CMCT(US:CMCT)2023-11-13 16:00PART I. Financial Information This section provides comprehensive financial data, including statements, notes, and management's analysis of operations and liquidity Item 1. Financial Statements Presents unaudited consolidated financial statements, including balance sheets, operations, equity, and cash flows, with detailed notes Consolidated Balance Sheets Presents the company's financial position, detailing assets, liabilities, and equity as of September 30, 2023, and December 31, 2022 Consolidated Balance Sheets (in thousands) | Metric | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :----- | :-------------------------- | :-------------------------- | | ASSETS | | | | Investments in real estate, net | $708,178 | $502,006 | | Investments in unconsolidated entities | $29,252 | $12,381 | | Cash and cash equivalents | $19,261 | $46,190 | | Restricted cash | $23,950 | $11,290 | | Loans receivable, net | $60,404 | $62,547 | | Total Assets | $898,056 | $690,248 | | LIABILITIES | | | | Debt, net | $470,325 | $184,267 | | Accounts payable and accrued expenses | $34,331 | $107,220 | | Due to related parties | $4,739 | $3,155 | | Total Liabilities | $522,796 | $312,518 | | EQUITY | | | | Total stockholders' equity | $372,424 | $361,660 | | Noncontrolling interests | $2,836 | $373 | | Total Equity | $375,260 | $362,033 | Consolidated Statements of Operations Details the company's revenues, expenses, and net income or loss for the three and nine months ended September 30, 2023 and 2022 Consolidated Statements of Operations (in thousands) | Metric | Three Months Ended Sep 30, 2023 (in thousands) | Three Months Ended Sep 30, 2022 (in thousands) | Nine Months Ended Sep 30, 2023 (in thousands) | Nine Months Ended Sep 30, 2022 (in thousands) | | :----- | :--------------------------------------------- | :--------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Total Revenues | $28,118 | $24,853 | $89,790 | $76,038 | | Total Expenses | $45,400 | $24,694 | $133,562 | $70,398 | | Net (Loss) Income | $(16,647) | $(232) | $(42,584) | $5,001 | | Net Loss Attributable to Common Stockholders | $(22,934) | $(11,684) | $(59,464) | $(16,844) | | Basic EPS | $(1.01) | $(0.50) | $(2.62) | $(0.72) | | Diluted EPS | $(1.01) | $(0.50) | $(2.62) | $(0.72) | - Net loss increased significantly for both the three and nine months ended September 30, 2023, primarily due to higher depreciation and amortization expense and increased interest expense not allocated to operating segments. For the three months, net loss increased by $16.4 million, and for the nine months, it decreased by $47.6 million (from income to loss)6984 Consolidated Statements of Equity Outlines changes in the company's equity, including total stockholders' equity and noncontrolling interests, between December 31, 2022, and September 30, 2023 Preferred Stock Balances (in thousands) | Metric | Balances, Dec 31, 2022 (in thousands) | Balances, Sep 30, 2023 (in thousands) | | :----- | :------------------------------------ | :------------------------------------ | | Total Stockholders' Equity | $361,660 | $372,424 | | Noncontrolling Interests | $373 | $2,836 | | Total Equity | $362,033 | $375,260 | - Total equity increased from $362.0 million at December 31, 2022, to $375.3 million at September 30, 2023. Key activities impacting equity include: * Issuance of Series A1 Preferred Stock: $25.6 million (Q1), $29.6 million (Q2), $27.0 million (Q3) * Redemption of Series A1 Preferred Stock: $(0.3) million (Q1), $(0.3) million (Q2), $(0.8) million (Q3) * Redemption of Series A Preferred Stock: $(4.7) million (Q1), $(4.6) million (Q2), $(4.7) million (Q3) * Net loss for the nine months ended September 30, 2023: $(42.6) million197219 Consolidated Statements of Cash Flows Reports cash flows from operating, investing, and financing activities for the nine months ended September 30, 2023 and 2022 Cash Flow Activity (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2023 (in thousands) | Nine Months Ended Sep 30, 2022 (in thousands) | | :----------------- | :-------------------------------------------- | :-------------------------------------------- | | Net cash provided by operating activities | $16,762 | $28,291 | | Net cash used in investing activities | $(82,867) | $(23,634) | | Net cash provided by (used in) financing activities | $51,836 | $(11,508) | | Net decrease in cash and cash equivalents and restricted cash | $(14,269) | $(6,851) | | Cash and cash equivalents and restricted cash, End of period | $43,211 | $26,800 | - Net cash provided by operating activities decreased by $11.5 million for the nine months ended September 30, 2023, compared to the same period in 2022, primarily due to a decrease in net income adjusted for non-cash items. Net cash used in investing activities increased by $59.2 million, driven by higher real estate acquisitions. Net cash provided by financing activities increased by $63.3 million, mainly from net proceeds from credit facilities and mortgages, and issuance of SBA 7(a) loan-backed notes, partially offset by increased