What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-09 compared with 2024-11-08 · 155 added, 309 removed, 253 unchanged (65% of the section changed)

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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 continuing higher interest rates on our operations and profitability and (v) general economic, market and other conditions.

slowdown in economic growth..

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 7, 2025 (the “2024 Form 10-K”) and in Part II, Item 1A of this Quarterly Report on Form 10-Q.

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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, 2024 and results of operations for the three and nine months ended September 30, 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.

The following discussion of our financial condition as of March 31, 2025 and results of operations for the three months ended March 31, 2025 and 2024 should be read in conjunction with the 2024 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 2024 Form 10-K and in Part II, Item 1A of this Quarterly Report on Form 10-Q.

Capitalized terms used herein, but not otherwise defined, shall have the meaning ascribed to those terms in “Part I — Financial Information” of this Quarterly Report on Form 10-Q, including the notes to the consolidated financial statements contained therein.

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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.

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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.

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

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 and in South Korea to support its platform.

As of September 30, 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 has been partially converted into multifamily units), one multifamily site currently under development, one multifamily property and one commercial development site.

As of September 30, 2024, our 13 office properties, totaling approximately 1.3 million rentable square feet, were 72.2% occupied, and our one hotel with an ancillary parking garage, which has a total of 503 rooms, had RevPAR of $145.74 for the nine months ended September 30, 2024, and our three multifamily properties were 92.0% occupied.

Additionally, as of September 30, 2024, we had nine development sites (three of which were being used as parking lots).

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.

As of March 31, 2025, 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 March 31, 2025, our 12 office properties, totaling approximately 1.3 million rentable square feet, were 70.2% occupied, and our one 505-room hotel with an ancillary parking garage, had RevPAR of $176.47 for the three months ended March 31, 2025 and our four multifamily properties were 80.2% occupied.

Additionally, as of March 31, 2025, we had nine development sites (three of which were being used as parking lots).

We are a Maryland corporation and REIT.

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Further, as a matter of prudent management, we regularly evaluate each asset within our portfolio as well as our strategy.

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.

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.

CIM Group Operations

CIM Group believes that a vast majority of the risks associated with acquiring real estate are mitigated by accumulating local market knowledge of the community where the asset is located.

CIM Group believes that many of the risks associated with acquiring real estate are mitigated by accumulating local market knowledge of the community where the asset is located.

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

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Financing Strategy

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

(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;

We will seek to satisfy our long-term liquidity needs 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, including the securitization of portions of our loan portfolio;

(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;

(vi) partnering with co-investors;

and/or (vii) cash flows from operations.

and/or (vi) cash flows from operations.

Rental Rate Trends

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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) 70.2 % 83.4 %

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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 September 30, 2024 and 2023 were approximately $1.8 million and $2.9 million, respectively.

Giving effect to abatements, net annualized rent per occupied square foot was $59.52 and $54.64 as of September 30, 2024 and 2023, respectively (See Definitions for more detail).

Total abatements, representing lease incentives in the form of free rent, for the twelve months ended March 31, 2025 and 2024 were approximately $1.0 million and $2.7 million, respectively.

Giving effect to abatements, net annualized rent per occupied square foot was $58.00 and $56.32 as of March 31, 2025 and 2024, 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, 2024 March 31, 2025 June 30, 2025 September 30, 2025

June 30, 2025 September 30, 2025 December 31, 2025 March 31, 2026

Expiring Cash Rents:

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(1) Month-to-month tenants occupying a total of 4,193 square feet are included in the expiring leases in the first quarter listed.

(2) Represents gross monthly base rent, as of September 30, 2024, under leases expiring during the periods above, multiplied by 12.

(2) Represents gross monthly base rent, as of March 31, 2025, 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, 2024, we executed leases with terms longer than 12 months totaling 4,850 and 94,157 square feet, respectively.

The table below sets forth information on certain of our executed leases during the three and nine months ended September 30, 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:

During the three months ended March 31, 2025, we executed leases with terms longer than 12 months totaling 30,333 square feet.

The table below sets forth information on certain of our executed leases during the three months ended March 31, 2025, 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

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Foot (2) Expiring

Three months ended September 30, 2024 2 2,270 $ 49.23 $ 59.52

Nine months ended September 30, 2024 20 85,142 $ 49.99 $ 55.96

Three Months Ended March 31, 2025 7 21,581 $ 54.93 $ 56.27

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(1) Based on the number of tenants that signed leases.

(2) Cash rents represent gross monthly base rent, multiplied by twelve.

(2) Cash rents represent gross monthly base rent, multiplied by 12.

This amount reflects total cash rent before abatements.

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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.

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.

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 property partially owned through an Unconsolidated Joint Venture):

As of September 30,

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 March 31,

Occupancy 80.2 % 86.2 %

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This amount reflects total cash rent before concessions.

Net of rent concessions granted in the specified period, monthly rent per occupied unit was $2,444 and $2,100 as of September 30, 2024 and 2023, respectively.

Net of rent concessions granted in the specified period, monthly rent per occupied unit was $2,341 and $2,429 as of March 31, 2025 and 2024, 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 80.0 % 79.0 %

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Property Concentration

Kaiser Foundation Health Plan, Incorporated, which occupied space in one of our Oakland, California properties, accounted for 21.9% of our annualized office rental income for the three months ended September 30, 2024.

