Creative Media mmunity Trust : FORM 10Q -For the quarterly period ended March 31, 2024

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One):

• QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

OR

• TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from	to
	Commission File Number 1-13610
CREATIVE MEDIA & COMMUNITY TRUST CORPORATION
	(Exact name of registrant as specified in its charter)
Maryland		75-6446078
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
5956 Sherry Lane, Suite 700,	Dallas, Texas	75225
(Address of Principal Executive Offices)	(Zip Code)
	[phone]
	(Registrant's telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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	Tel Aviv Stock Exchange
(Title of each class)	(Trading symbol)	(Name of each exchange on which registered)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past

90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S- T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐	Non-accelerated filer	☒
Smaller reporting company	☒	Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May 9, 2024, the Registrant had outstanding 22,786,741 shares of common stock, par value $0.001 per share.

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CREATIVE MEDIA & COMMUNITY TRUST CORPORATION AND SUBSIDIARIES

INDEX

			PAGE NO.
PART I.	Financial Information
	Item 1.	Financial Statements
		Consolidated Balance Sheets - March 31, 2024 and December 31, 2023	1
		Consolidated Statements of Operations - Three Months Ended March 31, 2024 and 2023	2
		Consolidated Statements of Equity - Three Months Ended March 31, 2024 and 2023	3
		Consolidated Statements of Cash Flows - Three Months Ended March 31, 2024 and 2023	4
		Notes to Consolidated Financial Statements	6
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	39
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	51
	Item 4.	Controls and Procedures	52
PART II.	Other Information
	Item 1.	Legal Proceedings	53
	Item 1A.	Risk Factors	53
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	53
	Item 3.	Defaults Upon Senior Securities	53
	Item 4.	Mine Safety Disclosures	53
	Item 5.	Other Information	53
	Item 6.	Exhibits	54

Table of Contents

PART I

Financial Information

Item 1.

Financial Statements

CREATIVE MEDIA & COMMUNITY TRUST CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

(In thousands, except share and per share amounts) (Unaudited)

		March 31, 2024		December 31, 2023
ASSETS
Investments in real estate, net	$	700,618		$	704,762
Investments in unconsolidated entities		33,709			33,505
Cash and cash equivalents		21,307			19,290
Restricted cash		24,335			24,938
Loans receivable, net (Note 5)		56,229			57,005
Accounts receivable, net		6,030			5,347
Deferred rent receivable and charges, net		27,793			28,222
Other intangible assets, net		3,852			3,948
Other assets		13,630			14,183
TOTAL ASSETS	$	887,503		$	891,200
LIABILITIES, REDEEMABLE PREFERRED STOCK, AND EQUITY
LIABILITIES:
Debt, net	$	472,813		$	471,561
Accounts payable and accrued expenses		25,639			26,426
Due to related parties		3,333			3,463
Other liabilities		13,639			12,981
Total liabilities		515,424			514,431
COMMITMENTS AND CONTINGENCIES (Note 15)
EQUITY:
Series A cumulative redeemable preferred stock, $0.001 par value; 34,211,995 and 34,611,501 shares authorized as of March 31,
2024 and December 31, 2023, respectively; 8,820,338 and 7,042,333 shares issued and outstanding, respectively, as of March 31,
2024 and 8,820,338 and 7,431,839 shares issued and outstanding, respectively, as of December 31, 2023; liquidation preference of		176,007			185,704
$25.00 per share, subject to adjustment
Series A1 cumulative redeemable preferred stock, $0.001 par value; 27,880,928 and 27,904,974 shares authorized as of March 31,
2024 and December 31, 2023, respectively; 11,327,248 and 11,208,176 shares issued and outstanding, respectively, as of March
31, 2024 and 10,473,369 and 10,378,343 shares issued and outstanding, respectively, as of December 31, 2023; liquidation		277,585			256,935
preference of $25.00 per share, subject to adjustment
Series D cumulative redeemable preferred stock, $0.001 par value; 26,991,590 shares authorized as of March 31, 2024 and
December 31, 2023; 56,857 and 48,447 shares issued and outstanding, respectively, as of March 31, 2024 and 56,857 and 48,447
shares issued and outstanding, respectively, as of December 31, 2023; liquidation preference of $25.00 per share, subject to		1,190			1,190
adjustment
Common stock, $0.001 par value; 900,000,000 shares authorized; 22,786,741 shares issued and outstanding as of March 31, 2024		23			23
and December 31, 2023, respectively
Additional paid-in capital		851,234			852,476
Distributions in excess of earnings		(936,151)			(921,925)
Total stockholders' equity		369,888			374,403
Non-controlling interests		2,191			2,366
Total equity		372,079			376,769
TOTAL LIABILITIES, REDEEMABLE PREFERRED STOCK, AND EQUITY	$	887,503		$	891,200

