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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
     FORM
10-Q
(Mark One):  
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                             to                            
Commission File Number 1-13610
CIM COMMERCIAL TRUST CORPORATION
(Exact name of registrant as specified in its charter)
Maryland75-6446078
(State or Other Jurisdiction of Incorporation or Organization)(I.R.S. Employer Identification No.)
17950 Preston Road,Suite 600,Dallas,Texas75252
(Address of Principal Executive Offices)(Zip Code)
(972)
349-3200
(Registrant’s telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
Common Stock, $0.001 Par ValueCMCT
Nasdaq Global Market
Common Stock, $0.001 Par ValueCMCT-L
Tel Aviv Stock Exchange
Series L Preferred Stock, $0.001 Par ValueCMCTP
Nasdaq Global Market
Series L Preferred Stock, $0.001 Par ValueCMCTP
Tel Aviv Stock Exchange
(Title of each class)(Trading symbol)(Name of each exchange on which registered)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No 
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filerNon-accelerated filer 
Smaller reporting company Emerging growth company 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No 
As of May 6, 2021, the Registrant had outstanding 14,847,742 shares of common stock, par value $0.001 per share.


Table of Contents
CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES
INDEX
   PAGE NO.
PART I.Financial Information
Financial Statements
 
 
 
 
 
PART II.Other Information



Table of Contents
PART I
Financial Information
Item 1.
Financial Statements
CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share and per share amounts) (Unaudited)
 March 31, 2021December 31, 2020
ASSETS  
Investments in real estate, net$502,122 $506,040 
Cash and cash equivalents34,605 33,636 
Restricted cash9,891 10,013 
Loans receivable, net84,441 83,135 
Accounts receivable, net1,566 1,737 
Deferred rent receivable and charges, net35,894 35,956 
Other intangible assets, net6,014 6,313 
Loan servicing asset, net and other assets11,350 8,787 
TOTAL ASSETS$685,883 $685,617 
LIABILITIES, REDEEMABLE PREFERRED STOCK, AND EQUITY  
LIABILITIES:  
Debt, net$331,759 $324,313 
Accounts payable and accrued expenses11,319 20,327 
Intangible liabilities, net472 587 
Due to related parties6,918 6,706 
Other liabilities11,596 9,733 
Total liabilities362,064 361,666 
COMMITMENTS AND CONTINGENCIES (Note 13)
REDEEMABLE PREFERRED STOCK: Series A cumulative redeemable preferred stock, $0.001 par value; 36,000,000 shares authorized; 1,973,186 and 1,972,786 shares issued and outstanding, respectively, as of March 31, 2021 and 2,008,256 and 2,007,856 shares issued and outstanding, respectively, as of December 31, 2020; liquidation preference of $25.00 per share, subject to adjustment
45,304 45,837 
EQUITY:  
Series A cumulative redeemable preferred stock, $0.001 par value; 36,000,000 shares authorized; 4,851,367 and 4,715,291 shares issued and outstanding, respectively, as of March 31, 2021 and 4,484,376 and 4,377,762 shares issued and outstanding, respectively, as of December 31, 2020; liquidation preference of $25.00 per share, subject to adjustment
117,140 108,729 
Series D cumulative redeemable preferred stock, $0.001 par value; 32,000,000 shares authorized; 23,190 shares issued and outstanding as of March 31, 2021 and 19,145 shares issued and outstanding as of December 31, 2020; liquidation preference of $25.00 per share, subject to adjustment
572 473 
Series L cumulative redeemable preferred stock, $0.001 par value; 9,000,000 shares authorized; 8,080,740 and 5,387,160 shares issued and outstanding, respectively, as of March 31, 2021 and December 31, 2020; liquidation preference of $28.37 per share, subject to adjustment
152,834 152,834 
Common stock, $0.001 par value; 900,000,000 shares authorized; 14,827,410 shares issued and outstanding as of March 31, 2021 and 14,827,410 shares issued and outstanding as of December 31, 2020.
15 15 
Additional paid-in capital793,344 794,127 
Distributions in excess of earnings(785,730)(778,519)
Total stockholders’ equity278,175 277,659 
Noncontrolling interests340 455 
Total equity278,515 278,114 
TOTAL LIABILITIES, REDEEMABLE PREFERRED STOCK, AND EQUITY$685,883 $685,617 
           The accompanying notes are an integral part of these consolidated financial statements.
