Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This section includes many forward-looking statements. For cautions about relying on such forward-looking statements, please see “Forward-Looking Statements” at the beginning of this report immediately prior to “Item 1 —Business” in this Annual Report on Form 10-K.
Overview
The following discussion focuses on recent developments expected to have material current and future impacts on the results of our business, trends and uncertainties within our industry and business model that may impact our financial results, our recent results of operations, and our liquidity and capital resources.
Executive Summary
Business Overview
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. We seek to apply the expertise of CIM Group to the acquisition, development and operation of premier multifamily properties and creative office assets that cater to rapidly growing industries such as technology, media and entertainment. All of our real estate assets are and will generally be located in communities qualified by CIM Group as described further below. These communities are located in areas that include traditional downtown areas and suburban main streets, which have high barriers to entry, high population density, positive population trends and a propensity for growth. We believe that the critical mass of redevelopment in such areas creates positive externalities, which enhance the value of real estate assets in the area. We believe that these assets will provide greater returns than similar assets in other markets, as a result of the population growth, public commitment and significant private investment that characterize these areas.
CIM Group is headquartered in Los Angeles, California and has offices in Atlanta, Georgia, Chicago, Illinois, Dallas, Texas, New York, New York, Orlando, Florida, Phoenix, Arizona, London, U.K. and Tokyo, Japan. CIM also maintains additional offices with distribution staff and JV partnerships.
Properties
As of December 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 one office property, one multifamily site currently under development, two multifamily properties (one of which has been partially converted from office into multifamily units and is now being classified as a multifamily property) and one commercial development site. As of December 31, 2024, our 12 office properties, totaling approximately 1.3 million rentable square feet, were 70.6% occupied and our one 505-room hotel with an ancillary parking garage, had RevPAR of $135.90 for the year ended December 31, 2024 and our four multifamily properties were 81.7% occupied. Additionally, as of December 31, 2024, we had nine development sites (three of which were being used as parking lots).
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Rental Rate Trends
Office Statistics: The following table sets forth occupancy rates and annualized rent per occupied square foot across our office portfolio as of the specified periods (includes 100% of our properties partially owned through Unconsolidated Joint Ventures):
As of December 31,
2024 2023
Occupancy (1)
70.6 % 83.8 %
Annualized rent per occupied square foot (1)(2)
$ 60.48 $ 57.17
(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) Represents gross monthly base rent under leases commenced as of the specified periods, 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. 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 December 31, 2024 and 2023 were approximately $1.1 million and $3.0 million, respectively. Giving effect to abatements, net annualized rent per occupied square foot was $59.93 and $55.95 as of December 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
March 31, June 30, September 30, December 31,
2025 2025 2025 2025
Expiring Cash Rents:
Expiring square feet (1)
44,273 29,537 32,658 3,857
Expiring rent per square foot (2)
$ 61.41 $ 73.47 $ 57.11 $ 46.67
(1) Month-to-month tenants occupying a total of 4,371 square feet are included in the expiring leases in the first quarter listed.
(2) Represents gross monthly base rent, as of December 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 year ended December 31, 2024, we executed leases with terms longer than 12 months totaling 269,811 square feet. The table below sets forth information on certain of our executed leases during the year ended December 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:
New Cash Expiring Cash
Number of Rentable Rents per Square Rents per Square
Leases (1)
Square Feet Foot (2)
Foot (2)
Twelve Months Ended December 31, 2024 26 260,796 $ 52.74 $ 53.92
(1) Based on the number of tenants that signed leases.
(2) Cash rents represent gross monthly base rent, 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.
Fluctuations in submarkets, buildings and terms of leases cause large variations in these numbers and make predicting the changes in rent in any specific period difficult. Our rental and occupancy rates are impacted by general economic conditions, including the pace of regional and economic growth, and access to capital. Therefore, we cannot give any assurance that leases will be renewed or that available space will be re-leased at rental rates equal to or above the current market rates.
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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.
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 properties partially owned through an Unconsolidated Joint Venture):
As of December 31,
2024 2023
Occupancy 81.7 % 79.3 %
Monthly rent per occupied unit (1) $ 2,468 $ 2,805
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(1) Represents gross monthly base rent under leases commenced as of the specified period, divided by occupied units. This amount reflects total cash rent before concessions. Net of rent concessions granted in the specified period, monthly rent per occupied unit was $2,319 and $2,074 as of December 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 Year Ended
December 31,
2024 2023
Occupancy (1)
67.2 % 75.1 %
ADR $ 202.26 $ 194.12
RevPAR $ 135.90 $ 145.80
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(1) Hotel occupancy in 2024 was negatively impacted by ongoing construction related to the Rooms Renovation Project from September 2024 through December 2024.
Seasonality
Our revenues and expenses for our hotel property are subject to seasonality during the year. Generally, our hotel revenues are greater in the first and second quarters than the third and fourth quarters. This seasonality can be expected to cause quarterly fluctuations in revenues, segment net operating income, net income and cash provided by operating activities. In addition, the hotel industry is cyclical and demand generally follows, on a lagged basis, key macroeconomic factors.
Lending Segment
Through our loans originated under the SBA 7(a) Program, we are a national lender that primarily originates loans to small businesses. We identify loan origination opportunities through personal contacts, internet referrals, attendance at trade shows and meetings, direct mailings, advertisements in trade publications and other marketing methods. We also generate loans through referrals from real estate and loan brokers, franchise representatives, existing borrowers, lawyers and accountants.
The SBA 7(a) Loan Program is the SBA’s most common loan program. The maximum loan amount for an SBA 7(a) loan is $5.0 million. Key eligibility factors are based on what the business does to generate its income, its credit history, the liquidity of the borrower, size standards and where the business operates. We work with potential borrowers to identify the type of loan that would be appropriate for each such borrower’s needs. Our SBA 7(a) term loans have monthly repayment terms of principal and interest and are originated with variable interest rates based on the prime rate. Most of our SBA 7(a) loans have maturities of approximately 25 years.
