Creative Media & Community Trust Corp

Previous wording

The following discussion of our financial condition as of March 31, 2024 and results of operations for the three months ended March 31, 2024 and 2023 should be read in conjunction with the 2023 Form 10-K. For a more detailed description of the risks affecting our financial condition and results of operations, see “Risk Factors” in Part I, Item 1A of the 2023 Form 10-K and in Part II, Item 1A of this Quarterly Report. 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. The terms “we,” “us,” “our” and the “Company” refer to Creative Media & Community Trust Corporation and its subsidiaries.

Current wording

The following discussion of our financial condition as of June 30, 2024 and results of operations for the three and six months ended June 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. 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. The terms “we,” “us,” “our” and the “Company” refer to Creative Media & Community Trust Corporation and its subsidiaries.

Previous wording

The phrase “ADR” represents average daily rate. 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.

Current wording

The phrase “ADR” represents average daily rate. It is calculated as trailing six-month room revenue divided by the number of rooms occupied. For sold properties, ADR is presented for the Company’s period of ownership only.

Previous wording

The phrase “RevPAR” represents revenue per available room. 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.

Current wording

The phrase “RevPAR” represents revenue per available room. It is calculated as trailing six-month room revenue divided by the number of available rooms. For sold properties, RevPAR is presented for the Company’s period of ownership only.

Previous wording

As of March 31, 2024, our real estate portfolio consisted of 27 assets, all of which were fee-simple properties and five of which we own through investments in Unconsolidated Joint Ventures. Our Unconsolidated Joint Ventures contain two office properties (one of which is being partially converted into multifamily units), one multifamily site currently under development, one multifamily property and one commercial development site. As of March 31, 2024, our 13 office properties, totaling approximately 1.3 million rentable square feet, were 83.4% occupied, and our one hotel with an ancillary parking garage, which has a total of 503 rooms, had RevPAR of $166.84 for the three months ended March 31, 2024, and our three multifamily properties were 86.2% occupied. Additionally, as of March 31, 2024, we had nine development sites (three of which were being used as parking lots).

Current wording

As of June 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 is being partially converted into multifamily units), one multifamily site currently under development, one multifamily property and one commercial development site. As of June 30, 2024, our 13 office properties, totaling approximately 1.3 million rentable square feet, were 82.5% occupied, and our one hotel with an ancillary parking garage, which has a total of 503 rooms, had RevPAR of $167.57 for the six months ended June 30, 2024, and our three multifamily properties were 92.5% occupied. Additionally, as of June 30, 2024, we had nine development sites (three of which were being used as parking lots).

Previous wording

(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 March 31, 2024 and 2023 were approximately $2.7 million and $2.8 million, respectively. Giving effect to abatements, net annualized rent per occupied square foot was $56.32 and $54.36 as of March 31, 2024 and 2023, respectively (See Definitions for more detail).

Current wording

(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 June 30, 2024 and 2023 were approximately $2.2 million and $2.8 million, respectively. Giving effect to abatements, net annualized rent per occupied square foot was $58.34 and $54.56 as of June 30, 2024 and 2023, respectively (See Definitions for more detail).

Previous wording

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

Current wording

(1)Month-to-month tenants occupying a total of 6,670 square feet are included in the expiring leases in the first quarter listed.

Previous wording

During the three months ended March 31, 2024, we executed leases with terms longer than 12 months totaling 36,961 square feet. The table below sets forth information on certain of our executed leases during the three months ended March 31, 2024, excluding space that was vacant for more than one year, month-to-month leases, leases with an original term of less than 12 months, related party leases, and space where the previous tenant was a related party:

Current wording

During the three and six months ended June 30, 2024, we executed leases with terms longer than 12 months totaling 52,346 and 89,307 square feet, respectively. The table below sets forth information on certain of our executed leases during the three and six months ended June 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:

Previous wording

(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 $2,429 and $2,450 as of March 31, 2024 and 2023, respectively.

Current wording

(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 $2,469 and $2,336 as of June 30, 2024 and 2023, respectively.