Kaiser Foundation Health Plan, Incorporated, which occupied space in one of our Oakland, California properties, accounted for 23.6% of our annualized office rental income for the three months ended March 31, 2025.

2025 Results of Operations

Comparison of the Three Months Ended September 30, 2024 to the Three Months Ended September 30, 2023

We are not aware of any material trends or uncertainties, other than national economic conditions affecting real estate in general, such the effects of high unemployment rates, continued or renewed inflation, heightened interest rates, and any recession or slowdown in economic growth and any proposed or imposed tariffs by the U.S.

government and retaliatory tariffs proposed or imposed by U.S.

trading partners, that may reasonably be expected to have a material impact on our results from operations other than those listed in the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2024 and this Quarterly Report on Form 10-Q.

Comparison of the Three Months Ended March 31, 2025 to the Three Months Ended March 31, 2024

Net Loss and FFO

Three Months Ended September 30, Change

Three Months Ended March 31, Change

2025 2024 $ %

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Net loss $ (6,272) $ (3,905) $ (2,367) 60.6 %

Net loss was $10.6 million for the three months ended September 30, 2024 compared to a net loss of $16.6 million for the three months ended September 30, 2023, a decrease of $6.1 million.

The decrease in net loss was primarily due to a decrease in depreciation and amortization expense of $9.7 million, partially offset by a decrease of $3.6 million in segment net operating income (discussed in more detail in the following Summary Segment Results) .

Net loss was $6.3 million for the three months ended March 31, 2025, compared to a net loss of $3.9 million for the three months ended March 31, 2024, an increase of $2.4 million .

The increase in net loss was primarily due to a decrease of $1.9 million in segment net operating income (discussed in more detail in the following Summary Segment Results) and an increase in interest expense of $1.1 million, partially offset by a decrease in transaction-related costs of $664,000.

Funds from Operations

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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)

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(1) During the three months ended September 30, 2024 and 2023, we recognized $16.1 million and $352,000, respectively, of redeemable preferred stock redemptions.

(1) During the three months ended March 31, 2025 and 2024, we recognized $300,000 and $806,000, 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, which is a non-GAAP measure, was $(28.4) million for the three months ended September 30, 2024, a decrease of approximately $20.9 million compared to $(7.5) million for the three months ended September 30, 2023.

The decrease in FFO was primarily due to an increase in redeemable preferred stock redemptions of $15.7 million, a decrease of $3.6 million in segment net operating income (discussed in more detail in the following Summary Segment Results) and an increase in redeemable preferred stock dividends of $1.2 million .

FFO attributable to common stockholders, which is a non-GAAP measure, was $(5.4) million for the three months ended March 31, 2025, an increase of approximately $516,000 compared to $(5.9) million for the three months ended March 31, 2024.

The increase in FFO was primarily due to a decrease in redeemable preferred stock dividends of $2.3 million and a decrease in redeemable preferred stock redemptions of $506,000, which were partially offset by the aforementioned increase in net loss of $2.4 million.

Summary Segment Results

During the three months ended September 30, 2024 and September 30, 2023, we operated in four segments:

During the three months ended March 31, 2025 and March 31, 2024, 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 (dollar amounts in thousands).

Three Months Ended September 30, Change

Three Months Ended March 31, Change

2025 2024 $ %

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Office $ (29) $ 117 $ (146) NM*

Multifamily $ (405) $ (422) $ 17 (4.0) %

Non-Segment Revenue and Expenses:

Interest and other income $ 158 $ 220 $ (62) (28.2) %

Asset management and other fees to related parties $ (515) $ (724) $ 209 (28.9) %

Expense reimbursements to related parties - corporate $ (592) $ (524) $ (68) 13.0 %

Interest expense $ (8,830) $ (8,556) $ (274) 3.2 %

General and administrative $ (1,421) $ (1,603) $ 182 (11.4) %

Transaction-related costs $ (526) $ (38) $ (488) NM*

Depreciation and amortization $ (6,423) $ (16,082) $ 9,659 (60.1) %

Provision for income taxes $ (15) $ (554) $ 539 (97.3) %

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

Office Revenue:

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

Office revenue decreased to $13.8 million for the three months ended September 30, 2024, compared to $14.0 million for the three months ended September 30, 2023.

The decrease was primarily due to lower occupancy at an office property in Oakland, California, partially offset by higher rental revenues at an office property in Los Angeles, California due to increased occupancy and at an office property in Beverly Hills, California due to higher rent per occupied square foot.

Hotel Revenue:

Hotel revenue decreased to $7.1 million for the three months ended September 30, 2024, compared to $7.9 million for the three months ended September 30, 2023.

The decrease was due to a decrease in occupancy for the three

months ended September 30, 2024 compared to the three months ended September 30, 2023 as occupancy was negatively impacted by ongoing construction related to the Hotel Renovation, which began during the three months ended September 30, 2024, to renovate the hotel.

Multifamily Revenue:

Multifamily revenue was $4.8 million for the three months ended September 30, 2024, compared to $3.3 million for the three months ended September 30, 2023.

The increase was primarily attributed to higher rental revenues at our multifamily properties due to increased occupancy and increased monthly rent per occupied unit, net of rent concessions, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023.

