Quarterly report [Sections 13 or 15(d)]

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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 March 31, 2016

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, TX 75252
(Address of principal executive offices)


(972) 349-3200
(Registrant's telephone number)

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 or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer o Non-accelerated filer o
(Do not check if a
smaller reporting company)
Smaller reporting company ý

Indicate by check mark whether the Registrant is a shell company (as defined in Exchange Act Rule 12b-2). YES o NO ý

As of May 3, 2016, the Registrant had outstanding 97,666,021 shares of common stock, par value $0.001 per share.


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CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES
INDEX




PAGE NO.

PART I.

Financial Information

Item 1.

Financial Statements

Consolidated Balance Sheets—March 31, 2016 and December 31, 2015 (Unaudited)

2

Consolidated Statements of Operations—Three Months Ended March 31, 2016 and 2015 (Unaudited )

3

Consolidated Statements of Comprehensive Income—Three Months Ended March 31, 2016 and 2015 (Unaudited )

4

Consolidated Statements of Equity—Three Months Ended March 31, 2016 and 2015 (Unaudited)

5

Consolidated Statements of Cash Flows—Three Months Ended March 31, 2016 and 2015 (Unaudited)

6

Notes to Consolidated Financial Statements (Unaudited )

7

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

37

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

48

Item 4.

Controls and Procedures

49

PART II.

Other Information

Item 1.

Legal Proceedings

50

Item 1A.

Risk Factors

50

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

50

Item 3.

Defaults Upon Senior Securities

50

Item 4.

Mine Safety Disclosures

50

Item 5.

Other Information

50

Item 6.

Exhibits

50

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PART I
Financial Information

Item 1.
Financial Statements


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CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

(In thousands, except share and per share data)


March 31,
2016
December 31,
2015

(Unaudited)

ASSETS

Investments in real estate, net

$ 1,665,457 $ 1,691,711

Cash and cash equivalents

92,877 124,636

Restricted cash

48,782 7,267

Accounts receivable, net

11,680 10,726

Deferred rent receivable and charges, net

100,560 97,225

Other intangible assets, net

16,201 17,353

Other assets

19,725 14,150

Assets held for sale, net

150,927 128,992

TOTAL ASSETS

$ 2,106,209 $ 2,092,060

LIABILITIES AND EQUITY

LIABILITIES:

Debt

$ 656,498 $ 656,835

Accounts payable and accrued expenses

39,203 40,049

Intangible liabilities, net

5,455 6,086

Due to related parties

9,565 9,472

Other liabilities

36,924 29,531

Liabilities associated with assets held for sale

63,492 52,740

Total liabilities

811,137 794,713

COMMITMENTS AND CONTINGENCIES (Note 14)

EQUITY:

Common stock, $0.001 par value; 900,000,000 shares authorized; 97,666,021 and 97,589,598 shares issued and outstanding at March 31, 2016 and December 31, 2015, respectively

98 98

Additional paid-in capital

1,820,483 1,820,451

Accumulated other comprehensive income (loss)

(10,444 ) (2,519 )

Distributions in excess of earnings

(516,005 ) (521,620 )

Total stockholders' equity

1,294,132 1,296,410

Noncontrolling interests

940 937

Total equity

1,295,072 1,297,347

TOTAL LIABILITIES AND EQUITY

$ 2,106,209 $ 2,092,060

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

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CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES

Consolidated Statements of Operations

(In thousands, except per share data)


Three Months Ended
March 31,

2016 2015

(Unaudited)

REVENUES:

Rental and other property income

$ 62,848 $ 63,398

Expense reimbursements

2,928 3,181

Interest and other income

614 660

66,390 67,239

EXPENSES:

Rental and other property operating

31,278 32,709

Asset management and other fees to related parties

7,701 7,209

Interest

6,626 5,403

General and administrative

1,763 2,592

Transaction costs

149 428

Depreciation and amortization

18,058 19,128

65,575 67,469

Gain on sale of real estate

24,739 —

INCOME (LOSS) FROM CONTINUING OPERATIONS

25,554 (230 )

DISCONTINUED OPERATIONS:

Income from operations of assets held for sale

1,429 2,962

NET INCOME FROM DISCONTINUED OPERATIONS

1,429 2,962

NET INCOME

26,983 2,732

Net income attributable to noncontrolling interests

(3 ) —

NET INCOME ATTRIBUTABLE TO STOCKHOLDERS

$ 26,980 $ 2,732

BASIC AND DILUTED INCOME PER SHARE:

Continuing operations

$ 0.26 $ 0.00

Discontinued operations

$ 0.02 $ 0.03

Net income

$ 0.28 $ 0.03

WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING:

Basic

97,662 97,582

Diluted

97,662 97,582

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

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CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(In thousands)


Three Months
Ended March 31,

2016 2015

(Unaudited)

NET INCOME

$ 26,983 $ 2,732

Other comprehensive income (loss): cash flow hedges

(7,925 ) —

COMPREHENSIVE INCOME

19,058 2,732

Comprehensive income attributable to noncontrolling interests

(3 ) —

COMPREHENSIVE INCOME ATTRIBUTABLE TO STOCKHOLDERS

$ 19,055 $ 2,732

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

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CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES

Consolidated Statements of Equity

(In thousands, except share and per share data)


Three Months Ended March 31, 2016

Common
Stock
Outstanding
Common
Stock
Par Value
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Distributions
In Excess
Of Earnings
Noncontrolling
Interests
Total
Equity

(Unaudited)

Balances, January 1, 2016

97,589,598 $ 98 $ 1,820,451 $ (2,519 ) $ (521,620 ) $ 937 $ 1,297,347

Stock-based compensation expense

— — 32 — — — 32

Issuance of shares pursuant to employment agreements

76,423 — — — — — —

Common dividends ($0.21875 per share)

— — — — (21,365 ) — (21,365 )

Other comprehensive income (loss)

— — — (7,925 ) — — (7,925 )

Net income

— — — — 26,980 3 26,983

Balances, March 31, 2016

97,666,021 $ 98 $ 1,820,483 $ (10,444 ) $ (516,005 ) $ 940 $ 1,295,072



Three Months Ended March 31, 2015

Common
Stock
Outstanding
Common
Stock
Par Value
Additional
Paid-in
Capital
Distributions
In Excess
Of Earnings
Treasury
Stock
Noncontrolling
Interests
Total
Equity

(Unaudited)

Balances, January 1, 2015

97,581,598 $ 98 $ 1,824,381 $ (460,623 ) $ (4,901 ) $ 861 $ 1,359,816

Contributions from noncontrolling interests

— — — — — 110 110

Distributions to noncontrolling interests

— — — — — (32 ) (32 )

Stock-based compensation expense

2,000 — 366 — — — 366

Common dividends ($0.21875 per share)

— — — (21,346 ) — — (21,346 )

Net income

— — — 2,732 — — 2,732

Balances, March 31, 2015

97,583,598 $ 98 $ 1,824,747 $ (479,237 ) $ (4,901 ) $ 939 $ 1,341,646

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

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CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In thousands)


Three Months
Ended March 31,

2016 2015

(Unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$ 26,983 $ 2,732

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

Deferred rent and amortization of intangible assets, liabilities and lease inducements

(1,611 ) (1,433 )

Depreciation and amortization

18,058 19,128

Gain on sale of real estate

(24,739 ) —

Straight line rent, below-market ground lease and amortization of intangible assets

443 482

Amortization of deferred loan costs

826 739

Amortization of premiums and discounts on debt

(211 ) (232 )

Unrealized premium adjustment

253 258

Amortization and accretion on loans receivable, net

(200 ) (489 )

Bad debt expense

(168 ) 651

Deferred income taxes

42 (30 )

Stock-based compensation

32 366

Loans funded, held for sale to secondary market

(10,043 ) (5,600 )

Proceeds from sale of guaranteed loans

6,765 6,879

Principal collected on loans subject to secured borrowings

429 223

Other operating activity

1,246 134

Changes in operating assets and liabilities:

Accounts receivable and interest receivable

(1,397 ) (1,225 )

Other assets

(5,810 ) (9,690 )

Accounts payable and accrued expenses

129 (2,081 )

Deferred leasing costs

(3,943 ) (1,588 )

Other liabilities

(109 ) (546 )

Due to related parties

93 1,283

Net cash provided by operating activities

7,068 9,961

CASH FLOWS FROM INVESTING ACTIVITIES:

Additions to investments in real estate

(7,368 ) (6,881 )

Proceeds from sale of real estate property, net

42,782 —

Loans funded

(23,734 ) (21,803 )

