV Partner to purchase an office property in Los Angeles, California for a gross purchase price of approximately $ 51.0 million, of which the Company initially contributed approximately $ 22.4 million and the CIM JV Partner initially contributed the remaining balance. The Unconsolidated Joint Venture records its assets and liabilities at fair value. The following table details the Company’s equity method investment in the Unconsolidated Joint Venture. See to Note 2 - Basis of Presentation and Summary of Significant Accounting Policies (dollars in thousands): Carrying Value Property Asset Type Location Date of Acquisition Ownership Interest September 30, 2022 December 31, 2021 1910 Sunset Boulevard (1) Office Los Angeles, CA February 11, 2022 44 % $ 12,149 $ — ______________________ (1) 1910 Sunset Boulevard is an office building with 97,746 square feet of office space and 2,760 square feet of retail space. The Unconsolidated Joint Venture plans to undertake a capital improvement program to renovate and modernize the building into creative office space as well as a limited number of multifamily units. The Company recorded a loss of $ 204,000 and income of $ 176,000 related to its investment in the Unconsolidated Joint Venture during the three and nine months ended September 30, 2022, respectively, in the consolidated statements of operations. In September 2022, the Unconsolidated Joint Venture obtained financing through a mortgage loan of $ 23.9 million secured by its investment in real estate with an estimated fair value of $ 51.7 million as of September 30, 2022 (the “1910 Sunset Mortgage Loan”). The 1910 Sunset Mortgage Loan has a three-year term with interest-only monthly payments. The Company entered into a guaranty with the lenders, under which the Company agreed to guarantee the Unconsolidated Joint Venture’s obligations under the 1910 Sunset Mortgage Loan (the “1910 Sunset Guarantee”). Under the terms of the Unconsolidated Joint Venture, the Company and the CIM JV Partner are subject to cross indemnity obligations pursuant to which the CIM JV Partner agrees to reimburse the Company for its share of any indemnity payment, to the extent any such indemnity payment did not result from the Company’s fraud, gross neglect, or willful misconduct. In connection with the closing of the 1910 Sunset Mortgage Loan, the Company received a distribution from the Unconsolidated Joint Venture of $ 10.4 million during the three months ended September 30, 2022, $ 176,000 of which was recognized as a return on investment and $ 10.3 million of which was recognized as a return of investment . 5. LOANS RECEIVABLE Loans receivable consist of the following (in thousands): September 30, 2022 December 31, 2021 SBA 7(a) loans receivable, subject to credit risk $ 44,771 $ 42,103 SBA 7(a) loans receivable, subject to loan-backed notes 14,688 18,050 SBA 7(a) loans receivable, Paycheck Protection Program — 5,050 SBA 7(a) loans receivable, subject to secured borrowings 6,192 6,857 SBA 7(a) loans receivable, held for sale 708 1,200 Loans receivable 66,359 73,260 Deferred capitalized costs, net 1,373 1,226 Loan loss reserves ( 1,105 ) ( 943 ) Loans receivable, net $ 66,627 $ 73,543 SBA 7(a) Loans Receivable, Subject to Credit Risk —Represents the unguaranteed portions of loans originated under the SBA 7(a) Program which were retained by the Company. SBA 7(a) Loans Receivable, Subject to Loan-Backed Notes —Represents the unguaranteed portions of loans originated under the SBA 7(a) Program which were transferred to a trust and are held as collateral in connection with a 16 Table of Contents CREATIVE MEDIA & COMMUNITY TRUST CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2022 (Unaudited) – (Continued) securitization transaction. The proceeds received from the transfer are reflected as loan-backed notes payable (Note 7). These loans are subject to credit risk. SBA 7(a) Loans Receivable, Paycheck Protection Program —As an SBA 7(a) licensee, the Company originated loans under the PPP. As of September 30, 2022, all of the loans originated under the PPP have been satisfied in full. SBA 7(a) Loans Receivable, Subject to Secured Borrowings —Represents the government guaranteed portions of loans originated under the SBA 7(a) Program which were sold with the proceeds received from the sale reflected as secured borrowings—government guaranteed loans. There is no credit risk associated with these loans since the SBA has guaranteed payment of the principal. SBA 7(a) Loans Receivable, Held for Sale — Represents the government guaranteed portion of loans held for sale at the end of the period or that had been sold but in respect of which proceeds had not been received as of the end of the period. Other As of September 30, 2022 and December 31, 2021, the Company’s loans subject to credit risk were 99.9 % and 99.8 %, respectively, concentrated in the hospitality industry. As of September 30, 2022 and December 31, 2021, 100.0 % and 100.0 %, respectively, of the Company’s loans subject to credit risk were current. The Company classifies loans with negative characteristics in substandard categories ranging from special mention to doubtful. As of September 30, 2022 and December 31, 2021, $ 1.0 million and $ 1.1 million, respectively, of loans subject to credit risk were classified in substandard categories. 6. OTHER INTANGIBLE ASSETS AND LIABILITIES A schedule of the Company’s intangible assets and liabilities and related accumulated amortization and accretion as of September 30, 2022 and December 31, 2021 is as follows (in thousands): September 30, 2022 December 31, 2021 Intangible assets: Acquired in-place leases, net of accumulated amortization of $ 8,871 and $ 9,030 , respectively, both with an average useful life of 9 years $ 1,688 $ 2,266 Acquired above-market leases, net of accumulated amortization of $ 36 and $ 27 , respectively, both with an average useful life of 6 years 19 28 Trade name and license 2,957 2,957 Total intangible assets, net $ 4,664 $ 5,251 Intangible lease liabilities: Acquired below-market leases, net of accumulated amortization of $ 1,123 and $ 1,134 , respectively, both with an average useful life of 5 years $ 78 $ 237 Amortization of the acquired above-market leases is recorded as a reduction to rental and other property income, and amortization of the acquired in-place leases is included in depreciation and amortization in the accompanying consolidated statements of operations. Amortization of the acquired below-market leases is recorded as an increase to rental and other property income in the accompanying consolidated statements of operations. 17 Table of Contents CREATIVE MEDIA & COMMUNITY TRUST CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2022 (Unaudited) – (Continued) During the three and nine months ended September 30, 2022 and 2021, the Company recognized amortization related to its intangible assets and liabilities as follows (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Acquired above-market lease amortization $ 3 $ 3 $ 9 $ 9 Acquired in-place lease amortization $ 212 $ 253 $ 645 $ 806 Acquired below-market lease amortization $ 67 $ 79 $ 196 $ 278 A schedule of future amortization and accretion of acquired intangible assets and liabilities as of September 30, 2022, is as follows (in thousands): Assets Liabilities Years Ending December 31, Acquired Above-Market Leases Acquired In-Place Leases Acquired Below-Market Leases 2022 (Three months ending December 31, 2022) $ 3 $ 200 $ ( 58 ) 2023 9 503 ( 20 ) 2024 5 374 — 2025 2 171 — 2026 — 123 — Thereafter — 317 — $ 19 $ 1,688 $ ( 78 ) 18 Table of Contents CREATIVE MEDIA & COMMUNITY TRUST CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2022 (Unaudited) – (Continued) 7. DEBT The following table summarizes the debt balances as of September 30, 2022 and December 31, 2021, and the debt activity for the nine months ended September 30, 2022 (in thousands): During the Nine Months Ended September 30, 2022 Balances as of December 31, 2021 Debt Issuances & Assumptions Repayments Accretion & (Amortization) Balances as of September 30, 2022 Mortgage Payable: Outstanding Balance $ 97,100 $ — $ — $ — $ 97,100 Deferred debt origination costs — Mortgage Payable ( 120 ) — — 19 ( 101 ) Total Mortgage Payable 96,980 — — 19 96,999 Secured Borrowings — Government Guaranteed Loans: Outstanding Balance 6,671 — ( 631 ) — 6,040 Unamortized premiums 305 — — ( 41 ) 264 Total Secured Borrowings — Government Guaranteed Loans 6,976 — ( 631 ) ( 41 ) 6,304 Other Debt: 2018 revolving credit facility 60,000 110,000 ( 85,000 ) — 85,000 Junior subordinated notes 27,070 — — — 27,070 SBA 7(a) loan-backed notes 7,670 — ( 4,922 ) — 2,748 Borrowed funds from the Federal Reserve through the Paycheck Protection Program Liquidity Facility 5,030 — ( 5,030 ) — — Deferred debt origination costs — other ( 989 ) — — 831 ( 158 ) Discount on junior subordinated notes ( 1,592 ) — — 71 ( 1,521 ) Total Other Debt 97,189 110,000 ( 94,952 ) 902 113,139 Total Debt, Net $ 201,145 $ 110,000 $ ( 95,583 ) $ 880 $ 216,442 Mortgage Payable —The mortgage payable is secured by a deed of trust on a property and assignments of rents receivable. As of September 30, 2022, the Company’s mortgage payable had a fixed interest rate of 4.14 % per annum, with monthly payments of interest only, due on July 1, 2026. The loan is nonrecourse. Secured Borrowings — Government Guaranteed Loans —Secured borrowings—government guaranteed loans represent sold loans which are treated as secured borrowings because the loan sales did not meet the derecognition criteria provided for in ASC 860-30, Secured Borrowing and Collateral . These loans included cash premiums that are amortized as a reduction to interest expense over the life of the loan using the effective interest method and are fully amortized when the underlying loan is repaid in full. As of September 30, 2022, the Company’s secured borrowings-government guaranteed loans included $ 3.6 million of loans sold for a premium and excess spread, with a variable rate, reset quarterly, based on prime rate with weighted average coupon rate of 5.38 % at September 30, 2022, and $ 2.4 million of loans sold for an excess spread, with a variable rate, reset quarterly, based on prime rate with weighted average coupon rate of 3.07 % at September 30, 2022. 