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

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CREATIVE MEDIA & COMMUNITY TRUST CORPORATION AND SUBSIDIARIES

Consolidated Statements of Operations

(In thousands, except per share amounts) (Unaudited)

	Three Months Ended March 31,
	2024			2023
REVENUES:
Rental and other property income	$	18,773		$	14,886
Hotel income		11,264			10,923
Interest and other income		3,961			3,103
Total Revenues		33,998			28,912
EXPENSES:
Rental and other property operating		17,981			15,225
Asset management and other fees to related parties		394			720
Expense reimbursements to related parties-corporate		605			528
Expense reimbursements to related parties-lending segment		563			608
Interest		8,977			6,236
General and administrative		1,619			1,925
Transaction-related costs		690			3,360
Depreciation and amortization		6,478			9,502
Total Expenses		37,307			38,104
(Loss) income from unconsolidated entities		(326)			768
Gain on sale of real estate (Note 3)		-		1,104
LOSS BEFORE PROVISION FOR INCOME TAXES		(3,635)			(7,320)
Provision for income taxes		270			256
NET LOSS		(3,905)			(7,576)
Net loss attributable to non-controlling interests		175			625
NET LOSS ATTRIBUTABLE TO THE COMPANY		(3,730)			(6,951)
Redeemable preferred stock dividends declared or accumulated (Note 11)		(7,759)			(5,391)
Redeemable preferred stock redemptions (Note 11)		(806)			(373)
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS	$	(12,295)		$	(12,715)
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS PER SHARE:
Basic	$	(0.54)		$	(0.56)
Diluted	$	(0.54)		$	(0.56)
WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING:
Basic		22,738			22,707
Diluted		22,738			22,707

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

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CREATIVE MEDIA & COMMUNITY TRUST CORPORATION AND SUBSIDIARIES

Consolidated Statements of Equity

(In thousands, except share and per share amounts) (Unaudited)

