What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-14 compared with 2023-08-10 · 159 added, 158 removed, 351 unchanged (47% of the section changed)

15 unchanged sentences

We do not undertake to update them to reflect changes that occur after the date they are made, except as may be required by applicable securities laws.

The following discussion of our financial condition as of June 30, 2023 and results of operations for the three and six months ended June 30, 2023 and 2022 should be read in conjunction with the 2022 Form 10-K.

The following discussion of our financial condition as of September 30, 2023 and results of operations for the three and nine months ended September 30, 2023 and 2022 should be read in conjunction with the 2022 Form 10-K.

For a more detailed description of the risks affecting our financial condition and results of operations, see “Risk Factors” in Part I, Item 1A of the 2022 Form 10-K and in Part II, Item 1A of this Quarterly Report.

3 unchanged sentences

The phrase “ADR” represents average daily rate.

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

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

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

3 unchanged sentences

The phrase “RevPAR” represents revenue per available room.

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

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

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

10 unchanged sentences

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

As of June 30, 2023, our real estate portfolio consisted of 25 assets, all of which were fee-simple properties, including two office properties (one of which is being partially converted into multifamily units) and one multifamily property, which we own through our investment in unconsolidated joint ventures (the “Unconsolidated Joint Ventures”).

As of June 30, 2023, our 13 office properties, totaling approximately 1.3 million rentable square feet, were 83.0% occupied, our one hotel with an ancillary parking garage, which has a total of 503 rooms, had RevPAR of $163.18 for the six months ended June 30, 2023 and our three multifamily properties were 83.9% occupied.

Additionally, as of June 30, 2023, we had seven development sites (with two being used as parking lots).

As of September 30, 2023, our real estate portfolio consisted of 26 assets, all of which were fee-simple properties, including two office properties (one of which is being partially converted into multifamily units and one of which also includes a multifamily development site) and one multifamily property, which we own through our investment in unconsolidated joint ventures (the “Unconsolidated Joint Ventures”).

As of September 30, 2023, our 13 office properties, totaling approximately 1.3 million rentable square feet, were 82.6% occupied, our one hotel with an ancillary parking garage, which has a total of 503 rooms, had RevPAR of $149.01 for the nine months ended September 30, 2023 and our three multifamily properties were 84.1% occupied.

Additionally, as of September 30, 2023, we had eight development sites (with two being used as parking lots).

We are a Maryland corporation and REIT.

44 unchanged sentences

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 properties partially owned through unconsolidated joint ventures):

As of June 30,

As of September 30,

Occupancy (1)(2) 82.6 % 83.2 %

2 unchanged sentences

(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 June 30, 2023.

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

This amount reflects total cash rent before abatements.

Total abatements, representing lease incentives in the form of free rent, for the twelve months ended June 30, 2023 and 2022 were approximately $2.8 million and $2.2 million, respectively.

Total abatements, representing lease incentives in the form of free rent, for the twelve months ended September 30, 2023 and 2022 were approximately $2.9 million and $2.3 million, respectively.

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

2 unchanged sentences

For the Three Months Ended

September 30, 2023 December 31, 2023 March 31, 2024 June 30, 2024

December 31, 2023 March 31, 2024 June 30, 2024 September 30, 2024

Expiring Cash Rents:

3 unchanged sentences

(1) Month-to-month tenants occupying a total of 7,391 square feet are included in the expiring leases in the first quarter listed.

(2) Represents gross monthly base rent, as of June 30, 2023, under leases expiring during the periods above, multiplied by 12.

(2) Represents gross monthly base rent, as of September 30, 2023, under leases expiring during the periods above, multiplied by 12.

This amount reflects total cash rent before abatements.

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

During the three and six months ended June 30, 2023, we executed leases with terms longer than 12 months totaling 29,212 and 73,099 square feet, respectively.

The table below sets forth information on certain of our executed leases during the three and six months ended June 30, 2023, excluding space that was vacant for more than one year, month-to-month leases, leases with an original term of less than 12 months, related party leases, and space where the previous tenant was a related party:

During the three and nine months ended September 30, 2023, we executed leases with terms longer than 12 months totaling 29,291 and 102,390 square feet, respectively.

The table below sets forth information on certain of our executed leases during the three and nine months ended September 30, 2023, excluding space that was vacant for more than one year, month-to-month leases, leases with an original term of less than 12 months, related party leases, and space where the previous tenant was a related party:

Leases (1) Rentable

1 unchanged sentence

Foot (2) Expiring

Three months ended June 30, 2023 4 15,356 $ 60.37 $ 60.92

Six months ended June 30, 2023 12 47,992 $ 56.02 $ 55.90

Three months ended September 30, 2023 8 22,436 $ 44.09 $ 42.78

Nine months ended September 30, 2023 20 70,428 $ 52.21 $ 51.72

______________________

9 unchanged sentences

The following table sets forth occupancy rates and the monthly rent per occupied unit across our multifamily portfolio for the specified periods (includes 100% of our property partially owned through an unconsolidated joint venture):

As of June 30,

As of September 30,

Occupancy 84.1 % N/A

5 unchanged sentences

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

For the Six Months

Ended June 30,

For the Nine Months

Ended September 30,

Occupancy 76.9 % 73.5 %

16 unchanged sentences

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.

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

Property Concentration

Kaiser Foundation Health Plan, Incorporated, which occupied space in one of our Oakland, California properties, accounted for 29.3% of our annualized office rental income for the three months ended June 30, 2023.

Kaiser Foundation Health Plan, Incorporated, which occupied space in one of our Oakland, California properties, accounted for 29.2% of our annualized office rental income for the three months ended September 30, 2023.