Previous wording

(1)During the three months ended March 31, 2024 and 2023, we recognized $806,000 and $373,000, respectively, of redeemable preferred stock redemptions. Such amounts are included in, and have the effect of increasing net loss attributable to common stockholders and FFO attributable to common stockholders because redeemable preferred stock redemptions are not an adjustment prescribed by NAREIT.

Current wording

(1)During the three months ended June 30, 2024 and 2023, we recognized $567,000 and $315,000, 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.

Previous wording

FFO attributable to common stockholders, which is a non-GAAP measure, was $(5.9) million for the three months ended March 31, 2024, a decrease of $1.1 million compared to $(4.8) million for the three months ended March 31, 2023. The decrease in FFO was primarily due to an increase in interest expense not allocated to our operating segments of $2.1 million, an increase in redeemable preferred stock dividends of $2.4 million, and an increase in redeemable preferred stock redemptions of $433,000. These were partially offset by a $2.7 million decrease in transaction-related costs andan increase of $655,000 in segment net operating income (discussed in more detail in the following Summary Segment Results).

Current wording

FFO attributable to common stockholders, which is a non-GAAP measure, was $(3.3) million for the three months ended June 30, 2024, an increase of approximately $0.9 million compared to $(4.2) million for the three months ended June 30, 2023. The increase in FFO was primarily due to an increase of$4.2 million in segment net operating income (discussed in more detail in the following Summary Segment Results). This was partially offset by an increase in interest expense not allocated to our operating segments of $952,000, an increase in redeemable preferred stock dividends of $1.7 million, and an increase in redeemable preferred stock redemptions of $252,000.

Previous wording

Office Revenue: Office revenue includes rental revenue, expense reimbursements and lease termination income from office properties. Office revenue increased by 8.3% to $14.6 million for the three months ended March 31, 2024, compared to

Current wording

Office Revenue: Office revenue includes rental revenue, expense reimbursements and lease termination income from office properties. Office revenue was $14.1 million for the three months ended June 30, 2024, consistent with $14.0 million for the three months ended June 30, 2023.

Previous wording

Hotel Revenue: Hotel revenue increased to $11.9 million, or by 3.2%, for the three months ended March 31, 2024, compared to $11.5 million for the three months ended March 31, 2023. The increase was due to an increase in average daily rate and revenue per occupied room during the three months ended March 31, 2024.

Current wording

Hotel Revenue: Hotel revenue increased to $12.2 million for the three months ended June 30, 2024, compared to $11.7 million for the three months ended June 30, 2023. The increase was due to an increase in average daily rate and revenue per available room during the three months ended June 30, 2024.

Previous wording

Lending Revenue: Lending revenue represents revenue from our lending subsidiaries, including interest income on loans and other loan related fee income. Lending revenue was $2.6 million for the three months ended March 31, 2024, compared to $2.7 million for the three months ended March 31, 2023. The decrease was primarily due to a decrease in premium income as a result of lower loan sale volume, partially offset by increased interest income from an increase in interest rates during the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

Current wording

Lending Revenue: Lending revenue represents revenue from our lending subsidiaries, including interest income on loans and other loan related fee income. Lending revenue was $2.6 million for the three months ended June 30, 2024, compared to $3.0 million for the three months ended June 30, 2023. The decrease was primarily due to a decrease in premium income as a result of lower loan sale volume and decreased interest income due to higher loan payoff volume during the three months ended June 30, 2024 compared to the three months ended June 30, 2023.

Previous wording

Income (loss) From Unconsolidated Office Entities: The income from our Unconsolidated Joint Ventures included in office segment net operating income increased to $117,000 for the three months ended March 31, 2024, compared to a loss of $64,000 for the three months ended March 31, 2023. The increase was primarily due to an unrealized gain on the value of real estate at one of the unconsolidated office entities recognized during the three months ended March 31, 2024.

Current wording

Income (loss) From Unconsolidated Office Entities: The income from our Unconsolidated Joint Ventures included in office segment net operating income increased to $1.2 million for the three months ended June 30, 2024, compared to a loss of $710,000 for the three months ended June 30, 2023. The increase was primarily due to an unrealized gain on the value of real estate at one of the unconsolidated office entities recognized during the three months ended June 30, 2024.