Lending Revenue:

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

Lending revenue was $2.7 million for the three months ended September 30, 2024, compared to $2.6 million for the three months ended September 30, 2023.

The increase was primarily due to an increase in premium income as a result of higher loan sale volume, partially offset by decreased interest income due to higher loan payoff volume during the three months ended September 30, 2024 compared to the three months ended September 30, 2023.

(Loss) Income From Unconsolidated Office Entities:

The income from our Unconsolidated Joint Ventures included in office segment net operating income decreased to a loss of $834,000 for the three months ended September 30, 2024, compared to income of $1.6 million for the three months ended September 30, 2023.

The decrease was primarily due to changes in the valuation of investments in real estate at our unconsolidated office entities which recognized a net unrealized loss during the three months ended September 30, 2024, compared to a net unrealized gain for the three months ended September 30, 2023.

Loss From Unconsolidated Multifamily Entity:

The loss from our Unconsolidated Joint Venture included in the multifamily segment net operating income was $405,000 for the three months ended September 30, 2024, consistent with a loss of $422,000 for the three months ended September 30, 2023.

Interest and Other Income:

Interest and other income, which has not been allocated to our operating segments, was $158,000 for the three months ended September 30, 2024, generally consistent with $220,000 for the three months ended September 30, 2023.

Office Expenses:

Office expenses increased to $7.6 million for the three months ended September 30, 2024, compared to $6.3 million for the three months ended September 30, 2023.

The increase was primarily due to higher repairs and maintenance, utilities, and administrative expenses at an office property in Oakland, California and higher repairs and maintenance expenses and real estate tax expense at an office property in Austin, Texas.

Hotel Expenses:

Hotel expenses increased to $6.2 million for the three months ended September 30, 2024, compared to $6.0 million for the three months ended September 30, 2023.

The increase was primarily due to increases in room expenses as well as higher utilities, maintenance, and administrative expenses during the three months ended September 30, 2024.

Multifamily Expenses:

Multifamily expenses increased to $3.9 million for the three months ended September 30, 2024 compared to $3.3 million for the three months ended September 30, 2023.

The increase was primarily attributable to increased occupancy, leading to increases in maintenance, cleaning, and other operating expenses for the three months ended September 30, 2024 compared to the three months ended September 30, 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 decreased to $2.0 million, for the three months ended September 30, 2024, compared to $2.2 million for the three months ended September 30, 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, partially offset by an increase in current expected credit losses.

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 $515,000 for the three months ended September 30, 2024 compared to $724,000 for the three months ended September 30, 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 $592,000 for the three months ended September 30, 2024, generally consistent with expenses of $524,000 for the three months ended September 30, 2023.

Interest Expense:

Interest expense, which has not been allocated to our operating segments, increased to $8.8 million for the three months ended September 30, 2024, compared to $8.6 million for the three months ended September 30, 2023.

The increase was primarily attributable to a higher average outstanding principal balance on our 2022 Credit Facility Revolver for the three months ended September 30, 2024 compared to the three months ended September 30, 2023.

General and Administrative Expenses:

General and administrative expenses, which have not been allocated to our operating segments, were $1.4 million for the three months ended September 30, 2024, a decrease from $1.6 million for the three months ended September 30, 2023.

The decrease was primarily due to a decrease in legal fees.

Transaction-Related Costs:

Transaction costs, which related to potential real estate transactions, were $526,000 for the three months ended September 30, 2024, compared with $38,000 for such costs for the three months ended September 30, 2023.

The increase was primarily related to deferred offering costs that were written off and recognized during the three months ended September 30, 2024 related to Common Stock.

Depreciation and Amortization Expense:

Depreciation and amortization expense decreased to $6.4 million for the three months ended September 30, 2024, compared to $16.1 million for the three months ended September 30, 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.

Provision for Income Taxes:

Provision for income taxes was $15,000 for the three months ended September 30, 2024, compared to $554,000 for the three months ended September 30, 2023.

The decrease was due to lower taxable income at our taxable REIT subsidiaries compared to the prior year period.

2024 Results of Operations

Comparison of the Nine Months Ended September 30, 2024 to the Nine Months Ended September 30, 2023

Net Loss and FFO

Nine Months Ended September 30, Change

2024 2023 $ %

(dollars in thousands)

Total revenues $ 97,053 $ 89,790 $ 7,263 8.1 %

Total expenses $ 111,371 $ 133,562 $ (22,191) (16.6) %

Net loss $ (15,333) $ (42,584) $ 27,251 (64.0) %

Net loss was $15.3 million for the nine months ended September 30, 2024 compared to a net loss of $42.6 million for the nine months ended September 30, 2023, a decrease of $27.3 million.

The decrease in net loss was primarily due to a decrease in depreciation and amortization expense of $26.7 million , a $2.0 million decrease in transaction-related costs, and an increase of $1.3 million in segment net operating income (discussed in more detail in the following Summary Segment Results) .

These were partially offset by a $3.3 million increase in interest expense not allocated to our operating segments .

Funds from Operations

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

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 common stockholders (in thousands):

Nine Months Ended September 30,

Net loss attributable to common stockholders (1)

$ (56,737) $ (59,464)

Depreciation and amortization 19,357 46,056

Non-controlling interests’ proportionate share of depreciation and amortization

(240) (1,986)

Gain on sale of real estate — (1,104)

FFO attributable to common stockholders (1)

$ (37,620) $ (16,498)

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(1) During the nine months ended September 30, 2024 and 2023, we recognized $17.5 million and $1.0 million, respectively, of redeemable preferred stock redemptions.