																Three Months Ended March 31, 2024
		Common Stock					Preferred Stock
						Par								Par			Additional			Distributions			Total			Non-
		Shares					Shares						Paid-in			in Excess of			Stockholders'			controlling	Total Equity
			Value						Value			Capital			Earnings			Equity			Interests
Balances, December 31, 2023	22,786,741		$		23		17,858,629		$		443,829			$	852,476			$	(921,925)			$	374,403			$	2,366			$	376,769
Stock-based compensation expense		-				-			-				-			55					-			55					-		55
Common dividends ($0.085 per share)		-				-			-				-			-			(1,937)					(1,937)					-		(1,937)
Issuance of Series A1 Preferred Stock		-				-	853,879					21,246					(2,180)					-			19,066					-		19,066
Redemption of Series A1 Preferred Stock		-				-	(24,046)					(595)					52					(24)					(567)					-		(567)
Dividends to holders of Series A1 Preferred
Stock ($0.48938 per share)		-				-			-				-			-			(5,251)					(5,251)					-		(5,251)
Dividends to holders of Series D Preferred
Stock ($0.35313 per share)		-				-			-				-			-			(17)					(17)					-		(17)
Redemption of Series A Preferred Stock		-				-	(389,506)					(9,698)					831					(776)					(9,643)					-		(9,643)
Dividends to holders of Series A Preferred
Stock ($0.34375 per share)		-				-			-				-			-			(2,491)					(2,491)					-		(2,491)
Net loss		-				-			-				-			-			(3,730)					(3,730)					(175)				(3,905)
Balances, March 31, 2024	22,786,741		$		23		18,298,956		$		454,782			$	851,234			$	(936,151)			$	369,888			$	2,191			$	372,079
																Three Months Ended March 31, 2023
		Common Stock			Preferred Stock
							Par								Par			Additional			Distributions			Total			Non-
		Shares						Shares						Paid-in			in Excess of			Stockholders'			controlling	Total Equity
				Value						Value			Capital			Earnings			Equity			Interests
Balances, December 31, 2022		22,737,853			$	23			13,570,353			$	337,762				$	861,721				$	(837,846)				$	361,660				$	373			$	362,033
Cumulative-effect adjustment upon adoption
of ASU 2016-13		-				-			-				-			-			(619)					(619)					-		(619)
Acquisition of non-controlling interests		-				-			-				-			-			-			-			5,002				5,002
Stock-based compensation expense		-				-			-				-			55					-			55					-		55
Common dividends ($0.085 per share)		-				-			-				-			-			(1,933)					(1,933)					-		(1,933)
Issuance of Series A1 Preferred Stock		-				-	1,032,433				25,569					(2,291)					-			23,278					-		23,278
Redemption of Series A1 Preferred Stock		-				-	(12,870)				(319)					28					(11)					(302)					-		(302)
Dividends to holders of Series A1 Preferred
Stock ($0.39563 per share)		-				-			-				-			-			(2,559)					(2,559)					-		(2,559)
Dividends to holders of Series D Preferred
Stock ($0.35313 per share)		-				-			-				-			-			(17)					(17)					-		(17)
Reclassification of Series A Preferred stock to
permanent equity		-				-	389,325				9,699					(887)					-			8,812					-		8,812
Redemption of Series A Preferred Stock		-				-	(189,753)				(4,723)					403					(362)					(4,682)					-		(4,682)
Dividends to holders of Series A Preferred
Stock ($0.34375 per share)		-				-			-				-			-			(2,810)					(2,810)					-		(2,810)
Net loss		-				-			-				-			-			(6,951)					(6,951)					(625)				(7,576)
Balances, March 31, 2023		22,737,853	$	23			14,789,488			$	367,988				$	859,029				$	(853,108)				$	373,932				$	4,750			$	378,682

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

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CREATIVE MEDIA & COMMUNITY TRUST CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In thousands) (Unaudited)

		Three Months Ended
		March 31,
2024					2023
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(3,905)		$	(7,576)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization, net		6,567			9,604
Gain on sale of real estate		-		(1,104)
Amortization of deferred debt origination costs		624			395
Amortization of premiums and discounts on debt		(14)			(1)
Unrealized premium adjustment		196			265
Amortization of deferred costs and accretion of fees on loans receivable, net		(8)			(99)
Write-offs of uncollectible receivables		411			13
(Gain) loss on interest rate caps		(55)			339
Deferred income taxes		13			(11)
Stock-based compensation		55			55
Income (loss) from unconsolidated entities		326			(768)
Loans funded, held for sale to secondary market		(5,799)			(7,849)
Proceeds from sale of guaranteed loans		5,471			6,271
Principal collected on loans subject to secured borrowings		560			605
Commitment fees remitted and other operating activity		(160)			(150)
Changes in operating assets and liabilities:
Accounts receivable		(1,130)			(4,163)
Other assets		(793)			(5,424)
Accounts payable and accrued expenses		(986)			14,007
Deferred leasing costs		(285)			(246)
Other liabilities		658			(2,119)
Due to related parties		(130)			722
Net cash provided by operating activities		1,616			2,766
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(1,690)			(4,816)
Acquisition of real estate		-		(96,731)
Proceeds from sale of real estate, net		1,096			16,714
Investment in unconsolidated entity		(530)			(6,626)
Loans funded		(1,934)			(2,932)
Principal collected on loans		2,665			3,323
Net cash used in investing activities		(393)			(91,068)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of revolving credit facilities, mortgages payable, term notes and principal on SBA 7(a) loan-backed notes		(3,615)			(108,203)
Proceeds from revolving credit facilities, term notes and mortgages		5,000			212,000
Proceeds from SBA 7(a) loan-backed notes		-		54,141
Payment of principal on secured borrowings		(560)			(607)
Payment of deferred preferred stock offering costs		(372)			(283)
Payment of deferred debt origination costs		-		(2,400)
Payment of common dividends		(1,937)			(1,933)
Net proceeds from issuance of Preferred Stock		19,549			23,644
Payment of preferred stock dividends		(7,651)			(9,820)
Redemption of Preferred Stock		(10,223)			(88,884)
Net cash provided by financing activities		191			77,655

