What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-05-15 compared with 2023-11-14 · 177 added, 256 removed, 254 unchanged (63% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”), which are intended to be covered by the safe harbors created thereby.

This Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are intended to be covered by the safe harbors created thereby.

These statements include the plans and objectives of management for future operations, including plans and objectives relating to future growth of our business and availability of funds.

3 unchanged sentences

Forward-looking statements are necessarily estimates reflecting the judgment of our management and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements.

These risks and uncertainties include those associated with (i) the timing, form, and operational effects of our development activities, (ii) our ability to raise in place rents to existing market rents and to maintain or increase occupancy levels, (iii) fluctuations in market rents, (iv) the effects of inflation and higher interest rates on our operations and profitability and (v) general economic, market and other conditions.

Additional important factors that could cause our actual results to differ materially from our expectations are discussed under the section “Risk Factors” in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 30, 2023 (the “2022 Form 10-K”).

These risks and uncertainties include those associated with (i) the timing, form, and operational effects of our development activities, (ii) our ability to raise in place rents to existing market rents and to maintain or increase occupancy levels, (iii) fluctuations in market rents, (iv) the effects of inflation and continuing higher interest rates on our operations and profitability and (v) general economic, market and other conditions.

Additional important factors that could cause our actual results to differ materially from our expectations are discussed in “Item 1A—Risk Factors” of the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 29, 2024 (the “2023 Form 10-K”).

The forward-looking statements included herein are based on current expectations and there can be no assurance that these expectations will be attained.

5 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 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.

The following discussion of our financial condition as of March 31, 2024 and results of operations for the three months ended March 31, 2024 and 2023 should be read in conjunction with the 2023 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 2023 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 nine-month room revenue divided by the number of rooms occupied.

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

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

2 unchanged sentences

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

The phrase “net annualized rent” represents gross monthly base rent, or gross monthly contractual rent under parking and retail leases, net of total rent abatements granted in the applicable month, multiplied by 12.

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

The phrase “RevPAR” represents revenue per available room.

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

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

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

Table o f Contents

Executive Summary

Business Overview

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

Creative Media & Community 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.

5 unchanged sentences

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 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).

CIM also maintains additional offices across the United States and in South Korea to support its platform.

As of March 31, 2024, our real estate portfolio consisted of 27 assets, all of which were fee-simple properties and five of which we own through investments in Unconsolidated Joint Ventures.

Our Unconsolidated Joint Ventures contain two office properties (one of which is being partially converted into multifamily units), one multifamily site currently under development, one multifamily property and one commercial development site.

As of March 31, 2024, our 13 office properties, totaling approximately 1.3 million rentable square feet, were 83.4% occupied, and our one hotel with an ancillary parking garage, which has a total of 503 rooms, had RevPAR of $166.84 for the three months ended March 31, 2024, and our three multifamily properties were 86.2% occupied.

Additionally, as of March 31, 2024, we had nine development sites (three of which were being used as parking lots).

We are a Maryland corporation and REIT.

9 unchanged sentences

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

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

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

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

2 unchanged sentences

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

Table o f Contents

CIM Group Operations

20 unchanged sentences

(i) offerings of shares of our common stock, par value $0.001 per share (“Common Stock”), preferred stock or other equity and/or debt securities of the Company;

(ii) credit facilities and term loans;

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

(iv) the sale of existing assets;

(v) partnering with co-investors;

and or (vi) cash flows from operations.

(ii) issuances of interests in our operating partnership in exchange for properties;

(iii) credit facilities and term loans;

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

(v) the sale of existing assets;

(vi) partnering with co-investors;

and/or (vii) cash flows from operations.

Rental Rate Trends

1 unchanged sentence

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 September 30,

As of March 31,

Occupancy (1) 83.4 % 81.3 %

1 unchanged sentence

______________________

Table o f Contents

(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 September 30, 2023.

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

This amount reflects total cash rent before abatements.

Total abatements, representing lease incentives in the form of free rent, for the twelve months ended 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.