FFO attributable to common stockholders, which is a non-GAAP measure, was $(37.6) million for the nine months ended September 30, 2024, a decrease of $21.1 million compared to $(16.5) million for the nine months ended September 30, 2023.

The decrease in FFO was primarily due to a $16.4 million increase in redeemable preferred stock redemptions and an increase of $5.3 million in redeemable preferred stock dividends as well as a $3.3 million increase in interest expense not allocated to our operating segments.

These were partially offset by an increase of $1.3 million in segment net operating income (discussed in more detail in the following Summary Segment Results) and a $2.0 million decrease in transaction-related costs.

Summary Segment Results

During the nine months ended September 30, 2024 and September 30, 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 (dollar amounts in thousands).

Nine Months Ended September 30, Change

2024 2023 $ %

Office $ 42,531 $ 41,511 $ 1,020 2.5 %

Hotel $ 31,151 $ 31,108 $ 43 0.1 %

Multifamily $ 14,971 $ 8,632 $ 6,339 73.4 %

Lending $ 7,928 $ 8,243 $ (315) (3.8) %

Office $ 20,826 $ 19,391 $ 1,435 7.4 %

Hotel $ 21,796 $ 20,929 $ 867 4.1 %

Multifamily $ 10,365 $ 8,042 $ 2,323 28.9 %

Lending $ 5,708 $ 5,995 $ (287) (4.8) %

Income (Loss) From Unconsolidated Entities

Office $ 487 $ 837 $ (350) (41.8) %

Multifamily $ (1,122) $ (443) $ (679) NM*

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Depreciation and amortization $ (6,560) $ (6,478) $ (82) 1.3 %

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

Provision for income taxes $ (121) $ (270) $ 149 (55.2) %

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

Office revenue increased to $42.5 million for the nine months ended September 30, 2024, compared to $41.5 million for the nine months ended September 30, 2023.

The increase was primarily due to higher rental revenue at our office property in Beverly Hills, California as a result of increased occupancy.

Office revenue decreased to $13.1 million for the three months ended March 31, 2025, compared to $14.6 million for the three months ended March 31, 2024.

The decrease was primarily due to lower occupancy at an office property in Oakland, California, partially offset by higher rental revenues at an office property in Beverly Hills, California due to higher rent per occupied square foot.

Hotel Revenue:

Hotel revenue was $31.2 million for the nine months ended September 30, 2024, consistent with $31.1 million for the nine months ended September 30, 2023.

Hotel revenue increased to $12.7 million for the three months ended March 31, 2025, compared to $11.9 million for the three months ended March 31, 2024.

The increase was due to an increase in occupancy and average daily rate for the three months ended March 31, 2025 compared to the three months ended March 31, 2024.

Multifamily Revenue:

Multifamily revenue was $15.0 million for the nine months ended September 30, 2024, compared to $8.6 million for the nine months ended September 30, 2023.

The increase was attributable to higher occupancy and increased monthly rent per occupied unit, net of rent concessions, as well as the nine months ended September 30, 2024 benefiting from three full quarters of income from properties acquired during the three months ended March 31, 2023.

Multifamily revenue was $4.1 million for the three months ended March 31, 2025, compared to $4.7 million for the three months ended March 31, 2024.

The decrease was attributed to lower rental revenues at our multifamily properties due to decreases in occupancy and monthly rent per occupied unit, net of rent concessions, for the three months ended March 31, 2025 compared to the three months ended March 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 was $7.9 million for the nine months ended September 30, 2024, compared to $8.2 million for the nine months ended September 30, 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 nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.

Income From Unconsolidated Office Entities:

The income from our Unconsolidated Joint Ventures included in office segment net operating income decreased to $487,000 for the nine months ended September 30, 2024, compared to income of $837,000 for the nine months ended September 30, 2023.

The decrease was primarily due to a decrease in unrealized gain recognized on the value of real estate at one of the unconsolidated office entities recognized during the nine months ended September 30, 2024.

(Loss) Income From Unconsolidated Multifamily Entity:

The loss from our Unconsolidated Joint Venture included in the multifamily segment net operating income was $929,000 for the nine months ended September 30, 2024, compared to income of $216,000 for the nine months ended September 30, 2023.

The decrease was primarily due to an unrealized loss recognized on the value of real estate at the Unconsolidated Joint Venture included in our multifamily segment during the nine months ended September 30, 2024.

Lending revenue was $2.4 million for the three months ended March 31, 2025, compared to $2.6 million for the three months ended March 31, 2024.

The decrease was primarily due to a decrease in interest income due to loan payoffs and a decrease in interest rates.

(Loss) Income From Unconsolidated Office Entities:

The loss from our Unconsolidated Joint Ventures included in office segment net operating income decreased to a loss of $29,000 for the three months ended March 31, 2025, compared to income of $117,000 for the three months ended March 31, 2024.

The decrease was primarily due to changes in the valuation of investments in real estate at our unconsolidated office entities which recognized a net unrealized loss during the three months ended March 31, 2025, compared to a net unrealized gain for the three months ended March 31, 2024.