preferred stock redemptions141142143 Notes to Consolidated Financial Statements Explains accounting policies, significant transactions, and financial instrument valuations supporting the consolidated financial statements 1. ORGANIZATION AND OPERATIONS Describes the company's business model as a Maryland REIT, its focus on real estate assets, and its lending platform - Creative Media & Community Trust Corporation is a Maryland REIT focused on acquiring, developing, owning, and operating premier multifamily properties and Class A/creative office real assets in vibrant U.S. communities. The company also owns a hotel in northern California and a lending platform for SBA 7(a) loans. It leverages CIM Group's expertise for acquisitions, development, and operations222223 2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Outlines financial statement preparation, consolidation principles, and key accounting policies for investments, impairment, revenue, and credit losses - The interim consolidated financial statements are prepared in accordance with GAAP, with certain information condensed or excluded per SEC rules. The company consolidates entities where it has controlling interests, including the Trust for SBA 7(a) loan securitization, but accounts for Unconsolidated Joint Ventures using the equity method due to lack of primary beneficiary status224 - Key accounting policies include: * Investments in Real Estate: Stated at depreciated cost, with depreciation and amortization recorded straight-line over estimated useful lives (15-40 years for buildings, 3-5 years for furniture/fixtures, lesser of useful life or lease term for tenant improvements)111113 * Impairment: Assets are evaluated for impairment when events indicate carrying amounts may not be recoverable, measured by comparing carrying amount to future undiscounted cash flows. No impairment was recognized in Q3 2023 or 2022979899100101 * Revenue Recognition: Leases are classified as operating leases, with minimum rents recognized straight-line. Hotel revenues are recognized as services are rendered or goods delivered. Lending interest income is accrued as earned, suspended for Non-Accrual Loans87888990 * Current Expected Credit Losses (CECL): Adopted ASU 2016-13 on January 1, 2023, using the modified retrospective method. An initial cumulative-effect adjustment of $619,000 was recorded to distributions in excess of earnings. Subsequent changes are recognized through net income. The CECL reserve was $1.7 million as of September 30, 2023236237238249250253 Deferred Rent Receivable and Charges (in thousands) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :----- | :----------- | :----------- | | Deferred rent receivable | $16,771 | $20,949 | | Deferred leasing costs, net | $6,829 | $8,319 | | Deferred offering costs | $5,185 | $5,664 | | Deferred financing costs, net | $1,614 | $2,120 | | Other deferred costs | $491 | $491 | | Total Deferred rent receivable and charges, net | $30,890 | $37,543 | - The company adopted ASU 2022-02 (Troubled Debt Restructurings and Vintage Disclosures) on January 1, 2023, which did not materially impact its financial statements. ASU 2023-05 (Business Combinations-Joint Venture Formations) is effective January 1, 2025, and is not expected to have a material impact214243 3. INVESTMENTS IN REAL ESTATE Details the composition and changes in the company's real estate portfolio, including acquisitions and dispositions, for the periods presented Net Investments in Real Estate (in thousands) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :----- | :----------- | :----------- | | Land | $175,709 | $151,727 | | Land improvements | $5,863 | $1,837 | | Buildings and improvements | $633,129 | $455,275 | | Furniture, fixtures, and equipment | $11,585 | $4,339 | | Tenant improvements | $25,114 | $34,372 | | Work in progress | $15,437 | $12,863 | | Investments in real estate (gross) | $866,837 | $660,413 | | Accumulated depreciation | $(158,659) | $(158,407) | | Net investments in real estate | $708,178 | $502,006 | - During the nine months ended September 30, 2023, the Company acquired interests in four multifamily properties from CIM Group affiliates for $282.9 million (excluding transaction costs). These acquisitions significantly increased the Company's real estate portfolio, particularly in multifamily assets. The Company also sold an 80% interest in its 4750 Wilshire Boulevard office/multifamily property for $34.4 million, recognizing a gain of $1.1 million7259262278283 4. INVESTMENT IN UNCONSOLIDATED ENTITIES Describes the company's equity method investments in unconsolidated joint ventures, including property details and carrying values Equity Method Investments in Unconsolidated Joint Ventures (in thousands) | Property | Asset Type | Location | Acquisition Date | Ownership Interest | Sep 30, 2023 Carrying Value | Dec 31, 2022 Carrying Value | | :------- | :--------- | :------- | :--------------- | :----------------- | :---------------------------- | :---------------------------- | | 1910 Sunset Boulevard | Office / Multifamily | Los