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

Total abatements, representing lease incentives in the form of free rent, for the twelve months ended March 31, 2024 and 2023 were approximately $2.7 million and $2.8 million, respectively.

Giving effect to abatements, net annualized rent per occupied square foot was $56.32 and $54.36 as of March 31, 2024 and 2023, respectively (See Definitions for more detail).

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

For the Three Months Ended

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

June 30, 2024 September 30, 2024 December 31, 2024 March 31, 2025

Expiring Cash Rents:

3 unchanged sentences

(1) Month-to-month tenants occupying a total of 12,457 square feet are included in the expiring leases in the first quarter listed.

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

(2) Represents gross monthly base rent, as of March 31, 2024, 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 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:

During the three months ended March 31, 2024, we executed leases with terms longer than 12 months totaling 36,961 square feet.

The table below sets forth information on certain of our executed leases during the three months ended March 31, 2024, 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 September 30, 2023 8 22,436 $ 44.09 $ 42.78

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

Three months ended March 31, 2024 9 35,742 $ 51.97 $ 52.11

______________________

7 unchanged sentences

Additionally, decreased demand and other negative trends or unforeseeable events that impair our ability to timely renew or re lease space could have a material adverse effect on our business, financial condition, results of operations, cash flow or our ability to satisfy our debt service obligations or to maintain our level of distributions on our Common Stock or Preferred Stock.

Table o f Contents

Multifamily Statistics:

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 September 30,

Occupancy 84.1 % N/A

Monthly rent per occupied unit (1) $ 2,869 N/A

As of March 31,

Occupancy 86.2 % 80.7 %

Monthly rent per occupied unit (1) $ 2,737 $ 2,852

______________________

1 unchanged sentence

This amount reflects total cash rent before concessions.

Net of rent concessions granted in the specified period, monthly rent per occupied unit was $2,429 and $2,450 as of March 31, 2024 and 2023, respectively.

Hotel Statistics:

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

For the Nine Months

Ended September 30,

For the Three Months

Ended March 31,

Occupancy 79.0 % 80.6 %

12 unchanged sentences

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.

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

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

3 unchanged sentences

Property Concentration

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.

Kaiser Foundation Health Plan, Incorporated, which occupied space in one of our Oakland, California properties, accounted for 29.5% of our annualized office rental income for the three months ended March 31, 2024.

Table o f Contents

2024 Results of Operations

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

Comparison of the Three Months Ended March 31, 2024 to the Three Months Ended March 31, 2023

Net Loss and FFO

Three Months Ended September 30, Change

Three Months Ended March 31, Change

2024 2023 $ %

2 unchanged sentences

Total expenses $ 37,307 $ 38,104 $ (797) (2.1) %

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

______________________

(*) 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.

Net loss $ (3,905) $ (7,576) $ 3,671 (48.5) %

Net loss was $3.9 million for the three months ended March 31, 2024 compared to a net loss of $7.6 million for the three months ended March 31, 2023, a decrease of $3.7 million.

The decrease in net loss was primarily due to a decrease in depreciation and amortization expense of $3.0 million, a $2.7 million decrease in transaction-related costs, and an increase of $655,000 in segment net operating income (discussed in more detail in the following Summary Segment Results) .

These were partially offset by a $2.1 million increase in interest expense not allocated to our operating segments .

Additionally, during the three months ended March 31, 2023, there was a $1.1 million gain on sale of real estate recognized in connection with the sale of 80% of our interest in an office property.

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 September 30,

Three Months Ended March 31,

Net loss attributable to common stockholders (1)

1 unchanged sentence

Depreciation and amortization 6,478 9,502

Noncontrolling interests’ proportionate share of depreciation and amortization (626) —

Non-controlling interests’ proportionate share of depreciation and amortization

Gain on sale of real estate — (1,104)

FFO attributable to common stockholders (1)

1 unchanged sentence

______________________

(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.