Previous wording

Interest and Other Income: Interest and other income, which has not been allocated to our operating segments, increased to $144,000 for the three months ended March 31, 2024, compared to $0 for the three months ended March 31, 2023. The increase was primarily related to interest earned on money market accounts during the three months ended March 31, 2024.

Current wording

Interest and Other Income: Interest and other income, which has not been allocated to our operating segments, increased to $170,000 for the three months ended June 30, 2024, compared to $76,000 for the three months ended June 30, 2023. The increase was primarily related to interest earned on money market accounts during the three months ended June 30, 2024.

Previous wording

Hotel Expenses: Hotel expenses increased by 6.1% to $7.8 million for the three months ended March 31, 2024, compared to $7.3 million for the three months ended March 31, 2023. The increase was primarily due to increased wage expenses during the three months ended March 31, 2024.

Current wording

Hotel Expenses: Hotel expenses increased to $7.8 million for the three months ended June 30, 2024, compared to $7.6 million for the three months ended June 30, 2023. The increase was primarily due to increased wage expenses during the three months ended June 30, 2024.

Previous wording

Lending Expenses: Lending expenses represent expenses from our lending subsidiaries, including interest expense, general and administrative expenses and fees to related parties. Lending expenses increased to $1.9 million, for the three months ended March 31, 2024, compared to $1.4 million for the three months ended March 31, 2023. The increase was primarily due to an increase in interest expense related to the issuance of new SBA 7(a) loan-backed notes in connection with the securitization that closed in March 2023.

Current wording

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 $1.8 million, for the three months ended June 30, 2024, compared to $2.4 million for the three months ended June 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 as well as a decrease in allocated payroll expenses, primarily as a result of lower loan origination volume.

Previous wording

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 $394,000 for the three months ended March 31, 2024, a decrease of 45.3%, compared to $720,000 for the three months ended March 31, 2023. 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.

Current wording

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 $425,000 for the three months ended June 30, 2024 compared to $627,000 for the three months ended June 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.

Previous wording

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 $605,000 for the three months ended March 31, 2024, consistent with expenses of $528,000 for the three months ended March 31, 2023.

Current wording

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 $612,000 for the three months ended June 30, 2024, generally consistent with expenses of $677,000 for the three months ended June 30, 2023.

Previous wording

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

Current wording

General and Administrative Expenses: General and administrative expenses, which have not been allocated to our operating segments, were $1.0 million for the three months ended June 30, 2024, generally consistent with $1.1 million for the three months ended June 30, 2023.

Previous wording

Depreciation and Amortization Expense: Depreciation and amortization expense decreased by 31.8% to $6.5 million for the three months ended March 31, 2024, compared to $9.5 million for the three months ended March 31, 2023. The decrease was primarily due to a decrease in acquired in-place lease intangible assets amortization at multifamily properties located in Oakland, California acquired during the first quarter of 2023, which were fully amortized as of December 31, 2023, partially offset by incremental increases to fixed asset depreciation expense related to the acquired properties.

Current wording

Depreciation and Amortization Expense: Depreciation and amortization expense decreased to $6.5 million for the three months ended June 30, 2024, compared to $20.5 million for the three months ended June 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.

Previous wording

Net loss was$3.9 millionfor the three months ended March 31, 2024 compared to a net loss of$7.6 million for the three months ended March 31, 2023, a decrease of $3.7 million. The decrease in net loss was primarily due to a decrease in depreciation and amortization expense of$3.0 million, a $2.7 million decrease in transaction-related costs, andan increase of $655,000 in segment net operating income (discussed in more detail in the following Summary Segment Results). These were partially offset by a $2.1 million increase in interest expense not allocated to our operating segments. Additionally, during the three months ended March 31, 2023, there was a$1.1 million gain on sale of real estate recognized in connection with the sale of 80% of our interest in an office property.

Current wording

Net loss was $4.8 million for thesix months ended June 30, 2024 compared to a net loss of $25.9 million for thesix months ended June 30, 2023, a decrease of $21.2 million. Thedecrease in net loss was primarily due to adecrease in depreciation and amortization expense of $17.0 million, a$2.5 million decrease in transaction-related costs, andan increase of $4.9 million in segment net operating income (discussed in more detail in the following Summary Segment Results). These were partially offset by a$3.0 million increase in interest expense not allocated to our operating segments.

