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Item 7. Management’s Discussion and Analysis

2023-03-31 compared with 2022-03-16 · 162 added, 175 removed, 179 unchanged (65% of the section changed)

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For cautions about relying on such forward-looking statements, please see “Forward-Looking Statements” at the beginning of this report immediately prior to “Item 1 —Business” in this Annual Report on Form 10-K.

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

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

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

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Business Overview

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

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

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

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

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

Creative Media & Community Trust Corporation (formerly known as CIM Commercial Trust Corporation) is a Maryland corporation and REIT.

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.

We seek to apply the expertise of CIM Group to the acquisition, development and operation of premier multifamily properties and creative office assets that cater to rapidly growing industries such as technology, media and entertainment.

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

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

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

We are operated by affiliates of CIM Group.

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

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

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

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

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

and world economies.

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

and world economies initially showed signs of recovery from the impact of COVID-19 as vaccination rates increased, virus caseloads declined and businesses, schools and public services began to reopen.

However, the emergence of variant strains of COVID-19 in the second half of 2021 and the concomitant disruption to the global supply chain have disrupted the recovery of the U.S.

and world economies.

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

and international economies.

Additionally, the spread of COVID-19 in the United States and the resulting restrictions on travel, meetings and social gatherings that have been implemented from time to time have impacted, and are expected to continue to impact, the operations of our hotel in Sacramento, California.

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

Based on current expectations, we anticipate that the net operating income of our hotel for 2022 will be lower as compared to pre-COVID-19 levels for the comparable periods.

As a result, contributions by the hotel to our funds from operations during such periods will be diminished.

Our loans originated and serviced under the SBA 7(a) Small Business Loan Program through December 31, 2021 consist primarily of loans to borrowers in the limited service hospitality sector.

Certain of our borrowers experienced significant reductions in cash flows as COVID-19 caused reductions in travel.

However, the substantial majority of our borrowers received relief under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) during the year ended December 31, 2020 through subsidy in the form of six months of monthly loan payments made on the borrower’s behalf pursuant to Section 1112 of the CARES Act.

Section 1112 of the CARES Act was extended and, beginning February 1, 2021, the CARES Act provided up to an additional five months of subsidy of scheduled principal and interest payments (up to $9,000 per month, per loan).

Those subsidies were not extended further.

The extent to which COVID-19 will continue to impact our operations and those of our tenants, business partners and borrowers will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of any future COVID-19 outbreaks and actions taken to contain the pandemic or mitigate its impact, the distribution and acceptance of vaccines and their impact on the timing and speed of economic recovery, the spread

of new variants of COVID-19 and concerns regarding additional surges of COVID-19 as a result thereof, the impacts on the U.S.

and international economies and the extent to which federal, state and local governments provide relief or assistance to those affected by COVID-19.

We cannot predict the significance, extent or duration of any adverse impact of COVID-19 on our business, financial condition, results of operations, cash flow or our ability to satisfy our debt service obligations or to maintain our level of distributions on its Common Stock or Preferred Stock.

However, our business, financial condition, results of operations, and liquidity have been adversely affected and will likely continue to be adversely affected during 2022.

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

As of December 31, 2021, our eleven office properties, totaling approximately 1.3 million rentable square feet, were 77.7% occupied, our one development site was being used as a parking lot, and our one hotel with an ancillary parking garage, which has a total of 503 rooms, had RevPAR of $73.23 for the year ended December 31, 2021.

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.

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).

Rental Rate Trends

Office Statistics:

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

The following table sets forth occupancy rates and annualized rent per occupied square foot across our office portfolio as of the specified periods (includes 100% of our property partially owned through the Unconsolidated Joint Venture):

As of December 31,

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

(2) In connection with the 4750 Wilshire Project (as defined later), the Company is no longer classifying approximately 110,000 square feet of vacant space at its property at 4750 Wilshire Boulevard in Los Angeles, California as rentable office square footage as of December 31, 2022.

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

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

Over the next four quarters, we expect to see expiring cash rents as set forth in the table below:

Over the next four quarters, we expect to see expiring cash rents as set forth in the table below (includes 100% of our property partially owned through the Unconsolidated Joint Venture):

For the Three Months Ended

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RevPAR $ 126.19 $ 73.23

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

Generally, our hotel revenues are greater in the first and second quarters than the third and fourth quarters.

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

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

Lending Segment

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

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

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

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

As a result of the conclusion of the enhanced government support provided by the CARES Act, the SBA guaranty support has now reverted back to 75% from 90% as of October 1, 2021 for loans approved after September 30, 2021.

This will likely cause future loan originations to decline and the premiums achieved on sales of the guaranteed portion of our SBA 7(a) loans to decrease, in each case possibly by a material amount.

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”).

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, the liquidity of the borrower, size standards and where the business operates.

We work with potential borrowers to identity 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 experience, including convenience store, RV park and single purpose building owner-occupied restaurant operations and may include owner-occupied industrial operations/warehouse buildings.

2022 Results of Operations

Net Income (Loss) and FFO

December 31, Change

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Total expenses $ 94,994 $ 88,785 $ 6,209 7.0 %

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

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

Funds from Operations

We believe that funds from operations (“FFO”), a non-GAAP measure, is a widely recognized and appropriate measure of the performance of a REIT and that it is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs, many of which present FFO when reporting their results.

Net income (loss) $ 5,945 $ (851) $ 6,796 —

Net income increased to $5.9 million, or by $6.8 million, for the year ended December 31, 2022, compared to a net loss of $851,000 for the year ended December 31, 2021.