While we have focused on originating real estate loans almost exclusively to the limited service and mid-scale hospitality industry, we intend to increase our efforts to originate other real estate collateralized loans. These loans are anticipated to be 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.
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2024 Results of Operations
Net Loss and FFO
Year Ended
December 31, Change
2024 2023 $ %
(dollars in thousands)
Total revenues $ 124,512 $ 119,258 $ 5,254 4.4 %
Total expenses $ 148,658 $ 170,163 $ (21,505) (12.6) %
Net loss
$ (25,750) $ (51,456) $ 25,706 (50.0) %
The Company had a net loss of $25.8 million for the year ended December 31, 2024, representing a decrease of $25.7 million compared to a net loss of $51.5 million for the year ended December 31, 2023. The decrease was primarily due to a decrease of $25.1 million in depreciation and amortization expense (discussed in more detail below in “Summary Segment Results”) and a decrease in transaction costs of $3.0 million, partially offset by an increase in interest expense not allocated to our operating segments of $2.2 million and a loss on extinguishment of debt of $1.4 million.
Funds from Operations
We believe that funds from operations (“FFO”), a non-GAAP measure, is a widely recognized and appropriate measure of the performance of a REIT and that it is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs, many of which present FFO when reporting their results. FFO represents net income (loss) attributable to common stockholders, computed in accordance with GAAP, which reflects the deduction of redeemable preferred stock dividends accumulated, excluding gains (or losses) from sales of real estate, impairment of real estate, and real estate depreciation and amortization. We calculate FFO in accordance with the standards established by the National Association of Real Estate Investment Trusts (the “NAREIT”).
Like any metric, FFO should not be used as the only measure of our performance because it excludes depreciation and amortization and captures neither the changes in the value of our real estate properties that result from use or market conditions nor the level of capital expenditures and leasing commissions necessary to maintain the operating performance of our properties, all of which have real economic effect and could materially impact our operating results. Other REITs may not calculate FFO in accordance with the standards established by the NAREIT; accordingly, our FFO may not be comparable to the FFOs of other REITs. Therefore, FFO should be considered only as a supplement to net income (loss) as a measure of our performance and should not be used as a supplement to or substitute measure for cash flows from operating activities computed in accordance with GAAP. FFO should not be used as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to pay dividends.
The following table sets forth a historical reconciliation of net (loss) attributable to common stockholders to FFO attributable to holders of common stockholders:
Year Ended December 31,
2024 2023
(in thousands)
Net loss attributable to common stockholders (1)
$ (73,343) $ (75,727)
Depreciation and amortization 27,373 52,484
Noncontrolling interests’ proportionate share of depreciation and amortization
(306) (2,090)
Gain on sale of real estate
— (1,104)
FFO attributable to common stockholders (1)
$ (46,276) $ (26,437)
(1) During the years ended December 31, 2024 and 2023, we recognized $17.7 million and $1.5 million, respectively, of redeemable preferred stock redemptions on our consolidated statements of operations and $755,000 and $0 respectively, of redeemable preferred stock deemed dividends on our consolidated statements of operations. Such amounts are included in, and have the effect of increasing the net loss attributable to common stockholders and FFO attributable to common stockholders because redeemable preferred stock redemptions are not an adjustment prescribed by NAREIT.
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FFO attributable to common stockholders, which is a non-GAAP measure, was $(46.3) million for the year ended December 31, 2024, a decrease of $19.8 million compared to $(26.4) million for the year ended December 31, 2023. The decrease in FFO was primarily attributable to an increase in redeemable preferred stock redemptions of $16.2 million, an increase in redeemable preferred stock dividends of $4.0 million, an increase in interest expense not allocated to our operating segments of $2.2 million and a loss on extinguishment of debt of $1.4 million, these were partially offset by a decrease in transaction costs of $3.0 million.
Summary Segment Results
During the years ended December 31, 2024 and 2023, we operated in four segments: office, hotel and multifamily properties and lending. Set forth and described below are summary segment results for our operating segments.
Year Ended
December 31, Change
2024 2023 $ %
(dollars in thousands)
Revenues:
Office $ 54,283 $ 55,033 $ (750) (1.4) %
Hotel $ 39,407 $ 41,096 $ (1,689) (4.1) %
Multifamily
$ 19,515 $ 11,224 $ 8,291 73.9 %
Lending $ 10,756 $ 11,458 $ (702) (6.1) %
Expenses:
Office $ 27,327 $ 26,075 $ 1,252 4.8 %
Hotel $ 27,955 $ 27,992 $ (37) (0.1) %
Multifamily
$ 13,715 $ 9,464 $ 4,251 44.9 %
Lending $ 7,556 $ 7,899 $ (343) (4.3) %
Income (Loss) From Unconsolidated Entities
Office $ 462 $ (582) $ 1,044 NM*
Multifamily
$ (1,268) $ 155 $ (1,423) NM*
Non-Segment Revenue and Expenses:
Interest and other income $ 551 $ 447 $ 104 23.3 %
Asset management and other fees to related parties $ (1,797) $ (2,627) $ 830 (31.6) %
Expense reimbursements to related parties—corporate $ (2,281) $ (2,342) $ 61 (2.6) %
Interest expense $ (33,589) $ (31,406) $ (2,183) 7.0 %
General and administrative $ (4,267) $ (5,453) $ 1,186 (21.7) %
Transaction costs $ (1,382) $ (4,421) $ 3,039 (68.7) %
Depreciation and amortization $ (27,373) $ (52,484) $ 25,111 (47.8) %
Loss on early extinguishment of debt $ (1,416) $ — $ (1,416) NM*
Gain on sale of real estate $ — $ 1,104 $ (1,104) (100.0) %
Provision for income taxes $ (798) $ (1,228) $ 430 (35.0) %
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(*) Percentage changes in excess of 100% are deemed to be not meaningful (“NM”)
Revenues
Office Revenue: Office revenue includes rental revenue, expense reimbursements and lease termination income from office properties. Office revenue decreased to $54.3 million for the year ended December 31, 2024 from $55.0 million for the year ended December 31, 2023. The decrease is primarily due to a decrease in rental revenues at an office property in Oakland, California due to lower occupancy. This was partially offset by higher rental revenues at an office property in Beverly Hills,
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California due to increased rental rates and higher rental revenues at an office property in Los Angeles, California from increased occupancy.