2023 Results of Operations

Comparison of the Three Months Ended June 30, 2023 to the Three Months Ended June 30, 2022

Net (Loss) Income and FFO

Three Months Ended June 30, Change

Comparison of the Three Months Ended September 30, 2023 to the Three Months Ended September 30, 2022

Net Loss and FFO

Three Months Ended September 30, Change

2023 2022 $ %

2 unchanged sentences

Total expenses $ 45,400 $ 24,694 20,706 83.9 %

Net (loss) income $ (18,361) $ 2,931 $ (21,292) *

Net loss $ (16,647) $ (232) $ (16,415) NM*

______________________

(*) Percentage changes in excess of 100% are deemed to be not meaningful

Net loss was $18.4 million for the three months ended June 30, 2023 compared to net income of $2.9 million for the three months ended June 30, 2022, a decrease of $21.3 million.

The decrease was primarily due to an increase in depreciation and amortization expense of $15.5 million and an increase in interest expense not allocated to our operating segments of $5.1 million, and a decrease of $838,000 in segment net operating income (discussed in more detail below).

(*) Percentage changes in excess of 100% are deemed to be not meaningful (“NM”)

Net loss was $16.6 million for the three months ended September 30, 2023 compared to a net loss of $232,000 for the three months ended September 30, 2022, an increase of $16.4 million.

The increase in net loss was primarily due to an increase in depreciation and amortization expense of $11.0 million and an increase in interest expense not allocated to our operating segments of $6.5 million, an increase in provision for income taxes of $367,000 and an increase in general and administrative expenses of $250,000.

These were partially offset by an increase of $1.1 million in segment net operating income (discussed in more detail in the following Summary Segment Results), an increase of $219,000 in interest and other income and a decrease of $192,000 in asset management fees.

Funds from Operations

8 unchanged sentences

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

Three Months Ended June 30,

Three Months Ended September 30,

Net loss attributable to common stockholders (1)

5 unchanged sentences

______________________

(1) During the three months ended June 30, 2023 and 2022, we recognized $315,000 and $106,000, respectively, of redeemable preferred stock redemptions and $0 and $4,000, respectively, of redeemable preferred stock deemed dividends.

(1) During the three months ended September 30, 2023 and 2022, we recognized $352,000 and $4.9 million, respectively, of redeemable preferred stock redemptions.

Such amounts are included in, and have the effect of increasing 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 $(4.2) million for the three months ended June 30, 2023, a decrease of $6.8 million compared to $2.6 million for the three months ended June 30, 2022.

The decrease in FFO was primarily due to an increase in interest expense not allocated to our operating segments of $5.1 million, an increase in redeemable preferred stock dividends and redeemable preferred stock redemptions of $1.0 million and $209,000, respectively, and a decrease of $838,000 in segment net operating income (discussed in more detail below) .

FFO attributable to common stockholders was $(7.5) million for the three months ended September 30, 2023, a decrease of $885,000 compared to $(6.6) million for the three months ended September 30, 2022.

The decrease in FFO was primarily due to an increase in interest expense not allocated to our operating segments of $6.5 million, an increase in provision for income taxes of $367,000, an increase in general and administrative expenses of $250,000 and an increase in redeemable preferred stock dividends of $225,000.

These were partially offset by a decrease in redeemable preferred stock redemptions of $4.5 million, an increase of $1.1 million in segment net operating income (discussed in more detail in the following Summary Segment Results), an increase in net loss attributable to noncontrolling interests, adjusted for their share of depreciation and amortization expense, of $253,000, an increase of $219,000 in interest and other income and a decrease of $192,000 in asset management fees.

Summary Segment Results

During the three months ended June 30, 2023 we operated in four segments:

During the three months ended September 30, 2023, we operated in four segments:

office, hotel and multifamily properties and lending.

During the three months ended June 30, 2022, we operated in three segments:

During the three months ended September 30, 2022, we operated in three segments:

office and hotel properties and lending.

Set forth and described below are summary segment results for our operating segments (dollar amounts in thousands).

Three Months Ended June 30, Change

Three Months Ended September 30, Change

2023 2022 $ %

7 unchanged sentences

Lending $ 2,204 $ 1,162 $ 1,042 89.7 %

(Loss) income from unconsolidated entities

Office $ (710) $ 260 $ (970) N/A

Income (loss) from unconsolidated entities

Office $ 1,611 $ (204) $ 1,815 NM*

Multifamily $ (422) $ — $ (422) N/A

Non-Segment Revenue and Expenses:

Interest and other income $ 76 $ — $ 76 N/A

Interest and other income $ 220 $ 1 $ 219 NM*

Asset management and other fees to related parties $ (724) $ (916) $ 192 (21.0) %

Expense reimbursements to related parties - corporate $ (524) $ (511) $ (13) 2.5 %

Interest expense $ (7,394) $ (2,284) $ (5,110) *

Interest expense $ (8,556) $ (2,059) $ (6,497) NM*

General and administrative $ (1,603) $ (1,353) $ (250) 18.5 %

Depreciation and amortization $ (20,472) $ (4,974) $ (15,498) *

Transaction-related costs $ (38) $ (201) $ 163 (81.1) %

Depreciation and amortization $ (16,082) $ (5,093) $ (10,989) NM*

Provision for income taxes $ (554) $ (187) $ (367) 196.3 %

______________________

(*) Percentage changes in excess of 100% are deemed to be not meaningful

(*) Percentage changes in excess of 100% are deemed to be not meaningful (“NM”)

Office Revenue:

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

Office revenue of $14.0 million for the three months ended June 30, 2023 remained consistent with $14.1 million for the three months ended June 30, 2022 as an increase in rental revenues at an office property in Beverly Hills, California, due to increased occupancy and rental rates, was offset by a decrease in rental revenues as a result of the disposition of an 80% interest in an office property in Los Angeles, California in February 2023.

Office revenue of $14.0 million for the three months ended September 30, 2023 remained consistent with $14.0 million for the three months ended September 30, 2022 as an increase in rental revenues at an office property in Beverly Hills, California, due to increased occupancy and rental rates, was offset by a decrease in rental revenues as a result of the disposition of an 80% interest in an office property in Los Angeles, California in February 2023.

