REAL ESTATE

6 Months Ended

Jun. 30, 2020

As of June 30, 2020, the Company’s real estate portfolio was composed of two hotel properties, three office properties and one apartment building. In addition, as of June 30, 2020, the Company has entered into a consolidated joint venture to develop one office/retail property. The following table summarizes the Company’s real estate as of June 30, 2020 and December 31, 2019 (in thousands):


	June 30, 2020		December 31, 2019
Land	$	102,288	$	102,288
Buildings and improvements	432,796		427,696
Tenant origination and absorption costs	13,425		15,422
Total real estate, cost and net of impairment charges	548,509		545,406
Accumulated depreciation and amortization	(59,129)		(51,723)
Total real estate, net	$	489,380	$	493,683

The following table provides summary information regarding the Company’s real estate as of June 30, 2020 (in thousands):


Property	Date Acquired	City	State	Property Type	Land		Building and Improvements ⁽¹⁾		Tenant Origination and Absorption		Total Real Estate, at Cost and Net of Impairment Charges		Accumulated Depreciation and Amortization		Total Real Estate, Net		Ownership %
Springmaid Beach Resort	12/30/2014	Myrtle Beach	SC	Hotel	$	27,438	$	40,458	$	—	$	67,896	$	(11,804)	$	56,092	90.0%
Q&C Hotel	12/17/2015	New Orleans	LA	Hotel	1,232		53,323		—		54,555		(9,446)		45,109		90.0%
Lincoln Court	05/20/2016	Campbell	CA	Office	14,706		36,067		1,069		51,842		(5,493)		46,349		100.0%
Lofts at NoHo Commons	11/16/2016	North Hollywood	CA	Apartment	26,222		82,057		—		108,279		(7,950)		100,329		90.0%
210 West 31st Street ⁽²⁾	12/01/2016	New York	NY	Office/Retail	—		55,269		—		55,269		—		55,269		80.0%
Oakland City Center	08/18/2017	Oakland	CA	Office	22,150		143,462		9,556		175,168		(20,118)		155,050		100.0%
Madison Square ⁽³⁾	10/03/2017	Phoenix	AZ	Office	10,540		22,160		2,800		35,500		(4,318)		31,182		90.0%
					$	102,288	$	432,796	$	13,425	$	548,509	$	(59,129)	$	489,380

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⁽¹⁾ Building and improvements includes construction costs for the Company’s project that was under development.

⁽²⁾ The Company acquired the rights to a leasehold interest with respect to this property, which was accounted for as a finance lease. The Company applied a 6.1% discount rate to the finance lease and the lease expires on January 31, 2114. As of June 30, 2020, the finance lease right-of-use asset had a carrying value of $6.8 million included in building and improvements. No depreciation or amortization was recorded to this property as of June 30, 2020.

⁽³⁾ The Company acquired the rights to a leasehold interest with respect to the land at this property, which was accounted for as a finance lease. The Company applied a 5.4% discount rate to the finance lease and as of June 30, 2020, the finance lease had a weighted average remaining lease term of 2.3 years. As of June 30, 2020, the finance lease right-of-use asset had a carrying value of $1.9 million included in land.

Office Properties

As of June 30, 2020, the Company owned three office properties encompassing in the aggregate 806,960 rentable square feet which were 69% occupied. The following table provides detailed information regarding the Company’s office revenues and expenses for the three and six months ended June 30, 2020 and 2019 (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Office revenues:
Rental income	$	6,734	$	7,007	$	13,604	$	13,919
Other income	201		187		427		392
Office revenues	$	6,935	$	7,194	$	14,031	$	14,311

Office expenses:
Operating, maintenance, and management	$	2,144	$	2,338	$	4,418	$	4,663
Real estate taxes and insurance	1,093		1,089		2,193		2,161
Office expenses	$	3,237	$	3,427	$	6,611	$	6,824

Operating Leases

The Company’s office properties are leased to tenants under operating leases for which the terms and expirations vary. As of June 30, 2020, the leases had remaining terms, excluding options to extend, of up to 10.3 years with a weighted-average remaining term of 3.3 years. Some of the leases may have provisions to extend the term of the lease, options for early termination for all or a part of the leased premises after paying a specified penalty and other terms and conditions as negotiated. The Company retains substantially all of the risks and benefits of ownership of the real estate assets leased to tenants. Generally, upon the execution of a lease, the Company requires a security deposit from the tenant in the form of a cash deposit and/or a letter of credit. The amount required as a security deposit varies depending upon the terms of the respective lease and the creditworthiness of the tenant, but generally is not a significant amount. Therefore, exposure to credit risk exists to the extent that a receivable from a tenant exceeds the amount of its security deposit. Security deposits received in cash related to office tenant leases are included in other liabilities in the accompanying consolidated balance sheets and totaled $1.0 million and $1.1 million as of June 30, 2020 and December 31, 2019, respectively.