Angeles, CA | Feb 11, 2022 | 44.2% | $11,986 | $12,381 | | 4750 Wilshire Boulevard | Office / Multifamily | Los Angeles, CA | Feb 17, 2023 | 20.0% | $10,124 | — | | 1902 Park Avenue Multifamily | Multifamily | Los Angeles, CA | Feb 28, 2023 | 50.0% | $7,142 | — | | Total investments in unconsolidated entities | | | | | $29,252 | $12,381 | - The Company holds equity method investments in several unconsolidated joint ventures. The 4750 Wilshire JV, formed in February 2023, is converting office space into multifamily units, with the Company retaining a 20% interest and earning management fees. The 1902 Park JV, also formed in February 2023, acquired a multifamily property, with the Company owning 50%. The 1910 Sunset JV, an office property, continues to be an equity method investment268269271285286287288 5. LOANS RECEIVABLE Provides details on the company's SBA 7(a) loans receivable, including credit risk concentration and loan loss reserves Loans Receivable, Net (in thousands) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :----- | :----------- | :----------- | | SBA 7(a) loans receivable, subject to credit risk | $5,329 | $56,116 | | SBA 7(a) loans receivable, subject to loan-backed notes | $48,133 | — | | SBA 7(a) loans receivable, subject to secured borrowings | $4,661 | $6,127 | | SBA 7(a) loans receivable, held for sale | $2,809 | $117 | | Loans receivable (gross) | $60,932 | $62,360 | | Deferred capitalized costs, net | $1,176 | $1,293 | | Loan loss reserves | $(1,704) | $(1,106) | | Loans receivable, net | $60,404 | $62,547 | - The Company's loans receivable are primarily from the SBA 7(a) Program. As of September 30, 2023, 100% of loans subject to credit risk were concentrated in the hospitality industry, with 99.0% being current. The Current Expected Credit Losses (CECL) reserve was $1.7 million as of September 30, 2023, reflecting a decrease of $100,000 during the nine months ended September 30, 2023292249 6. OTHER INTANGIBLE ASSETS AND LIABILITIES Presents the company's intangible assets and liabilities, such as acquired leases and trade names, along with their amortization Intangible Assets and Liabilities (in thousands) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :----- | :----------- | :----------- | | Intangible assets: | | | | Acquired in-place leases, net | $1,078 | $1,488 | | Acquired above-market leases, net | $8 | $16 | | Trade name and license | $2,957 | $2,957 | | Total intangible assets, net | $4,043 | $4,461 | | Intangible lease liabilities: | | | | Acquired below-market leases, net | $0 | $20 | Amortization of Intangible Assets and Liabilities (in thousands) | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :----- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Acquired above-market lease amortization | $21 | $3 | $79 | $9 | | Acquired in-place lease amortization | $9,488 | $212 | $27,620 | $645 | | Acquired below-market lease amortization | $93 | $67 | $243 | $196 | 7. DEBT Details the company's debt structure, including mortgages, credit facilities, and loan-backed notes, and future principal payment obligations Debt Balances (in thousands) | Debt Type | Dec 31, 2022 | Sep 30, 2023 | | :-------- | :----------- | :----------- | | Mortgages Payable | $97,006 | $262,503 | | Secured Borrowings — Government Guaranteed Loans | $6,237 | $4,766 | | Other Debt (2022 credit facility, junior subordinated notes, SBA 7(a) loan-backed notes) | $81,024 | $203,056 | | Total Debt, Net | $184,267 | $470,325 | - Total debt significantly increased from $184.3 million at December 31, 2022, to $470.3 million at September 30, 2023. This increase is primarily due to: * Assumption of $182.6 million in variable rate mortgages payable * Issuance of $54.1 million in SBA 7(a) loan-backed notes in March 2023 * Draws on the 2022 Credit Facility Revolver, which had $77.0 million outstanding at September 30, 2023 * The 2022 Credit Facility (term loan and revolver) matures in December 2025 with two one-year extension options. The variable interest rate on the revolver was 7.92% as of September 30, 2023 * Junior subordinated notes have a variable interest rate (3-month SOFR + 3.51%) and mature on March 30, 2035310313297298 Future Principal Payments on Debt (Face Value, in thousands) | Years Ending December 31, | Mortgage Payable | Secured Borrowings | 2022 Credit Facility | Other | Total | | :------------------------ | :--------------- | :----------------- | :------------------- | :---- | :---- | | 2023 (Three months ending Dec 31, 2023) | $0 | $54 | $0 | $798 | $852 | | 2024 | $79,600 | $229 | $0 | $8,576 | $88,405 | | 2025 | $87,000 | $248 | $133,230 | $7,767 | $228,245 | | 2026 | $97,100 | $245 | $0 | $7,047 | $104,392 | | 2027 | $0 | $289 | $0 | $6,436 | $6,725 | | Thereafter | $0 | $3,480 | $0 | $42,348 | $45,828 | | Total | $263,700 | $4,545 | $133,230 | $72,972 | $474,447 | 8. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES Explains the company's use of interest rate caps to manage market risk and their fair value accounting treatment - The Company uses interest rate caps to manage exposure to interest rate movements, though these are not designated as hedging instruments. Changes in their fair value are recorded directly to earnings as interest expense. As of September 30, 2023, the Company had two interest rate cap agreements with an aggregate notional amount of $166.6 million and a fair value of $3.0 million317334335 9. STOCK-BASED COMPENSATION PLANS Describes the company's equity incentive plan, restricted stock grants, and related compensation expenses - The Company's Equity Incentive Plan, amended in June 2023, authorizes additional shares of Common Stock for compensation. Restricted shares of Common Stock are granted to independent Board members, vesting over one year of continuous service. Compensation expense for these shares was $36,000 for the three months and $128,000 for the nine months ended September 30, 2023337319 10. EARNINGS PER SHARE ("EPS") Provides the calculation and reconciliation of basic and diluted earnings per share for the periods presented EPS Reconciliation (in thousands, except per share amounts) | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :----- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net loss attributable to common stockholders | $(22,934) | $(11,684) | $(59,464) | $(16,844) | | Diluted net loss attributable to common stockholders | $(22,934) | $(11,684) | $(59,464) | $(16,844) | | Basic weighted average shares of Common Stock outstanding | 22,738 | 23,209 | 22,717 | 23,303 | | Diluted weighted average shares and common stock equivalents outstanding | 22,738 | 23,209 | 22,717 | 23,303 | | Basic EPS | $(1.01) | $(0.50) | $(2.62) | $(0.72) | | Diluted EPS | $(1.01) | $(0.50) | $(2.62) | $(0.72) | - Basic and diluted EPS for the three and nine months ended September 30, 2023, were $(1.01) and $(2.62), respectively, reflecting increased net losses. No preferred stock or warrants had a dilutive effect during these periods321324 11. REDEEMABLE PREFERRED STOCK Details the company's various series of redeemable preferred stock, including issuance, redemptions, and dividend terms Preferred Stock Balances (in thousands) | Preferred Stock Type | Sep 30, 2023 Shares | Sep 30, 2023 Amount | Dec 31, 2022 Shares | Dec 31, 2022 Amount | | :------------------- | :------------------ | :------------------ | :------------------ | :------------------ | | Series A1 Preferred Stock | 9,223,544 | $228,324 | 5,956,147 | $147,514 | | Series A Preferred Stock | 7,694,199 | $192,235 | 7,565,349 | $189,048 | | Series D Preferred Stock | 48,447 | $1,190 | 48,857 | $1,200 | | Series L Preferred Stock | — | — | — | — | | Total Preferred Stock | 16,966,190 | $421,749 | 13,570,353 | $337,762 | - The Company is conducting a continuous public offering of Series A1 Preferred Stock, having issued 9,088,485 shares for gross proceeds of $224.9 million as of September 30, 2023. Series A and D Preferred Stock offerings concluded in June 2022. The Company redeemed all outstanding Series L Preferred Stock in cash in January 2023 for $83.8 million, including transaction costs340358331351 - Dividends on Series A1, A, and D Preferred Stock are cumulative cash dividends, paid quarterly in arrears, with rates of 6.0% (or Federal Funds Rate + 2.5% up to 2.5% per quarter) for Series A1, 5.50% for Series A, and 5.65% for Series D. Redemptions are at the holder's or Company's option, with redemption prices potentially paid in cash or Common Stock347361362350 12. STOCKHOLDERS' EQUITY Outlines common stock dividends and the company's share repurchase program, including historical repurchase activity - Common Stockholders are entitled to dividends as authorized by the Board. Cash dividends per share of Common Stock were $0.085 for each quarter in the nine months ended September 30, 2023 and 2022. The Company has a Share Repurchase Program (SRP) approved in May 2022 for up to $10.0 million of Common Stock, under which 662,462 shares for $4.7 million had been repurchased as of September 30, 2023, with no repurchases during the three and nine months ended September 30, 2023363365366382 13. FAIR VALUE OF FINANCIAL INSTRUMENTS Explains the valuation methodologies and estimated fair values for the company's financial instruments, including loans and debt - The Company uses a Level 3 valuation hierarchy for its financial instruments due to limited observable market information. Fair values for loans receivable are determined by discounted cash flow analyses, considering credit risk and prepayment rates. For fixed-rate mortgage payable and junior subordinated notes, fair values are estimated using market discount rates (7.69% and 9.91% respectively as of Sep 30, 2023). Derivative instruments (interest rate caps) are valued using Level 2 inputs and interest rate market pricing models368369385357370 Estimated Fair Values of Financial Instruments (in thousands) | Asset/Liability | Sep 30, 2023 Carrying Amount | Sep 30, 2023 Estimated Fair Value | Dec 31, 2022 Carrying Amount | Dec 31, 2022 Estimated Fair Value | Level | | :-------------- | :----------------------------- | :-------------------------------- | :----------------------------- | :-------------------------------- | :---- | | SBA 