Hotel Revenue:

Hotel revenue increased to $11.7 million, or by 21.8%, for the three months ended June 30, 2023, compared to $9.6 million for the three months ended June 30, 2022, due to an increase in occupancy and average daily rate

during the second quarter of 2023 as compared to the second quarter of 2022 as a result of the hospitality industry continuing to recover from the impact of COVID-19.

Hotel revenue decreased to $7.9 million, or by 6.0%, for the three months ended September 30, 2023, compared to $8.5 million for the three months ended September 30, 2022.

The decrease was primarily due to a decrease in food and beverage revenue and parking revenue.

Multifamily Revenue:

Multifamily revenue was $4.1 million for the three months ended June 30, 2023.

As our multifamily properties were acquired during the six months ended June 30, 2023, there was no comparable revenue for the three months ended June 30, 2022.

Multifamily revenue was $3.3 million for the three months ended September 30, 2023.

As our multifamily properties were acquired during the first quarter of 2023, there was no comparable revenue for the three months ended September 30, 2022.

Lending Revenue:

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

Lending revenue increased to $3.0 million, or by 7.7%, for the three months ended June 30, 2023, compared to $2.8 million for the three months ended June 30, 2022.

Loss From Unconsolidated Office Entities:

The income from our unconsolidated entities included in office segment net operating income decreased to a loss of $710,000 for the three months ended June 30, 2023 compared to income of $260,000 for the three months ended June 30, 2022.

The decrease was primarily due to an increase in mortgage interest expense during the three months ended June 30, 2023.

Income From Unconsolidated Multifamily Entity:

The loss from our unconsolidated entity included in multifamily segment net operating income was $194,000 for the three months ended June 30, 2023.

As our unconsolidated multifamily property was acquired during the six months ended June 30, 2023, there was no comparable income for the three months ended June 30, 2022.

Lending revenue increased to $2.6 million, or by 9.2%, for the three months ended September 30, 2023, compared to $2.4 million for the three months ended September 30, 2022.

The increase is due to increased interest income from an increase in interest rates, partially offset by decreased premium income as a result of lower loan sale volume during the three months ended September 30, 2023 compared to the three months ended September 30, 2022 as well as a decrease in loan servicing income as a result of lower loan origination volume and higher loan payoff volume.

Income (loss) From Unconsolidated Office Entities:

The income from our unconsolidated entities included in office segment net operating income increased to $1.6 million for the three months ended September 30, 2023, compared to a loss of $204,000 for the three months ended September 30, 2022.

The increase was primarily due to an unrealized gain on the value of real estate at one of the unconsolidated office entities recognized during the three months ended September 30, 2023.

Loss From Unconsolidated Multifamily Entity:

The loss from our unconsolidated entity included in multifamily segment net operating income was $422,000 for the three months ended September 30, 2023.

As our unconsolidated multifamily property was acquired during the nine months ended September 30, 2023, there was no comparable income for the three months ended September 30, 2022.

Interest and Other Income:

Interest and other income, which has not been allocated to our operating segments, was $76,000 for the three months ended June 30, 2023, primarily related to interest earned on money market accounts.

There was no comparable income for the three months ended June 30, 2022.

Interest and other income, which has not been allocated to our operating segments, increased to $220,000 for the three months ended September 30, 2023 compared to $1,000 for the three months ended September 30, 2022.

The increase was primarily related to interest earned on money market accounts during the three months ended September 30, 2023 .

Office Expenses:

Office expenses of $6.4 million for the three months ended June 30, 2023, remained consistent with $6.4 million for the three months ended June 30, 2022.

Office expenses decreased to $6.3 million, or by 13.4%, for the three months ended September 30, 2023, compared to $7.3 million for the three months ended September 30, 2022, primarily due to a decrease in real estate tax expense at an office property in Austin, Texas.

Hotel Expenses:

Hotel expenses increased to $7.6 million, or by 19.4%, for the three months ended June 30, 2023, compared to $6.3 million for the three months ended June 30, 2022, primarily as a result of increased occupancy at the hotel as a result of the hospitality industry continuing to recover from the impact of COVID-19.

Hotel expenses were $6.0 million for the three months ended September 30, 2023, consistent with expenses of $6.1 million for the three months ended September 30, 2022.

Multifamily Expenses:

Multifamily expenses were $3.4 million for the three months ended June 30, 2023.

As our multifamily properties were acquired during the six months ended June 30, 2023, there were no comparable expenses for the three months ended June 30, 2022.

Multifamily expenses were $3.3 million for the three months ended September 30, 2023.

As our multifamily properties were acquired during the first quarter of 2023, there were no comparable expenses for the three months ended September 30, 2022.

Lending Expenses:

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

Lending expenses increased to $2.4 million, for the three months ended June 30, 2023, compared to $1.1 million for the three months ended June 30, 2022.

The increase was primarily due to an increase in interest expense related to the issuance of new SBA 7(a) loan-backed notes in connection with the securitization that closed in March 2023 as well as an increase in allocated payroll expense.

Lending expenses increased to $2.2 million, for the three months ended September 30, 2023, compared to $1.2 million for the three months ended September 30, 2022.

The increase was primarily due to an increase in interest expense related to the issuance of new SBA 7(a) loan-backed notes in connection with the securitization that closed in March 2023.

Asset Management and Other Fees to Related Parties:

Asset management fees and other fees to related parties, which have not been allocated to our operating segments, were $627,000 for the three months ended June 30, 2023, a decrease of 31.8%, compared to $920,000 for the three months ended June 30, 2022.

Asset management fees and other fees to related parties, which have not been allocated to our operating segments, were $724,000 for the three months ended September 30, 2023, a decrease of 21.0%, compared to $916,000 for the three months ended September 30, 2022.

The decrease was a result of a reduction in asset management fees related to a decrease in our net asset value, primarily resulting from a reduction in the fair value of our investments in real estate as of the end of 2022.