Hotel Revenue: Hotel revenue decreased to $39.4 million for the year ended December 31, 2024, compared to $41.1 million for the year ended December 31, 2023. The decrease is due to a decrease in occupancy during 2024 as compared to the prior year. Hotel occupancy in 2024 was negatively impacted by ongoing construction related to the Rooms Renovation Project from September 2024 through December 2024.
Multifamily Revenue: Multifamily revenue increased to $19.5 million for the year ended December 31, 2024, compared to $11.2 million for the year ended December 31, 2023. The increase is primarily due to higher occupancy and increased rent per occupied unit, net of rent concessions, at our consolidated multifamily properties during the year ended December 31, 2024.
Lending Revenue: Lending revenue represents revenue from our lending subsidiaries, including interest income on loans and other loan related fee income. Lending revenue decreased to $10.8 million for the year ended December 31, 2024, compared to $11.5 million for the year ended December 31, 2023. The decrease was primarily due to a decrease in premium income and a decrease in interest income as a result of lower loan originations and loan sale volume during the year ended December 31, 2024, compared to the year ended December 31, 2023.
Income (Loss) From Unconsolidated Office Entities: Income from our office Unconsolidated Joint Ventures included in office segment net operating income increased to income of $462,000 for the year ended December 31, 2024, compared to a loss of $582,000 for the year ended December 31, 2023. The increase is due to changes in the valuation of investments in real estate at our unconsolidated office entities, which recognized a net unrealized gain during the year ended December 31, 2024, compared to a net unrealized loss for the year ended December 31, 2023.
(Loss) Income From Unconsolidated Multifamily Entity: The income from our Unconsolidated Joint Venture included in multifamily segment net operating income decreased to a loss of $1.3 million for the year ended December 31, 2024, compared to income of $155,000 for the year ended December 31, 2023. The decrease is due to changes in the valuation of investments in real estate at our unconsolidated multifamily entities, which recognized a net unrealized loss during the year ended December 31, 2024, compared to a net unrealized gain for the year ended December 31, 2023.
Expenses
Office Expenses: Office expenses increased to $27.3 million for the year ended December 31, 2024, compared to $26.1 million for the year ended December 31, 2023. The increase is primarily a result of increases in operating expenses at an office property in Oakland, California from higher utilities and repairs and maintenance expense and at an office property in Beverly Hills, California from an increase in administrative expense.
Hotel Expenses: Hotel expenses were $28.0 million for the year ended December 31, 2024, consistent with $28.0 million for the year ended December 31, 2023.
Multifamily Expenses: Multifamily expenses increased to $13.7 million for the year ended December 31, 2024, compared to $9.5 million for the year ended December 31, 2023. The increase was primarily due to increased property taxes and repairs and maintenance expense at a multifamily property in Oakland, California and an increase in administrative expense at a multifamily property in Oakland, California for the year ended December 31, 2024.
Lending Expenses: Lending expenses represent expenses from our lending subsidiaries, including interest expense, general and administrative expenses and fees to related parties. Lending expenses decreased to $7.6 million for the year ended December 31, 2024, compared to $7.9 million for the year ended December 31, 2023. The decrease was primarily due to a decrease in interest expense resulting from the amount of principal repayments on our SBA 7(a) loan-backed notes.
Asset Management and Other Fees to Related Parties: Asset management fees and other fees to related parties, which have not been allocated to our operating segments decreased to $1.8 million for the year ended December 31, 2024, compared to $2.6 million for the year ended December 31, 2023. 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 2023.
Expense Reimbursements to Related Parties—Corporate : The Administrator receives compensation and/or reimbursement for performing certain services for the Company and its subsidiaries. Expense reimbursements to related parties—corporate were $2.3 million for the year ended December 31, 2024, consistent with $2.3 million for the year ended December 31, 2023.
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Interest Expense: Interest expense, which has not been allocated to our operating segments, increased to $33.6 million for the year ended December 31, 2024, compared to $31.4 million for the year ended December 31, 2023. The increase was attributable to higher average outstanding principal balance on our 2022 Credit Facility Revolver and property mortgages for the year ended December 31, 2024, compared to the year ended December 31, 2023, as well as incremental interest expense related to new variable rate mortgage loan at our hotel property which closed in December 2024.
General and Administrative Expenses: General and administrative expenses, which have not been allocated to our operating segments, were $4.3 million for the year ended December 31, 2024, compared to $5.5 million for the year ended December 31, 2023. The decrease was primarily due to decreases in legal fees and consulting services.
Transaction Costs: Transaction costs were $1.4 million for the year ended December 31, 2024, compared to $4.4 million for the year ended December 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 decreased to $27.4 million for the year ended December 31, 2024, compared to $52.5 million for the year ended December 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.
Loss on Early Extinguishment of Debt: Loss on early extinguishment of debt of $1.4 million for the year ended December 31, 2024 was related to paydowns made on our 2022 Credit Facility Revolver. There was no loss on early extinguishment of debt during the year ended December 31, 2023.