Principal collected on loans

2,361 6,888

Restricted cash

(42,565 ) 1,985

Other investing activity

73 95

Net cash used in investing activities

(28,451 ) (19,716 )

CASH FLOWS FROM FINANCING ACTIVITIES:

Payment of mortgages payable

(1,068 ) (1,707 )

Proceeds from unsecured revolving lines of credit, revolving credit facilities and term notes, net

— 35,000

Payment of principal on secured borrowings

(429 ) (223 )

Proceeds from secured borrowings

9,897 —

Payment of deferred loan costs

— (34 )

Payment of dividends

(21,365 ) (21,346 )

Contributions from noncontrolling interests

— 110

Noncontrolling interests' distributions

— (32 )

Net cash (used in) provided by financing activities

(12,965 ) 11,768

Change in cash balances included in assets held for sale

2,589 754

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

(31,759 ) 2,767

CASH AND CASH EQUIVALENTS:

Beginning of period

124,636 17,615

End of period

$ 92,877 $ 20,382

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Cash paid during the period for interest

$ 6,205 $ 5,174

Federal income taxes paid

$ — $ 30

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:

Additions to investments in real estate included in accounts payable and accrued expenses

$ 7,663 $ 5,483

Net decrease in fair value of derivatives applied to other comprehensive income (loss)

$ (7,925 ) $ —

Reduction of loan receivable and secured borrowing due to the SBA's repurchase of the guaranteed portion of a loan

$ 953 $ —

Additions to deferred loan costs included in accounts payable and accrued expenses

$ — $ 33

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

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CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF MARCH 31, 2016, AND DECEMBER 31, 2015, AND
FOR THREE MONTHS ENDED MARCH 31, 2016 AND 2015 (UNAUDITED)

1. ORGANIZATION AND OPERATIONS

CIM Commercial Trust Corporation ("CIM Commercial" or the "Company") or together with its wholly-owned subsidiaries, (which, together with CIM Commercial, may be referred to as "we," "us" or "our") primarily invests in, owns, and operates Class A and creative office investments in vibrant and improving urban 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, improving demographic trends and a propensity for growth. We also generate income from the yield and other related fee income earned on our investments from our lending activities. As discussed in Note 6, the lending segment is held for sale at March 31, 2016 and December 31, 2015. 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 (the "Merger Agreement") with CIM Urban REIT, LLC ("CIM REIT") 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 transaction (the "Merger") was completed on March 11, 2014 (the "Acquisition Date"). The Merger was accounted for as a reverse acquisition under the acquisition method of accounting with CIM Urban considered to be the accounting acquirer based upon the terms of the Merger Agreement. Based on the determination that CIM Urban was the accounting acquirer in the transaction, CIM Urban allocated the purchase price to the fair value of PMC Commercial's assets and liabilities as of the Acquisition Date.

Pursuant to the Merger Agreement, an affiliate of CIM REIT received 4,400,000 shares of newly-issued PMC Commercial Common Stock ("Common Stock") and approximately 65,000,000 shares of newly-issued PMC Commercial preferred stock. Following the Merger and subsequent increase in our authorized number of shares, each share of preferred stock was converted into 1.4 shares of PMC Commercial Common Stock, resulting in the issuance of 95,440,000 shares of Common Stock in the aggregate in connection with the Merger, representing approximately 97.8% of PMC Commercial's outstanding shares of Common Stock.

On April 28, 2014, PMC Commercial's charter was amended to increase the authorized shares of stock of PMC Commercial from 100,000,000 to 1,000,000,000 shares and PMC Commercial changed its state of incorporation (the "Reincorporation") from Texas to Maryland by means of a merger of PMC Commercial with and into a newly formed, wholly-owned Maryland corporation subsidiary. Also, on April 28, 2014, we changed our name from "PMC Commercial Trust" to "CIM Commercial Trust Corporation." Our Common Stock is currently traded on the NASDAQ Global Market (symbol "CMCT").

On April 28, 2014, we filed Articles of Amendment (the "Reverse Split Amendment") to effectuate a one-for-five reverse stock split of the Common Stock, effective April 29, 2014. Pursuant to the reverse stock split, each five shares of Common Stock issued and outstanding immediately prior to the effective time of the reverse stock split were converted into one share of Common Stock. Fractional shares of Common Stock were not issued as a result of the reverse stock split; instead, holders of pre-split shares of Common Stock who otherwise would have been entitled to receive a fractional share of Common Stock received an amount in cash equal to the product of the fraction of a share multiplied by the closing price of the Common Stock (as adjusted for the one-for-five reverse stock

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CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

AS OF MARCH 31, 2016, AND DECEMBER 31, 2015, AND
FOR THREE MONTHS ENDED MARCH 31, 2016 AND 2015 (UNAUDITED)

1. ORGANIZATION AND OPERATIONS (Continued)

split). In connection with and immediately following the filing of the Reverse Split Amendment, we filed Articles of Amendment (the "Par Value Amendment") to decrease the par value of the Common Stock issued and outstanding to $0.001 per share, effective April 29, 2014, subsequent to the effective time of the Reverse Split Amendment. All per share and outstanding share information has been presented to reflect the reverse stock split.

CIM Commercial has qualified and intends to continue to qualify as a real estate investment trust ("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 3 to our consolidated financial statements for the year ended December 31, 2015, included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on March 15, 2016.

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 months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. 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 15, 2016.

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.

Investments in Real Estate —Real estate acquisitions are recorded at cost as of the acquisition date. Costs related to the acquisition of properties are expensed as incurred. 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

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CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

AS OF MARCH 31, 2016, AND DECEMBER 31, 2015, AND
FOR THREE MONTHS ENDED MARCH 31, 2016 AND 2015 (UNAUDITED)

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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, or on the sales comparison approach to similar properties. Assets to be disposed of are reported at the lower of the carrying amount or fair value, less costs to sell. No impairment of long-lived assets was recognized during the three months ended March 31, 2016 and 2015.

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 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 from 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 11 for disclosures about our derivative financial instruments and hedging activities.

Loans Receivable —Our loans receivable included in assets held for sale 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

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CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

AS OF MARCH 31, 2016, AND DECEMBER 31, 2015, AND
FOR THREE MONTHS ENDED MARCH 31, 2016 AND 2015 (UNAUDITED)

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

("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 (the "Retained Loan Discount") is recorded as a reduction in basis of the retained portion of the loan.

At the Acquisition Date, the carrying value of our loans was adjusted to estimated fair value and acquisition discounts of $33,907,000 were recorded, which are being accreted to interest and other income, included in income from operations of assets held for sale, 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 (see Note 6). Acquisition discounts of $2,931,000 remained as of March 31, 2016 which have not yet been accreted to income.

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 discontinued operations, 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 months ended March 31, 2016 and 2015, we recorded a net recovery of $243,000 and an impairment of $101,000 on our loans receivable, respectively. 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, and other deferred charges. Deferred rent receivable is $59,936,000 and $58,612,000 at March 31, 2016 and December 31, 2015, 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 $62,782,000 and $59,225,000 are presented net of accumulated amortization of $22,198,000 and

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CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

AS OF MARCH 31, 2016, AND DECEMBER 31, 2015, AND
FOR THREE MONTHS ENDED MARCH 31, 2016 AND 2015 (UNAUDITED)

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

$20,612,000 at March 31, 2016 and December 31, 2015, respectively. Other deferred charges are $40,000 and $0 at March 31, 2016 and December 31, 2015, respectively.

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 property taxes, insurance, and capital expenditures. Restricted cash also includes cash proceeds from dispositions that are temporarily held at qualified intermediaries for purposes of facilitating like-kind exchanges under Section 1031 of the Internal Revenue Code ("Section 1031 Exchange"), which allows the gain on sale of real estate to be deferred for income tax purposes. As of March 31, 2016, the net proceeds of $42,782,000 from the sale of a hotel property in February 2016 (see Note 3) held at a qualified intermediary in anticipation of a Section 1031 Exchange is included in restricted cash.

Assets Held for Sale and Discontinued Operations —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 believe that we meet these criteria when the plan for sale has been approved by our board of directors (the "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 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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

AS OF MARCH 31, 2016, AND DECEMBER 31, 2015, AND
FOR THREE MONTHS ENDED MARCH 31, 2016 AND 2015 (UNAUDITED)

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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.

Reclassifications —Certain prior period amounts have been reclassified to conform with the current period presentation. These reclassifications had no effect on previously reported net income or cash flows.