(Continued)

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CREATIVE MEDIA & COMMUNITY TRUST CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Continued)

(In thousands) (Unaudited)

		Three Months Ended
		March 31,
2024					2023
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH		1,414			(10,647)
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH:
Beginning of period		44,228			57,480
End of period	$	45,642		$	46,833
RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH TO THE CONSOLIDATED BALANCE SHEETS:
Cash and cash equivalents	$	21,307		$	22,491
Restricted cash		24,335			24,342
Total cash and cash equivalents and restricted cash	$	45,642		$	46,833
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest	$	8,636		$	4,093
Federal income taxes paid	$	16		$	-
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Accrued capital expenditures, tenant improvements and real estate developments	$	1,514		$	3,494
Proceeds from the sale of real estate committed but not yet received	$	-	$	17,657
Other amounts due from Unconsolidated Joint Venture partners included in other assets	$	1,445		$	1,445
Non-cash contributions to Unconsolidated Joint Venture	$	-	$	8,600
Accrued preferred stock offering costs	$	247		$	101
Accrual of dividends payable to common stockholders	$	1,937		$	1,933
Accrual of dividends payable to preferred stockholders	$	2,610		$	1,832
Preferred stock offering costs offset against redeemable preferred stock	$	513		$	403
Reclassification of Series A Preferred Stock from temporary equity to permanent equity	$	-	$	8,812
Mortgage notes assumed in connection with our acquisition of real estate	$	-	$	181,318
Accrued redeemable preferred stock fees	$	246		$	413
Acquisition of non-controlling interests	$	-	$	5,002

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

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CREATIVE MEDIA & COMMUNITY TRUST CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2024 (Unaudited)

1. ORGANIZATION AND OPERATIONS

Creative Media & Community Trust Corporation (formerly known as CIM Commercial Trust Corporation) (the "Company"), is a Maryland corporation and real estate investment trust ("REIT"). The Company primarily acquires, develops, owns and operates both premier multifamily properties situated in vibrant communities throughout the United States and Class A and creative office real assets in markets with similar business and employment characteristics to its

multifamily investments. The Company also owns one hotel in northern California and a lending platform that originates loans under the Small Business Administration ("SBA") 7(a) loan program. The Company seeks to apply the expertise of CIM Group Management, LLC ("CIM Group") and its affiliates to the acquisition, development and operation of premier multifamily properties and creative office assets that cater to rapidly growing industries such as technology, media and entertainment in vibrant and emerging communities throughout the United States.

The Company's common stock, $0.001 par value per share ("Common Stock"), is currently traded on the Nasdaq Global Market ("Nasdaq") under the ticker symbol "CMCT", and on the Tel Aviv Stock Exchange (the "TASE") under the ticker symbol "CMCT." The Company has authorized for issuance 900,000,000 shares of common stock and 100,000,000 shares of preferred stock ("Preferred Stock").

Commencing in June 2022, the Company conducted a public offering with respect to shares of its Series A1 Preferred Stock, par value $0.001 per share with an initial stated value of $25.00 per share, subject to adjustment (Note 11). The Company has filed a Registration Statement on Form S-11 in respect of such offering and anticipates continuing the offering upon effectiveness of such Registration Statement on Form S-11. Nothing contained in this Quarterly Report on Form 10-Q is or shall be deemed to be an offer to sell any securities of the Company, or the solicitation of any offer to buy any securities of

the Company, in any jurisdiction, which may only be made pursuant to appropriate offering documentation.

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

For more information regarding the Company's significant accounting policies and estimates, please refer to "Basis of Presentation and Summary of Significant Accounting Policies" contained in Note 2 to the Company's consolidated financial statements for the year ended December 31, 2023, included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on March 29, 2024.

Interim Financial Information-The accompanying interim consolidated financial statements of the Company have been prepared by the Company's management in accordance with accounting principles generally accepted in the United States of America ("GAAP"). Certain information and note disclosures required for annual financial statements have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, the interim consolidated financial statements do not include all of the information and notes required by GAAP for complete financial statements. The accompanying financial information reflects all adjustments which are, in the opinion of the Company's management, of a normal recurring nature and necessary for a fair presentation of the Company's financial position, results of operations and cash flows for the interim periods. Operating results for the three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. The accompanying interim consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and the notes thereto, included in the 2023 Form 10-K.