Gain on Sale of Real Estate: Gain on sale of real estate of $1.1 million for the year ended December 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 year ended December 31, 2024.
Provision for Income Taxes: Provision for income taxes decreased to $798,000 for the year ended December 31, 2024, compared to $1.2 million for the year ended December 31, 2023. The decrease is primarily due to lower taxable income at our taxable REIT subsidiaries during the year ended December 31, 2024 as compared to the year ended December 31, 2023.
Cash Flow Analysis
Our cash flows from operating activities are primarily dependent upon the real estate assets owned, occupancy level of our real estate assets, the rental rates achieved through our leases, the occupancy and ADR of our hotel, the collectability of rent and recoveries from our tenants, and loan related activity. Our cash flows from operating activities are also impacted by fluctuations in operating expenses and other general and administrative costs. Net cash provided by operating activities increased by $5.0 million for the year ended December 31, 2024 as compared to the same period in 2023. The increase was primarily due to a $4.1 million increase resulting from a lower level of net working capital used and a reduction in net loss adjusted for depreciation and amortization expense and other non-cash items of $3.7 million, partially offset by a $2.8 million decrease in net proceeds from the sale of loans, compared to the same period in 2023.
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 decreased by $66.4 million to $22.3 million for the year ended December 31, 2024, compared to $88.7 million for the year ended December 31, 2023. The decrease in cash used in investing activities was primarily due to a $96.7 million decrease in acquisitions of real estate and a decrease in cash outlays of $12.0 million related to our investments in the Unconsolidated Joint Ventures, compared to the same period in 2023. Partially offsetting the decrease in net cash used in investing activities are $32.2 million in proceeds from the sale of a property to the 4750 Wilshire JV during the year ended December 31, 2023 and a $9.9 million increase in capital expenditures during the year ended December 31, 2024.
Our cash flows from financing activities are generally impacted by borrowings and capital activities. Net cash provided by financing activities for the year ended December 31, 2024 was $13.9 million, compared to cash provided by financing activities of $63.4 million for the year ended December 31, 2023. The decrease of $49.5 million was primarily due to a $62.8 million decrease in net proceeds from issuance of preferred stock during the year ended December 31, 2024 compared to the prior period, the issuance of unguaranteed SBA 7(a) loan-backed notes of approximately $54.1 million during the year ended December 31, 2023, and $38.0 million of net proceeds from our 2022 Credit Facility and mortgages for the year ended December 31, 2024, compared to $56.5 million for the year ended December 31, 2023. The aforementioned amounts decreasing
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net cash provided by financing activities were partially offset by a decrease of $80.8 million in cash redemptions of preferred stock and a decrease in preferred dividend cash payments of $3.9 million during the year ended December 31, 2024 compared to the prior period.
Liquidity and Capital Resources
General
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) 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; (v) the sale of existing assets; and/or (vi) cash flows from operations. Our 2022 Revolving Credit Facility has an outstanding balance of $15.0 million and matures on March 31, 2025 (pursuant to various modification amendments) .
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 $9.5 million as of December 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% 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. 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.
Our long-term liquidity needs include development at an Unconsolidated Joint Venture (the “1910 Sunset JV”), in which we have approximately a 44% ownership interest. The 1910 Sunset JV has begun construction to build 36 multifamily units on the 1915 Park Avenue land parcel adjacent to the office building (the “1915 Park Project”) in Los Angeles, California, which development is expected to be completed by the third quarter of 2025 and with an estimated cost of approximately $14.7 million (excluding the land acquisition cost), our share of which is expected to be $6.5 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 has a balance of $658,000 as of December 31, 2024 and total borrowing availability of $9.4 million, subject to additional equity contribution requirements). As of December 31, 2024, the 1910 Sunset JV had incurred total costs of $7.6 million in connection with the 1915 Park Project.
Construction has been substantially completed at one of our Unconsolidated Joint Ventures (the “4750 Wilshire JV”), in which we have a 20% ownership interest. The 4750 Wilshire JV has converted two of the three floors of an office property at 4750 Wilshire Boulevard in Los Angeles, California (“4750 Wilshire”) from office-use into 68 for-lease multifamily units (the “4750 Wilshire Project”), with the first floor of 4750 Wilshire continuing to function as 30,335 square feet of office space. The 4750 Wilshire JV began leasing for the multifamily units in September 2024. As of December 31, 2024, total costs of $28.9 million had been incurred by the 4750 Wilshire JV in connection with the 4750 Wilshire Project, which has an expected total completion cost of $31.0 million.
Construction has been substantially completed on the Rooms Renovation Project at our Sheraton Grand Hotel in Sacramento, California, with a total cost of approximately $20.9 million, of which approximately $16.6 million had been paid as of December 31, 2024. We are currently working on designs for the renovation of Sheraton Grand Hotel’s lobbies and common areas (the “Lobby Renovation Project”). We have not approved a budget for the Lobby Renovation Project but intend to complete the project in 2025.
