What changed in this filing

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Item 1. Business

2023-03-31 compared with 2022-03-16 · 71 added, 71 removed, 186 unchanged (43% of the section changed)

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(“CIM Group” or “CIM”).

CIM is a community-focused real estate and infrastructure owner, operator, lender and developer.

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

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

CIM is a vertically-integrated community-focused real estate and infrastructure owner, operator, lender and developer.

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

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

See the sections “Overview and History of CIM Group”, “CIM Urban Partnership Agreement” and “Investment Management Agreement” in “Item 1—Business” of this Annual Report on Form 10-K.

Creative Media & Community Trust Corporation is a Maryland corporation and REIT.

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

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

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

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

Our current reportable segments consist of two types of commercial real estate properties, namely office and hotel, as well as a segment for our lending business, which primarily originates loans to small businesses.

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

As of December 31, 2021, our 11 office properties, totaling approximately 1.3 million rentable square feet, were 77.7% occupied, our development site was being used as a parking lot, our hotel and an ancillary parking garage.

The hotel has a total of 503 rooms and had RevPAR of $73.23 for the year ended December 31, 2021.

For the year ended December 31, 2021, our office portfolio contributed approximately 58.6% of revenue from our segments, while our hotel segment contributed approximately 19.6%, and our lending segment contributed approximately 21.8%.

Business Objectives and Growth Strategies

We primarily acquire, develop, own and operate both premier multifamily properties situated in vibrant communities throughout the United States and Class A and creative office real assets in markets with similar business and employment characteristics to our multifamily investments.

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

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

We believe that the critical mass of redevelopment in such areas enhances the value of real estate assets in the area.

We believe that these assets will provide greater returns than similar assets in other markets, as a result of the population growth, public commitment and significant private investment that characterize these areas.

Our current reportable segments during the years ended December 31, 2022 and 2021 consist of two types of commercial real estate properties, namely office and hotel, as well as a segment for our lending business.

As of December 31, 2022, our real estate portfolio consisted of 19 assets, all of which were fee-simple properties, including one office property which we own through our investment in an unconsolidated joint venture (the “Unconsolidated Joint Venture”).

As of December 31, 2022, our 13 office properties, totaling approximately 1.3 million rentable square feet, were 81.7% occupied and our one hotel with an ancillary parking garage, which has a total of 503 rooms, had RevPAR of $126.19 for the year ended December 31, 2022.

Additionally, as of December 31, 2022, we had four development sites (with one being used as a parking lot).

For the year ended December 31, 2022, our office portfolio contributed approximately 54.8% of revenue from our three segments on a combined basis, while our hotel segment contributed approximately 34.6%, and our lending segment contributed approximately 10.6%.

We are a Maryland corporation and REIT.

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

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

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

We seek to apply the expertise of CIM Group to the acquisition, development and operation of premier multifamily properties situated in vibrant communities throughout the United States.

We also seek to acquire, develop and operate creative office assets that cater to rapidly growing industries such as technology, media and entertainment in markets with similar business and employment characteristics to our multifamily investments.

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

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

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

Further, we leverage the investor relationships of CIM Group to execute on our investment pipeline using an asset-light approach for certain of our investments.

Under this approach, we co-invest with one or more third parties on an asset-level by raising capital from such third parties, maintain an economic interest in the asset and, in some cases, earn a management fee and a percentage of the profits.

We believe this is a compelling model that is expected to contribute to strong returns on invested capital while reducing risk by reducing our capital outlay.

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

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

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

CIM Group Operations

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As a result, CIM Group typically spends significant resources over a period of between six months and five years evaluating communities prior to making any acquisitions.

The distinct districts that CIM Group identifies through this process as targets for acquisitions are referred to as “Qualified Communities”.

Qualified Communities typically have dedicated resources to become, or are currently, vibrant communities where people can live, work, shop and be entertained, all within walking distance or close proximity to public transportation.

The distinct districts that CIM Group identifies through this process as targets for acquisitions are referred to as “Qualified Communities.” Qualified Communities typically have dedicated resources to become, or are currently, vibrant communities where people can live, work, shop and be entertained, all within walking distance or close proximity to public transportation.

These areas, which include traditional downtown areas and suburban main streets, generally have high barriers to entry, high population density, positive population trends, a propensity for growth and support for investment.

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

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

In addition, CIM Group’s real assets management committee (the “Real Assets Management Committee”) reviews and approves strategic decisions related to financing strategies and hold/sell analyses and performance tracking relative to the overall business plan.

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

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CIM Group is managed by its senior management team, which includes all of its Principals and its three founders, Shaul Kuba, Richard Ressler and Avraham Shemesh.