7(a) loans receivable, subject to credit risk | $5,412 | $5,184 | $56,237 | $58,432 | 3 | | SBA 7(a) loans receivable, subject to loan-backed notes | $47,456 | $50,360 | $0 | $0 | 3 | | SBA 7(a) loans receivable, subject to secured borrowings | $4,675 | $4,765 | $6,158 | $6,237 | 3 | | SBA 7(a) loans receivable, held for sale | $2,861 | $2,981 | $152 | $126 | 3 | | Fixed rate mortgage payable | $97,100 | $88,349 | $97,100 | $90,002 | 2, 3 | | Junior subordinated notes | $27,070 | $25,216 | $27,070 | $25,067 | 3 | 14. RELATED-PARTY TRANSACTIONS Details various transactions and fees with CIM Group affiliates, including asset management, property management, and offering-related fees - The Company has various related-party transactions with CIM Group affiliates, including: * Asset Management Fees: Payable quarterly to the Operator based on Net Asset Value Attributable to Common Stockholders, with an incentive fee based on Excess Core FFO and a capital gains fee373374 * Administrative Fees: The Administrator provides management and administration services, with compensation and reimbursement for services not covered by the Base Service Fee376377 * Property Management Fees and Reimbursements: CIM Management Entities provide property management, leasing, and development services2405406 * Lending Segment Expenses: CIM SBA provides personnel and resources to the lending segment, for which the Company reimburses costs3380 * Offering-Related Fees: CCO Capital acts as the exclusive dealer manager for preferred stock offerings, earning dealer manager fees and selling commissions407 Fees and Expense Reimbursements to Related Parties (in thousands) | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :----- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Asset management fees | $724 | $916 | $2,071 | $2,757 | | Property management fees | $551 | $442 | $1,579 | $1,293 | | Onsite management and other cost reimbursements | $1,707 | $922 | $4,238 | $2,153 | | Leasing commissions | $27 | $635 | $103 | $740 | | Construction management fees | $112 | $102 | $282 | $300 | | Development management reimbursements | $327 | $0 | $980 | $0 | | Expense reimbursements to related parties - corporate | $524 | $511 | $1,729 | $1,459 | | Expense reimbursements to related parties - lending segment | $648 | $539 | $2,166 | $1,612 | | Upfront dealer manager and trailing dealer manager fees | $337 | $778 | $1,027 | $1,052 | | Non-issuance specific offering costs | $154 | $230 | $460 | $319 | 15. COMMITMENTS AND CONTINGENCIES Outlines the company's outstanding loan commitments, future construction obligations, and assessment of legal proceedings - The Company has outstanding loan commitments of $25.9 million as of September 30, 2023, primarily for SBA 7(a) Small Business Loan Program lending, with a majority having government guarantees of 75%. The Company also has future obligations of $5.8 million for tenant improvements and other construction as of September 30, 2023. The Company is not involved in any material pending or threatened legal proceedings, and management does not expect current litigation or SBA-related contingencies to have a material adverse effect41110412413 16. LEASES Presents future minimum rental revenue expected under the company's long-term operating leases Future Minimum Rental Revenue Under Long-Term Operating Leases (in thousands) | Years Ending December 31, | | :------------------------ | | 2023 (Three months ending December 31, 2023) | $15,362 | | 2024 | $55,767 | | 2025 | $31,305 | | 2026 | $22,781 | | 2027 | $15,202 | | Thereafter | $49,118 | | Total | $189,535 | 17. SEGMENT DISCLOSURE Provides financial information by reportable segment, including office, hotel, multifamily properties, and lending, and their net operating income - The Company operates in four reportable segments: office, hotel, multifamily properties, and lending. Multifamily was added in 2023 due to acquisitions. Management evaluates segment performance based on net operating income415 Segment Net Operating Income (in thousands) | Segment | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Office | $9,318 | $6,519 | $22,957 | $22,433 | | Hotel | $1,921 | $2,377 | $10,179 | $8,018 | | Multifamily | $(391) | $0 | $806 | $0 | | Lending | $366 | $1,191 | $2,248 | $4,628 | | Total segment net operating income | $11,214 | $10,087 | $36,190 | $35,079 | Condensed Assets by Segment (in thousands) | Segment | Sep 30, 2023 | Dec 31, 2022 | | :------ | :----------- | :----------- | | Office | $417,307 | $471,677 | | Hotel | $97,805 | $99,082 | | Multifamily | $284,303 | $0 | | Lending | $79,329 | $76,148 | | Non-segment assets | $19,312 | $43,341 | | Total assets | $898,056 | $690,248 | 18. SUBSEQUENT EVENTS Reports significant events occurring after the balance sheet date, including a recent land acquisition - On October 10, 2023, the Company acquired a 28.8% interest in a 44,141 square foot plot of land in Los Angeles, California, for $18.0 million, which is being evaluated for