(1) During the three months ended March 31, 2024 and 2023, we recognized $806,000 and $373,000, 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 $(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.

Table o f Contents

FFO attributable to common stockholders, which is a non-GAAP measure, was $(5.9) million for the three months ended March 31, 2024, a decrease of $1.1 million compared to $(4.8) million for the three months ended March 31, 2023.

The decrease in FFO was primarily due to an increase in interest expense not allocated to our operating segments of $2.1 million, an increase in redeemable preferred stock dividends of $2.4 million, and an increase in redeemable preferred stock redemptions of $433,000.

These were partially offset by a $2.7 million decrease in transaction-related costs and an increase of $655,000 in segment net operating income (discussed in more detail in the following Summary Segment Results).

Summary Segment Results

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

During the three months ended March 31, 2024 and March 31, 2023, we operated in four segments:

office, hotel and multifamily properties and lending.

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 September 30, Change

Three Months Ended March 31, Change

2024 2023 $ %

1 unchanged sentence

Hotel $ 11,854 $ 11,492 $ 362 3.2 %

Multifamily $ 3,331 $ — $ 3,331 N/A

Multifamily $ 4,749 $ 1,223 $ 3,526 NM*

Lending $ 2,640 $ 2,710 $ (70) (2.6) %

1 unchanged sentence

Hotel $ 7,792 $ 7,347 $ 445 6.1 %

Multifamily $ 3,300 $ — $ 3,300 N/A

Multifamily $ 3,389 $ 1,380 $ 2,009 NM*

Lending $ 1,851 $ 1,352 $ 499 36.9 %

1 unchanged sentence

Office $ 117 $ (64) $ 181 NM*

Multifamily $ (422) $ — $ (422) N/A

Multifamily $ (443) $ 832 $ (1,275) NM*

Non-Segment Revenue and Expenses:

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

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

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 (“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 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 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 $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 $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 $ 144 $ — $ 144 100.0 %

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 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 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 $3.3 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 $2.2 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 $ (394) $ (720) $ 326 (45.3) %

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.

Expense reimbursements to related parties - corporate $ (605) $ (528) $ (77) 14.6 %

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

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 $ (8,057) $ (5,991) $ (2,066) 34.5 %

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 $1.6 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 $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 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 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 $ %

(dollars in thousands)

Total revenues $ 89,790 $ 76,038 $ 13,752 18.1 %

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

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

______________________

(*) 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):

Nine Months Ended September 30,

Net loss attributable to common stockholders (1)

$ (59,464) $ (16,844)

General and administrative $ (1,188) $ (1,301) $ 113 (8.7) %

Transaction-related costs $ (690) $ (3,360) $ 2,670 (79.5) %

Depreciation and amortization $ (6,478) $ (9,502) $ 3,024 (31.8) %

Noncontrolling interests’ proportionate share of depreciation and amortization (1,986) —

Gain on sale of real estate $ — $ 1,104 $ (1,104) (100.0) %

FFO attributable to common stockholders (1)

$ (16,498) $ (1,773)

______________________

(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 $(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 nine months ended September 30, 2023 we operated in four segments:

office, hotel and multifamily properties and lending.

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).

Nine Months Ended September 30, Change

2023 2022 $ %

Office $ 41,511 $ 42,225 $ (714) (1.7) %

Hotel $ 31,108 $ 25,825 $ 5,283 20.5 %

Multifamily $ 8,632 $ — $ 8,632 N/A

Lending $ 8,243 $ 7,987 $ 256 3.2 %

Office $ 19,391 $ 19,968 $ (577) (2.9) %

Hotel $ 20,929 $ 17,807 $ 3,122 17.5 %

Multifamily $ 8,042 $ — $ 8,042 N/A

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

Income from unconsolidated entities

Office $ 837 $ 176 $ 661 NM*

Multifamily $ 216 $ — $ 216 N/A

Non-Segment Revenue and Expenses:

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

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

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

Provision for income taxes $ (270) $ (256) $ (14) 5.5 %

3 unchanged sentences

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

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.