1

Table of Contents
CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except per share amounts) (Unaudited)
 Three Months Ended March 31,
 20212020
REVENUES:  
Rental and other property income$13,349 $14,819 
Hotel income1,732 7,759 
Interest and other income3,798 2,957 
Total Revenues18,879 25,535 
EXPENSES:  
Rental and other property operating8,290 12,515 
Asset management and other fees to related parties          2,259 2,645 
Expense reimbursements to related parties—corporate605 812 
Expense reimbursements to related parties—lending segment731 682 
Interest2,632 3,167 
General and administrative2,622 1,734 
Depreciation and amortization5,037 5,258 
22,176 26,813 
LOSS BEFORE PROVISION (BENEFIT) FOR INCOME TAXES(3,297)(1,278)
Provision (benefit) for income taxes374 (22)
NET LOSS(3,671)(1,256)
Net loss (income) attributable to noncontrolling interests1 (4)
NET LOSS ATTRIBUTABLE TO THE COMPANY(3,670)(1,260)
Redeemable preferred stock dividends declared or accumulated (Note 9)(4,466)(5,356)
Redeemable preferred stock deemed dividends (Note 9)(57)(161)
Redeemable preferred stock redemptions (Note 9)(13)(10)
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS$(8,206)$(6,787)
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS PER SHARE:  
Basic$(0.55)$(0.46)
Diluted$(0.55)$(0.46)
WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING:  
Basic14,808 14,598 
Diluted14,808 14,599 
   The accompanying notes are an integral part of these consolidated financial statements.
2

Table of Contents
CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES
Consolidated Statements of Equity
(In thousands, except share and per share amounts) (Unaudited)
 Three Months Ended March 31, 2021
Common StockPreferred Stock
 SharesPar
Value
SharesPar
Value
Additional
Paid-in
Capital
Distributions
in Excess of Earnings
Total Stockholders’ EquityNon-controlling
Interests
Total Equity
Balances, December 31, 202014,827,410 $15 9,784,067 $262,036 $794,127 $(778,519)$277,659 $455 $278,114 
Contributions to noncontrolling interests— — — — — — — —  
Distributions to noncontrolling interests— — — — — — — (114)(114)
Stock-based compensation expense— — — — 60 — 60 — 60 
Common dividends ($0.075 per share)
— — — — — (1,112)(1,112)— (1,112)
Dividends to holders of Series A Preferred Stock ($0.34375 per share)
— — — — — (2,350)(2,350)— (2,350)
Issuance of Series D Preferred Stock— — 4,045 99 (3)— 96 — 96 
Dividends to holders of Series D Preferred Stock ($0.35313 per share)
— — — — — (9)(9)— (9)
Reclassification of Series A Preferred Stock to permanent equity— — 366,991 9,144 (901)— 8,243 — 8,243 
Redeemable Preferred Stock deemed dividends— — — — — (57)(57)— (57)
Redemption of Series A Preferred Stock— — (29,462)(733)61 (13)(685)— (685)
Net loss— — — — — (3,670)(3,670)(1)(3,671)
Balances, March 31, 202114,827,410 $15 10,125,641 $270,546 $793,344 $(785,730)$278,175 $340 $278,515 

 Three Months Ended March 31, 2020
Common StockPreferred Stock
 SharesPar
Value
SharesPar
Value
Additional
Paid-in
Capital
Distributions
in Excess of Earnings
Total Stockholders’ EquityNon-controlling
Interests
Total Equity
Balances, December 31, 201914,602,149 $15 8,224,254 $223,467 $794,825 $(740,617)$277,690 $505 $278,195 
Stock-based compensation expense— — — — 56 — 56 — 56 
Common dividends ($0.075 per share)
— — — — — (1,095)(1,095)— (1,095)
Issuance of Series A Preferred Warrants— — — — 28 — 28 — 28 
Dividends to holders of Series A Preferred Stock ($0.68750 per share)
— — — — — (3,252)(3,252)— (3,252)
Issuance of Series D Preferred Stock— — 5,980 150 (5)— 145 — 145 
Dividends to holders of Series D Preferred Stock ($0.588542 per share)
— — — — — (3)(3)— (3)
Reclassification of Series A Preferred Stock to permanent equity— — 304,274 7,588 (640)— 6,948 — 6,948 
Redeemable Preferred Stock deemed dividends— — — — — (161)(161)— (161)
Redemption of Series A Preferred Stock— — (2,452)(61)5 (10)(66)— (66)
Net (loss) income— — — — — (1,260)(1,260)4 (1,256)
Balances, March 31, 202014,602,149 $15 8,532,056 231,144 $794,269 $(746,398)279,030 $509 $279,539 
The accompanying notes are an integral part of these consolidated financial statements.