development418 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion and analysis of financial condition and results of operations, including business overview, strategies, and segment performance Executive Summary Provides a high-level overview of the company's real estate portfolio, including occupancy rates and development sites - As of September 30, 2023, the real estate portfolio comprised 26 fee-simple assets, including 13 office properties (82.6% occupied), one hotel (RevPAR of $149.01), and three multifamily properties (84.1% occupied). The Company also holds eight development sites22 Business Overview Describes the company's strategy as a Maryland REIT, focusing on multifamily and office assets, and its SBA 7(a) lending platform - The Company is a Maryland REIT focused on premier multifamily, Class A, and creative office real assets in vibrant U.S. metropolitan communities. It also owns a hotel and an SBA 7(a) loan program lending platform. The strategy involves leveraging CIM Group's expertise for acquisitions, development, and operations, often through an asset-light co-investment model to reduce capital outlay and risk2338422 - The Company intends to dispose of assets that do not align with its strategy opportunistically, evaluating each asset to redeploy proceeds for better returns or when market value meets or exceeds intrinsic value24 CIM Group Operations Explains CIM Group's role in mitigating real estate risks and maximizing value through local market knowledge and integrated management - CIM Group mitigates real estate acquisition risks by accumulating local market knowledge in 'Qualified Communities'—vibrant areas with high barriers to entry, population density, and growth potential. They maximize value through active onsite property management, leasing, and vertically-integrated in-house teams for research, acquisition, development, finance, and asset management424425426 Financing Strategy Outlines potential financing sources for future activities, including equity, debt, asset sales, and cash flows from operations - Future activities may be financed through offerings of common stock, preferred stock, or other equity/debt securities; credit facilities and term loans; senior recourse/non-recourse debt; asset sales; co-investments; and cash flows from operations427 Rental Rate Trends Analyzes office occupancy and rental rate trends, including expiring cash rents, and the impact of economic conditions Office Statistics | Metric | 2023 | 2022 | | :----- | :--- | :--- | | Occupancy | 82.6% | 83.2% | | Annualized rent per occupied square foot | $56.93 | $54.40 | Expiring Cash Rents (Office) | Period | Expiring Square Feet | Expiring Rent per Square Foot | | :----- | :------------------- | :---------------------------- | | Dec 31, 2023 | 24,208 | $63.33 | | Mar 31, 2024 | 35,010 | $55.01 | | Jun 30, 2024 | 39,103 | $39.95 | | Sep 30, 2024 | 19,371 | $59.06 | - Office occupancy slightly decreased from 83.2% in 2022 to 82.6% in 2023, while annualized rent per occupied square foot increased from $54.40 to $56.93. Fluctuations in submarkets and lease terms make predicting rent changes difficult, and general economic conditions impact rental and occupancy rates2542429 Hotel Statistics Presents key performance indicators for the hotel segment, including occupancy, ADR, and RevPAR, noting seasonal impacts Hotel Performance (Nine Months Ended Sep 30) | Metric | 2023 | 2022 | | :----- | :--- | :--- | | Occupancy | 76.9% | 73.5% | | ADR | $193.84 | $171.05 | | RevPAR | $149.01 | $125.64 | - Hotel occupancy, ADR, and RevPAR all increased for the nine months ended September 30, 2023, compared to 2022. Hotel revenues and expenses are subject to seasonality, typically higher in the first and second quarters2866 Multifamily Statistics Provides performance metrics for the multifamily segment, including occupancy and monthly rent per occupied unit Multifamily Performance (As of Sep 30) | Metric | 2023 | | :----- | :--- | | Occupancy | 84.1% | | Monthly rent per occupied unit | $2,869 | Lending Segment Describes the company's SBA 7(a) loan origination activities and plans to expand into other real estate collateralized loans - The Company operates as a national lender primarily originating SBA 7(a) loans to small businesses, with a maximum loan amount of $5.0 million. Loans have variable interest rates based on the prime rate and typically 25-year maturities. The Company plans to increase efforts to originate other real estate collateralized loans, focusing on industries with prior positive experience2943067 Property Concentration Highlights significant tenant concentration, with Kaiser Foundation Health Plan accounting for a substantial portion of office rental income - Kaiser Foundation Health Plan, Incorporated, a tenant in one of the Company's Oakland properties, accounted for 29.2% of annualized office rental income for the three months ended September 30, 202368 2023 Results of Operations Analyzes the company's financial performance, including revenues, expenses, and net loss, for the three and nine months ended