The increase was primarily due to an increase of $9.2 million in hotel segment net operating income, a decrease of $5.5 million in asset management and other fees to related parties and a decrease of $1.9 million in provision for income taxes, partially offset by a decrease in lending segment net operating income of $9.3 million.

in the evaluation of REITs, many of which present FFO when reporting their results.

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

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

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

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

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

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

Year Ended December 31,

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Depreciation and amortization 20,348 20,112

Impairment of real estate — —

Gain on sale of depreciable assets — —

FFO attributable to common stockholders (1)

$ (5,437) $ 133

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

Such losses are included in, and have the effect of reducing, net (loss) income attributable to common stockholders and FFO attributable to common stockholders, because loss on early extinguishment of debt is not an adjustment prescribed by NAREIT.

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

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

(1) During the years ended December 31, 2022 and 2021, we recognized $13.1 million and $113,000, respectively, of redeemable preferred stock redemptions on our consolidated statements of operations and $19,000 and $253,000 respectively, of redeemable preferred stock deemed dividends on our consolidated statements of operations.

Of the $13.1 million of redeemable preferred stock redemptions recognized during the year ended December 31, 2022, $12.7 million resulted from amounts recognized in connection with the Series L Repurchase and Series L Redemption (defined below).

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

FFO attributable to common stockholders was $(5.4) million for the year ended December 31, 2022, a decrease of $5.6 million compared to $133,000 for the year ended December 31, 2021.

The decrease in FFO was primarily attributable to an increase in redeemable preferred stock redemptions of $13.0 million (primarily resulting from $12.7 million recognized in connection with the Series L Repurchase and Series L Redemption during the year ended December 31, 2022) and a decrease in lending segment net operating income of $9.3 million, partially offset by an increase of $9.2 million in hotel segment net operating income, a decrease of $5.5 million in asset management and other fees to related parties and a decrease of $1.9 million in provision for income taxes.

Summary Segment Results

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Lending $ 4,385 $ 4,117 $ 268 6.5 %

Income From Unconsolidated Entity

Office $ 164 $ — $ 164 —

Non-Segment Revenue and Expenses:

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Depreciation and amortization $ (20,348) $ (20,112) $ (236) 1.2 %

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

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

Provision for income taxes $ (1,131) $ (2,992) $ 1,861 (62.2) %

Office Revenue:

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

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

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

Office revenue increased by 5.0% to $55.9 million for the year ended December 31, 2022 compared to $53.3 million for the year ended December 31, 2021.

The increase is primarily due to increased rental revenues at two office properties in Los Angeles, California, an office property in Beverly Hills, California, and an office property in Austin, Texas, due to higher aggregate rental rates, as well as higher occupancy at the aforementioned Beverly Hills, California property, as compared to the prior year.

Additionally, there was an increase in expense reimbursement revenues related to higher operating expenses at an office property in Oakland, California.

The aforementioned increases in office revenues were partially offset by a decrease in rental revenues at an office property in San Francisco, California, as a result of lower occupancy at the property.

Hotel Revenue:

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

The increase is due to increases in occupancy, ADR, and food, beverage, and other sundry services during 2021 as compared to the prior year primarily as a result of easing travel restrictions related to COVID-19 (see “—COVID-19” above).

Hotel revenue increased by 97.3% to $35.2 million for the year ended December 31, 2022 compared to $17.8 million for the year ended December 31, 2021.

The increase is due to increase in occupancy and average daily rate during 2022 as compared to the prior year as a result of the hospitality industry continuing to recover from the impact of COVID-19.

Lending Revenue:

Lending revenue represents revenue from our lending subsidiaries, including interest income on loans and other loan related fee income.

Lending revenue increased by 137.8% for the year ended December 31, 2021 compared to the year ended December 31, 2020.

The increase is primarily due to an increase in premium income from the sale of the guaranteed portion of our SBA 7(a) loans, which benefited from an increase in the SBA guaranty support from a maximum of 75% per loan to 90% per loan and higher market premiums.

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

This will likely cause future loan originations to decline and the premiums achieved on sales of the guaranteed portion of our SBA 7(a) loans to decrease, in each case possibly by a material amount.

Interest and Other Income:

Interest and other income represents revenue generated outside of our reportable segments.

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

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

Lending revenue decreased by 45.6% to $10.8 million for the year ended December 31, 2022 compared to $19.8 million for the year ended December 31, 2021.

The decrease is primarily due to lower premium income as a result of lower loan sale volume and a reduction in the market premium achieved during the year ended December 31, 2022, compared to the year ended December 31, 2021.

The lower loan origination volume was primarily the result of the SBA temporarily increasing the guaranteed percentages of SBA 7(a) loan originations during the comparable period in 2021, while these factors were partially offset by acceleration of income-recognition from any principal discounts

recorded on our loans due to increased prepayment.

We expect the aforementioned trend to continue into 2023 because of lower loan origination volume from decreased demand for variable rate loans in the current inflationary economic environment, which we believe tends to lead borrowers to seek fixed rate loan products, and lower revenue from servicing assets retained for servicing the government guaranteed portion of our loans due to expected increases in prepayment.

Income From Unconsolidated Entity:

Income from our unconsolidated entity included in office segment net operating income was $164,000 for the year ended December 31, 2022.

As our investment in the Unconsolidated Joint Venture was made in February 2022, there was no comparable income for the year ended December 31, 2021.

Office Expenses:

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

Office expenses increased by 12.5% to $26.8 million for the year ended December 31, 2022 compared to $23.8 million for the year ended December 31, 2021.

The increase is primarily due to an increase in operating expenses at our office property in Oakland, California, primarily as a result of repairs and higher maintenance and utilities expenses (due to increases in usage and rates), as well as an increase in repairs and maintenance, cleaning and utilities expenses at an office property in Austin, Texas.