Recently Issued Accounting Pronouncements —In April 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which is intended to simplify the presentation of debt issuance costs. These amendments require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. For public entities, the ASU is effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2015. We adopted ASU 2015-03 retrospectively in our first fiscal quarter ended March 31, 2016. As a result of the retrospective adoption, we reclassified unamortized debt issuance costs of $6,113,000 as of December 31, 2015 from deferred rent receivable and charges to debt on the accompanying consolidated balance sheets. Adoption of this standard did not impact results of operations, retained earnings, or cash flows in the current or previous interim and annual reporting periods.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities , which is designed to improve the recognition and measurement of financial instruments through targeted changes to existing GAAP. The ASU requires an entity to: (i) measure equity investments at fair value through net income, with certain exceptions; (ii) present in OCI the changes in instrument-specific credit risk for financial liabilities measured using the fair value option; (iii) present financial assets and financial liabilities by measurement category and form of financial asset; (iv) calculate the fair value of financial instruments for disclosure purposes based on an exit price; and (v) assess a valuation allowance on deferred tax assets related to unrealized losses of available-for-sale debt securities in combination with other deferred tax assets. In addition, the ASU provides an election to subsequently measure certain nonmarketable equity investments at cost less any impairment and adjusted for certain observable price changes. The ASU also requires a qualitative impairment assessment of such equity investments and amends certain fair value disclosure requirements. For public business entities, the ASU is effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2017. Early adoption by public entities to financial statements that have not yet been issued is permitted only for the provision related to instrument-specific credit risk. We are currently in the process of evaluating the impact of adoption of this new accounting guidance on our consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

AS OF MARCH 31, 2016, AND DECEMBER 31, 2015, AND
FOR THREE MONTHS ENDED MARCH 31, 2016 AND 2015 (UNAUDITED)

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

In February 2016, the 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 will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent with current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current GAAP, which requires a lessee to recognize only capital leases on the balance sheet, the new ASU will require a lessee to recognize both types of leases on the balance sheet. The lessor accounting will remain largely unchanged from current 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. For public entities, the ASU is effective 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 March 2016, the FASB issued Accounting Standards Update No. 2016-05, Derivatives and Hedging (Topic 815) , which clarifies that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under Topic 815 does not require de-designation of that hedging relationship provided that all other hedging criteria continue to be met. The new standard is effective for public entities for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2016 with early adoption permitted. We are currently evaluating the impact, if any, the new standard may have on our consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) , which is intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations included in Topic 606 by clarifying the following: (i) an entity determines whether it is a principal or an agent for each specified good or service promised to the customer; (ii) an entity determines the nature of each specified good or service; (iii) when another party is involved in providing goods or services to a customer, an entity that is a principal obtains control of (a) a good or another asset from the other party, (b) a right to a service that will be performed by another party, or (c) a good or service from the other party that it combines with other goods or services; and (iv) the purpose of the indicators in the guidance is to support or assist in the assessment of control. For public entities, the ASU is effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2017. Early adoption is permitted for annual periods beginning after December 15, 2016. We are currently in the process of evaluating the impact of adoption of this new accounting guidance on our consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which is intended to simplify several aspects of the accounting for share-based payment transactions, including accounting for income taxes, classification of excess tax benefits on the statement of cash flows, forfeitures, minimum statutory tax withholding requirements, and classification of employee taxes paid on the statement of cash flows

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

AS OF MARCH 31, 2016, AND DECEMBER 31, 2015, AND
FOR THREE MONTHS ENDED MARCH 31, 2016 AND 2015 (UNAUDITED)

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

when an employer withholds shares for tax-withholding purposes. In addition, the ASU eliminates certain guidance in ASC 718, which was indefinitely deferred shortly after the issuance of FASB Statement No. 123 (revised 2004), Share-Based Payment . For public entities, the ASU is effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2016. Early adoption is permitted and an entity that elects early adoption must adopt all of the amendments in the same period. We are currently in the process of evaluating the impact of adoption of this new accounting guidance on our consolidated financial statements.

In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing , which is intended to clarify the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. The amendments in the ASU are expected to reduce the cost and complexity of applying the guidance on identifying promised goods or services and improve the operability and understandability of the licensing implementation guidance. For public entities, the ASU is effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2017. Early adoption is permitted for annual periods beginning after December 15, 2016. We are currently in the process of evaluating the impact of adoption of this new accounting guidance 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 above-market and below-market leases, in-place leases and tenant relationships and acquired 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.

There were no acquisitions during the three months ended March 31, 2016 and 2015.

On February 2, 2016, we sold a 100% fee-simple interest in the Courtyard Oakland located in Oakland, California to an unrelated third party.

Property
Asset Type Date of Sale Rooms Sales
Price
Gain on
Sale




(in thousands)

Courtyard Oakland, Oakland, CA

Hotel February 2, 2016 162 $ 43,800 $ 24,739

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

AS OF MARCH 31, 2016, AND DECEMBER 31, 2015, AND
FOR THREE MONTHS ENDED MARCH 31, 2016 AND 2015 (UNAUDITED)

4. INVESTMENTS IN REAL ESTATE

Investments in real estate consist of the following:


March 31,
2016
December 31,
2015

(in thousands)

Land

$ 359,226 $ 363,612

Land improvements

26,613 26,747

Buildings and improvements

1,492,341 1,506,962

Furniture, fixtures, and equipment

8,149 9,720

Tenant improvements

147,303 146,205

Work in progress

12,361 8,126

Investments in real estate

2,045,993 2,061,372

Accumulated depreciation

(380,536 ) (369,661 )

Net investments in real estate

$ 1,665,457 $ 1,691,711

For the three months ended March 31, 2016 and 2015, we recorded depreciation expense of $15,673,000 and $16,280,000, respectively.

5. OTHER INTANGIBLE ASSETS

A schedule of our intangible assets and liabilities and related accumulated amortization and accretion as of March 31, 2016 and December 31, 2015 is as follows:


Assets Liabilities
March 31, 2016
Acquired
Above-Market
Leases
Acquired
In-Place
Leases
Tax
Abatement
Acquired
Below-Market
Ground Lease
Acquired
Below-Market
Leases

(in thousands)

Gross balance

$ 966 $ 21,398 $ 4,273 $ 11,685 $ (19,722 )

Accumulated amortization

(881 ) (17,323 ) (2,460 ) (1,457 ) 14,267

$ 85 $ 4,075 $ 1,813 $ 10,228 $ (5,455 )

Average useful life (in years)

7 8 8 84 8

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

AS OF MARCH 31, 2016, AND DECEMBER 31, 2015, AND
FOR THREE MONTHS ENDED MARCH 31, 2016 AND 2015 (UNAUDITED)

5. OTHER INTANGIBLE ASSETS (Continued)



Assets Liabilities
December 31, 2015
Acquired
Above-Market
Leases
Acquired
In-Place
Leases
Tax
Abatement
Franchise
Affiliation
Fee(1)
Acquired
Below-Market
Ground Lease
Acquired
Below-Market
Leases

(in thousands)

Gross balance

$ 966 $ 21,398 $ 4,273 $ 3,936 $ 11,685 $ (19,722 )

Accumulated amortization

(843 ) (16,943 ) (2,322 ) (3,375 ) (1,422 ) 13,636

$ 123 $ 4,455 $ 1,951 $ 561 $ 10,263 $ (6,086 )

Average useful life (in years)

7 8 8 10 84 8

(1)
Franchise affiliation fee is associated with the Courtyard Oakland, which was sold in February 2016 (see Note 3).

The amortization of the above-market leases which decreased rental and other property income was $38,000 and $79,000 for the three months ended March 31, 2016 and 2015, respectively. The amortization of the below-market leases included in rental and other property income was $631,000 and $655,000 for the three months ended March 31, 2016 and 2015, respectively. The amortization of in-place leases included in depreciation and amortization expense was $380,000 and $529,000 for the three months ended March 31, 2016 and 2015, respectively. Included in depreciation and amortization expense is franchise affiliation fee amortization of $33,000 and $99,000 for the three months ended March 31, 2016 and 2015, respectively. Tax abatement amortization of $138,000 for each of the three months ended March 31, 2016 and 2015, and the amortization of below-market ground lease obligation of $35,000 for each of the three months ended March 31, 2016 and 2015 are included in rental and other property operating expenses.