September 30, 2023 Comparison of the Three Months Ended September 30, 2023 to the Three Months Ended September 30, 2022 Compares financial results for the three months ended September 30, 2023 and 2022, detailing changes in net loss, FFO, and segment performance Net Loss and FFO (Three Months Ended Sep 30, in thousands) | Metric | 2023 | 2022 | Change ($) | Change (%) | | :----- | :--- | :--- | :--------- | :--------- | | Total revenues | $28,118 | $24,853 | $3,265 | 13.1% | | Total expenses | $45,400 | $24,694 | $20,706 | 83.9% | | Net loss | $(16,647) | $(232) | $(16,415) | NM* | | FFO attributable to common stockholders | $(7,478) | $(6,591) | $(887) | (13.5)% | - Net loss increased by $16.4 million, primarily due to a $11.0 million increase in depreciation and amortization and a $6.5 million increase in unallocated interest expense. FFO attributable to common stockholders decreased by $885,000 to $(7.5) million6950 Segment Revenues (Three Months Ended Sep 30, in thousands) | Segment | 2023 | 2022 | Change ($) | Change (%) | | :------ | :--- | :--- | :--------- | :--------- | | Office | $14,049 | $14,043 | $6 | —% | | Hotel | $7,948 | $8,456 | $(508) | (6.0)% | | Multifamily | $3,331 | $0 | $3,331 | N/A | | Lending | $2,570 | $2,353 | $217 | 9.2% | - Office revenue remained consistent, with increased occupancy/rental rates in Beverly Hills offset by a disposition. Hotel revenue decreased due to lower food/beverage and parking revenue. Multifamily revenue of $3.3 million is new due to 2023 acquisitions. Lending revenue increased by 9.2% due to higher interest rates, partially offset by lower loan sale and servicing volume54557491 Segment Expenses (Three Months Ended Sep 30, in thousands) | Segment | 2023 | 2022 | Change ($) | Change (%) | | :------ | :--- | :--- | :--------- | :--------- | | Office | $6,342 | $7,320 | $(978) | (13.4)% | | Hotel | $6,027 | $6,079 | $(52) | (0.9)% | | Multifamily | $3,300 | $0 | $3,300 | N/A | | Lending | $2,204 | $1,162 | $1,042 | 89.7% | - Office expenses decreased due to lower real estate tax expense. Multifamily expenses are new due to 2023 acquisitions. Lending expenses increased by 89.7% due to higher interest expense from new SBA 7(a) loan-backed notes. Unallocated interest expense increased significantly to $8.6 million from $2.1 million, driven by variable-rate mortgages from multifamily acquisitions and higher interest rates57587779 Comparison of the Nine Months Ended September 30, 2023 to the Nine Months Ended September 30, 2022 Compares financial results for the nine months ended September 30, 2023 and 2022, detailing changes in net loss, FFO, and segment performance Net Loss and FFO (Nine Months Ended Sep 30, in thousands) | Metric | 2023 | 2022 | Change ($) | Change (%) | | :----- | :--- | :--- | :--------- | :--------- | | Total revenues | $89,790 | $76,038 | $13,752 | 18.1% | | Total expenses | $133,562 | $70,398 | $63,164 | 89.7% | | Net income (loss) | $(42,584) | $5,001 | $(47,585) | NM* | | FFO attributable to common stockholders | $(16,498) | $(1,773) | $(14,725) | NM* | - Net loss increased by $47.6 million, primarily due to a $31.0 million increase in depreciation and amortization and a $15.5 million increase in unallocated interest expense. FFO attributable to common stockholders decreased by $14.7 million to $(16.5) million84116 Segment Revenues (Nine Months Ended Sep 30, in thousands) | Segment | 2023 | 2022 | Change ($) | Change (%) | | :------ | :--- | :--- | :--------- | :--------- | | Office | $41,511 | $42,225 | $(714) | (1.7)% | | Hotel | $31,108 | $25,825 | $5,283 | 20.5% | | Multifamily | $8,632 | $0 | $8,632 | N/A | | Lending | $8,243 | $7,987 | $256 | 3.2% | - Office revenue decreased slightly due to lower occupancy and a disposition, partially offset by higher rental rates in Beverly Hills. Hotel revenue increased by 20.5% due to higher occupancy and average daily rate. Multifamily revenue of $8.6 million is new due to 2023 acquisitions. Lending revenue increased by 3.2% due to higher interest rates, partially offset by lower loan sale and servicing volume131132120133 Segment Expenses (Nine Months Ended Sep 30, in thousands) | Segment | 2023 | 2022 | Change ($) | Change (%) | | :------ | :--- | :--- | :--------- | :--------- | | Office | $19,391 | $19,968 | $(577) | (2.9)% | | Hotel | $20,929 | $17,807 | $3,122 | 17.5% | | Multifamily | $8,042 | $0 | $8,042 | N/A | | Lending | $5,995 | $3,359 | $2,636 | 78.5% | - Office expenses decreased due to lower real estate taxes and a disposition. Hotel expenses increased by 17.5% due to increased occupancy. Multifamily expenses are new due to 2023 acquisitions. Lending expenses increased by 78.5% due to higher interest expense from new SBA 7(a) loan-backed notes and allocated payroll. Unallocated interest expense increased to $21.9 million from $6.4 million, driven by variable-rate mortgages from multifamily acquisitions and higher interest rates135136137138123140 Liquidity and Capital Resources Discusses the company's short-term and long-term funding needs, financing strategies, and capital