CIM Group is vertically-integrated and offers Real Asset Services, including Development, Onsite Property Management and Leasing, and Real Asset Management, including Investments, Portfolio Oversight, Partner & Co-Investor Relations and Capital Markets.

These groups are supported by Compliance, Operations, Finance, Human Resources and Legal.

CIM Group is vertically-integrated and organized into the following functional groups:

Real Asset Services (which includes Development, Onsite Property Management, Commercial Leasing and Hospitality Services), Real Asset Management (which includes Investments, Portfolio Oversight, Capital Markets, Partner & Co-Investor Relations) and Shared Services (which includes Human Resources, Compliance, Operations, Legal and Finance).

CIM also has an internal audit team that sits within the Operations department.

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Department heads have been with CIM Group on average 15 or more years.

In addition to developing a core team of principals and other senior level executives, CIM Group has proactively managed its growth through

career development and mentoring at both the mid and junior staffing levels, and has hired ahead of its needs, thus ensuring appropriate management and staffing.

In addition to developing a core team of principals and other senior level executives, CIM Group has proactively managed its growth through career development and mentoring at both the mid and junior staffing levels, and has hired ahead of its needs, thus ensuring appropriate management and staffing.

As part of this initiative, CIM Group has developed a recruiting program that hires from business schools for its associate vice president positions in the Investments team annually.

As a result, CIM Group seeks to grow organically and develop and train its investment professionals to progress into senior management roles.

CIM Group seeks to grow organically and develop and train its investment professionals to progress into senior management roles.

It has been CIM Group’s practice to grow talent within the company to promotion to principal, rather than to hire from the outside.

As a result, CIM has an extremely high retention rate of senior investment team members who tend to have a long tenure, strong internal network and a track record of success within the organization.

CIM Group leverages the deep operating and industry experience of its principals and professionals, as well as their extensive relationships, to source and execute opportunistic, value add, core, debt, ground-up development and infrastructure acquisitions.

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The team is assembled based on the expertise needed for the particular transaction.

Additionally, the team works closely with staff from other departments, such as Development, Onsite Property Management, Capital Markets, Real Estate Services, Legal and Finance.

Additionally, the team works closely with staff from other departments, such as Development, Onsite Property Management, Capital Markets, Commercial Leasing, Legal and Finance.

The team oversees all aspects of the project from acquisition through disposition of the asset.

The team conducts the underwriting and due diligence for the transaction, presents its findings to the Investment Committee for preliminary and final approvals.

The team conducts the underwriting and due diligence for the transaction, presents its findings to the Investment Committee for preliminary and final approvals and oversees the project from inception to disposition.

As a result, all investment professionals work across a variety of Qualified Communities and CIM Group’s knowledge base is shared across its offices.

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CIM Group believes that its community perspective gives it a significant competitive advantage in attracting tenants to its retail, office and mixed-use properties and creating synergies between the different tenant types.

• Local Market Leadership with North American Footprint —CIM Group maintains local market knowledge and relationships, along with a diversified North American presence, through its 135 Qualified Communities (thus, CIM Group has the flexibility to deploy capital in its Qualified Communities only when the market environment meets CIM Group’s underwriting standards).

(thus, CIM Group has the flexibility to deploy capital in its Qualified Communities only when the market environment meets CIM Group’s underwriting standards).

CIM Group does not need to acquire assets in a given community or product type at a specific time due to its broad proprietary pipeline of opportunities.

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(ii) credit facilities and term loans;

(iii) the addition of senior recourse or non-recourse debt using target acquisitions as well as existing assets as collateral;

(iii) the addition of senior recourse or non-recourse debt using target acquisitions as well as existing assets as collateral, including the securitization of portions of our loan portfolio;

(iv) the sale of existing assets;

and or (v) cash flows from operations.

(v) partnering with co-investors;

and or (vi) cash flows from operations.

Risk Management

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Property management seeks to ensure that revenue objectives are met, lease terms are followed, receivables are collected, preventative maintenance programs are implemented, vendors are evaluated and expenses are controlled.

The Real Assets Management Committee oversees onsite property management and consists of certain of the Oversight Principals, each of whom has extensive experience in acquisitions, development, onsite property management and leasing, who are ultimately responsible for the performance of the asset, and the chief compliance officer.

The Oversight Principals work with each CIM Group team to ensure that every asset benefits from the full range of CIM Group’s real estate expertise.

CIM Group believes that empowering its most seasoned investment professionals to bring their breadth of experience to bear directly on assets will optimize returns.

The Oversight Principals meet informally on a frequent basis, generally weekly, to review and discuss the performance of assets, and meet formally at least annually to review and approve strategic plans for our assets based on their review of:

financial and operational analyses, operating strategies and agreements, tenant composition and marketing, asset positioning, market conditions affecting our assets, hold/sell analyses and timing considerations, and the annual business plan for each asset, including its capital and operating budget.