A schedule of future amortization and accretion of acquisition related intangible assets and liabilities as of March 31, 2016 is as follows:


Assets Liabilities
Years Ending December 31,
Acquired
Above-Market
Leases
Acquired
In-Place
Leases
Tax
Abatement
Acquired
Below-Market
Ground Lease
Acquired
Below-Market
Leases

(in thousands)

2016 (Nine months ending December 31, 2016)

$ 50 1,014 $ 413 $ 105 $ (1,879 )

2017

26 964 551 140 (2,405 )

2018

9 705 551 140 (971 )

2019

— 436 298 140 (200 )

2020

— 178 — 140 —

Thereafter

— 778 — 9,563 —

$ 85 $ 4,075 $ 1,813 $ 10,228 $ (5,455 )

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

AS OF MARCH 31, 2016, AND DECEMBER 31, 2015, AND
FOR THREE MONTHS ENDED MARCH 31, 2016 AND 2015 (UNAUDITED)

6. DISCONTINUED OPERATIONS

We have reflected the lending segment, which was acquired on the Acquisition Date, as held for sale at March 31, 2016 and December 31, 2015, based on a plan approved by the Board of Directors to sell the lending segment that, when completed, will result in the deconsolidation of the lending segment. During July 2015, to maximize value, we modified our strategy from a strategy of selling the lending segment as a whole to a strategy of soliciting buyers for components of the business. This change in the sale methodology resulted in the need to extend the period to complete the sale of the lending segment beyond one year. In connection with our plan, we have expensed transaction costs of $9,000 and $163,000 as incurred during the three months ended March 31, 2016 and 2015, respectively.

In December 2015, pursuant to the modified plan, we sold substantially all of our commercial mortgage loans to an unrelated third party and recognized a gain of $5,151,000. We are continuing our efforts and are actively soliciting the sale of the remainder of the lending segment.

The following is a reconciliation of the carrying amounts of assets and liabilities that are classified as held for sale on the consolidated balance sheets as of March 31, 2016 and December 31, 2015:


March 31,
2016
December 31,
2015

(in thousands)

Assets held for sale

Loans receivable, net

$ 126,726 $ 103,440

Cash and cash equivalents

13,347 15,936

Restricted cash

1,869 819

Accounts receivable and interest receivable, net

1,060 691

Other intangible assets

2,957 2,957

Other assets

4,968 5,149

Total assets held for sale, net

$ 150,927 $ 128,992

Liabilities associated with assets held for sale

Debt

$ 55,446 $ 47,121

Accounts payable and accrued expenses

2,843 2,302

Other liabilities

5,203 3,317

Total liabilities associated with assets held for sale

$ 63,492 $ 52,740

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

AS OF MARCH 31, 2016, AND DECEMBER 31, 2015, AND
FOR THREE MONTHS ENDED MARCH 31, 2016 AND 2015 (UNAUDITED)

6. DISCONTINUED OPERATIONS (Continued)

Loans receivable, net consist of the following:


March 31,
2016
December 31,
2015

(in thousands)

Commercial mortgage loans

$ 2,834 $ 3,511

SBA 7(a) loans, subject to secured borrowings

35,062 36,574

SBA 7(a) loans

48,077 43,096

Commercial real estate loans, subject to secured borrowings

40,794 20,408

Loans receivable

126,767 103,589

Deferred capitalized costs, net

241 406

Loan loss reserves

(282 ) (555 )

Loans receivable, net

$ 126,726 $ 103,440

Commercial Mortgage Loans —Represents loans to small businesses collateralized by first liens on the real estate of the related business.

SBA 7(a) Loans, Subject to Secured Borrowings —Represents the government guaranteed portion of loans which were sold with the proceeds received from the sale reflected as "secured borrowings—government guaranteed loans." There is no credit risk associated with these loans since the SBA has guaranteed payment of the principal.

SBA 7(a) Loans —Represents the non-government guaranteed retained portion of loans originated under the SBA 7(a) Program and the government guaranteed portion of loans that have not yet been fully funded or sold.

Commercial Real Estate Loans, Subject to Secured Borrowings —Represents mezzanine loans secured by an indirect ownership interest in entities that either directly or indirectly own parcels of commercial real estate. These loans have a variable interest rate.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

AS OF MARCH 31, 2016, AND DECEMBER 31, 2015, AND
FOR THREE MONTHS ENDED MARCH 31, 2016 AND 2015 (UNAUDITED)

6. DISCONTINUED OPERATIONS (Continued)

Debt consists of the following:


March 31,
2016
December 31,
2015

(in thousands)

Secured Borrowings—Government Guaranteed Loans:

Secured borrowing principal on SBA 7(a) loans sold for a premium and excess spread—variable rate, reset quarterly, based on prime rate with weighted average coupon rate of 3.95% and 3.90% at March 31, 2016 and December 31, 2015, respectively

$ 28,138 $ 29,481

Secured borrowing principal on loans sold for excess spread—variable rate, reset quarterly, based on prime rate with weighted average coupon rate of 1.83% and 1.58% at March 31, 2016 and December 31, 2015, respectively

4,909 4,947

Total Secured Borrowings—Government Guaranteed Loans

33,047 34,428

Secured Borrowings—Commercial Real Estate Loans:



Secured borrowings based on 49% of the principal on commercial real estate loans with variable interest rates, reset monthly, based on 30-day LIBOR with weighted average coupon rate of 11.19% and 9.77% at March 31, 2016 and December 31, 2015, respectively

19,989 10,000

Total Secured Borrowings—Commercial Real Estate Loans

19,989 10,000

Unamortized premiums and discounts, net

2,410 2,693

Total Secured Borrowings

$ 55,446 $ 47,121

Secured Borrowings —Represents sold loans which are treated as secured borrowings since the loan sales did not meet the derecognition criteria provided for in ASC 860-30, Secured Borrowing and Collateral . To the extent secured borrowings are for government guaranteed loans, they may include cash premiums which are included in secured borrowings and amortized as a reduction to interest expense over the life of the loan using the effective interest method and fully amortized when the loan is repaid in full.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

AS OF MARCH 31, 2016, AND DECEMBER 31, 2015, AND
FOR THREE MONTHS ENDED MARCH 31, 2016 AND 2015 (UNAUDITED)

6. DISCONTINUED OPERATIONS (Continued)

Future principal payments on our lending segment debt (face value) at March 31, 2016 are as follows:

Years Ending December 31,
Secured
Borrowings
Principal(1)

(in thousands)

2016 (Nine months ending December 31, 2016)

$ 2,051

2017

11,111

2018

11,092

2019

1,168

2020

1,212

Thereafter

26,402

$ 53,036

(1)
Principal payments are generally dependent upon cash flows received from the underlying loans. Our estimate of their repayment is based on scheduled principal payments on the underlying loans. Our estimate will differ from actual amounts to the extent we experience prepayments and/or loan liquidations or charge-offs. No payment is due unless payments are received from the borrowers on the underlying loans.

The following is the detail of income from operations of assets held for sale classified as discontinued operations on the consolidated statements of operations:


Three Months
Ended
March 31,

2016 2015

(in thousands)

Revenue —Interest and other income

$ 3,342 $ 5,178

Expenses:

Interest expense

477 301

Fees to related party

1,062 1,143

General and administrative

184 574

Provision for income taxes

190 198

Total expenses

1,913 2,216

Income from operations of assets held for sale

$ 1,429 $ 2,962

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

AS OF MARCH 31, 2016, AND DECEMBER 31, 2015, AND
FOR THREE MONTHS ENDED MARCH 31, 2016 AND 2015 (UNAUDITED)

7. DEBT

Information on our debt is as follows:


March 31,
2016
December 31,
2015

(in thousands)

Mortgage loan with a fixed interest rate of 4.50% per annum, with monthly payments of interest only for 10 years, and payments of interest and principal starting in February 2022. The loan has a $42,008,000 balance due on January 5, 2027. The loan is nonrecourse.

$ 46,000 $ 46,000

Mortgage loan with a fixed interest rate of 6.65% per annum, with monthly payments of principal and interest. The loan has a 25-year amortization schedule with a $21,136,000 balance due on July 15, 2018. The loan is nonrecourse.

28,451 29,201

Mortgage loans with a fixed interest rate of 5.39% per annum, with monthly payments of principal and interest, and a balance of $35,695,000 due on March 1, 2021. The loans are nonrecourse.

39,669 39,846

Mortgage loan with a fixed interest rate of 5.18% per annum, with monthly payments of principal and interest, and a balance of $26,232,000 due on June 5, 2021. The loan is nonrecourse.

29,603 29,744

143,723 144,791

Deferred loan costs related to mortgage loans

(862 ) (897 )

Premiums and discounts on assumed mortgages, net

1,064 1,178

Total Mortgages Payable

143,925 145,072

Junior subordinated notes with a variable interest rate which resets quarterly based on the 90-day LIBOR plus 3.25%, with quarterly interest only payments. Balance due at maturity on March 30, 2035.