Principles of Consolidation-The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. In determining whether the Company has controlling interests in an entity and the requirement to consolidate the accounts in that entity, the Company analyzes its investments in real estate in accordance with standards set forth in GAAP to determine whether they are variable interest entities ("VIEs"), and if so, whether the Company is the primary beneficiary. The Company's judgment with respect to its level of influence or control over an entity and whether the Company is the primary beneficiary of a VIE involves consideration of various factors, including the form of the Company's ownership interest, the Company's voting interest, the size of the Company's investment (including loans), and the Company's ability to participate in major policy-making decisions. The Company's ability to correctly assess its influence or control over an entity affects the presentation of these investments in real estate on the Company's consolidated financial statements. As of March 31, 2024, the Company has determined that the trust formed for the benefit of the note holders (the "Trust") for the securitization of the unguaranteed portion of certain of the Company's SBA 7(a) loans receivable is considered a VIE. Applying the consolidation requirements for VIEs, the Company determined that it is the primary beneficiary based on its power to direct activities through its role as servicer and its obligations to absorb losses and right to receive benefits. In addition, as of March 31, 2024, the Company has determined that its

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CREATIVE MEDIA & COMMUNITY TRUST CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2024 (Unaudited) - (Continued)

Unconsolidated Joint Ventures (as defined below) are considered VIEs. Applying the consolidation requirements for VIEs, the Company determined that it is not the primary beneficiary based on its lack of power to direct activities and its obligations to absorb losses and right to receive benefits. Therefore, the Unconsolidated Joint Ventures do not qualify for consolidation. The Company accounts for its investments in Unconsolidated Joint Ventures as equity method investments.

Investments in Real Estate-Investments in real estate are stated at depreciated cost. Depreciation and amortization are recorded on a straight-line basis over the estimated useful lives as follows:

Buildings and improvements	15	- 40 years
Furniture, fixtures, and equipment	3	- 5 years
Tenant improvements	Lesser of useful life or lease term

The fair value of real estate acquired is recorded to acquired tangible assets, consisting primarily of land, land improvements, building and improvements, tenant improvements, furniture, fixtures, and equipment, and identified intangible assets and liabilities, consisting of the value of acquired above-market and below-market leases, in-place leases and ground leases, if any, based in each case on their respective fair values. Loan premiums, in the case of above-market rate loans, or loan discounts, in the case of below-market rate loans, are recorded based on the fair value of any loans assumed in connection with acquiring the real estate.

Capitalized Project Costs

The Company capitalizes project costs, including pre-construction costs, interest expense, property taxes, insurance, and other costs directly related and essential to the development, redevelopment, or construction of a project, while activities are ongoing to prepare an asset for its intended use. Costs incurred after a project is substantially complete and ready for its intended use are expensed as incurred. Improvements and replacements are capitalized when they extend the useful life, increase capacity, or improve the efficiency of the asset. Ordinary repairs and maintenance are expensed as incurred.

Recoverability of Investments in Real Estate-The Company continually monitors events and changes in circumstances that could indicate that the carrying amounts of its real estate assets may not be recoverable. Investments in real estate are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If, and when, such events or changes in circumstances are present, the recoverability of assets to be held and used requires significant judgment and estimates and is measured by a comparison of the carrying amount to the future undiscounted cash flows expected to be generated by the assets and their eventual disposition. If the undiscounted cash flows are less than the carrying amount of the assets, an impairment is recognized to the extent the carrying amount of the assets exceeds the estimated fair value of the assets. The process for evaluating real estate impairment requires management to make significant assumptions related to certain inputs, including rental rates, lease-up period, occupancy, estimated holding periods, capital expenditures, growth rates, market discount rates and terminal capitalization rates. These inputs require a subjective evaluation based on the specific property and market. Changes in the assumptions could have a significant impact on either the fair value, the amount of impairment charge, if any, or both. Any asset held for sale is reported at the lower of the asset's carrying amount or fair value, less costs to sell. When an asset is identified by the Company as held for sale, the Company will cease recording depreciation and amortization of the asset. The Company did not recognize any impairment of long-lived assets during the three months ended March 31, 2024 and 2023 (Note 3).