Office revenue increased by 8.3% to $14.6 million for the three months ended March 31, 2024, compared to

Table o f Contents

$13.5 million for the three months ended March 31, 2023.

The increase was primarily due to higher rental revenues at an office property in Beverly Hills, California and an office property in Los Angeles, California due to increased occupancy.

Hotel Revenue:

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.

Hotel revenue increased to $11.9 million, or by 3.2%, for the three months ended March 31, 2024, compared to $11.5 million for the three months ended March 31, 2023.

The increase was due to an increase in average daily rate and revenue per occupied room during the three months ended March 31, 2024.

Multifamily Revenue:

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.

Multifamily revenue was $4.7 million for the three months ended March 31, 2024, compared to $1.2 million for the three months ended March 31, 2023.

The increase was primarily due to the fact that the three months ended March 31, 2024 benefited from a full quarter of income from properties acquired during the three months ended March 31, 2023.

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 $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 $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.

Lending revenue was $2.6 million for the three months ended March 31, 2024, compared to $2.7 million for the three months ended March 31, 2023.

The decrease was primarily due to a decrease in premium income as a result of lower loan sale volume, partially offset by increased interest income from an increase in interest rates during the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

Income (loss) From Unconsolidated Office Entities:

The income from our Unconsolidated Joint Ventures included in office segment net operating income increased to $117,000 for the three months ended March 31, 2024, compared to a loss of $64,000 for the three months ended March 31, 2023.

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 March 31, 2024.

Loss (income) From Unconsolidated Multifamily Entity:

The loss from our Unconsolidated Joint Venture included in the multifamily segment net operating income was $443,000 for the three months ended March 31, 2024, compared to income of $832,000 for the three months ended March 31, 2023.

The decrease was primarily due to an unrealized loss on the value of real estate at the Unconsolidated Joint Venture included in multifamily during the three months ended March 31, 2024.

Interest and Other Income:

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.

Interest and other income, which has not been allocated to our operating segments, increased to $144,000 for the three months ended March 31, 2024, compared to $0 for the three months ended March 31, 2023.

The increase was primarily related to interest earned on money market accounts during the three months ended March 31, 2024.

Office 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.

Office expenses increased to $6.9 million, or by 3.6%, for the three months ended March 31, 2024, compared to $6.6 million for the three months ended March 31, 2023.

The increase was primarily due to higher operating expenses at our office properties in Beverly Hills, California and Los Angeles, California resulting from increased occupancy.

Hotel Expenses:

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.

Hotel expenses increased by 6.1% to $7.8 million for the three months ended March 31, 2024, compared to $7.3 million for the three months ended March 31, 2023.

The increase was primarily due to increased wage expenses during the three months ended March 31, 2024.

Multifamily Expenses:

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.

Multifamily expenses increased to $3.4 million for the three months ended March 31, 2024 compared to $1.4 million for the three months ended March 31, 2023.

The increase was primarily due to the fact that the three months ended March 31, 2024 included a full quarter of expense from properties acquired during the three months ended March 31, 2023.

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 $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.

Lending expenses increased to $1.9 million, for the three months ended March 31, 2024, compared to $1.4 million for the three months ended March 31, 2023.

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 $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.

Asset management fees and other fees to related parties, which have not been allocated to our operating segments, were $394,000 for the three months ended March 31, 2024, a decrease of 45.3%, compared to $720,000 for the three months ended March 31, 2023.

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 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.

Expense reimbursements to related parties-corporate were $605,000 for the three months ended March 31, 2024, consistent with expenses of $528,000 for the three months ended March 31, 2023.

Table o f Contents

Interest Expense:

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.

Interest expense, which has not been allocated to our operating segments, increased by 34.5% to $8.1 million for the three months ended March 31, 2024, compared to $6.0 million for the three months ended March 31, 2023.

The increase was attributable to mortgages assumed in connection with our multifamily acquisitions during the first quarter of 2023, higher average outstanding principal balances on our 2022 Credit Facility Revolver for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 and an increase in the SOFR components of interest rates on our variable-rate debt for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023.