At the end of the first three quarters of 2024, the Company was not in compliance with a financial covenant under the 2022 Credit Facility. Further, as of December 31, 2024, the Company was not in compliance with two covenants under the 2022 Credit Facility. Such non-compliance events during 2024 constituted events of default under the 2022 Credit Facility. Lenders under the 2022 Credit Facility and the Company entered into an agreement (the “First Modification Agreement”) pursuant to which the lenders waived such event of default with respect to the test period ending March 31, 2024. Among other
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restrictions, the First Modification Agreement also prohibited subsidiaries of the Company that own properties that secured the 2022 Credit Facility from making any distributions to its parent entities. On August 7, 2024, lenders under the 2022 Credit Facility and the Company entered into an agreement (the “Second Modification Agreement”) pursuant to which the lenders waived such event of default with respect to the test period ending June 30, 2024. Simultaneously with the execution of the Second Modification Agreement, the Company made a $4.0 million repayment under the 2022 Credit Facility. On October 24, 2024, lenders under the 2022 Credit Facility and the Company entered into an agreement (the “Third Modification Agreement”) pursuant to which the lenders waived such event of default with respect to the test period ending September 30, 2024, pursuant to which the aggregate commitments under the 2022 Credit Facility were reduced from $206.2 million to $169.3 million, and pursuant to which the lenders under the 2022 Credit facility agreed to release the Hotel Properties in order to facilitate the refinancing of such properties. On December 24, 2024, in connection with the Refinancings, the lenders under the 2022 Credit Facility and the Company entered into an agreement (the “Fourth Modification Agreement”) pursuant to which the lenders agreed to release assets relating to three of the Company’s office buildings located in Los Angeles, California, in order to facilitate a refinancing of such properties, subject to a minimum prepayment of the 2022 Credit Facility in connection with such refinancing. In addition, the Fourth Modification Agreement changed the maturity date of the facility to January 31, 2025, subject to a 2-month extension option. Such extension option was executed on January 31, 2025 pursuant to an additional modification agreement to the 2022 Credit Facility (the “Fifth Modification Agreement”).
The event of default under the 2022 Credit Facility as of December 31, 2024 allows lenders under the 2022 Credit Facility to, among other remedies, declare the unpaid principal amount of all outstanding loans, and all interest accrued and unpaid thereon, to be immediately due and payable. Management plans to address such default by further modifying the 2022 Credit Facility and/or refinancing an additional office property in Austin, Texas (the “Austin Refinancing”). As the Company has reduced the outstanding borrowings under the 2022 Credit Facility from $169.3 million to $15.0 million during December 2024 in connection with the Refinancings, Management expects the proceeds from the Austin Refinancing will be more than sufficient to repay all amounts outstanding under the 2022 Credit Facility, with remaining proceeds to be used for general corporate purposes. Management believes its plan to repay amounts outstanding under the 2022 Credit Facility is probable based on the on the favorable loan-to-value ratio (“LTV”) of the property associated with the Austin Refinancing.
During the year ended December 31, 2024, at our option, we redeemed 2,589,606 and 2,150,076 shares of Series A1 Preferred Stock and Series A Preferred Stock, respectively, in shares of Common Stock and, additionally, from September 2024 through December 2024, we paid holder-requested redemptions of 181,912 and 214,713 shares of Series A1 Preferred Stock and Series A Preferred Stock, respectively, in shares of Common Stock. We currently plan to continue to satisfy some or all redemption requests submitted by holders of our shares of Preferred Stock in shares of Common Stock during 2025, when legally permitted. We have in the past exercised our right to redeem shares of Preferred Stock at our option (subject to the terms of the Preferred Stock set forth in the charter) and pay the redemption price in shares of Common Stock, and we may do so again in the future.
The measures noted above, taken together, are expected to strengthen our balance sheet, improve liquidity and accelerate our transition towards premier multifamily properties. These actions are also intended to better position the Company to take advantage of opportunities that are expected to arise in a recovering real estate market.
We may not have sufficient funds on hand or may not be able to obtain additional financing to cover all of our long-term cash requirements. The nature of our business, and the requirements imposed by REIT rules that we distribute a substantial majority of our REIT taxable income on an annual basis in the form of dividends, may cause us to have substantial liquidity needs over the long-term. While we will seek to satisfy such needs through one or more of the methods described in this Annual Report on Form 10-K, our ability to take such actions is highly uncertain and cannot be predicted, and could be affected by various risks and uncertainties, including, but not limited to, the risks detailed in “Item 1A—Risk Factors” of this Annual Report on Form 10-K. If we cannot obtain funding for our long-term liquidity needs, our assets may generate lower cash flows or decline in value, or both, which may cause us to sell assets at a time when we would not otherwise do so which could have a material adverse effect on our business, financial condition, results of operations, cash flow or our ability to satisfy our debt service obligations or to maintain our level of distributions on our Common Stock or Preferred Stock.
We may not be able to maintain a listing of our Common Stock on Nasdaq. We must meet certain financial and liquidity criteria to maintain the listing of our Common Stock on Nasdaq. If we violate Nasdaq’s listing requirements or fail to meet its listing standards, our Common Stock may be delisted. On November 7, 2024, we received written notice from the Listing Qualifications Department of Nasdaq indicating that, because the closing bid price for our Common Stock had fallen below $1.00 per share for 30 consecutive business days, we no longer comply with the Bid Price Requirement. To regain compliance, the closing bid price of our Common Stock must meet or exceed $1.00 per share for a minimum of ten consecutive business days prior to May 6, 2025. While we will seek to regain compliance with the Bid Price Requirement through various methods available to us, the results of such actions are highly uncertain and may depend on, among other things, our ability to receive stockholder approval for certain corporate actions and our ability to successfully appeal any potential delisting to a
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Nasdaq independent hearings panel. We believe that delisting our Common Stock from Nasdaq could have significant adverse consequences, including a decreased ability to issue additional shares of Common Stock to raise additional financing in the future due to the increased lack of liquidity that would result in our Common Stock due to the factors described in “We may not be able to maintain a listing of our Common Stock on Nasdaq” in “Item 1A—Risk Factors.” In addition, delisting may result in the inability to redeem Preferred Stock when all other criteria for redemption have been met if registration under applicable state securities or “blue sky” laws is not able to be accomplished in a particular state and the cash required for such redemption is not available.
Sources and Uses of Funds
Mortgages
We have mortgage loan agreements with outstanding balances of $440.4 million as of December 31, 2024. Our mortgage loans mature on various dates from June 7, 2025 through January 11, 2030, with two mortgage loans with maturity dates in 2025, each including a 1-year extension option, one of which is at the Company’s discretion and we expect to exercise and one of which (the “Channel House Mortgage”) is subject to certain conditions being met.