1 unchanged sentence

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

Expense reimbursements to related parties-corporate increased by 28.7% to $677,000 for the three months ended June 30, 2023, compared to $526,000 for the three months ended June 30, 2022, primarily due to increases in allocated payroll expenses related to the multifamily asset acquisitions in Oakland, California during the first quarter of 2023.

Expense reimbursements to related parties-corporate was $524,000 for the three months ended September 30, 2023, consistent with expenses of $511,000 for the three months ended September 30, 2022.

Interest Expense:

Interest expense, which has not been allocated to our operating segments, increased to $7.4 million for the three months ended June 30, 2023, compared to $2.3 million for the three months ended June 30, 2022.

This is due to higher outstanding principal balances on our 2022 revolving line of credit facility for the three months ended June 30, 2023 compared to our 2018 revolving line of credit facility for the three months ended June 30, 2022.

Additionally LIBOR and SOFR components of interest rates on our variable-rate debt increased for the three months ended June 30, 2023 as compared to

the three months ended June 30, 2022, given the increased interest rate environment.

In addition, two variable-rate mortgages were assumed in connection with our multifamily acquisitions during the first quarter of 2023.

Interest expense, which has not been allocated to our operating segments, increased to $8.6 million for the three months ended September 30, 2023, compared to $2.1 million for the three months ended September 30, 2022.

The increase was attributable to two variable-rate mortgages assumed in connection with our multifamily acquisitions during the first quarter of 2023, higher outstanding principal balances on our 2022 Credit Facility Revolver for the three months ended September 30, 2023 compared to our 2018 revolving line of credit facility for the three months ended September 30, 2022 and an increase in the LIBOR and SOFR components of interest rates on our variable-rate debt for the three months ended September 30, 2023 as compared to the three months ended September 30, 2022, given the higher interest rate environment.

General and Administrative Expenses:

General and administrative expenses, which have not been allocated to our operating segments, were $1.1 million for the three months ended June 30, 2023 as compared to $880,000 for the three months ended June 30, 2022.

The increase was primarily due to increases in non-recurring legal fees.

General and administrative expenses, which have not been allocated to our operating segments, were $1.6 million for the three months ended September 30, 2023 consistent with $1.4 million for the three months ended September 30, 2022.

Transaction Costs:

Transaction costs related to abandoned project costs in connection with potential real estate

transactions, were $38,000 for the three months ended September 30, 2023, compared with $201,000 for the three months ended September 30, 2022 due to a higher volume of costs related to contemplated deals during the prior year period.

Depreciation and Amortization Expense:

Depreciation and amortization expense increased to $20.5 million for the three months ended June 30, 2023, compared to $5.0 million for the three months ended June 30, 2022.

Depreciation and amortization expense increased to $16.1 million for the three months ended September 30, 2023, compared to $5.1 million for the three months ended September 30, 2022.

The increase is primarily due to an increase in acquired in-place lease intangible assets amortization at multifamily properties located in Oakland, California acquired during the first quarter of 2023 as well as incremental increases to fixed asset depreciation expense related to the acquired properties.

Provision for Income Taxes:

Provision for income taxes decreased by 50.5% to $159,000 for the three months ended June 30, 2023 as compared to $321,000 for the three months ended June 30, 2022.

The decrease is due to a decrease in taxable income at our taxable REIT subsidiaries as a result of the operations of the lending division during the three months ended June 30, 2023 as compared to the three months ended June 30, 2022.

Provision for income taxes increased to $554,000 for the three months ended September 30, 2023 as compared to $187,000 for the three months ended September 30, 2022.

The increase is due to higher taxable income at our taxable REIT subsidiaries.

2023 Results of Operations

Comparison of the Six Months Ended June 30, 2023 to the Six Months Ended June 30, 2022

Net (Loss) Income and FFO

Six Months Ended June 30, Change

Comparison of the Nine Months Ended September 30, 2023 to the Nine Months Ended September 30, 2022

Net Loss and FFO

Nine Months Ended September 30, Change

2023 2022 $ %

2 unchanged sentences

Total expenses $ 133,562 $ 70,398 $ 63,164 89.7 %

Net income (loss) $ (25,937) $ 5,233 $ (31,170) *

Net income (loss) $ (42,584) $ 5,001 $ (47,585) NM*

______________________

(*) Percentage changes in excess of 100% are deemed to be not meaningful

Net loss was $25.9 million for the six months ended June 30, 2023 compared to net income of $5.2 million for the six months ended June 30, 2022, a decrease of $31.2 million.

The decrease was primarily due to an increase in depreciation and amortization expense of $20.0 million , an increase in interest expense not allocated to our operating segments of $9.0 million and an increase in transaction-related costs of $3.4 million (primarily related to transfer tax expenses in connection with the acquisition of two multifamily properties in Oakland, California during the three months ended June 30, 2023) and an increase in general and administrative expenses of $390,000.

These were partially offset by a gain of $1.1 million recognized during the six months ended June 30, 2023 in connection with the sale of 80% of our interest in an office property and a decrease of $494,000 in asset management and other fees to related parties.

(*) Percentage changes in excess of 100% are deemed to be not meaningful (“NM”)

Net loss was $42.6 million for the nine months ended September 30, 2023 compared to net income of $5.0 million for the nine months ended September 30, 2022, a decrease of $47.6 million.

The decrease was primarily due to an increase in depreciation and amortization expense of $31.0 million , an increase in interest expense not allocated to our operating segments of $15.5 million, a decrease in transaction-related costs of $3.2 million (primarily related to transfer tax expenses in connection with the acquisition of two multifamily properties in Oakland, California during the three months ended March 31, 2023), an increase in general and administrative expenses of $640,000, and an increase in expense reimbursements to related parties of $270,000.

These were partially offset by an increase of $1.1 million in segment net operating income (discussed in more detail in the following Summary Segment Results), a gain of $1.1 million recognized during the nine months ended September 30, 2023 in connection with the sale of 80% of our interest in an office property), a decrease of $686,000 in asset management fees and an increase of $295,000 in interest and other income.