Previous wording

$13.5 million for the three months ended March 31, 2023. The increase was primarily due to higher rental revenues at an office property in Beverly Hills, California and an office property in Los Angeles, California due to increased occupancy.

Current wording

Office Revenue: Office revenue includes rental revenue, expense reimbursements and lease termination income from office properties. Office revenue increased to $28.7 million for the six months ended June 30, 2024, compared to $27.5 million for the six months ended June 30, 2023. The increase was primarily due to higher rental revenues at an office property in Beverly Hills, California due to increased occupancy.

Previous wording

Multifamily Revenue: Multifamily revenue was $4.7 million for the three months ended March 31, 2024, compared to $1.2 million for the three months ended March 31, 2023. The increase was primarily due to the fact that the three months ended March 31, 2024 benefited from a full quarter of income from properties acquired during the three months ended March 31, 2023.

Current wording

Multifamily Revenue: Multifamily revenue was $10.2 million for the six months ended June 30, 2024, compared to $5.3 million for the six months ended June 30, 2023. The increase was primarily attributable to the six months ended June 30, 2024 benefiting from two full quarters of income from properties acquired during the three months ended March 31, 2023.

Previous wording

Loss (income) From Unconsolidated Multifamily Entity: The loss from our Unconsolidated Joint Venture included in the multifamily segment net operating income was $443,000 for the three months ended March 31, 2024, compared to income of $832,000 for the three months ended March 31, 2023. The decrease was primarily due to an unrealized loss on the value of real estate at the Unconsolidated Joint Venture included in multifamily during the three months ended March 31, 2024.

Current wording

(Loss) income From Unconsolidated Multifamily Entity: The loss from our Unconsolidated Joint Venture included in the multifamily segment net operating loss was $524,000 for the six months ended June 30, 2024, compared to income of $638,000 for the six months ended June 30, 2023. The decrease was primarily due to an unrealized loss on the value of real estate at the Unconsolidated Joint Venture included in our multifamily segment during the six months ended June 30, 2024.

Previous wording

Office Expenses: Office expenses increased to $6.9 million, or by 3.6%, for the three months ended March 31, 2024, compared to $6.6 million for the three months ended March 31, 2023. The increase was primarily due to higher operating expenses at our office properties in Beverly Hills, California and Los Angeles, California resulting from increased occupancy.

Current wording

Office Expenses: Office expenses increased to $13.3 million for the six months ended June 30, 2024, compared to $13.0 million for the six months ended June 30, 2023. The increase was primarily due to higher operating expenses at our office properties in Beverly Hills, California, and Los Angeles, California as a result of increased occupancy, and our office property in Oakland, California from increased utilities and repairs and maintenance expense. These were partially offset by lower real estate tax expense at our office property in Austin, Texas.

Previous wording

Multifamily Expenses: Multifamily expenses increased to $3.4 million for the three months ended March 31, 2024 compared to $1.4 million for the three months ended March 31, 2023. The increase was primarily due to the fact that the three months ended March 31, 2024 included a full quarter of expense from properties acquired during the three months ended March 31, 2023.

Current wording

Multifamily Expenses: Multifamily expenses increased to $6.5 million for the six months ended June 30, 2024 compared to $4.7 million for the six months ended June 30, 2023. The increase was primarily attributable to the six months ended June 30, 2024 including two full quarters of expense from properties acquired during the six months ended June 30, 2023.

Previous wording

Interest Expense: Interest expense, which has not been allocated to our operating segments, increased by 34.5% to $8.1 million for the three months ended March 31, 2024, compared to $6.0 million for the three months ended March 31, 2023. The increase was attributable to mortgages assumed in connection with our multifamily acquisitions during the first quarter of 2023, higher average outstanding principal balances on our 2022 Credit Facility Revolver for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 and an increase in the SOFR components of interest rates on our variable-rate debt for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023.

Current wording

Interest Expense: Interest expense, which has not been allocated to our operating segments, increased to $16.4 million for the six months ended June 30, 2024, compared to $13.4 million for the six months ended June 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 balances on our 2022 Credit Facility Revolver for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 and an increase in the SOFR components of interest rates on our variable-rate debt for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023.

