REAL ESTATE | REAL ESTATE 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 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 _____________________ (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 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 % _____________________ (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. |