2018 Revolving Credit Facility —In October 2018, the Company entered into a secured revolving credit facility with a bank syndicate that, as amended, allows the Company to borrow up to $ 209.5 million, subject to a borrowing base calculation (the “2018 revolving credit facility”). The 2018 revolving credit facility is secured by properties in the Company’s real estate portfolio: eight office properties and one hotel property. In September 2020, the 2018 revolving credit facility was amended (the “2018 Credit Facility Modification”) to remedy the effect that COVID-19 had on the Company’s ability to borrow under the 2018 revolving credit facility during the period from September 2, 2020 through August 14, 2021 (the “Deferral Period”). The 2018 revolving credit facility bore interest during the Deferral Period at (A) the base rate plus 1.05 % or (B) LIBOR plus 2.05 % and (ii) bears interest after the Deferral Period, at (A) the base rate plus 0.55 % or (B) LIBOR plus 1.55 %. As of 19 Table of Contents CREATIVE MEDIA & COMMUNITY TRUST CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2022 (Unaudited) – (Continued) September 30, 2022 and December 31, 2021, the variable interest rate was 4.33 % and 2.15 %, respectively. The 2018 revolving credit facility is also subject to an unused commitment fee of 0.15 % or 0.25 % depending on the amount of aggregate unused commitments. The 2018 revolving credit facility contains customary covenants and is not subject to any financial covenants (though the amount the Company may borrow under the 2018 revolving credit facility is determined by a borrowing base calculation). The Company is working with a bank to refinance the 2018 revolving credit facility which management believes is probable based on its projected performance and current capital market conditions. There can, however, be no assurance that such refinancing will occur. In the interim, the Company has executed a one-year extension of the 2018 Revolving Credit Facility to extend its maturity to October 2023. In connection with the extension, the Company paid 25 % of the extension fee specified in the 2018 Revolving Credit Facility (i.e., 25 % of 0.15 % of each lender’s commitment being extended) on October 30, 2022, with the remaining 75 % of the extension fee specified in the 2018 Revolving Credit Facility (i.e., 75 % of 0.15 % of each lender’s commitment being extended) being due and payable on the date that is 90 days after October 30, 2022. The Company believes cash on hand, proceeds from the sale of our Series A1 Preferred Stock, net cash provided by operations and the entry into new financing arrangements will be sufficient to meet its obligations as they become due in the ordinary course of business for at least 12 months following the date these financial statements are issued. As of September 30, 2022 and December 31, 2021, $ 85.0 million and $ 60.0 million, respectively, was outstanding under the 2018 revolving credit facility, and approximately $ 119.9 million and $ 117.6 million, respectively, was available for future borrowings. Junior Subordinated Notes —The Company has junior subordinated notes with a variable interest rate which 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 the Company’s option. SBA 7(a) Loan-Backed Notes —On May 30, 2018, the Company completed a securitization of the unguaranteed portion of certain of its 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 are secured by deeds of trust or mortgages and are collateralized solely by the right to receive payments and other recoveries attributable to the unguaranteed portions of certain of the Company’s SBA 7(a) loans receivable. 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 the Company’s collateralized SBA 7(a) loans, at issuance, the Company estimated the weighted average remaining 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 %. As of September 30, 2022 and December 31, 2021, the variable interest rate was 4.41 % and 1.49 %, respectively. The Company reflects the SBA 7(a) loans receivable as assets on its consolidated balance sheets and the SBA 7(a) loan-backed notes as debt on its consolidated balance sheets. The restricted cash on the Company’s consolidated balance sheets included funds related to the Company’s SBA 7(a) loan-backed notes of $ 1.5 million and $ 1.9 million as of September 30, 2022 and December 31, 2021, respectively. Paycheck Protection Program Liquidity Facility —In June 2020, the Company commenced borrowing funds from the Federal Reserve through the PPP Liquidity Facility (the “PPPLF”) to finance all the loans the Company originated under the PPP. Advances under the PPPLF carried an interest rate of 0.35 %, were made on a dollar-for-dollar basis based on the amount of loans originated under the PPP and were secured by loans made by the Company under the PPP. The maturity date of PPPLF borrowings was the same as the maturity date of the loans pledged to secure the extension of credit, generally two years. As of September 30, 2022 and December 31, 2021, $ 0 and $ 5.0 million, respectively, was outstanding under the PPPLF as the PPP has ended and as of September 30, 2022, all obligations to the Federal Reserve have been satisfied. Deferred debt issuance costs, which represent legal and third-party fees incurred in connection with the Company’s borrowing activities, are capitalized and amortized to interest expense on a straight-line basis over the life of the related loan, approximating the effective interest method. Deferred debt issuance costs are presented net of accumulated amortization and are a reduction to total debt. As of September 30, 2022 and December 31, 2021, accrued interest and unused commitment fees payable of $ 351,000 and $ 467,000 , respectively, were included in accounts payable and accrued expenses. 20 Table of Contents CREATIVE MEDIA & COMMUNITY TRUST CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2022 (Unaudited) – (Continued) Future principal payments on the Company’s debt (face value) as of September 30, 2022 are as follows (in thousands): Years Ending December 31, Mortgage Payable Secured Borrowings Principal (1) 2018 Revolving Credit Facility Other (1) (2) Total 2022 (Three months ending December 31, 2022) $ — $ 81 $ — $ 327 $ 408 2023 — 335 85,000 166 85,501 2024 — 349 — 171 520 2025 — 365 — 204 569 2026 97,100 382 — 128 97,610 Thereafter — 4,528 — 28,822 33,350 $ 97,100 $ 6,040 $ 85,000 $ 29,818 $ 217,958 ______________________ (1) Principal payments on secured borrowings and SBA 7(a) loan-backed notes, which are included in Other, are generally dependent upon cash flows received from the underlying loans. The Company’s estimate of their repayment is based on scheduled payments on the underlying loans. The Company’s estimate will differ from actual amounts to the extent the Company experiences prepayments and or loan liquidations or charge-offs. No payment is due unless payments are received from the borrowers on the underlying loans. (2) Represents the junior subordinated notes and SBA 7(a) loan-backed notes. 8. STOCK-BASED COMPENSATION PLANS On April 3, 2015, the Company’s board of directors (the “Board of Directors”) unanimously approved the Company’s 2015 Equity Incentive Plan (the “2015 Equity Incentive Plan”), which was approved by the Company’s stockholders. Under the 2015 Equity Incentive Plan, the Company granted awards of restricted shares of Common Stock to each of the independent members of the Board of Directors as follows: Grant Date (1) Vesting Date Restricted Shares of Common Stock - Individual Restricted Shares of Common Stock - Aggregate May 2020 February 2021 (2) 5,478 5,478 May 2020 May 2021 5,478 16,434 May 2021 May 2022 (3) 5,083 20,332 June 2022 June 2023 7,746 30,984 ______________________ (1) Compensation expense related to these restricted shares of Common Stock is recognized over the vesting period, and generally vests based on one year of continuous service. The Company recorded compensation expense related to these restricted shares of Common Stock in the amount of $ 55,000 and $ 55,000 for the three months ended September 30, 2022 and 2021, respectively, and $ 147,000 and $ 165,000 for the nine months ended September 30, 2022 and 2021, respectively. (2) On February 11, 2021, the Company’s Board of Directors approved the immediate vesting of 5,478 shares that had been granted in May 2020 to a former independent member of the Board of Directors following his death. (3) These shares vested after one year of continuous service, other than the shares granted to Mr. Frank Golay, Jr., a former independent director of the Company, which vested on April 29, 2022. Mr. Golay retired from the Board on May 2, 2022 and, in recognition of his service to the Company, the Board accelerated the vesting of Mr. Golay’s shares. As of September 30, 2022, there was $ 147,000 of total unrecognized compensation expense related to restricted shares of Common Stock which will be recognized ratably over the remaining vesting period. 9. EARNINGS PER SHARE ("EPS") The computations of basic EPS are based on the Company’s weighted average shares outstanding. No shares of Series D Preferred Stock, Series A Preferred Stock, or Series A1 Preferred Stock outstanding as of September 30, 2022 or 2021 were 21 Table of Contents CREATIVE MEDIA & COMMUNITY TRUST CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2022 (Unaudited) – (Continued) included in the computation of diluted EPS because they had no dilutive effect. Outstanding Series A Preferred Warrants were not included in the computation of diluted EPS for the three and nine months ended September 30, 2022 and 2021 because their impact was either anti-dilutive or such warrants were not exercisable during such periods (Note 11). Outstanding shares of Series L Preferred Stock were not included in the computation of diluted EPS for the three and nine months ended September 30, 2022 and 2021 because such shares were not redeemable during such periods. EPS for the year-to-date period may differ from the sum of quarterly EPS amounts due to the required method for computing EPS in the respective periods. In addition, EPS is calculated independently for each component and may not be additive due to rounding. The following table reconciles the numerator and denominator used in computing the Company’s basic and diluted per-share amounts for net loss attributable to common stockholders for the three and nine months ended September 30, 2022 and 2021 (in thousands, except per share amounts): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Numerator: Net loss attributable to common stockholders $ ( 11,684 ) $ ( 3,216 ) $ ( 16,844 ) $ ( 15,632 ) Redeemable preferred stock dividends declared on dilutive shares — — — — Diluted net loss attributable to common stockholders $ ( 11,684 ) $ ( 3,216 ) $ ( 16,844 ) $ ( 15,632 ) Denominator: Basic weighted average shares of Common Stock outstanding 23,209 23,349 23,303 17,784 Effect of dilutive securities—contingently issuable shares — 1 — — Diluted weighted average shares and common stock equivalents outstanding 23,209 