Funds from Operations

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

Six Months Ended June 30,

Nine Months Ended September 30,

Net loss attributable to common stockholders (1)

6 unchanged sentences

______________________

(1) During the six months ended June 30, 2023 and 2022, we recognized $688,000 and $181,000, respectively, of redeemable preferred stock redemptions and $— and $19,000, respectively, of redeemable preferred stock deemed dividends.

(1) During the nine months ended September 30, 2023 and 2022, we recognized $1,040,000 and $5.0 million , respectively, of redeemable preferred stock redemptions and $0 and $19,000, respectively, of redeemable preferred stock deemed dividends.

FFO attributable to common stockholders was $(9.0) million for the six months ended June 30, 2023, a decrease of $13.8 million compared to $4.8 million for the six months ended June 30, 2022.

The decrease in FFO was primarily due to an increase in interest expense not allocated to our operating segments of $9.0 million and an increase in transaction-related costs of $3.4 million (primarily related to transfer tax expenses in connection with the acquisition of two multifamily properties in Oakland, California during the three months ended June 30, 2023), an increase in redeemable preferred stock dividends and redeemable preferred stock redemption expense of $1.4 million and $507,000, respectively, and an increase in general and administrative expenses of $390,000.

These were partially offset by a decrease of $494,000 in asset management and other fees to related parties.

FFO attributable to common stockholders was $(16.5) million for the nine months ended September 30, 2023, a decrease of $14.7 million compared to $(1.8) million for the nine months ended September 30, 2022.

The decrease in FFO was primarily due to an increase in interest expense not allocated to our operating segments of $15.5 million and a decrease in transaction-related costs of $3.2 million (primarily related to transfer tax expenses in connection with the acquisition of two multifamily properties in Oakland, California during the three months ended March 31, 2023), an increase in redeemable preferred stock dividends of $1.6 million, an increase in general and administrative expenses of $640,000 and an increase in expense reimbursements to related parties of $270,000.

These were partially offset by a decrease in the c onsolidated statement of operations impact of redeemable preferred stock redemptions of $4.0 million, an increase of $1.1 million in segment net operating income (discussed in more detail in the following Summary Segment Results), a decrease of $686,000 in asset management fees, an increase in net loss attributable to noncontrolling interests, adjusted for their share of depreciation and amortization expense, of $534,000 and an increase of $295,000 in interest and other income.

Summary Segment Results

During the six months ended June 30, 2023 we operated in four segments:

During the nine months ended September 30, 2023 we operated in four segments:

office, hotel and multifamily properties and lending.

During the six months ended June 30, 2022, we operated in three segments:

During the nine months ended September 30, 2022, we operated in three segments:

office and hotel properties and lending.

Set forth and described below are summary segment results for our operating segments (dollar amounts in thousands).

Six Months Ended June 30, Change

Nine Months Ended September 30, Change

2023 2022 $ %

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Lending $ 5,995 $ 3,359 $ 2,636 78.5 %

(Loss) income from unconsolidated entities

Office $ (774) $ 380 $ (1,154) N/A

Income from unconsolidated entities

Office $ 837 $ 176 $ 661 NM*

Multifamily $ 216 $ — $ 216 N/A

Non-Segment Revenue and Expenses:

Interest and other income $ 76 $ — $ 76 N/A

Interest and other income $ 296 $ 1 $ 295 NM*

Asset management and other fees to related parties $ (2,071) $ (2,757) $ 686 (24.9) %

Expense reimbursements to related parties - corporate $ (1,729) $ (1,459) $ (270) 18.5 %

Interest expense $ (13,385) $ (4,347) $ (9,038) *

Interest expense $ (21,941) $ (6,406) $ (15,535) NM*

General and administrative $ (4,010) $ (3,370) $ (640) 19.0 %

Transaction-related costs $ (3,360) $ — $ (3,360) N/A

Depreciation and amortization $ (29,974) $ (9,978) $ (19,996) *

Transaction-related costs $ (3,398) $ (201) $ (3,197) NM*

Depreciation and amortization $ (46,056) $ (15,071) $ (30,985) NM*

Gain on sale of real estate $ 1,104 $ — $ 1,104 N/A

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(*) Percentage changes in excess of 100% are deemed to be not meaningful

(*) Percentage changes in excess of 100% are deemed to be not meaningful (“NM”)

Office Revenue:

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

Office revenue decreased to $27.5 million, or by (2.6)%, for the six months ended June 30, 2023 compared to $28.2 million for the six months ended June 30, 2022.

Office revenue decreased to $41.5 million, or by (1.7)%, for the nine months ended September 30, 2023 compared to $42.2 million for the nine months ended September 30, 2022.

The decrease is primarily due to decreased rental revenues at an office property in Los Angeles, California as a result of lower occupancy, and the disposition of an 80% interest in an office property in Los Angeles, California in February 2023, partially offset by higher rental revenues at an office property in Beverly Hills, California due to higher occupancy and rental rates.

Hotel Revenue:

Hotel revenue increased to $23.2 million, or by 33.3%, for the six months ended June 30, 2023, compared to $17.4 million for the six months ended June 30, 2022, due to an increase in occupancy and average daily rate as a result of the hospitality industry continuing to recover from the impact of COVID-19.

Hotel revenue increased to $31.1 million, or by 20.5%, for the nine months ended September 30, 2023, compared to $25.8 million for the nine months ended September 30, 2022, primarily due to an increase in occupancy and average daily rate.

Multifamily Revenue:

Multifamily revenue was $5.3 million for the six months ended June 30, 2023.

As our multifamily properties were acquired during the six months ended June 30, 2023, there was no comparable revenue for the six months ended June 30, 2022.

Multifamily revenue was $8.6 million for the nine months ended September 30, 2023.

As our multifamily properties were acquired during the nine months ended September 30, 2023, there was no comparable revenue for the nine months ended September 30, 2022.