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Consolidated Statements of Cash Flows
(In thousands) (Unaudited)
 Three Months Ended
March 31,
 20212020
CASH FLOWS FROM OPERATING ACTIVITIES:  
Net loss$(3,671)$(1,256)
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and amortization, net5,017 5,102 
Amortization of deferred loan costs324 266 
Amortization of premiums and discounts on debt2 (25)
Unrealized premium adjustment467 451 
Amortization and accretion on loans receivable, net(129)(179)
Write-offs of uncollectible receivables811 225 
Deferred income taxes(72)(151)
Stock-based compensation60 56 
Loans funded, held for sale to secondary market(13,773)(8,883)
Proceeds from sale of guaranteed loans14,850 9,520 
Principal collected on loans subject to secured borrowings212 2,014 
Other operating activity(83)(297)
Changes in operating assets and liabilities:  
Accounts receivable(536)(300)
Other assets(2,530)(1,355)
Accounts payable and accrued expenses(722)489 
Deferred leasing costs(87)(83)
Other liabilities1,863 (497)
Due to related parties2,631 886 
Net cash provided by operating activities4,634 5,983 
CASH FLOWS FROM INVESTING ACTIVITIES:  
Additions to investments in real estate(374)(5,632)
Loans funded(11,820)(2,961)
Principal collected on loans8,638 3,319 
Other investing activity 30 
Net cash used in investing activities(3,556)(5,244)
CASH FLOWS FROM FINANCING ACTIVITIES:  
Payment of unsecured revolving lines of credit, revolving credit facilities, mortgages payable, term notes and principal on SBA 7(a) loan-backed notes(7,653)(9,249)
Proceeds from unsecured revolving lines of credit, revolving credit facilities and term notes14,985 11,500 
Payment of principal on secured borrowings(212)(2,014)
Payment of deferred preferred stock offering costs(148)(207)
Payment of deferred costs(125) 
Payment of common dividends(1,112)(1,095)
Net proceeds from issuance of Series A Preferred Warrants 29 
Net proceeds from issuance of Preferred Stock5,465 8,643 
Payment of preferred stock dividends(10,630)(10,919)
Redemption of Preferred Stock(687)(186)
Noncontrolling interests’ distributions(114) 
Net cash used in financing activities(231)(3,498)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH847 (2,759)
(Continued)




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Consolidated Statements of Cash Flows (Continued)
(In thousands) (Unaudited)
 Three Months Ended
March 31,
 20212020
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH:  
Beginning of period43,649 35,947 
End of period$44,496 $33,188 
RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH TO THE CONSOLIDATED BALANCE SHEETS:
Cash and cash equivalents$34,605 $22,758 
Restricted cash9,891 10,430 
Total cash and cash equivalents and restricted cash$44,496 $33,188 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:  
Cash paid during the period for interest$2,321 $2,904 
Federal income taxes paid$25 $ 
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:  
Accrued capital expenditures, tenant improvements and real estate developments$213 $4,859 
Accrued preferred stock offering costs $739 $538 
Accrual of dividends payable to preferred stockholders$3,072 $2,209 
Preferred stock offering costs offset against redeemable preferred stock$87 $178 
Reclassification of Series A Preferred Stock from temporary equity to permanent equity$8,243 $6,948 
Accrued deferred costs$54 $382 
Reclassification of Series A Preferred Stock from permanent equity to accounts payable and accrued expenses$ $18 
Redeemable preferred stock deemed dividends$57 $161 
Accrued redeemable preferred stock fees$541 $78 
Equity-based payment for management fees$2,419 $ 
The accompanying notes are an integral part of these consolidated financial statements.
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CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021 (Unaudited)

1. ORGANIZATION AND OPERATIONS
CIM Commercial Trust Corporation (“CIM Commercial” or the “Company”), a Maryland corporation and real estate investment trust (“REIT”), together with its wholly-owned subsidiaries primarily acquires, owns, and operates Class A and creative office assets in vibrant and improving metropolitan communities throughout the United States (including improving and developing such assets). These communities are located in areas that include traditional downtown areas and suburban main streets, which have high barriers to entry, high population density, positive population trends and a propensity for growth. The Company was originally organized in 1993 as PMC Commercial Trust (“PMC Commercial”), a Texas real estate investment trust.
On July 8, 2013, PMC Commercial entered into a merger agreement with CIM Urban REIT, LLC (“CIM REIT”), an affiliate of CIM Group, L.P. (“CIM Group” or “CIM”), and subsidiaries of the respective parties. CIM REIT was a private commercial REIT and was the owner of CIM Urban Partners, L.P. (“CIM Urban”). The merger was completed on March 11, 2014 (the “Acquisition Date”).
The Company’s common stock, $0.001 par value per share (“Common Stock”), is currently traded on the Nasdaq Global Market (“Nasdaq”) under the ticker symbol “CMCT”, and on the Tel Aviv Stock Exchange (the “TASE”) under the ticker symbol “CMCT-L.” The Company’s Series L preferred stock, $0.001 par value per share (“Series L Preferred Stock”), is currently traded on Nasdaq and on the TASE, in each case under the ticker symbol “CMCTP.” The Company has authorized for issuance 900,000,000 shares of common stock and 100,000,000 shares of preferred stock (“Preferred Stock”).
The Company filed Articles of Amendment (the “Reverse Stock Split Amendment”) to effectuate a one-for-three reverse stock split of the Company’s Common Stock, effective on September 3, 2019 (the “Reverse Stock Split”). Pursuant to the Reverse Stock Split Amendment, every three shares of Common Stock issued and outstanding immediately prior to the effective time of the Reverse Stock Split were converted into one share of Common Stock, par value $0.003 per share. In connection with the Reverse Split Amendment, the Company filed Articles of Amendment to revert the par value of the Common Stock issued and outstanding from $0.003 per share to $0.001 per share, effective as of September 3, 2019, following the effective time of the Reverse Split Amendment. All Common Stock and per share of Common Stock amounts set forth in this Quarterly Report on Form 10-Q have been adjusted to give retroactive effect to the Reverse Stock Split, unless otherwise stated.