23,350 23,303 17,784 Net loss attributable to common stockholders per share: Basic $ ( 0.50 ) $ ( 0.14 ) $ ( 0.72 ) $ ( 0.88 ) Diluted $ ( 0.50 ) $ ( 0.14 ) $ ( 0.72 ) $ ( 0.88 ) 10. REDEEMABLE PREFERRED STOCK 22 Table of Contents CREATIVE MEDIA & COMMUNITY TRUST CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2022 (Unaudited) – (Continued) The table below provides information regarding the issuances, reclassifications and redemptions of each class of the Company’s preferred stock in permanent equity during the three and nine months ended September 30, 2022 and 2021 (dollar amounts in thousands): Preferred Stock Series A1 Series A Series D Series L Total Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Balances, December 31, 2020 — $ — 4,377,762 $ 108,729 19,145 $ 473 5,387,160 $ 152,834 9,784,067 $ 262,036 Issuance of Series D Preferred Stock — — — — 4,045 99 — — 4,045 99 Reclassification of Series A Preferred Stock to permanent equity — — 366,991 9,144 — — — — 366,991 9,144 Redemption of Series A Preferred Stock — — ( 29,462 ) ( 733 ) — — — — ( 29,462 ) ( 733 ) Balances, March 31, 2021 — — 4,715,291 117,140 23,190 572 5,387,160 152,834 10,125,641 270,546 Issuance of Series D Preferred Stock — — — — 7,835 192 — — 7,835 192 Reclassification of Series A Preferred Stock to permanent equity — — 556,587 13,915 — — — — 556,587 13,915 Redemption of Series A Preferred Stock — — ( 18,501 ) ( 460 ) — — — — ( 18,501 ) ( 460 ) Balances, June 30, 2021 — — 5,253,377 130,595 31,025 764 5,387,160 152,834 10,671,562 284,193 Issuance of Series D Preferred Stock — — — — 25,832 632 — — 25,832 632 Reclassification of Series A Preferred Stock to permanent equity — — 593,300 15,132 — — — — 593,300 15,132 Redemption of Series A Preferred Stock — — ( 25,564 ) ( 634 ) — — — — ( 25,564 ) ( 634 ) Balances, September 30, 2021 — $ — 5,821,113 $ 145,093 56,857 $ 1,396 5,387,160 $ 152,834 11,265,130 $ 299,323 Balances, December 31, 2021 — $ — 6,271,337 $ 156,431 56,857 $ 1,396 5,387,160 $ 152,834 11,715,354 $ 310,661 Issuance of Series D Preferred Stock — — — — — — — — — — Reclassification of Series A Preferred stock to permanent equity — — 329,921 8,304 — — — — 329,921 8,304 Redemption of Series A Preferred Stock — — ( 49,341 ) ( 1,228 ) — — — — ( 49,341 ) ( 1,228 ) Balances, March 31, 2022 — — 6,551,917 163,507 56,857 1,396 5,387,160 152,834 11,995,934 317,737 Issuance of Series A1 Preferred Stock 192,440 4,770 — — — — — — 192,440 4,770 Reclassification of Series A Preferred stock to permanent equity — — 430,082 10,857 — — — — 430,082 10,857 Redemption of Series A Preferred Stock — — ( 88,225 ) ( 2,188 ) — — — — ( 88,225 ) ( 2,188 ) Balances, June 30, 2022 192,440 4,770 6,893,774 172,176 56,857 1,396 5,387,160 152,834 12,530,231 331,176 Issuance of Series A1 Preferred Stock 2,667,001 64,720 — — — — — — 2,667,001 64,720 Repurchase of Series L Preferred Stock — — — — — — ( 2,435,284 ) ( 69,089 ) ( 2,435,284 ) ( 69,089 ) Reclassification of Series A Preferred stock to permanent equity — — 299,303 7,574 — — — — 299,303 7,574 Redemption of Series A Preferred Stock — — ( 58,742 ) ( 1,463 ) — — — — ( 58,742 ) ( 1,463 ) Balances, September 30, 2022 2,859,441 $ 69,490 7,134,335 $ 178,287 56,857 $ 1,396 2,951,876 $ 83,745 13,002,509 $ 332,918 23 Table of Contents CREATIVE MEDIA & COMMUNITY TRUST CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2022 (Unaudited) – (Continued) Series A1 Preferred Stock —Since June 2022, the Company has been conducting a continuous public offering with respect to shares of its Series A1 Preferred Stock, par value $ 0.001 per share with an initial stated value of $ 25.00 per share, subject to adjustment. Shares of Series A1 Preferred Stock are recorded in permanent equity at the time of their issuance. As of September 30, 2022, the Company had issued in registered public offerings 2,859,441 shares of the Series A1 Preferred Stock and received gross proceeds of $ 69.5 million. In connection with such issuance, $ 3.6 million of costs specifically identifiable to the offering of Series A1 Preferred Stock was allocated to the Series A1 Preferred Stock. Such costs include commissions, dealer manager fees and other offering fees and expenses but do not include non-issuance-specific costs of $ 9.1 million related to the Company’s offering of Series A Preferred Stock, Series A Preferred Warrants, Series A1 Preferred Stock and Series D Preferred Stock. As of September 30, 2022, the Company had reclassified and allocated $ 793,000 from deferred charges to Series A1 Preferred Stock as a reduction to the gross proceeds received. Such reclassification was based on the cumulative number of securities issued relative to the maximum number of securities expected to be issued under the offering. As of September 30, 2022, there were 2,859,441 shares of Series A1 Preferred Stock outstanding and no shares of Series A1 Preferred Stock had been redeemed. Series A Preferred Stock —The Company conducted a continuous public offering of Series A Preferred Units (with each unit (“Series A Preferred Unit”) consisting of one share of Series A Preferred Stock and, initially, one warrant (“Series A Preferred Warrant”) to purchase 0.25 of a share of Common Stock, subject to adjustment) from October 2016 through January 2020, where each Series A Preferred Unit consisted of one share of Series A Preferred Stock, par value $ 0.001 per share, of the Company with an initial stated value of $ 25.00 per share, subject to adjustment, and one warrant to purchase 0.25 of a share of Common Stock. Proceeds and expenses from the sale of the Series A Preferred Units were allocated to the Series A Preferred Stock and Series A Preferred Warrants using their relative fair values on the date of issuance. From February 2020 through June 2022, the Company conducted a continuous public offering with respect to shares of the Company’s Series A Preferred Stock, which, since February 2020, was no longer being issued as a unit with an accompanying Series A Preferred Warrant. In June 2022, the Company concluded the offering of Series A Preferred Stock. As of September 30, 2022, the Company had issued in registered public offerings 8,251,657 shares of Series A Preferred Stock and 4,603,287 Series A Preferred Warrants and received gross proceeds of $ 205.4 million and $ 761,000 , respectively, and additionally, had issued 568,681 shares of Series A Preferred Stock as payment for services to the CIM Service Provider, LLC (the “Administrator”), for which no cash proceeds were received. In connection with such issuance, $ 17.0 million and $ 142,000 of costs specifically identifiable to the offering of the Series A Preferred Stock and Series A Preferred Warrants, respectively, were allocated to the Series A Preferred Stock and Series A Preferred Warrants, respectively. Such costs include commissions, dealer manager fees and other offering fees and expenses but do not include non-issuance-specific costs of $ 9.1 million related to the Company’s offering of Series A Preferred Stock, Series A Preferred Warrants, Series A1 Preferred Stock and Series D Preferred Stock. As of September 30, 2022, the Company had reclassified and allocated $ 1.9 million and $ 5,000 from deferred charges to Series A Preferred Stock and Series A Preferred Warrants, respectively, as a reduction to the gross proceeds received. Such reclassification was based on the cumulative number of securities issued relative to the maximum number of securities expected to be issued under the offering. Net proceeds from the issuance of shares of Series A Preferred Stock were initially recorded in temporary equity at an amount equal to the gross proceeds allocated to such shares of Series A Preferred Stock minus the costs specifically identifiable to the issuance of such shares and the non-issuance specific offering costs allocated to such shares. If the net proceeds from the issuance of shares of Series A Preferred Stock were less than the redemption value of such shares at the time they were issued, or if the redemption value of such shares subsequently becomes greater than the carrying value of such shares, an adjustment was recorded to increase the carrying amount of such shares to their redemption value as of the balance sheet date. Such adjustment was considered a deemed dividend for purposes of calculating basic and diluted EPS. For the three and nine months ended September 30, 2022, the Company recorded redeemable preferred stock deemed dividends of $ 0 and $ 19,000 , respectively, related to such adjustments. For the three and nine months ended September 30, 2021, the Company recorded redeemable preferred stock deemed dividends of $ 90,000 and $ 253,000 , respectively, related to such adjustments. On the first anniversary of the issuance of a particular share of Series A Preferred Stock, the Company reclassifies such share of Series A Preferred Stock from temporary equity to permanent equity because the feature giving rise to temporary equity classification, the requirement to satisfy redemption requests in cash, lapses on the first anniversary date. As of September 30, 2022, the Company had reclassified an aggregate of $ 170.6 million in net proceeds from temporary equity to permanent equity. As of September 30, 2022, there were 8,399,535 shares of Series A Preferred Stock outstanding and 420,803 shares of Series A Preferred Stock had been redeemed. 