Lending Revenue:

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

Lending revenue was $5.7 million for the six months ended June 30, 2023, consistent with revenue of $5.6 million for the six months ended June 30, 2022.

(Loss) Income From Unconsolidated Office Entities:

The income from our unconsolidated entities included in office segment net operating income decreased to a loss of $774,000 for the six months ended June 30, 2023 compared to income of $380,000 for the six months ended June 30, 2022.

The decrease was primarily due to an increase in mortgage interest expense and an unrealized loss related to one of our unconsolidated office entities’ investment in real estate during the six months ended June 30, 2023 as well as an additional incremental loss related to an office entity with respect to which we sold an 80% interest in during the first quarter of 2023 and now hold a 20% investment through an unconsolidated joint venture.

Lending revenue increased to $8.2 million, or by 3.2% for the nine months ended September 30, 2023, compared to $8.0 million for the nine months ended September 30, 2022.

The increase is due to increased interest income from higher interest rates, partially offset by decreased premium income as a result of lower loan sale volume during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, as well as a decrease in loan servicing income as a result of lower loan origination volume and higher loan payoff volume.

Income From Unconsolidated Office Entities:

The income from our unconsolidated entities included in office segment net operating income increased to $0.8 million for the nine months ended September 30, 2023 compared to $176,000 for the nine months ended September 30, 2022.

The increase was primarily due to an unrealized gain on the value of real estate at one of our unconsolidated office entities recognized during the nine months ended September 30, 2023, partially offset by an unrealized loss on the value of real estate related to another one of our unconsolidated office entities and an increase in mortgage interest expense during the nine months ended September 30, 2023.

Income From Unconsolidated Multifamily Entity:

The income from our unconsolidated entity included in multifamily segment net operating income was $638,000 for the six months ended June 30, 2023.

As our unconsolidated multifamily property was acquired during the six months ended June 30, 2023, there was no comparable income for the six months ended June 30, 2022.

The income from our unconsolidated entity included in multifamily segment net operating income was $216,000 for the nine months ended September 30, 2023.

As our unconsolidated multifamily property was acquired during the nine months ended September 30, 2023, there was no comparable income for the nine months ended September 30, 2022.

Interest and Other Income:

Interest and other income, which has not been allocated to our operating segments, was $76,000 for the six months ended June 30, 2023, primarily related to interest earned on money market accounts.

There was no comparable income for the six months ended June 30, 2022.

Interest and other income, which has not been allocated to our operating segments, was $296,000 for the nine months ended September 30, 2023 compared to $1,000 for the nine months ended September 30, 2022.

The increase was primarily related to interest earned on money market accounts during the nine months ended September 30, 2023.

Office Expenses:

Office expenses increased to $13.0 million, or by 3.2%, for the six months ended June 30, 2023, compared to $12.6 million for the six months ended June 30, 2022.

The increase is primarily due to an increase in operating expenses at an office property in Austin, Texas primarily as a result of higher utilities and real estate tax expenses.

Office expenses decreased to $19.4 million, or by (2.9)%, for the nine months ended September 30, 2023, compared to $20.0 million for the nine months ended September 30, 2022.

The decrease is primarily due to an decrease in operating expenses at an office property in Austin, Texas, primarily as a result of lower real estate tax expenses, and a result of the disposition of an 80% interest in an office property in Los Angeles, California in February 2023.

Hotel Expenses:

Hotel expenses increased to $14.9 million, or by 27.1%, for the six months ended June 30, 2023, compared to $11.7 million for the six months ended June 30, 2022, primarily as a result of increased occupancy at the hotel as a result of the hospitality industry continuing to recover from the impact of COVID-19.

Hotel expenses increased to $20.9 million, or by 17.5%, for the nine months ended September 30, 2023, compared to $17.8 million for the nine months ended September 30, 2022, primarily as a result of increased occupancy at the hotel.

Multifamily Expenses:

Multifamily expenses were $4.7 million for the six months ended June 30, 2023.

As our multifamily properties were acquired during the six months ended June 30, 2023, there were no comparable expenses for the six months ended June 30, 2022.

Multifamily expenses were $8.0 million for the nine months ended September 30, 2023.

As our multifamily properties were acquired during the nine months ended September 30, 2023, there were no comparable expenses for the nine months ended September 30, 2022.

Lending Expenses:

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

Lending expenses increased to $3.8 million, or by 72.6%, for the six months ended June 30, 2023, compared to $2.2 million for the six months ended June 30, 2022.

Lending expenses increased to $6.0 million, or by 78.5%, for the nine months ended September 30, 2023, compared to $3.4 million for the nine months ended September 30, 2022.

The increase was primarily due to an increase interest expense related to the issuance of new SBA 7(a) loan-backed notes in connection with the securitization that closed in March 2023 as well as an increase in allocated payroll expenses.

Asset Management and Other Fees to Related Parties:

Asset management fees and other fees to related parties, which have not been allocated to our operating segments, were $1.3 million for the six months ended June 30, 2023, a decrease of 26.8%, compared to $1.8 million for the six months ended June 30, 2022.

Asset management fees and other fees to related parties, which have not been allocated to our operating segments, were $2.1 million for the nine months ended September 30, 2023, a decrease of 24.9%, compared to $2.8 million for the nine months ended September 30, 2022.

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

Expense reimbursements to related parties-corporate increased by 27.1% to $1.2 million for the six months ended June 30, 2023, compared to $0.9 million for the six months ended June 30, 2022, primarily due to increases in allocated payroll primarily due to the transactions that occurred during the six months ended June 30, 2023.

Expense reimbursements to related parties-corporate increased by 18.5% to $1.7 million for the nine months ended September 30, 2023, compared to $1.5 million for the nine months ended September 30, 2022, primarily due to increases in allocated payroll primarily due to the transactions that occurred during the nine months ended September 30, 2023.

Interest Expense:

Interest expense, which has not been allocated to our operating segments, increased to $13.4 million for the six months ended June 30, 2023, compared to $4.3 million for the six months ended June 30, 2022.