27,070 27,070

Unsecured term loan facility

385,000 385,000

Unsecured credit facility

107,000 107,000

519,070 519,070

Deferred loan costs related to unsecured term loan and credit facilities

(4,425 ) (5,216 )

Discount on junior subordinated notes

(2,072 ) (2,091 )

Total Other

512,573 511,763

Total Debt

$ 656,498 $ 656,835

The mortgages payable are secured by deeds of trust on certain of the properties and assignments of rents.

The junior subordinated notes may be redeemed at par at our option.

Deferred loan costs, which represent legal and third-party fees incurred in connection with our borrowing activities, are capitalized and amortized to interest expense on a straight-line basis over the life of the related loan, approximating the effective interest method. Deferred loan costs of $10,445,000

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

AS OF MARCH 31, 2016, AND DECEMBER 31, 2015, AND
FOR THREE MONTHS ENDED MARCH 31, 2016 AND 2015 (UNAUDITED)

7. DEBT (Continued)

and $10,445,000 are presented net of accumulated amortization of $5,158,000 and $4,332,000 at March 31, 2016 and December 31, 2015, respectively.

In September 2014, CIM Commercial entered into an $850,000,000 unsecured credit facility with a bank syndicate consisting of a $450,000,000 revolver, a $325,000,000 term loan and a $75,000,000 delayed-draw term loan. The credit facility can be increased to $1,150,000,000 under certain conditions. CIM Commercial is subject to certain financial maintenance covenants and a minimum property ownership condition. Outstanding advances under the revolver bear interest at (i) the base rate, plus 0.20% to 1.00% or (ii) London Interbank Offered Rate ("LIBOR") plus 1.20% to 2.00%, depending on the maximum consolidated leverage ratio. Outstanding advances under the term loans bear interest at (i) the base rate, plus 0.15% to 0.95% or (ii) LIBOR plus 1.15% to 1.95%, depending on the maximum consolidated leverage ratio. The revolver is also subject to an unused commitment fee of 0.15% or 0.25% depending on the amount of aggregate unused commitments. The delayed-draw term loan was also subject to an unused line fee of 0.25%. The credit facility matures in September 2016 and provides for two one-year extension options under certain conditions. We intend to either exercise the extension option or identify alternative funding options at or prior to debt maturity. At March 31, 2016 and December 31, 2015, $107,000,000 ($0 under the revolver and $107,000,000 under the term loans) was outstanding under the credit facility and $450,000,000 was available for future borrowings. Proceeds from the unsecured credit facility were used for acquisitions and general corporate purposes, and to repay mortgage loans and outstanding balances under our prior unsecured credit facilities. At March 31, 2016, the interest rate on this unsecured credit facility was 1.58%, while at December 31, 2015, the interest rate was 1.57%.

In May 2015, CIM Commercial entered into an unsecured term loan facility with a bank syndicate pursuant to which CIM Commercial can borrow up to a maximum of $385,000,000. The term loan facility ranks pari passu with CIM Commercial's $850,000,000 unsecured credit facility described above; covenants under the term loan facility are substantially the same as those in the $850,000,000 unsecured credit facility. Outstanding advances under the term loan facility bear interest at (i) the base rate plus 0.60% to 1.25% or (ii) LIBOR plus 1.60% to 2.25%, depending on the maximum consolidated leverage ratio. The unused portion of the term loan facility was also subject to an unused fee of 0.20%. With some exceptions, any prepayment of the term loan facility prior to May 2017 will be subject to a prepayment fee up to 2% of the outstanding principal amount. The term loan facility matures in May 2022. On November 2, 2015, $385,000,000 was drawn under the term loan facility. At March 31, 2016 and December 31, 2015, $385,000,000 was outstanding under the term loan facility. Proceeds from the term loan facility were used to repay balances outstanding under our unsecured credit facility. At March 31, 2016 and December 31, 2015, the variable interest rate on this unsecured term loan facility was 2.04% and 1.84%, respectively. The interest rate of the loan has been effectively converted to a fixed rate of 3.16% until May 8, 2020 through interest rate swaps (see Note 11).

At March 31, 2016 and December 31, 2015, we were in compliance with all of our respective financial covenants.

At March 31, 2016 and December 31, 2015, accrued interest and unused commitment fees payable of $1,865,000 and $1,688,000, respectively, are included in accounts payable and accrued expenses.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

AS OF MARCH 31, 2016, AND DECEMBER 31, 2015, AND
FOR THREE MONTHS ENDED MARCH 31, 2016 AND 2015 (UNAUDITED)

7. DEBT (Continued)

Future principal payments on our debt (face value) at March 31, 2016 are as follows:

Years Ending December 31,
Mortgages
Payable
Other(1) Total

(in thousands)

2016 (Nine months ending December 31, 2016)

$ 3,286 $ 107,000 $ 110,286

2017

4,642 — 4,642

2018

24,300 — 24,300

2019

1,519 — 1,519

2020

1,596 — 1,596

Thereafter

108,380 412,070 520,450

$ 143,723 $ 519,070 $ 662,793

(1)
Represents the junior subordinated notes and unsecured credit and term loan facilities.

8. STOCK-BASED COMPENSATION PLANS

On March 11, 2014, we granted awards of 2,000 restricted shares of Common Stock to each of the independent members of the Board of Directors (6,000 in aggregate) which awards were effective upon the receipt of stockholder approval of the amendment of the 2005 Equity Incentive Plan on April 28, 2014. The shares of Common Stock vested in March 2015 based on a year of continuous service. In April 2015, an additional 2,000 restricted shares of Common Stock were granted to each of the independent members of the Board of Directors (6,000 in aggregate) under the 2015 Equity Incentive Plan, which will vest over a year of continuous service. Compensation expense related to these restricted shares of Common Stock is recognized over the vesting period. We recorded compensation expense of $27,000 and $32,000 for the three months ended March 31, 2016 and 2015, respectively, related to these restricted shares of Common Stock.

We issued to two of our executive officers an aggregate of 2,000 shares of Common Stock on May 6, 2014 and an aggregate of 2,000 shares of Common Stock on March 6, 2015. The restricted shares of Common Stock vest based on two years of continuous service with one-third of the shares of Common Stock vesting immediately upon issuance and one-third vesting at the end of each of the next two years from the date of issuance. Compensation expense related to these restricted shares of Common Stock is recognized over the vesting period. We recognized compensation expense of $5,000 and $18,000 for the three months ended March 31, 2016 and 2015, respectively, related to these restricted shares of Common Stock.

As of March 31, 2016, there was $5,000 of total unrecognized compensation expense related to shares of Common Stock which will be recognized over the next year.

9. EARNINGS PER SHARE ("EPS")

The computations of basic EPS are based on our weighted average shares outstanding. The basic weighted average shares of common stock outstanding were 97,662,000 and 97,582,000 for the three

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

AS OF MARCH 31, 2016, AND DECEMBER 31, 2015, AND
FOR THREE MONTHS ENDED MARCH 31, 2016 AND 2015 (UNAUDITED)

9. EARNINGS PER SHARE ("EPS") (Continued)

months ended March 31, 2016 and 2015, respectively. We had no dilutive securities outstanding for each of the three months ended March 31, 2016 and 2015.

10. DIVIDENDS DECLARED

Dividends declared during the three months ended March 31, 2016 and 2015 consisted of the following:

On March 6, 2015, we declared a common share dividend of $0.21875 per share of Common Stock which was paid on March 27, 2015.

On March 8, 2016, we declared a common share dividend of $0.21875 per share of Common Stock which was paid on March 29, 2016.

11. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

Hedges of Interest Rate Risk

In order to manage financing costs and interest rate exposure related to our $385,000,000 unsecured term loan facility (see Note 7), on August 13, 2015, we entered into interest rate swap agreements with multiple counterparties. These swap agreements became effective on November 2, 2015. Each of our interest rate swap agreements meets the criteria for cash flow hedge accounting treatment and we have designated the interest rate swap agreements as cash flow hedges of the risk of variability attributable to changes in the one-month LIBOR on the term loan facility. Accordingly, the interest rate swaps are recorded on the consolidated balance sheets at fair value and the changes in the fair value of the swaps are recorded in OCI and reclassified to earnings as an adjustment to interest expense as interest becomes receivable or payable (see Note 2). We do not expect any significant losses from counterparty defaults related to our swap agreements.