A portion of the aforementioned operating expenses were offset by increases in tenant reimbursement revenues.

In addition, office expenses for the year ended December 31, 2021 had been reduced by tax refunds related to prior tax years and adjustments to payroll allocation reimbursements related to certain properties.

Hotel Expenses:

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

Hotel expenses increased by 50.9% to $24.1 million for the year ended December 31, 2022 compared to $16.0 million for the year ended December 31, 2021, primarily as a result of increased occupancy at the hotel due to the hospitality industry continuing to recover from the impact of COVID-19.

Lending Expenses:

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

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

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

Lending expenses increased by 6.5% to $4.4 million for the year ended December 31, 2022 compared to $4.1 million for the year ended December 31, 2021.

The increase was primarily due to an increase interest expense as a result of an increase in interest rates, an increase in provision for loan losses, and an increase in general and administrative expenses, partially offset by a decrease in salaries expenses (due to lower loan origination volume).

Asset Management and Other Fees to Related Parties:

Asset management fees and other fees to related parties, which have not been allocated to our operating segments decreased by 7.8% for the year ended December 31, 2021 compared to the year ended December 31, 2020.

Asset management fees totaled $9.0 million for the year ended December 31, 2021 compared to $9.5 million for the year ended December 31, 2020.

Asset management fees were calculated based on a percentage of the daily average adjusted fair value of CIM Urban’s assets, which are appraised in the fourth quarter of each year.

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

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

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

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

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

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

Asset management fees and other fees to related parties, which have not been allocated to our operating segments decreased by 60.5% to $3.6 million for the year ended December 31, 2022 compared to $9.0 million for the year ended December 31, 2021.

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

The lower fees also reflect a decrease in the adjusted fair value of the Company’s assets in the year ended December 31, 2022 as compared to the year ended December 31, 2021 due to a decrease in the aggregate fair value of the Company’s investments in real estate resulting from valuation changes at the end of 2021 and 2022.

Expense Reimbursements to Related Parties—Corporate :

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

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

The Administrator receives reimbursement for performing certain services for the Company and its subsidiaries.

Expense reimbursements to related parties—corporate decreased by 6.1% to $1.9 million for the year ended December 31, 2022 compared to $2.1 million for the year ended December 31, 2021, primarily due to reductions in allocated payroll.

Interest Expense:

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

The decrease is primarily due to a lower average outstanding principal balance on our 2018 Credit Facility during the year ended December 31, 2021 compared to the year ended December 31, 2020, partially offset by an increase in interest expense on our revolving credit facility resulting from the 2018 Credit Facility Modification which was in effect from September 2020 through August 2021.

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

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

Interest expense, which has not been allocated to our operating segments, remained consistent at $9.1 million for the year ended December 31, 2022 compared to $9.0 million for the year ended December 31, 2021.

This is due to lower average outstanding principal balances on our 2018 and 2022 revolving credit facilities during the year ended December 31, 2022 compared to the year ended December 31, 2021, offset by increases in the LIBOR and SOFR components of interest rates on our variable-rate debt for the year ended December 31, 2022 as compared to the year ended December 31, 2021.

General and Administrative Expenses:

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

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

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

General and administrative expenses, which have not been allocated to our operating segments, were $4.6 million for the year ended December 31, 2022, consistent with $4.6 million for the year ended December 31, 2021.

Transaction Costs:

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

Transaction costs were $223,000 for the year ended December 31, 2022 compared to $143,000 for the year ended December 31, 2021.

The increase is due to an increase in abandoned project costs incurred related to potential real estate transactions in 2022 as compared to the prior period.

Depreciation and Amortization Expense:

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

Loss on Early Extinguishment of Debt:

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

The loss on early extinguishment of debt of $281,000 for the year ended December 31, 2021 was related to the write off of a portion of the deferred financing costs for the 2018 Credit Facility as a result of the reduction in total borrowing capacity in connection with the 2018 Credit Agreement Modification.

(Provision) benefit for Income Taxes:

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

The change is primarily is due to an increase in taxable income at our taxable REIT subsidiaries during the year ended December 31, 2021 resulting principally from the operations of our lending division.

Depreciation and amortization expense remained consistent at $20.3 million for the year ended December 31, 2022 compared to $20.1 million for the year ended December 31, 2021.

Provision for Income Taxes:

Provision for income taxes decreased by 62.2% to $1.1 million for the year ended December 31, 2022 compared to $3.0 million for the year ended December 31, 2021.

The decrease is primarily due to a decrease in taxable income at our taxable REIT subsidiaries, as a result of operations of the lending division during the year ended December 31, 2022 as compared to the year ended December 31, 2021.

Cash Flow Analysis

Our cash flows from operating activities are primarily dependent upon the real estate assets owned, occupancy level of our real estate assets, the rental rates achieved through our leases, the ADR of our hotel, the collectability of rent and recoveries from our tenants, and loan related activity, many of which were negatively impacted by the effects of COVID-19 during the years ended December 31, 2021 and 2020.

Our cash flows from operating activities are primarily dependent upon the real estate assets owned, occupancy level of our real estate assets, the rental rates achieved through our leases, the occupancy and ADR of our hotel, the collectability of rent and recoveries from our tenants, and loan related activity.

Our cash flows from operating activities are also impacted by fluctuations in operating expenses and other general and administrative costs.

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

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

Net cash provided by operating activities decreased by $13.9 million for the year ended December 31, 2022, as compared to the same period in 2021.