The Company has been in discussions with the lender under the Channel House Mortgage, which is non-recourse and has no cross-collateral provisions and is secured by Channel House (a multifamily property in Oakland, California), to restructure the terms of the mortgage, as the Company does not expect the property will meet certain conditions that are required in order for the Company to exercise the option to extend the Channel House Mortgage beyond July 7, 2025. There can be no assurance that such restructuring will occur. If the Company and the lender under the Channel House Mortgage cannot agree on a modification of the mortgage and the Company fails to exercise its extension option, such failure would constitute an event of default under the mortgage and would allow the lender to, among other remedies, declare principal and interest under the mortgage loan to be immediately due and payable.
Revolving Credit Facilities
In December 2022, the Company refinanced its 2018 credit facility and replaced it with a new 2022 credit facility (the 2022 Credit Facility”), entered into with a bank syndicate, that included a $56.2 million term loan (the “2022 Credit Facility Term Loan”) as well as a revolver that originally allowed 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. At the time the 2022 Credit Facility was entered into, it was collateralized by six of the Company’s office properties, as well as the Company’s hotel property and adjacent parking garage (the “Hotel Properties”). The 2022 Credit Facility bears interest at (A) the base rate plus 1.50% or (B) SOFR plus 2.60%. As of December 31, 2024, the variable interest rate was 7.29%. The 2022 Credit Facility Revolver is also subject to an unused commitment fee of 0.15% or 0.25% depending on the amount of aggregate unused commitments. The 2022 Credit Facility is guaranteed by the Company and the Company is subject to certain financial maintenance covenants. The 2022 Credit Facility originally had a maturity date in December 2025 and provided for two one-year extension options. In December 2024, using proceeds from the closing of a variable rate mortgage on the Hotel Properties and a fixed rate mortgage on three of the Company’s office properties (collectively, the “Refinancings”), the Company repaid $111.7 million on the 2022 Credit Facility Revolver and $42.6 million on the 2022 Credit Facility Term Loan. Following the completion of the Refinancings, the 2022 Credit Facility was secured by three of the Company’s office properties. The 2022 Credit Facility is not cross-collateralized by any other of the Company’s assets. In connection with the Refinancings, the Company recorded a loss on early extinguishment of debt of $1.4 million related to the write-off of deferred debt origination costs of $1.1 million associated with the 2022 Credit Facility Revolver and $275,000 associated with the 2022 Credit Facility Term Loan. As of February 25, 2025, December 31, 2024, and December 31, 2023, $15.0 million, $15.0 million, and $153.2 million, respectively, was outstanding under the 2022 Credit Facility and $0 and $0, and $53.0 million, respectively, was available for future borrowings.
For certain events of default under the 2022 Credit Facility, modifications of the 2022 Credit Facility relating to such events of default and steps undertaken by us to address such events of default, please see discussion under “Liquidity and Capital Resources - General” above.
Other Financing Activity
On March 9, 2023, our lending division completed a securitization of the unguaranteed portion of certain of our SBA 7(a) loans receivable with the issuance of $54.1 million of unguaranteed SBA 7(a) loan-backed notes (with net proceeds of approximately $43.3 million, after payment of fees and expenses in connection with the securitization and the funding of a reserve account and an escrow account). The SBA 7(a) loan-backed notes are collateralized by the right to receive payments and other recoveries attributable to the unguaranteed portions of certain of our SBA 7(a) loans receivable. The SBA 7(a) loan backed notes mature on March 20, 2048, with monthly payments due as payments on the collateralized loans are received. The
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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 December 31, 2024, the variable interest rate was 7.40%. We reflect the SBA 7(a) loans receivable as assets on our consolidated balance sheet and the SBA 7(a) loan-backed notes as debt on our consolidated balance sheet.
We have junior subordinated notes with a variable interest rate that resets quarterly based on the three-month 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 December 31, 2024.
Securities Offerings
We conducted a continuous public offering of Series A Preferred Stock from October 2016 through January 2020, where one Series A Preferred Warrant was issued along with each issued share of Series A Preferred Stock. During the tenure of the offering, we issued 4,603,287 Series A Preferred Stock and Series A Preferred Warrants and received aggregate net proceeds of $105.2 million after commissions, fees and allocated costs.
The Series A Preferred Warrants are exercisable beginning on the first anniversary of the date of their original issuance until and including the fifth anniversary of the date of such issuance. At the time of issuance, the exercise price of each Series A Preferred Warrant was equal to a 15.0% premium to the per share estimated NAV of our Common Stock most recently published and designated as the applicable NAV by us at the time of issuance. However, in accordance with the terms of the Series A Preferred Warrants, the exercise price of each Series A Preferred Warrant issued prior to the reverse stock split in 2019 (the “Reverse Stock Split”) was automatically adjusted to reflect the effect of the Reverse Stock Split and, in the discretion of our Board of Directors, the exercise price and the number of shares issuable upon exercise of each Series A Preferred Warrant issued prior to the special dividend in 2019 was adjusted to reflect the effect of the Special Dividend. As of December 31, 2024, there were 118,911 Series A Preferred Warrants to purchase 29,728 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. From June 2022 through September 2024, we conducted a public offering with respect to shares of our Series A1 Preferred Stock. We used the net proceeds from the offerings for general corporate purposes. We have suspended our offering of Series A1 Preferred Stock.
As of December 31, 2024, we had issued 12,040,878 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 $459.1 million after commissions, fees and allocated costs.