Loss From Unconsolidated Multifamily Entity:

The loss from our Unconsolidated Joint Venture included in the multifamily segment net operating income was $1.1 million for the three months ended March 31, 2025, compared to a loss of $443,000 for the three months ended March 31, 2024.

The increase was primarily due to changes in the valuation of investments in real estate at our unconsolidated multifamily entities which recognized a larger net unrealized loss during the three months ended March 31, 2025 compared to the three months ended March 31, 2024.

Interest and Other Income:

Interest and other income, which has not been allocated to our operating segments, increased to $472,000 for the nine months ended September 30, 2024, compared to $296,000 for the nine months ended September 30, 2023.

The increase was primarily related to interest earned on money market accounts during the nine months ended September 30, 2024.

Interest and other income, which has not been allocated to our operating segments, was $91,000 for the three months ended March 31, 2025, generally consistent with $144,000 for the three months ended March 31, 2024.

Office Expenses:

Office expenses increased to $20.8 million for the nine months ended September 30, 2024, compared to $19.4 million for the nine months ended September 30, 2023.

The increase was primarily due to higher operating expenses at our office property in Oakland, California from increased utilities and repairs and maintenance expense.

Office expenses decreased to $5.9 million for the three months ended March 31, 2025, compared to $6.9 million for the three months ended March 31, 2024.

The decrease was primarily due to lower repairs and maintenance, utilities, and administrative expenses at an office property in Oakland, California and lower real estate tax expense at an office property in Beverly Hills, California.

Hotel Expenses:

Hotel expenses increased by 4.1% to $21.8 million for the nine months ended September 30, 2024, compared to $20.9 million for the nine months ended September 30, 2023.

The increase was primarily due to increases in room expenses as well as higher utilities, maintenance, and administrative expenses during the nine months ended September 30, 2024.

Hotel expenses increased to $8.0 million for the three months ended March 31, 2025, compared to $7.8 million for the three months ended March 31, 2024.

The increase was primarily due to increases in room expenses during the three months ended March 31, 2025.

Multifamily Expenses:

Multifamily expenses increased to $10.4 million for the nine months ended September 30, 2024 compared to $8.0 million for the nine months ended September 30, 2023.

The increase was primarily attributable to the nine months ended September 30, 2024 including three full quarters of expense from properties acquired during the three months ended March 31, 2023.

Multifamily expenses were $3.6 million for the three months ended March 31, 2025, relatively consistent with $3.4 million for the three months ended March 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 were $5.7 million, for the nine months ended September 30, 2024, compared with expenses of $6.0 million for the nine months ended September 30, 2023.

primarily due to a decrease in interest expense resulting from the amount of principal repayments on our SBA 7(a) loan-backed notes and a decrease in allocated payroll expense.

Lending expenses were $1.8 million, for the three months ended March 31, 2025, generally consistent with $1.9 million for the three months ended March 31, 2024.

Asset Management and Other Fees to Related Parties:

Asset management fees and other fees to related parties, which have not been allocated to our operating segments, were $1.3 million for the nine months ended September 30, 2024 compared to $2.1 million for the nine months ended September 30, 2023.

Asset management fees and other fees to related parties, which have not been allocated to our operating segments, were $360,000 for the three months ended March 31, 2025, compared to $394,000 for the three months ended March 31, 2024.

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

Expense reimbursements to related parties-corporate were $1.8 million for the nine months ended September 30, 2024, consistent with $1.7 million for the nine months ended September 30, 2023.

Expense reimbursements to related parties-corporate were $626,000 for the three months ended March 31, 2025, generally consistent with expenses of $605,000 for the three months ended March 31, 2024.

Interest Expense:

Interest expense, which has not been allocated to our operating segments, increased to $25.2 million for the nine months ended September 30, 2024, compared to $21.9 million for the nine months ended September 30, 2023.

The increase was attributable to mortgages assumed in connection with our multifamily acquisitions during the first quarter of 2023, higher average outstanding principal balance on our 2022 Credit Facility Revolver for the nine months ended September 30,

2024 compared to the nine months ended September 30, 2023 and an increase in the SOFR components of interest rates on our variable-rate debt for the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023.

Interest expense, which has not been allocated to our operating segments, increased to $9.2 million for the three months ended March 31, 2025, compared to $8.1 million for the three months ended March 31, 2024.

The increase was primarily attributable to a higher average outstanding principal balance on our debt as a result of new mortgage loans closed during the fourth quarter of 2024 and first quarter of 2025, partially offset by paydowns on our 2022 Credit Facility subsequent to March 31, 2024.

General and Administrative Expenses:

General and administrative expenses, which have not been allocated to our operating segments, were $3.6 million for the nine months ended September 30, 2024, compared to $4.0 million for the nine months ended September 30, 2023.

The decrease was primarily due to decreases 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, 2025, consistent with $1.2 million for the three months ended March 31, 2024.

Transaction-Related Costs:

Transaction costs were $1.4 million for the nine months ended September 30, 2024, compared with $3.4 million for the nine months ended September 30, 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.

Transaction costs, which related to potential real estate transactions, were $26,000 for the three months ended March 31, 2025, compared with $690,000 for such costs for the three months ended March 31, 2024.

The decrease was due to a higher level of costs during the three months ended March 31, 2024 related to contemplated transactions.