Summary of Derivatives

The following table sets forth the key terms of our interest rate swap contracts:

Number of Interest
Rate Swaps(1)(2)
Total Notional
Amount
Fixed Rates Floating Rate Index Effective
Date
Expiration
Date

(in thousands)




10

$ 385,000 1.559% - 1.569% One-Month LIBOR 11/2/2015 5/8/2020

(1)
See Note 12 for our fair value disclosures.

(2)
Our interest rate swaps are not subject to master netting arrangements.

These swaps hedge the future cash flows of interest payments on our $385,000,000 unsecured term loan facility by fixing the rate until May 8, 2020 at a weighted average rate of 1.563% plus the credit spread, which was 1.60% at March 31, 2016 and December 31, 2015, or an all-in rate of 3.16%.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

AS OF MARCH 31, 2016, AND DECEMBER 31, 2015, AND
FOR THREE MONTHS ENDED MARCH 31, 2016 AND 2015 (UNAUDITED)

11. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued)

Credit-Risk-Related Contingent Features

Each of our interest rate swap agreements contains a provision under which we could also be declared in default under such agreements if we default on the term loan facility. As of March 31, 2016 and December 31, 2015, there have been no events of default under our interest rate swap agreements.

Impact of Hedges on AOCI and Consolidated Statements of Operations

The changes in the balance of each component of AOCI related to our interest rate swaps designated as cash flow hedges are as follows:


Three Months
Ended
March 31,

2016 2015

(in thousands)

Accumulated other comprehensive income (loss), at beginning of period

$ (2,519 ) $ —

Other comprehensive income (loss) before reclassifications

(9,033 ) —

Amounts reclassified from accumulated other comprehensive income (loss)(1)

1,108 —

Net current period other comprehensive income (loss)

(7,925 ) —

Accumulated other comprehensive income (loss), at end of period

$ (10,444 ) $ —

(1)
The amounts from AOCI are reclassified as an increase to interest expense in the statements of operations.

Future Reclassifications from AOCI

We estimate that $4,334,000 related to our derivatives designated as cash flow hedges will be reclassified out of AOCI as an increase to interest expense during the next twelve months.

12. FAIR VALUE OF FINANCIAL INSTRUMENTS

We determine the estimated fair value of financial assets and liabilities utilizing a hierarchy of valuation techniques based on whether the inputs to a fair value measurement are considered to be observable or unobservable in a marketplace. The hierarchy for inputs used in measuring fair value is as follows:

    Level 1 Inputs —Quoted prices in active markets for identical assets or liabilities

    Level 2 Inputs —Observable inputs other than quoted prices in active markets for identical assets and liabilities

    Level 3 Inputs —Unobservable inputs

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

AS OF MARCH 31, 2016, AND DECEMBER 31, 2015, AND
FOR THREE MONTHS ENDED MARCH 31, 2016 AND 2015 (UNAUDITED)

12. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

Our derivative financial instruments (see Note 11) are measured at fair value on a recurring basis and are presented on the balance sheet at fair value, on a gross basis, excluding accrued interest. The table below presents the fair value of our derivative financial instruments as well as their classification on our consolidated balance sheets:


March 31,
2016
December 31,
2015
Level Balance Sheet
Location

(in thousands)


Liabilities:

Interest rate swaps

$ 10,444 $ 2,519 2 Other liabilities

Interest Rate Swaps —We estimate the fair value of our interest rate swaps by calculating the credit-adjusted present value of the expected future cash flows of each swap. The calculation incorporates the contractual terms of the derivatives, observable market interest rates which we consider to be Level 2 inputs, and credit risk adjustments, if any, to reflect the counterparty's as well as our own nonperformance risk.

The estimated fair values of those financial instruments which are not recorded at fair value on a recurring basis on our consolidated balance sheets were as follows:


March 31, 2016 December 31, 2015

Carrying
Amount
Estimated
Fair Value
Carrying
Amount
Estimated
Fair Value
Level

(in thousands)

Assets held for sale:

Loans receivable subject to credit risk

$ 51,099 $ 51,298 $ 46,456 $ 46,697 3

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

35,133 35,602 36,646 37,121 3

Commercial real estate loans, subject to secured borrowings

40,494 40,794 20,338 20,408 3

Liabilities:

Junior subordinated notes

24,998 25,065 24,979 25,046 3

Mortgages payable

143,925 149,797 145,072 147,516 3

Management's estimation of the fair value of our financial instruments other than our interest rate swaps is based on a Level 3 valuation in the fair value hierarchy established for disclosure of how a company values its financial instruments. In general, quoted market prices from active markets for the identical financial instrument (Level 1 inputs), if available, should be used to value a financial instrument. If quoted prices are not available for the identical financial instrument, then a determination should be made if Level 2 inputs are available. Level 2 inputs include quoted prices for similar financial instruments in active markets for identical or similar financial instruments in markets that are not active (i.e., markets in which there are few transactions for the financial instruments, the prices are not current, price quotations vary substantially, or in which little information is released publicly). There is limited reliable market information for our financial instruments other than our interest rate swaps and we utilize other methodologies based on unobservable inputs for valuation

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

AS OF MARCH 31, 2016, AND DECEMBER 31, 2015, AND
FOR THREE MONTHS ENDED MARCH 31, 2016 AND 2015 (UNAUDITED)

12. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

purposes since there are no Level 1 or Level 2 inputs available. Accordingly, Level 3 inputs are used to measure fair value.

In general, estimates of fair value may differ from the carrying amounts of the financial assets and liabilities primarily as a result of the effects of discounting future cash flows. Considerable judgment is required to interpret market data and develop estimates of fair value. Accordingly, the estimates presented are made at a point in time and may not be indicative of the amounts we could realize in a current market exchange.

The carrying amounts of our secured borrowings, included in liabilities associated with assets held for sale, and unsecured credit and term loan facilities approximate their fair values, as the interest rates on these securities are variable and approximate current market interest rates.

Loans Receivable Subject to Credit Risk —Loans receivable were initially recorded at estimated fair value at the Acquisition Date. Loans receivable originated subsequent to the Acquisition Date are recorded at cost upon origination and adjusted by net loan origination fees and discounts. In order to determine the estimated fair value of our loans receivable, we use a present value technique for the anticipated future cash flows using certain assumptions. At March 31, 2016, our assumptions included discount rates ranging from 8.25% to 13.00% and a prepayment rate of 15.00%. At December 31, 2015, our assumptions included discount rates ranging from 8.00% to 12.75% and a prepayment rate of 15.00%.

SBA 7(a) Loans Receivable, Subject to Secured Borrowings —These loans receivable represent the government guaranteed portion of loans which were sold with the proceeds received from the sale reflected as secured borrowings—government guaranteed loans (a liability associated with assets held for sale on our consolidated balance sheets (Note 6)). There is no credit risk associated with these loans since the SBA has guaranteed payment of the principal. In order to determine the estimated fair value of these loans receivable, we use a present value technique for the anticipated future cash flows taking into consideration the lack of credit risk and using a prepayment rate of 15.00% at both March 31, 2016 and December 31, 2015.

Commercial Real Estate Loans, Subject to Secured Borrowings —In order to determine the estimated fair value of our commercial real estate loans receivable which consist of mezzanine loans, we use a present value technique for the anticipated future cash flows using certain assumptions including a discount rate of 11.19% and 9.77% at March 31, 2016 and December 31, 2015, respectively. For the purpose of fair value determination, there is no prepayment anticipated and no potential credit deterioration anticipated on our loans at both March 31, 2016 and December 31, 2015.

Junior Subordinated Notes —The fair value of the junior subordinated notes is estimated based on current interest rates available for debt instruments with similar terms. Discounted cash flow analysis is generally used to estimate the fair value of our junior subordinated notes. The rate used was 4.46% and 4.44% at March 31, 2016 and December 31, 2015, respectively.

Mortgages Payable —The fair values of mortgages payable are estimated based on current interest rates available for debt instruments with similar terms. The fair value of our mortgages payable is

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

AS OF MARCH 31, 2016, AND DECEMBER 31, 2015, AND
FOR THREE MONTHS ENDED MARCH 31, 2016 AND 2015 (UNAUDITED)

12. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

sensitive to fluctuations in interest rates. Discounted cash flow analysis is generally used to estimate the fair value of our mortgages payable, using rates ranging from 4.08% to 4.23% and 4.42% to 4.72% at March 31, 2016 and December 31, 2015, respectively.