The Real Assets Management Committee is responsible for overseeing the asset management of CIM’s assets.

The Real Assets Management Committee reviews and approves strategic decisions related to financing strategies and hold/sell analyses and tracks performance relative to overall business plan execution.

The Real Assets Management Committee is comprised of CIM’s Founding Principals, Chief Compliance Officer, the Head of Portfolio Oversight and is chaired by Richard Ressler.

The Real Assets Management Committee meets monthly to review updates across the various strategies.

In addition to reviewing specific property-level conditions and recommendations, the Real Assets Management Committee reviews real estate and related capital market conditions, considers current market trends and monitors fund strategies and portfolio composition.

The Real Assets Management Committee acts by a majority vote of the members of the Real Assets Management Committee at any meeting at which a quorum (majority of members) is present.

The size, composition, and policies of the Real Assets Management Committee may change from time to time.

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Environmental laws regulate, and impose liability for, the release of hazardous or toxic substances into the environment.

Under some of these laws, an owner or operator of real estate may be liable for costs related to soil or groundwater contamination on or migrating to or from its property.

Under some of these laws, an owner or operator of real estate may be liable for costs related to soil or

groundwater contamination on or migrating to or from its property.

In addition, persons who arrange for the disposal or treatment of hazardous or toxic substances may be liable for the costs of cleaning up contamination at the disposal site.

These laws often impose liability regardless of whether the person knew of, or was responsible for, the presence of the hazardous or toxic substances that caused the contamination.

The presence of, or contamination resulting from, any of these substances, or the failure to properly remediate them, may adversely affect our ability to sell or rent our property, to borrow

using the property as collateral or create lender’s liability for us.

The presence of, or contamination resulting from, any of these substances, or the failure to properly remediate them, may adversely affect our ability to sell or rent our property, to borrow using the property as collateral or create lender’s liability for us.

In addition, third parties exposed to hazardous or toxic substances may sue for personal injury damages and or property damages.

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For fiscal quarters prior to April 1, 2020, we paid to the Administrator, on a quarterly basis, a base service fee (the “Base Service Fee”) of approximately $1.0 million per year (which, for each year after 2014, was subject to an annual escalation by a specified inflation factor beginning on January 1 of each year).

On May 11, 2020, the Master Services Agreement was amended to replace the Base Service Fee with an incentive fee (the “Prior Incentive Fee”) pursuant to which the Administrator was entitled to receive, on a quarterly basis, 15.00% of our quarterly core funds from operations in excess of a quarterly threshold equal to 1.75% (i.e., 7.00% on an annualized basis) of our average adjusted common stockholders’ equity (i.e., common stockholders’ equity plus accumulated depreciation and amortization) for such quarter.

(i.e., common stockholders’ equity plus accumulated depreciation and amortization) for such quarter.

The amendment was effective as of April 1, 2020.

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In addition, pursuant to the terms of the Master Services Agreement, the Administrator may receive compensation and or reimbursement for performing certain services (other than the Base Services) for us and our subsidiaries.

Such services performed by the Administrator and its affiliates may include accounting, tax, reporting, internal audit, legal, compliance, risk management, IT, human resources, corporate communications, operational and on-going support in connection with our registered public offering of our Series A Preferred Stock, par value $0.001 per share (“Series A Preferred Stock”) and Series D Preferred Stock, par value $0.001 per share (“Series D Preferred Stock” and, together with the Series A Preferred Stock and

Series L Preferred Stock, “Preferred Stock”).

The Administrator’s compensation for such services is based on the salaries and benefits of the employees of the Administrator and or its affiliates who performed such services (allocated based on the percentage of time spent on the affairs us and our subsidiaries).

On January 5, 2022, we and certain of our subsidiaries entered into a Fee Waiver (the “Fee Waiver”) with the Operator and the Administrator with respect to fees that are payable to them.

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 agrees 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 agrees 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.

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.

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.

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Incentive Fee:

A revised 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:

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 Revised Incentive Fee in any quarter in which the Excess Core FFO is $0;

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(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).

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 (the “Fee Waiver Methodology”) from the Effective Date through the end of such quarter and (ii) a calculation of the cumulative fees that would have been earned, in the absence of the Fee Waiver, 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 (the “Pre-Fee Waiver Methodology”).

If, in respect of any quarter, the aggregate fees that are payable under the Fee Waiver Methodology exceed the aggregate fees that would have been payable under the Pre-Fee Waiver Methodology for the equivalent period, such quarter is 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 Pre-Fee Waiver Methodology from and after such Excess Quarter.

election by the Company to adopt the Pre-Fee Waiver Methodology is irrevocable, and all fees due to the Administrator and the Operator from and after such election will be calculated in accordance with the Pre-Fee Waiver Methodology.

