COVID-19

6 Months Ended

Jun. 30, 2020

Unusual or Infrequent Items, or Both [Abstract]

In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic. COVID-19 has spread worldwide, causing significant disruptions to the U.S. and world economies. On March 4, 2020 and March 13, 2020, a state of emergency was declared for the state of California and for the United States, respectively. In response to the issuance of U.S. federal guidelines to contain the spread of COVID-19, U.S. state and local jurisdictions, including those in which the Company operates, implemented various containment and or mitigation measures, including shelter-in-place orders and the temporary closure of non-essential businesses. COVID-19 has triggered a period of significant global economic slowdown, and the impact of COVID-19 on the U.S. economy is expected to continue through the remainder of 2020 and potentially beyond.

The information provided in the two tables below provides insight into the effects of COVID-19 on our rent collections for the three months ended June 30, 2020 and for the month of July 2020, respectively. While we provided similar information last quarter, we undertake no obligation to provide updated rent collection, concession or allowance information in the future. The following information is for the three months ended June 30, 2020, is presented based on collections and agreements with tenants reached as of June 30, 2020, and is preliminary and unaudited:


Tenant Type	Rental and Other Property Income Billed to Tenants		% Collected		% Collected by Applying the Security Deposit		% Deferred		% Recorded as Bad Debt		% Abated
Office and Retail (1)	$	12,940,790	90.2	%	1.0	%	0.3	%	0.1	%	—	%
Parking (2)	$	978,117	21.9	%	—	%	—	%	49.6	%	12.7	%

(1)As of August 5, 2020, the Company collected an additional 5.7% of the $12,940,790 rental and other property income billed to its office and retail tenants for the three months ended June 30, 2020. Additionally, in the month of July 2020, the Company deferred additional rental and other property income billed to its office and retail tenants for the three months ended June 30, 2020 in a de minimis amount.

(2)Two parking tenants whose leases were expiring on April 30, 2020 renewed their respective leases on a month-to-month basis, at reduced rates, retroactive to April 1, 2020, until August 31, 2020, at which time the parties agree to put in place a long-term lease. The April 2020 reduction in rent is presented as an abatement in the table above.

The following information is for the month of July 2020, is presented based on collections and agreements with tenants reached as of July 31, 2020, and is preliminary and unaudited:


Tenant Type	Rental and Other Property Income Billed to Tenants		% Collected		% Collected by Applying the Security Deposit		% Deferred		% Recorded as Bad Debt		% Abated
Office and Retail (1)	$	4,470,553	86.3	%	—	%	—	%	—	%	—	%
Parking	$	360,789	28.8	%	—	%	—	%	—	%	—	%

(1)As of August 5, 2020, the Company collected an additional 5.1% of the $4,470,553 rental and other property income billed to its office and retail tenants for the month of July 2020.

Additionally, the spread of COVID-19 in the United States and the resulting restrictions on travel, meetings and social gatherings that have been implemented from time to time have impacted, and are expected to continue to materially impact so long as they persist, the operations of our hotel in Sacramento, California. For the fourth quarter of 2019, the net operating income of our hotel constituted approximately 22% of our total segment net operating income. For the month of March 2020, the occupancy, average daily rate ("ADR") and revenue per available room ("RevPAR") at our hotel in Sacramento, California were 38.6%, $172.05 and $66.48, respectively, as compared to occupancy, ADR and RevPAR of 85.6%, $176.12 and $150.84 for the month of March 2019, respectively. For the second quarter of 2020, the occupancy, ADR, and RevPAR were 12.5%, $124.49 and $15.61, respectively, as compared to occupancy, ADR and RevPAR of 81.7%, $173.08 and $141.42 for the second quarter of 2019, respectively. For the month of July 2020, the occupancy, ADR and RevPAR were 17.6%, $121.41 and $21.40, respectively, as compared to occupancy, ADR and RevPAR of 76.5%, $136.68 and $104.61 for July 2019.

Our lending division has also been adversely impacted by COVID-19. Loans originated by us through June 30, 2020 under the SBA 7(a) Small Business Loan Program consist primarily of loans to borrowers in the limited service hospitality sector. Currently, our borrowers are experiencing significant cash flow deficits as the travel and leisure industry decline caused by COVID-19 has severely impacted limited service hospitality properties. As a result of the relief provided by the CARES Act, we do not expect delinquencies to be material in the aggregate for loans currently serviced under our SBA 7(a) Small Business Loan Program through September 2020. However, if no further relief is provided by Congress, we expect that borrowers under our SBA 7(a) Small Business Loan Program will be materially and adversely affected by the economic impact of COVID-19, potentially leading to substantially higher delinquencies on our loans. This may lead to increased loan loss reserves and ultimately an increase in loan losses. We sell the portion of loans originated by us under the SBA 7(a) Small Business Loan Program that is guaranteed by the SBA; however, during the second quarter of 2020, the secondary market for the sale of such guaranteed portions declined, both as a result of significantly decreased demand for such loans in general and, specifically, for limited service hospitality loans, which resulted in limited premium income during the second quarter of 2020. The loans funded during the second quarter of 2020 consisted primarily of loans made pursuant to the Paycheck Protection Program.

We have taken steps to adapt to the difficult business environment in which we operate and to strengthen our business to position our business to thrive post COVID-19. These steps include (i) reducing our corporate overhead expenses by realigning certain support functions and reducing employee compensation at our Operator, (ii) not appointing a replacement for our retiring President, (iii) focusing on appropriate cost-reduction measures at our properties, (iv) temporarily suspending the vast majority of activities related to the repositioning of our office building at 4750 Wilshire Boulevard in Los Angeles, California, and renovations at the Sheraton Grand Hotel in Sacramento, California, (v) increasing liquidity by entering into the new 2020 unsecured revolving credit facility in May, accessing the PPPLF in June and negotiating an amendment to our existing 2018 revolving credit facility, and (vi) amending our Master Services Agreement to eliminate the Base Service Fee as described in Note 14.

The extent to which COVID-19 will continue to impact the Company’s operations and those of its tenants and business partners will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the COVID-19 pandemic and actions taken to contain the pandemic or mitigate its impact and the extent to which federal, state and local governments provide relief or assistance to those affected by COVID-19 (including extending the CARES Act). The Company cannot predict the significance, extent or duration of any adverse impact of COVID-19 on its business, financial condition, results of operations, cash flow or its ability to satisfy its debt service

obligations or to maintain its level of distributions on its Common Stock or Preferred Stock. However, the Company’s business, financial condition, results of operations, and liquidity will be adversely affected for the remainder of 2020 if the current effects of COVID-19 continue.