Depreciation and Amortization Expense:

Depreciation and amortization expense decreased to $19.4 million for the nine months ended September 30, 2024, compared to $46.1 million for the nine months ended September 30, 2023.

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, 2024.

Depreciation and amortization expense was $6.6 million for the three months ended March 31, 2025, generally consistent with $6.5 million for the three months ended March 31, 2024.

Provision for Income Taxes:

Provision for income taxes was $573,000 for the nine months ended September 30, 2024, compared with $969,000 for the nine months ended September 30, 2023.

Provision for income taxes was $121,000 for the three months ended March 31, 2025, compared to $270,000 for the three months ended March 31, 2024.

The decrease was due to lower taxable income at our taxable REIT subsidiaries compared to the prior year period.

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

Net cash provided by operating activities decreased by $0.9 million for the nine months ended September 30, 2024, as compared to the same period in 2023.

The decrease was primarily due to a reduction in net loss adjusted for depreciation and amortization expense and other non-cash items of $4.1 million and an increase in net proceeds from the sale of loans of $1.8 million, partially offset by a $7.3 million decrease resulting from a higher level of net working capital used compared to the prior period.

Net cash provided by operating activities decreased by $408,000 for the three months ended March 31, 2025, as compared to the same period in 2024.

The decrease was primarily due to an increase in net proceeds from the sale of loans, net of loans funded, of $1.3 million and an decrease from the change in working capital of $61,000, which was offset by an increase in net loss adjusted for depreciation and amortization expense and other non-cash items of $1.7 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 decreased by $68.2 million for the nine months ended September 30, 2024, as compared to the same period in 2023.

The decrease in cash used in investing activities was primarily due to a decrease in acquisitions of real estate of $96.7 million and a decrease in cash outlays of $5.8 million related to our investments in Unconsolidated Joint Ventures during the nine months ended September 30, 2024, compared to the same period in 2023.

Partially offsetting the decrease in net cash used in investing activities are $30.3 million in proceeds from the sale of a property to the 4750 Wilshire JV during the nine months ended September 30, 2023.

Net cash used in investing activities increased by $4.8 million for the three months ended March 31, 2025, as compared to the same period in 2024.

The increase in cash used in investing activities was primarily due to an increase in capital expenditures of $4.6 million, a decrease in proceeds from the sale of real estate of $1.1 million, and an increase in cash outlays of $285,000 related to our investments in Unconsolidated Joint Ventures during the three months ended March 31, 2025, compared to the same period in 2024.

Partially offsetting the increase in net cash used in investing activities was an increase in in the principal collected on loans, net of loan fundings, of $1.2 million.

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

Net cash used in financing activities decreased by $61.3 million for the nine months ended September 30, 2024, as compared to the same period in 2023, primarily as a result of net proceeds from our 2022 Credit Facility and mortgages of $7.3 million during the nine months ended September 30, 2024 compared to $54.0 million during the nine months ended September 30, 2023, the issuance of unguaranteed SBA 7(a) loan-backed notes of approximately $54.1 million during the nine months ended September 30, 2023, and a $35.6 million decrease in net proceeds from the issuance of preferred stock.

The aforementioned amounts decreasing net cash used in financing activities were partially offset by a decrease in cash redemptions of preferred stock of $74.1 million and a decrease in the payment of deferred debt origination costs of $2.5 million during the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023.

Net cash provided by financing activities was $206,000 for the three months ended March 31, 2025, consistent with $191,000 during the same period in 2024.

Changes in our cash flows from financing activities most notably included net proceeds from debt of $6.4 million during the three months ended March 31, 2025, compared to $1.4 million during the three months ended March 31, 2024, a $10.2 million decrease in cash redemptions of preferred stock, and a combined decrease in preferred stock and common stock dividends of $3.6 million.

The aforementioned amounts were offset by a $19.6 million decrease in net proceeds from the issuance of preferred stock during the three months ended March 31, 2025, compared to the three months ended March 31, 2024.

Liquidity and Capital Resources

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) credit facilities and term loans;

(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) 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;

(vi) offerings of preferred stock or other equity and/or debt securities of the Company;

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 included a $56.2 million term loan as well as a revolver that originally allowed 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 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.

(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 had an outstanding balance of $15.0 million as of March 31, 2025 and was paid off in full and terminated in April 2025.

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 $18.5 million as of September 30, 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.

Additionally, our outstanding commitments to fund loans were $9.0 million as of March 31, 2025,

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.

The 4750 Wilshire Project was substantially completed in September 2024 and leasing has commenced.

The total cost of the 4750 Wilshire Project is estimated to be approximately $31.0 million (our share of which is $6.2 million), which was 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 September 30, 2024, total costs of $27.9 million had been incurred by the 4750 Wilshire JV in connection with 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 September 30, 2024, $10.6 million of costs had been incurred with respect to the Hotel Renovation, which the Company has started construction as of July 2024, with anticipated completion by the end of 2024.

Additionally, an Unconsolidated Joint Venture (the “1910 Sunset JV”), in which we have approximately a 44% ownership interest, 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 will 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 is in-place but currently has no outstanding borrowings and is subject to additional equity contribution requirements which have not yet been met).

As of September 30, 2024, the 1910 Sunset JV had incurred total costs of $4.8 million in connection with the 1915 Park Project.