Previous wording

Transaction-Related Costs: Transaction costs were $690,000 for the three months ended March 31, 2024, compared with $3.4 million for the three months ended March 31, 2023. The decrease was related to costs incurred in connection with the acquisition of two multifamily properties in Oakland, California in the first quarter of 2023, which increased these costs in the prior year period.

Current wording

Transaction-Related Costs: Transaction costs were $825,000 for the six months ended June 30, 2024, compared with $3.4 million for the six months ended June 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.

Previous wording

Gain on Sale of Real Estate: Gain on sale of real estate of $1.1 million for the three months ended March 31, 2023 was related to the sale of 80% of our interest in an office property in Los Angeles, California. There were no dispositions during the three months ended March 31, 2024.

Current wording

Gain on Sale of Real Estate: Gain on sale of real estate of $1.1 million for the six months ended June 30, 2023 was related to the sale of 80% of our interest in an office property in Los Angeles, California. There were no dispositions during the six months ended June 30, 2024.

Previous wording

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

Current wording

Provision for Income Taxes: Provision for income taxes was $558,000 for the six months ended June 30, 2024, consistent with $415,000 for the six months ended June 30, 2023.

Previous wording

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 decreased by $1.2 million for the three months ended March 31, 2024, as compared to the same period in 2023. The decrease was primarily due to a $5.4 million decrease resulting from a higher level of net working capital used compared to the prior period, partially offset by an increase in reduction in net loss adjusted for depreciation and amortization expense and other non-cash items of $3.1 million and an increase in net proceeds from the sale of loans of $1.2 million.

Current wording

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 decreased by $3.9 million for the six months ended June 30, 2024, as compared to the same period in 2023. The decrease was primarily due to a $7.2 million decrease resulting from a higher level of net working capital used compared to the prior period and a decrease in net proceeds from the sale of loans of $1.8 million, partially offset by a reduction in net loss adjusted for depreciation and amortization expense and other non-cash items of $5.2 million.

Previous wording

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 $90.7 million for the three months ended March 31, 2024, as compared to the same period in 2023. The decrease in cash used in investing activities was primarily due to an decrease in acquisitions of real estate of $96.7 million and a decrease in cash outlays of $6.1 million related to our investments in Unconsolidated Joint Ventures during the three months ended March 31, 2024, compared to the same period in 2023. Partially offsetting the decrease in net cash used in investing activities are $16.7 million in proceeds from the sale of a property to the 4750 Wilshire JV during the three months ended March 31, 2023.

Current wording

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 $76.3 million for the six months ended June 30, 2024, as compared to the same period in 2023. The decrease in cash used in investing activities was primarily due to an decrease in acquisitions of real estate of $96.7 million and a decrease in cash outlays of $6.2 million related to our investments in Unconsolidated Joint Ventures during the six months ended June 30, 2024, compared to the same period in 2023. Partially offsetting the decrease in net cash used in investing activities are $29.5 million in proceeds from the sale of a property to the 4750 Wilshire JV during the six months ended June 30, 2023.

Previous wording

Our cash flows from financing activities are generally impacted by borrowings and capital activities. Net cash provided by financing activities decreased by $77.5 million for the three months ended March 31, 2024, as compared to the same period in 2023, primarily as a result of net proceeds from our 2022 Credit Facility and mortgages of $1.4 million during the three months ended March 31, 2024 compared to $103.8 million during the three months ended March 31, 2023 and the issuance of unguaranteed SBA 7(a) loan-backed notes of approximately $54.1 million during the three months ended March 31, 2023. The aforementioned amounts decreasing net cash provided by financing activities were partially offset by a decrease in redemption of preferred stock of $78.7 million, a decrease in the payment of deferred debt origination costs of $2.4 million, and an decrease in preferred dividend payments of $2.2 million during the three months ended March 31, 2024, compared to the three months ended March 31, 2023.