General and Administrative Expenses:

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.

General and administrative expenses, which have not been allocated to our operating segments, were $1.2 million for the three months ended March 31, 2024, consistent with $1.3 million for the three months ended March 31, 2023.

Transaction-Related Costs:

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.

Transaction costs were $690,000 for the three months ended March 31, 2024, compared with $3.4 million for the three months ended March 31, 2023.

The decrease was related to costs incurred in connection with the acquisition of two multifamily properties in Oakland, California in the first quarter of 2023, which increased these costs in the prior year period.

Depreciation and Amortization Expense:

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.

Depreciation and amortization expense decreased by 31.8% to $6.5 million for the three months ended March 31, 2024, compared to $9.5 million for the three months ended March 31, 2023.

The decrease was primarily due to a decrease in acquired in-place lease intangible assets amortization at multifamily properties located in Oakland, California acquired during the first quarter of 2023, which were fully amortized as of December 31, 2023, partially offset by 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 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.

Gain on sale of real estate of $1.1 million for the three months ended March 31, 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 three months ended March 31, 2024.

Provision for Income Taxes:

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.

Provision for income taxes was $270,000 for the three months ended March 31, 2024, consistent with $256,000 for the three months ended March 31, 2023.

Cash Flow Analysis

1 unchanged sentence

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 $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.

Net cash provided by operating activities decreased by $1.2 million for the three months ended March 31, 2024, as compared to the same period in 2023.

The decrease was primarily due to a $5.4 million decrease resulting from a higher level of net working capital used compared to the prior period, partially offset by an increase in reduction in net loss adjusted for depreciation and amortization expense and other non-cash items of $3.1 million and an increase in net proceeds from the sale of loans of $1.2 million.

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 $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.

Net cash used in investing activities decreased by $90.7 million for the three months ended March 31, 2024, as compared to the same period in 2023.

The decrease in cash used in investing activities was primarily due to an decrease in acquisitions of real estate of $96.7 million and a decrease in cash outlays of $6.1 million related to our investments in Unconsolidated Joint Ventures during the three months ended March 31, 2024, compared to the same period in 2023.

Partially offsetting the decrease in net cash used in investing activities are $16.7 million in proceeds from the sale of a property to the 4750 Wilshire JV during the three months ended March 31, 2023.

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

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.

Net cash provided by financing activities decreased by $77.5 million for the three months ended March 31, 2024, as compared to the same period in 2023, primarily as a result of net proceeds from our 2022 Credit Facility and mortgages of $1.4 million during the three months ended March 31, 2024 compared to $103.8 million during the three months ended March 31, 2023 and the issuance of unguaranteed SBA 7(a) loan-backed notes of approximately $54.1 million during the three months ended March 31, 2023.

The aforementioned amounts decreasing net cash provided by financing activities were partially offset by a decrease in redemption of preferred stock of $78.7 million, a decrease in the payment of deferred debt origination costs of $2.4 million, and an decrease in preferred dividend payments of $2.2 million during the three months ended March 31, 2024, compared to the three months ended March 31, 2023.

Table o f Contents

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 (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.

On a short-term basis, our principal demands for funds will be for the acquisition of assets, development or repositioning of properties (as further described below) (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:

(i) offerings of shares of Common Stock, preferred stock or other equity and or debt securities of the Company;

(ii) credit facilities and term loans;

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

(iv) the sale of existing assets;

(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 a new facility (the “2022 Credit Facility”).

(i) offerings of shares of our common stock, par value $0.001 per share (“Common Stock”), preferred stock or other equity and/or debt securities of the Company;

(ii) issuances of interests in our operating partnership in exchange

for properties;

(iii) credit facilities and term loans;

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

(v) the sale of existing assets;

(vi) partnering with co-investors;

and/or (vii) 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 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, was $83.8 million.