24 Table of Contents CREATIVE MEDIA & COMMUNITY TRUST CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2022 (Unaudited) – (Continued) Series D Preferred Stock —From February 2020 through June 2022, the Company conducted a continuous public offering with respect to shares of its Series D Preferred Stock, par value $ 0.001 per share, subject to adjustment. The selling price of the Series D Preferred Stock was $ 25.00 per share for all sales that occurred from the beginning of the offering to and including June 28, 2020 and $ 24.50 per share thereafter. Shares of Series D Preferred Stock were recorded in permanent equity at the time of their issuance. In June 2022, the Company concluded the offering of Series D Preferred Stock. As of September 30, 2022, the Company had issued in registered public offerings 56,857 shares of Series D Preferred Stock and received gross proceeds of $ 1.4 million. In connection with such issuance, $ 35,000 of costs specifically identifiable to the offering of Series D Preferred Stock were allocated to the Series D Preferred Stock. Such costs include commissions, dealer manager fees and other offering fees and expenses but do not include non-issuance-specific costs of $ 9.1 million related to the Company’s offering of Series A Preferred Stock, Series A Preferred Warrants, Series A1 Preferred Stock and Series D Preferred Stock. As of September 30, 2022, the Company had reclassified and allocated $ 13,000 from from deferred charges to Series D Preferred Stock as a reduction to the gross proceeds received. Such reclassification was based on the cumulative number of securities issued relative to the maximum number of securities expected to be issued under the offering. As of September 30, 2022, there were 56,857 shares of Series D Preferred Stock outstanding and no shares of Series D Preferred Stock had been redeemed. Series L Preferred Stock —On November 21, 2017, the Company issued 8,080,740 shares of Series L Preferred Stock having an initial stated value of $ 28.37 per share (“Series L Preferred Stock Stated Value”), subject to adjustment. The Company received gross proceeds of $ 229.3 million from the sale of the Series L Preferred Stock, which was reduced by issuance-specific offering costs, such as commissions, dealer manager fees, and other offering fees and expenses, totaling $ 15.9 million, a discount of $ 2.9 million, and non-issuance-specific costs of $ 2.5 million. These fees have been recorded as a reduction to the gross proceeds in permanent equity. On September 15, 2022, the Company repurchased 2,435,284 shares of its Series L Preferred Stock in a privately negotiated transaction (the “Series L Repurchase”). The shares were repurchased at a purchase price of $ 27.40 per share (a 3.4 % discount to the stated value of $ 28.37 ) plus $ 1.12 per share of accrued and unpaid dividends (or $ 2.7 million accrued and unpaid dividends in the aggregate). The total cost to complete the Series L Repurchase, including transactions costs of $ 700,000 (or $ 0.29 per share), was $ 70.1 million. In connection with the Series L Repurchase, the Company recognized redeemable preferred stock redemptions of $ 4.8 million on its consolidated statement of operations for the three and nine months ended September 30, 2022. The $ 4.8 million of redeemable preferred stock redemptions represents the difference between the repurchase price (including $ 0.29 per share of transaction costs) and the carrying value of the repurchased Series L Preferred Stock (representing the stated value of $ 28.37 per share reduced by $ 2.65 per share of stock offering costs). Until the fifth anniversary of the date of original issuance of the Series L Preferred Stock, the Company is prohibited from issuing any shares of preferred stock ranking senior to or on parity with the Series L Preferred Stock with respect to the payment of dividends, other distributions, liquidation, and or dissolution or winding up of the Company unless the Minimum Fixed Charge Coverage Ratio, calculated in accordance with the Articles Supplementary describing the Series L Preferred Stock, is equal to or greater than 1.25 :1.00. As of September 30, 2022 and December 31, 2021 , the Company was in compliance with the Series L Preferred Stock Minimum Fixed Charge Coverage Ratio. Refer to Note 13 for a discussion of certain payments the Company has made in shares of Common Stock and in shares of Preferred Stock and may make in shares of Preferred Stock in lieu of cash payments in order to remain in compliance with the Series L Preferred Stock Minimum Fixed Charge Coverage Ratio. Dividends —With respect to the payment of dividends, the Series A1 Preferred Stock, as well as the Series A Preferred Stock and Series D Preferred Stock, ranks senior to the Series L Preferred Stock and the Common Stock. The Series L Preferred Stock ranks senior to the Common Stock (except with respect to and only to the extent of the Initial Dividend) and junior to the Series A Preferred Stock, Series A Preferred Stock, Series D Preferred Stock and Common Stock (with respect to and only to the extent of the Initial Dividend). With respect to the distribution of amounts upon liquidation, dissolution or winding-up, the Series A1 Preferred Stock ranks on parity with the Series A Preferred Stock, Series D Preferred Stock and Series L Preferred Stock, to the extent of the Series L Preferred Stock Stated Value, and otherwise ranks senior to the Series L Preferred Stock and the Common Stock. With respect to the distribution of amounts upon liquidation, dissolution or winding-up, the Series L Preferred Stock ranks senior to the Common Stock, both (i) to the extent of the Series L Preferred Stock Stated Value and (ii) following payment to holders of the Common Stock of an amount equal to any unpaid Initial Dividend, to the extent of any accrued and unpaid dividends on the Series L Preferred Stock, on parity with the Series A1 Preferred Stock, Series A Preferred Stock and Series D Preferred Stock, to the extent of the Series L Preferred Stock Stated Value and junior to the Series A1 25 Table of Contents CREATIVE MEDIA & COMMUNITY TRUST CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2022 (Unaudited) – (Continued) Preferred Stock, Series A Preferred Stock, Series D Preferred Stock and Common Stock (to the extent of the Initial Dividend), in all instances with respect to any accrued and unpaid dividends on the Series L Preferred Stock. Holders of Series A1 Preferred Stock are entitled to receive, if, as and when authorized by the Company’s Board of Directors, and declared by the Company out of legally available funds, cumulative cash dividends (“Series A1 Dividend”) on each share of Series A1 Preferred Stock at the 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. Holders of Series A Preferred Stock are entitled to receive, if, as and when authorized by the Company’s Board of Directors, and declared by the Company out of legally available funds, cumulative cash dividends on each share of Series A Preferred Stock 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) (the “Series A Dividend”). Holders of Series D Preferred Stock are entitled to receive, if, as and when authorized by the Company’s Board of Directors, and declared by the Company out of legally available funds, cumulative cash dividends on each share of Series D Preferred Stock at an annual rate of 5.65 % of the Series D Preferred Stock Stated Value (i.e., the equivalent of $ 0.35313 per share per quarter) (the “Series D Dividend”). Dividends on each share of Series A Preferred Stock and Series D Preferred Stock begin accruing on, and are cumulative from, the date of issuance. The Company expects to pay the Series A1 Dividend, Series A Dividend and Series D Dividend in arrears on a monthly basis in accordance with the foregoing provisions, unless the Company’s results of operations, general financing conditions, general economic conditions, applicable requirements of the MGCL or other factors make it imprudent to do so. The timing and amount of the Series A1 Dividend, Series A Dividend and the Series D Dividend will be determined by the Company’s Board of Directors, in its sole discretion, and may vary from time to time. Holders of Series L Preferred Stock are entitled to receive, if, as and when authorized by the Company’s Board of Directors, and declared by the Company out of legally available funds, cumulative cash dividends on each share of Series L Preferred Stock at an annual rate of 5.50 % of the Series L Preferred Stock Stated Value (i.e., the equivalent of $ 1.56035 per share per year). Dividends on each share of Series L Preferred Stock began accruing on, and are cumulative from, the date of issuance. The Company expects to pay dividends on the Series L Preferred Stock in arrears on an annual basis in accordance with the foregoing provisions, unless the Company’s results of operations, general financing conditions, general economic conditions, applicable requirements of the MGCL or other factors make it imprudent to do so. If the Company fails to timely declare distributions or fails to timely pay distributions on the Series L Preferred Stock, the annual dividend rate of the Series L Preferred Stock will temporarily increase by 1.00 % per year, up to a maximum rate of 8.50 % per annum. However, prior to the payment of any distributions on Series L Preferred Stock in respect of a given year, the Company must first declare and pay dividends on the Common Stock in respect of such year in an aggregate amount equal to the Initial Dividend announced by the Company’s Board of Directors at the end of the prior fiscal year. On December 29, 2021, the Company announced an Initial Dividend on shares of its Common Stock for fiscal year 2022 in the aggregate amount of $ 7,010,799 , of which $ 3,972,000 had been paid as of September 30, 2022. During the nine months ended September 30, 2022, the Company paid $ 384,000 , $ 8.5 million, $ 60,000 and $ 11.1 million of cash dividends on the Series A1 Preferred Stock, Series A Preferred Stock, Series D Preferred Stock and Series L Preferred Stock, respectively. During the nine months ended September 30, 2021, the Company paid $ 7.0 million, $ 26,000 and $ 8.4 million of cash dividends on the Series A Preferred Stock, Series D Preferred Stock and Series L Preferred Stock, respectively. Redemptions —The Company’s Series A1 Preferred Stock, Series A Preferred Stock and Series D Preferred Stock are redeemable at the option of the holder or the Company. The redemption schedule of the Series A1 Preferred Stock, Series A Preferred Stock and Series D Preferred Stock allows redemptions at the option of the holder of Series A1 Preferred Stock, Series A Preferred Stock or Series D Preferred Stock from the date of original issuance of any such shares at the Series A1 Preferred Stock Stated Value, Series A Preferred Stock Stated Value or Series D Preferred Stock Stated Value, respectively, less a redemption fee applicable prior to the fifth anniversary of the issuance of such shares, plus accrued and unpaid dividends. The Company has the right to redeem the Series A1 Preferred Stock after the date that is twenty-four months following the original issuance of such shares of Series A1 Preferred Stock at the Series A1 Preferred Stock Stated Value, plus accrued and unpaid dividends. The Company has the right to redeem the Series A Preferred Stock or Series D Preferred Stock after the fifth anniversary of the date of original issuance of such shares at the Series A Preferred Stock Stated Value or Series D Preferred Stock Stated Value, respectively, plus accrued and unpaid dividends. With respect to redemptions of the Series A1 Preferred Stock, Series A Preferred Stock or Series D Preferred Stock, at the Company’s discretion, the redemption price will be paid in 26 Table of Contents CREATIVE MEDIA & COMMUNITY TRUST CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2022 (Unaudited) – (Continued) cash or in Common Stock based on the volume