Current wording

Our cash flows from financing activities are generally impacted by borrowings and capital activities. Net cash provided by financing activities decreased by $56.7 million for the six months ended June 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 $13.6 million during the six months ended June 30, 2024 compared to $71.3 million during the six months ended June 30, 2023, the issuance of unguaranteed SBA 7(a) loan-backed notes of approximately $54.1 million during the six months ended June 30, 2023, and a $23.2 million decrease in net proceeds from the issuance of preferred stock. The aforementioned amounts decreasing net cash provided by financing activities were partially offset by a decrease in redemption of preferred stock of $75.3 million and a decrease in the payment of deferred debt origination costs of $3.0 million during the six months ended June 30, 2024, compared to the six months ended June 30, 2023.

Previous wording

Our long-term liquidity needs will consist primarily of funds necessary for acquisitions of assets, development or repositioning of properties, or re-leasing of space in existing properties, capital expenditures, paying interest and principal on debt financings, refinancing of indebtedness, SBA 7(a) loan originations, paying distributions on our Preferred Stock or any other preferred stock we may issue, any future repurchase of Common Stock and/or redemption of our Preferred Stock (if we choose, or are required, to pay the redemption price in cash instead of in shares of our Common Stock) and distributions on our Common Stock. Additionally, our outstanding commitments to fund loans were $8.2 million as of March 31, 2024, substantially all of which reflect prime-based loans to be originated by our subsidiary engaged in SBA 7(a) Small Business Loan Program lending. A majority of these commitments have government guarantees of 75% (as the government guarantee has now reverted to 75%) and we believe that we will be able to sell the guaranteed portion of these loans in a liquid secondary market upon fully funding these loans. Since some commitments are expected to expire without being drawn upon, total commitment amounts do not necessarily represent future cash requirements. 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.

Current wording

Our long-term liquidity needs will consist primarily of funds necessary for acquisitions of assets, development or repositioning of properties, or re-leasing of space in existing properties, capital expenditures, paying interest and principal on debt financings, refinancing of indebtedness, SBA 7(a) loan originations, paying distributions on our Preferred Stock or any other preferred stock we may issue, any future repurchase of Common Stock and/or redemption of our Preferred Stock (if we choose, or are required, to pay the redemption price in cash instead of in shares of our Common Stock) and distributions on our Common Stock. Additionally, our outstanding commitments to fund loans were $19.6 million as of June 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. 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.

Previous wording

An Unconsolidated Joint Venture (the “4750 Wilshire JV”), in which we have a 20% ownership interest, is in the process of converting two of the three floors of an office building in Los Angeles, California from office-use into 68 for-lease multifamily units (the “4750 Wilshire Project”), with the first floor of the building continuing to function as 30,335 square feet of office space. The total cost of the 4750 Wilshire Project is expected to be approximately $31.0 million (our share of which will be $6.2 million), which will be financed by a combination of equity contributions from us and co-investors as well as a mortgage loan from a third-party lender. In connection with the 4750 Wilshire JV, we received cash sales proceeds from the joint venture partners, enhancing our liquidity. Further, we have earned and will continue to earn management fees from co-investors in connection with their co-investment in the 4750 Wilshire Project. As of March 31, 2024, total costs of $17.3 million had been incurred by the 4750 Wilshire JV in connection with the 4750 Wilshire Project. The 4750 Wilshire Project is expected to be completed by the 4th quarter of 2024.

Current wording

An Unconsolidated Joint Venture (the “4750 Wilshire JV”), in which we have a 20% ownership interest, is in the process of converting two of the three floors of an office building in Los Angeles, California from office-use into 68 for-lease multifamily units (the “4750 Wilshire Project”), with the first floor of the building continuing to function as 30,335 square feet of office space. The total cost of the 4750 Wilshire Project is expected to be approximately $31.0 million (our share of which will be $6.2 million), which will be financed by a combination of equity contributions from us and co-investors as well as a mortgage loan from a third-party lender. In connection with the 4750 Wilshire JV, we received cash sales proceeds from the joint venture partners, enhancing our liquidity. Further, we have earned and will continue to earn management fees from co-investors in connection with their co-investment in the 4750 Wilshire Project. As of June 30, 2024, total costs of $23.6 million had been incurred by the 4750 Wilshire JV in connection with the 4750 Wilshire Project. The 4750 Wilshire Project is expected to be completed by the third quarter of 2024.