This is due to higher outstanding principal balances on our 2022 revolving line of credit facility for the six months ended June 30, 2023 compared to our 2018 revolving line of credit facility for the six months ended June 30, 2022.

Additionally LIBOR and SOFR components of interest rates on our variable-rate debt increased for the six months ended June 30, 2023 as compared to the six months ended

June 30, 2022, given the increased interest rate environment.

In addition, two variable-rate mortgages were assumed in connection with our multifamily acquisitions during the six months ended June 30, 2023.

Interest expense, which has not been allocated to our operating segments, increased to $21.9 million for the nine months ended September 30, 2023, compared to $6.4 million for the nine months ended September 30, 2022.

increase was attributable to two variable-rate mortgages assumed in connection with our multifamily acquisitions during the first quarter of 2023, higher outstanding principal balances on our 2022 Credit Facility Revolver for the nine months ended September 30, 2023 compared to our 2018 revolving line of credit facility for the nine months ended September 30, 2022 and an increase in the LIBOR and SOFR components of interest rates on our variable-rate debt increased for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022, given the higher interest rate environment.

General and Administrative Expenses:

General and administrative expenses, which have not been allocated to our operating segments, were $2.4 million for the six months ended June 30, 2023 as compared to $2.0 million for the six months ended June 30, 2022.

General and administrative expenses, which have not been allocated to our operating segments, increased to $4.0 million, or by 19.0%, for the nine months ended September 30, 2023 as compared to $3.4 million for the nine months ended September 30, 2022.

The increase was primarily due to increases in non-recurring legal fees.

Transaction-Related Costs:

Transaction-related costs of $3.4 million for the six months ended June 30, 2023 were primarily related to transfer tax expenses in connection with the acquisition of two multifamily properties in Oakland, California.

There were no transaction-related costs incurred during the six months ended June 30, 2022.

Transaction-related costs increased to $3.4 million for the nine months ended September 30, 2023 compared to $201,000 for the nine months ended September 30, 2022.

The increase was primarily related to transfer tax expenses in connection with the acquisition of two multifamily properties in Oakland, California in the first quarter of 2023.

Depreciation and Amortization Expense:

Depreciation and amortization expense increased to $30.0 million for the six months ended June 30, 2023, compared to $10.0 million for the six months ended June 30, 2022.

The increase is primarily due to an increase in acquired in-place lease intangible assets amortization at multifamily properties located in Oakland, California acquired during the six months ended June 30, 2023 as well as incremental increases to fixed asset depreciation expense related the acquired properties.

Depreciation and amortization expense increased to $46.1 million for the nine months ended September 30, 2023, compared to $15.1 million for the nine months ended September 30, 2022.

The increase is primarily due to an increase in acquired in-place lease intangible assets amortization at multifamily properties located in Oakland, California acquired during the nine months ended September 30, 2023 as well as incremental increases to fixed asset depreciation expense related to the acquired properties.

Gain on sale of real estate:

Gain on sale of real estate of $1.1 million for the six months ended June 30, 2023 was related to the sale of 80% of our interest in an office property in Los Angeles, California.

There were no dispositions during the six months ended June 30, 2022.

Gain on sale of real estate of $1.1 million for the nine months ended September 30, 2023 was related to the sale of 80% of our interest in an office property in Los Angeles, California.

There were no dispositions during the nine months ended September 30, 2022.

Provision for Income Taxes:

Provision for income taxes decreased by 33.9% to $415,000 for the six months ended June 30, 2023 as compared to $628,000 for the six months ended June 30, 2022.

The decrease is due to a decrease in taxable income at our taxable REIT subsidiaries as a result of the operations of the lending division during the six months ended June 30, 2023 as compared to the six months ended June 30, 2022.

Provision for income taxes increased to $969,000 for the nine months ended September 30, 2023 as compared to $815,000 for the nine months ended September 30, 2022.

The increase was due to higher taxable income at our taxable REIT subsidiaries during the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022.

Cash Flow Analysis

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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 decreased by $15.9 million for the six months ended June 30, 2023, as compared to the same period in 2022.

The decrease was primarily due to a decrease in net income adjusted for depreciation and amortization expense and other non-cash items of $12.2 million and a decrease in net proceeds from the sale of loans of $5.0 million, partially offset by a $1.4 million increase resulting from a higher level of net working capital used compared to the prior period.

Net cash provided by operating activities decreased by $11.5 million for the nine months ended September 30, 2023, as compared to the same period in 2022.

The decrease was primarily due to a decrease in net income adjusted for depreciation and amortization expense and other non-cash items of $18.1 million, partially offset by a $5.9 million increase resulting from a higher level of net working capital used compared to the prior period and an increase in net proceeds from the sale of loans of $872,000.

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

Net cash used in investing activities increased by $41.9 million for the six months ended June 30, 2023, as compared to the same period in 2022.

The increase in cash used in investing activities was primarily due to an increase in acquisitions of real estate of $88.6 million, compared to the same period in 2022.

Partially offsetting net cash used in investing activities are $30.6 million in proceeds from the sale of a property to the 4750 Wilshire JV during the six months ended June 30, 2023 and a decrease in cash outlays of $15.7 million related to our investments in unconsolidated joint ventures during the six months ended June 30, 2023, compared to the same period in 2022.

Net cash used in investing activities increased by $59.2 million for the nine months ended September 30, 2023, as compared to the same period in 2022.

The increase in cash used in investing activities was primarily due to an increase in acquisitions of real estate of $86.0 million, a decrease in distributions from an unconsolidated entity of $10.3 million, and a decrease in principal collected on loans of $5.3 million compared to the same period in 2022.

Partially offsetting net cash used in investing activities are $31.4 million in proceeds from the sale of a property to the 4750 Wilshire JV during the nine months ended September 30, 2023, and a decrease in cash outlays of $15.2 million related to our investments in unconsolidated joint ventures during the nine months ended September 30, 2023, compared to the same period in 2022.