Dividends on and Redemptions of Preferred Stock
Holders of Series A1 Preferred Stock, Series A Preferred Stock and Series D Preferred Stock are entitled to receive, if, as and when authorized by our Board of Directors, and declared by us out of legally available funds, cumulative cash dividends on each share as follows: (1) at the of greater of (i) an annual rate of 6.0% of the Series A1 Preferred Stock Stated Value (i.e., the equivalent of $0.3750 per share per quarter) and (ii) the Federal Funds (Effective) Rate for such quarter and plus 2.5% of the Series A1 Preferred Stock Stated Value divided by four, up to a maximum of 2.5% of the Series A1 Preferred Stock Stated Value per quarter, (2) 5.50% of the Series A Preferred Stock Stated Value (i.e., the equivalent of $0.34375 per share per quarter), and (3) 5.65% of the Series D Preferred Stock Stated Value (i.e., the equivalent of $0.35313 per share per quarter), respectively.
We expect to pay dividends on the Series A1 Preferred Stock, Series A Preferred Stock and Series D Preferred Stock in arrears on a monthly basis, unless our results of operations, our general financing conditions, general economic conditions, applicable requirements of the MGCL or other factors make it imprudent to do so. The timing and amount of dividends declared and paid on our Preferred Stock will be determined by our Board of Directors, in its sole discretion, and may vary from time to time.
From the date of issuance until the fifth anniversary of the date of issuance, holders of Series A1 Preferred Stock, Series A Preferred Stock and Series D Preferred Stock may require us to redeem such shares at a discount to the Series A1 Preferred Stock, Series A Preferred Stated Value and Series D Preferred Stated Value, respectively. From and after the fifth anniversary of the date of original issuance of any share of our Preferred Stock, we generally (subject to certain conditions) have the right (but not the obligation) to redeem, and the holder of such share may require us to redeem, such share at a redemption price equal to 100% of the stated value of such share, plus any accrued but unpaid dividends in respect of such share as of the effective date of the redemption. The redemption price in respect of any share of Preferred Stock, whether redeemed at our option or at the option of a holder, may be paid in cash or in shares of Common Stock in our sole discretion.
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Through December 31, 2024, we redeemed 4,694,975 shares of Series A Preferred Stock, 2,954,599 shares of Series A1 Preferred Stock, and 8,410 of Series D Preferred Stock. We currently plan to continue to satisfy some or all redemption requests submitted by holders of our shares of Preferred Stock in shares of Common Stock during 2025, when legally permitted.
We have in the past exercised our right to redeem shares of Preferred Stock at our option (subject to the terms of the Preferred
Stock set forth in the charter) and pay the redemption price in shares of Common Stock, and we may do so again in the future.
Of the 2,954,599 shares of Series A1 Preferred Stock that have been redeemed, the redemption of 183,081 shares of Series A1 Preferred Stock were paid in cash (all of which were redeemed at the option of the holders). In September 2024, the Company (at its option) redeemed 2,589,606 shares of Series A1 Preferred Stock, all of which were paid in shares of Common Stock, including all accrued and unpaid dividends as of each redemption date and, in addition, from September through December 2024, 181,912 shares redeemed at the option of the holders were paid in shares of Common Stock, including all accrued and unpaid dividends as of the redemption date (collectively the “Series A1 In-Kind Redemptions”). The Series A1 In-Kind Redemptions resulted in the aggregate issuance of 4,817,486 shares of Common Stock.
Of the 4,694,975 shares of Series A Preferred Stock that have been redeemed, the redemption of 2,330,186 shares of Series A Preferred Stock were paid in cash (2,313,106 of which were redeemed at the option of the holders and 17,080 of which were redeemed at the option of the Company). In September 2024, the Company (at its option) redeemed 2,150,076 shares of Series A Preferred Stock, all of which were paid in shares of Common Stock, including all accrued and unpaid dividends as of each redemption date and, in addition, from September through December 2024, 214,713 shares redeemed at the option of the holders were paid in shares of Common Stock, including all accrued and unpaid dividends as of the redemption date (collectively the “Series A In-Kind Redemptions”). The Series A In-Kind Redemptions resulted in the aggregate issuance of 4,379,099 shares of Common Stock.
Of the 8,410 shares of Series D Preferred Stock that have been redeemed, all such redemptions were paid in cash and were redeemed at the option of the holder.
Dividends on Common Stock
Holders of our Common Stock are entitled to receive dividends, if, as and when authorized by the Board of Directors and declared by us out of legally available funds. In determining our dividend policy, the Board of Directors considers many factors including the amount of cash resources available for dividend distributions, capital spending plans, cash flow, our financial position, applicable requirements of the MGCL, any applicable contractual restrictions, and future growth in NAV and cash flow per share prospects. Consequently, the dividend rate on a quarterly basis does not necessarily correlate directly to any individual factor.
Off Balance Sheet Arrangements
As of December 31, 2024, we did not have any off-balance sheet arrangements.
Critical Accounting Policies and Estimates and Recently Issued Accounting Pronouncements
The discussion and analysis of our historical financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. While we believe that our estimates are based on reasonable assumptions and judgments at the time they are made, some of our assumptions, estimates and judgments will inevitably prove to be incorrect. As a result, actual results could differ from our estimates, and those differences could be material.
We believe the following critical accounting policy, among others, affects our more significant estimates and assumptions used in preparing our consolidated financial statements. For a discussion of recently issued accounting literature, see Note 2 to our consolidated financial statements included in this Annual Report on Form 10-K.
Recoverability of Investments in Real Estate
As described in Note 2 to the consolidated financial statements included in this Annual Report on Form 10-K, investments in real estate are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If, and when, such events or changes in circumstances are present, the recoverability of assets to be held and used is measured by a comparison of the carrying amount to the future undiscounted cash flows expected to be generated by the assets and its eventual disposition. If the undiscounted cash flows are less than the carrying amount of the assets, an impairment is recognized to the extent the carrying amount of the assets exceeds the estimated
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fair value of the assets. Assets held for sale are reported at the lower of the asset’s carrying amount or fair value, less cost to sell.