Previous wording

In addition to the 4750 Wilshire Project, our long-term liquidity needs include our plan to renovate the Sheraton Grand Hotel in Sacramento, California (the “Hotel Renovation”), which primarily entails renovating the hotel’s guest rooms and corridors and is expected to cost approximately $20.9 million. As of March 31, 2024, $1.6 million of pre-construction costs had been incurred with respect to the Hotel Renovation; the Company plans to start construction in the second half of 2024, with anticipated completion by the third quarter of 2025. Additionally, an Unconsolidated Joint Venture (the “1910 Sunset JV”), in which we have approximately a 44% ownership interest, has begun construction to develop a multifamily apartment building with 36 multifamily units at 1915 Park Avenue in Los Angeles, California (the “1915 Park Project), which development is expected to be completed by the third quarter of 2025 and with an estimated cost of approximately $19.3 million (our share of which will be $8.5 million). The 1910 Sunset JV plans to finance the project through a combination of cash from operations at its office property, additional equity contributions from existing investors, and proceeds from a mortgage loan from a third-party lender (which is in-place but currently has no outstanding borrowings and is subject to additional equity contribution requirements which have not yet been met). As of March 31, 2024, the 1910 Sunset JV had incurred total costs of $2.3 million in connection with the 1915 Park Project.

Current wording

In addition to the 4750 Wilshire Project, our long-term liquidity needs include our plan to renovate the Sheraton Grand Hotel in Sacramento, California (the “Hotel Renovation”), which primarily entails renovating the hotel’s guest rooms and corridors and is expected to cost approximately $20.9 million. As of June 30, 2024, $2.0 million of pre-construction 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 of 2024. Additionally, an Unconsolidated Joint Venture (the “1910 Sunset JV”), in which we have approximately a 44% ownership interest, has begun construction to develop a multifamily apartment building with 36 multifamily units at 1915 Park Avenue in Los Angeles, California (the “1915 Park Project), which development is expected to be completed by the third quarter of 2025 and with an estimated cost of approximately $19.3 million (our share of which will be $8.5 million). The 1910 Sunset JV plans to finance the project through a combination of cash from operations at its office property, additional equity contributions from existing investors, and proceeds from a mortgage loan from a third-party lender (which is in-place but currently has no outstanding borrowings and is subject to additional equity contribution requirements which have not yet been met). As of June 30, 2024, the 1910 Sunset JV had incurred total costs of $3.9 million in connection with the 1915 Park Project.

Previous wording

We have mortgage loan agreements with an outstanding balances of $250.7 million as of March 31, 2024. Our mortgage loans mature on various dates from June 7, 2024 through July 1, 2026. In regards to our fixed rate mortgage loan maturing on June 7, 2024, we exercised its one-year extension option in April 2024, extending the maturity of the mortgage by one year.

Current wording

We have mortgage loan agreements with an outstanding balances of $250.7 million as of June 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.

Previous wording

In October 2018, we entered into the 2018 revolving credit facility that, as amended, allowed us to borrow up to $209.5 million, subject to a borrowing base calculation. The 2018 revolving credit facility was secured by properties in the Company’s real estate portfolio: eight office properties and one hotel property. In December 2022, the Company refinanced its 2018 credit facility and replaced it with a new 2022 Credit Facility, entered into with a bank syndicate, that includes a $56.2 million term loan (the “2022 Credit Facility Term Loan”) as well as a revolver allowing the Company to borrow up to $150.0 million (the “2022 Credit Facility Revolver”), both of which are collectively subject to a borrowing base calculation. The 2022 Credit Facility is secured by properties in the Company’s real estate portfolio: six office properties and one hotel property (as well as the hotel’s adjacent parking garage and retail property). The 2022 Credit Facility bears interest at (A) the base rate plus 1.50% or (B) SOFR plus 2.60%. As of March 31, 2024, the variable interest rate was 7.93%. The 2022 Credit Facility Revolver is also subject to an unused commitment fee of 0.15% or 0.25% depending on the amount of aggregate unused commitments. 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 May 14, 2024, March 31, 2024, and December 31, 2023, $173.2 million, $158.2 million, and $153.2 million, respectively, was outstanding under the 2022 Credit Facility and approximately $0.0, $48.0 million and $53.0 million, respectively, was available for future borrowings.