The Company conducted a continuous public offering of Series A Preferred Units from October 2016 through January 2020, where each Series A Preferred Unit consisted of one share of Series A Preferred Stock, par value $0.001 per share, of the Company (collectively, the “Series A Preferred Stock”) with an initial stated value of $25.00 per share, subject to adjustment (the “Series A Preferred Stock Stated Value”), and one warrant (collectively, the “Series A Preferred Warrants”) to purchase 0.25 of a share of Common Stock, subject to adjustment (Note 10). Proceeds and expenses from the sale of the Series A Preferred Units were allocated to the Series A Preferred Stock and Series A Preferred Warrants using their relative fair values on the date of issuance.
Since February 2020, the Company has been conducting a continuous public offering of Series A Preferred Stock and Series D preferred stock, par value $0.001 per share (the “Series D Preferred Stock”), with an initial stated value of $25.00 per share, subject to adjustment (the “Series D Preferred Stock Stated Value”). The selling price of the Series A Preferred Stock in the offering has been, and is expected to continue to be, $25.00 per share and the selling price of the Series D Preferred Stock was $25.00 per share for all sales that occurred from the beginning of the offering to and including June 28, 2020 and is expected to be, and since June 29, 2020, has been, $24.50 per share through the end of the life of the offering.
CIM Commercial has qualified and intends to continue to qualify as a REIT, as defined in the Internal Revenue Code of 1986, as amended.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
For more information regarding the Company’s significant accounting policies and estimates, please refer to “Basis of Presentation and Summary of Significant Accounting Policies” contained in Note 2 to the Company’s consolidated financial statements for the year ended December 31, 2020, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 16, 2021.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021 (Unaudited) – (Continued)
Interim Financial Information—The accompanying interim consolidated financial statements of CIM Commercial have been prepared by the Company’s management in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Certain information and note disclosures required for annual financial statements have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, the interim consolidated financial statements do not include all of the information and notes required by GAAP for complete financial statements. The accompanying financial information reflects all adjustments which are, in the opinion of the Company’s management, of a normal recurring nature and necessary for a fair presentation of the Company’s financial position, results of operations and cash flows for the interim periods. Operating results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021 given, among other things, the uncertain impact of the novel coronavirus (“COVID-19”) on the Company’s operations during the remainder of the year. The accompanying interim consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 16, 2021.
Principles of Consolidation—The consolidated financial statements include the accounts of CIM Commercial and its subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. In determining whether the Company has controlling interests in an entity and the requirement to consolidate the accounts in that entity, the Company analyzes its investments in real estate in accordance with standards set forth in GAAP to determine whether they are variable interest entities (“VIEs”), and if so, whether the Company is the primary beneficiary. The Company’s judgment with respect to its level of influence or control over an entity and whether the Company is the primary beneficiary of a VIE involves consideration of various factors, including the form of the Company’s ownership interest, the Company’s voting interest, the size of the Company’s investment (including loans), and the Company’s ability to participate in major policy-making decisions. The Company’s ability to correctly assess its influence or control over an entity affects the presentation of these investments in real estate on the Company’s consolidated financial statements. As of March 31, 2021, the Company determined that the trust formed for the benefit of the note holders (the “Trust”) for the securitization of the unguaranteed portion of certain of the Company’s SBA 7(a) loans receivable is considered a VIE. Applying the consolidation requirements for VIEs, the Company determined that it is the primary beneficiary based on its power to direct activities through its role as servicer and its obligations to absorb losses and right to receive benefits. (Note 6)
Investments in Real Estate—Investments in real estate are stated at depreciated cost. Depreciation and amortization are recorded on a straight-line basis over the estimated useful lives as follows:
Buildings and improvements 
15 - 40 years
Furniture, fixtures, and equipment 
3 - 5 years
Tenant improvements Lesser of useful life or lease term
The Company capitalizes project costs, including pre-construction costs, interest expense, property taxes, insurance, and other costs directly related and essential to the development, redevelopment, or construction of a project, while activities are ongoing to prepare an asset for its intended use. Costs incurred after a project is substantially complete and ready for its intended use are expensed as incurred.
Improvements and replacements are capitalized when they extend the useful life, increase capacity, or improve the efficiency of the asset. Ordinary repairs and maintenance are expensed as incurred.
Recoverability of Investments in Real Estate—Investments in real estate are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If, and when, such events or changes in circumstances are present, the recoverability of assets to be held and used requires significant judgment and estimates and is measured by a comparison of the carrying amount to the future undiscounted cash flows expected to be generated by the assets and their eventual disposition. If the undiscounted cash flows are less than the carrying amount of the assets, an impairment is recognized to the extent the carrying amount of the assets exceeds the estimated fair value of the assets. The process for evaluating real estate impairment requires management to make significant assumptions related to certain inputs, including rental rates, lease-up period, occupancy, estimated holding periods, capital expenditures, growth rates, market discount rates and terminal capitalization rates. For the Company’s hotel property, additional inputs considered include revenue per available room and average daily rate. These inputs require a subjective evaluation based on the specific property and market. Changes in the assumptions could have a significant impact on either the fair value, the amount of impairment charge, if any, or both. Any asset held for sale is reported at the lower of the asset’s carrying amount or fair value, less costs to sell. When an asset is identified by the Company as held for sale, the Company will cease recording depreciation and amortization of
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021 (Unaudited) – (Continued)
the asset. For the three months ended March 31, 2021 and 2020, the Company recognized no impairment of long-lived assets (Note 3).