Investments in Unconsolidated Entities-The Company accounts for its investments in the unconsolidated joint ventures (the "Unconsolidated Joint Ventures") under the equity method, as the Company has the ability to exercise significant influence over the investments. The Unconsolidated Joint Ventures record their assets and liabilities at fair value. As such, the Company records its share of the Unconsolidated Joint Ventures' unrealized gains or losses as well as its share of the revenues and expenses on a quarterly basis as an adjustment to the carrying value of the investment on the Company's consolidated balance sheet and such share is recognized within the Company's income from unconsolidated entities on the consolidated statements of operations.

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.

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Table of Contents

CREATIVE MEDIA & COMMUNITY TRUST CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2024 (Unaudited) - (Continued)

Accounting for changes in the fair value of a derivative instrument depends on the intended use and designation of the derivative instrument. The Company has interest rate caps that are used to manage exposure to interest rate movements, but do not meet the requirements to be designated as hedging instruments. The change in fair value of the derivative instruments that are not designated as hedges is recorded directly to earnings as interest expense on the accompanying consolidated statements of operations. See Note 8 for further disclosures about our derivative financial instruments and hedging activities.

Revenue Recognition-At the inception of a revenue-producing contract, the Company determines if a contract qualifies as a lease and if not, then as a customer contract. Based on this determination, the appropriate treatment in accordance with GAAP is applied to the contract, including its revenue recognition.

Revenue from leasing activities

The Company operates as a lessor of both office and multifamily real estate assets. When the Company enters into a contract or amends an existing contract, the Company evaluates if the contracts meet the definition of a lease using the following criteria:

• One party (lessor) must hold an identified asset;
• The counterparty (lessee) must have the right to obtain substantially all of the economic benefits from the use of the asset throughout the period of the contract; and
• The counterparty (lessee) must have the right to direct the use of the identified asset throughout the period of the contract.

The Company determined that the Company's contracts with its tenants explicitly identify the premises and that any substitution rights to relocate tenants to other premises within the same building stated in the contract are not substantive. Additionally, so long as payments are made timely under such contracts, the Company's tenants have the right to obtain substantially all the economic benefits from the use of the identified asset and can direct how and for what purpose the premises are used to conduct their operations. Therefore, the contracts with the Company's tenants constitute leases.

All leases are classified as operating leases and minimum rents are recognized on a straight-line basis over the terms of the leases when collectability is probable and the tenant has taken possession or controls the physical use of the leased asset. The excess of rents recognized over amounts contractually due pursuant to the underlying leases is recorded as deferred rent. If the lease provides for tenant improvements, the Company determines whether the tenant improvements, for accounting purposes, are owned by the tenant or the Company. When the Company is the owner of the tenant improvements, the tenant is not considered to have taken physical possession or have control of the physical use of the leased asset until the tenant improvements are substantially completed. When the tenant is considered the owner of the improvements, any tenant improvement allowance that is funded is treated as an incentive. Lease incentives paid to tenants are included in other assets and amortized as a reduction to rental revenue on a straight-line basis over the term of the related lease. As of March 31, 2024 and December 31, 2023, lease incentives of $3.9 million and $3.9 million, respectively, are presented net of accumulated amortization of $3.4 million and $3.3 million, respectively.

Reimbursements from tenants, consisting of amounts due from tenants for common area maintenance, real estate taxes, insurance, and other recoverable costs, are recognized as revenue and are included in rental and other property income in the period the expenses are incurred, with the corresponding expenses included in rental and other property operating expense. Tenant reimbursements are recognized and presented on a gross basis when the Company is primarily responsible for fulfilling the promise to provide the specified good or service and control that specified good or service before it is transferred to the tenant. The Company has elected not to separate lease and non-lease components as the pattern of revenue recognition does not differ for the two components, and the non- lease component is not the primary component in the Company's leases.

In addition to minimum rents, certain leases, including the Company's parking leases with third-party operators, provide for additional rents based upon varying percentages of tenants' sales in excess of annual minimums. Percentage rent is recognized once lessees' specified sales targets have been met.

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