During the three and six months ended June 30, 2020, the Company recognized deferred rent from tenants of $0.1 million and $0.3 million, respectively, net of lease incentive amortization. During the three and six months ended June 30, 2019, the Company recognized deferred rent from tenants of $0.1 million and $0.2 million, respectively, net of lease incentive amortization. As of June 30, 2020 and December 31, 2019, the cumulative deferred rent receivable balance, including unamortized lease incentive receivables, was $3.9 million and $2.9 million, respectively, and is included in rents and other receivables on the accompanying balance sheets. The cumulative deferred rent balance included $0.1 million and $0.2 million of unamortized lease incentives as of June 30, 2020 and December 31, 2019, respectively.

As of June 30, 2020, the future minimum rental income from the Company’s office properties under its non-cancelable operating leases was as follows (in thousands):


July 1, 2020 through December 31, 2020	$	11,061
2021	20,153
2022	16,403
2023	13,304
2024	10,827
Thereafter	33,323
	$	105,071

As of June 30, 2020, the Company’s commercial real estate properties were leased to approximately 80 tenants over a diverse range of industries and geographic areas. As of June 30, 2020, the highest tenant industry concentrations (greater than 10% of annualized base rent) in the Company’s portfolio were as follows:


Industry	Number of Tenants	Annualized Base Rent ⁽¹⁾ (in thousands)		Percentage of Annualized Base Rent
Legal Services	13	$	4,547	21.2	%
Public Administration	6	3,219		15.0	%
Professional, Scientific, and Technical Services	11	2,961		13.8	%
		$	10,727	50.0	%

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⁽¹⁾Annualized base rent represents annualized contractual base rental income as of June 30, 2020, adjusted to straight-line any contractual tenant concessions (including free rent), rent increases and rent decreases from the lease’s inception through the balance of the lease term.

No other tenant industries accounted for more than 10% of annualized base rent. No tenant accounted for more than 10% of annualized base rent. No material tenant credit issues have been identified at this time. During six months ended June 30, 2020, the Company recorded a $45,000 adjustment to office revenues for lease payments deemed not probable of collection. There were no adjustments during the three months ended June 30, 2020. During the three and six months ended June 30, 2019, the Company recorded bad debt recovery of $31,000 and $0.1 million, respectively, which were included in office expenses in the accompanying consolidated statements of operations.

Hotel Properties

As of June 30, 2020, the Company owned two hotel properties. The following table provides detailed information regarding the Company’s hotel revenues and expenses for the three and six months ended June 30, 2020 and 2019 (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Hotel revenues:
Room	$	1,908	$	7,590	$	4,862	12,055
Food, beverage and convention services	233		1,679		834		2,552
Campground	256		280		511		551
Other	211		518		480		889
Hotel revenues	$	2,608	$	10,067	$	6,687	$	16,047

Hotel expenses:
Room	$	608	$	1,680	$	1,698	3,004
Food, beverage and convention services	262		1,164		887		1,940
General and administrative	337		708		1,142		1,494
Sales and marketing	291		912		830		1,606
Repairs and maintenance	335		526		797		1,092
Utilities	214		224		508		485
Property taxes and insurance	519		435		1,108		873
Other	162		487		416		817
Hotel expenses	$	2,728	$	6,136	$	7,386	$	11,311

On March 31, 2020, both hotels were temporarily closed due to COVID-19 (Coronavirus) and the Springmaid Beach Resort reopened on May 1, 2020. The Company is unable to predict when the Q&C Hotel will resume operations. The extent of the effects of the COVID-19 pandemic on the Company’s business and the hotel industry at large is highly uncertain and will ultimately depend on future developments, including, but not limited to, the duration and severity of the outbreak, governmental response, the length of time it takes for demand and pricing to return and normal economic and operating conditions to resume.

Contract liabilities

The following table summarizes the Company’s contract liabilities, which are comprised of advanced deposits and are included in other liabilities in the accompanying consolidated balance sheets, as of June 30, 2020 and December 31, 2019 (in thousands):


	June 30, 2020		December 31, 2019
Contract liability	$	459	$	500
Revenue recognized in the period from:
Amounts included in contract liability at the beginning of the period	$	267	$	281

Apartment Property

As of June 30, 2020, the Company owned one apartment property with 292 units which was 88% occupied. The following table provides detailed information regarding the Company’s apartment revenues and expenses for the three months ended June 30, 2020 and 2019 (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Apartment revenues:
Rental income	$	1,807	$	1,829	$	3,635	$	3,659
Other income	209		141		438		306
Apartment revenues	$	2,016	$	1,970	$	4,073	$	3,965

Apartment expenses:
Operating, maintenance, and management	$	431	$	544	$	875	$	1,080
Real estate taxes and insurance	343		339		709		700
Apartment expenses	$	774	$	883	$	1,584	$	1,780

Geographic Concentration Risk

As of June 30, 2020, the Company’s real estate investments in California represented 57.2% of the Company’s total assets. As a result, the geographic concentration of the Company’s portfolio makes it particularly susceptible to adverse economic developments in the California real estate market. Any adverse economic or real estate developments in this market, such as business layoffs or downsizing, industry slowdowns, relocations of businesses, changing demographics and other factors, or any decrease in demand for office space resulting from the local business climate, could adversely affect the Company’s operating results and its ability to make distributions to stockholders.