13. RELATED-PARTY TRANSACTIONS

In May 2005, CIM Urban and CIM Urban REIT Management L.P., each an affiliate of CIM REIT and CIM Group, L.P. ("CIM Group" or "CIM"), entered into an Investment Management Agreement, pursuant to which CIM Urban engaged CIM Urban REIT Management L.P. to provide investment advisory services to CIM Urban. CIM Investment Advisors, LLC, an affiliate of CIM REIT and CIM Group, registered with the SEC as an investment adviser and, in connection with such registration, CIM Urban entered into a new Investment Management Agreement with CIM Investment Advisors, LLC, in December 2015, on terms substantially similar to those in the previous Investment Management Agreement, pursuant to which CIM Urban engaged CIM Investment Advisors, LLC to provide investment advisory services, and the previous Investment Management Agreement was terminated. "Advisor" refers to CIM Urban REIT Management L.P. prior to December 10, 2015 and to CIM Investment Advisors, LLC on and after December 10, 2015.

CIM Urban pays asset management fees to the Advisor on a quarterly basis in arrears. The fee is calculated as a percentage of the daily average adjusted fair value of CIM Urban's investments, as defined, as follows:

Daily Average Adjusted Fair Value
of CIM Urban's Investments

Quarterly Fee
Percentage
From Greater of To and Including
(in thousands)

$ — $ 500,000 0.2500 %
500,000 1,000,000 0.2375 %
1,000,000 1,500,000 0.2250 %
1,500,000 4,000,000 0.2125 %
4,000,000 20,000,000 0.1000 %

The Advisor earned asset management fees of $6,478,000 and $6,142,000 for the three months ended March 31, 2016 and 2015, respectively. At March 31, 2016 and December 31, 2015, asset management fees of $6,562,000 and $6,260,000, respectively, were due to the Advisor.

CIM Management, Inc. and certain of its affiliates (collectively, the "CIM Management Entities"), all affiliates of CIM REIT and CIM Group, provide property management, leasing, and development services to CIM Urban. The CIM Management Entities earned property management fees, which are included in rental and other property operating expenses, totaling $1,410,000 and $1,463,000 for the three months ended March 31, 2016 and 2015, respectively. CIM Urban also reimbursed the CIM Management Entities $1,762,000 and $2,057,000 during the three months ended March 31, 2016 and 2015, respectively, for the cost of on-site personnel incurred on behalf of CIM Urban, which is included in rental and other property operating expenses. The CIM Management Entities earned leasing commissions of $66,000 and $53,000 for the three months ended March 31, 2016 and 2015, respectively,

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

AS OF MARCH 31, 2016, AND DECEMBER 31, 2015, AND
FOR THREE MONTHS ENDED MARCH 31, 2016 AND 2015 (UNAUDITED)

13. RELATED-PARTY TRANSACTIONS (Continued)

which were capitalized to deferred charges. In addition, the CIM Management Entities earned construction management fees of $258,000 and $225,000 for the three months ended March 31, 2016 and 2015, respectively, which were capitalized to investments in real estate.

At March 31, 2016 and December 31, 2015, fees payable and expense reimbursements due to the CIM Management Entities of $2,006,000 and $2,230,000, respectively, are included in due to related parties. Also included in due (from) to related parties as of March 31, 2016 and December 31, 2015, was ($478,000) and ($274,000), respectively, due (from) the CIM Management Entities and related parties.

On the Acquisition Date, pursuant to the terms of the Merger Agreement, CIM Commercial and its subsidiaries entered into the Master Services Agreement (the "Master Services Agreement") with CIM Service Provider, LLC (the "Manager"), an affiliate of CIM Group, pursuant to which the Manager agrees to provide or arrange for other service providers to provide management and administration services to CIM Commercial and its subsidiaries following the Merger. Pursuant to the Master Services Agreement, we appointed an affiliate of CIM Group as the manager of Urban Partners GP, LLC. Under the Master Services Agreement, CIM Commercial pays a base service fee (the "Base Service Fee") to the Manager initially set at $1,000,000 per year (subject to an annual escalation by a specified inflation factor beginning on January 1, 2015), payable quarterly in arrears. For the three months ended March 31, 2016 and 2015, the Manager earned a Base Service Fee of $254,000 and $253,000, respectively. In addition, pursuant to the terms of the Master Services Agreement, the Manager may receive compensation and/or reimbursement for performing certain services for CIM Commercial and its subsidiaries that are not covered under the Base Service Fee. During the three months ended March 31, 2016 and 2015, such services performed by the Manager included accounting, tax, reporting, internal audit, legal, compliance, risk management, IT, human resources and corporate communications. The Manager's compensation is based on the salaries and benefits of the employees of the Manager and/or its affiliates who performed these services (allocated based on the percentage of time spent on the affairs of CIM Commercial and its subsidiaries). For the three months ended March 31, 2016 and 2015, we expensed $866,000 and $691,000 for such services, respectively. At March 31, 2016 and December 31, 2015, $1,475,000 and $1,256,000 was due to the Manager, respectively, for such services.

On January 1, 2015, we entered into a Staffing and Reimbursement Agreement with CIM SBA Staffing, LLC ("CIM SBA"), an affiliate of CIM Group and our subsidiary, PMC Commercial Lending, LLC, which provides that CIM SBA will provide personnel and resources to us and that we will reimburse CIM SBA for the costs and expenses of providing such personnel and resources. For the three months ended March 31, 2016 and 2015, we incurred expenses related to services subject to reimbursement by us under this agreement of $1,062,000 and $1,143,000, respectively, which are included in discontinued operations, and $103,000 and $123,000, respectively, which are included in asset management and other fees to related parties. In addition, we deferred $79,000 and $35,000 associated with services rendered for originating loans for the three months ended March 31, 2016 and 2015, respectively, which are included in loans receivable of our assets held for sale.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

AS OF MARCH 31, 2016, AND DECEMBER 31, 2015, AND
FOR THREE MONTHS ENDED MARCH 31, 2016 AND 2015 (UNAUDITED)

13. RELATED-PARTY TRANSACTIONS (Continued)

On October 1, 2015, an affiliate of CIM Group entered into a 5-year lease renewal with respect to a property owned by the Company. For the three months ended March 31, 2016 and 2015, we recorded rental and other property income related to this lease of $27,000 and $26,000, respectively.

14. COMMITMENTS AND CONTINGENCIES

Loan Commitments —Commitments to extend credit are agreements to lend to a customer provided the terms established in the contract are met. Our outstanding loan commitments (including the unfunded balance of loans which have closed) to fund loans were $110,393,000 at March 31, 2016. Of the total commitments, $89,946,000 was for the unfunded balance of closed commercial real estate loans, approximately $44,074,000 of which is expected to be funded by a participant in those loans through loan participation agreements; the remaining commitments were for prime-based loans to be originated by our subsidiary engaged in SBA 7(a) Program lending, the government guaranteed portion of which is intended to be sold. Commitments generally have fixed expiration dates. Since some commitments are expected to expire without being drawn upon, total commitment amounts do not necessarily represent future cash requirements.

General —In connection with the ownership and operation of real estate properties, we have certain obligations for the payment of tenant improvement allowances and lease commissions in connection with new leases and renewals. CIM Commercial had a total of $42,104,000 in future obligations under leases to fund tenant improvements and other future construction obligations at March 31, 2016.

Employment Agreements —We have employment agreements, effective on the Acquisition Date, with two of our officers. Pursuant to these employment agreements, we issued an aggregate of 76,423 shares of Common Stock under the 2015 Equity Incentive Plan as retention bonuses to these officers in January 2016 (as each executive was not entitled to any disability, death or severance payments on such date). These shares vested immediately. We accrued associated payroll taxes of $444,000 at December 31, 2015, which were paid during the three months ended March 31, 2016, and recorded compensation expenses of $0 and $316,000 during the three months ended March 31, 2016 and 2015, respectively, related to these retention bonuses. In addition, under certain circumstances, each of these employment agreements currently provides for (1) severance payment equal to the annual base salary paid to the officer and (2) death and disability payments in an amount equal to two times and one time, respectively, the annual base salary paid to the officers. At March 31, 2016, there was no unrecognized compensation expense related to these awards.