As of each of March 31, 2024, June 30, 2024 and September 30, 2024, we were 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 us 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 restrictions, the First Modification Agreement also prohibits our subsidiaries 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, we made a $4.0 million repayment under the 2022 Credit Facility.

On October 24, 2024, lenders under the 2022 Credit Facility and us 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 the Third Modification Agreement, we 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.

Under the Third Modification Agreement, the aggregate commitments under the 2022 Credit Facility were reduced from $206.2 million to $169.3 million.

Pursuant to the Third Modification Agreement, the lenders and us agreed that, starting April 1, 2025, excess cash flow generated by the borrowers under the 2022 Credit Facility will be deposited into a collateral account controlled by the administrative agent.

The borrowers’ ability to withdraw funds from the collateral account will be limited to specified uses and subject to certain requirements.

In addition, the lenders agreed (i) to modify the borrowing base formula to remove certain limitations on the inclusion of office, retail, flex office/industrial and standalone parking assets and (ii) subject to certain conditions, to release assets relating to the Sacramento Sheraton to facilitate a refinancing of such property.

The Third Modification Agreement did not waive compliance with the financial covenant for the test period ending December 31, 2024 or any future period.

If we breach any financial covenant under the 2022 Credit Facility in the future and are unable to obtain a further waiver from the lenders thereunder with respect to such breach, an event of default would occur under the 2022 Credit Facility, which would allow 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.

The occurrence of any future event of default would raise substantial doubt about our ability to continue as a going concern.

Our management plans to address any possible future event of default under the 2022 Credit Facility by entering into new financing arrangements to repay amounts outstanding under the 2022 Credit Facility.

We are in the process of obtaining refinancing for our hotel in Sacramento, California (the “Sheraton Refinancing”).

If completed, we intend to use the proceeds of the Sheraton Refinancing to repay part of the amount outstanding under the 2022 Credit Facility and to pay for the Hotel Renovation described above.

In addition, we are in the process of obtaining refinancing (the “Los Angeles Refinancing”) for three of our properties in Los Angeles, California.

If completed, the proceeds of the Los Angeles Refinancing, along with a portion of the proceeds from the Sheraton Refinancing, are anticipated to be in an amount sufficient to repay all amounts outstanding under the 2022 Credit Facility, with the rest to be used for general corporate purposes.

The Company expects that each of the Sheraton Refinancing and the Los Angeles Refinancing will close by the end of the first quarter of 2025.

Management believes that its plans to repay amounts outstanding under the 2022 Credit Facility are probable based on the following:

(1) the we have executed term sheets with the respective lenders under the Sheraton Refinancing and the Los Angles Refinancing;

(2) we expect that both the Los Angeles Refinancing and the Sheraton Refinancing will close by the end of the first quarter of 2025;

(3) the favorable loan-to-value ratios (“LTVs”) of the properties that are the subject of the Sheraton Refinancing and the Los Angeles Refinancing and (4) our plans and efforts to date to obtain additional financing to be secured by two properties that it owns (in addition to the Sheraton Refinancing and the Los Angeles Refinancing), and the favorable LTVs of these two properties.

Management’s plans are intended to mitigate the relevant condition that would raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the interim financial information contained in this Quarterly Report on Form 10-Q is issued.

The consolidated financial statements contained in this Quarterly Report on Form 10-Q have been prepared assuming that the Company will continue its operations as a going concern and do not include any adjustments that might result from the outcome of events described in this paragraph.

In September 2024, at our option, we redeemed 2,589,606 and 2,167,156 shares of Series A1 Preferred Stock and Series A Preferred Stock, respectively, in shares of Common Stock and, additionally, we paid holder-requested redemptions of 1,010 shares of Series A1 Preferred Stock in shares of Common Stock.

We currently plan to continue to satisfy some or all redemption requests submitted by holders of our shares Preferred Stock in shares of Common Stock during the fourth quarter of 2024 and are currently evaluating whether we will exercise our right to optionally redeem additional shares of Preferred Stock in shares of Common Stock.

These above measures, taken together, will strengthen our balance sheet, improve liquidity and accelerate our transition towards premier multifamily properties.

These actions should also better position the Company to take advantage of opportunities that are expected to arise in a recovering real estate market.

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 had a balance of $2.7 million as of March 31, 2025 and total borrowing availability of $9.4 million).

As of March 31, 2025, the 1910 Sunset JV had incurred total costs of $9.8 million in connection with the 1915 Park Project.

Construction has been 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 March 31, 2025, total costs of $28.0 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 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 $20.3 million had been incurred as of March 31, 2025.

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.

On April 3, 2025, the Company completed the refinancing of an office property in Austin, Texas (the “Austin Refinancing”).

The Company used a portion of the proceeds from the Austin Refinancing to repay the $15.0 million outstanding balance on our 2022 Credit Facility in full and, in connection with such repayment, the 2022 Credit Facility was terminated.

From and after September 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 we have paid holder-requested redemptions of 376,128 and 319,184 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.

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

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 Quarterly Report on Form 10-Q, 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 Quarterly Report on Form 10-Q and in Part II, Item 1A of this Quarterly Report on Form 10-Q.

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 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 (the “Bid Price Requirement”), we had fallen out of compliance with the Bid Price Requirement.