The decrease was primarily due to a $10.8 million decrease in net proceeds from sale of guaranteed loans net of loan fundings, held for sale, and a $9.3 million decrease resulting from a higher level of net working capital used compared to the prior period.

These were partially offset by an increase in net income of $6.8 million for the year ended December 31, 2022, as compared to the same period in 2021.

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

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

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

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

Net cash used in investing activities increased by $9.6 million to $22.3 million for the year ended December 31, 2022 compared to $12.7 million for the year ended December 31, 2021.

The increase in cash used in investing activities was primarily due to our $12.4 million investment in the Unconsolidated Joint Venture, net of distributions, an increase in capital expenditures of $4.8 million and an increase in real estate acquisitions of $7.9 million.

Partially offsetting the aforementioned increases in net cash used in investing activities was a $15.4 million decrease in cash used in investing activities related to net loan fundings during the year ended December 31, 2022 as compared to 2021, a year when the SBA temporarily increased guaranteed percentages for SBA 7(a) loan originations and where we were actively lending under the Paycheck Protection Program.

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

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

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

Net cash provided by financing activities for the year ended December 31, 2022 was $13.7 million compared to cash used in financing activities of $43.6 million for the year ended December 31, 2021.

The $57.3 million change was due to a $112.4 million increase in proceeds from issuance of preferred stock, net of redemptions, and a $106.0 million increase in net proceeds from debt during the year ended December 31, 2022 compared to the same period in 2021.

The aforementioned amounts increasing net cash provided by financing activities were partially offset by a decrease in net proceeds of $76.9 million from issuance of Common Stock related to our rights offering completed in June 2021 as compared to the year ended December 31, 2022 in which the Company repurchased $4.7 million worth of its Common Stock and had no proceeds from Common Stock issuances.

Additionally, there was $67.4 million in repurchases of Series L Preferred Stock during the year ended December 31, 2022 and an increase in the payment of preferred stock dividends of $6.3 million.

Liquidity and Capital Resources

On a short-term basis, our principal demands for funds will be for the acquisition of assets, development or repositioning of properties, or re-leasing of space in existing properties, capital expenditures, interest and principal on current and any future debt financings, SBA 7(a) loan originations, and paying distributions on our Preferred Stock and Common Stock.

On a short-term basis, our principal demands for funds will be for the acquisition of assets, development or repositioning of properties, or re-leasing of space in existing properties, capital expenditures, paying interest and principal on current and any future debt financings, SBA 7(a) loan originations, paying distributions on our Preferred Stock and Common Stock and making redemption payments on our Preferred Stock.

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

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(iv) the sale of existing assets;

and or (v) cash flows from operations.

With respect to the $100.0 million outstanding under the 2018 revolving credit facility as of March 10, 2022 that is scheduled to mature in October 2022, we expect to extend its maturity to October

2023, subject to satisfying certain conditions, and/or refinance such indebtedness.

Based on our projected performance and current capital market conditions, we expect that we can implement either or both options.

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

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

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

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

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

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

Our long-term liquidity needs will consist primarily of funds necessary for acquisitions of assets, development or repositioning of properties, or re-leasing of space in existing properties, capital expenditures, refinancing of indebtedness, SBA 7(a) loan originations, paying distributions on our Preferred Stock or any other preferred stock we may issue, any future repurchase and or redemption of our Preferred Stock (if we choose, or are required, to pay the redemption price in cash instead of in shares of our Common Stock) and distributions on our Common Stock.

(v) partnering with co-investors;

and or (vi) cash flows from operations.

In December 2022, we completed a refinancing of our 2018 Credit Facility, which was set to mature in October 2023, replacing it with the a new facility (the “2022 Credit Facility”).

The 2022 Credit Facility includes a $56.2 million term loan as well as a revolver allowing the Company to borrow up to $150.0 million, both of which are collectively subject to a borrowing base calculation.

The 2022 Credit Facility matures in December 2025 and provides for two one-year extension options, subject to certain conditions being satisfied.

On December 23, 2022, the Company announced it would redeem all remaining outstanding shares of its Series L Preferred Stock in cash on January 25, 2023 at its stated value of $28.37.

The total cost to complete the Series L Redemption, including transaction costs of $93,000 (or $0.03 per share), was $83.8 million.

The payment for the Series L Redemption was made on January 25, 2023 as well as the accrued and unpaid dividends on the redeemed shares of Series L Preferred Stock through December 31, 2022 of $1.56 per share (or $4.6 million accrued and unpaid dividends in the aggregate) and was funded by a combination of proceeds from the sale of our Series A1 Preferred Stock, draws on our 2022 Credit Facility, and cash on hand.

No additional dividends will be owed on the redeemed shares of Series L Preferred Stock subsequent to December 31, 2022.

Our long-term liquidity needs will consist primarily of funds necessary for acquisitions of assets, development or repositioning of properties, or re-leasing of space in existing properties, capital expenditures, paying interest and principal on debt financings, refinancing of indebtedness, SBA 7(a) loan originations, paying distributions on our Preferred Stock or any other preferred stock we may issue, any future repurchase of Common Stock and or redemption of our Preferred Stock (if we choose, or are required, to pay the redemption price in cash instead of in shares of our Common Stock) and distributions on our Common Stock.

Additionally, our outstanding commitments to fund loans were $19.9 million as of December 31, 2022, substantially all of which reflect prime-based loans to be originated by our subsidiary engaged in SBA 7(a) Small Business Loan Program lending.

The majority of these commitments have government guarantees of 90% (although the government guarantee has now reverted to 75%) and we believe that we will be able to sell the guaranteed portion of these loans in a liquid secondary market upon fully funding these loans.