structure, including credit facilities and preferred stock offerings - Short-term demands for funds include asset acquisitions, property development/repositioning, capital expenditures, debt service, SBA loan originations, and preferred/common stock distributions. Long-term needs include acquisitions, development, refinancing, and stock repurchases/redemptions. The Company refinanced its 2018 credit facility with a new 2022 Credit Facility ($56.2 million term loan and $150.0 million revolver) maturing in December 2025129145 - In March 2023, the lending division completed a securitization of SBA 7(a) loans, issuing $54.1 million in loan-backed notes. The Company also has junior subordinated notes with a variable interest rate due March 2035. The Company conducts continuous public offerings of Series A1 Preferred Stock for general corporate purposes, stock acquisitions, and investment strategies166167169 - The Company redeemed all remaining Series L Preferred Stock in January 2023 for $83.8 million. Dividends on Series A1, A, and D Preferred Stock are cumulative cash dividends, paid monthly in arrears. Preferred stock redemptions can be paid in cash or Common Stock at the Company's discretion, except for Series A Preferred Stock redeemed within the first year, which must be cash129171173170155 Off-Balance Sheet Arrangements Confirms the absence of any off-balance sheet arrangements as of September 30, 2023 - As of September 30, 2023, the Company did not have any off-balance sheet arrangements157 Recently Issued Accounting Pronouncements Refers to Note 2 for details on recently issued accounting pronouncements and their impact on the financial statements - Recently issued accounting pronouncements are described in Note 2 to the consolidated financial statements158 Item 3. Quantitative and Qualitative Disclosures About Market Risk Details the company's exposure to market risk, primarily from interest rate fluctuations, and its strategies for managing this risk, including derivative instruments - The Company is exposed to market risk from changes in interest rates, impacting cash flows from floating-rate debt and fair values of fixed-rate debt. As of September 30, 2023, 44.4% ($210.7 million) of its debt was floating rate. A 50 basis point change in SOFR would result in an annual impact of approximately $1.1 million to earnings. The Company uses interest rate cap agreements with an aggregate notional amount of $166.6 million to manage this exposure182 Item 4. Controls and Procedures Outlines the company's evaluation of disclosure controls and procedures and reports on changes in internal control over financial reporting - As of September 30, 2023, management concluded that the Company's disclosure controls and procedures were effective. There have been no material changes in internal control over financial reporting during the quarter ended September 30, 2023176161 PART II. Other Information This section provides additional information on legal proceedings, risk factors, equity sales, and other miscellaneous disclosures Item 1. Legal Proceedings Addresses the company's involvement in legal actions and proceedings, confirming no material pending or threatened litigation - The Company is not currently involved in any material pending or threatened legal proceedings, other than routine litigation incidental to business. Management believes the resolution of these will not have a material adverse effect on the Company's financial condition or operations179 Item 1A. Risk Factors Refers to risk factors previously disclosed in the company's Annual Report on Form 10-K, noting no material changes - There have been no material changes to the risk factors disclosed in the Company's Annual Report on Form 10-K filed on March 30, 2023180 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Provides information on the company's share repurchase program, including approved amounts and repurchase activity - The Company's Board of Directors approved a share repurchase program (SRP) of up to $10.0 million of Common Stock in May 2022. As of September 30, 2023, 662,462 shares had been repurchased for $4.7 million. There were no repurchases during the three and nine months ended September 30, 2023181382 Item 3. Defaults Upon Senior Securities Confirms the absence of any defaults upon senior securities for the reporting period - None186 Item 4. Mine Safety Disclosures States the inapplicability of mine safety disclosures to the company's operations - Not applicable187 Item 5. Other Information Provides additional information, including the absence of Rule 10b5-1 trading arrangements by officers or directors - None of the Company's officers or directors had any Rule 10b5-1 trading arrangements in effect during the three months ended September 30, 2023437 Item 6. Exhibits Lists the exhibits filed with the quarterly report, including officer certifications and XBRL documents - Exhibits include Section 302 and 906 Officer Certifications from the CEO and CFO, along with various XBRL taxonomy extension documents and the cover page interactive data file435