To regain compliance, the closing bid price of our Common Stock had to be a minimum of $1.00 per share for a minimum of ten consecutive business days prior to May 6, 2025.

On May 1, 2025, we received a letter from the Nasdaq Listing Qualification Department informing the Company that it had regained compliance with the Bid Price Requirement as of April 30, 2025 due to the price of our Common Stock maintaining a minimum bid price in excess of $1.00 for ten consecutive business days .

However, our ability to maintain compliance with the Nasdaq’s listing standards requirements in the future, including the Bid Price Requirement, is not guaranteed.

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

We have mortgage loan agreements with an outstanding balances of $250.7 million as of September 30, 2024.

Our mortgage loans mature on various dates from June 7, 2025 through July 1, 2026, with the two mortgage loans with maturity dates in 2025, each including a 1-year extension option, one of them at the Company’s discretion and one subject to certain conditions being met.

We have been in discussions with the lender under our variable rate mortgage for Channel House, a multifamily property in Oakland, California, 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.

We have mortgage loan agreements with outstanding balances of $449.5 million as of March 31, 2025.

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

We have also been in discussion with the largest tenant at One Kaiser Plaza in Oakland, California, a property that is secured by a fixed rate mortgage with a balance of $97.1 million as of September 30, 2024, about renewing a portion of its existing lease.

This extension would require a sizable capital investment by the Company for tenant improvements, leasing commissions and certain building improvements and may not meet the company’s return hurdles.

In addition, as previously disclosed, the company has been focused on reducing its traditional office investments.

We are exploring whether the lender holding the fixed-rate mortgage on the property will agree to loan concessions relating to such upfront capital costs.

If we are unable to receive such concessions, we may elect to cease interest payments, such failure would constitute an event of default under the mortgage and would allow the lender to, among other remedies, declare principal and interest on the mortgage loan to be immediately due and payable.

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

The 2018 revolving credit facility was secured by properties in the Company’s real estate portfolio:

eight office properties and one hotel property.

In December 2022, the Company refinanced its 2018 credit facility and replaced it with a new 2022 Credit Facility, entered into with a bank syndicate, that 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.

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

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

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 September 30, 2024, the variable interest rate was 7.53%.

As of March 31, 2025, the variable interest rate was 8.42%.

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

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

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

As of November 1, 2024, September 30, 2024, and December 31, 2023, $169.3 million, $169.3 million, and $153.2 million, respectively, was outstanding under the 2022 Credit Facility and approximately $0.0, $0.0 and $53.0 million, respectively, was available for future borrowings.

For certain event of default under the 2022 Credit Facility, modifications of the 2022 Credit Facility relating to such event of default and steps undertaken by us to address such event of default, please see discussion under “Liquidity and Capital Resources - General” above.

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.

As of both March 31, 2025, and December 31, 2024, $15.0 million was outstanding under the 2022 Credit Facility and $0 was available for future borrowings.

On April 3, 2025 the Company completed the refinancing of an office property in Austin, Texas (see further discussion in Subsequent Events) (the “Austin Refinancing”).

The Company used a portion of the proceeds from the Austin Refinancing to repay the 2022 Credit Facility in full and, in connection with such repayment, the 2022 Credit Facility was terminated.

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).

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.

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

As of September 30, 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.

As of March 31, 2025, the variable interest rate was 7.15%.

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.

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.

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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, 2024.

The aggregate principal balance of the junior subordinated notes was $27.1 million as of March 31, 2025.

Securities Offerings

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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 September 30, 2024, there were 498,420 Series A Preferred Warrants to purchase 124,605 shares of Common Stock outstanding.

As of March 31, 2025, all of the Series A Preferred Warrants had expired.

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

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We have suspended our offering of Series A1 Preferred Stock.

As of September 30, 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.

As of March 31, 2025, 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

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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 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 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.

As of September 30, 2024, we redeemed 4,480,262 shares of Series A Preferred Stock, 2,773,657 shares of Series A1 Preferred Stock, and 8,410 shares of Series D Preferred Stock.

Of the 2,773,657 shares of Series A1 Preferred Stock that have been redeemed, the redemption of 183,041 shares of Series A1 Preferred Stock were paid in cash (all of which were redeemed at the option of the holders).

In September, 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, in September 1,010 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 32,998,865 shares of Common Stock, all of which were issued in September 2024.

Through March 31, 2025, we had redeemed 4,799,446 shares of Series A Preferred Stock, 3,148,815 shares of Series A1 Preferred Stock, and 8,410 shares 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.

Of the 4,799,446 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.

As of March 31, 2025, 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, as of March 31, 2025, 319,184 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 367,311 shares of Common Stock.

Of the 3,148,815 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, the Company (at its option) redeemed 2,167,156 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 (the “Series A In-Kind Redemptions”).

The Series A In-Kind Redemptions resulted in the aggregate issuance of 27,553,834 shares of Common Stock, all of which were issued in September 2024.

As of March 31, 2025, 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, as of March 31, 2025, 376,128 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 288,981 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.

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Off-Balance Sheet Arrangements

As of September 30, 2024, we did not have any off-balance sheet arrangements.

As of March 31, 2025, we did not have any off-balance sheet arrangements.

Recently Issued Accounting Pronouncements

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What changed 10-Q

Item 2. Management’s Discussion and Analysis