weighted average price of the Company’s Common Stock for the 20 trading days prior to the redemption; provided that the redemption price of any shares of Series A Preferred Stock redeemed prior to the first anniversary of the date of original issuance of such shares must be paid in cash. From and after the fifth anniversary of the date of original issuance of the Series L Preferred Stock, each holder will have the right to require the Company to redeem, and the Company will also have the option to redeem (subject to certain conditions), such shares of Series L Preferred Stock at a redemption price equal to the Series L Preferred Stock Stated Value, plus, provided certain conditions are met, all accrued and unpaid distributions. Notwithstanding the foregoing, a holder of shares of the Company’s Series L Preferred Stock may require the Company to redeem such shares at any time prior to the fifth anniversary of the date of original issuance of the Series L Preferred Stock if (1) the Company does not declare and pay in full the distribution on the Series L Preferred Stock for any annual period prior to such fifth anniversary or (2) the Company does not declare and pay all accrued and unpaid distributions on the Series L Preferred Stock for all past dividend periods prior to the applicable holder redemption date. The applicable redemption price payable upon redemption of any Series L Preferred Stock will be made, in the Company’s sole discretion, in the form of (A) cash in ILS at the then-current currency exchange rate determined in accordance with the Articles Supplementary defining the terms of the Series L Preferred Stock, (B) in equal value through the issuance of shares of Common Stock, with the value of such Common Stock to be deemed the lower of (i) the NAV per share of the Company’s Common Stock as most recently published by the Company as of the effective date of redemption and (ii) the volume-weighted average price of the Company’s Common Stock, determined in accordance with the Articles Supplementary defining the terms of the Series L Preferred Stock, or (C) in a combination of cash in ILS and the Company’s Common Stock, based on the conversion mechanisms set forth in (A) and (B), respectively. 11. STOCKHOLDERS’ EQUITY Dividends Holders of the Company’s Common Stock are entitled to receive dividends, if, as and when authorized by the Board of Directors and declared by the Company out of legally available funds. In determining the Company’s dividend policy, the Board of Directors considers many factors including the amount of cash resources available for dividend distributions, capital spending plans, cash flow, the Company’s financial position, applicable requirements of the MGCL, any applicable contractual restrictions, and future growth in NAV and cash flow per share prospects. Consequently, the dividend rate on a quarterly basis does not necessarily correlate directly to any individual factor. Cash dividends per share of Common Stock declared in respect of the nine months ended September 30, 2022 and 2021 consist of the following: Declaration Date Payment Date Type Cash Dividend Per Share of Common Stock September 22, 2022 October 17, 2022 Regular Quarterly $ 0.085 June 10, 2022 July 5, 2022 Regular Quarterly $ 0.085 March 8, 2022 April 1, 2022 Regular Quarterly $ 0.085 September 7, 2021 September 29, 2021 Regular Quarterly $ 0.075 June 7, 2021 June 30, 2021 Regular Quarterly $ 0.075 March 5, 2021 March 30, 2021 Regular Quarterly $ 0.075 Series A Preferred Warrants Prior to February 2020, the Series A Preferred Stock was sold as a unit that included one share of Series A Preferred Stock and one Series A Preferred Warrant that could be exercised to purchase 0.25 of a share of Common Stock. 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 at a 15.0 % premium to the per share estimated NAV of the Company’s Common Stock then most recently published and designated as the applicable NAV. 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 the Company’s Board of Directors, the exercise price and the number of 27 Table of Contents CREATIVE MEDIA & COMMUNITY TRUST CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2022 (Unaudited) – (Continued) 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. Proceeds and expenses from the sale of the Series A Preferred Units were allocated to the Series A Preferred Stock and Series A Preferred Warrants using their relative fair values on the date of issuance. As of September 30, 2022, the Company had 4,034,366 Series A Preferred Warrants outstanding to purchase 1,045,671 shares of Common Stock in connection with the Company’s offering of Series A Preferred Units and allocated net proceeds of $ 556,000 , after specifically identifiable offering costs and allocated general offering costs, to the Series A Preferred Warrants in permanent equity. Share Repurchase Program In May 2022, the Company’s Board of Directors approved a repurchase program of up to $ 10.0 million of the Company’s Common Stock (the “SRP”). Under the SRP, the Company, in its discretion, may purchase shares of its Common Stock from time to time in the open market or in privately negotiated transactions. The amount and timing of purchases of shares will depend on a number of factors, including, without limitation, the price and availability of shares, trading volume, general market conditions and compliance with applicable securities law. The SRP has no termination date and may be suspended or discontinued at any time. As of September 30, 2022, share repurchases executed under the SRP were as follows: Period Shares Repurchased Average price paid per share Cost of shares repurchased (in thousands) June 2022 41,374 $ 7.32 $ 303 August 2022 33,374 $ 7.15 $ 239 September 2022 587,714 $ 7.10 $ 4,173 Total as of September 30, 2022 662,462 $ 4,715 12. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company determines the estimated fair value of financial assets and liabilities utilizing a hierarchy of valuation techniques based on whether the inputs to a fair value measurement are considered to be observable or unobservable in a marketplace. The hierarchy for inputs used in measuring fair value is as follows: Level 1 Inputs —Quoted prices in active markets for identical assets or liabilities Level 2 Inputs —Observable inputs other than quoted prices in active markets for identical assets and liabilities Level 3 Inputs —Unobservable inputs In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement. Management’s estimation of the fair value of the Company’s financial instruments is based on a Level 3 valuation in the fair value hierarchy established f or disclosure of how a company values its financial instruments. In general, quoted market prices from active markets for the identical financial instrument (Level 1 inputs), if available, should be used to value a financial instrument. If quoted prices are not available for the identical financial instrument, then a determination should be made if Level 2 inputs are available. Level 2 inputs include quoted prices for similar financial instruments in active markets for identical or similar financial instruments in markets that are not active (i.e., markets in which there are few transactions for the financial instruments, the prices are not current, price quotations vary substantially, or in which little information is released publicly). There is limited reliable market information for the Company’s financial instruments and the Company utilizes other methodologies based on unobservable inputs for valuation purposes since there are no Level 1 or Level 2 inputs available. Accordingly, Level 3 inputs are used to measure fair value. In general, estimates of fair value may differ from the carrying amounts of the financial assets and liabilities primarily as a result of the effects of discounting future cash flows. Considerable judgment is required to interpret market data and develop estimates of fair value. Accordingly, the estimates presented are made at a point in time and may not be indicative of the amounts the Company could realize in a current market exchange. 28 Table of Contents CREATIVE MEDIA & COMMUNITY TRUST CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2022 (Unaudited) – (Continued) The following describes the methods the Company uses to estimate the fair value of the Company’s financial assets and liabilities. Debt —The carrying amounts of the Company’s secured borrowings—government guaranteed loans, SBA 7(a) loan-backed notes, 2018 Revolving Credit Facility and borrowed funds from the Federal Reserve through the PPPLF approximate their fair values, as the interest rates on these securities are variable and approximate current market interest rates. The Company determines the fair value of mortgage notes payable and junior subordinated notes by performing discounted cash flow analyses using an appropriate market discount rate. The Company calculates the market discount rate for its mortgage notes payable by obtaining period-end treasury or swap rates, as applicable, for maturities that correspond to the maturities of the Company’s debt and then adding an appropriate credit spread. These credit spreads take into account factors such as the Company’s credit standing, the maturity of the debt, whether the debt is secured or unsecured, and the loan-to-value ratios of the debt. When estimating the fair value of the Company’s mortgages payable as of September 30, 2022 and December 31, 2021, the Company used a rate of 6.28 % and 3.22 %, respectively. The rate used to estimate the fair value of the Company’s junior subordinated notes was 8.00 % and 4.46 % as of September 30, 2022 and December 31, 2021, respectively. Loans Receivable —The Company determines the fair value of loans receivable by performing a present value analysis for the anticipated future cash flows using an appropriate market discount rate taking into consideration the credit risk and using an anticipated prepayment rate. The value of the government guaranteed portions of loans held for sale is based primarily on the anticipated proceeds to be received upon sale. The following summarizes the ranges of discount rates and prepayment rates used to arrive at the estimated fair values of the Company’s loans receivable: September 30, 2022 December 31, 2021 Discount Rate Prepayment Rate Discount Rate Prepayment Rate SBA 7(a) loans receivable, subject to credit risk 10.25 % - 11.25 % 5.00 % - 16.50 % 6.25 % - 8.25 % 5.00 % - 17.50 % SBA 7(a) loans receivable, subject to loan-backed notes 9.50 % - 11.25 % 5.00 % - 16.50 % 5.75 % - 7.75 % 5.00 % - 17.50 % SBA 7(a) loans receivable, paycheck protection program N/A N/A 1.00 % N/A SBA 