Current wording

In October 2018, we entered into the 2018 revolving credit facility that, as amended, allowed us to borrow up to $209.5 million, subject to a borrowing base calculation. The 2018 revolving credit facility was secured by properties in the Company’s real estate portfolio: eight office properties and one hotel property. In December 2022, the Company refinanced its 2018 credit facility and replaced it with a new 2022 Credit Facility, entered into with a bank syndicate, that includes a $56.2 million term loan (the “2022 Credit Facility Term Loan”) as well as a revolver allowing the Company to borrow up to $150.0 million (the “2022 Credit Facility Revolver”), both of which are collectively subject to a borrowing base calculation. The 2022 Credit Facility is secured by properties in the Company’s real estate portfolio: six office properties and one hotel property (as well as the hotel’s adjacent parking garage and retail property). The 2022 Credit Facility bears interest at (A) the base rate plus 1.50% or (B) SOFR plus 2.60%. As of June 30, 2024, the variable interest rate was 7.93%. The 2022 Credit Facility Revolver is also subject to an unused commitment fee of 0.15% or 0.25% depending on the amount of aggregate unused commitments. 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 August 1, 2024, June 30, 2024, and December 31, 2023, $173.2 million, $173.2 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.

Previous wording

As of March 31, 2024, the Company was not in compliance with a financial covenant under the 2022 credit facility. Such non-compliance constituted an event of default under the 2022 credit facility. On May 14, 2024, lenders under the 2022 credit facility and the Company entered into an agreement (the “Modification Agreement”) pursuant to which the lenders waived such event of default with respect to the test period ending March 31, 2024. Pursuant to the Modification Agreement, the Company will not be able to borrow under the 2022 credit facility without the consent of the lenders until certain conditions are satisfied, including delivery of a revised business plan acceptable to the lenders and re-establishing compliance with the financial covenant. There can be no assurance as to when or if such conditions will be satisfied. The Company believes that it could rely on other sources for its liquidity needs, including (i) obtaining new or modifying existing credit facilities and term loans; (ii) offerings of shares of Common Stock, preferred stock or other equity and or debt securities of the Company; (iii) the addition of senior recourse or non-recourse debt using existing assets as collateral; (iv) the sale of existing assets; (v) partnering with co-investors; and or (vi) cash flows from operations. Among other restrictions, the Modification Agreement also prohibits subsidiaries of the Company that own properties that secured the 2022 credit facility from making any distributions to its parent entities. The Modification Agreement did not waive compliance with the financial covenant for the test period ending June 30, 2024 or any future period.

Current wording

As of each of March 31, 2024 and June 30, 2024, the Company was not in compliance with a financial covenant under the 2022 credit facility. Such non-compliance constituted an event of default under the 2022 credit facility. On May 14, 2024, lenders under the 2022 credit facility and the Company entered into an agreement (the “First Modification Agreement”) pursuant to which the lenders waived such event of default with respect to the test period ending March 31, 2024. 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. Pursuant to the Second Modification Agreement, the Company will not be able to borrow under the 2022 credit facility without the consent of the lenders until certain conditions are satisfied, including delivery of a revised business plan acceptable to the lenders and re-establishing compliance with the financial covenant. There can be no assurance as to when or if such conditions will be satisfied. The Company believes that it could rely on other sources for its liquidity needs, including, among other things, (i) obtaining new or modifying existing credit facilities and term loans; (ii) offerings of shares of Common Stock, preferred stock or other equity and or debt securities of the Company; (iii) the addition of senior recourse or non-recourse debt using existing assets as collateral; (iv) the sale of existing assets; (v) partnering with co-investors; and or (vi) cash flows from operations. Among other restrictions, the Second Modification Agreement also prohibits subsidiaries of the Company that own properties that secured the 2022 credit facility from making any distributions to its parent entities. The Second Modification Agreement did not waive compliance with the financial covenant for the test period ending September 30, 2024 or any future period. Simultaneously with the execution of the Second Modification Agreement, the Company made a $4.0 million repayment under the 2022 credit facility.