All of these commitments have government guarantees of 75% (as the government guarantee has now reverted to 75% from 90%) and we believe that we will be able to sell the guaranteed portion of these loans in a liquid secondary market upon fully funding these loans.

Since some commitments are expected to expire without being drawn upon, total commitment amounts do not necessarily represent future cash requirements.

Further, we are evaluating renovation of certain areas of our hotel in California and development of our development sites.

To the extent we decide to proceed with renovating our hotel, undertaking pre-development work and/or conducting development work on any of our development sites, we will have increased liquidity needs

We intend to convert two out of the three floors of an office building that we own at 4750 Wilshire Boulevard in Los Angeles into for-lease multifamily units (the “4750 Wilshire Project”).

As part of our asset-light investment approach, we have secured co-investors who have taken an 80% stake in the property, with us retaining a minority equity interest (the “Co-Investment”), effective February 17, 2023.

The total cost of the 4750 Wilshire Project is expected to be approximately $31.0 million, which will be financed by a combination of equity contributions from us and co-investors as well as a mortgage loan from a third-party lender.

In connection with the Co-Investment, we have commitments to receive cash proceeds from co-investors, enhancing our liquidity.

Further, we expect to earn management fees from co-investors in connection with their co-investment in the 4750 Wilshire Project.

We may not have sufficient funds on hand or may not be able to obtain additional financing to cover all of our long-term cash requirements.

The nature of our business, and the requirements imposed by REIT rules that we distribute a substantial majority of our REIT taxable income on an annual basis in the form of dividends, may cause us to have substantial liquidity needs over the long-term.

While we will seek to satisfy such needs through one or more of the methods described in the first paragraph of this section, our ability to take such actions is highly uncertain and cannot be predicted, and could be affected by various risks and uncertainties, including, but not limited to, the effects of COVID-19 and other risks detailed in “Item 1A—Risk Factors” of this Annual Report on Form 10-K.

While we will seek to satisfy such needs through one or more of the methods described in the first paragraph of this section, our ability to take such actions is highly uncertain and cannot be predicted, and could be affected by various risks and uncertainties, including, but not limited to, the risks detailed in “Risk Factors” in “Item 1A—Risk Factors” of this Annual Report on Form 10-K.

If we cannot obtain funding for our long-term liquidity needs, our assets may generate lower cash flows or decline in value, or both, which may cause us to sell assets at a time when we would not otherwise do so which could have a material adverse effect on our business, financial condition, results of operations, cash flow or our ability to satisfy our debt service obligations or to maintain our level of distributions on our Common Stock or Preferred Stock.

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Revolving Credit Facilities

In October 2018, we entered into the 2018 revolving credit facility that, as amended, allows us to borrow up to $209.5 million, subject to a borrowing base calculation.

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

The 2018 revolving credit facility matures in October 2022 and provides for one one-year extension option under certain conditions, including providing notice of the election and paying an extension fee of 0.15% of each lender’s commitment being extended on the effective date of such extension.

We expect to extend its maturity to October 2023, subject to satisfying certain conditions, and/or refinance such indebtedness.

Based on our projected performance and current capital market conditions, we expect that we can implement either or both options.

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

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

Outstanding advances under the 2020 Credit Facility bear interest at the rate of 1.00%.

The 2020 Credit Facility matures in May 2022.

As of both March 10, 2022 and December 31, 2021, no amounts were outstanding under the 2020 Credit Facility and $10.0 million was available for future borrowings.

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

Advances under the PPPLF carry an interest rate of 0.35%, are made on a dollar-for-dollar basis based on the amount of loans originated under the

PPP and are secured by loans made by us under the PPP.

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

The maturity date of PPPLF borrowings is the same as the maturity date of the loans pledged to secure the extension of credit, generally two years.

At maturity, both principal and accrued interest are due.

The maturity date of a PPPLF borrowing will be accelerated if, among other things, we have been reimbursed by the SBA for a loan forgiveness (to the extent of the forgiveness), we have received payment from the SBA representing exercise of the loan guarantee or we have received payment from the underlying borrower (to the extent of the payment received).

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

As of December 31, 2021, $5.0 million was outstanding under the PPPLF.

In October 2018, we entered into the 2018 Revolving Credit Facility that, as amended, allowed us to borrow up to $209.5 million, subject to a borrowing base calculation.

The 2018 Revolving Credit Facility was secured by properties in the Company’s real estate portfolio:

eight office properties and one hotel property.

In December 2022 the Company refinanced its 2018 Credit Facility and replaced it with a new 2022 Credit Facility, entered into with a bank syndicate, that includes a $56.2 million term loan (the “2022 Credit Facility Term Loan”) as well as a revolver allowing the Company to borrow up to $150.0 million (the “2022 Credit Facility Revolver”), both of which are collectively subject to a borrowing base calculation.

The 2022 Credit Facility is secured by properties in the Company’s real estate portfolio:

six office properties and one hotel property (as well as the hotel’s adjacent parking garage and retail property).

The 2022 Credit Facility bears interest at (A) the base rate plus 1.50% or (B) SOFR plus 2.60%.

As of December 31, 2022, the variable interest rate was 6.93%.

The 2022 Credit Facility Revolver is also subject to an unused commitment fee of 0.15% or 0.25% depending on the amount of aggregate unused commitments.

The 2022 Credit Facility is guaranteed by the Company and the Company is subject to certain financial maintenance covenants.

The 2022 Credit Facility matures in December 2025 and provides for two one-year extension options, subject to certain conditions being satisfied, including providing notice of the election and paying an extension fee of 0.15% of each lender’s commitment being extended on the effective date of such extension.