7(a) loans receivable, subject to secured borrowings 11.00 % - 11.25 % 5.00 % - 16.50 % 7.00 % - 7.75 % 5.00 % - 17.50 % Other Financial Instruments —The carrying amounts of the Company’s cash and cash equivalents, restricted cash, accounts receivable, accounts payable, and accrued expenses approximate their fair values due to their short-term maturities at September 30, 2022 and December 31, 2021. Due to the short-term maturities of these instruments, Level 1 inputs are utilized to estimate the fair value of these financial instruments. The estimated fair values of those financial instruments which are not recorded at fair value on a recurring basis on the Company’s consolidated balance sheets are as follows (dollar amounts in thousands): September 30, 2022 December 31, 2021 Carrying Amount Estimated Fair Value Carrying Amount Estimated Fair Value Level Assets: SBA 7(a) loans receivable, subject to credit risk $ 44,945 $ 46,367 $ 42,416 $ 44,399 3 SBA 7(a) loans receivable, subject to loan-backed notes $ 14,684 $ 15,661 $ 18,077 $ 19,635 3 SBA 7(a) loans receivable, paycheck protection program $ — $ — $ 4,903 $ 5,050 3 SBA 7(a) loans receivable, subject to secured borrowings $ 6,224 $ 6,304 $ 6,891 $ 6,976 3 SBA 7(a) loans receivable, held for sale $ 774 $ 775 $ 1,256 $ 1,355 3 Liabilities: Mortgages payable (1) $ 97,100 $ 90,037 $ 97,100 $ 100,838 2, 3 Junior subordinated notes (1) $ 27,070 $ 24,944 $ 27,070 $ 24,378 3 ______________________ (1) The carrying amounts for the mortgage payable and junior subordinated notes represents the principal outstanding amounts, excluding deferred debt issuance costs and discounts. 29 Table of Contents CREATIVE MEDIA & COMMUNITY TRUST CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2022 (Unaudited) – (Continued) 13. RELATED-PARTY TRANSACTIONS Asset Management and Other Fees to Related Parties Asset Management Fees; Administrative Fees and Expenses — CIM Urban and CIM Capital, LLC, an affiliate of CIM REIT and CIM Group (“CIM Capital”), have an investment management agreement, pursuant to which CIM Urban engaged CIM Capital to provide certain services to CIM Urban (the “Investment Management Agreement”). CIM Capital has assigned its duties under the Investment Management Agreement to its four wholly-owned subsidiaries: CIM Capital Securities Management, LLC, a securities manager, CIM Capital RE Debt Management, LLC, a debt manager, CIM Capital Controlled Company Management, LLC, a controlled company manager, and CIM Capital Real Property Management, LLC, a real property manager. The “Operator” refers to CIM Capital and its four wholly-owned subsidiaries. The Company and its subsidiaries have a master services agreement (the “Master Services Agreement”) with CIM Service Provider, LLC (the “Administrator”), an affiliate of CIM Group, pursuant to which the Administrator provides, or arranges for other service providers to provide, management and administration services to the Company and its subsidiaries. Pursuant to the Master Services Agreement, the Company appointed an affiliate of CIM Group as the administrator of Urban Partners GP, LLC. On January 5, 2022, the Company and certain of its subsidiaries entered into a Fee Waiver (the “Fee Waiver”) with the Operator and the Administrator with respect to fees that are payable to them. The Fee Waiver is effective retroactively to January 1, 2022 (the “Effective Date”). Pursuant to the Fee Waiver, the Administrator agreed to voluntarily waive any fees in excess of those set forth in the Fee Waiver, to the extent it would otherwise have been entitled to such additional compensation under the Master Service Agreement, and the Operator agreed to voluntarily waive any fees in excess of those set forth in the Fee Waiver, to the extent it would otherwise have been entitled to such additional compensation under the Investment Management Agreement. Following the end of each quarter, the Administrator will deliver to the Company (i) a calculation of the cumulative fees earned by the Operator and the Administrator under the methodology prescribed by the Fee Waiver from the Effective Date through the end of such quarter and (ii) a calculation of the cumulative fees that would have been earned by the Operator and the Administrator during such period under the Master Services Agreement and the Investment Management Agreement without giving effect to the Fee Waiver. If, in respect of any quarter, the aggregate fees that are payable under the methodology prescribed by the Fee Waiver exceed the aggregate fees that would have been payable under the Master Services Agreement and the Investment Management Agreement, without giving effect to the Fee Waiver, such quarter will be deemed an “Excess Quarter”. For any quarter following an Excess Quarter, the Company (upon the direction of the independent members of the Board) may, at its option and upon written notice to Administrator, elect to calculate all fees due to the Administrator and the Operator in accordance with the Master Services Agreement and the Investment Management Agreement, without giving effect to the Fee Waiver, from and after such Excess Quarter. Any such election by the Company will be irrevocable, and all fees due to the Administrator and the Operator from and after such election will be calculated in accordance with the Master Services Agreement and the Investment Management Agreement, without giving effect to the Fee Waiver. The fees payable to the Operator and the Administrator are determined as follows under the Fee Waiver. 1. Base Fee: A base asset management fee (the “Base Fee”) is payable quarterly in arrears to the Operator in an amount equal to an annual rate of 1 % (or 0.25 % per quarter) of the average of the “Net Asset Value Attributable to Common Stockholders” as of the first and last day of the applicable quarter. Net Asset Value Attributable to Common stockholders is defined as (a) the sum of the Company’s (1) investments in real estate at fair value, (2) cash, (3) loans receivable at fair value and (4) the book value of the other assets of the Company, excluding deferred costs and net of other liabilities at book value, less (b) the Company’s (i) debt at face value, (ii) outstanding preferred stock at stated value, and (iii) non-controlling interests at book value; provided, that, non-controlling interests in any UPREIT operating partnership relating to the Company shall not be excluded. Subject to applicable laws and regulations under Nasdaq and the TASE and the agreement of the Operator, the Company will pay the Base Fee owed with respect to the first quarter of 2022 in shares of its Series A Preferred Stock and it is likely that the Company will pay some or part of the remainder of the Base Fees incurred during the year ended December 31, 2022 in shares of Series A Preferred Stock. 30 Table of Contents CREATIVE MEDIA & COMMUNITY TRUST CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2022 (Unaudited) – (Continued) 2. Incentive Fee: An incentive fee (the “Revised Incentive Fee”) is payable quarterly in arrears to the Administrator with respect to the quarterly core funds from operations in excess of a quarterly threshold equal to 1.75 % (i.e., 7.00 % on an annualized basis) of the Company’s “Adjusted Common Equity” (as defined below) for such quarter (“Excess Core FFO”) as follows: (i) no Incentive Fee in any quarter in which the Excess Core FFO is $ 0 ; (ii) 100 % of any Excess Core FFO up to an amount equal to the product of (x) the average of the Adjusted Common Equity as of the first and last day of the applicable quarter and (y) 0.4375 %; and (iii) 20 % of any Excess Core FFO thereafter. Revised Incentive Fees payable for any partial quarter will be appropriately prorated. “Adjusted Common Equity” means Common Equity plus Excluded Depreciation and Amortization. “Common Equity” means Total Stockholders’ Equity minus Excluded Equity. “Total Stockholders’ Equity” means the amount reflected as total stockholders’ equity in accordance with GAAP on the consolidated balance sheet of the Company and its subsidiaries as of the last day of a given quarter. “Excluded Equity” means the sum of all preferred securities of the Company and its subsidiaries classified as permanent equity in accordance with GAAP on the consolidated balance sheet of the Company and its subsidiaries as of the last day of a given quarter. “Excluded Depreciation and Amortization” means, for a given quarter, the amount of all accumulated depreciation and amortization of (i) the Company and its subsidiaries and (ii) to the extent allocable to the Company and its subsidiaries, the unconsolidated affiliates, in each case as of the last day of such quarter that corresponds to the periodic depreciation and amortization expense calculated in each case in accordance with GAAP that is a permitted add back to net income calculated in accordance with GAAP when calculating funds from operations. 3. Capital Gains Fee: A capital gains fee (the “Capital Gains Fee”) is payable quarterly in arrears to the Administrator in an amount equal to (i) 15 % of the cumulative aggregate realized capital gains minus the cumulative aggregate realized capital losses (in each case since the Effective Date), minus (ii) the aggregate capital gains fees paid since the Effective Date. Realized capital gains and realized capital losses are calculated by subtracting from the sales price of a property: (a) any costs incurred to sell such property, and (b) the current gross value of the property (meaning the property’s original acquisition price plus any subsequent, non-reimbursed capital improvements thereon paid for by the Company). In lieu of cash payment of the Base Fee, the Company has issued to the Operator shares of its Series A1 Preferred Stock in July 2022 as payment for the quarterly Base Fee for the three months ended March 31, 2022. Subject to applicable laws and regulations under Nasdaq and TASE and the agreement of the Operator, and it is likely the Company will issue shares of its Series A1 Preferred Stock in lieu of cash payment of the Base Fee for the remainder of 2022. Pursuant to the Investment Management Agreement, the asset management fee prior to January 1, 2022 fee was calculated (without giving effect to the Fee Waiver) as a percentage of the daily average adjusted fair value of CIM Urban’s assets as follows (dollar amounts in thousands): Daily Average Adjusted Fair Value of CIM Urban’s Assets Quarterly Fee Percentage From Greater of To and Including $ — $ 500,000 0.2500 % $ 500,000 $ 1,000,000 0.2375 % $ 1,000,000 $ 1,500,000 0.2250 % $ 1,500,000 $ 4,000,000 0.2125 % $ 4,000,000 $ 20,000,000 0.1000 % In lieu of cash payment, the Company has issued to the