Revenue Recognition—At the inception of a revenue-producing contract, the Company determines if a contract qualifies as a lease and if not, then as a customer contract. Based on this determination, the appropriate treatment in accordance with GAAP is applied to the contract, including its revenue recognition.
Revenue from leasing activities
The Company operates as a lessor of real estate assets, primarily in Class A and creative office assets. The Company determined that the Company’s contracts with its tenants explicitly identify the premises and that any substitution rights to relocate tenants to other premises within the same building stated in the contract are not substantive. Additionally, so long as payments are made timely under such contracts, the Company’s tenants have the right to obtain substantially all the economic benefits from the use of the identified asset and can direct how and for what purpose the premises are used to conduct their operations. Therefore, the contracts with the Company’s tenants constitute leases.
All leases are classified as operating leases and minimum rents are recognized on a straight-line basis over the terms of the leases when collectability is probable and the tenant has taken possession or controls the physical use of the leased asset. The excess of rents recognized over amounts contractually due pursuant to the underlying leases is recorded as deferred rent. If the lease provides for tenant improvements, the Company determines whether the tenant improvements, for accounting purposes, are owned by the tenant or the Company. When the Company is the owner of the tenant improvements, the tenant is not considered to have taken physical possession or have control of the physical use of the leased asset until the tenant improvements are substantially completed. When the tenant is considered the owner of the improvements, any tenant improvement allowance that is funded is treated as an incentive. Lease incentives paid to tenants are included in other assets and amortized as a reduction to rental revenue on a straight-line basis over the term of the related lease. Lease incentives of $4.0 million are presented net of accumulated amortization of $2.5 million and $2.4 million as of March 31, 2021 and December 31, 2020, respectively.
Reimbursements from tenants, consisting of amounts due from tenants for common area maintenance, real estate taxes, insurance, and other recoverable costs, are recognized as revenue and are included in rental and other property income in the period the expenses are incurred, with the corresponding expenses included in rental and other property operating expense. Tenant reimbursements are recognized and presented on a gross basis when the Company is primarily responsible for fulfilling the promise to provide the specified good or service and control that specified good or service before it is transferred to the tenant. The Company has elected not to separate lease and non-lease components as the pattern of revenue recognition does not differ for the two components, and the non-lease component is not the primary component in the Company’s leases.
In addition to minimum rents, certain leases, including the Company’s parking leases with third-party operators, provide for additional rents based upon varying percentages of tenants’ sales in excess of annual minimums. Percentage rent is recognized once lessees’ specified sales targets have been met.
For the three months ended March 31, 2021 and 2020, the Company recognized rental income as follows (in thousands):
Three Months Ended March 31,
20212020
Rental and other property income
Fixed lease payments (1)
$12,444 $13,345 
Variable lease payments (2)
905 1,474 
Rental and other property income$13,349 $14,819 
______________________
(1)Fixed lease payments include contractual rents under lease agreements with tenants recognized on a straight-line basis over the lease term, including amortization of acquired above-market leases, below-market leases and lease incentives.
(2)Variable lease payments include expense reimbursements billed to tenants and percentage rent, net of bad debt expense from the Company’s operating leases.
The Company continually reviews whether collection of lease-related receivables, including any straight-line rent, and current and future operating expense reimbursements from tenants is probable. The determination of whether collectability is
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021 (Unaudited) – (Continued)
probable takes into consideration the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located. Upon the determination that the collectability of a receivable is not probable, the Company will record a reduction to rental and other property income for amounts previously recorded and a decrease in the outstanding receivable. Revenue from leases where collection is deemed to be not probable is recorded on a cash basis until collectability becomes probable. Management’s estimate of the collectability of lease-related receivables is based on the best information available at the time of estimate. The Company does not use a general reserve approach and lease-related receivables are adjusted and taken against rental and other property income only when collectability becomes not probable. As of March 31, 2021 and December 31, 2020, the Company had identified certain tenants where collection was no longer considered probable and decreased outstanding receivables by $2.6 million and $1.9 million, respectively.
Revenue from lending activities
Interest income included in interest and other income is comprised of interest earned on loans and the Company’s short-term investments and the accretion of net loan origination fees and discounts. Interest income on loans is accrued as earned with the accrual of interest suspended when the related loan becomes a Non-Accrual Loan (as defined below).
Revenue from hotel activities
Hotel revenue is recognized upon establishment of a contract with a customer. At contract inception, the Company assesses the goods and services promised in its contracts with customers and identifies a performance obligation for each promise to transfer to the customer a good or service (or bundle of goods or services) that is distinct. To identify the performance obligations, the Company considers all of the goods or services promised in the contract regardless of whether they are explicitly stated or implied by customary business practices. Various performance obligations of hotel revenues can be categorized as follows:
cancellable and noncancelable room revenues from reservations and
ancillary services including facility usage and food or beverage.
Cancellable reservations represent a single performance obligation of providing lodging services at the hotel. The Company satisfies its performance obligation and recognizes revenues associated with these reservations over time as services are rendered to the customer. The Company satisfies its performance obligation and recognizes revenues associated with noncancelable reservations at the earlier of (i) the date on which the customer cancels the reservation or (ii) over time as services are rendered to the customer.
Ancillary services include facilities usage and providing food and beverage. The Company satisfies its performance obligation and recognizes revenues associated with these services at a point in time as the good or service is delivered to the customer.
At inception of these contracts with customers for hotel revenues, the contractual price is equivalent to the transaction price as there are no elements of variable consideration to estimate.
Below is a reconciliation of the hotel revenue from contracts with customers to the total hotel segment revenue disclosed in Note 15 (in thousands):
Three Months Ended March 31,
20212020
Hotel properties
Hotel income$1,732 $7,759 
Rental and other property income131 462 
Interest and other income15 32 
Hotel revenues$1,878 $8,253 
Tenant recoveries outside of the lease agreements
Tenant recoveries outside of the lease agreements are related to construction projects in which the Company’s tenants have agreed to fully reimburse the Company for all costs related to construction. These services include architectural, permit
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021 (Unaudited) – (Continued)
expediter and construction services. At inception of the contract with the customer, the contractual price is equivalent to the transaction price as there are no elements of variable consideration to estimate. While these individual services are distinct, in the context of the arrangement with the customer, all of these services are bundled together and represent a single package of construction services requested by the customer. The Company satisfies its performance obligation and recognizes revenues associated with these services over time as the construction is completed. No such amounts were recognized for tenant recoveries outside of the lease agreements for each of the three months ended March 31, 2021 and 2020, which amounts are included in interest and other income on the consolidated statements of operations. As of March 31, 2021, there were no remaining performance obligations associated with tenant recoveries outside of the lease agreements.
Loans Receivable—The Company’s loans receivable are carried at their unamortized principal balance less unamortized acquisition discounts and premiums, deferred origination fees, retained loan discounts and loan loss reserves. Acquisition discounts or premiums, origination fees and retained loan discounts are amortized as a component of interest and other income using the effective interest method over the life of the respective loans, or on a straight-line basis when it approximates the effective interest method. All loans were originated pursuant to programs sponsored by the Small Business Administration (the “SBA”). The programs consist of loans originated under the SBA 7(a) Small Business Loan Program and, commencing with the quarter ended June 30, 2020, the Paycheck Protection Program (the “PPP”).
Pursuant to the SBA 7(a) Small Business Loan Program, the Company sells the portion of the loan that is guaranteed by the SBA. Upon sale of the SBA guaranteed portion of the loans, which are accounted for as sales, the unguaranteed portion of the loan retained by the Company is recorded at fair value and a discount is recorded as a reduction in basis of the retained portion of the loan. Unamortized retained loan discounts were $8.1 million and $7.8 million as of March 31, 2021 and December 31, 2020, respectively.
At the Acquisition Date, the carrying value of the Company’s loans was adjusted to estimated fair market value and acquisition discounts of $33.9 million were recorded, which are being accreted to interest and other income using the effective interest method. Acquisition discounts of $470,000 and $492,000 remained as of March 31, 2021 and December 31, 2020, respectively.
A loan receivable is generally classified as non-accrual (a “Non-Accrual Loan”) if (i) it is past due as to payment of principal or interest for a period of 60 days or more, (ii) any portion of the loan is classified as doubtful or is charged-off or (iii) the repayment in full of the principal and or interest is in doubt. Generally, loans are charged-off when management determines that the Company will be unable to collect any remaining amounts due under the loan agreement, either through liquidation of collateral or other means. Interest income, included in interest and other income, on a Non-Accrual Loan is recognized on the cost recovery basis.
Loan Loss Reserves—On a quarterly basis, and more frequently if indicators exist, the Company evaluates the collectability of its loans receivable. The Company’s evaluation of collectability involves significant judgment, estimates, and a review of the ability of the borrower to make principal and interest payments, the underlying collateral and the borrowers’ business models and future operations. For the three months ended March 31, 2021 and 2020, the Company recorded a net impairment of $92,000 and a net recovery of $52,000, respectively, on its loans receivable. There were no material loans receivable subject to credit risk which were considered to be impaired as of March 31, 2021 or December 31, 2020. The Company considers a loan to be impaired when the Company does not expect to collect all of the contractual interest and principal payments as scheduled in the loan agreements. The Company also establishes a general loan loss reserve when available information indicates that it is probable a loss has occurred based on the carrying value of the portfolio and the amount of the loss can be reasonably estimated. Significant judgment is required in determining the general loan loss reserve, including estimates of the likelihood of default and the estimated fair value of the collateral. The general loan loss reserve includes those loans, which may have negative characteristics which have not yet become known to the Company. In addition to the reserves established on loans not considered impaired that have been evaluated under a specific evaluation, the Company establishes the general loan loss reserve using a consistent methodology to determine a loss percentage to be applied to loan balances. These loss percentages are based on many factors, primarily cumulative and recent loss history and general economic conditions. As of March 31, 2021 and December 31, 2020, the Company had loan loss reserves of $989,000 and $885,000, respectively.
Deferred Rent Receivable and Charges—Deferred rent receivable and charges consist of deferred rent, deferred leasing costs, deferred offering costs (Note 9) and other deferred costs. Deferred leasing costs, which represent lease commissions and other direct costs associated with the acquisition of tenants, are capitalized and amortized on a straight-line basis over the terms of the related leases. Deferred offering costs represent direct costs incurred in connection with the Company’s offerings of Series A Preferred Units, and, after January 2020, Series A Preferred Stock and Series D Preferred
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021 (Unaudited) – (Continued)
Stock, excluding costs specifically identifiable to a closing, such as commissions, dealer-manager fees, and other offering fees and expenses. Generally, for a specific issuance of securities, issuance-specific offering costs are recorded as a reduction of proceeds raised on the issuance date and offering costs incurred but not directly related to a specifically identifiable closing of a security are deferred. Deferred offering costs are first allocated to each issuance of a security on a pro-rata basis equal to the ratio of the number of securities issued in a given issuance to the maximum number of securities that are expected to be issued in the related offering. In the case of the Series A Preferred Units, which were issued prior to February 2020, the issuance-specific offering costs and the deferred offering costs allocated to such issuance were further allocated to the Series A Preferred Stock and Series A Preferred Warrants issued in such issuance based on the relative fair value of the instruments on the date of issuance. The deferred offering costs allocated to the Series A Preferred Stock and Series A Preferred Warrants are reductions to temporary equity and permanent equity, respectively.
As of March 31, 2021 and December 31, 2020, deferred rent receivable and charges consist of the following (in thousands):
 March 31, 2021December 31, 2020
Deferred rent receivable$20,645 $20,470 
Deferred leasing costs, net of accumulated amortization of $8,084 and $7,742, respectively
8,534 8,950 
Deferred offering costs6,171 6,046 
Other deferred costs544 490 
Deferred rent receivable and charges, net$35,894 $35,956 
Redeemable Preferred Stock—Beginning on the date of original issuance of any given shares of Series A Preferred Stock or Series D Preferred Stock, and from and after the fifth anniversary date of the original issuance of the Series L Preferred Stock, the holder of such shares has the right to require the Company to redeem such shares, subject to certain limitations as discussed in Note 9. The Company records the activity related to the Series A Preferred Warrants, Series D Preferred Stock and Series L Preferred Stock in permanent equity. In the event a holder of Series A Preferred Stock requests redemption of such shares and such redemption takes place prior to the first anniversary of the date of original issuance, the Company is required to pay such redemption in cash. As a result, the Company records issuances of Series A Preferred Stock in temporary equity. On the first anniversary of the date of original issuance of a particular share of Series A Preferred Stock, the Company reclassifies such share of Series A Preferred Stock from temporary equity to permanent equity because the feature giving rise to temporary equity classification, the requirement to satisfy redemption requests in cash, lapses on the first anniversary date.
Noncontrolling Interests—Noncontrolling interests represent the interests in various properties owned by third-parties.
Restricted Cash—The Company’s mortgage loan and hotel management agreements provide for depositing cash into restricted accounts reserved for capital expenditures, free rent, tenant improvement and leasing commission obligations. Restricted cash also includes cash required to be segregated in connection with certain of the Company’s loans receivable.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021 (Unaudited) – (Continued)
Reclassifications—Certain prior period amounts have been reclassified to conform with the current period presentation. These reclassifications had no effect on previously reported totals or subtotals. The reclassifications have been made to the consolidated statements of operations and the consolidated statements of cash flows for the three months ended March 31, 2020 as follows (in thousands):
Three Months Ended March 31, 2020
As previously reportedReclassificationAs Revised
Consolidated Statements of Operations
Asset management and other fees to related parties$4,139 $(1,494)$2,645 
Expense reimbursements to related parties—corporate$ $812 $812 
Expense reimbursements to related parties—lending segment$ $682 $682 
Consolidated Statements of Cash Flows
Depreciation and amortization, net$5,258 $(156)$5,102 
Deferred rent and amortization of intangible assets, liabilities and lease inducements$(816)$816 $ 
Other assets$(695)$(660)$(1,355)
Payment of unsecured revolving lines of credit, revolving credit facilities, mortgages payable, term notes and principal on SBA 7(a) loan-backed notes$(5,000)$(4,249)$(9,249)
Payment of principal on SBA 7(a) loan-backed notes$(4,249)$4,249 $ 
Net proceeds from issuance of Preferred Stock$8,497 $146 $8,643 
Net proceeds from issuance of Series D Preferred Stock$146 $(146)$ 
Preferred stock offering costs offset against redeemable preferred stock$176 $2 $178 
Preferred stock offering costs offset against redeemable preferred stock in permanent equity$2 $(2)$ 
Use of Estimates—The preparation of consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. The Company bases such estimates on historical experience, information available at the time, and assumptions the Company believes to be reasonable under the circumstances and at such time, including the impact of extraordinary events such as COVID-19. Actual results could differ from those estimates.
Recently Issued Accounting Pronouncements—In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which was subsequently amended by ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses (“ASU 2018-19”) in November 2018. Subsequently, the FASB issued ASU No. 2019-04, ASU No. 2019-05, ASU No. 2019-10, ASU No. 2019-11 and ASU No. 2020-02 to provide additional guidance on the credit losses standard. ASU 2016-13 and the related updates improve financial reporting requiring more timely recognition of credit losses on loans and other financial instruments that are not accounted for at fair value through net income, including loans held-for-investment, held-to-maturity debt securities, net investment in leases and other such commitments. ASU 2016-13 requires that financial assets measured at amortized cost be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The amendments in ASU 2016-13 require the Company to measure all expected credit losses based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the financial assets and eliminates the “incurred loss” methodology under current GAAP. ASU 2018-19 clarified that receivables arising from operating leases are not within the scope of Topic 326. Instead, impairment of receivables arising from operating leases should be accounted for in accordance with ASU No. 2016-02, Leases (Topic 842). For smaller reporting companies, public entities that are not SEC filers, and entities that are not public business entities, the ASU is effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2022. Early adoption is permitted for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2018. The Company has not yet adopted ASU 2016-13 and the related updates and remains in the process of evaluating the impact of adoption of this new accounting guidance on its consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021 (Unaudited) – (Continued)
On April 10, 2020, the FASB issued a question-and-answer document (the “Q&A”) to address stakeholder questions on the application of the lease accounting guidance for lease concessions related to the effects of COVID-19. The lease modification guidance in Topic 842, Leases, (or Topic 840, Leases) would require the Company to determine, on a lease by lease basis, if a lease concession was the result of a new arrangement reached with the tenant (treated within the lease modification accounting framework) or if a lease concession was made pursuant to the enforceable rights and obligations of the existing lease agreement (precluded from applying the lease modification accounting framework). However, the Q&A provides that the Company may bypass the lease by lease analysis if certain criteria are met, and instead elect to either consistently apply, or consistently not apply, the lease modification framework to groups of leases with similar characteristics and similar circumstances. As described below, the Company has elected not to apply the lease modification guidance to concessions related to the effects of COVID-19 that do not result in a substantial increase in the Company’s rights as lessor, including concessions that result in the total payments required by the modified lease being substantially the same as or less than the total payments required by the original lease.
3. INVESTMENTS IN REAL ESTATE
Investments in real estate consist of the following (in thousands):
 March 31, 2021December 31, 2020
Land$139,397 $139,397 
Land improvements2,611 2,611 
Buildings and improvements451,204 450,741 
Furniture, fixtures, and equipment5,020 4,969 
Tenant improvements31,025 31,414 
Work in progress7,786 8,073 
Investments in real estate637,043 637,205 
Accumulated depreciation(134,921)(131,165)
Net investments in real estate$502,122 $506,040 
The Company recorded depreciation expense of $4.2 million and $4.3 million for the three months ended March 31, 2021 and 2020, respectively.
The fair value of real estate acquired is recorded to the acquired tangible assets, consisting primarily of land, land improvements, building and improvements, tenant improvements, furniture, fixtures, and equipment, and identified intangible assets and liabilities, consisting of the value of acquired above-market and below-market leases, in-place leases and ground leases, if any, based in each case on their respective fair values. Loan premiums, in the case of above-market rate loans, or loan discounts, in the case of below-market rate loans, are recorded based on the fair value of any loans assumed in connection with acquiring the real estate.
2021 and 2020 Transactions—There were no acquisitions or dispositions during the three months ended March 31, 2021 and 2020.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021 (Unaudited) – (Continued)
4. LOANS RECEIVABLE
Loans receivable consist of the following (in thousands):
 March 31, 2021December 31, 2020
SBA 7(a) loans receivable, subject to credit risk$33,250 $32,226 
SBA 7(a) loans receivable, subject to loan-backed notes22,765 23,631 
SBA 7(a) loans receivable, Paycheck Protection Program17,286 14,484 
SBA 7(a) loans receivable, subject to secured borrowings8,555 8,786 
SBA 7(a) loans receivable, held for sale2,912 4,009 
Loans receivable84,768 83,136 
Deferred capitalized costs, net662 884 
Loan loss reserves(989)(885)
Loans receivable, net$84,441 $83,135 
SBA 7(a) Loans Receivable, Subject to Credit Risk—Represents the unguaranteed portions of loans originated under the SBA 7(a) Small Business Loan Program which were retained by the Company.
SBA 7(a) Loans Receivable, Subject to Loan-Backed Notes—Represents the unguaranteed portions of loans originated under the SBA 7(a) Small Business Loan Program which were transferred to a trust and are held as collateral in connection with a securitization transaction. The proceeds received from the transfer are reflected as loan-backed notes payable (Note 6). These loans are subject to credit risk.
SBA 7(a) Loans Receivable, Paycheck Protection Program—As a SBA 7(a) licensee, the Company is an authorized lender under the PPP and has originated $26.2 million in loans under the