Creative Media & Community Trust Corp 10-Q for FY2021 Q1
Creative Media & Community Trust Corp (CMCT)
10-Q
2021-05-10
For: 2021-03-31
View Original
Added on
April 05, 2026
About this 10-Q
Creative Media & Community Trust Corp filed this 10-Q on May 10, 2021, covering the quarter ended March 31, 2021 (FY2021 Q1).
Headline figures
Quarter ended March 31, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $18.88M
- down 26.1% from $25.54M a year earlier
- Net loss
- $3.67M
- compared with a net loss of $1.26M a year earlier
- Diluted EPS
- -$0.55
- compared with -$0.46 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM | |||||
| (Mark One): | ||||||||
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||||||
| For the quarterly period ended | ||||||||
| 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
(Exact name of registrant as specified in its charter)
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |||||||||||||
| (Address of Principal Executive Offices) | (Zip Code) | |||||||||||||
| (Registrant’s telephone number, including area code) | ||||||||||||||
| Securities Registered Pursuant to Section 12(b) of the Act: | ||||||||||||||
Tel Aviv Stock Exchange | ||||||||||||||
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 | ☐ | ☒ | Non-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.
CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES
INDEX
| PAGE NO. | |||||||||||
| PART I. | Financial Information | ||||||||||
Financial Statements | |||||||||||
| PART II. | Other Information | ||||||||||
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, 2021 | December 31, 2020 | |||||||||||||
| ASSETS | ||||||||||||||
| Investments in real estate, net | $ | $ | ||||||||||||
| Cash and cash equivalents | ||||||||||||||
| Restricted cash | ||||||||||||||
| Loans receivable, net | ||||||||||||||
| Accounts receivable, net | ||||||||||||||
| Deferred rent receivable and charges, net | ||||||||||||||
| Other intangible assets, net | ||||||||||||||
| Loan servicing asset, net and other assets | ||||||||||||||
| TOTAL ASSETS | $ | $ | ||||||||||||
| LIABILITIES, REDEEMABLE PREFERRED STOCK, AND EQUITY | ||||||||||||||
| LIABILITIES: | ||||||||||||||
| Debt, net | $ | $ | ||||||||||||
| Accounts payable and accrued expenses | ||||||||||||||
| Intangible liabilities, net | ||||||||||||||
| Due to related parties | ||||||||||||||
| Other liabilities | ||||||||||||||
| Total liabilities | ||||||||||||||
| COMMITMENTS AND CONTINGENCIES (Note 13) | ||||||||||||||
REDEEMABLE PREFERRED STOCK: Series A cumulative redeemable preferred stock, $ | ||||||||||||||
| EQUITY: | ||||||||||||||
Series A cumulative redeemable preferred stock, $ | ||||||||||||||
Series D cumulative redeemable preferred stock, $ | ||||||||||||||
Series L cumulative redeemable preferred stock, $ | ||||||||||||||
Common stock, $ | ||||||||||||||
| Additional paid-in capital | ||||||||||||||
| Distributions in excess of earnings | ( | ( | ||||||||||||
| Total stockholders’ equity | ||||||||||||||
| Noncontrolling interests | ||||||||||||||
| Total equity | ||||||||||||||
| TOTAL LIABILITIES, REDEEMABLE PREFERRED STOCK, AND EQUITY | $ | $ | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
1
CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except per share amounts) (Unaudited)
| Three Months Ended March 31, | ||||||||||||||||||||||||||
| 2021 | 2020 | |||||||||||||||||||||||||
| REVENUES: | ||||||||||||||||||||||||||
| Rental and other property income | $ | $ | ||||||||||||||||||||||||
| Interest and other income | ||||||||||||||||||||||||||
| Total Revenues | ||||||||||||||||||||||||||
| EXPENSES: | ||||||||||||||||||||||||||
| Rental and other property operating | ||||||||||||||||||||||||||
| Asset management and other fees to related parties | ||||||||||||||||||||||||||
| Expense reimbursements to related parties—corporate | ||||||||||||||||||||||||||
| Expense reimbursements to related parties—lending segment | ||||||||||||||||||||||||||
| Interest | ||||||||||||||||||||||||||
| General and administrative | ||||||||||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||||||||
| LOSS BEFORE PROVISION (BENEFIT) FOR INCOME TAXES | ( | ( | ||||||||||||||||||||||||
| Provision (benefit) for income taxes | ( | |||||||||||||||||||||||||
| NET LOSS | ( | ( | ||||||||||||||||||||||||
| Net loss (income) attributable to noncontrolling interests | ( | |||||||||||||||||||||||||
| NET LOSS ATTRIBUTABLE TO THE COMPANY | ( | ( | ||||||||||||||||||||||||
| Redeemable preferred stock dividends declared or accumulated (Note 9) | ( | ( | ||||||||||||||||||||||||
| Redeemable preferred stock deemed dividends (Note 9) | ( | ( | ||||||||||||||||||||||||
| Redeemable preferred stock redemptions (Note 9) | ( | ( | ||||||||||||||||||||||||
| NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS | $ | ( | $ | ( | ||||||||||||||||||||||
| NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS PER SHARE: | ||||||||||||||||||||||||||
| Basic | $ | ( | $ | ( | ||||||||||||||||||||||
| Diluted | $ | ( | $ | ( | ||||||||||||||||||||||
| WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING: | ||||||||||||||||||||||||||
| Basic | ||||||||||||||||||||||||||
| Diluted | ||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
2
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 Stock | Preferred Stock | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Par Value | Shares | Par Value | Additional Paid-in Capital | Distributions in Excess of Earnings | Total Stockholders’ Equity | Non-controlling Interests | Total Equity | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balances, December 31, 2020 | $ | $ | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Contributions to noncontrolling interests | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
Common dividends ($ | — | — | — | — | — | ( | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||
Dividends to holders of Series A Preferred Stock ($ | — | — | — | — | — | ( | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of Series D Preferred Stock | — | — | ( | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends to holders of Series D Preferred Stock ($ | — | — | — | — | — | ( | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Reclassification of Series A Preferred Stock to permanent equity | — | — | ( | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Redeemable Preferred Stock deemed dividends | — | — | — | — | — | ( | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Redemption of Series A Preferred Stock | — | — | ( | ( | ( | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Balances, March 31, 2021 | $ | $ | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended March 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Preferred Stock | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Par Value | Shares | Par Value | Additional Paid-in Capital | Distributions in Excess of Earnings | Total Stockholders’ Equity | Non-controlling Interests | Total Equity | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balances, December 31, 2019 | $ | $ | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
Common dividends ($ | — | — | — | — | — | ( | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of Series A Preferred Warrants | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends to holders of Series A Preferred Stock ($ | — | — | — | — | — | ( | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of Series D Preferred Stock | — | — | ( | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends to holders of Series D Preferred Stock ($ | — | — | — | — | — | ( | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Reclassification of Series A Preferred Stock to permanent equity | — | — | ( | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Redeemable Preferred Stock deemed dividends | — | — | — | — | — | ( | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Redemption of Series A Preferred Stock | — | — | ( | ( | ( | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net (loss) income | — | — | — | — | — | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balances, March 31, 2020 | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
3
CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands) (Unaudited)
| Three Months Ended March 31, | ||||||||||||||
| 2021 | 2020 | |||||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||
| Net loss | $ | ( | $ | ( | ||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||
| Depreciation and amortization, net | ||||||||||||||
| Amortization of deferred loan costs | ||||||||||||||
| Amortization of premiums and discounts on debt | ( | |||||||||||||
| Unrealized premium adjustment | ||||||||||||||
| Amortization and accretion on loans receivable, net | ( | ( | ||||||||||||
| Write-offs of uncollectible receivables | ||||||||||||||
| Deferred income taxes | ( | ( | ||||||||||||
| Stock-based compensation | ||||||||||||||
| Loans funded, held for sale to secondary market | ( | ( | ||||||||||||
| Proceeds from sale of guaranteed loans | ||||||||||||||
| Principal collected on loans subject to secured borrowings | ||||||||||||||
| Other operating activity | ( | ( | ||||||||||||
| Changes in operating assets and liabilities: | ||||||||||||||
| Accounts receivable | ( | ( | ||||||||||||
| Other assets | ( | ( | ||||||||||||
| Accounts payable and accrued expenses | ( | |||||||||||||
| Deferred leasing costs | ( | ( | ||||||||||||
| Other liabilities | ( | |||||||||||||
| Due to related parties | ||||||||||||||
| Net cash provided by operating activities | ||||||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||
| Additions to investments in real estate | ( | ( | ||||||||||||
| Loans funded | ( | ( | ||||||||||||
| Principal collected on loans | ||||||||||||||
| Other investing activity | ||||||||||||||
| Net cash used in investing activities | ( | ( | ||||||||||||
| 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 | ( | ( | ||||||||||||
| Proceeds from unsecured revolving lines of credit, revolving credit facilities and term notes | ||||||||||||||
| Payment of principal on secured borrowings | ( | ( | ||||||||||||
| Payment of deferred preferred stock offering costs | ( | ( | ||||||||||||
| Payment of deferred costs | ( | |||||||||||||
| Payment of common dividends | ( | ( | ||||||||||||
| Net proceeds from issuance of Series A Preferred Warrants | ||||||||||||||
| Net proceeds from issuance of Preferred Stock | ||||||||||||||
| Payment of preferred stock dividends | ( | ( | ||||||||||||
| Redemption of Preferred Stock | ( | ( | ||||||||||||
| Noncontrolling interests’ distributions | ( | |||||||||||||
| Net cash used in financing activities | ( | ( | ||||||||||||
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH | ( | |||||||||||||
(Continued)
4
CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
(In thousands) (Unaudited)
| Three Months Ended March 31, | ||||||||||||||
| 2021 | 2020 | |||||||||||||
| CASH AND CASH EQUIVALENTS AND RESTRICTED CASH: | ||||||||||||||
| Beginning of period | ||||||||||||||
| End of period | $ | $ | ||||||||||||
| RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH TO THE CONSOLIDATED BALANCE SHEETS: | ||||||||||||||
| Cash and cash equivalents | $ | $ | ||||||||||||
| Restricted cash | ||||||||||||||
| Total cash and cash equivalents and restricted cash | $ | $ | ||||||||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||||||||
| Cash paid during the period for interest | $ | $ | ||||||||||||
| Federal income taxes paid | $ | $ | ||||||||||||
| SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES: | ||||||||||||||
| Accrued capital expenditures, tenant improvements and real estate developments | $ | $ | ||||||||||||
| Accrued preferred stock offering costs | $ | $ | ||||||||||||
| Accrual of dividends payable to preferred stockholders | $ | $ | ||||||||||||
| Preferred stock offering costs offset against redeemable preferred stock | $ | $ | ||||||||||||
| Reclassification of Series A Preferred Stock from temporary equity to permanent equity | $ | $ | ||||||||||||
| Accrued deferred costs | $ | $ | ||||||||||||
| Reclassification of Series A Preferred Stock from permanent equity to accounts payable and accrued expenses | $ | $ | ||||||||||||
| Redeemable preferred stock deemed dividends | $ | $ | ||||||||||||
| Accrued redeemable preferred stock fees | $ | $ | ||||||||||||
| Equity-based payment for management fees | $ | $ | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
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.
6
CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021 (Unaudited) – (Continued)
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 | ||||||||
| Furniture, fixtures, and equipment | ||||||||
| 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.
7
CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021 (Unaudited) – (Continued)
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 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, | ||||||||||||||||||||||||||
| 2021 | 2020 | |||||||||||||||||||||||||
| Rental and other property income | ||||||||||||||||||||||||||
Fixed lease payments (1) | $ | $ | ||||||||||||||||||||||||
Variable lease payments (2) | ||||||||||||||||||||||||||
| Rental and other property income | $ | $ | ||||||||||||||||||||||||
______________________
(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.
8
CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES
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, | ||||||||||||||||||||||||||
| 2021 | 2020 | |||||||||||||||||||||||||
| Hotel properties | ||||||||||||||||||||||||||
| Hotel income | $ | $ | ||||||||||||||||||||||||
| Rental and other property income | ||||||||||||||||||||||||||
| Interest and other income | ||||||||||||||||||||||||||
| Hotel revenues | $ | $ | ||||||||||||||||||||||||
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
9
CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021 (Unaudited) – (Continued)
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.
10
CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021 (Unaudited) – (Continued)
As of March 31, 2021 and December 31, 2020, deferred rent receivable and charges consist of the following (in thousands):
| March 31, 2021 | December 31, 2020 | |||||||||||||
| Deferred rent receivable | $ | $ | ||||||||||||
Deferred leasing costs, net of accumulated amortization of $ | ||||||||||||||
| Deferred offering costs | ||||||||||||||
| Other deferred costs | ||||||||||||||
| Deferred rent receivable and charges, net | $ | $ | ||||||||||||
11
CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021 (Unaudited) – (Continued)
| Three Months Ended March 31, 2020 | ||||||||||||||||||||
| As previously reported | Reclassification | As Revised | ||||||||||||||||||
| Consolidated Statements of Operations | ||||||||||||||||||||
| Asset management and other fees to related parties | $ | $ | ( | $ | ||||||||||||||||
| Expense reimbursements to related parties—corporate | $ | $ | $ | |||||||||||||||||
| Expense reimbursements to related parties—lending segment | $ | $ | $ | |||||||||||||||||
| Consolidated Statements of Cash Flows | ||||||||||||||||||||
| Depreciation and amortization, net | $ | $ | ( | $ | ||||||||||||||||
| Deferred rent and amortization of intangible assets, liabilities and lease inducements | $ | ( | $ | $ | ||||||||||||||||
| Other assets | $ | ( | $ | ( | $ | ( | ||||||||||||||
| Payment of unsecured revolving lines of credit, revolving credit facilities, mortgages payable, term notes and principal on SBA 7(a) loan-backed notes | $ | ( | $ | ( | $ | ( | ||||||||||||||
| Payment of principal on SBA 7(a) loan-backed notes | $ | ( | $ | $ | ||||||||||||||||
| Net proceeds from issuance of Preferred Stock | $ | $ | $ | |||||||||||||||||
| Net proceeds from issuance of Series D Preferred Stock | $ | $ | ( | $ | ||||||||||||||||
| Preferred stock offering costs offset against redeemable preferred stock | $ | $ | $ | |||||||||||||||||
| Preferred stock offering costs offset against redeemable preferred stock in permanent equity | $ | $ | ( | $ | ||||||||||||||||
12
CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021 (Unaudited) – (Continued)
3. INVESTMENTS IN REAL ESTATE
Investments in real estate consist of the following (in thousands):
| March 31, 2021 | December 31, 2020 | |||||||||||||
| Land | $ | $ | ||||||||||||
| Land improvements | ||||||||||||||
| Buildings and improvements | ||||||||||||||
| Furniture, fixtures, and equipment | ||||||||||||||
| Tenant improvements | ||||||||||||||
| Work in progress | ||||||||||||||
| Investments in real estate | ||||||||||||||
| Accumulated depreciation | ( | ( | ||||||||||||
| Net investments in real estate | $ | $ | ||||||||||||
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
13
CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021 (Unaudited) – (Continued)
4. LOANS RECEIVABLE
Loans receivable consist of the following (in thousands):
| March 31, 2021 | December 31, 2020 | |||||||||||||
| SBA 7(a) loans receivable, subject to credit risk | $ | $ | ||||||||||||
| SBA 7(a) loans receivable, subject to loan-backed notes | ||||||||||||||
| SBA 7(a) loans receivable, Paycheck Protection Program | ||||||||||||||
| SBA 7(a) loans receivable, subject to secured borrowings | ||||||||||||||
| SBA 7(a) loans receivable, held for sale | ||||||||||||||
| Loans receivable | ||||||||||||||
| Deferred capitalized costs, net | ||||||||||||||
| Loan loss reserves | ( | ( | ||||||||||||
| Loans receivable, net | $ | $ | ||||||||||||
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 program with $17.3 million outstanding as of March 31, 2021. The Company expects a significant portion of these loans will be forgiven and repaid, either in part or in full, by the SBA, including both principal and accrued interest.
SBA 7(a) Loans Receivable, Subject to Secured Borrowings—Represents the government guaranteed portions of loans originated under the SBA 7(a) Small Business Loan Program which were sold with the proceeds received from the sale reflected as secured borrowings—government guaranteed loans. There is no credit risk associated with these loans since the SBA has guaranteed payment of the principal.
SBA 7(a) Loans Receivable, Held for Sale— Represents the government guaranteed portion of loans held for sale at the end of the period or that had been sold but in respect of which proceeds had not been received as of the end of the period.
Other
14
CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021 (Unaudited) – (Continued)
5. OTHER INTANGIBLE ASSETS AND LIABILITIES
A schedule of the Company’s intangible assets and liabilities and related accumulated amortization and accretion as of March 31, 2021 and December 31, 2020 is as follows (in thousands):
| March 31, 2021 | December 31, 2020 | ||||||||||
| Intangible lease assets: | |||||||||||
Acquired in-place leases, net of accumulated amortization of $ | $ | $ | |||||||||
Acquired above-market leases, net of accumulated amortization of $ | |||||||||||
| Trade name and license | |||||||||||
| Total intangible lease assets, net | $ | $ | |||||||||
| Intangible lease liabilities: | |||||||||||
Acquired below-market leases, net of accumulated amortization of $ | $ | $ | |||||||||
Amortization of the acquired above-market leases is recorded as a reduction to rental and other property income, and amortization of the acquired in-place leases is included in depreciation and amortization in the accompanying consolidated statements of operations. Amortization of the acquired below-market leases is recorded as an increase to rental and other property income in the accompanying consolidated statements of operations.
During the three months ended March 31, 2021 and 2020, the Company recognized amortization related to its intangible assets and liabilities as follows (in thousands):
| Three Months Ended March 31, | ||||||||||||||||||||||||||
| 2021 | 2020 | |||||||||||||||||||||||||
| Acquired above-market lease amortization | $ | $ | ||||||||||||||||||||||||
| Acquired in-place lease amortization | $ | $ | ||||||||||||||||||||||||
| Acquired below-market lease amortization | $ | $ | ||||||||||||||||||||||||
A schedule of future amortization and accretion of acquired intangible assets and liabilities as of March 31, 2021, is as follows (in thousands):
| Assets | Liabilities | |||||||||||||||||||
| Years Ending December 31, | Acquired Above-Market Leases | Acquired In-Place Leases | Acquired Below-Market Leases | |||||||||||||||||
| 2021 (Nine months ending December 31, 2021) | $ | $ | $ | ( | ||||||||||||||||
| 2022 | ( | |||||||||||||||||||
| 2023 | ( | |||||||||||||||||||
| 2024 | ||||||||||||||||||||
| 2025 | ||||||||||||||||||||
| Thereafter | ||||||||||||||||||||
| $ | $ | $ | ( | |||||||||||||||||
15
CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021 (Unaudited) – (Continued)
6. DEBT
The following table summarizes the debt balances as of March 31, 2021 and December 31, 2020, and the debt activity for the three months ended March 31, 2021 (in thousands):
| During the Three Months Ended March 31, 2021 | ||||||||||||||||||||||||||||||||
| Balances as of December 31, 2020 | Debt Issuances & Assumptions | Repayments & Modifications | Accretion & (Amortization) | Balances as of March 31, 2021 | ||||||||||||||||||||||||||||
| Mortgage Payable: | ||||||||||||||||||||||||||||||||
| Outstanding Balance | $ | $ | — | $ | — | $ | — | $ | ||||||||||||||||||||||||
| Deferred loan costs — Mortgage Payable | ( | — | — | ( | ||||||||||||||||||||||||||||
| Total Mortgage Payable | — | — | ||||||||||||||||||||||||||||||
| Secured Borrowings — Government Guaranteed Loans: | ||||||||||||||||||||||||||||||||
| Outstanding Balance | — | ( | — | |||||||||||||||||||||||||||||
| Unamortized premiums | — | — | ( | |||||||||||||||||||||||||||||
| Total Secured Borrowings — Government Guaranteed Loans | — | ( | ( | |||||||||||||||||||||||||||||
| Other Debt: | ||||||||||||||||||||||||||||||||
| 2018 revolving credit facility | — | — | ||||||||||||||||||||||||||||||
| 2020 unsecured revolving credit facility | — | — | — | — | — | |||||||||||||||||||||||||||
| Junior subordinated notes | — | — | — | |||||||||||||||||||||||||||||
| SBA 7(a) loan-backed notes | — | ( | — | |||||||||||||||||||||||||||||
| Borrowed funds from the Federal Reserve through the Paycheck Protection Program Liquidity Facility | ( | — | ||||||||||||||||||||||||||||||
| Deferred loan costs — other debt | ( | — | — | ( | ||||||||||||||||||||||||||||
| Discount on junior subordinated notes | ( | — | — | ( | ||||||||||||||||||||||||||||
| Total Other Debt | ( | |||||||||||||||||||||||||||||||
| Total Debt, Net | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||
Mortgages Payable—The mortgages payable are secured by deeds of trust on certain of the properties and assignments of rents. As of March 31, 2021, the Company’s mortgages payable had a fixed interest rate of 4.14 % per annum, with monthly payments of interest only, due on July 1, 2026. The loan is nonrecourse.
Secured Borrowings-Government Guaranteed Loans—Secured borrowings-government guaranteed loans represent sold loans which are treated as secured borrowings because the loan sales did not meet the derecognition criteria provided for in ASC 860-30, Secured Borrowing and Collateral. These loans included cash premiums that are amortized as a reduction to interest expense over the life of the loan using the effective interest method and are fully amortized when the underlying loan is repaid in full. As of March 31, 2021, the Company’s secured borrowings-government guaranteed loans included $5.5 million of loans sold for a premium and excess spread, with a variable rate, reset quarterly, based on prime rate with weighted average coupon rate of 3.86 %, and $2.7 million of loans sold for an excess spread, with a variable rate, reset quarterly, based on prime rate with weighted average coupon rate of 1.56 %.
2018 Revolving Credit Facility—In October 2018, CIM Commercial entered into a secured revolving credit facility with a bank syndicate that, as amended, allows CIM Commercial to borrow up to $209.5 million, subject to a borrowing base calculation (the “2018 revolving credit facility”). In September 2020, the 2018 revolving credit facility was amended (the “2018 Credit Facility Modification”) to remedy the effect that COVID-19 had on CIM Commercial’s ability to borrow under the 2018 revolving credit facility during the period from September 2, 2020 through June 30, 2021 (the “Deferral Period”). The 2018 revolving credit facility bears interest (i) during the Deferral Period at (A) the base rate plus 1.05 % or (B) LIBOR plus 2.05 %
16
CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021 (Unaudited) – (Continued)
and (ii) after the Deferral Period, at (A) the base rate plus 0.55 % or (B) LIBOR plus 1.55 %. As of March 31, 2021 and December 31, 2020, the variable interest rate was 2.16 % and 2.20 %, respectively. The 2018 revolving credit facility is also subject to an unused commitment fee of 0.15 % or 0.25 % depending on the amount of aggregate unused commitments. The 2018 revolving credit facility is secured by deeds of trust on certain of the Company’s properties. During the Deferral Period, the Company’s borrowing capacity is subject to a $15.0 million reserve, which may be reduced by certain capital expenditures made in respect of the Company’s properties securing the 2018 revolving credit facility, and the requirement that the Company maintain a minimum balance of “liquid assets” of $15.0 million, which are defined as (1) unencumbered cash and cash equivalents and (2) up to $5.0 million unfunded availability under the 2018 revolving credit facility. Other than as described in the preceding sentence, the 2018 revolving credit facility contains customary covenants and is not subject to any financial covenants (though the amount the Company may borrow under the 2018 revolving credit facility is determined by a borrowing base calculation). The 2018 revolving credit facility matures in October 2022 and provides for one one-year extension option under certain conditions. As of March 31, 2021 and December 31, 2020, $171.5 million and $166.5 million, respectively, was outstanding under the 2018 revolving credit facility, and approximately $23.0 million and $28.0 million, respectively, was available for future borrowings.
2020 Unsecured Revolving Credit Facility—In May 2020, to further enhance its liquidity position and maintain financial flexibility, CIM Commercial entered into an unsecured revolving credit facility with a bank (the “2020 unsecured revolving credit facility”) pursuant to which CIM Commercial can borrow up to a maximum of $10.0 million. Outstanding advances under the 2020 unsecured revolving credit facility bear interest at the rate of 1.00 %. CIM Commercial also pays a revolving credit facility fee of 1.12 % with each advance under the 2020 unsecured revolving credit facility, which fee is subject to a cap of $112,000 in the aggregate. The 2020 unsecured revolving credit facility contains certain customary covenants including a maximum leverage ratio and a minimum fixed charge coverage ratio, as well as certain other conditions. The 2020 unsecured revolving credit facility matures in May 2022. As of March 31, 2021, $0 was outstanding under the 2020 unsecured revolving credit facility and $10.0 million was available for future borrowings.
Junior Subordinated Notes—The Company has junior subordinated notes with a variable interest rate which resets quarterly based on the three-month LIBOR plus 3.25 %, with quarterly interest only payments. The junior subordinated balance is due at maturity on March 30, 2035. The junior subordinated notes may be redeemed at par at the Company’s option.
SBA 7(a) Loan-Backed Notes—SBA 7(a) loan-backed notes are secured by deeds of trust or mortgages. On May 30, 2018, the Company completed a securitization of the unguaranteed portion of certain of its SBA 7(a) loans receivable with the issuance of $38.2 million of unguaranteed SBA 7(a) loan-backed notes. The SBA 7(a) loan-backed notes are collateralized solely by the right to receive payments and other recoveries attributable to the unguaranteed portions of certain of the Company’s SBA 7(a) loans receivable. The SBA 7(a) loan-backed notes mature on March 20, 2043, with monthly payments due as payments on the collateralized loans are received. Based on the anticipated repayments of the Company’s collateralized SBA 7(a) loans, at issuance, the Company estimated the weighted average life of the SBA 7(a) loan-backed notes to be approximately two years . The SBA 7(a) loan-backed notes bear interest at the lower of the one-month LIBOR plus 1.40 % or the prime rate less 1.08 %. The Company reflects the SBA 7(a) loans receivable as assets on its consolidated balance sheets and the SBA 7(a) loan-backed notes as debt on its consolidated balance sheets. The restricted cash on the Company’s consolidated balance sheets included $1.2
Paycheck Protection Program Liquidity Facility—In June 2020, the Company commenced borrowing funds from the Federal Reserve through the PPP Liquidity Facility (the “PPPLF”). Advances under the PPPLF carry an interest rate of 0.35%, are made on a dollar-for-dollar basis based on the amount of loans originated under the PPP and are secured by loans made by the Company under the PPP. The PPPLF contains customary covenants but is not subject to any financial covenants. The maturity date of PPPLF borrowings is the same as the maturity date of the loans pledged to secure the extension of credit, generally two years. At maturity, both principal and accrued interest are due. The maturity date of a PPPLF borrowing will be accelerated if, among other things, the Company has been reimbursed by the SBA for a loan forgiveness (to the extent of the forgiveness), the Company has received payment from the SBA representing exercise of the loan guarantee or the Company has received payment from the underlying borrower (to the extent of the payment received). No new extensions of credit will be made under the PPPLF after June 30, 2021 unless the Federal Reserve Board and the United States Department of the Treasury decide to extend the PPPLF. The Company borrowed money under the PPPLF to finance all the loans the Company originated under the PPP. As of March 31, 2021, $18.1 million was outstanding under the PPPLF.
Deferred loan costs, which represent legal and third-party fees incurred in connection with the Company’s borrowing activities, are capitalized and amortized to interest expense on a straight-line basis over the life of the related loan,
17
CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021 (Unaudited) – (Continued)
approximating the effective interest method. Deferred loan costs are presented net of accumulated amortization and are a reduction to total debt.
As of March 31, 2021 and December 31, 2020, accrued interest and unused commitment fees payable of $537,000 and $564,000 , respectively, were included in accounts payable and accrued expenses.
Future principal payments on the Company’s debt (face value) as of March 31, 2021 are as follows (in thousands):
| Years Ending December 31, | Mortgage Payable | Secured Borrowings Principal (1) | 2018 Revolving Credit Facility | Other (1) (2) | Total | |||||||||||||||||||||||||||
| 2021 (Nine months ending December 31, 2021) | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| 2022 | ||||||||||||||||||||||||||||||||
| 2023 | ||||||||||||||||||||||||||||||||
| 2024 | ||||||||||||||||||||||||||||||||
| 2025 | ||||||||||||||||||||||||||||||||
| Thereafter | ||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||
______________________
(1)Principal payments on secured borrowings and SBA 7(a) loan-backed notes, which are included in Other, are generally dependent upon cash flows received from the underlying loans. The Company’s estimate of their repayment is based on scheduled payments on the underlying loans. The Company’s estimate will differ from actual amounts to the extent the Company experiences prepayments and or loan liquidations or charge-offs. No payment is due unless payments are received from the borrowers on the underlying loans.
(2)Represents the junior subordinated notes, SBA 7(a) loan-backed notes, and borrowed funds from the Federal Reserve through the PPPLF.
7. STOCK-BASED COMPENSATION PLANS
On April 3, 2015, the Company’s board of directors (the “Board of Directors”) unanimously approved the CIM Commercial Trust Corporation 2015 Equity Incentive Plan (the “2015 Equity Incentive Plan”), which was approved by the Company’s stockholders. Under the 2015 Equity Incentive Plan, the Company granted awards of restricted shares of Common Stock to each of the independent members of the Board of Directors as follows:
| Grant Date (1) | Vesting Date | Restricted Shares of Common Stock - Individual | Restricted Shares of Common Stock - Aggregate | |||||||||||||||||
| May 2019 | May 2020 | |||||||||||||||||||
| July 2019 | May 2020 (2) | |||||||||||||||||||
| May 2020 | February 2021 (3) | |||||||||||||||||||
| May 2020 | (4) | |||||||||||||||||||
______________________
(1)Compensation expense related to these restricted shares of Common Stock is recognized over the vesting period, and generally vests based on one year of continuous service. The Company recorded compensation expense related to these restricted shares of Common Stock in the amount of $60,000 and $56,000 for the three months ended March 31, 2021 and 2020, respectively.
(2)These shares vested in May 2020 concurrent with the vesting of the restricted shares of Common Stock granted in May 2019.
(3)On February 11, 2021, the Company’s Board of Directors approved the immediate vesting of 5,478 shares that had been granted in May 2020 to a former independent member of the Board of Directors, following his death.
(4)These shares vested in May 2021 after one year of continuous service.
As of March 31, 2021, there was $13,000 of total unrecognized compensation expense related to restricted shares of Common Stock which will be recognized ratably over the remaining vesting period.
18
CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021 (Unaudited) – (Continued)
8. EARNINGS PER SHARE (“EPS”)
The computations of basic EPS are based on the Company’s weighted average shares outstanding. The basic weighted average number of shares of Common Stock outstanding was 14,808,000 and 14,598,000 for the three months ended March 31, 2021 and 2020, respectively. In order to calculate the diluted weighted average number of shares of Common Stock outstanding for the three months ended March 31, 2021, the basic weighted average number of shares of Common Stock outstanding was increased by 0 shares to reflect the dilutive effect of certain shares of the Company’s Series A Preferred Stock. In order to calculate the diluted weighted average number of shares of Common Stock outstanding for the three months ended March 31, 2020, the basic weighted average number of shares of Common Stock outstanding was increased by 1,000 to reflect the dilutive effect of certain shares of the Company’s Series A Preferred Stock. No shares of Series D Preferred Stock outstanding as of March 31, 2021 had a dilutive effect and no shares of Series D Preferred Stock were outstanding as of March 31, 2020. Outstanding Series A Preferred Warrants were not included in the computation of diluted EPS for the three months ended March 31, 2021 and 2020 because their impact was either anti-dilutive or such warrants were not exercisable during such periods (Note 10). Outstanding shares of Series L Preferred Stock were not included in the computation of diluted EPS for the three months ended March 31, 2021 and 2020 because such shares were not redeemable during such periods.
EPS for the year-to-date period may differ from the sum of quarterly EPS amounts due to the required method for computing EPS in the respective periods. In addition, EPS is calculated independently for each component and may not be additive due to rounding.
The following table reconciles the numerator and denominator used in computing the Company’s basic and diluted per-share amounts for net loss attributable to common stockholders for the three months ended March 31, 2021 and 2020 (in thousands, except per share amounts):
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net loss attributable to common stockholders | $ | ( | $ | ( | |||||||||||||||||||
| Redeemable preferred stock dividends declared on dilutive shares | ( | ||||||||||||||||||||||
| Diluted net loss attributable to common stockholders | $ | ( | $ | ( | |||||||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Basic weighted average shares of Common Stock outstanding | |||||||||||||||||||||||
| Effect of dilutive securities—contingently issuable shares | |||||||||||||||||||||||
| Diluted weighted average shares and common stock equivalents outstanding | |||||||||||||||||||||||
| Net loss attributable to common stockholders per share: | |||||||||||||||||||||||
| Basic | $ | ( | $ | ( | |||||||||||||||||||
| Diluted | $ | ( | $ | ( | |||||||||||||||||||
19
CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021 (Unaudited) – (Continued)
9. REDEEMABLE PREFERRED STOCK
The table below provides information regarding the issuances, reclassifications and redemptions of each class of the Company’s preferred stock in permanent equity during the three months ended March 31, 2021 and 2020 (dollar amounts in thousands):
| Preferred Stock | |||||||||||||||||||||||||||||||||||||||||||||||
| Series A | Series D | Series L | Total | ||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||
| Balances, December 31, 2019 | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
| Issuance of Series D Preferred Stock | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Reclassification of Series A Preferred Stock to permanent equity | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Redemption of Series A Preferred Stock | ( | ( | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Balances, March 31, 2020 | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
| Balances, December 31, 2020 | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
| Issuance of Series D Preferred Stock | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Reclassification of Series A Preferred Stock to permanent equity | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Redemption of Series A Preferred Stock | ( | ( | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Balances, March 31, 2021 | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
As of March 31, 2021, the Company had issued in registered public offerings 6,526,081 shares of Series A Preferred Stock, 4,603,287 Series A Preferred Warrants and 23,190 shares of Series D Preferred Stock and received gross proceeds of $163.7 million ($162.4 million of which was allocated to the Series A Preferred Stock, $761,000 of which was allocated to the Series A Preferred Warrants, and $572,000 of which was allocated to the Series D Preferred Stock) and, additionally, had issued 298,472 shares of Series A Preferred Stock as payment for services to the Administrator, for which no cash proceeds were received. In connection with such issuance, costs specifically identifiable to the offering of Series A Preferred Stock, Series A Preferred Warrants and Series D Preferred Stock, such as commissions, dealer manager fees and other offering fees and expenses, totaled $13.5 million ($13.4 million of which was allocated to the Series A Preferred Stock, $142,000 of which was allocated to the Series A Preferred Warrants, and $18,000 of which was allocated to the Series D Preferred Stock). In addition, as of March 31, 2021, non-issuance-specific costs related to this offering totaled $7.5 million. As of March 31, 2021, the Company had reclassified and allocated $1.4 million, $5,000 and $5,000 from deferred charges to Series A Preferred Stock, Series A Preferred Warrants and Series D Preferred Stock, respectively, as a reduction to the gross proceeds received. Such reclassification was based on the cumulative number of securities issued relative to the maximum number of securities expected to be issued under the offering. As of March 31, 2021, there were 6,688,077 shares of Series A Preferred Stock outstanding, 4,603,287 Series A Preferred Warrants to purchase 1,194,159 shares of Common Stock outstanding, and 23,190 shares of Series D Preferred Stock outstanding. As of March 31, 2021, 136,476 shares of Series A Preferred Stock and no shares of Series D Preferred Stock had been redeemed.
Series A Preferred Stock—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 with an initial stated value of $25.00 per share, subject to adjustment, and one warrant to purchase 0.25 of a share of Common Stock. 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.
20
CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021 (Unaudited) – (Continued)
Since February 2020, the Company has been conducting a continuous public offering with respect to shares of the Company’s Series A Preferred Stock, which, since such time, is no longer being issued as a unit with an accompanying Series A Preferred Warrant.
Net proceeds from the issuance of shares of Series A Preferred Stock are initially recorded in temporary equity at an amount equal to the gross proceeds allocated to such shares of Series A Preferred Stock minus the costs specifically identifiable to the issuance of such shares and the non-issuance specific offering costs allocated to such shares. If the net proceeds from the issuance of shares of Series A Preferred Stock are less than the redemption value of such shares at the time they are issued, or if the redemption value of such shares subsequently becomes greater than the carrying value of such shares, an adjustment is recorded to increase the carrying amount of such shares to their redemption value as of the balance sheet date. Such adjustment is considered a deemed dividend for purposes of calculating basic and diluted EPS. For the three months ended March 31, 2021 and 2020, the Company recorded redeemable preferred stock deemed dividends of $57,000 and $161,000 , respectively, related to such adjustments.
On the first anniversary of the 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. As of March 31, 2021, the Company had reclassified an aggregate of $108.7 million in net proceeds from temporary equity to permanent equity.
Series D Preferred Stock—Since February 2020, the Company has been conducting a continuous public offering with respect to shares of its Series D Preferred Stock, par value $0.001 per share, subject to adjustment. 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. Shares of Series D Preferred Stock are recorded in permanent equity at the time of their issuance.
Series L Preferred Stock—On November 21, 2017, the Company issued 8,080,740 shares of Series L Preferred Stock having an initial stated value of $28.37 per share (“Series L Preferred Stock Stated Value”), subject to adjustment. The Company received gross proceeds of $229.3 million from the sale of the Series L Preferred Stock, which was reduced by issuance-specific offering costs, such as commissions, dealer manager fees, and other offering fees and expenses, totaling $15.9 million, a discount of $2.9 million, and non-issuance-specific costs of $2.5 million. These fees have been recorded as a reduction to the gross proceeds in permanent equity.
Until the fifth anniversary of the date of original issuance of the Series L Preferred Stock, the Company is prohibited from issuing any shares of preferred stock ranking senior to or on parity with the Series L Preferred Stock with respect to the payment of dividends, other distributions, liquidation, and or dissolution or winding up of the Company unless the Minimum Fixed Charge Coverage Ratio, calculated in accordance with the Articles Supplementary describing the Series L Preferred Stock, is equal to or greater than 1.25 :1.00. As of March 31, 2021 and December 31, 2020, the Company was in compliance with the Series L Preferred Stock Minimum Fixed Charge Coverage Ratio.
Refer to Note 12 for a discussion of certain payments the Company has made in shares of Common Stock and in shares of Preferred Stock and may make in shares of Preferred Stock in lieu of cash payments in order to remain in compliance with the Series L Preferred Stock Minimum Fixed Charge Coverage Ratio.
Dividends—With respect to the payment of dividends, the Series A Preferred Stock ranks senior to the Series L Preferred Stock and the Common Stock, and on parity with the Series D Preferred Stock. The Series L Preferred Stock ranks senior to the Common Stock (except with respect to and only to the extent of the Initial Dividend) and junior to the Series A Preferred Stock, Series D Preferred Stock and Common Stock (with respect to and only to the extent of the Initial Dividend). With respect to the distribution of amounts upon liquidation, dissolution or winding-up, the Series A Preferred Stock ranks on parity with the Series D Preferred Stock and Series L Preferred Stock, to the extent of the Series L Preferred Stock Stated Value, and otherwise ranks senior to the Series L Preferred Stock and the Common Stock. With respect to the distribution of amounts upon liquidation, dissolution or winding-up, the Series L Preferred Stock ranks senior to the Common Stock, both (i) to the extent of the Series L Preferred Stock Stated Value and (ii) following payment to holders of the Common Stock of an amount equal to any unpaid Initial Dividend, to the extent of any accrued and unpaid dividends on the Series L Preferred Stock, on parity with the Series A Preferred Stock and Series D Preferred Stock, to the extent of the Series L Preferred Stock Stated Value and junior to the Series A Preferred Stock, Series D Preferred Stock and Common Stock (to the extent of the Initial Dividend), in all instances with respect to any accrued and unpaid dividends on the Series L Preferred Stock.
21
CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021 (Unaudited) – (Continued)
Holders of Series A Preferred Stock are entitled to receive, if, as and when authorized by the Company’s Board of Directors, and declared by the Company out of legally available funds, cumulative cash dividends on each share of Series A Preferred Stock at an annual rate of 5.50 % of the Series A Preferred Stock Stated Value (i.e., the equivalent of $0.34375 per share per quarter) (the “Series A Dividend”). Holders of Series D Preferred Stock are entitled to receive, if, as and when authorized by the Company’s Board of Directors, and declared by the Company out of legally available funds, cumulative cash dividends on each share of Series D Preferred Stock at an annual rate of 5.65 % of the Series D Preferred Stock Stated Value (i.e., the equivalent of $0.35313 per share per quarter) (the “Series D Dividend”). Dividends on each share of Series A Preferred Stock and Series D Preferred Stock begin accruing on, and are cumulative from, the date of issuance.
The Company expects to pay the Series A Dividend and Series D Dividend in arrears on a monthly basis in accordance with the foregoing provisions, unless the Company’s results of operations, general financing conditions, general economic conditions, applicable requirements of the MGCL or other factors make it imprudent to do so. The timing and amount of the Series A Dividend and the Series D Dividend will be determined by the Company’s Board of Directors, in its sole discretion, and may vary from time to time.
Holders of Series L Preferred Stock are entitled to receive, if, as and when authorized by the Company’s Board of Directors, and declared by the Company out of legally available funds, cumulative cash dividends on each share of Series L Preferred Stock at an annual rate of 5.50 % of the Series L Preferred Stock Stated Value (i.e., the equivalent of $1.56035 per share per year). Dividends on each share of Series L Preferred Stock began accruing on, and are cumulative from, the date of issuance.
The Company expects to pay dividends on the Series L Preferred Stock in arrears on an annual basis in accordance with the foregoing provisions, unless the Company’s results of operations, general financing conditions, general economic conditions, applicable requirements of the MGCL or other factors make it imprudent to do so. If the Company fails to timely declare distributions or fails to timely pay distributions on the Series L Preferred Stock, the annual dividend rate of the Series L Preferred Stock will temporarily increase by 1.00 % per year, up to a maximum rate of 8.50 % per annum. However, prior to the payment of any distributions on Series L Preferred Stock in respect of a given year, the Company must first declare and pay dividends on the Common Stock in respect of such year in an aggregate amount equal to the Initial Dividend announced by the Company’s Board of Directors at the end of the prior fiscal year. On December 22, 2020, the Company announced an Initial Dividend on shares of its Common Stock for fiscal year 2021 in the aggregate amount of $4,448,223 , of which $1,112,000 had been paid as of March 31, 2021.
During the three months ended March 31, 2021, the Company paid $2.2 million, $7,000 and $8.4 million of cash dividends on the Series A Preferred Stock, Series D Preferred Stock and Series L Preferred Stock, respectively. During the three months ended March 31, 2020, the Company paid $2.5 million, $0 and $8.4 million of cash dividends on the Series A Preferred Stock, Series D Preferred Stock and Series L Preferred Stock, respectively.
Redemptions—The Company’s Series A Preferred Stock and Series D Preferred Stock are redeemable at the option of the holder or CIM Commercial. The redemption schedule of the Series A Preferred Stock and Series D Preferred Stock allows redemptions at the option of the holder of Series A Preferred Stock or Series D Preferred Stock from the date of original issuance of any such shares at the Series A Preferred Stock Stated Value or Series D Preferred Stock Stated Value, respectively, less a redemption fee applicable prior to the fifth anniversary of the issuance of such shares, plus accrued and unpaid dividends. CIM Commercial has the right to redeem the Series A Preferred Stock or Series D Preferred Stock after the fifth anniversary of the date of original issuance of such shares at the Series A Preferred Stock Stated Value or Series D Preferred Stock Stated Value, respectively, plus accrued and unpaid dividends. At the Company’s discretion, the redemption price will be paid in cash or in Common Stock based on the volume weighted average price of the Company’s Common Stock for the 20 trading days prior to the redemption; provided that the redemption price of any shares of Series A Preferred Stock redeemed prior to the first anniversary of the date of original issuance of such shares must be paid in cash.
From and after the fifth anniversary of the date of original issuance of the Series L Preferred Stock, each holder will have the right to require the Company to redeem, and the Company will also have the option to redeem (subject to certain conditions), such shares of Series L Preferred Stock at a redemption price equal to the Series L Preferred Stock Stated Value, plus, provided certain conditions are met, all accrued and unpaid distributions. Notwithstanding the foregoing, a holder of shares of the Company’s Series L Preferred Stock may require the Company to redeem such shares at any time prior to the fifth anniversary of the date of original issuance of the Series L Preferred Stock if (1) the Company does not declare and pay in full the distribution on the Series L Preferred Stock for any annual period prior to such fifth anniversary or (2) the Company does not declare and pay all accrued and unpaid distributions on the Series L Preferred Stock for all past dividend periods prior to the applicable holder redemption date. The applicable redemption price payable upon redemption of any Series L Preferred Stock
22
CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021 (Unaudited) – (Continued)
10. STOCKHOLDERS’ EQUITY
Dividends
Holders of the Company’s Common Stock are entitled to receive dividends, if, as and when authorized by the Board of Directors and declared by the Company out of legally available funds. In determining the Company’s dividend policy, the Board of Directors considers many factors including the amount of cash resources available for dividend distributions, capital spending plans, cash flow, the Company’s financial position, applicable requirements of the MGCL, any applicable contractual restrictions, and future growth in NAV and cash flow per share prospects. Consequently, the dividend rate on a quarterly basis does not necessarily correlate directly to any individual factor. Cash dividends per share of Common Stock paid in respect of the three months ended March 31, 2021 and 2020 consist of the following:
| Declaration Date | Payment Date | Type | Cash Dividend Per Share of Common Stock | |||||||||||||||||
| March 5, 2021 | March 30, 2021 | Regular Quarterly | $ | |||||||||||||||||
| March 2, 2020 | March 25, 2020 | Regular Quarterly | $ | |||||||||||||||||
Series A Preferred Warrants
Prior to February 2020, the Series A Preferred Stock was sold as a unit that included one share of Series A Preferred Stock and one Series A Preferred Warrant that could be exercised to purchase 0.25 of a share of Common Stock. The Series A Preferred Warrants are exercisable beginning on the first anniversary of the date of their original issuance until and including the fifth anniversary of the date of such issuance. At the time of issuance, the exercise price of each Series A Preferred Warrant was at a 15.0 % premium to the per share estimated NAV of the Company’s Common Stock then most recently published and designated as the Applicable NAV. However, in accordance with the terms of the Series A Preferred Warrants, the exercise price of each Series A Preferred Warrant issued prior to the Reverse Stock Split was automatically adjusted to reflect the effect of the Reverse Stock Split and, in the discretion of the Company’s Board of Directors, the exercise price and the number of shares issuable upon exercise of each Series A Preferred Warrant issued prior to the Special Dividend was adjusted to reflect the effect of the Special Dividend.
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. As of March 31, 2021, the Company had issued 4,603,287 Series A Preferred Warrants to purchase 1,194,159 shares of Common Stock in connection with the Company’s offering of Series A Preferred Units and allocated net proceeds of $614,000 , after specifically identifiable offering costs and allocated general offering costs, to the Series A Preferred Warrants in permanent equity.
23
CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021 (Unaudited) – (Continued)
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company determines the estimated fair value of financial assets and liabilities utilizing a hierarchy of valuation techniques based on whether the inputs to a fair value measurement are considered to be observable or unobservable in a marketplace. The hierarchy for inputs used in measuring fair value is as follows:
Level 1 Inputs—Quoted prices in active markets for identical assets or liabilities
Level 2 Inputs—Observable inputs other than quoted prices in active markets for identical assets and liabilities
Level 3 Inputs—Unobservable inputs
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.
Management’s estimation of the fair value of the Company’s financial instruments is based on a Level 3 valuation in the fair value hierarchy established for disclosure of how a company values its financial instruments. In general, quoted market prices from active markets for the identical financial instrument (Level 1 inputs), if available, should be used to value a financial instrument. If quoted prices are not available for the identical financial instrument, then a determination should be made if Level 2 inputs are available. Level 2 inputs include quoted prices for similar financial instruments in active markets for identical or similar financial instruments in markets that are not active (i.e., markets in which there are few transactions for the financial instruments, the prices are not current, price quotations vary substantially, or in which little information is released publicly). There is limited reliable market information for the Company’s financial instruments and the Company utilizes other methodologies based on unobservable inputs for valuation purposes since there are no Level 1 or Level 2 inputs available. Accordingly, Level 3 inputs are used to measure fair value.
In general, estimates of fair value may differ from the carrying amounts of the financial assets and liabilities primarily as a result of the effects of discounting future cash flows. Considerable judgment is required to interpret market data and develop estimates of fair value. Accordingly, the estimates presented are made at a point in time and may not be indicative of the amounts the Company could realize in a current market exchange.
The following describes the methods the Company uses to estimate the fair value of the Company’s financial assets and liabilities.
Debt—The carrying amounts of the Company’s secured borrowings—government guaranteed loans, SBA 7(a) loan-backed notes, 2018 revolving credit facility and borrowed funds from the Federal Reserve through the PPPLF approximate their fair values, as the interest rates on these securities are variable and approximate current market interest rates. The Company determines the fair value of mortgage notes payable and junior subordinated notes by performing discounted cash flow analyses using an appropriate market discount rate. The Company calculates the market discount rate for its mortgage notes payable by obtaining period-end treasury or swap rates, as applicable, for maturities that correspond to the maturities of the Company’s debt and then adding an appropriate credit spread. These credit spreads take into account factors such as the Company’s credit standing, the maturity of the debt, whether the debt is secured or unsecured, and the loan-to-value ratios of the debt. When estimating the fair value of the Company’s mortgages payable as of March 31, 2021 and December 31, 2020, the Company used a rate of 3.59 % and 3.38 %, respectively. The rate used to estimate the fair value of the Company’s junior subordinated notes was 4.44 % and 4.49 % as of March 31, 2021 and December 31, 2020, respectively.
Loans Receivable—The Company determines the fair value of loans receivable by performing a present value analysis for the anticipated future cash flows using an appropriate market discount rate taking into consideration the credit risk and using an anticipated prepayment rate. The value of the government guaranteed portions of loans held for sale is based
24
CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021 (Unaudited) – (Continued)
primarily on the anticipated proceeds to be received upon sale. The following summarizes the ranges of discount rates and prepayment rates used to arrive at the estimated fair values of the Company’s loans receivable:
| March 31, 2021 | December 31, 2020 | ||||||||||||||||||||||
| Discount Rate | Prepayment Rate | Discount Rate | Prepayment Rate | ||||||||||||||||||||
| SBA 7(a) loans receivable, subject to credit risk | |||||||||||||||||||||||
| SBA 7(a) loans receivable, subject to loan-backed notes | |||||||||||||||||||||||
| SBA 7(a) loans receivable, paycheck protection program | N/A | N/A | |||||||||||||||||||||
| SBA 7(a) loans receivable, subject to secured borrowings | |||||||||||||||||||||||
Other Financial Instruments—The carrying amounts of the Company’s cash and cash equivalents, restricted cash, accounts receivable, accounts payable, and accrued expenses approximate their fair values due to their short-term maturities at March 31, 2021 and December 31, 2020.
The estimated fair values of those financial instruments which are not recorded at fair value on a recurring basis on the Company’s consolidated balance sheets are as follows (dollar amounts in thousands):
| March 31, 2021 | December 31, 2020 | |||||||||||||||||||||||||||||||
| Carrying Amount | Estimated Fair Value | Carrying Amount | Estimated Fair Value | Level | ||||||||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||||||||
| SBA 7(a) loans receivable, subject to credit risk | $ | $ | $ | $ | 3 | |||||||||||||||||||||||||||
| SBA 7(a) loans receivable, subject to loan-backed notes | 3 | |||||||||||||||||||||||||||||||
| SBA 7(a) loans receivable, paycheck protection program | 3 | |||||||||||||||||||||||||||||||
| SBA 7(a) loans receivable, subject to secured borrowings | 3 | |||||||||||||||||||||||||||||||
| SBA 7(a) loans receivable, held for sale | 3 | |||||||||||||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||||||||
Mortgages payable (1) | 3 | |||||||||||||||||||||||||||||||
Junior subordinated notes (1) | 3 | |||||||||||||||||||||||||||||||
______________________
(1)The carrying amounts for the mortgage payable and junior subordinated notes represents the principal outstanding amounts, excluding deferred loan costs and discounts.
12. RELATED-PARTY TRANSACTIONS
Asset Management and Other Fees to Related Parties
Asset Management Fees—CIM Urban and CIM Capital, LLC, an affiliate of CIM REIT and CIM Group (“CIM Capital”), have an investment management agreement, pursuant to which CIM Urban engaged CIM Capital to provide certain services to CIM Urban (the “Investment Management Agreement”). CIM Capital has assigned its duties under the Investment Management Agreement to its four wholly-owned subsidiaries: CIM Capital Securities Management, LLC, a securities manager, CIM Capital RE Debt Management, LLC, a debt manager, CIM Capital Controlled Company Management, LLC, a controlled company manager, and CIM Capital Real Property Management, LLC, a real property manager. The “Operator” refers to CIM Capital and its four wholly-owned subsidiaries.
25
CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021 (Unaudited) – (Continued)
CIM Urban pays asset management fees to the Operator on a quarterly basis in arrears. The fee is calculated as a percentage of the daily average adjusted fair value of CIM Urban’s assets (dollar amounts in thousands):
| Daily Average Adjusted Fair Value of CIM Urban’s Assets | ||||||||||||||
| Quarterly Fee Percentage | ||||||||||||||
| From Greater of | To and Including | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
Asset management fees are included in asset management and other fees to related parties in the accompanying consolidated statements of operations.
In lieu of cash payment of the asset management fee during the year ended December 31, 2020, the Company issued to the Operator shares of its Common Stock and shares of its Series A Preferred Stock. Subject to applicable laws and regulations under Nasdaq and the TASE and the agreement of the Operator, it is likely that the Company will seek to pay some or part of the asset management fees for part of 2021 in shares of Series A Preferred Stock.
Property Management Fees and Reimbursements—CIM Management, Inc. and certain of its affiliates (collectively, the “CIM Management Entities”), all affiliates of CIM REIT and CIM Group, provide property management, leasing, and development services to CIM Urban. Property management fees earned by the CIM Management entities and onsite management costs incurred on behalf of CIM Urban are included in rental and other property operating expenses in the accompanying consolidated statements of operations. Leasing commissions earned are capitalized to deferred charges on the accompanying consolidated balance sheets. Construction management fees are capitalized to investments in real estate on the accompanying consolidated balance sheets.
Administrative Fees and Expenses—CIM Commercial and its subsidiaries have a master services agreement (the “Master Services Agreement”) with CIM Service Provider, LLC (the “Administrator”), an affiliate of CIM Group, pursuant to which the Administrator provides, or arranges for other service providers to provide, management and administration services to CIM Commercial and its subsidiaries. Pursuant to the Master Services Agreement, the Company appointed an affiliate of CIM Group as the administrator of Urban Partners GP, LLC. Under the Master Services Agreement, CIM Commercial paid a base service fee (the “Base Service Fee”) to the Administrator initially set at $1.0 million per year (subject to an annual escalation by a specified inflation factor beginning on January 1, 2015), payable quarterly in arrears. On May 11, 2020, the Master Services Agreement was amended to replace the Base Service Fee with an incentive fee (the “Incentive Fee”) pursuant to which the Administrator receives, on a quarterly basis, 15.00 % of CIM Commercial’s quarterly core funds from operations in excess of a quarterly threshold equal to 1.75 % (i.e., 7.00 % on an annualized basis) of CIM Commercial’s average adjusted common stockholders’ equity (i.e., common stockholders’ equity plus accumulated depreciation and amortization) for such quarter. The amendment is effective as of April 1, 2020. The Base Service Fee is included in asset management and other fees to related parties in the accompanying consolidated statements of operations.
In addition, pursuant to the terms of the Master Services Agreement, the Administrator may receive compensation and or reimbursement for performing certain services for CIM Commercial and its subsidiaries that are not covered by the Base Service Fee or the Incentive Fee, as the case may be. During the three months ended March 31, 2021 and 2020, such services performed by the Administrator and its affiliates included accounting, tax, reporting, internal audit, legal, compliance, risk management, IT, human resources, corporate communications, and from and after September 2018, operational and on-going support in connection with the Company’s offering of Preferred Stock. The Administrator’s compensation is based on the salaries and benefits of the employees of the Administrator and or its affiliates who performed these services (allocated based on the percentage of time spent on the affairs of CIM Commercial and its subsidiaries). The expense for such services is included in expense reimbursements to related parties—corporate in the accompanying consolidated statements of operations.
Lending Segment Expenses—The Company has a Staffing and Reimbursement Agreement with CIM SBA Staffing, LLC (“CIM SBA”), an affiliate of CIM Group, and the Company’s subsidiary, PMC Commercial Lending, LLC. The agreement provides that CIM SBA will provide personnel and resources to the Company and that the Company will reimburse
26
CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021 (Unaudited) – (Continued)
CIM SBA for the costs and expenses of providing such personnel and resources. The expense for such services is included in expense reimbursements to related parties—lending segment in the accompanying consolidated statements of operations.
Offering-Related Fees—The Company had an Amendment, Assignment and Assumption Agreement (the “Assignment Agreement”) with CCO Capital, LLC (“CCO Capital”). CCO Capital is a registered broker dealer and is under common control with the Operator and the Administrator. As a result of the Assignment Agreement, CCO Capital became the exclusive dealer manager for the Company’s public offering of the Series A Preferred Units effective as of May 31, 2019. The Company’s offering of the Series A Preferred Units ended at the end of January 2020. On January 28, 2020, the Company entered into the Second Amended and Restated Dealer Manager Agreement, pursuant to which CCO Capital acts as the exclusive dealer manager for the Company’s public offering of its Series A Preferred Stock and Series D Preferred Stock. Thereunder, the Company agreed to pay CCO Capital, as the dealer manager for the offering, (1) an upfront dealer manager fee of up to 1.25 % of the selling price of each share of Preferred Stock sold, (2) selling commissions of up to 5.50 % of the selling price of each share of Series A Preferred Stock sold (with no selling commissions payable in respect of shares of Series D Preferred Stock sold) and (3) a trailing dealer manager fee that accrues daily in an amount equal to 1/365th of 0.25 % per annum of the selling price of each share of Preferred Stock sold. CCO Capital, in its sole discretion, may reallow to another broker-dealer authorized by it to sell shares in the offering a portion of the upfront dealer manager fee earned by it in respect of shares sold by such broker-dealer.
On April 9, 2020, the Company entered into Amendment No. 1 to the Second Amended and Restated Dealer Manager Agreement, pursuant to which the selling commissions were increased from up to 5.50 % to up to 7.00 % of the selling price of each share of Series A Preferred Stock sold thereafter. The Company has been informed that CCO Capital generally reallows 100 % of the selling commissions on sales of Series A Preferred Stock and generally reallows substantially all of the upfront dealer manager fee on sales of Series A Preferred Stock and Series D Preferred Stock, to participating broker-dealers.
The Company recorded fees and expense reimbursements as shown in the table below for services provided by related parties related to the services described above during the periods indicated (in thousands):
| Three Months Ended March 31, | ||||||||||||||
| 2021 | 2020 | |||||||||||||
| Asset Management Fees: | ||||||||||||||
Asset management fees (1) | $ | $ | ||||||||||||
| Property Management Fees and Reimbursements: | ||||||||||||||
| Property management fees | $ | $ | ||||||||||||
| Onsite management and other cost reimbursement | $ | $ | ||||||||||||
| Leasing commissions | $ | $ | ||||||||||||
| Construction management fees | $ | $ | ||||||||||||
| Administrative Fees and Expenses: | ||||||||||||||
Base service fee (2) | $ | $ | ||||||||||||
| Expense reimbursements to related parties - corporate | $ | $ | ||||||||||||
| Lending Segment Expenses: | ||||||||||||||
| Expense reimbursements to related parties - lending segment | $ | $ | ||||||||||||
| Offering-Related Fees: | ||||||||||||||
| Upfront dealer manager and trailing dealer manager fees | $ | $ | ||||||||||||
Non-issuance specific offering costs (3) | $ | $ | ||||||||||||
______________________
(1)For the three months ended March 31, 2020, the Company issued to the Operator 203,349 shares of Common Stock, in lieu of cash payment of the asset management fee for the first quarter of 2020.
(2)For the three months ended March 31, 2020, the Company issued to the Administrator 11,273 shares of Series A Preferred Stock, in lieu of cash as payment of the Base Service Fee for the first quarter of 2020.
27
CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021 (Unaudited) – (Continued)
As of March 31, 2021 and December 31, 2020, due to related parties consisted of the following (in thousands):
| March 31, 2021 | December 31, 2020 | |||||||||||||
| Asset management fees | $ | $ | ||||||||||||
| Property management fees and reimbursements | ||||||||||||||
| Expense reimbursements - corporate | ||||||||||||||
| Expense reimbursements - lending segment | ||||||||||||||
| Upfront dealer manager and trailing dealer manager fees | ||||||||||||||
| Non-issuance specific offering costs | ||||||||||||||
| Other amounts due to the CIM Management Entities and certain of its affiliates | ||||||||||||||
| Total due to related parties | $ | $ | ||||||||||||
Other
During the year ended December 31, 2020, the Company’s President, Jan F. Salit, retired effective as of September 16, 2020. Mr. Salit received a $450,000 payment, representing one year of his base salary, upon the satisfaction of certain conditions specified therein, including the execution of an agreement with the Company that contains, among other things, mutual release and non-disparagement provisions. Related to this payment, $287,000 was borne by the Company based on the time that Mr. Salit devoted to the Company relative to other matters relating to CIM Group. As of March 31, 2021, the $287,000 remained due to CIM Group.
On October 1, 2015, an affiliate of CIM Group entered into a five-year lease renewal with respect to a property owned by the Company. The lease was amended to a month-to-month term in February 2019 and was terminated in October 2020. The Company recorded rental and other property income related to this tenant of $0 and $29,000 for the three months ended March 31, 2021 and 2020, respectively.
13. COMMITMENTS AND CONTINGENCIES
Loan Commitments—Commitments to extend credit are agreements to lend to a customer provided the terms established in the contract are met. The Company’s outstanding commitments to fund loans were $60.0 million as of March 31, 2021, the majority of which are for prime-based loans to be originated by the Company’s subsidiary engaged in SBA 7(a) Small Business Loan Program lending, the government guaranteed portion of which is intended to be sold. Commitments generally have fixed expiration dates. Since some commitments are expected to expire without being drawn upon, total commitment amounts do not necessarily represent future cash requirements.
General—In connection with the ownership and operation of real estate properties, the Company has certain obligations for the payment of tenant improvement allowances and lease commissions in connection with new leases and renewals. CIM Commercial had a total of $7.6 million in future obligations under leases to fund tenant improvements and other future construction obligations as of March 31, 2021. As of March 31, 2021, $2.5 million was funded to reserve accounts included in restricted cash on the Company’s consolidated balance sheet for these tenant improvement obligations in connection with the mortgage loan agreement entered into in June 2016.
Employment Agreements—The Company has an employment agreement with one of its officers. Under certain circumstances, this employment agreement provides for (1) severance payment equal to the annual base salary paid to the officer and (2) death and disability payments in an amount equal to two times and one time, respectively, the annual base salary paid to the officer.
28
CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021 (Unaudited) – (Continued)
Litigation—The Company is not currently involved in any material pending or threatened legal proceedings nor, to the Company’s knowledge, are any material legal proceedings currently threatened against the Company, other than routine litigation arising in the ordinary course of business. In the normal course of business, the Company is periodically party to certain legal actions and proceedings involving matters that are generally incidental to the Company’s business. While the outcome of these legal actions and proceedings cannot be predicted with certainty, in management’s opinion, the resolution of these legal proceedings and actions will not have a material adverse effect on the Company’s business, financial condition, results of operations, cash flow or the Company’s ability to satisfy its debt service obligations or to maintain its level of distributions on Common Stock or Preferred Stock.
In September 2018, the Company filed a lawsuit against the City and County of San Francisco seeking a refund of the $11.8 million in penalties, interest and legal fees paid by the Company for real property transfer tax allegedly due for a transaction in a prior year. The Company disputed that such penalties, interest and legal fees were payable but, in order to contest the asserted tax obligations, the Company had to pay such amounts to the City and County of San Francisco in August 2017. The Company has been vigorously pursuing this litigation and intend to continue to do so.
A subsidiary of the Company is a defendant in a lawsuit in connection with injuries sustained by a third-party contractor at a property previously owned by such subsidiary. While it is possible that a loss may be incurred, the Company is unable to estimate a range of potential losses due to the complexity and current status of the lawsuit. However, the Company maintains insurance coverage to mitigate the impact of adverse exposures in lawsuits of this nature and do not expect this lawsuit to have a material adverse effect on the Company’s business, financial condition, results of operations, cash flow or the Company ability to satisfy its debt service obligations or to maintain the level of distributions on the Company’s Common Stock or Preferred Stock.
SBA Related—If the SBA establishes that a loss on an SBA guaranteed loan is attributable to significant technical deficiencies in the manner in which the loan was originated, funded or serviced under the PPP or the SBA 7(a) Small Business Loan Program, the SBA may seek recovery of the principal loss related to the deficiency from the Company. With respect to the guaranteed portion of SBA loans that have been sold, the SBA will first honor its guarantee and then seek compensation from the Company in the event that a loss is deemed to be attributable to technical deficiencies. Based on historical experience, the Company does not expect that this contingency is probable to be asserted. However, if asserted, it could have a material adverse effect on the Company’s business, financial condition, results of operations, cash flow or the Company’s ability to satisfy its debt service obligations or to maintain its level of distributions on Common Stock or Preferred Stock.
Environmental Matters—In connection with the ownership and operation of real estate properties, the Company may be potentially liable for costs and damages related to environmental matters, including asbestos-containing materials. The Company has not been notified by any governmental authority of any noncompliance, liability, or other claim in connection with any of the properties, and the Company is not aware of any other environmental condition with respect to any of the properties that management believes will have a material adverse effect on the Company’s business, financial condition, results of operations, cash flow or the Company’s ability to satisfy its debt service obligations or to maintain its level of distributions on Common Stock or Preferred Stock.
14. LEASES
Future minimum rental revenue under long-term operating leases as of March 31, 2021, excluding tenant reimbursements of certain costs, are as follows (in thousands):
| Years Ending December 31, | Total | |||||||||||||||||||
| 2021 (Nine months ending December 31, 2021) | $ | |||||||||||||||||||
| 2022 | ||||||||||||||||||||
| 2023 | ||||||||||||||||||||
| 2024 | ||||||||||||||||||||
| 2025 | ||||||||||||||||||||
| Thereafter | ||||||||||||||||||||
| $ | ||||||||||||||||||||
29
CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021 (Unaudited) – (Continued)
The Company’s reportable segments during the three months ended March 31, 2021 and 2020 consist of two
For the Company’s real estate segments, the Company defines net operating income (loss) as rental and other property income and expense reimbursements less property related expenses, and excludes non-property income and expenses, interest expense, depreciation and amortization, corporate related general and administrative expenses, gain (loss) on sale of real estate, gain (loss) on early extinguishment of debt, impairment of real estate, transaction costs, and provision (benefit) for income taxes. For the Company’s lending segment, the Company defines net operating income as interest income net of interest expense and general overhead expenses.
The net operating income (loss) of the Company’s segments for the three months ended March 31, 2021 and 2020 is as follows (in thousands):
| Three Months Ended March 31, | ||||||||||||||||||||||||||
| 2021 | 2020 | |||||||||||||||||||||||||
| Office: | ||||||||||||||||||||||||||
| Revenues | $ | $ | ||||||||||||||||||||||||
| Property expenses: | ||||||||||||||||||||||||||
| Operating | ||||||||||||||||||||||||||
| General and administrative | ||||||||||||||||||||||||||
| Total property expenses | ||||||||||||||||||||||||||
| Segment net operating income—office | ||||||||||||||||||||||||||
| Hotel: | ||||||||||||||||||||||||||
| Revenues | ||||||||||||||||||||||||||
| Property expenses: | ||||||||||||||||||||||||||
| Operating | ||||||||||||||||||||||||||
| General and administrative | ||||||||||||||||||||||||||
| Total property expenses | ||||||||||||||||||||||||||
| Segment net operating (loss) income—hotel | ( | |||||||||||||||||||||||||
| Lending: | ||||||||||||||||||||||||||
| Revenues | ||||||||||||||||||||||||||
| Lending expenses: | ||||||||||||||||||||||||||
| Interest expense | ||||||||||||||||||||||||||
| Expense reimbursements to related parties—lending segment | ||||||||||||||||||||||||||
| General and administrative | ||||||||||||||||||||||||||
| Total lending expenses | ||||||||||||||||||||||||||
| Segment net operating income—lending | ||||||||||||||||||||||||||
| Total segment net operating income | $ | $ | ||||||||||||||||||||||||
30
CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021 (Unaudited) – (Continued)
A reconciliation of segment net operating income to net income attributable to the Company for the three months ended March 31, 2021 and 2020 is as follows (in thousands):
| Three Months Ended March 31, | ||||||||||||||||||||||||||
| 2021 | 2020 | |||||||||||||||||||||||||
| Total segment net operating income | $ | $ | ||||||||||||||||||||||||
| Interest and other income | ||||||||||||||||||||||||||
| Asset management and other fees to related parties | ( | ( | ||||||||||||||||||||||||
| Expense reimbursements to related parties—corporate | ( | ( | ||||||||||||||||||||||||
| Interest expense | ( | ( | ||||||||||||||||||||||||
| General and administrative | ( | ( | ||||||||||||||||||||||||
| Depreciation and amortization | ( | ( | ||||||||||||||||||||||||
| Loss before provision for income taxes | ( | ( | ||||||||||||||||||||||||
| (Provision) benefit for income taxes | ( | |||||||||||||||||||||||||
| Net loss | ( | ( | ||||||||||||||||||||||||
| Net loss (income) attributable to noncontrolling interests | ( | |||||||||||||||||||||||||
| Net loss attributable to the Company | $ | ( | $ | ( | ||||||||||||||||||||||
The condensed assets for each of the segments as of March 31, 2021 and December 31, 2020, along with capital expenditures and loan originations for the three months ended March 31, 2021 and 2020, are as follows (in thousands):
| March 31, 2021 | December 31, 2020 | |||||||||||||
| Condensed assets: | ||||||||||||||
| Office | $ | $ | ||||||||||||
| Hotel | ||||||||||||||
| Lending | ||||||||||||||
| Non-segment assets | ||||||||||||||
| Total assets | $ | $ | ||||||||||||
| Three Months Ended March 31, | ||||||||||||||
| 2021 | 2020 | |||||||||||||
| Capital expenditures (1): | ||||||||||||||
| Office | $ | $ | ||||||||||||
| Hotel | ||||||||||||||
| Total capital expenditures | ||||||||||||||
| Loan originations | ||||||||||||||
| Total capital expenditures and loan originations | $ | $ | ||||||||||||
______________________
(1)Represents additions and improvements to real estate investments, excluding acquisitions. Includes the activity for dispositions through their respective disposition dates.
16. SUBSEQUENT EVENTS
In May 2021, the Company granted awards of 5,083 restricted shares of Common Stock to each of the independent members of the Board of Directors (20,332 shares in the aggregate) under the 2015 Equity Incentive Plan, which vest after one year of continuous service.
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Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”), which are intended to be covered by the safe harbors created thereby. Such forward-looking statements can be identified by the use of forward-looking terminology such as “may,” “will,” “project,” “target,” “expect,” “intend,” “might,” “believe,” “anticipate,” “estimate,” “could,” “would,” “continue,” “pursue,” “potential,” “forecast,” “seek,” “plan,” or “should” or the negative thereof or other variations or similar words or phrases. Such forward-looking statements include, among others, statements about CMCT’s plans and objectives relating to future growth and availability of funds, and the trading liquidity of CMCT’s Common Stock. Such forward-looking statements are based on particular assumptions that management of CMCT has made in light of its experience, as well as its perception of expected future developments and other factors that it believes are appropriate under the circumstances. Forward-looking statements are necessarily estimates reflecting the judgment of CMCT’s management and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. These risks and uncertainties include those associated with (i) the scope, severity and duration of the current pandemic of COVID-19, and actions taken to contain the pandemic or mitigate its impact, (ii) the adverse effect of COVID-19 on the financial condition, results of operations, cash flows and performance of CMCT and its tenants and business partners, the real estate market and the global economy and financial markets, among others, (iii) the timing, form and operational effects of CMCT’s development activities, (iv) the ability of CMCT to raise in place rents to existing market rents and to maintain or increase occupancy levels, (v) fluctuations in market rents, including as a result of COVID-19, and (vi) general economic, market and other conditions. Additional important factors that could cause CMCT’s actual results to differ materially from CMCT’s expectations are discussed under the section “Risk Factors” in CMCT’s Annual Report on Form 10-K for the year ended December 31, 2020. The forward-looking statements included herein are based on current expectations and there can be no assurance that these expectations will be attained. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond CMCT’s control. Although we believe that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could be inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this Form 10-Q will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by CMCT or any other person that CMCT’s objectives and plans will be achieved. Readers are cautioned not to place undue reliance on forward-looking statements. Forward-looking statements speak only as of the date they are made. CMCT does not undertake to update them to reflect changes that occur after the date they are made.
The following discussion of our financial condition as of March 31, 2021 and results of operations for the three months ended March 31, 2021 and 2020 should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2020. For a more detailed description of the risks affecting our financial condition and results of operations, see “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020 and in Part II, Item 1A of this Quarterly Report. Capitalized terms used herein, but not otherwise defined, shall have the meaning ascribed to those terms in “Part I — Financial Information” of this Quarterly Report on Form 10-Q, including the notes to the consolidated financial statements contained therein. The terms “we,” “us,” “our” and the “Company” refer to CIM Commercial Trust Corporation and its subsidiaries.
Definitions
We use certain defined terms throughout this Quarterly Report on Form 10-Q that have the following meanings:
The phrase “ADR” represents average daily rate. It is calculated as trailing 12-month room revenue divided by the number of rooms occupied. For sold properties, ADR is presented for the Company’s period of ownership only.
The phrase “annualized rent” represents gross monthly base rent, or gross monthly contractual rent under parking and retail leases, multiplied by 12. This amount reflects total cash rent before abatements. Where applicable, annualized rent has been grossed up by adding annualized expense reimbursements to base rent.
The phrase “RevPAR” represents revenue per available room. It is calculated as trailing 12-month room revenue divided by the number of available rooms. For sold properties, RevPAR is presented for the Company’s period of ownership only.
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Executive Summary
Business Overview
CIM Commercial is a Maryland corporation and REIT. Our principal business is to acquire, own, and operate 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. We believe that the critical mass of redevelopment in such areas creates positive externalities, which enhance the value of real estate assets in the area. We believe that these assets will provide greater returns than similar assets in other markets, as a result of the population growth, public commitment, and significant private investment that characterize these areas.
We are operated by affiliates of CIM Group. CIM is a community-focused real estate and infrastructure owner, operator, lender and developer. Headquartered in Los Angeles, CA, CIM has offices across the United States and in Tokyo, Japan.
COVID-19
In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic. COVID-19 has spread worldwide, causing significant disruptions to the U.S. and world economies. On March 4, 2020 and March 13, 2020, a state of emergency was declared for the state of California and for the United States, respectively. In response to the issuance of U.S. federal guidelines to contain the spread of COVID-19, U.S. state and local jurisdictions, including those in which we operate, implemented various containment and or mitigation measures, including shelter-in-place orders and the temporary closure of non-essential businesses. COVID-19 has triggered a period of significant global economic slowdown, and the impact of COVID-19 on the U.S. economy will likely continue through the first half of 2021.
The information provided in the table below provides insight into the effects of COVID-19 on our rent collections for the three months ended March 31, 2021 for our parking tenants. For the three months ended March 31, 2021, rent collections for our office and retail tenants were generally consistent with such rent collections prior to the effects of COVID-19. We undertake no obligation to provide rent collection, concession or allowance information for any future period. The information presented below is preliminary and unaudited, and we undertake no obligation to update such information other than as may be required by law:
Parking Tenants (1) | Three Months Ended March 31, 2021 | |||||||
Rent Collected (2) | 22.5 | % | ||||||
| Rent Abated | 8.6 | % | ||||||
| Recorded as Bad Debt | 68.9 | % | ||||||
| Total | 100.0 | % | ||||||
______________________
(1)There have been no significant changes in parking tenant rent collections subsequent to March 31, 2021.
(2)Rent collected is calculated as the aggregate contractual rent collected for each month in the applicable period presented from the beginning of that month through May 6, 2021, divided by the aggregate contractual rent charged for the applicable period. Rent collection percentages are calculated based on contractual rents (excluding percentage rents and contractually obligated reimbursements by our tenants).
Additionally, the spread of COVID-19 in the United States and the resulting restrictions on travel, meetings and social gatherings that have been implemented from time to time have impacted, and are expected to continue to materially impact so long as they persist, the operations of our hotel in Sacramento, California. For the three months ended March 31, 2021, the hotel segment net operating loss of our hotel was $807,000. Based on current expectations, it is highly likely that the net operating income of our hotel will continue to be negative for at least the first half of 2021. As a result, contributions by the hotel to our funds from operations during such periods will be significantly diminished.
Our lending division has also suffered adverse impacts relating to COVID-19. Loans originated and serviced under the SBA 7(a) Small Business Loan Program through March 31, 2021 consist primarily of loans to borrowers in the limited service hospitality sector. Since the onset of COVID-19 in the United States, our borrowers have been experiencing significant reductions in cash flow as the travel and leisure industry decline caused by COVID-19 has continued to severely impact limited service hospitality properties. The substantial majority of our borrowers received relief under the Coronavirus Aid, Relief and
33
Economic Security Act (the “CARES Act”) during the year ended December 31, 2020 through subsidy in the form of six months of monthly loan payments made on the borrower’s behalf pursuant to Section 1112 of the CARES Act. Further, Section 1112 of the CARES Act was extended and, beginning February 1, 2021, the CARES Act provides up to an additional five months of subsidy of scheduled principal and interest payments (up to $9,000 per month, per loan) for the substantial majority of our borrowers.
As a result of the potential negative impact on the cash flow of our borrowers, we increased our loan loss reserves commencing with the second half of 2020. Depending upon the length of continuation of market disruptions for the limited service hospitality industry, we may have additional increases in our loan loss reserves and ultimately an increase in loan losses, and such losses may be material.
The situation surrounding COVID-19 remains fluid, and we have been actively managing our response in collaboration with tenants, government officials and business partners and assessing the impact to our financial position and operating results, as well as the additional potential adverse developments in our business. We have taken steps to adapt to the difficult business environment in which we operate and to strengthen our business to position our business to thrive post COVID-19. These steps include (i) reducing our corporate overhead expenses by realigning certain support functions and reducing employee compensation at our Operator, including not appointing a replacement for our President who retired during the third quarter, (ii) focusing on appropriate cost-reduction measures at our properties, (iii) temporarily suspending the vast majority of activities related to the repositioning of our office building at 4750 Wilshire Boulevard in Los Angeles, California, and renovations at the Sheraton Grand Hotel in Sacramento, California, (iv) increasing liquidity by entering into the 2020 unsecured revolving credit facility in May 2020, accessing (beginning in June 2020) funds through the Federal Reserve through the PPPLF established for lenders who originate loans pursuant to the PPP and entering into the 2018 Credit Facility Modification in September 2020, and (v) amending our Master Services Agreement to eliminate the Base Service Fee as described in Note 12 to the consolidated financial statements included in this Quarterly Report on Form 10-Q.
The extent to which COVID-19 will continue to impact our operations and those of its tenants and business partners will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of COVID-19 and actions taken to contain the pandemic or mitigate its impact and the extent to which federal, state and local governments provide relief or assistance to those affected by COVID-19 (including extending the CARES Act). We cannot predict the significance, extent or duration of any adverse impact of COVID-19 on its business, financial condition, results of operations, cash flow or its ability to satisfy its debt service obligations or to maintain its level of distributions on its Common Stock or Preferred Stock. However, our business, financial condition, results of operations, and liquidity have been adversely affected and will likely continue to be adversely affected for at least through the first half of 2021.
Properties
As of March 31, 2021, our real estate portfolio consisted of 12 assets, all of which were fee-simple properties. As of March 31, 2021, our nine office properties, totaling approximately 1.3 million rentable square feet, were 78.7% occupied, our one development site was being used as a parking lot, and our one hotel with an ancillary parking garage, which has a total of 503 rooms, had RevPAR of $34.60 for the three months ended March 31, 2021.
Strategy
Our strategy is principally focused on the acquisition of Class A and creative office assets in vibrant and improving metropolitan communities throughout the United States (including improving and developing such assets) in a manner that will prudently grow our NAV and cash flow per share of Common Stock. We seek to utilize the CIM Group platform to acquire, improve and or develop real estate assets primarily within communities qualified by CIM Group as described below. We believe that these assets will provide greater returns than similar assets in other markets, as a result of the population growth, public commitment and significant private investment that characterize these areas. Over time, we seek to expand our real estate assets in communities targeted by CIM Group, supported by CIM Group’s broad real estate capabilities.
We may also participate more actively in other real estate strategies and property types in order to leverage CIM Group’s platform and capabilities for the benefit of all classes of stockholders. This may include, without limitation, engaging in real estate development activities as well as investing in other property types such as multifamily, retail or hospitality directly, side-by-side with one or more funds of CIM Group, through direct deployment of capital in one or more funds managed by affiliates of CIM Group, or deploying capital in or originating loans that are secured directly or indirectly by properties primarily located in CIM Group’s qualified communities that meet our strategy. Such loans may include limited and or non-recourse junior (mezzanine, B-note or 2nd lien) and senior acquisition, bridge or repositioning loans.
34
As a matter of prudent management, we regularly evaluate each asset within our portfolio as well as our strategies. Such review may result in dispositions when an asset no longer fits our overall objectives or strategies, or when our view of the market value of such asset is equal to or exceeds its intrinsic value.
CIM Group Operations
CIM Group believes that a vast majority of the risks associated with acquiring real estate are mitigated by accumulating local market knowledge of the community where the asset is located. As a result, CIM Group typically spends significant resources over a period of between six months and five years evaluating communities prior to making any acquisitions. The distinct districts that CIM Group identifies through this process as targets for acquisitions are referred to as “Qualified Communities”. Qualified Communities typically have dedicated resources to become, or are currently, vibrant communities where people can live, work, shop and be entertained, all within walking distance or close proximity to public transportation. These areas, which include traditional downtown areas and suburban main streets, generally have high barriers to entry, high population density, positive population trends, a propensity for growth and support for investment. CIM Group believes that the critical mass of redevelopment in such Qualified Communities creates positive externalities, which enhance the value of real estate assets in the area. CIM Group targets acquisitions of diverse types of real estate assets, including retail, residential, office, parking, hotel, signage and mixed-use through CIM Group’s extensive network and its current opportunistic activities. Since 1994, CIM Group has identified 135 Qualified Communities and has deployed capital in 75 of these communities.
CIM Group seeks to maximize the value of its holdings through active onsite property management and leasing. CIM Group has extensive in-house research, acquisition, credit analysis, development, finance, leasing and onsite property management capabilities, which leverage its deep understanding of metropolitan communities to position properties for multiple uses and to maximize operating income. As a vertically-integrated owner and operator, CIM Group has in-house onsite property management and leasing capabilities. Property managers prepare annual capital and operating budgets and monthly operating reports, monitor results and oversee vendor services, maintenance and capital improvement schedules. In addition, they ensure that revenue objectives are met, lease terms are followed, receivables are collected, preventative maintenance programs are implemented, vendors are evaluated and expenses are controlled. In addition, CIM Group’s real assets management committee (the “Real Assets Management Committee”) reviews and approves strategic plans for each asset, including financial, leasing, marketing, property positioning and disposition plans. The Real Assets Management Committee reviews and approves the annual business plan for each property, including its capital and operating budget. CIM Group’s organizational structure provides for continuity through multi-disciplinary teams responsible for an asset from the time of the original investment recommendation, through the implementation of the asset’s business plan, and any disposition activities.
CIM Group’s Investments and Development teams are separate groups that work very closely together on transactions requiring development expertise. While the Investments team is responsible for acquisition analysis, both the Investments and Development teams perform due diligence, evaluate and determine underwriting assumptions and participate in the development management and ongoing asset management of CIM Group’s opportunistic assets. The Development team is also responsible for the oversight and or execution of securing entitlements and the development/repositioning process. In instances where CIM Group is not the lead developer, CIM Group’s in-house Development team continues to provide development and construction oversight to co-sponsors through a shadow team that oversees the progress of the development from beginning to end to ensure adherence to the budgets, schedules, quality and scope of the project in order to maintain CIM Group’s vision for the final product. The Investments and Development teams interact as a cohesive team when sourcing, underwriting, acquiring, executing and managing the business plan of an opportunistic acquisition.
Financing Strategy
We may finance our future activities through one or more of the following methods: (i) offerings of shares of Common Stock, Preferred Stock or other equity and or debt securities of the Company; (ii) credit facilities and term loans; (iii) the addition of senior recourse or non-recourse debt using target acquisitions as well as existing assets as collateral; (iv) the sale of existing assets; and or (v) cash flows from operations.
We issued to the Operator an aggregate of 203,349 shares of our Common Stock and 287,199 shares of our Series A Preferred Stock, par value $0.001 per share (“Series A Preferred Stock”), as payment, in lieu of cash, for all asset management fees owed to the Operator in respect of fees incurred during the year ended December 31, 2020. Additionally, we issued to the Administrator 11,273 shares of Series A Preferred Stock, in lieu of cash as payment of the Base Service Fee (as defined below) in respect of the first fiscal quarter of the year ended December 31, 2020. All of such securities were issued pursuant to the
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exemption from registration contained in Section 4(a)(2) of the Securities Act. It is likely that we will seek to pay some or part of the asset management fees for part of the year ending December 31, 2021 in shares of Series A Preferred Stock.
Rental Rate Trends
Office Statistics: The following table sets forth occupancy rates and annualized rent per occupied square foot across our office portfolio as of the specified periods:
| As of March 31, | ||||||||||||||
| 2021 | 2020 | |||||||||||||
| Occupancy (1) | 78.7 | % | 85.8 | % | ||||||||||
| Annualized rent per occupied square foot (1)(2) | $ | 51.88 | $ | 50.20 | ||||||||||
______________________
(1)The information presented in this table represents historical information as of the date indicated without giving effect to any property sales occurring thereafter.
(2)Total abatements, representing lease incentives in the form of free rent, for the 12 months ended March 31, 2021 and 2020 were approximately $1.3 million and $2.1 million, respectively.
Over the next four quarters, we expect to see expiring cash rents as set forth in the table below:
| For the Three Months Ended | ||||||||||||||||||||||||||
| June 30, 2021 | September 30, 2021 | December 31, 2021 | March 31, 2022 | |||||||||||||||||||||||
| Expiring Cash Rents: | ||||||||||||||||||||||||||
| Expiring square feet (1) | 39,551 | 14,766 | 17,832 | 23,676 | ||||||||||||||||||||||
| Expiring rent per square foot (2) | $ | 52.16 | $ | 45.10 | $ | 58.32 | $ | 59.09 | ||||||||||||||||||
______________________
(1)Month-to-month tenants occupying a total of 14,968 square feet are included in the expiring leases in the first quarter listed.
(2)Represents annualized rent, as of March 31, 2021, under leases expiring during the periods above.
During the three months ended March 31, 2021, we executed leases with terms longer than 12 months totaling 4,553 square feet. The table below sets forth information on certain of our executed leases during the three months ended March 31, 2021, excluding space that was vacant for more than one year, month-to-month leases, leases with an original term of less than 12 months, related party leases, and space where the previous tenant was a related party:
| Number of Leases (1) | Rentable Square Feet | New Cash Rents per Square Foot (2) | Expiring Cash Rents per Square Foot (2) | |||||||||||||||||||||||
| Three months ended March 31, 2021 | 2 | 3,043 | $ | 59.76 | $ | 48.66 | ||||||||||||||||||||
______________________
(1)Based on the number of tenants that signed leases.
(2)Cash rents represent gross monthly base rent, multiplied by 12. This amount reflects total cash rent before abatements. Where applicable, annualized rent has been grossed up by adding annualized expense reimbursements to base rent.
Fluctuations in submarkets, buildings and terms of leases may cause large variations in these numbers and make predicting the changes in rent in any specific period difficult. Our rental and occupancy rates are impacted by general economic conditions, including the pace of regional and economic growth, and access to capital. Therefore, we cannot give any assurance that leases will be renewed or that available space will be re-leased at rental rates equal to or above the current market rates. Additionally, decreased demand and other negative trends or unforeseeable events, such as COVID-19, that impair our ability to timely renew or re-lease space could have a material adverse effect on our business, financial condition, results of operations, cash flow or our ability to satisfy our debt service obligations or to maintain our level of distributions on our Common Stock or Preferred Stock.
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Hotel Statistics: The following table sets forth the occupancy, ADR and RevPAR for our hotel in Sacramento, California for the specified periods:
| For the Three Months Ended March 31, | ||||||||||||||
| 2021 | 2020 | |||||||||||||
| Occupancy | 29.8 | % | 65.8 | % | ||||||||||
| ADR | $ | 116.21 | $ | 166.47 | ||||||||||
| RevPAR | $ | 34.60 | $ | 109.58 | ||||||||||
Seasonality
Our revenues and expenses for our hotel property are subject to seasonality during the year. Generally, our hotel revenues are greater in the first and second quarters than the third and fourth quarters. This seasonality can be expected to cause quarterly fluctuations in revenues, segment net operating income, net income and cash provided by operating activities. Additionally, our operating results have been and will be adversely affected by the continued effects of COVID-19 and renovations of the guest rooms, food and beverage amenities, public areas, meeting rooms and other amenities at our hotel (which renovations were suspended in March 2020 but may be resumed in 2021), as well as the temporary closure of the nearby Sacramento Convention Center until its expected phased reopening beginning in mid-2021. In addition, the hotel industry is cyclical and demand generally follows, on a lagged basis, key macroeconomic factors.
Lending Segment
Through our loans originated under the SBA’s 7(a) Guaranteed Loan Program, we are a national lender that primarily originates loans to small businesses. We identify loan origination opportunities through personal contacts, internet referrals, attendance at trade shows and meetings, direct mailings, advertisements in trade publications and other marketing methods. We also generate loans through referrals from real estate and loan brokers, franchise representatives, existing borrowers, lawyers and accountants.
In addition, as a SBA 7(a) licensee, we are an authorized lender under the PPP, which was enacted during the year ended December 31, 2020.
The PPP provides lenders under the program with a 100% guaranty of repayment (provided certain conditions are met) and provides small businesses with uncollateralized and unguaranteed loans at an interest rate of 1.00%. Loans originated under the PPP will be fully forgiven, subject to certain limitations, when used by the borrower for payroll costs, interest on mortgages, rent, and utilities. For those loans that are forgiven, the SBA will remit 100% of the remaining outstanding principal plus accrued interest to us. For those loans whose borrowers do not meet the criteria required for forgiveness, the borrower is required to repay the remaining obligation. Upon a borrower default of any remaining balance due, if any, the SBA will remit the balance due to us. The loans that we originated under the PPP have a two-year term if originated prior to June 5, 2020 and have a five-year term if originated after June 5, 2020. We obtain funds to originate loans under the PPP from the Federal Reserve on a basis that correlates to the outstanding principal balance due from our borrowers pursuant to the PPP on a dollar-for-dollar basis with a cost of funds of 0.35%.
Property Concentration
As of March 31, 2021, we had certain tenant and geographic concentrations in our property holdings. Kaiser, which occupied office space in one of our Oakland, California properties accounted for 30.9% of our annualized rental income for the three months ended March 31, 2021. No other tenant accounted for greater than 10.0% of our annualized rental income for the three months ended March 31, 2021. In addition, seven of our office properties were located in California, which accounted for 84.1% of our annualized rental income for the three months ended March 31, 2021.
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2021 Results of Operations
Comparison of the Three Months Ended March 31, 2021 to the Three Months Ended March 31, 2020
Net Loss and FFO
| Three Months Ended March 31, | Change | |||||||||||||||||||||||||
| 2021 | 2020 | $ | % | |||||||||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||||||||
| Total revenues | $ | 18,879 | $ | 25,535 | $ | (6,656) | (26.1) | % | ||||||||||||||||||
| Total expenses | $ | 22,176 | $ | 26,813 | $ | (4,637) | (17.3) | % | ||||||||||||||||||
| Net loss | $ | (3,671) | $ | (1,256) | $ | (2,415) | 192.3 | % | ||||||||||||||||||
Net loss increased to $3.7 million, or by $2.4 million, for the three months ended March 31, 2021, compared to a net loss of $1.3 million for the three months ended March 31, 2020. The decrease is primarily attributable to a decrease of $2.4 million in segment net operating income (primarily as a result of the adverse impact of COVID-19).
We believe that FFO is a widely recognized and appropriate measure of the performance of a REIT and that it is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs, many of which present FFO when reporting their results. FFO represents net income (loss) attributable to common stockholders, computed in accordance with GAAP, which reflects the deduction of redeemable preferred stock dividends declared or accumulated, redeemable preferred stock deemed dividends, and redeemable preferred stock redemptions, excluding gains (or losses) from sales of real estate, impairment of real estate, and real estate depreciation and amortization. We calculate FFO in accordance with the standards established by the National Association of Real Estate Investment Trusts (the “NAREIT”).
Like any metric, FFO should not be used as the only measure of our performance because it excludes depreciation and amortization and captures neither the changes in the value of our real estate properties that result from use or market conditions nor the level of capital expenditures and leasing commissions necessary to maintain the operating performance of our properties, all of which have real economic effect and could materially impact our operating results. Other REITs may not calculate FFO in accordance with the standards established by the NAREIT; accordingly, our FFO may not be comparable to the FFOs of other REITs. Therefore, FFO should be considered only as a supplement to net income (loss) as a measure of our performance and should not be used as a supplement to or substitute measure for cash flows from operating activities computed in accordance with GAAP. FFO should not be used as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to pay dividends.
The following table sets forth a reconciliation of net loss attributable to common stockholders to FFO attributable to common stockholders:
| Three Months Ended March 31, | ||||||||||||||
| 2021 | 2020 | |||||||||||||
| (in thousands) | ||||||||||||||
| Net loss attributable to common stockholders | $ | (8,206) | $ | (6,787) | ||||||||||
| Depreciation and amortization | 5,037 | 5,258 | ||||||||||||
| FFO attributable to common stockholders | $ | (3,169) | $ | (1,529) | ||||||||||
FFO attributable to common stockholders was $(3.2) million for the three months ended March 31, 2021, a decrease of $1.6 million compared to $(1.5) million for the three months ended March 31, 2020. The decrease in FFO is primarily attributable to a decrease of $(2.4) million in segment net operating income (primarily as a result of the adverse impact of COVID-19), partially offset by a decrease of $0.9 million in redeemable preferred stock dividends declared or accumulated due to a switch in timing as to when we declared dividends on the Series A Preferred Stock and Series D Preferred Stock.
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Summary Segment Results
During the three months ended March 31, 2021 and 2020, CIM Commercial operated in three segments: office and hotel properties and lending. Set forth and described below are summary segment results for our operating segments.
| Three Months Ended March 31, | Change | |||||||||||||||||||||||||
| 2021 | 2020 | $ | % | |||||||||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||||
| Office | $ | 13,527 | $ | 14,897 | $ | (1,370) | (9.2) | % | ||||||||||||||||||
| Hotel | $ | 1,878 | $ | 8,253 | $ | (6,375) | (77.2) | % | ||||||||||||||||||
| Lending | $ | 3,474 | $ | 2,384 | $ | 1,090 | 45.7 | % | ||||||||||||||||||
| Expenses: | ||||||||||||||||||||||||||
| Office | $ | 5,740 | $ | 6,144 | $ | (404) | (6.6) | % | ||||||||||||||||||
| Hotel | $ | 2,685 | $ | 6,482 | $ | (3,797) | (58.6) | % | ||||||||||||||||||
| Lending | $ | 1,368 | $ | 1,373 | $ | (5) | (0.4) | % | ||||||||||||||||||
| Non-Segment Revenue and Expenses: | ||||||||||||||||||||||||||
| Interest and other income | $ | — | $ | 1 | $ | (1) | (100.0) | % | ||||||||||||||||||
| Asset management and other fees to related parties | $ | (2,259) | $ | (2,645) | $ | 386 | (14.6) | % | ||||||||||||||||||
| Expense reimbursements to related parties - corporate | $ | (605) | $ | (812) | $ | 207 | (25.5) | % | ||||||||||||||||||
| Interest expense | $ | (2,441) | $ | (2,876) | $ | 435 | (15.1) | % | ||||||||||||||||||
| General and administrative | $ | (2,041) | $ | (1,223) | $ | (818) | 66.9 | % | ||||||||||||||||||
| Depreciation and amortization | $ | (5,037) | $ | (5,258) | $ | 221 | (4.2) | % | ||||||||||||||||||
| (Provision) benefit for income taxes | $ | (374) | $ | 22 | $ | (396) | (1,800.0) | % | ||||||||||||||||||
Revenues
Office Revenue: Office revenue includes rental revenue, expense reimbursements and lease termination income from office properties. Office revenue decreased to $13.5 million, or by 9.2%, for the three months ended March 31, 2021 compared to $14.9 million for the three months ended March 31, 2020. The decrease is primarily due to lower revenues at an office property in Beverly Hills, California and an office property in Los Angeles, California due to decreases in occupancy as compared to the first quarter of 2020.
Hotel Revenue: Hotel revenue decreased to $1.9 million, or by 77.2%, for the three months ended March 31, 2021, compared to $8.3 million for the three months ended March 31, 2020, primarily due to a decrease in occupancy, average daily rate, and food, beverage, and other sundry hotel services during the first quarter of 2021 as compared to the first quarter of 2020 as a result of COVID-19. The outbreak of COVID-19 will continue to negatively affect the operations of our hotel at least through the first half of 2021 as described in “—COVID-19” above.
Lending Revenue: Lending revenue represents revenue from our lending subsidiaries, including interest income on loans and other loan related fee income. Lending revenue increased to $3.5 million, or by 45.7%, for the three months ended March 31, 2021, compared to $2.4 million for the three months ended March 31, 2020. The increase is primarily due to an increase in our origination of loans during the three months ended March 31, 2021, partially offset by a decrease in interest income resulting from a decline in the prime rate from 4.75% during the first quarter of 2020 to 3.25% during the first quarter of 2021.
Expenses
Office Expenses: Office expenses decreased to $5.7 million, or by 6.6%, for the three months ended March 31, 2021, compared to $6.1 million for the three months ended March 31, 2020. The decrease is primarily due to a decrease in administrative payroll expenses at our office property in Oakland, California.
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Hotel Expenses: Hotel expenses decreased to $2.7 million, or by 58.6%, for the three months ended March 31, 2021, compared to $6.5 million for the three months ended March 31, 2020, primarily as a result of decreased occupancy at the hotel due to the effects of COVID-19. The outbreak of COVID-19 is expected to cause hotel expenses to decrease through at least the first half of 2021 as described in “—COVID-19” above.
Lending Expenses: Lending expenses represent expenses from our lending subsidiaries, including interest expense, general and administrative expenses and fees to related party. Lending expenses remained constant at $1.4 million for the three months ended both March 31, 2021 and March 31, 2020.
Asset Management and Other Fees to Related Parties: Asset management fees and other fees to related parties, which have not been allocated to our operating segments, were $2.3 million for the three months ended March 31, 2021, a decrease of 14.6%, compared to $2.6 million for the three months ended March 31, 2020. Asset management fees totaled $2.3 million for the three months ended March 31, 2021, compared to $2.4 million for the three months ended March 31, 2020. Asset management fees are calculated based on a percentage of the daily average adjusted fair value of CIM Urban’s assets, which are appraised in the fourth quarter of each year. The lower fees reflect a decrease in the adjusted fair value of CIM Urban’s assets as compared to the first quarter of 2020 due to lower appraised values of our same store properties, partially offset by the purchase of an office property in Austin, Texas in November 2020 and incremental capital expenditures incurred subsequent to March 31, 2020.
CIM Commercial also paid a Base Service Fee to the Administrator, a related party, which totaled $282,000 for the three months ended March 31, 2020. On May 11, 2020, the Master Services Agreement was amended to replace the Base Service Fee with the Incentive Fee. The amendment became effective as of April 1, 2020. The Administrator did not earn an Incentive Fee for the three months ended March 31, 2021. Based on our expected performance for the remainder of 2021, it is very likely that we will not pay any Incentive Fee in 2021.
Expense Reimbursements to Related Parties—Corporate: The Administrator received compensation and or reimbursement for performing certain services for CIM Commercial and its subsidiaries that are not covered by the Base Service Fee or the Incentive Fee, as the case may be. Expense reimbursements to related parties-corporate were $605,000 for the three months ended March 31, 2021, a decrease of 25.5%, compared to $812,000 for the three months ended March 31, 2020. The decrease was primarily due to reductions in allocated payroll.
Interest Expense: Interest expense, which has not been allocated to our operating segments, was $2.4 million for the three months ended March 31, 2021, a decrease of 15.1% compared to $2.9 million for the three months ended March 31, 2020. The decrease is primarily due to a decrease in the LIBOR component of the interest rates on our variable interest debt, partially offset by a higher average outstanding principal balance on our 2018 Revolving Credit Facility and an increase in the non-LIBOR component of the interest rate on our 2018 Revolving Credit Facility resulting from the 2018 Credit Facility Modification as compared to the three months ended March 31, 2020.
General and Administrative Expenses: General and administrative expenses, which have not been allocated to our operating segments, were $2.0 million for the three months ended March 31, 2021, an increase of 66.9% compared to $1.2 million for the three months ended March 31, 2020. The increase is primarily due to an increase in legal fees.
Depreciation and Amortization Expense: Depreciation and amortization expense was $5.0 million for the three months ended March 31, 2021, a decrease of $221,000 compared to $5.3 million for the three months ended March 31, 2020.
Provision for Income Taxes: Provision for income taxes was $374,000 for the three months ended March 31, 2021 as compared to a benefit for income taxes of $22,000 for the three months ended March 31, 2020. The increase in provision for income taxes is due to an increase in taxable income at our taxable REIT subsidiaries during the three months ended March 31, 2021 related to the operating results of our lending division.
Cash Flow Analysis
Our cash flows from operating activities are primarily dependent upon the real estate assets owned, occupancy level of our real estate assets, the rental rates achieved through our leases, the ADR of our hotel, the collectability of rent and recoveries from our tenants, and loan related activity, many of which were negatively impacted by the effects of COVID-19 during the three months ended March 31, 2021. Our cash flows from operating activities are also impacted by fluctuations in operating expenses and other general and administrative costs. Net cash provided by operating activities decreased by $1.3 million for the three months ended March 31, 2021, as compared to the same period in 2020. The decrease was primarily due to a $1.9 million increase in net loss income adjusted for depreciation and amortization expense and write-offs of uncollectible receivables, and
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an increase of $4.9 million in loans funded, partially offset by an increase of $5.3 million in proceeds from the sale of guaranteed loans.
Our cash flows from investing activities are primarily related to property acquisitions and sales, expenditures for development or repositioning of properties, capital expenditures and cash flows associated with loans originated at our lending segment. Net cash used in investing activities decreased by $1.7 million for the three months ended March 31, 2021, as compared to the same period in 2020. The decrease was primarily due to a decrease of $5.3 million in cash used to fund additions to investments in real estate, and a $5.3 million increase of principal collected on loans during the three months ended March 31, 2021. This was partially offset by an increase of $8.9 million in loans funded during the three months ended March 31, 2021.
Our cash flows from financing activities are generally impacted by borrowings and capital activities. Net cash used in financing activities decreased by $3.3 million for the three months ended March 31, 2021, as compared to the same period in 2020. The change was primarily due to an increase of $6.9 million in proceeds from debt, net of debt payments, partially offset by a decrease of $3.2 million from net proceeds from the issuance of Preferred Stock and warrants, and a $0.2 million increase in payments of Common Stock dividends and Preferred Stock dividends and redemptions.
Liquidity and Capital Resources.
General
We currently have substantial cash on hand, and may finance our future activities through one or more of the following methods: (i) offerings of shares of Common Stock, Preferred Stock or other equity and or debt securities of the Company; (ii) credit facilities and term loans; (iii) the addition of senior recourse or non-recourse debt using target acquisitions as well as existing assets as collateral; (iv) the sale of existing assets; and or (v) cash flows from operations.
Our long-term liquidity needs will consist primarily of funds necessary for acquisitions of assets, development or repositioning of properties, or re-leasing of space in existing properties, capital expenditures, refinancing of indebtedness, SBA 7(a) loan originations, paying distributions on our Preferred Stock or any other preferred stock we may issue, any future repurchase and or redemption of our Preferred Stock (if we choose, or are required, to pay the redemption price in cash instead of in shares of our Common Stock) and distributions on our Common Stock. Existing development and repositioning activities expected to be completed in the near‑term, despite their temporary suspension since March 2020 as a result of COVID-19, include (i) our repositioning of an existing office building at 4750 Wilshire Boulevard in Los Angeles, California, which repositioning is expected to cost approximately $14.5 million, of which $2.3 million had been paid as of March 31, 2021 and (ii) renovations of the guest rooms, food and beverage amenities, public areas, meeting rooms and other amenities at the Sheraton Grand Hotel in Sacramento, California, which renovations are expected to cost approximately $26.3 million, of which $2.9 million had been paid as of March 31, 2021. Additionally, our outstanding commitments to fund loans were $60.0 million as of March 31, 2021, substantially all of which reflect prime-based loans to be originated by our subsidiary engaged in SBA 7(a) Small Business Loan Program lending. The majority of these commitments have government guarantees of 90% (but no less than 75%) and we believe that we will be able to sell the guaranteed portion of these loans in a liquid secondary market upon fully funding the loans. Since some commitments are expected to expire without being drawn upon, total commitment amounts do not necessarily represent future cash requirements.
We may not have sufficient funds on hand or may not be able to obtain additional financing to cover all of our long-term cash requirements. The nature of our business, and the requirements imposed by REIT rules that we distribute a substantial majority of our REIT taxable income on an annual basis in the form of dividends, may cause us to have substantial liquidity needs over the long-term. While we will seek to satisfy such needs through one or more of the methods described in the first paragraph of this section, our ability to take such actions is highly uncertain and cannot be predicted, and could be affected by various risks and uncertainties, including, but not limited to, the effects of COVID-19 and other risks detailed in “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q. If we cannot obtain funding for our long-term liquidity needs, our assets may generate lower cash flows or decline in value, or both, which may cause us to sell assets at a time when we would not otherwise do so which could have a material adverse effect on our business, financial condition, results of operations, cash flow or our ability to satisfy our debt service obligations or to maintain our level of distributions on our Common Stock or Preferred Stock.
Sources and Uses of Funds
Mortgages
In June 2016, we entered into six mortgage loan agreements with an aggregate principal amount of $392.0 million. In 2017 and 2019, in connection with the sales of certain office properties, $294.9 million in aggregate principal of these loans
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was defeased or assumed by the respective buyers in connection with the sale of the properties that were collateral for such loans.
Revolving Credit Facilities
In October 2018, we entered into the 2018 revolving credit facility that, as amended, allows us to borrow up to $209.5 million, subject to a borrowing base calculation As of March 31, 2021 and December 31, 2020, the variable interest rate was 2.16% and 2.20%, respectively. The 2018 revolving credit facility matures in October 2022 and provides for one one-year extension option under certain conditions. As of May 6, 2021, March 31, 2021, and December 31, 2020, $172.0 million, $171.5 million and $166.5 million, respectively, was outstanding under the 2018 revolving credit facility and approximately $22.5 million, $23.0 million, and $28.0 million, respectively, was available for future borrowings.
In May 2020, to further enhance its liquidity position and maintain financial flexibility, we entered into the 2020 unsecured revolving credit facility pursuant to which we can borrow up to a maximum of $10.0 million. Outstanding advances under the 2020 unsecured revolving credit facility bear interest at the rate of 1.00%. The 2020 unsecured revolving credit facility matures in May 2022. As of both May 6, 2021 and March 31, 2021, $0 was outstanding under the 2020 unsecured revolving credit facility and $10.0 million was available for future borrowings.
In June 2020, we borrowed funds from the Federal Reserve through the PPPLF. Advances under the PPPLF carry an interest rate of 0.35%, are made on a dollar-for-dollar basis based on the amount of loans originated under the Paycheck Protection Program and are secured by loans made by us under the Paycheck Protection Program. The PPPLF contains customary covenants but is not subject to any financial covenants. The maturity date of PPPLF borrowings is the same as the maturity date of the loans pledged to secure the extension of credit, generally two years. At maturity, both principal and accrued interest are due. The maturity date of a PPPLF borrowing will be accelerated if, among other things, we have been reimbursed by the SBA for a loan forgiveness (to the extent of the forgiveness), we have received payment from the SBA representing exercise of the loan guarantee or we have received payment from the underlying borrower (to the extent of the payment received). No new extensions of credit will be made under the PPPLF after June 30, 2021 unless the Federal Reserve Board and the United States Department of the Treasury decide to extend the PPPLF. We borrowed money under the PPPLF to finance all the loans we originated under the Paycheck Protection Program. As of May 6, 2021 and March 31, 2021, $15.4 million and $18.1 million, respectively, was outstanding under the PPPLF.
Other Financing Activity
On May 30, 2018, we completed a securitization of the unguaranteed portion of certain of our SBA 7(a) loans receivable with the issuance of $38.2 million of unguaranteed SBA 7(a) loan-backed notes. The SBA 7(a) loan-backed notes mature on March 20, 2043, with monthly payments due as payments on the collateralized loans are received. Based on the anticipated repayments of our collateralized SBA 7(a) loans, at issuance, we estimated the weighted average life of the SBA 7(a) loan-backed notes to be approximately two years. The SBA 7(a) loan-backed notes bear interest at the lower of the one-month LIBOR plus 1.40% or the prime rate less 1.08%. The outstanding balance of SBA 7(a) loan-backed notes on May 6, 2021, March 31, 2021, and December 31, 2020, was $12.8 million, $12.9 million and $14.2 million, respectively.
We have junior subordinated notes with a variable interest rate that resets quarterly based on the three-month LIBOR plus 3.25%, with quarterly interest‑only payments. The junior subordinated balance is due at maturity on March 30, 2035. The junior subordinated notes may be redeemed at par at our option. The aggregate principal balance of the junior subordinated notes was $27.1 million as of March 31, 2021.
As a SBA 7(a) licensee, we are an authorized lender under the PPP and have originated $26.2 million loans under the program. During the three months ended March 31, 2021, we funded $10.2 million of additional PPP loans. As of May 6, 2021 and March 31, 2021, we had $15.5 million and $17.3 million, respectively, outstanding in PPP loans. We expect a significant portion of these loans will be forgiven and repaid, either in part or in full, by the SBA, including both principal and accrued interest.
Securities Offerings
We 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 and one Series A Preferred Warrant. During the tenure of the offering, we issued 4,603,287 Series A Preferred Units and received net proceeds of $105.2 million after commissions, fees and allocated costs.
The Series A Preferred Warrants are exercisable beginning on the first anniversary of the date of their original issuance until and including the fifth anniversary of the date of such issuance. At the time of issuance, the exercise price of each Series A
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Preferred Warrant was equal to a 15.0% premium to the per share estimated NAV of our Common Stock most recently published and designated as the Applicable NAV by us at the time of issuance. However, in accordance with the terms of the Series A Preferred Warrants, the exercise price of each Series A Preferred Warrant issued prior to the Reverse Stock Split was automatically adjusted to reflect the effect of the Reverse Stock Split and, in the discretion of our Board of Directors, the exercise price and the number of shares issuable upon exercise of each Series A Preferred Warrant issued prior to the Special Dividend was adjusted to reflect the effect of the Special Dividend. As of March 31, 2021, there were 4,603,287 Series A Preferred Warrants to purchase 1,194,159 shares of Common Stock outstanding.
Since February 2020, we have conducted a continuous public offering of up to approximately $785.0 million of our Series A Preferred Stock and Series D Preferred Stock. We intend to use the net proceeds from the offering for general corporate purposes, acquisitions of shares of our Common Stock and Preferred Stock, whether through one or more tender offers, share repurchases or otherwise, and acquisitions consistent with our acquisition and asset management strategies. As of March 31, 2021, we had issued 6,526,081 shares of Series A Preferred Stock and 23,190 shares of Series D Preferred Stock and received aggregate net proceeds of $148.2 million after commissions, fees and allocated costs.
On March 16, 2020, we established an “at the market” (“ATM”) program through which we may, from time to time in our discretion, offer and sell shares of Common Stock having an aggregate offering price of up to $25.0 million through an investment banking firm acting as the sales agent. Sales of Common Stock under the ATM program may be made directly on or through Nasdaq, among other methods. We intend to use the net proceeds from shares sold under the ATM program, if any, for general corporate purposes, acquisitions of shares of our Preferred Stock, whether through one or more tender offers, share repurchases or otherwise, and acquisitions consistent with our acquisition and asset management strategies. As of May 10, 2021, no sales of Common Stock have been made under the ATM program.
Dividends and Redemptions
Holders of Series A Preferred Stock, Series D Preferred Stock and Series L Preferred Stock are entitled to receive, if, as and when authorized by our Board of Directors, and declared by us out of legally available funds, cumulative cash dividends on each share at an annual rate of 5.50% of the Series A Preferred Stock Stated Value (i.e., the equivalent of $0.34375 per share per quarter), 5.65% of the Series D Preferred Stock Stated Value (i.e., the equivalent of $0.35313 per share per quarter), and 5.50% of the Series L Preferred Stock Stated Value (i.e., the equivalent of $1.56035 per share per year), respectively. However, if we fail to timely declare distributions or fail to timely pay any distribution on the Series L Preferred Stock, the annual dividend rate of the Series L Preferred Stock will temporarily increase by 1.00% per year, up to a maximum annual rate of 8.50% of the Series L Preferred Stock Stated Value. Dividends on each share of Preferred Stock begin accruing on, and are cumulative from, the date of issuance. Prior to the payment of any distributions on Series L Preferred Stock in respect of a given year, we must first declare and pay dividends on the Common Stock in respect of such year in an aggregate amount equal to the Initial Dividend announced by our Board of Directors at the end of the prior fiscal year. On December 22, 2020, we announced an Initial Dividend on shares of our Common Stock for fiscal year 2021 in the aggregate amount of $4,448,223, of which $1,112,000 had been paid as of March 31, 2021.
We expect to pay dividends on the Series A Preferred Stock and Series D Preferred Stock in arrears on a monthly basis, and on the Series L Preferred Stock in arrears on a yearly basis, unless our results of operations, our general financing conditions, general economic conditions, applicable requirements of the MGCL or other factors make it imprudent to do so. The timing and amount of dividends declared and paid on our Preferred Stock will be determined by our Board of Directors, in its sole discretion, and may vary from time to time.
Holders of our Common Stock are entitled to receive dividends, if, as and when authorized by the Board of Directors and declared by us out of legally available funds. In determining our dividend policy, the Board of Directors considers many factors including the amount of cash resources available for dividend distributions, capital spending plans, cash flow, our financial position, applicable requirements of the MGCL, any applicable contractual restrictions, and future growth in NAV and cash flow per share prospects. Consequently, the dividend rate on a quarterly basis does not necessarily correlate directly to any individual factor.
From the date of issuance until the fifth anniversary of the date of issuance, holders of Series A Preferred Stock and Series D Preferred Stock may require us to redeem such shares at a discount to the Series A Preferred Stated Value and Series D Preferred Stated Value, respectively. From and after the fifth anniversary of the date of original issuance of any share of our Preferred Stock, we generally (subject to certain conditions) have the right (but not the obligation) to redeem, and the holder of such share may require us to redeem, such share at a redemption price equal to 100% of the stated value of such share, plus any accrued but unpaid dividends in respect of such share as of the effective date of the redemption. The redemption price in respect of any share of Preferred Stock, whether redeemed at our option or at the option of a holder, may be paid in cash or in shares of
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Common Stock in our sole discretion. During the three months ended March 31, 2021, we redeemed 136,476 shares of Series A Preferred Stock and no shares of Series D Preferred Stock and Series L Preferred Stock.
Off-Balance Sheet Arrangements
As of March 31, 2021, we did not have any off-balance sheet arrangements.
Recently Issued Accounting Pronouncements
Our recently issued accounting pronouncements are described in Note 2 to the consolidated financial statements included in this Quarterly Report on Form 10-Q.
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
The fair value of our mortgage payable is sensitive to fluctuations in interest rates. Discounted cash flow analysis is generally used to estimate the fair value of our mortgage payable, using a rate of 3.59% and 3.38% as of March 31, 2021 and December 31, 2020, respectively. As of March 31, 2021 and December 31, 2020, our mortgage payable had a book value of $97.1 million, and a fair value of $99.7 million and $100.8 million, respectively.
Our future income, cash flow and fair values relevant to financial instruments are dependent upon prevalent market interest rates. Market risk refers to the risk of loss from adverse changes in market prices and interest rates. We are exposed to market risk in the form of changes in interest rates and the potential impact such changes may have on the cash flows from our floating rate debt or the fair values of our fixed rate debt. As of March 31, 2021 and December 31, 2020 (excluding premiums, discounts, and deferred loan costs), $115.2 million (or 34.4%) and $111.6 million (or 34.0%) of our debt, respectively, was fixed rate borrowings, and $219.8 million (or 65.6%) and $216.3 million (or 66.0%), respectively, was floating rate borrowings. Based on the level of floating rate debt outstanding as of March 31, 2021 and December 31, 2020, a 12.5 basis point change in LIBOR would result in an annual impact to our earnings of approximately $275,000 and $270,000, respectively. We calculate interest rate sensitivity by multiplying the amount of floating rate debt by the respective change in rate. The sensitivity analysis does not take into consideration possible changes in the balances or fair value of our floating rate debt.
Item 4.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, regarding the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, as of March 31, 2021, our Principal Executive Officer and Principal Financial Officer concluded, as of that time, that our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in the reports that we file or submit to the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms and include controls and procedures designed to ensure the information required to be disclosed by us in such reports is accumulated and communicated to management, including our Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II
Other Information
Item 1. Legal Proceedings
We are not currently involved in any material pending or threatened legal proceedings nor, to our knowledge, are any material legal proceedings currently threatened against us, other than routine litigation arising in the ordinary course of business. In the normal course of business, we are periodically party to certain legal actions and proceedings involving matters that are generally incidental to our business. While the outcome of these legal actions and proceedings cannot be predicted with certainty, in management’s opinion, the resolution of these legal proceedings and actions will not have a material adverse effect on our business, financial condition, results of operations, cash flow or our ability to satisfy our debt service obligations or to maintain our level of distributions on our Common Stock or Preferred Stock.
Item 1A. Risk Factors
There have been no material changes to the risk factors disclosed in “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On January 21, 2021, we issued to the Operator an aggregate of 96,740 shares of our Series A Preferred Stock as payment, in lieu of cash, for $2.4 million of asset management fees owed to the Operator under the Investment Management Agreement for the fourth quarter of 2020. Such securities were issued pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
The Company expects to hold its 2021 Annual Meeting of Stockholders in the fourth quarter of 2021.
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Item 6. Exhibits
| Exhibit Number | Exhibit Description | |||||||
| *31.1 | ||||||||
| *31.2 | ||||||||
| *32.1 | ||||||||
| *32.2 | ||||||||
| *101.INS | XBRL Instance Document — the instance document does not appear in the interactive data files because its XBRL on the Interactive Data File because its XBRL tags are embedded within the inline XBRL document | |||||||
| *101.SCH | XBRL Taxonomy Extension Schema Document | |||||||
| *101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |||||||
| *101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |||||||
| *101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |||||||
| *101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |||||||
| *104 | Cover page Interactive Data File, formatted in inline XBRL (included in Exhibit 101). | |||||||
_______________________________________________________________________________
* Filed herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| CIM COMMERCIAL TRUST CORPORATION | ||||||||||||||
Dated: May 10, 2021 | By: | /s/ DAVID THOMPSON David Thompson Chief Executive Officer | ||||||||||||
Dated: May 10, 2021 | By: | /s/ NATHAN D. DEBACKER Nathan D. DeBacker Chief Financial Officer | ||||||||||||
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Exhibit 31.1
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, David Thompson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of CIM Commercial Trust Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: May 10, 2021 | /s/ DAVID THOMPSON David Thompson Chief Executive Officer | |||||||
Quicklinks
EXHIBIT 31.1
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.2
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Nathan D. DeBacker, certify that:
1. I have reviewed this quarterly report on Form 10-Q of CIM Commercial Trust Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: May 10, 2021 | /s/ NATHAN D. DEBACKER Nathan D. DeBacker Chief Financial Officer | |||||||
QuickLinks
EXHIBIT 31.2
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of CIM Commercial Trust Corporation (the "Company") on Form 10-Q for the period ended March 31, 2021 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, David Thompson, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ DAVID THOMPSON David Thompson Chief Executive Officer May 10, 2021 | ||||||||
QuickLinks
EXHIBIT 32.1
CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of CIM Commercial Trust Corporation (the "Company") on Form 10-Q for the period ended March 31, 2021 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Nathan D. DeBacker, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ NATHAN D. DEBACKER Nathan D. DeBacker Chief Financial Officer May 10, 2021 | ||||||||
QuickLinks
EXHIBIT 32.2
CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002