As of March 22, 2023 and December 31,

2022 , $113.2 million and $56.2 million, respectively, was outstanding under the 2022 Credit Facility and approximately $93.0 million and $150.0 million, respectively, was available for future borrowings.

Other Financing Activity

On May 30, 2018, we completed a securitization of the unguaranteed portion of certain of our SBA 7(a) loans receivable with the issuance of $38.2 million of unguaranteed SBA 7(a) loan-backed notes.

On March 9, 2023, our lending division completed a securitization of the unguaranteed portion of certain of our SBA 7(a) loans receivable with the issuance of $54.1 million of unguaranteed SBA 7(a) loan-backed notes (with net proceeds of approximately $43.3 million, after payment of fees and expenses in connection with the securitization and the funding of a reserve account and an escrow account).

The SBA 7(a) loan-backed notes are collateralized by the right to receive payments and other recoveries attributable to the unguaranteed portions of certain of our SBA 7(a) loans receivable.

The SBA 7(a) loan-backed notes mature on March 20, 2048, with monthly payments due as payments on the collateralized loans are received.

Based on the anticipated repayments of our collateralized SBA 7(a) loans, at issuance, we estimated the weighted average life of the SBA 7(a) loan-backed notes to be approximately two years.

The SBA 7(a) loan-backed notes bear interest at the lower of the one-month LIBOR plus 1.40% or the prime rate less 1.08%.

The outstanding balance of SBA 7(a) loan-backed notes on March 10, 2022, December 31, 2021, and December 31, 2020, w as $6.5 million, $7.7 million and $14.2 million, respectively.

The SBA 7(a) loan-backed notes bear interest at a per annum rate equal to the lesser of (i) 30-Day average compounded SOFR plus 2.90% and (ii) prime rate minus 0.35%.

The annual interest rate for the first interest payment date shall be 7.40%.

We reflect the SBA 7(a) loans receivable as assets on our consolidated balance sheet and the SBA 7(a) loan-backed notes as debt on our consolidated balance sheet.

We have junior subordinated notes with a variable interest rate that resets quarterly based on the three-month LIBOR plus 3.25%, with quarterly interest‑only payments.

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

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

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

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

Securities Offerings

We conducted a continuous public offering of Series A Preferred Units from October 2016 through January 2020, where each Series A Preferred Unit consisted of one share of Series A Preferred Stock and one Series A Preferred Warrant.

During the tenure of the offering, we issued 4,603,287 Series A Preferred Units and received net proceeds of $105.2 million after commissions, fees and allocated costs.

We conducted a continuous public offering of Series A Preferred Stock from October 2016 through January 2020, where one Series A Preferred Warrant was issued along with each issued share of Series A Preferred Stock.

During the tenure of the offering, we issued 4,603,287 Series A Preferred Stock and Series A Preferred Warrants and received aggregate net proceeds of $105.2 million after commissions, fees and allocated costs.

The Series A Preferred Warrants are exercisable beginning on the first anniversary of the date of their original issuance until and including the fifth anniversary of the date of such issuance.

At the time of issuance, the exercise price of each Series A Preferred Warrant was equal to a 15.0% premium to the per share estimated NAV of our Common Stock most recently published and designated as the applicable NAV by us at the time of issuance.

However, in accordance with the terms of the Series A Preferred Warrants, the exercise price of each Series A Preferred Warrant issued prior to the Reverse Stock Split was automatically adjusted to reflect the effect of the Reverse Stock Split and, in the discretion of our Board of Directors, the exercise price and the number of shares issuable upon exercise of each Series A Preferred Warrant issued prior to the Special Dividend was adjusted to reflect the effect of the Special Dividend.

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 in 2019 (the “Reverse Stock Split”) was automatically adjusted to reflect the effect of the Reverse Stock Split and, in the discretion of our Board of Directors, the exercise price and the number of shares issuable upon exercise of each Series A Preferred Warrant issued prior to the special dividend in 2019 was adjusted to reflect the effect of the Special Dividend.

As of December 31, 2022, there were 3,316,118 Series A Preferred Warrants to purchase 858,208 shares of Common Stock outstanding.

Since February 2020, we have conducted a continuous public offering of up to approximately $785.0 million of our Series A Preferred Stock and Series D Preferred Stock.

We intend to use the net proceeds from the offering for general corporate purposes, acquisitions of shares of our Common Stock and Preferred Stock, whether through one or more tender offers, share repurchases or otherwise, and acquisitions consistent with our acquisition and asset management strategies.

As of December 31, 2021, we had issued 7,557,916 shares of Series A Preferred Stock and 56,857 shares of Series D Preferred Stock and received aggregate net proceeds of $172.2 million after commissions, fees and allocated costs.

On March 16, 2020, we established an “at the market” (“ATM”) program through which we may, from time to time in our discretion, offer and sell shares of Common Stock having an aggregate offering price of up to $25.0 million through an investment banking firm acting as the sales agent.

Sales of Common Stock under the ATM program may be made directly on or through Nasdaq, among other methods.

We intend to use the net proceeds from shares sold under the ATM program, if any, for general corporate purposes, acquisitions of shares of our Preferred Stock, whether through one or more tender offers, share repurchases or otherwise, and acquisitions consistent with our acquisition and asset management strategies.

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

From February 2020 through June 2022, we conducted a continuous public offering of our Series A Preferred Stock and Series D Preferred Stock.

In June 2022, we concluded the offering of our Series A Preferred Stock and Series D Preferred Stock and have since conducted a continuous public offering of our Series A1 Preferred Stock of up to approximately $692.3 million.