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

Net cash provided by financing activities increased by $54.6 million for the six months ended June 30, 2023, as compared to the same period in 2022, primarily as a result of net proceeds from our credit facility and mortgages of $71.3 million during the six months ended June 30, 2023 compared to $6.5 million during the six months ended June 30, 2022, the issuance of unguaranteed SBA 7(a) loan-backed notes for net proceeds of approximately $43.3 million, and an increase of $30.8 million in proceeds from the issuance of preferred stock during the six months ended June 30, 2023.

The aforementioned amounts increasing net cash provided by financing activities were partially offset by an increase in redemption of preferred stock of $90.0 million during the six months ended June 30, 2023.

Net cash provided by financing activities increased by $63.3 million for the nine months ended September 30, 2023, as compared to the same period in 2022, primarily as a result of net proceeds from our credit facility and mortgages of $54.0 million during the nine months ended September 30, 2023 compared to $15.0 million during the nine months ended September 30, 2022, the issuance of unguaranteed SBA 7(a) loan-backed notes of approximately $54.1 million, and a decrease of cash used in the repurchase of Series L Preferred Stock and Common Stock of $72.1 million during the nine months ended September 30, 2023.

The aforementioned amounts increasing net cash provided by financing activities were partially offset by an increase in redemption of preferred stock of $94.3 million during the nine months ended September 30, 2023, as well as an increase in the payment of deferred debt origination costs of $3.2 million and an increase in preferred dividend payments of $2.2 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 (including in each instance preparation thereof (e.g.

obtaining entitlements and permits and drawing up plans)) 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.

On a short-term basis, our principal demands for funds will be for the acquisition of assets, development or repositioning of properties (including pre-construction costs such as obtaining entitlements and permits and architectural work), 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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No additional dividends were 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 (including in each instance preparation thereof) 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 $7.8 million as of June 30, 2023, substantially all of which reflect prime-based loans to be originated by our subsidiary engaged in SBA 7(a) Small Business Loan Program lending.

Our long-term liquidity needs will consist primarily of funds necessary for acquisitions of assets, development or repositioning (including pre-construction costs) 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 $25.9 million as of September 30, 2023, substantially all of which reflect prime-based loans to be originated by our subsidiary engaged in SBA 7(a) Small Business Loan Program lending.

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

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The 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 4750 Wilshire Joint Venture, we have received and have commitments to receive cash proceeds from the joint venture partners, enhancing our liquidity.

In connection with the 4750 Wilshire Joint Venture, we received cash sales proceeds from our joint venture partners.

Further, we have earned and will continue to earn management fees from co-investors in connection with their co-investment in the 4750 Wilshire Project.

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Sources and Uses of Funds

We have mortgage loan agreements with an outstanding balances of $262.8 million as of June 30, 2023.

We have mortgage loan agreements with an outstanding balances of $263.7 million as of September 30, 2023.

Our mortgage loans mature on various dates from June 7, 2024 through July 1, 2026.

In regards to our variable rate mortgage loan maturing on June 7, 2024, we expect to exercise its extension option or refinance such indebtedness prior to maturity.

Revolving Credit Facilities

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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.

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:

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

As of June 30, 2023, the variable interest rate was 7.69%.

As of September 30, 2023, the variable interest rate was 7.92%.

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.

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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 August 3, 2023, June 30, 2023 and December 31, 2022, $148.2 million, $148.2 million, and $56.2 million, respectively, was outstanding under the 2022 Credit Facility and approximately $58.0 million, $58.0 million and $150.0 million, respectively, was available for future borrowings.

As of November 8, 2023, September 30, 2023 and December 31, 2022, $143.2 million, $133.2 million, and $56.2 million, respectively, was outstanding under the 2022 Credit Facility and approximately $63.0 million, $73.0 million and $150.0 million, respectively, was available for future borrowings.

Other Financing Activity

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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%.

As of June 30, 2023, the variable interest rate was 7.83%.

As of September 30, 2023, the variable interest rate was 8.14%.

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.

We have junior subordinated notes with a variable interest rate that resets quarterly based on the three-month SOFR plus 3.51%, with quarterly interest‑only payments.

The junior subordinated balance is due at maturity on March 30, 2035.

The junior subordinated notes may be redeemed at par at our option.

The aggregate principal balance of the junior subordinated notes was $27.1 million as of June 30, 2023.

The aggregate principal balance of the junior subordinated notes was $27.1 million as of September 30, 2023.

Securities Offerings

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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 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 June 30, 2023, there were 2,449,039 Series A Preferred Warrants to purchase 631,901 shares of Common Stock outstanding.

issued prior to the special dividend in 2019 was adjusted to reflect the effect of the Special Dividend.

As of September 30, 2023, there were 2,141,183 Series A Preferred Warrants to purchase 551,550 shares of Common Stock outstanding.

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

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

As of June 30, 2023, we had issued 7,994,099 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 $368.5 million after commissions, fees and allocated costs.

As of September 30, 2023, we had issued 9,088,485 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 $393.2 million after commissions, fees and allocated costs.

Dividends on and Redemptions of Preferred Stock

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

During the three months ended June 30, 2023, we redeemed 183,809 shares of Series A Preferred Stock, 11,200 shares of Series A1 Preferred Stock, and 410 shares of Series D Preferred Stock.

During the three months ended September 30, 2023, we redeemed 187,759 shares of Series A Preferred Stock, 30,941 shares of Series A1 Preferred Stock, and no shares 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”).

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The total cost to complete the Series L Repurchase, including of 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 three and six months ended June 30, 2023.

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 three months ended September 30, 2022.

As announced on December 23, 2022, 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).

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

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.

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Off-Balance Sheet Arrangements

As of June 30, 2023, we did not have any off-balance sheet arrangements.

As of September 30, 2023, we did not have any off-balance sheet arrangements.

Recently Issued Accounting Pronouncements

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis