10-Q 1 cmct0630201910q.htm 10-Q Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One):
 
 
ý
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
OR
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                             to                            
Commission File Number 1-13610
CIM COMMERCIAL TRUST CORPORATION
(Exact name of registrant as specified in its charter)
Maryland
(State or Other Jurisdiction of
Incorporation or Organization)
75-6446078
(I.R.S. Employer
Identification No.)
17950 Preston Road, Suite 600, Dallas, Texas
(Address of Principal Executive Offices)
75252
(Zip Code)
(972) 349-3200
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
Common Stock, $0.001 Par Value
 
CMCT
 
Nasdaq Global Market
Common Stock, $0.001 Par Value
 
CMCT-L
 
Tel Aviv Stock Exchange
Series L Preferred Stock, $0.001 Par Value
 
CMCTP
 
Nasdaq Global Market
Series L Preferred Stock, $0.001 Par Value
 
CMCTP
 
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 ý    NO o
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). YES ý    NO o
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 o
Accelerated filer o
Non-accelerated filer ý
Smaller reporting company ý
Emerging growth company o
 




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.    o
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o    NO ý
As of August 6, 2019, the Registrant had outstanding 43,806,721 shares of common stock, par value $0.001 per share. On August 8, 2019, the Registrant announced a 1-for-3 reverse stock split on its common stock, to be effective on September 3, 2019. Unless otherwise stated, none of the share or per share amounts in this report reflect the effect of such reverse stock split.




CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES
INDEX
 
 
 
PAGE NO.
PART I.
Financial Information
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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)
 
 
June 30, 2019
 
December 31, 2018
 
 
(Unaudited)
ASSETS
 
 

 
 

Investments in real estate, net
 
$
504,302

 
$
1,040,937

Cash and cash equivalents
 
373,665

 
54,931

Restricted cash
 
10,824

 
22,512

Loans receivable, net
 
72,485

 
83,248

Accounts receivable, net
 
4,821

 
6,640

Deferred rent receivable and charges, net
 
33,158

 
84,230

Other intangible assets, net
 
8,252

 
9,531

Other assets
 
10,069

 
18,197

Assets held for sale, net (Note 3)
 
178,927

 
22,175

TOTAL ASSETS
 
$
1,196,503

 
$
1,342,401

LIABILITIES, REDEEMABLE PREFERRED STOCK, AND EQUITY
 
 

 
 

LIABILITIES:
 
 

 
 

Debt, net
 
$
162,337

 
$
588,671

Accounts payable and accrued expenses
 
13,288

 
41,598

Intangible liabilities, net
 
1,938

 
2,872

Due to related parties
 
6,775

 
10,951

Other liabilities
 
9,357

 
16,535

Liabilities associated with assets held for sale, net (Note 3)
 
3,245

 
28,766

Total liabilities
 
196,940

 
689,393

COMMITMENTS AND CONTINGENCIES (Note 15)
 


 


REDEEMABLE PREFERRED STOCK: Series A, $0.001 par value; 36,000,000 shares authorized; 1,460,245 and 1,459,045 shares issued and outstanding, respectively, at June 30, 2019 and 1,566,386 and 1,565,346 shares issued and outstanding, respectively, at December 31, 2018; liquidation preference of $25.00 per share, subject to adjustment
 
33,303

 
35,733

EQUITY:
 
 

 
 

Series A cumulative redeemable preferred stock, $0.001 par value; 36,000,000 shares authorized; 2,154,248 and 2,142,676 shares issued and outstanding, respectively, at June 30, 2019 and 1,287,169 and 1,281,804 shares issued and outstanding, respectively, at December 31, 2018; liquidation preference of $25.00 per share, subject to adjustment
 
53,327

 
31,866

Series L cumulative redeemable preferred stock, $0.001 par value; 9,000,000 shares authorized; 8,080,740 shares issued and outstanding at June 30, 2019 and December 31, 2018; liquidation preference of $28.37 per share, subject to adjustment
 
229,251

 
229,251

Common stock, $0.001 par value; 900,000,000 shares authorized; 43,805,741 and 43,795,073 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively
 
44

 
44

Additional paid-in capital
 
788,655

 
790,354

Accumulated other comprehensive income
 

 
1,806

Distributions in excess of earnings
 
(105,634
)
 
(436,883
)
Total stockholders' equity
 
965,643

 
616,438

Noncontrolling interests
 
617

 
837

Total equity
 
966,260

 
617,275

TOTAL LIABILITIES, REDEEMABLE PREFERRED STOCK, AND EQUITY
 
$
1,196,503

 
$
1,342,401

           The accompanying notes are an integral part of these consolidated financial statements.

2


CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except per share amounts)
 
 
Three Months Ended June 30,
 
Six Months Ended
June 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
(Unaudited)
REVENUES:
 
 

 
 

 
 

 
 

Rental and other property income
 
$
22,419

 
$
37,825

 
$
56,000

 
$
72,969

Hotel income
 
9,549

 
10,160

 
19,353

 
19,849

Interest and other income
 
4,888

 
3,559

 
8,780

 
7,020

 
 
36,856

 
51,544

 
84,133

 
99,838

EXPENSES:
 
 

 
 

 
 

 
 

Rental and other property operating
 
15,658

 
20,765

 
35,911

 
38,681

Asset management and other fees to related parties          
 
4,288

 
6,143

 
10,174

 
12,354

Interest
 
2,550

 
6,811

 
6,595

 
13,444

General and administrative
 
1,621

 
1,915

 
3,409

 
5,291

Transaction costs
 
216

 
344

 
260

 
344

Depreciation and amortization
 
7,185

 
13,325

 
16,815

 
26,473

Loss on early extinguishment of debt (Note 7)
 
4,911

 

 
29,982

 

Impairment of real estate (Note 3)
 
2,800

 

 
69,000

 

 
 
39,229

 
49,303

 
172,146

 
96,587

Gain on sale of real estate (Note 3)
 
55,221

 

 
432,802

 

INCOME BEFORE PROVISION FOR INCOME TAXES
 
52,848

 
2,241

 
344,789

 
3,251

   Provision for income taxes
 
281

 
292

 
599

 
680

NET INCOME
 
52,567

 
1,949

 
344,190

 
2,571

Net (income) loss attributable to noncontrolling interests
 
(1
)
 
(12
)
 
173

 
(16
)
NET INCOME ATTRIBUTABLE TO THE COMPANY
 
52,566

 
1,937

 
344,363

 
2,555

Redeemable preferred stock dividends declared or accumulated (Note 10)
 
(4,302
)
 
(3,814
)
 
(8,464
)
 
(7,459
)
Redeemable preferred stock redemptions (Note 10)
 
(4
)
 
1

 
(8
)
 
2

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS
 
$
48,260

 
$
(1,876
)
 
$
335,891

 
$
(4,902
)
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS PER SHARE:
 
 

 
 

 
 

 
 

Basic
 
$
1.10

 
$
(0.04
)
 
$
7.67

 
$
(0.11
)
Diluted
 
$
1.07

 
$
(0.04
)
 
$
7.36

 
$
(0.11
)
WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING:
 
 

 
 

 
 

 
 

Basic
 
43,791

 
43,791

 
43,793

 
43,788

Diluted
 
45,853

 
43,791

 
45,804

 
43,788

   The accompanying notes are an integral part of these consolidated financial statements.

3


CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(In thousands)
 
 
Three Months Ended June 30,
 
Six Months Ended
June 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
(Unaudited)
NET INCOME
 
$
52,567

 
$
1,949

 
$
344,190

 
$
2,571

Other comprehensive income (loss): cash flow hedges
 

 
407

 
(1,806
)
 
1,590

COMPREHENSIVE INCOME
 
52,567

 
2,356

 
342,384

 
4,161

Comprehensive (income) loss attributable to noncontrolling interests
 
(1
)
 
(12
)
 
173

 
(16
)
COMPREHENSIVE INCOME ATTRIBUTABLE TO THE COMPANY
 
$
52,566

 
$
2,344

 
$
342,557

 
$
4,145

The accompanying notes are an integral part of these consolidated financial statements.


4


CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES
Consolidated Statements of Equity
(In thousands, except share and per share amounts)

 
 
Six Months Ended June 30, 2019
 
 
Common Stock
 
Preferred Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Series A
 
Series L
 
 
 
 
 
 
 
 
 
 
 
 
Shares
 
Par
Value
 
Shares
 
Amount
 
Shares
 
Amount
 
Additional
Paid-in
Capital
 
Accumulated
Other
Comprehensive
Income
 
Distributions
in Excess of Earnings
 
Non-controlling
Interests
 
Total
Equity
 
 
(Unaudited)
Balances, December 31, 2018
 
43,795,073

 
$
44

 
1,281,804

 
$
31,866

 
8,080,740

 
$
229,251

 
$
790,354

 
$
1,806

 
$
(436,883
)
 
$
837

 
$
617,275

Stock-based compensation expense
 

 

 

 

 

 

 
38

 

 

 

 
38

Common dividends ($0.125 per share)
 

 

 

 

 

 

 

 

 
(5,474
)
 

 
(5,474
)
Issuance of Series A Preferred Warrants
 

 

 

 

 

 

 
9

 

 

 

 
9

Dividends to holders of Series A Preferred Stock ($0.34375 per share)
 

 

 

 

 

 

 

 

 
(1,010
)
 

 
(1,010
)
Reclassification of Series A Preferred Stock to permanent equity
 

 

 
389,577

 
9,712

 

 

 
(822
)
 

 

 

 
8,890

Redemption of Series A Preferred Stock
 

 

 
(1,500
)
 
(37
)
 

 

 
(1
)
 

 

 

 
(38
)
Other comprehensive income (loss)
 

 

 

 

 

 

 

 
(1,806
)
 

 

 
(1,806
)
Net income (loss)
 

 

 

 

 

 

 

 

 
291,797

 
(174
)
 
291,623

Balances, March 31, 2019
 
43,795,073

 
$
44

 
1,669,881

 
$
41,541

 
8,080,740

 
$
229,251

 
$
789,578

 
$

 
$
(151,570
)
 
$
663

 
$
909,507

Distributions to noncontrolling interests
 

 

 

 

 

 

 

 

 

 
(47
)
 
(47
)
Stock-based compensation expense
 
10,668

 

 

 

 

 

 
44

 

 

 

 
44

Common dividends ($0.125 per share)
 

 

 

 

 

 

 

 

 
(5,476
)
 

 
(5,476
)
Issuance of Series A Preferred Warrants
 

 

 

 

 

 

 
31

 

 

 

 
31

Dividends to holders of Series A Preferred Stock ($0.34375 per share)
 

 

 

 

 

 

 

 

 
(1,150
)
 

 
(1,150
)
Reclassification of Series A Preferred Stock to permanent equity
 

 

 
474,462

 
11,827

 

 

 
(1,002
)
 

 

 

 
10,825

Redemption of Series A Preferred Stock
 

 

 
(1,667
)
 
(41
)
 

 

 
4

 

 
(4
)
 

 
(41
)
Net income
 

 

 

 

 

 

 

 

 
52,566

 
1

 
52,567

Balances, June 30, 2019
 
43,805,741

 
$
44

 
2,142,676

 
$
53,327

 
8,080,740

 
$
229,251

 
$
788,655

 
$

 
$
(105,634
)
 
$
617

 
$
966,260


(Continued)







5


CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES
Consolidated Statements of Equity (Continued)
(In thousands, except share and per share amounts)

 
 
Six Months Ended June 30, 2018
 
 
Common Stock
 
Preferred Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Series A
 
Series L
 
 
 
 
 
 
 
 
 
 
 
 
Shares
 
Par
Value
 
Shares
 
Amount
 
Shares
 
Amount
 
Additional
Paid-in
Capital
 
Accumulated
Other
Comprehensive
Income
 
Distributions
in Excess of Earnings
 
Non-controlling
Interests
 
Total
Equity
 
 
(Unaudited)
Balances, December 31, 2017
 
43,784,939

 
$
44

 
60,592

 
$
1,508

 
8,080,740

 
$
229,251

 
$
792,631

 
$
1,631

 
$
(399,250
)
 
$
890

 
$
626,705

Stock-based compensation expense
 

 

 

 

 

 

 
38

 

 

 

 
38

Common dividends ($0.125 per share)
 

 

 

 

 

 

 

 

 
(5,473
)
 

 
(5,473
)
Issuance of Series A Preferred Warrants
 

 

 

 

 

 

 
17

 

 

 

 
17

Dividends to holders of Series A Preferred Stock ($0.34375 per share)
 

 

 

 

 

 

 

 

 
(493
)
 

 
(493
)
Reclassification of Series A Preferred Stock to permanent equity
 

 

 
82,841

 
2,060

 

 

 
(175
)
 

 

 

 
1,885

Redemption of Series A Preferred Stock
 

 

 

 

 

 

 
1

 

 

 

 
1

Other comprehensive income
 

 

 

 

 

 

 

 
1,183

 

 

 
1,183

Net income
 

 

 

 

 

 

 

 

 
618

 
4

 
622

Balances, March 31, 2018
 
43,784,939

 
$
44

 
143,433

 
$
3,568

 
8,080,740

 
$
229,251

 
$
792,512

 
$
2,814

 
$
(404,598
)
 
$
894

 
$
624,485

Distributions to noncontrolling interests
 

 

 

 

 

 

 

 

 

 
(67
)
 
(67
)
Stock-based compensation expense
 
10,134

 

 

 

 

 

 
48

 

 

 

 
48

Common dividends ($0.125 per share)
 

 

 

 

 

 

 

 

 
(5,474
)
 

 
(5,474
)
Issuance of Series A Preferred Warrants
 

 

 

 

 

 

 
23

 

 

 

 
23

Dividends to holders of Series A Preferred Stock ($0.34375 per share)
 

 

 

 

 

 

 

 

 
(662
)
 

 
(662
)
Reclassification of Series A Preferred Stock to permanent equity
 

 

 
164,077

 
4,069

 

 

 
(339
)
 

 

 

 
3,730

Redemption of Series A Preferred Stock
 

 

 

 

 

 

 
1

 

 

 

 
1

Other comprehensive income
 

 

 

 

 

 

 

 
407

 

 

 
407

Net income
 

 

 

 

 

 

 

 

 
1,937

 
12

 
1,949

Balances, June 30, 2018
 
43,795,073

 
$
44

 
307,510

 
$
7,637

 
8,080,740

 
$
229,251

 
$
792,245

 
$
3,221

 
$
(408,797
)
 
$
839

 
$
624,440

The accompanying notes are an integral part of these consolidated financial statements.

6


CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
 
 
Six Months Ended
June 30,
 
 
2019
 
2018
 
 
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 

 
 

Net income
 
$
344,190

 
$
2,571

Adjustments to reconcile net income to net cash provided by operating activities:
 
 

 
 

Deferred rent and amortization of intangible assets, liabilities and lease inducements
 
(999
)
 
(2,807
)
Depreciation and amortization
 
16,815

 
26,473

Reclassification from AOCI to interest expense
 
(1,806
)
 

Reclassification from other assets to interest expense for swap termination
 
1,421

 

Change in fair value of swaps
 
209

 

Gain on sale of real estate
 
(432,802
)
 

Impairment of real estate
 
69,000

 

Loss on early extinguishment of debt
 
29,982

 

Straight-line rent expense
 

 
(18
)
Amortization of deferred loan costs
 
590

 
386

Amortization of premiums and discounts on debt
 
(10
)
 
(109
)
Unrealized premium adjustment
 
1,007

 
1,436

Amortization and accretion on loans receivable, net
 
(247
)
 
(168
)
Bad debt (recovery) expense
 
(63
)
 
151

Deferred income taxes
 
(9
)
 
21

Stock-based compensation
 
82

 
86

Loans funded, held for sale to secondary market
 
(13,892
)
 
(21,345
)
Proceeds from sale of guaranteed loans
 
23,826

 
29,098

Principal collected on loans subject to secured borrowings
 
461

 
1,501

Other operating activity
 
(386
)
 
(525
)
Changes in operating assets and liabilities:
 
 

 
 

Accounts receivable and interest receivable
 
817

 
4,340

Other assets
 
2,074

 
(2,283
)
Accounts payable and accrued expenses
 
(2,208
)
 
(861
)
Deferred leasing costs
 
(934
)
 
(1,341
)
Other liabilities
 
(7,142
)
 
(82
)
Due to related parties
 
(3,739
)
 
389

Net cash provided by operating activities
 
26,237

 
36,913

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 

 
 

Additions to investments in real estate
 
(16,103
)
 
(8,053
)
Acquisition of real estate
 

 
(112,048
)
Proceeds from sale of real estate, net
 
765,116

 

Loans funded
 
(4,631
)
 
(7,115
)
Principal collected on loans
 
4,254

 
6,389

Other investing activity
 
319

 
76

Net cash provided by (used in) investing activities
 
748,955

 
(120,751
)

(Continued)

7


CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
(In thousands)
 
 
Six Months Ended
June 30,
 
 
2019
 
2018
 
 
(Unaudited)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 

 
 

Payment of unsecured revolving lines of credit, revolving credit facility and term note
 
(130,000
)
 

Payment of mortgages payable
 
(46,000
)
 

Investments in marketable securities in connection with the legal defeasance of mortgages payable
 
(268,194
)
 

Payment of principal on SBA 7(a) loan-backed notes
 
(6,397
)
 
(597
)
Proceeds from SBA 7(a) loan-backed notes
 

 
38,200

Payment of principal on secured borrowings
 
(461
)
 
(1,501
)
Prepayment penalties and other payments for early extinguishment of debt
 
(5,660
)
 

Proceeds from secured borrowings
 

 
772

Payment of deferred preferred stock offering costs
 
(336
)
 
(857
)
Payment of deferred loan costs
 
(34
)
 
(1,071
)
Payment of other deferred costs
 
(195
)
 

Payment of common dividends
 
(10,950
)
 
(10,947
)
Payment of special cash dividends
 

 
(1,575
)
Net proceeds from issuance of Series A Preferred Warrants
 
40

 
40

Net proceeds from issuance of Series A Preferred Stock
 
17,481

 
19,923

Payment of preferred stock dividends
 
(15,945
)
 
(742
)
Redemption of Series A Preferred Stock
 
(153
)
 
(66
)
Noncontrolling interests' distributions
 
(47
)
 
(67
)
Net cash (used in) provided by financing activities
 
(466,851
)
 
41,512

Change in cash balances included in assets held for sale
 
(1,295
)
 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH
 
307,046

 
(42,326
)
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH:
 
 

 
 

Beginning of period
 
77,443

 
156,318

End of period
 
$
384,489

 
$
113,992

RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH TO THE CONSOLIDATED BALANCE SHEETS:
 
 
 
 
Cash and cash equivalents
 
$
373,665

 
$
91,192

Restricted cash
 
10,824

 
22,800

Total cash and cash equivalents and restricted cash
 
$
384,489

 
$
113,992

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
 
 

 
 

Cash paid during the period for interest
 
$
8,499

 
$
13,124

Federal income taxes paid
 
$
700

 
$
247

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
 
 

 
 

Additions to investments in real estate included in accounts payable and accrued expenses
 
$
1,292

 
$
11,835

Net increase in fair value of derivatives applied to other comprehensive income
 
$

 
$
1,590

Additions to deferred costs included in accounts payable and accrued expenses
 
$
79

 
$
276

Additions to preferred stock offering costs included in accounts payable and accrued expenses
 
$
355

 
$
334

Accrual of dividends payable to preferred stockholders
 
$
1,150

 
$
662

Preferred stock offering costs offset against redeemable preferred stock in temporary equity
 
$
122

 
$
140

Reclassification of Series A Preferred Stock from temporary equity to permanent equity
 
$
19,715

 
$
5,615

Reclassification of loans receivable, net to real estate owned
 
$
243

 
$

Establishment of right-of use asset and lease liability
 
$
362

 
$

Marketable securities transferred in connection with the legal defeasance of mortgages payable
 
$
268,194

 
$

Mortgage notes payable legally defeased
 
$
245,000

 
$

Mortgage note assumed in connection with our sale of real estate
 
$
28,200

 
$

The accompanying notes are an integral part of these consolidated financial statements.

8


CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements as of June 30, 2019 and December 31, 2018, and
for the Three and Six Months Ended June 30, 2019 and 2018 (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 ("we," "us" or "our") primarily acquires, owns, and operates Class A and creative office assets in vibrant and improving metropolitan communities throughout the United States. 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 were 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").
Our 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." Our 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." We have authorized for issuance 900,000,000 shares of common stock and 100,000,000 shares of preferred stock ("Preferred Stock").
On August 8, 2019, the Registrant announced a 1-for-3 reverse stock split on its common stock, to be effective on September 3, 2019 (the "Reverse Stock Split"). Unless otherwise stated, none of the share or per share amounts in this report reflect the effect of the Reverse Stock Split.
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 our significant accounting policies and estimates, please refer to "Basis of Presentation and Summary of Significant Accounting Policies" contained in Note 2 to our consolidated financial statements for the year ended December 31, 2018, included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on March 18, 2019.
Interim Financial Information—The accompanying interim consolidated financial statements of CIM Commercial have been prepared by our management in accordance with accounting principles generally accepted in the United States of America ("GAAP"). Certain information and note disclosures required for annual financial statements have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, the interim consolidated financial statements do not include all of the information and notes required by GAAP for complete financial statements. The accompanying financial information reflects all adjustments which are, in the opinion of our management, of a normal recurring nature and necessary for a fair presentation of our financial position, results of operations and cash flows for the interim periods. Operating results for the three and six months ended June 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019. Our accompanying interim consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the notes thereto, included in our Annual Report on Form 10-K filed with the SEC on March 18, 2019.
Principles of Consolidation—The consolidated financial statements include the accounts of CIM Commercial and its subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

9


CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements as of June 30, 2019 and December 31, 2018, and
for the Three and Six Months Ended June 30, 2019 and 2018 (Unaudited)


Investments in Real Estate—Real estate acquisitions are recorded at cost as of the acquisition date. Costs related to the acquisition of properties were expensed as incurred for acquisitions that occurred prior to October 1, 2017. For any acquisition occurring on or after October 1, 2017, we have conducted and will conduct an analysis to determine if the acquisition constitutes a business combination or an asset purchase. If the acquisition constitutes a business combination, then the transaction costs will be expensed as incurred, and if the acquisition constitutes an asset purchase, then the transaction costs will be capitalized. Investments in real estate are stated at depreciated cost. Depreciation and amortization are recorded on a straight-line basis over the estimated useful lives as follows:
Buildings and improvements
 
15 - 40 years
Furniture, fixtures, and equipment
 
3 - 5 years
Tenant improvements
 
Shorter of the useful lives or the
terms of the related leases
We capitalize 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.
Investments in real estate are evaluated for impairment on a quarterly basis or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount to the future net cash flows, undiscounted and without interest, expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets. The estimated fair value of the asset group identified for step two of the impairment testing under GAAP is based on either the income approach, with market discount rate, terminal capitalization rate and rental rate assumptions being most critical to such analysis, or on the sales comparison approach to similar properties. Assets held for sale are reported at the lower of the asset's carrying amount or fair value, less costs to sell. For the three and six months ended June 30, 2019, we recognized impairment of long-lived assets of $2,800,000 and $69,000,000, respectively (Note 3). For the three and six months ended June 30, 2018, we recognized no impairment of long-lived assets.
Derivative Financial Instruments—As part of risk management and operational strategies, from time to time, we may enter into derivative contracts with various counterparties. All derivatives are recognized on the balance sheet at their estimated fair value. On the date that we enter into a derivative contract, we designate the derivative as a fair value hedge, a cash flow hedge, a foreign currency fair value or cash flow hedge, a hedge of a net investment in a foreign operation, or a trading or non-hedging instrument.
Changes in the estimated fair value of a derivative that is highly effective and that is designated and qualifies as a cash flow hedge, to the extent that the hedge is effective, are initially recorded in other comprehensive income ("OCI"), and are subsequently reclassified into earnings as a component of interest expense when the variability of cash flows of the hedged transaction affects earnings (e.g., when periodic settlements of a variable-rate asset or liability are recorded in earnings). Any hedge ineffectiveness (which represents the amount by which the changes in the estimated fair value of the derivative differ from the variability in the cash flows of the forecasted transaction) is recognized in current-period earnings as a component of interest expense. When an interest rate swap designated as a cash flow hedge no longer qualifies for hedge accounting, we recognize changes in the estimated fair value of the hedge previously deferred to accumulated other comprehensive income ("AOCI"), along with any changes in estimated fair value occurring thereafter, through earnings. We classify cash flows from interest rate swap agreements as net cash provided by operating activities on the consolidated statements of cash flows as our accounting policy is to present the cash flows from the hedging instruments in the same category in the consolidated statements of cash flows as the category for the cash flows from the hedged items. See Note 12 for disclosures about our derivative financial instruments and hedging activities.
Revenue Recognition—We use a five-step model to recognize revenue for contracts with customers. The five-step model requires that we (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal

10


CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements as of June 30, 2019 and December 31, 2018, and
for the Three and Six Months Ended June 30, 2019 and 2018 (Unaudited)


will not occur, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) we satisfy the performance obligation.
Revenue from leasing activities

We operate as a lessor of real estate assets, primarily in Class A and creative office assets. In determining whether our contracts with our tenants constitute leases, we determined that our contracts explicitly identify the premises and that any substitution rights to relocate the tenant to other premises within the same building stated in the contract are not substantive. Additionally, so long as payments are made timely under these contracts, our tenants have the right to obtain substantially all the economic benefits from the use of this identified asset and can direct how and for what purpose the premises are used to conduct their operations. Therefore, our contracts with our 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 reasonably assured 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, we determine whether the tenant improvements, for accounting purposes, are owned by the tenant or us. When we are 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.
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 in the period the expenses are incurred. Tenant reimbursements are recognized and presented on a gross basis when we are 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. We have 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 our leases.
In addition to minimum rents, certain leases 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.
We derive parking revenues from leases with third-party operators. Our parking leases provide for additional rents based upon varying percentages of tenants’ sales in excess of annual minimums. Parking percentage rent is recognized once lessees’ specific sales targets have been met.
For the three and six months ended June 30, 2019 and 2018, we recognized rental income as follows:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
(in thousands)
Rental and other property income
 
 
 
 
 
 
 
 
Fixed lease payments (1)
 
$
20,640

 
$
34,114

 
$
51,536

 
$
67,315

Variable lease payments (2)
 
1,779

 
3,711

 
4,464

 
5,654

Rental and other property income
 
$
22,419

 
$
37,825

 
$
56,000

 
$
72,969

 
(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 our operating leases.



11


CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements as of June 30, 2019 and December 31, 2018, and
for the Three and Six Months Ended June 30, 2019 and 2018 (Unaudited)


Revenue from lending activities
Interest income included in interest and other income is comprised of interest earned on loans and our 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.
We recognized hotel income of $9,549,000 and $10,160,000 for the three months ended June 30, 2019 and 2018, respectively, and $19,353,000 and $19,849,000 for the six months ended June 30, 2019 and 2018, respectively. Below is a reconciliation of the hotel revenue from contracts with customers to the total hotel segment revenue disclosed in Note 18:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
(in thousands)
Hotel properties
 
 
 
 
 
 
 
 
Hotel income
 
$
9,549

 
$
10,160

 
$
19,353

 
$
19,849

Rental and other property income
 
736

 
733

 
1,472

 
1,496

Interest and other income
 
45

 
54

 
94

 
93

Hotel revenues
 
$
10,330

 
$
10,947

 
$
20,919

 
$
21,438

Tenant recoveries outside of the lease agreements
Tenant recoveries outside of the lease agreements are related to construction projects in which our tenants have agreed to fully reimburse us for all costs related to construction. These services include architectural, permit expediter and construction services. At inception of the contract with the customer, the contractual price is equivalent to the transaction price as there are no elements of variable consideration to estimate. While these individual services are distinct, in the context of the arrangement with the customer, all of these services are bundled together and represent a single package of construction services requested by the customer. The Company satisfies its performance obligation and recognizes revenues associated with these services over time as the construction is completed. Amounts recognized for tenant recoveries outside of the lease agreements were $0 and $275,000 for the three months ended June 30, 2019 and 2018, respectively, and $205,000 and $278,000 for the six months ended June 30, 2019 and 2018, respectively, which are included in interest and other income on the consolidated statements of

12


CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements as of June 30, 2019 and December 31, 2018, and
for the Three and Six Months Ended June 30, 2019 and 2018 (Unaudited)


operations. As of June 30, 2019, there were no remaining performance obligations associated with tenant recoveries outside of the lease agreements.
Loans Receivable—Our loans receivable are carried at their unamortized principal balance less unamortized acquisition discounts and premiums, retained loan discounts and loan loss reserves. For loans originated under the Small Business Administration's ("SBA") 7(a) Guaranteed Loan Program ("SBA 7(a) Program"), we sell 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 us is valued on a fair value basis and a discount is recorded as a reduction in basis of the retained portion of the loan. Unamortized retained loan discounts were $7,557,000 and $7,234,000 as of June 30, 2019 and December 31, 2018, respectively.
At the Acquisition Date, the carrying value of our loans was adjusted to estimated fair market value and acquisition discounts of $33,907,000 were recorded, which are being accreted to interest and other income using the effective interest method. We sold substantially all of our commercial mortgage loans with unamortized acquisition discounts of $15,951,000 to an unrelated third-party in December 2015. Acquisition discounts of $808,000 and $884,000 remained as of June 30, 2019 and December 31, 2018, 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 we 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 either the cash basis or the cost recovery basis.
On a quarterly basis, and more frequently if indicators exist, we evaluate the collectability of our loans receivable. Our evaluation of collectability involves judgment, estimates, and a review of the ability of the borrower to make principal and interest payments, the underlying collateral and the borrowers' business models and future operations in accordance with Accounting Standards Codification ("ASC") 450-20, Contingencies—Loss Contingencies, and ASC 310-10, Receivables. For the three and six months ended June 30, 2019, we recorded $1,000 and $58,000, respectively, of impairment on our loans receivable. For the three and six months ended June 30, 2018, we recorded no impairment on our loans receivable. We establish a general loan loss reserve when available information indicates that it is probable a loss has occurred based on the carrying value of the portfolio and the amount of the loss can be reasonably estimated. Significant judgment is required in determining the general loan loss reserve, including estimates of the likelihood of default and the estimated fair value of the collateral. The general loan loss reserve includes those loans, which may have negative characteristics which have not yet become known to us. In addition to the reserves established on loans not considered impaired that have been evaluated under a specific evaluation, we establish the general loan loss reserve using a consistent methodology to determine a loss percentage to be applied to loan balances. These loss percentages are based on many factors, primarily cumulative and recent loss history and general economic conditions.
Deferred Rent Receivable and Charges—Deferred rent receivable and charges consist of deferred rent, deferred leasing costs, deferred offering costs (Note 10) and other deferred costs. Deferred rent receivable is $18,531,000 and $52,366,000 at June 30, 2019 and December 31, 2018, respectively. Deferred leasing costs, which represent lease commissions and other direct costs associated with the acquisition of tenants, are capitalized and amortized on a straight-line basis over the terms of the related leases. Deferred leasing costs of $16,588,000 and $51,152,000 are presented net of accumulated amortization of $6,775,000 and $23,910,000 at June 30, 2019 and December 31, 2018, respectively. Deferred offering costs represent direct costs incurred in connection with our offering of Series A Preferred Units (as defined in Note 10), excluding costs specifically identifiable to a closing, such as commissions, dealer-manager fees, and other offering fees and expenses. For a specific issuance of Series A Preferred Units, issuance-specific offering costs are recorded as a reduction of proceeds raised on the issuance date. Offering costs incurred but not directly related to a specifically identifiable closing are deferred. Deferred offering costs are first allocated to each issuance on a pro-rata basis equal to the ratio of Series A Preferred Units issued in an issuance to the maximum number of Series A Preferred Units that are expected to be issued. Then, the issuance-specific offering costs and the deferred offering costs allocated to such issuance are further allocated to the Series A Preferred Stock (as defined in Note 10) and Series A Preferred Warrants (as defined in Note 10) issued in such issuance based on the relative fair value of the instruments on the date of issuance. The deferred offering costs allocated to the Series A Preferred Stock and Series A Preferred Warrants are reductions to temporary equity and permanent equity, respectively. Deferred offering costs of $4,610,000 and $4,213,000 related to our offering of Series A Preferred Units are included in deferred rent receivable and

13


CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements as of June 30, 2019 and December 31, 2018, and
for the Three and Six Months Ended June 30, 2019 and 2018 (Unaudited)


charges at June 30, 2019 and December 31, 2018, respectively. Other deferred costs are $204,000 and $409,000 at June 30, 2019 and December 31, 2018, respectively.
Redeemable Preferred Stock—Beginning on the date of original issuance of any given shares of Series A Preferred Stock (Note 10), the holder of such shares has the right to require the Company to redeem such shares at a redemption price of 100% of the Series A Preferred Stock Stated Value (as defined in Note 10), plus accrued and unpaid dividends, subject to the payment of a redemption fee until the fifth anniversary of such issuance. From and after the fifth anniversary of the date of the original issuance, the holder will have the right to require the Company to redeem such shares at a redemption price of 100% of the Series A Preferred Stock Stated Value, plus accrued and unpaid dividends, without a redemption fee, and the Company will have the right (but not the obligation) to redeem such shares at 100% of the Series A Preferred Stock Stated Value, plus accrued and unpaid dividends. The applicable redemption price payable upon redemption of any Series A Preferred Stock is payable in cash or, on or after the first anniversary of the issuance of such shares of Series A Preferred Stock to be redeemed, in the Company's sole discretion, in cash or in equal value through the issuance of shares of Common Stock, based on the volume weighted average price of our Common Stock for the 20 trading days prior to the redemption. Since a holder of Series A Preferred Stock has the right to request redemption of such shares and redemptions prior to the first anniversary are to be paid in cash, we have recorded the activity related to our Series A Preferred Stock in temporary equity. We recorded the activity related to our Series A Preferred Warrants (Note 10) in permanent equity. On the first anniversary of the date of original issuance of a particular share of Series A Preferred Stock, we reclassify 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. Proceeds and expenses from the sale of the Series A Preferred Units are allocated to the Series A Preferred Stock and the Series A Preferred Warrants using their relative fair values on the date of issuance.
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 (as defined in Note 10), plus, provided certain conditions are met, all accrued and unpaid distributions. Notwithstanding the foregoing, a holder of shares of our Series L Preferred Stock may require us 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) we do not declare and pay in full the distributions on the Series L Preferred Stock for any annual period prior to such fifth anniversary or (2) we do 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 will be made, in the Company's sole discretion, in the form of (A) cash in Israeli new shekels ("ILS") at the then-current currency exchange rate determined in accordance with the Articles Supplementary defining the terms of the Series L Preferred Stock, (B) in equal value through the issuance of shares of Common Stock, with the value of such Common Stock to be deemed the lower of (i) our net asset value ("NAV") per share of our Common Stock as most recently published by the Company as of the effective date of redemption and (ii) the volume-weighted average price of our Common Stock, determined in accordance with the Articles Supplementary defining the terms of the Series L Preferred Stock, or (C) in a combination of cash in ILS and our Common Stock, based on the conversion mechanisms set forth in (A) and (B), respectively. We recorded the activity related to our Series L Preferred Stock in permanent equity.
Noncontrolling Interests—Noncontrolling interests represent the interests in various properties owned by third parties.
Restricted Cash—Our mortgage loan and hotel management agreements provide for depositing cash into restricted accounts reserved for capital expenditures, free rent, tenant improvement and leasing commission obligations. Restricted cash also includes cash required to be segregated in connection with certain of our loans receivable.
Reclassifications—Certain prior period amounts have been reclassified to conform with the current period presentation. With the adoption of Accounting Standards Update ("ASU") 2016-02, Leases (Topic 842) and the election of the lessor practical expedient not to separate lease and non-lease components, $2,940,000 and $4,391,000 of expense reimbursements were reclassified as rental and other property income on the consolidated statements of operations for the three and six months ended June 30, 2018, respectively, and $411,000 and $569,000 of non-lease component expense reimbursements recognized under the revenue recognition guidance were reclassified as interest and other income on the consolidated statements of operations for the three and six months ended June 30, 2018, respectively. Under the new leasing guidance, bad debt expense associated with changes in the collectability assessment for operating leases shall be recorded as adjustments to rental and other property income rather than rental and other property operating expenses. The impact of this

14


CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements as of June 30, 2019 and December 31, 2018, and
for the Three and Six Months Ended June 30, 2019 and 2018 (Unaudited)


reclassification resulted in a $15,000 and $119,000 reclassification from rental and other property expenses to rental and other property income on the consolidated statements of operations for the three and six months ended June 30, 2018, respectively.
Assets Held for Sale and Discontinued Operations—In the ordinary course of business, we may periodically enter into agreements to dispose of our assets. Some of these agreements are non-binding because either they do not obligate either party to pursue any transactions until the execution of a definitive agreement or they provide the potential buyer with the ability to terminate without penalty or forfeiture of any material deposit, subject to certain specified contingencies, such as completion of due diligence at the discretion of such buyer. We do not classify assets that are subject to such non-binding agreements as held for sale.
We classify assets as held for sale, if material, when they meet the necessary criteria, which include: a) management commits to and actively embarks upon a plan to sell the assets, b) the assets to be sold are available for immediate sale in their present condition, c) the sale is expected to be completed within one year under terms usual and customary for such sales and d) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. We generally believe that we meet these criteria when the plan for sale has been approved by our Board of Directors, there are no known significant contingencies related to the sale and management believes it is probable that the sale will be completed within one year.

Assets held for sale are recorded at the lower of cost or estimated fair value less cost to sell. In addition, if we were to determine that the asset disposal associated with assets held for sale or disposed of represents a strategic shift, the revenues, expenses and net gain (loss) on dispositions would be recorded in discontinued operations for all periods presented through the date of the applicable disposition.
Consolidation Considerations for Our Investments in Real Estate—ASC 810-10, Consolidation, addresses how a business enterprise should evaluate whether it has a controlling interest in an entity through means other than voting rights that would require the entity to be consolidated. We analyze our investments in real estate in accordance with this accounting standard to determine whether they are variable interest entities, and if so, whether we are the primary beneficiary. Our judgment with respect to our level of influence or control over an entity and whether we are the primary beneficiary of a variable interest entity involves consideration of various factors, including the form of our ownership interest, our voting interest, the size of our investment (including loans), and our ability to participate in major policy-making decisions. Our ability to correctly assess our influence or control over an entity affects the presentation of these investments in real estate on our consolidated financial statements.
Use of Estimates—The preparation of consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Recently Issued Accounting Pronouncements—In February 2016, the Financial Accounting Standards Board ("FASB") issued ASU No. 2016-02, Leases (Topic 842), which is intended to improve financial reporting about leasing transactions. Under the new guidance, a lessee is required to recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent with previous GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily depends on its classification as a finance or operating lease. However, unlike previous GAAP, which required a lessee to recognize only capital leases on the balance sheet, the new ASU requires a lessee to recognize both types of leases on the balance sheet. The lessor accounting remains largely unchanged from previous GAAP. However, the ASU contains some targeted improvements that are intended to align, where necessary, lessor accounting with the lessee accounting model and with the updated revenue recognition guidance issued in 2014. In July 2018, the FASB issued ASU No. 2018-10, Leases (Topic 842), which contained targeted improvements to amend inconsistencies and clarify guidance that were brought about by stakeholders. Furthermore, in July 2018, the FASB issued ASU 2018-11, Leases (Topic 842), which provided the following practical expedients to entities: (1) a transition method that allows entities to apply the new standard at the adoption date and to recognize a cumulative-effect adjustment to the opening balance of retained earnings effective at the adoption date; and (2) the option for lessors to not separate lease and non-lease components provided that certain criteria are met. In December 2018, the FASB issued ASU 2018-20, Leases (Topic 842), which provides lessors the option to elect to account for sales and other similar taxes in which the lessee directly pays third parties to be excluded from the measurement of the contract consideration. In March 2019, the FASB issued ASU 2019-01, Leases (Topic 842), which provided narrow amendments, including clarification on transition disclosures to certain aspects of ASU 2016-02. For public entities, these ASUs

15


CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements as of June 30, 2019 and December 31, 2018, and
for the Three and Six Months Ended June 30, 2019 and 2018 (Unaudited)


are effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2018.
The guidance provides a package of transition practical expedients, which must be elected as a package and applied consistently by an entity to all of its leases (including those for which the entity is a lessee or a lessor) when applying this guidance to leases that commenced before the effective date of January 1, 2019: (1) An entity need not reassess whether any expired or existing contracts are or contain leases; (2) an entity need not reassess the lease classification for any expired or existing leases (that is, all leases that were classified as operating leases prior to January 1, 2019 remain classified as operating leases); and (3) an entity need not reassess initial direct costs for any existing leases. The Company has elected all the aforementioned transition practical expedients, including the expedients provided under ASU 2018-11.

From a lessee's perspective, the Company has determined that there is one office lease for our lending segment that is material to the consolidated balance sheet. Based on our assessment, the lease has been classified as an operating lease and the Company recorded approximately $362,000 as a right-of-use asset and lease liability on the consolidated balance sheet on the effective date of January 1, 2019. As of June 30, 2019, the right-of-use asset and lease liability balance was approximately $234,000.

From a lessor's perspective, the Company did not record a cumulative effect adjustment on January 1, 2019 as the aforementioned package of practical expedients allows us to continue accounting for our then-existing or expired leases under the previous accounting guidance, and we have and will apply the new lease accounting guidance to leases that commence or are modified after the effective date of January 1, 2019. Leases commenced or modified after the effective date have been, and we expect future commencements and modifications of leases in the future will continue to be, classified as operating leases and that we will qualify for the lessor practical expedient provided under ASU 2018-11 to not separate lease and non-lease components. Additionally, if following the effective date, our tenants have made or make payments for taxes or insurance directly to a third-party on behalf of the Company as the lessor, we have excluded and will exclude these amounts from the measurement of the contract consideration and consider these lessee costs. Otherwise, any recoveries of these costs are and will be recognized as lease revenue on a gross basis in our consolidated income statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which is intended to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity. The amendments in the ASU replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. In November 2018, the FASB issued ASU No. 2018-19, Financial Instruments-Credit Losses (Topic 326): Codification Improvements to Topic 326, Financial Instruments-Credit Losses, which clarified that receivables arising from operating leases are not within the scope of the credit losses standards. In April 2019, the FASB issued ASU 2019-04, Financial Instruments-Credit Losses (Topic 326): Codification Improvements to Topic 326, Financial Instruments-Credit Losses, which clarified the following: (i) an entity’s estimate of expected credit losses should include expected recoveries of financial assets, including recoveries of amounts expected to be written off and those previously written off, and (ii) an entity should consider contractual extension or renewal options that it cannot unconditionally cancel when determining the contractual term over which expected credit losses are measured. In May 2019, the FASB issued ASU No. 2019-05, Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief, which allows entities to irrevocably elect the fair value option for existing financial assets on an instrument-by-instrument basis upon adoption of ASU 2016-13. Except for existing held-to-maturity debt securities, the alternative is available for all instruments in the scope of ASC 326-20 that are eligible for the fair value option in ASC 825-10. If an entity elects the fair value option, it will recognize a cumulative-effect adjustment for the difference between the fair value of the instrument and its carrying value. For public entities, the ASU is effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2019. Early adoption is permitted for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2018. We are currently in the process of evaluating the impact of adoption of this new accounting guidance on our consolidated financial statements.

In August 2017, the FASB issued ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities, which simplifies and expands the eligible hedging strategies for financial and nonfinancial risks by more closely aligning hedge accounting with a company’s risk management activities, and also simplifies the application of Topic 815, Derivatives and Hedging, through targeted improvements in key practice areas. In addition, the ASU prescribes how hedging results should be presented and requires incremental disclosures. Further, the ASU provides partial relief on the timing of certain aspects of

16


CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements as of June 30, 2019 and December 31, 2018, and
for the Three and Six Months Ended June 30, 2019 and 2018 (Unaudited)


hedge documentation and eliminates the requirement to recognize hedge ineffectiveness separately in earnings in the current period. For public entities, the ASU is effective for annual reporting periods (including interim periods within those periods) beginning after December 15, 2018. The Company has evaluated the guidance and determined that the effects of ASU 2017-12 do not have a material impact on our consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates, adds and modifies certain disclosure requirements for fair value measurements. Entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but public entities will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. For public entities, the ASU is effective for annual reporting periods (including interim periods within those periods) beginning after December 15, 2019. Early adoption is permitted in any interim period after issuance of the ASU. We are currently in the process of evaluating the impact of adoption of this new accounting guidance on our consolidated financial statements.
In October 2018, the FASB issued ASU No. 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (the “SOFR”) Overnight Index Swap (“OIS”) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes. The guidance permits the use of the OIS rate based on the SOFR as a U.S. benchmark rate for purposes of applying hedge accounting.  The SOFR is a volume-weighted median interest rate that is calculated daily based on overnight transactions from the prior day’s activity in specified segments of the U.S. Treasury repo market. It has been selected as the preferred replacement for the U.S. dollar London Interbank Offered Rate ("LIBOR"), which will be phased out by the end of 2021. For public entities, the ASU is effective for annual reporting periods (including interim periods within those periods) beginning after December 15, 2019. Early adoption is permitted in any interim period after issuance of the ASU. The Company has evaluated the guidance and determined that the effects of ASU 2018-16 do not have a material impact on our consolidated financial statements.

3. ACQUISITIONS AND DISPOSITIONS
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, and 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.
2019 Transactions—There were no acquisitions during the six months ended June 30, 2019.












17


CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements as of June 30, 2019 and December 31, 2018, and
for the Three and Six Months Ended June 30, 2019 and 2018 (Unaudited)


We sold 100% fee-simple interests in the following properties to unrelated third-parties during the six months ended June 30, 2019. Transaction costs related to these sales were expensed as incurred.
Property
 
Asset Type
 
Date of Sale
 
Square Feet
 
Sales Price
 
Transaction Costs
 
Gain on Sale
 
 
 
 
 
 
 
 
(in thousands)
March Oakland Properties,
Oakland, CA (1)
 
Office / Parking Garage
 
March 1, 2019
 
975,596

 
$
512,016

 
$
8,971

 
$
289,779

830 1st Street,
Washington, D.C.
 
Office
 
March 1, 2019
 
247,337

 
116,550

 
2,438

 
45,710

260 Townsend Street,
San Francisco, CA
 
Office
 
March 14, 2019
 
66,682

 
66,000

 
2,539

 
42,092

1333 Broadway,
Oakland, CA
 
Office
 
May 16, 2019
 
254,523

 
115,430

 
658

 
55,221

 
 
 
 
 
 
 
 
$
809,996

 
$
14,606

 
$
432,802

 
(1)
The "March Oakland Properties" consist of 1901 Harrison Street, 2100 Franklin Street, 2101 Webster Street, and 2353 Webster Street Parking Garage.

The results of operations of the properties we sold have been included in the consolidated statements of operations through each property's respective disposition date. The following is the detail of the carrying amounts of assets and liabilities
at the time of the sales of the properties that occurred during the six months ended June 30, 2019:
 
 
(in thousands)
Assets
 
 
Investments in real estate, net
 
$
318,918

Deferred rent receivable and charges, net
 
41,280

Other intangible assets, net
 
316

Total assets
 
$
360,514

Liabilities
 
 
Debt, net (1) (2)
 
$
318,072

Total liabilities
 
$
318,072

 
(1)
Debt is presented net of deferred loan costs of $1,704,000 and accumulated amortization of $576,000.
(2)
A mortgage loan with an outstanding principal balance of $28,200,000 was assumed by the buyer in connection with the sale of our property in San Francisco, California. A mortgage loan with an outstanding principal balance of $46,000,000 was prepaid in connection with the sale of our property in Washington, D.C. that was collateral for the loan. Mortgage loans with an aggregate outstanding principal balance of $205,500,000 were legally defeased in connection with the sale of the March Oakland Properties that were collateral for the loans. A mortgage loan with an outstanding principal balance of $39,500,000 was legally defeased in connection with the sale in May 2019 of our property in Oakland, California that was collateral for the loan.




18


CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements as of June 30, 2019 and December 31, 2018, and
for the Three and Six Months Ended June 30, 2019 and 2018 (Unaudited)


2018 Transactions—On January 18, 2018, we acquired a 100% fee-simple interest in an office property known as 9460 Wilshire Boulevard from an unrelated third-party. The property has approximately 68,866 square feet of office space and 22,884 square feet of retail space and is located in Beverly Hills, California. The acquisition was funded with proceeds from our Series L Preferred Stock offering, and the acquired property is reported as part of the office segment (Note 18). We performed an analysis and, based on our analysis, we determined this acquisition was an asset purchase and not a business combination. As such, transaction costs were capitalized as incurred in connection with this acquisition.
Property
 
Asset
Type
 
Date of
Acquisition
 
Square
Feet
 
Purchase
Price (1)
 
 
 
 
 
 
 
 
(in thousands)
9460 Wilshire Boulevard, Beverly Hills, CA
 
Office
 
January 18, 2018
 
91,750
 
$
132,000

 
(1)
In December 2017, at the time we entered into the purchase and sale agreement, we made a $20,000,000 non-refundable deposit to an escrow account that was included in other assets on our consolidated balance sheet at December 31, 2017. Transaction costs that were capitalized in connection with the acquisition of this property totaled $48,000, which are not included in the purchase price above.
The results of operations of the property we acquired during the six months ended June 30, 2018 have been included in the consolidated statements of operations from the date of acquisition. The purchase price of the acquisition completed during the six months ended June 30, 2018 was less than 10% of our total assets as of the most recent annual consolidated financial statements filed at or prior to the date of acquisition. The fair value of the net assets acquired for the aforementioned acquisition during the six months ended June 30, 2018 are as follows:
 
 
(in thousands)
Land
 
$
52,199

Land improvements
 
756

Buildings and improvements
 
74,522

Tenant improvements
 
1,451

Acquired in-place leases (1)
 
7,003

Acquired above-market leases (1)
 
109

Acquired below-market leases (1)
 
(3,992
)
Net assets acquired
 
$
132,048

 
(1)
Acquired in-place leases, above-market leases, and below-market leases have weighted average amortization periods of 3 years, 2 years, and 3 years, respectively.
There were no dispositions during the six months ended June 30, 2018.
Assets Held for Sale

As noted above, in March 2019, we sold a 100% fee-simple interest in an office property located at 260 Townsend Street in San Francisco, California to an unrelated third-party. The office property had been classified as held for sale as of December 31, 2018, as the purchase and sale agreement was entered into and became subject to a non-refundable deposit prior to December 31, 2018.

In connection with our negotiation of an agreement with an unrelated third-party for the sale of 100% fee-simple interests in two office properties located at 899 and 999 N Capitol Street and one development site located at 901 N Capitol Street, all in Washington, D.C., we determined that the book values of such properties exceeded their estimated fair values and recognized an impairment charge of $66,200,000 during the three months ended March 31, 2019 under the held-and-used impairment model. Following our signing the agreement for the sale of the aforementioned properties and our receipt of a non-refundable deposit in respect of their sale in June 2019, such properties were classified as held for sale as of June 30, 2019 and

19


CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements as of June 30, 2019 and December 31, 2018, and
for the Three and Six Months Ended June 30, 2019 and 2018 (Unaudited)


we recognized an additional impairment charge of $2,800,000 under the held-for-sale impairment model. As such, $2,800,000 and $69,000,000 was recognized during the three and six months ended June 30, 2019, respectively. Our determination of the fair values of these properties was based on negotiations with the third-party buyer and the contract sales price. The sale of such properties closed in July 2019 and we expect to recognize a gain on sale of approximately $200,000.

The following is the detail of the carrying amounts of assets and liabilities for the office properties that are classified as held for sale on our consolidated balance sheets as of June 30, 2019 and December 31, 2018:
 
 
June 30, 2019
 
December 31, 2018
 
 
(in thousands)
Assets
 
 
 
 
Investments in real estate, net (1)
 
$
157,608

 
$
17,123

Cash and cash equivalents
 
2,050

 
755

Accounts receivable, net
 
1,075

 
41

Deferred rent receivable and charges, net (2)
 
13,992

 
4,009

Other intangible assets, net (3)
 

 
220

Other assets (4)
 
4,202

 
27

Total assets held for sale, net
 
$
178,927

 
$
22,175

Liabilities
 
 
 
 
Debt, net (5)
 
$

 
$
28,018

Accounts payable and accrued expenses
 
2,160

 
370

Due to related parties
 
518

 
81

Other liabilities
 
567

 
297

Total liabilities associated with assets held for sale, net
 
$
3,245

 
$
28,766

 

(1)
Investments in real estate of $230,523,000 and $24,832,000 at June 30, 2019 and December 31, 2018, respectively, are presented net of accumulated depreciation of $72,915,000 and $7,709,000, respectively.
(2)
Deferred rent receivable and charges consist of deferred rent receivable of $9,640,000 and deferred leasing costs of $11,165,000 net of accumulated amortization of $6,813,000 at June 30, 2019. Deferred rent receivable and charges consist of deferred rent receivable of $2,909,000 and deferred leasing costs of $1,669,000 net of accumulated amortization of $569,000 at December 31, 2018.
(3)
Other intangible assets, net, at December 31, 2018 represent acquired in-place leases of $1,778,000, which are presented net of accumulated amortization of $1,558,000.
(4)
Other assets at June 30, 2019 include lease inducements of $8,966,000, which are presented net of accumulated amortization of $4,870,000.
(5)
Debt, net, at December 31, 2018 includes the outstanding principal balance of 260 Townsend Street of $28,200,000, net of deferred loan costs of $243,000 and accumulated amortization of $61,000.


20


CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements as of June 30, 2019 and December 31, 2018, and
for the Three and Six Months Ended June 30, 2019 and 2018 (Unaudited)


4. INVESTMENTS IN REAL ESTATE
Investments in real estate consist of the following:
 
 
June 30, 2019
 
December 31, 2018
 
 
(in thousands)
Land
 
$
134,422

 
$
266,410

Land improvements
 
2,713

 
18,368

Buildings and improvements
 
437,683

 
912,892

Furniture, fixtures, and equipment
 
3,683

 
4,245

Tenant improvements
 
34,038

 
133,487

Work in progress
 
7,152

 
9,234

Investments in real estate
 
619,691

 
1,344,636

Accumulated depreciation
 
(115,389
)
 
(303,699
)
Net investments in real estate
 
$
504,302

 
$
1,040,937

We recorded depreciation expense of $5,815,000 and $10,907,000 for the three months ended June 30, 2019 and 2018, respectively, and $13,752,000 and $21,586,000 for the six months ended June 30, 2019 and 2018, respectively.

5. LOANS RECEIVABLE
Loans receivable consist of the following:
    
 
 
June 30, 2019
 
December 31, 2018
 
 
(in thousands)
SBA 7(a) loans receivable, subject to loan-backed notes
 
$
32,966

 
$
36,847

SBA 7(a) loans receivable, subject to credit risk
 
23,004

 
29,385

SBA 7(a) loans receivable, subject to secured borrowings
 
15,905

 
16,409

Loans receivable
 
71,875

 
82,641

Deferred capitalized costs
 
1,143

 
1,309

Loan loss reserves
 
(533
)
 
(702
)
Loans receivable, net
 
$
72,485

 
$
83,248

SBA 7(a) Loans Receivable, Subject to Loan-Backed Notes—Represents the unguaranteed portions of loans originated under the SBA 7(a) 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 7).
SBA 7(a) Loans Receivable, Subject to Credit Risk—Represents the unguaranteed portions of loans originated under the SBA 7(a) Program which were retained by the Company and the government guaranteed portions of such loans that have not yet been fully funded or sold.
SBA 7(a) Loans Receivable, Subject to Secured Borrowings—Represents the government guaranteed portions of loans originated under the SBA 7(a) 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.
At June 30, 2019 and December 31, 2018, 99.9% and 99.7%, respectively, of our loans subject to credit risk were current. We classify loans with negative characteristics in substandard categories ranging from special mention to doubtful. At June 30, 2019 and December 31, 2018, $584,000 and $235,000, respectively, of loans subject to credit risk were classified in substandard categories.

21


CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements as of June 30, 2019 and December 31, 2018, and
for the Three and Six Months Ended June 30, 2019 and 2018 (Unaudited)


At June 30, 2019 and December 31, 2018, our loans subject to credit risk were 98.7% and 98.3%, respectively, concentrated in the hospitality industry.

6. OTHER INTANGIBLE ASSETS
A schedule of our intangible assets and liabilities and related accumulated amortization and accretion as of June 30, 2019 and December 31, 2018 is as follows:
 
 
Assets
 
Liabilities
June 30, 2019
 
Acquired Above-Market Leases
 
Acquired
In-Place
Leases
 
Trade Name and License
 
Acquired
Below-Market
Leases
 
 
(in thousands)
Gross balance
 
$
146

 
$
14,054

 
$
2,957

 
$
(4,757
)
Accumulated amortization
 
(93
)
 
(8,812
)
 

 
2,819

 
 
$
53

 
$
5,242

 
$
2,957

 
$
(1,938
)
Average useful life (in years)
 
3

 
8

 
Indefinite

 
3

 
 
Assets
 
Liabilities
December 31, 2018
 
Acquired
Above-Market
Leases
 
Acquired
In-Place
Leases
 
Trade Name and License
 
Acquired
Below-Market
Leases
 
 
(in thousands)
Gross balance
 
$
146

 
$
16,210

 
$
2,957

 
$
(6,618
)
Accumulated amortization
 
(51
)
 
(9,731
)
 

 
3,746

 
 
$
95

 
$
6,479

 
$
2,957

 
$
(2,872
)
Average useful life (in years)
 
3

 
8

 
Indefinite

 
4

The amortization of the acquired above-market leases, which decreased rental and other property income, was $21,000 and $14,000 for the three months ended June 30, 2019 and 2018, respectively, and $42,000 and $26,000 for the six months ended June 30, 2019 and 2018, respectively. The amortization of the acquired in-place leases included in depreciation and amortization expense was $540,000 and $930,000 for the three months ended June 30, 2019 and 2018, respectively, and $1,141,000 and $1,842,000 for the six months ended June 30, 2019 and 2018, respectively. The amortization of the acquired below-market leases included in rental and other property income was $421,000 and $520,000 for the three months ended June 30, 2019 and 2018, respectively, and $934,000 and $1,233,000 for the six months ended June 30, 2019 and 2018, respectively.







22


CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements as of June 30, 2019 and December 31, 2018, and
for the Three and Six Months Ended June 30, 2019 and 2018 (Unaudited)


A schedule of future amortization and accretion of acquisition related intangible assets and liabilities as of