Litigation —We are not currently involved in any material pending or threatened legal proceeding nor, to our knowledge, is any material legal proceeding currently threatened against us, other than routine litigation arising in the ordinary course of business. In the normal course of business, we are periodically party to certain legal actions and proceedings involving matters that are generally incidental to our business. While the outcome of these legal actions and proceedings cannot be predicted with certainty, in management's opinion, the resolution of these legal proceedings and actions will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

AS OF MARCH 31, 2016, AND DECEMBER 31, 2015, AND
FOR THREE MONTHS ENDED MARCH 31, 2016 AND 2015 (UNAUDITED)

14. COMMITMENTS AND CONTINGENCIES (Continued)

SBA Related —If the SBA establishes that a loss on an SBA guaranteed loan is attributable to significant technical deficiencies in the manner in which the loan was originated, funded or serviced under the SBA 7(a) Program, the SBA may seek recovery of the principal loss related to the deficiency from us. With respect to the guaranteed portion of SBA loans that have been sold, the SBA will first honor its guarantee and then seek compensation from us in the event that a loss is deemed to be attributable to technical deficiencies. Based on historical experience, we do not expect that this contingency is probable to be asserted. However, if asserted, it could have a material adverse effect on our consolidated financial position, results of operations or cash flows.

Environmental Matters —In connection with the ownership and operation of real estate properties, we may be potentially liable for costs and damages related to environmental matters, including asbestos-containing materials. We have not been notified by any governmental authority of any noncompliance, liability, or other claim in connection with any of the properties, and we are not aware of any other environmental condition with respect to any of the properties that management believes will have a material adverse effect on our consolidated financial position, results of operations or cash flows.

Rent Expense —The ground lease for a property provides for current annual rent of $503,000, payable quarterly, with increases every five years after July 1, 2015 based on the greater of 15% or 50% of the increase in the Consumer Price Index during a five-year adjustment period. In addition, commencing on July 1, 2040 and July 1, 2065, the rent payable during the balance of the lease term shall be increased by an amount equal to 10% of the rent payable during the immediately preceding lease year. The lease term is through May 31, 2089. If the landlord decides to sell the leased property, we have the right of first refusal.

Rent expense under this lease, which includes straight-line rent and amortization of acquired below-market ground lease, was $438,000 for each of the three months ended March 31, 2016 and 2015. We record rent expense on a straight-line basis. Straight-line rent liability of $12,457,000 and $12,180,000 is included in other liabilities in the accompanying consolidated balance sheets as of March 31, 2016 and December 31, 2015, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

AS OF MARCH 31, 2016, AND DECEMBER 31, 2015, AND
FOR THREE MONTHS ENDED MARCH 31, 2016 AND 2015 (UNAUDITED)

14. COMMITMENTS AND CONTINGENCIES (Continued)

We lease office space in Dallas, Texas under a lease which expires in May 2018. We recorded rent expense of $58,000, included in discontinued operations, for each of the three months ended March 31, 2016 and 2015.

Scheduled future noncancelable minimum lease payments at March 31, 2016 are as follows:

Years Ending December 31,
(in thousands)

2016 (Nine months ending December 31, 2016)

$ 558

2017

749

2018

607

2019

503

2020

541

Thereafter

127,679

$ 130,637

15. FUTURE MINIMUM LEASE RENTALS

Future minimum rental revenues under long-term operating leases at March 31, 2016, excluding tenant reimbursements of certain costs, are as follows:

Years Ending December 31,
Governmental
Tenants
Other
Tenants
Total

(in thousands)

2016 (Nine months ending December 31, 2016)

$ 37,216 $ 79,844 $ 117,060

2017

44,494 104,875 149,369

2018

43,110 86,042 129,152

2019

44,441 72,571 117,012

2020

41,022 61,434 102,456

Thereafter

143,863 202,980 346,843

$ 354,146 $ 607,746 $ 961,892

16. CONCENTRATIONS

Tenant Revenue Concentrations —Rental revenues from the U.S. General Services Administration and other government agencies (collectively, "Governmental Tenants"), which primarily occupy properties located in Washington, D.C., accounted for approximately 20.1% and 22.8% of our rental and other property income for the three months ended March 31, 2016 and 2015, respectively. At March 31, 2016 and December 31, 2015, $7,531,000 and $7,968,000, respectively, was due from Governmental Tenants (see Note 15).

Geographical Concentrations of Investments in Real Estate —As of March 31, 2016 and December 31, 2015, we owned 20 office properties, five multifamily properties, two and three hotel

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

AS OF MARCH 31, 2016, AND DECEMBER 31, 2015, AND
FOR THREE MONTHS ENDED MARCH 31, 2016 AND 2015 (UNAUDITED)

16. CONCENTRATIONS (Continued)

properties, respectively, three parking garages, and two development sites, one of which is being used as a parking lot. These properties are located in four states and Washington, D.C.

Our revenue concentrations from properties are as follows:


Three Months
Ended
March 31,

2016 2015

California

64.6 % 62.5 %

Washington, D.C.

21.2 23.8

Texas

8.0 7.5

North Carolina

4.3 4.6

New York

1.9 1.6

100.0 % 100.0 %

Our real estate investments concentrations from properties are as follows:


March 31,
2016
December 31,
2015

California

51.9 % 52.6 %

Washington, D.C.

31.6 31.1

Texas

7.5 7.4

North Carolina

5.3 5.3

New York

3.7 3.6

100.0 % 100.0 %

17. SEGMENT DISCLOSURE

In accordance with ASC Topic 280, Segment Reporting , our reportable segments consist of three types of commercial real estate properties, namely, office, hotel and multifamily properties, as well as a segment for our lending operations, which is held for sale as of March 31, 2016 and 2015. Management internally evaluates the operating performance and financial results of the segments based on net operating income. We also have certain general and administrative level activities, including public company expenses, legal, accounting, and tax preparation that are not considered separate operating segments. The reportable segments are accounted for on the same basis of accounting as described in the notes to our audited consolidated financial statements for the year ended December 31, 2015 included in our Annual Report on Form 10-K filed with the SEC on March 15, 2016.

We evaluate the performance of our real estate segments based on net operating income, which is defined as rental and other property income and expense reimbursements less property and related expenses, and excludes nonproperty income and expenses, interest expense, depreciation and amortization, corporate related general and administrative expenses, and transaction costs.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

AS OF MARCH 31, 2016, AND DECEMBER 31, 2015, AND
FOR THREE MONTHS ENDED MARCH 31, 2016 AND 2015 (UNAUDITED)

17. SEGMENT DISCLOSURE (Continued)

The net operating income of our reportable segments included in continuing operations for the three months ended March 31, 2016 and 2015 is as follows:


Three Months Ended
March 31,

2016 2015

(in thousands)

Office:

Revenues

$ 46,049 $ 46,615

Property expenses:

Operating

18,487 19,391

General and administrative

354 313

Total property expenses

18,841 19,704

Segment net operating income—office

27,208 26,911

Hotel:

Revenues

15,283 15,719

Property expenses:

Operating

9,955 10,677

General and administrative

87 41

Total property expenses

10,042 10,718

Segment net operating income—hotel

5,241 5,001

Multifamily:

Revenues

5,058 4,905

Property expenses:

Operating

2,836 2,641

General and administrative

258 83

Total property expenses

3,094 2,724

Segment net operating income—multifamily

1,964 2,181

Total segment net operating income

$ 34,413 $ 34,093

34


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CIM COMMERCIAL TRUST CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

AS OF MARCH 31, 2016, AND DECEMBER 31, 2015, AND
FOR THREE MONTHS ENDED MARCH 31, 2016 AND 2015 (UNAUDITED)

17. SEGMENT DISCLOSURE (Continued)

A reconciliation of segment net operating income to net income for the three months ended March 31, 2016 and 2015 is as follows:


Three Months Ended
March 31,

2016 2015

(in thousands)

Total segment net operating income

$ 34,413 $ 34,093

Interest expense

(6,626 ) (5,403 )

General and administrative

(1,064 ) (2,155 )

Asset management and other fees to related parties

(7,701 ) (7,209 )

Transaction costs

(149 ) (428 )

Depreciation and amortization

(18,058 ) (19,128 )

Gain on sale of real estate

24,739 —

Income (loss) from continuing operations

25,554 (230 )

Discontinued operations

Income from operations of assets held for sale

1,429 2,962

Net income from discontinued operations

1,429 2,962

Net income

26,983 2,732

Net income attributable to noncontrolling interests

(3 ) —

Net income attributable to stockholders

$ 26,980 $ 2,732

The condensed assets for each of the segments as of March 31, 2016 and December 31, 2015, along with capital expenditures and loan originations for the three months ended March 31, 2016 and 2015, are as follows:


March 31,
2016
December 31,
2015

(in thousands)

Condensed assets:

Office

$ 1,534,059 $ 1,520,339

Hotel

163,072 176,735

Multifamily

170,213 171,429

Lending assets held for sale

150,927 128,992