Our process for evaluating real estate impairment requires management to make significant assumptions related to certain inputs, including rental rates, lease-up period, occupancy, estimated holding periods, capital expenditures, growth rates, market discount rates and terminal capitalization rates. These inputs require a subjective evaluation based on the specific property and market. Changes in the assumptions could have a significant impact on either the fair value, the amount of impairment charge, if any, or both.
FINRA Estimated Per Share Value
We have prepared an estimate of the per share value of each of our Series A Preferred Stock, Series A1 Preferred Stock and Series D Preferred Stock as of December 31, 2024 in order to assist broker-dealers that are participating in our public offering of Series A1 Preferred Stock and broker-dealers that participated in our public offering of Series A Preferred Stock and Series D Preferred Stock in meeting their obligations under applicable FINRA rules. This estimate utilizes the fair values of our investments in real estate and certain lending assets as well as the carrying amounts of our other assets and liabilities, in each case as of December 31, 2024 (the “Calculated Assets and Liabilities”). Specifically, we divided (i) the fair values of our investments in real estate and certain lending assets and the carrying amounts of our other assets less the carrying amounts of our liabilities, in each case as of December 31, 2024, by (ii) the number of shares of Series A Preferred Stock, Series A1 Preferred Stock and Series D Preferred Stock outstanding as of that date. The fair values of our investments in real estate and certain lending assets were determined with material assistance from third-party appraisal firms engaged to value our investments in real estate and certain lending assets, in each case in accordance with standards set forth by the American Institute of Certified Public Accountants. We believe our methodology of determining the Calculated Assets and Liabilities conforms to standard industry practices and is reasonably designed to ensure it is reliable.
The terms of the Series A Preferred Stock, Series A1 Preferred Stock and Series D Preferred Stock expressly provide that the amount that a holder of Series A Preferred Stock, Series A1 Preferred Stock or Series D Preferred Stock, as the case may be, would be entitled to receive upon the redemption of the Series A Preferred Stock, Series A1 Preferred Stock or Series D Preferred Stock, as the case may be, or our liquidation would be equal to the Series A Preferred Stock Stated Value, Series A1 Preferred Stated Value or Series D Preferred Stock Stated Value, as the case may be, plus, in each case, all accumulated, accrued and unpaid dividends thereon (the “Maximum Value”), subject to any applicable redemption fee in the case of a redemption by such holder. As a result, in no event would a holder of Series A Preferred Stock, Series A1 Preferred Stock or Series D Preferred Stock, as the case may be, be entitled to receive an amount greater than the Maximum Value upon the redemption of such shares or our liquidation. Accordingly, although the estimated value of the Series A Preferred Stock, Series A1 Preferred Stock and Series D Preferred Stock, calculated based on the Calculated Assets and Liabilities as described above, exceeded the Maximum Value, we determined that the estimated value of each of the Series A Preferred Stock, the Series A1 Preferred Stock and Series D Preferred Stock, as of December 31, 2024, was equal to $25.00 per share, plus accrued and unpaid dividends.
Dividends
As of December 31, 2024, there were 12,240,878 and 9,286,279 shares of Series A1 Preferred Stock issued and outstanding, respectively, 8,820,338 and 4,125,363 shares of Series A Preferred Stock issued and outstanding, respectively, 56,857 and 48,447 shares of Series D Preferred Stock issued and outstanding, respectively, and 11,654,506 shares of Common Stock issued and outstanding. Additionally as of December 31, 2024, there were no shares of Series L Preferred Stock outstanding, all of which had been either repurchased during 2022 or reclassified to a liability on our consolidated balance sheet as of December 31, 2024 in connection with the Series L Redemption.
Holders of Preferred Stock are entitled to receive, if, as and when authorized by our Board of Directors, and declared by us out of legally available funds, cumulative cash dividends as follows:
Annual Rate of Dividend (as a % of stated value)
Series A1 Preferred Stock (1)
6.00%
Series A Preferred Stock 5.50%
Series D Preferred Stock 5.65%
Series L Preferred Stock 5.50%
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(1) The terms of the Series A1 Preferred Stock provide for cumulative cash dividends (if, as and when authorized by the Board of Directors) on each share of Series A1 Preferred Stock at a quarterly rate of the greater of (i) an annual rate of 6.00% of the Series A1 Stated Value, divided by four (4) and (ii) the Federal Funds (Effective) Rate on the dividend determination date, plus 2.50%, of the Series A1 Stated Value, divided by four (4), up to a maximum of 2.50% of the Series A1 Stated Value per quarter. The annual rate of dividend of the Series A1 Preferred Stock during the first quarter of 2025 is 7.83%.
Dividends on each share of Preferred Stock begin accruing on, and are cumulative from, the date of issuance. We expect to timely pay dividends on the Preferred Stock in arrears on a monthly basis, unless our results of operations, our general financing conditions, general economic conditions, applicable requirements of the MGCL or other factors make it imprudent to do so. The timing and amount of dividends declared and paid on our Preferred Stock will be determined by our Board of Directors, in its sole discretion, and may vary from time to time.
Holders of the Company’s Common Stock are entitled to receive dividends, if, as and when authorized by the Board of Directors and declared by the Company out of legally available funds. In determining the Company’s dividend policy, the Board of Directors considers many factors including the amount of cash resources available for dividend distributions, capital spending plans, cash flow, the Company’s financial position, applicable requirements of the MGCL, any applicable contractual restrictions, and future growth in NAV and cash flow per share prospects. Consequently, the dividend rate on a quarterly basis does not necessarily correlate directly to any individual factor.