We intend to use the net proceeds from the offerings for general corporate purposes as described under “—Liquidity and Capital Resources—General.” As of December 31, 2022, we had issued 5,766,077 shares of Series A1 Preferred Stock, 8,251,657 shares of Series A Preferred Stock and 56,857 shares of Series D Preferred Stock and received aggregate net proceeds of $318.2 million after commissions, fees and allocated costs.

During the twelve months ended December 31, 2021, we conducted the Rights Offering pursuant to which we issued an aggregate of 8,521,589 shares of Common Stock at a subscription price of $9.25 per share for aggregate gross proceeds of $78.8 million before issuance costs of $1.9 million.

Dividends on and Redemptions of Preferred Stock

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

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

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

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

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

We expect to pay dividends on the Series A Preferred Stock and Series D Preferred Stock in arrears on a monthly basis, and on the Series L Preferred Stock in arrears on a yearly basis, unless our results of operations, our general financing conditions, general economic conditions, applicable requirements of the MGCL or other factors make it imprudent to do so.

Holders of Series A1 Preferred Stock, Series A Preferred Stock and Series D Preferred Stock are entitled to receive, if, as and when authorized by our Board of Directors, and declared by us out of legally available funds, cumulative cash dividends on each share as follows:

(1) at the of greater of (i) an annual rate of 6.0% of the Series A1 Preferred Stock Stated Value (i.e., the equivalent of $0.3750 per share per quarter) and (ii) the Federal Funds (Effective) Rate for such quarter and plus 2.5% of the Series A1 Preferred Stock Stated Value divided by four, up to a maximum of 2.5% of the Series A1 Preferred Stock Stated Value per quarter, (2) 5.50% of the Series A Preferred Stock Stated Value (i.e., the equivalent of $0.34375 per share per quarter) and (3) 5.65% of the Series D Preferred Stock Stated Value (i.e., the equivalent of $0.35313 per share per quarter), respectively.

Additionally, holders of our Series L Preferred Stock were entitled to receive cumulative cash dividends on each share of 5.50% of the Series L Preferred Stock Stated Value (i.e., the equivalent of $1.56035 per share per year).

We expect to pay dividends on the Series A1 Preferred Stock, Series A Preferred Stock and Series D Preferred Stock in arrears on a monthly basis, unless our results of operations, our general financing conditions, general economic conditions, applicable requirements of the MGCL or other factors make it imprudent to do so.

The timing and amount of dividends declared and paid on our Preferred Stock will be determined by our Board of Directors, in its sole discretion, and may vary from time to time.

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Consequently, the dividend rate on a quarterly basis does not necessarily correlate directly to any individual factor.

From the date of issuance until the fifth anniversary of the date of issuance, holders of Series A Preferred Stock and Series D Preferred Stock may require us to redeem such shares at a discount to the Series A Preferred Stated Value and Series D Preferred Stated Value, respectively.

From the date of issuance until the fifth anniversary of the date of issuance, holders of Series A Preferred Stock and Series D Preferred Stock may require us to redeem such shares at a discount to the Series A1 Preferred Stock, Series A Preferred Stated Value and Series D Preferred Stated Value, respectively.

From and after the fifth anniversary of the date of original issuance of any share of our Preferred Stock, we generally (subject to certain conditions) have the right (but not the obligation) to redeem, and the holder of such share may require us to redeem, such share at a redemption price equal to 100% of the stated value of such share, plus any accrued but unpaid dividends in respect of such share as of the effective date of the redemption.

The redemption price in respect of any share of Preferred Stock, whether redeemed at our option or at the option of a holder, may be paid in cash or in shares of Common Stock in our sole discretion.

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

During the year ended December 31, 2022, we redeemed 561,248 shares of Series A Preferred Stock, 9,930 shares of Series A1 Preferred Stock, and 8,000 of Series D Preferred Stock.

On September 15, 2022, we repurchased 2,435,284 shares of our 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 per share) plus $1.12 per share of accrued and unpaid dividends (or $2.7 million of accrued and unpaid dividends in aggregate).

The total cost to complete the Series L Repurchase, including transactions costs of $700,000, was $70.1 million.

In connection with the Series L Repurchase, we recognized redeemable preferred stock redemptions of $4.8 million on our consolidated statement of operations for the year ended December 31, 2022.

As announced on December 23, 2022, the we redeemed all remaining outstanding shares of our Series L Preferred Stock in cash on January 25, 2023 at its stated value of $28.37 (the “Series L Redemption).

The total cost to complete the Series L Redemption, including transaction costs of $93,000 (or $0.03 per share), was $83.8 million.

In connection with the Series L Redemption, we recognized redeemable preferred stock redemptions of $7.9 million on our consolidated statement of operations for the year ended December 31, 2022.

The $7.9 million of redeemable preferred stock redemptions represents the difference between the repurchase price (including $0.03 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).

As of December 31, 2022, $83.8 million was recorded in accounts payable and accrued expenses on our consolidated balance sheet in connection with the Series L Redemption.

The accrued and unpaid dividends on the redeemed shares of Series L Preferred Stock through December 31, 2022 of $1.56 per share (or $4.6 million accrued and unpaid dividends in the aggregate) were also paid January 25, 2023.

No additional dividends will be owed on the redeemed shares of Series L Preferred Stock subsequent to December 31, 2022.

Off Balance Sheet Arrangements

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FINRA Estimated Per Share Value

We have prepared an estimate of the per share value of each of our Series A Preferred Stock and Series D Preferred Stock as of December 31, 2021 in order to assist broker-dealers that are participating in our public offering of Series A Preferred Stock and Series D Preferred Stock in meeting their obligations under applicable FINRA rules.