The payment for the Series L Redemption was made on January 25, 2023 together with payment of 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 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 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.

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 for a total cost of $83.8 million.

The payment for the Series L Redemption was made on January 25, 2023 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.

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 $8.2 million as of March 31, 2024, 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.

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 and/or conducting development work on any of our development sites, we will have increased liquidity needs.

We own a 20% interest in an unconsolidated joint venture (the “4750 Wilshire Joint Venture”) that is in the process of converting a portion of an office building in Los Angeles, California from office space into luxury for-rent residential units (the “4750 Wilshire Project”).

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 received cash sales proceeds from our joint venture partners.

To the extent we decide to proceed with development work on any of our development sites (in addition to those discussed below), we will have increased liquidity needs.

An Unconsolidated Joint Venture (the “4750 Wilshire JV”), in which we have a 20% ownership interest, is in the process of converting two of the three floors of an office building in Los Angeles, California from office-use into 68 for-lease multifamily units (the “4750 Wilshire Project”), with the first floor of the building continuing to function as 30,335 square feet of office space.

The total cost of the 4750 Wilshire Project is expected to be approximately $31.0 million (our share of which will be $6.2 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 JV, we received cash sales proceeds from the joint venture partners, enhancing our liquidity.

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.

As of March 31, 2024, total costs of $17.3 million had been incurred by the 4750 Wilshire JV in connection with the 4750 Wilshire Project.

The 4750 Wilshire Project is expected to be completed by the 4th quarter of 2024.

In addition to the 4750 Wilshire Project, our long-term liquidity needs include our plan to renovate the Sheraton Grand Hotel in Sacramento, California (the “Hotel Renovation”), which primarily entails renovating the hotel’s guest rooms and corridors and is expected to cost approximately $20.9 million.

As of March 31, 2024, $1.6 million of pre-construction costs had been incurred with respect to the Hotel Renovation;

the Company plans to start construction in the second half of 2024, with anticipated completion by the third quarter of 2025.

Additionally, an Unconsolidated Joint Venture (the “1910 Sunset JV”), in which we have approximately a 44% ownership interest, has begun construction to develop a multifamily apartment building with 36 multifamily units at 1915 Park Avenue in Los Angeles, California (the “1915 Park Project), which development is expected to be completed by the third quarter of 2025 and with an estimated cost of approximately $19.3 million (our share of which will be $8.5 million).

The 1910 Sunset JV plans to finance the project through a combination of cash from operations at its office property, additional equity contributions from existing investors, and proceeds from a mortgage loan from a third-party lender (which is in-place but currently has no outstanding borrowings and is subject to additional equity contribution

Table o f Contents

requirements which have not yet been met).

As of March 31, 2024, the 1910 Sunset JV had incurred total costs of $2.3 million in connection with the 1915 Park 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.

3 unchanged sentences

Sources and Uses of Funds

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

We have mortgage loan agreements with an outstanding balances of $250.7 million as of March 31, 2024.

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.

In regards to our fixed rate mortgage loan maturing on June 7, 2024, we exercised its one-year extension option in April 2024, extending the maturity of the mortgage by one year.

The Company has been in discussions with the lender under the variable rate mortgage to restructure the terms of the mortgage, as rent payments from the property will likely be insufficient to meet debt service payments under the mortgage.

There can be no assurance that such restructuring will occur.

If the Company and the lender under the variable rate mortgage cannot agree on a modification of the mortgage and the Company fails to make a required monthly debt service payment, such failure will constitute an event of default under the mortgage and the lender may, among other remedies, declare principal and interest under the mortgage loan to be immediately due and payable.

The mortgage relates to Channel House, a multifamily property in Oakland, California.

Revolving Credit Facilities

6 unchanged sentences

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

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

As of March 31, 2024, the variable interest rate was 7.93%.

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.

1 unchanged sentence

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 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.

As of May 14, 2024, March 31, 2024, and December 31, 2023, $173.2 million, $158.2 million, and $153.2 million, respectively, was outstanding under the 2022 Credit Facility and approximately $0.0, $48.0 million and $53.0 million, respectively, was available for future borrowings.