Operator shares of its Series A1 Preferred Stock in July 2022 as payment for the quarterly asset management fee for the three months ended December 31, 2021. Under the Master Services Agreement, for fiscal quarters prior to April 1,2020, the Company paid a base service fee (the “Base Service Fee”) to the Administrator initially set at $ 1.0 million per year (subject to an annual escalation by a specified inflation factor beginning on January 1, 2015), payable quarterly in arrears. On May 11, 2020, the Master Services Agreement was amended to replace the Base Service Fee with an incentive fee pursuant to which the Administrator was entitled to receive, on a quarterly basis, 15.00 % of the Company’s quarterly core funds from operations in excess of a quarterly threshold equal to 1.75 % (i.e., 7.00 % on an annualized basis) of the Company’s average Adjusted Common Equity (defined above) for such 31 Table of Contents CREATIVE MEDIA & COMMUNITY TRUST CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2022 (Unaudited) – (Continued) quarter. The amendment was effective as of April 1, 2020 and was further modified by the Fee Waiver described above. No such incentive fee was paid by the Company. In addition, pursuant to the terms of the Master Services Agreement, the Administrator may receive compensation and or reimbursement for performing certain services for the Company and its subsidiaries that are not covered by the Base Service Fee. During the nine months ended September 30, 2022 and 2021, such services performed by the Administrator and its affiliates included accounting, tax, reporting, internal audit, legal, compliance, risk management, IT, human resources, corporate communications, operational and on-going support in connection with the Company’s offering of Preferred Stock. The Administrator’s compensation is based on the salaries and benefits of the employees of the Administrator and or its affiliates who performed these services (allocated based on the percentage of time spent on the affairs of the Company and its subsidiaries). The expense for such services is included in expense reimbursements to related parties—corporate in the accompanying consolidated statements of operations. Property Management Fees and Reimbursements — CIM Management, Inc. and certain of its affiliates (collectively, the “CIM Management Entities”), all affiliates of CIM REIT and CIM Group, provide property management, leasing, and development services to CIM Urban. Property management fees earned by the CIM Management entities and onsite management costs incurred on behalf of CIM Urban are included in rental and other property operating expenses in the accompanying consolidated statements of operations. Leasing commissions earned are capitalized to deferred charges on the accompanying consolidated balance sheets. Construction management fees are capitalized to investments in real estate on the accompanying consolidated balance sheets. Lending Segment Expenses — The Company has a Staffing and Reimbursement Agreement with CIM SBA Staffing, LLC (“CIM SBA”), an affiliate of CIM Group, and the Company’s subsidiary, PMC Commercial Lending, LLC. The agreement provides that CIM SBA will provide personnel and resources to the Company and that the Company will reimburse CIM SBA for the costs and expenses of providing such personnel and resources. The expense for such services is included in expense reimbursements to related parties—lending segment in the accompanying consolidated statements of operations. Offering-Related Fees — CCO Capital, LLC (“CCO Capital”) became the exclusive dealer manager for the Company’s public offering of the Series A Preferred Units effective as of May 31, 2019. CCO Capital is a registered broker dealer and is under common control with the Operator and the Administrator. The Company’s offering of the Series A Preferred Units ended at the end of January 2020. On January 28, 2020, the Company entered into the Second Amended and Restated Dealer Manager Agreement, pursuant to which CCO Capital acted as the exclusive dealer manager for the Company’s public offering of its Series A Preferred Stock and Series D Preferred Stock. The Second Amended and Restated Dealer Manager Agreement was subsequently amended by the Company and CCO Capital to address changes to, among other things, selling commissions and dealer manager fees. On June 16, 2022, the Company entered into the Third Amended and Restated Dealer Manager Agreement, pursuant to which CCO Capital acts as the exclusive dealer manager for the Company’s public offering of its Series A1 Preferred Stock. Thereunder, the Company agreed to compensate CCO Capital, as the dealer manager for the offering, as follows: (1) a dealer manager fee of up to 3.00 % of the selling price of each share of Series A1 Preferred Stock sold and (2) selling commissions of up to 7.00 % of the selling price of each share of Series A1 Preferred Stock sold. The Company has been informed that CCO Capital generally reallows 100 % of the selling commissions on sales of Series A1 Preferred Stock and generally reallows substantially all of the dealer manager fee on sales of Series A1 Preferred Stock, to participating broker-dealers. In addition, pursuant to the Third Amended and Restated Dealer Manager Agreement, CCO Capital will not solicit or make any offers for the sale of shares of Series A Preferred Stock or Series D Preferred Stock. The Company recorded fees and expense reimbursements as shown in the table below for services provided by related parties related to the services described above during the periods indicated (in thousands): 32 Table of Contents CREATIVE MEDIA & COMMUNITY TRUST CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2022 (Unaudited) – (Continued) Three Months Ended September 30, Nine Months Ended September 30, 2022 2022 2021 2022 2021 Asset Management Fees: Asset management fees (1) $ 916 $ 2,262 $ 2,757 $ 6,781 Property Management Fees and Reimbursements: Property management fees (2) $ 442 $ 416 $ 1,293 $ 1,223 Onsite management and other cost reimbursement (3) $ 922 $ 385 $ 2,153 $ 1,949 Leasing commissions (4) $ 635 $ 59 $ 740 $ 107 Construction management fees (5) $ 102 $ 70 $ 300 $ 105 Administrative Fees and Expenses: Expense reimbursements to related parties - corporate $ 511 $ 533 $ 1,459 $ 1,592 Lending Segment Expenses: Expense reimbursements to related parties - lending segment (6) $ 539 $ 55 $ 1,612 $ 1,219 Offering-Related Fees: Upfront dealer manager and trailing dealer manager fees (7) $ 778 $ 145 $ 1,052 $ 567 Non-issuance specific offering costs (8) $ 230 $ 13 $ 319 $ 77 ______________________ (1) The Company issued to the Operator 270,209 shares of Series A Preferred Stock in lieu of cash payment of the asset management fees incurred during the nine months ended September 30, 2021.The Company issued to the Operator 36,843 and 36,779 shares of Series A1 Preferred Stock in lieu of cash payment for the asset management fees incurred during the three months ended March 31, 2022 and June 30, 2022, respectively. (2) Does not include the company’s share of the property management fees from the Unconsolidated Joint Venture of $ 13,000 and $ 28,000 for the three and nine months ended September 30, 2022, respectively. (3) Does not include the Company’s share of the onsite management and other cost reimbursements from the Unconsolidated Joint Venture of $ 33,000 and $ 66,000 for the three and nine months ended September 30, 2022, respectively. (4) Does not include the Company’s share of the leasing commissions from the Unconsolidated Joint Venture of $ 4,000 for the three and nine months ended September 30, 2022. (5) Does not include the Company’s share of the construction management fees from the Unconsolidated Joint Venture of $ 6,000 and $ 9,000 for the three and nine months ended September 30, 2022, respectively. (6) Expense reimbursements to related parties - lending segment do not include personnel costs capitalized to deferred loan origination costs of $ 118,000 and $ 316,000 for the nine months ended September 30, 2022 and 2021, respectively. (7) Represents fees earned by CCO Capital and allocated to Series A1 Preferred Stock, Series A Preferred Stock and Series D Preferred Stock. (8) As of September 30, 2022 and September 30, 2021, $ 2.6 million and $ 2.0 million, respectively, was included in deferred costs as reimbursable expenses incurred pursuant to the Master Services Agreement and the then applicable dealer manager agreement with CCO Capital. These non-issuance specific costs are allocated against the gross proceeds from the sale of the Series A Preferred Stock and the Series D Preferred Stock on a pro rata basis for each issuance as a percentage of the total offering. 33 Table of Contents CREATIVE MEDIA & COMMUNITY TRUST CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2022 (Unaudited) – (Continued) As of September 30, 2022 and December 31, 2021, due to related parties consisted of the following (in thousands): September 30, 2022 December 31, 2021 Asset management fees $ 917 $ 2,244 Property management fees and reimbursements 1,267 320 Expense reimbursements - corporate 511 692 Expense reimbursements - lending segment 343 341 Upfront dealer manager and trailing dealer manager fees 811 638 Non-issuance specific offering costs 24 143 Other amounts due to the CIM Management Entities and certain of its affiliates 111 163 Total due to related parties $ 3,984 $ 4,541 Affiliate Investments In February 2022, the Company invested with the CIM JV Partner, a CIM-managed separate account, in the Unconsolidated Joint Venture which purchased an office property in Los Angeles, California for approximately $ 51.0 million, gross of proration amounts, of which the Company initially contributed approximately $ 22.4 million and the CIM JV Partner initially contributed the remaining balance. See Note 2 and Note 4 for more information. Other On May 15, 2019, CIM Group entered into an approximately 11-year lease for approximately 32,000 rentable square feet with respect to a property owned by the Company. The lease was amended on August 7, 2019 to reduce the rentable square feet to approximately 30,000 rentable square feet. For the three and nine months ended both September 30, 2022 and 2021, the Company recorded rental and other property income related to this tenant of $ 370,000 and $ 1.1 million, respectively. 