We have prepared an estimate of the per share value of each of our Series A Preferred Stock, Series A1 Preferred Stock and Series D Preferred Stock as of December 31, 2022 in order to assist broker-dealers that are participating in our public offering of Series A1 Preferred Stock and broker-dealers that participated in our public offering of Series A Preferred Stock and Series D Preferred Stock in meeting their obligations under applicable FINRA rules.

This estimate utilizes the fair values of our investments in real estate and certain lending assets as well as the carrying amounts of our other assets and liabilities, in each case as of December 31, 2022 (the “Calculated Assets and Liabilities”).

Specifically, we divided (i) the fair values of our investments in real estate and certain lending assets and the carrying amounts of our other assets less the carrying amounts of our liabilities, in each case as of December 31, 2021, by (ii) the number of shares of Series A Preferred Stock and Series D Preferred Stock outstanding as of that date.

Specifically, we divided (i) the fair values of our investments in real estate and certain lending assets and the carrying amounts of our other assets less the carrying amounts of our liabilities, in each case as of December 31, 2022, by (ii) the number of shares of Series A Preferred Stock, Series A1 Preferred Stock and Series D Preferred Stock outstanding as of that date.

The fair values of our investments in real estate and certain lending assets were determined with material assistance from third-party appraisal firms engaged to value our investments in real estate and certain lending assets, in each case in accordance with standards set forth by the American Institute of Certified Public Accountants.

We believe our methodology of determining the Calculated Assets and Liabilities conforms to standard industry practices and is reasonably designed to ensure it is reliable.

The terms of the Series A Preferred Stock and Series D Preferred Stock expressly provide that the amount that a holder of Series A Preferred Stock or Series D Preferred Stock, as the case may be, would be entitled to receive upon the redemption of the Series A Preferred Stock or Series D Preferred Stock, as the case may be, or our liquidation would be equal to the Series A Preferred Stock Stated Value or Series D Preferred Stock Stated Value, as the case may be, plus, in each case, all accumulated, accrued and unpaid dividends thereon (the “Maximum Value”), subject to any applicable redemption fee in the case of a redemption by such holder.

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

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

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

The terms of the Series A Preferred Stock, Series A1 Preferred Stock and Series D Preferred Stock expressly provide that the amount that a holder of Series A Preferred Stock, Series A1 Preferred Stock or Series D Preferred Stock, as the case may be, would be entitled to receive upon the redemption of the Series A Preferred Stock, Series A1 Preferred Stock or Series D Preferred Stock, as the case may be, or our liquidation would be equal to the Series A Preferred Stock Stated Value, Series A1 Preferred Stated Value or Series D Preferred Stock Stated Value, as the case may be, plus, in each case, all accumulated, accrued and unpaid dividends thereon (the “Maximum Value”), subject to any applicable redemption fee in the case of a redemption by such holder.

As a result, in no event would a holder of Series A Preferred Stock, Series A1 Preferred Stock or Series D Preferred Stock, as the case may be, be entitled to receive an amount greater than the Maximum Value upon the redemption of such shares or our liquidation.

Accordingly, although the estimated value of the Series A Preferred Stock, Series A1 Preferred Stock and Series D Preferred Stock, calculated based on the Calculated Assets and Liabilities as described above, exceeded the Maximum Value, we determined that the estimated value of each of the Series A Preferred Stock, the Series A1 Preferred Stock and Series D Preferred Stock, as of December 31, 2022, was equal to $25.00 per share, plus accrued and unpaid dividends.

As of December 31, 2022, there were 5,966,077 and 5,956,147 shares of Series A1 Preferred Stock issued and outstanding, respectively, 8,820,338 and 8,259,090 shares of Series A Preferred Stock issued and outstanding, respectively, 56,857 and 48,857 shares of Series D Preferred Stock issued and outstanding, respectively, and 22,737,853 shares of Common Stock issued and outstanding.

Additionally as of December 31, 2021, there were 5,387,160 shares of Series L Preferred Stock outstanding, all of which had been either repurchased during 2022 or reclassified to a liability on our consolidated balance sheet as of December 31, 2022 in connection with the Series L Redemption.

Holders of Preferred Stock are entitled to receive, if, as and when authorized by our Board of Directors, and declared by us out of legally available funds, cumulative cash dividends as follows:

1 unchanged sentence

Series A1 Preferred Stock (1)

Series A Preferred Stock 5.50%

Series D Preferred Stock 5.65%

Series L Preferred Stock 5.50%

(1) If we fail to timely declare distributions or fail to timely pay distributions on the Series L Preferred Stock, the annual dividend rate of the Series L Preferred Stock will temporarily increase by 1.0% per year, up to a maximum rate of 8.5% per annum.

(1) The terms of the Series A1 Preferred Stock provide for cumulative cash dividends (if, as and when authorized by the Board of Directors) on each share of Series A1 Preferred Stock at a quarterly rate of the greater of (i) an annual rate of 6.00% of the Series A1 Stated Value, divided by four (4) and (ii) the Federal Funds (Effective) Rate on the dividend determination date, plus 2.50%, of the Series A1 Stated Value, divided by four (4), up to a maximum of 2.50% of the Series A1 Stated Value per quarter.

The annual rate of dividend of the Series A1 Preferred Stock during the first quarter of 2023 is 6.33%.

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

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

We expect to timely pay dividends on the Preferred Stock in arrears on a monthly basis, unless our results of operations, our general financing conditions, general economic conditions, applicable requirements of the MGCL or other factors make it imprudent to do so.

4 unchanged sentences

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 7. Management’s Discussion and Analysis