As of March 31, 2024, the Company was not in compliance with a financial covenant under the 2022 credit facility.

Such non-compliance constituted an event of default under the 2022 credit facility.

On May 14, 2024, lenders under the 2022 credit facility and the Company entered into an agreement (the “Modification Agreement”) pursuant to which the lenders waived such event of default with respect to the test period ending March 31, 2024.

Pursuant to the Modification Agreement, the Company will not be able to borrow under the 2022 credit facility without the consent of the lenders until certain conditions are satisfied, including delivery of a revised business plan acceptable to the lenders and re-establishing compliance with the financial covenant.

There can be no assurance as to when or if such conditions will be satisfied.

The Company believes that it could rely on other sources for its liquidity needs, including (i) obtaining new or modifying existing credit facilities and term loans;

(ii) offerings of shares of Common Stock, preferred stock or other equity and or debt securities of the Company;

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

(iv) the sale of existing assets;

(v) partnering

Table o f Contents

with co-investors;

and or (vi) cash flows from operations.

Among other restrictions, the Modification Agreement also prohibits subsidiaries of the Company that own properties that secured the 2022 credit facility from making any distributions to its parent entities.

The Modification Agreement did not waive compliance with the financial covenant for the test period ending June 30, 2024 or any future period.

The Company has been in discussion with the administrative agent of the 2022 credit facility to obtain a long-term amendment to the terms of the 2022 credit facility.

While the Company believes that it will be able to obtain such amendment, there can be no assurance that such amendment will be executed.

If the Company is unsuccessful in amending the 2022 credit facility, and is not able to re-establish compliance with the financial covenant for the test period ending June 30, 2024 or any future period, lenders thereunder may, among other remedies, declare their commitment thereunder to be terminated and/or declare the unpaid principal amount of all outstanding loans, all interest accrued and unpaid thereon, to be immediately due and payable, and foreclose on or take other secured creditor remedies with respect to the properties that secure the 2022 credit facility.

Other Financing Activity

3 unchanged sentences

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

As of March 31, 2024, the variable interest rate was 8.15%.

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.

2 unchanged sentences

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 September 30, 2023.

The aggregate principal balance of the junior subordinated notes was $27.1 million as of March 31, 2024.

Securities Offerings

3 unchanged sentences

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

As of March 31, 2024, there were 1,444,258 Series A Preferred Warrants to purchase 369,653 shares of Common Stock outstanding.

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

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

Commencing in June 2022, the Company has conducted a public offering with respect to shares of its Series A1 Preferred Stock of up to approximately $692.3 million, par value $0.001 per share with an initial stated value of $25.00 per share, subject to adjustment.

The Company has filed a Registration Statement on Form S-11 in respect of such offering and anticipates continuing the offering upon effectiveness of such Registration Statement on Form S-11.

Nothing contained in this Quarterly Report on Form 10-Q is or shall be deemed to be an offer to sell any securities of the Company, or

the solicitation of any offer to buy any securities of the Company, in any jurisdiction, which may only be made pursuant to appropriate offering documentation.

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 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.

As of March 31, 2024, we had issued 11,127,248 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 $439.0 million after commissions, fees and allocated costs.

Table o f Contents

Dividends on and Redemptions of Preferred Stock

9 unchanged sentences

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 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”).

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 the aggregate).

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 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).

The total cost to complete the Series L Redemption, including transaction costs, 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 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 were owed on the redeemed shares of Series L Preferred Stock subsequent to December 31, 2022.

As of March 31, 2024, we redeemed 1,778,005 shares of Series A Preferred Stock, 119,072 shares of Series A1 Preferred Stock, and 8,410 shares of Series D Preferred Stock.

Off-Balance Sheet Arrangements

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

As of March 31, 2024, we did not have any off-balance sheet arrangements.

Recently Issued Accounting Pronouncements

1 unchanged sentence

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