Other Services

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We reimburse CIM SBA for the costs and expenses of providing such personnel and resources as expenses incurred for the lending division.

CCO Capital, LLC, a registered broker dealer and under common control with the Operator and the Administrator (“CCO Capital”), serves as our exclusive dealer manager for our continuous public offering of Series A Preferred Stock and Series D Preferred Stock under the terms of a Second Amended and Restated Dealer Manager Agreement, dated as of January 28, 2020, as amended by Amendment No.

1 thereto, dated as of April 9, 2020 (the “Second A&R DMA”).

Under the terms of the Second A&R DMA, we compensate CCO Capital for such services as follows:

(1) an upfront dealer manager fee of up to 1.25% of the selling price of each such share of Preferred Stock sold, (2) selling commissions of up to 7.00% of the selling price of each such share of Series A Preferred Stock sold (with no selling commissions payable in respect of shares of Series D Preferred Stock sold) and (3) a trailing dealer manager fee that accrues daily in an amount equal to 1/365 th of 0.25% per annum of the selling price of each share of Preferred Stock sold.

Prior to the amendment of the Second A&R DMA in April 2020, the selling commissions payable to CCO Capital were up to 5.50% of the selling price of each share of Series A Preferred Stock sold, rather than up to 7.00%.

The Second A&R DMA permits CCO Capital to, in its sole discretion, reallow to another broker-dealer authorized by it to sell shares in the offering a portion of the upfront dealer manager fee earned by it in respect of shares sold by such broker-dealer.

We have been informed that CCO Capital generally reallows 100% of the selling commissions on sales of Series A Preferred Stock and generally reallows substantially all of the upfront dealer manager fee on sales of Series A Preferred Stock and Series D Preferred Stock, to participating broker-dealers.

On September 22, 2021, the Company entered into Amendment No.

2 to the Second A&R DMA, pursuant to which the upfront dealer manager fee payable to the Dealer Manager was changed to up to 3.00% and the trailing dealer manager fee with respect to the sale of shares of Series A Preferred Stock sold in the Offering on or after September 9, 2021 was eliminated.

From May 31, 2019 through January 27, 2020, CCO Capital served as the exclusive dealer manager for our public offering of units, each of which consisted of one share of Series A Preferred Stock and one warrant to purchase 0.25 shares of Common Stock (“Series A Preferred Units”).

Our offering of Series A Preferred Units was terminated at the end of January 2020.

CCO Capital, LLC, a registered broker dealer and under common control with the Operator and the Administrator (“CCO Capital”), became the exclusive dealer manager for the Company’s public offering of the Series A Preferred Stock effective as of May 31, 2019, subsequent to which 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.

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, no longer solicit or make any offers for the sale of shares of Series A Preferred Stock or Series D Preferred Stock.

Lending Segment

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

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

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

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

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

While originations under the PPP have ended we still had PPP loans outstanding as of December 31, 2021.

The PPP provides lenders who originated loans under the program with a 100% guaranty of repayment (provided certain conditions are met) and provides small businesses with uncollateralized and unguaranteed loans at an interest rate of 1.00%.

Loans originated under the PPP will be fully forgiven, subject to certain limitations, when used by the borrower for payroll costs, interest on mortgages, rent, and utilities.

For those loans that are forgiven, the SBA will remit 100% of the remaining outstanding principal plus accrued interest to us.

For those loans whose borrowers do not meet the criteria required for forgiveness, the borrower is required to repay the remaining obligation.

Upon a borrower default of any remaining balance due, if any, the SBA will remit the remaining balance due to us.

The loans that we originated under the PPP have a two-year term if originated prior to June 5, 2020 and have a five-year term if originated after June 5, 2020.

We obtained all funds to originate loans under the PPP from the Federal Reserve on a basis that correlated to the outstanding principal balance due from our borrowers pursuant to the PPP on a dollar-for-dollar basis with a cost of funds of 0.35%.

In addition, as an SBA 7(a) licensee, we originated loans as an authorized lender under the Paycheck Protection Program (“PPP”).

Originations under the PPP have ended and we had no remaining PPP loans outstanding as of December 31, 2022.

The SBA 7(a) Loan Program is the SBA’s most common loan program.

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

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

We work with potential borrowers to identify the type of loan that would be appropriate for each such borrower’s needs.

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

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

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

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

Our revenues and expenses for our hotel property are subject to seasonality during the year.

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

Additionally, our operating results have been and are expected to continue to be adversely affected by the effects of the novel coronavirus (“COVID-19”).

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

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

What changed 10-K

Item 1. Business