14. COMMITMENTS AND CONTINGENCIES Loan Commitments —Commitments to extend credit are agreements to lend to a customer when the terms established in the contract are met. The Company’s outstanding commitments to fund loans were $ 11.5 million as of September 30, 2022, all of which are for prime-based loans to be originated by the Company’s subsidiary engaged in SBA 7(a) Small Business Loan Program lending, the government guaranteed portion of which is intended to be sold. Commitments generally have fixed expiration dates. Since some commitments are expected to expire without being drawn upon, total commitment amounts do not necessarily represent future cash requirements. General —In connection with the ownership and operation of real estate properties, the Company has certain obligations for the payment of tenant improvement allowances and lease commissions in connection with new leases and renewals. The Company had a total of $ 5.6 million in future obligations under leases to fund tenant improvements and other future construction obligations as of September 30, 2022. As of September 30, 2022, $ 2.5 million was funded to reserve accounts included in restricted cash on the Company’s consolidated balance sheet for these tenant improvement obligations in connection with the mortgage loan agreement entered into in June 2016. Employment Agreements —The Company has an employment agreement with one of its officers. Under certain circumstances, this employment agreement provides for (1) severance payment equal to the annual base salary paid to the officer and (2) death and disability payments in an amount equal to two times and one time, respectively, the annual base salary paid to the officer. Litigation —The Company is not currently involved in any material pending or threatened legal proceedings nor, to the Company’s knowledge, are any material legal proceedings currently threatened against the Company, other than routine litigation arising in the ordinary course of business. In the normal course of business, the Company is periodically party to certain legal actions and proceedings involving matters that are generally incidental to the Company’s business. While the outcome of these legal actions and proceedings cannot be predicted with certainty, in management’s opinion, the resolution of these legal proceedings and actions will not have a material adverse effect on the Company’s business, financial condition, results of operations, cash flow or the Company’s ability to satisfy its debt service obligations or to maintain its level of distributions on Common Stock or Preferred Stock. 34 Table of Contents CREATIVE MEDIA & COMMUNITY TRUST CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2022 (Unaudited) – (Continued) A subsidiary of the Company is a defendant in a lawsuit in connection with injuries sustained by a third-party contractor at a property previously owned by such subsidiary. While it is possible that a loss may be incurred, the Company is unable to estimate a range of potential losses due to the complexity and current status of the lawsuit. However, the Company maintains insurance coverage to mitigate the impact of adverse exposures in lawsuits of this nature and do not expect this lawsuit to have a material adverse effect on the Company’s business, financial condition, results of operations, cash flow or the Company ability to satisfy its debt service obligations or to maintain the level of distributions on the Company’s Common Stock or Preferred Stock. SBA Related —If the SBA establishes that a loss on an SBA guaranteed loan is attributable to significant technical deficiencies in the manner in which the loan was originated, funded or serviced under the PPP or the SBA 7(a) Small Business Loan Program, the SBA may seek recovery of the principal loss related to the deficiency from the Company. As of September 30, 2022, $ 261.8 million of the guaranteed portion of the Company’s SBA 7(a) loans were serviced by the Company. With respect to the guaranteed portion of SBA loans that have been sold, the SBA will first honor its guarantee and then seek compensation from the Company in the event that a loss is deemed to be attributable to technical deficiencies. Based on historical experience, the Company does not expect that this contingency is probable to be asserted. However, if asserted, it could have a material adverse effect on the Company’s business, financial condition, results of operations, cash flow or the Company’s ability to satisfy its debt service obligations or to maintain its level of distributions on Common Stock or Preferred Stock. Environmental Matters —In connection with the ownership and operation of real estate properties, the Company may be potentially liable for costs and damages related to environmental matters, including asbestos-containing materials. The Company has not been notified by any governmental authority of any noncompliance, liability, or other claim in connection with any of the properties, and the Company is not aware of any other environmental condition with respect to any of the properties that management believes will have a material adverse effect on the Company’s business, financial condition, results of operations, cash flow or the Company’s ability to satisfy its debt service obligations or to maintain its level of distributions on Common Stock or Preferred Stock. 15. LEASES Future minimum rental revenue under long-term operating leases as of September 30, 2022, excluding tenant reimbursements of certain costs, are as follows (excludes unconsolidated properties, in thousands): Years Ending December 31, Total 2022 (Three months ending December 31, 2022) $ 11,398 2023 45,753 2024 44,554 2025 28,263 2026 20,592 Thereafter 66,231 $ 216,791 16. SEGMENT DISCLOSURE The Company’s reportable segments during the three and nine months ended September 30, 2022 and 2021 consist of two types of commercial real estate properties, namely, office and hotel, as well as a segment for the Company’s lending business. Management internally evaluates the operating performance and financial results of the segments based on net operating income. The Company also has certain general and administrative level activities, including public company expenses, legal, accounting, and tax preparation that are not considered separate operating segments. The reportable segments are accounted for on the same basis of accounting as described in the notes to the Company’s audited consolidated financial statements for the year ended December 31, 2021 included in the 2021 Form 10-K. For the Company’s real estate segments, the Company defines net operating income (loss) as rental and other property income and expense reimbursements less property related expenses, and excludes non-property income and expenses, interest expense, depreciation and amortization, corporate related general and administrative expenses, gain (loss) on sale of real estate, gain (loss) on early extinguishment of debt, impairment of real estate, transaction costs, and provision (benefit) for income 35 Table of Contents CREATIVE MEDIA & COMMUNITY TRUST CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2022 (Unaudited) – (Continued) taxes. For the Company’s lending segment, the Company defines net operating income as interest income net of interest expense and general overhead expenses. The net operating income (loss) of the Company’s segments for the three and nine months ended September 30, 2022 and 2021 is as follows (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Office: Revenues $ 14,043 $ 12,998 $ 42,225 $ 39,881 Property expenses: Operating 7,249 5,362 19,772 16,704 General and administrative 71 123 196 291 Total property expenses 7,320 5,485 19,968 16,995 (Loss) income from unconsolidated entity ( 204 ) — 176 Segment net operating income—office 6,519 7,513 22,433 22,886 Hotel: Revenues 8,456 5,478 25,825 10,833 Property expenses: Operating 6,052 4,596 17,728 10,659 General and administrative 27 5 79 106 Total property expenses 6,079 4,601 17,807 10,765 Segment net operating income—hotel 2,377 877 8,018 68 Lending: Revenues 2,353 5,773 7,987 15,086 Lending expenses: Interest expense 134 105 360 478 Expense reimbursements to related parties—lending segment 539 55 1,612 1,219 General and administrative 489 744 1,387 1,367 Total lending expenses 1,162 904 3,359 3,064 Segment net operating income—lending 1,191 4,869 4,628 12,022 Total segment net operating income $ 10,087 $ 13,259 $ 35,079 $ 34,976 36 Table of Contents CREATIVE MEDIA & COMMUNITY TRUST CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2022 (Unaudited) – (Continued) A reconciliation of segment net operating income to net income attributable to the Company for the three and nine months ended September 30, 2022 and 2021 is as follows (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Total segment net operating income $ 10,087 $ 13,259 $ 35,079 $ 34,976 Interest and other income 1 — 1 1 Asset management and other fees to related parties ( 916 ) ( 2,262 ) ( 2,757 ) ( 6,781 ) Expense reimbursements to related parties—corporate ( 511 ) ( 533 ) ( 1,459 ) ( 1,592 ) Interest expense ( 2,059 ) ( 2,080 ) ( 6,406 ) ( 7,012 ) General and administrative ( 1,353 ) ( 753 ) ( 3,370 ) ( 3,629 ) Transaction costs ( 201 ) — ( 201 ) — Depreciation and amortization ( 5,093 ) ( 5,061 ) ( 15,071 ) ( 15,167 ) (Loss) income before provision for income taxes ( 45 ) 2,570 5,816 796 Provision for income taxes ( 187 ) ( 946 ) ( 815 ) ( 2,316 ) Net (loss) income ( 232 ) 1,624 5,001 ( 1,520 ) Net (income) loss attributable to noncontrolling interests ( 5 ) — ( 19 ) 4 Net (loss) income attributable to the Company $ ( 237 ) $ 1,624 $ 4,982 $ ( 1,516 ) The condensed assets for each of the segments as of September 30, 2022 and December 31, 2021, along with capital expenditures and loan originations for the nine months ended September 30, 2022 and 2021, are as follows (in thousands): September 30, 2022 December 31, 2021 Condensed assets: Office $ 472,706 $ 449,843 Hotel 99,432 101,308 Lending 81,603 96,729 Non-segment assets (1) 11,856 12,986 Total assets $ 665,597 $ 660,866 Nine Months Ended September 30, 2022 2021 Capital expenditures (2) and loan originations: Office $ 7,008 $ 2,488 Hotel 197 144 Total capital expenditures 7,205 2,632 Loan originations 35,956 119,479 Total capital expenditures and loan originations $ 43,161 $ 122,111 ______________________ (1) Includes investments in real estate of $ 9.4 million representing three development sites which the Company intends to develop into multifamily assets. (2) Represents additions and improvements to real estate investments, excluding acquisitions. Includes the activity for dispositions through their respective disposition dates. 17. SUBSEQUENT EVENTS The Company evaluated events subsequent to September 30, 2022, and concluded that no subsequent events have occurred that would require recognition or disclosure in the consolidated unaudited financial statements. 37 Table of Contents