STRATEGIC REALTY TRUST, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

The following discussion and analysis should be read in conjunction with our
accompanying consolidated financial statements and the notes thereto.


As used herein, the terms "we," "our," "us," and "Company" refer to Strategic
Realty Trust, Inc., and, as required by context, Strategic Realty Operating
Partnership, L.P., a Delaware limited partnership, which we refer to as our
"operating partnership" or "OP", and to their respective subsidiaries.
References to "shares" and "our common stock" refer to the shares of our common
stock.
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Special Note Regarding Forward-Looking Statements


Certain statements included in this Quarterly Report on Form 10-Q that are not
historical facts (including any statements concerning investment objectives,
other plans and objectives of management for future operations or economic
performance, or assumptions or forecasts related thereto) are forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). These statements are only predictions. We
caution that forward-looking statements are not guarantees. Actual events or our
investments and results of operations could differ materially from those
expressed or implied in any forward-looking statements. Forward-looking
statements are typically identified by the use of terms such as "may," "should,"
"expect," "could," "intend," "plan," "anticipate," "estimate," "believe,"
"continue," "predict," "potential" or the negative of such terms and other
comparable terminology.

The forward-looking statements included herein are based upon our current
expectations, plans, estimates, assumptions and beliefs, which involve numerous
risks and uncertainties. Assumptions relating to the foregoing involve judgments
with respect to, among other things, future economic, competitive and market
conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond our control.
Although we believe that the expectations reflected in such forward-looking
statements are based on reasonable assumptions, our actual results and
performance could differ materially from those set forth in the forward-looking
statements. The following are some of the risks and uncertainties, although not
all of the risks and uncertainties, that could cause our actual results to
differ materially from those presented in our forward-looking statements:

•The adverse effect of the public health crisis of the novel coronavirus disease
(COVID-19) pandemic, or any future pandemic, epidemic or outbreak of infectious
disease, on the financial condition, results of operations, cash flows and
performance of the Company and its tenants, the real estate market, in
particular with respect to retail commercial properties and the global economy
and financial markets.

•Our executive officers and certain other key real estate professionals are also
officers, directors, managers, key professionals and/or holders of a direct or
indirect controlling interest in our advisor. As a result, they face conflicts
of interest, including conflicts created by our advisor's compensation
arrangements with us and conflicts in allocating time among us and other
programs and business activities.

•We are uncertain of our sources for funding our future capital needs. If we
cannot obtain debt or equity financing on acceptable terms, our ability to
continue to acquire real properties or other real estate-related assets, fund or
expand our operations and pay distributions to our stockholders will be
adversely affected.

•We depend on tenants for our revenue and, accordingly, our revenue is dependent
upon the success and economic viability of our tenants. Revenues from our
properties could decrease due to a reduction in tenants (caused by factors
including, but not limited to, tenant defaults, tenant insolvency, early
termination of tenant leases and non-renewal of existing tenant leases) and/or
lower rental rates, making it more difficult for us to meet our financial
obligations, including debt service and our ability to pay distributions to our
stockholders.

•All our assets are concentrated in one state and in urban retail properties,
any adverse economic, real estate or business conditions in this geographic area
or in the urban retail market, including with respect to the current economic
slowdown, the rising interest rate environment and inflation could affect our
operating results and our ability to pay distributions to our stockholders.

•Our current and future investments in real estate and other real estate-related
investments may be affected by unfavorable real estate market and general
economic conditions, which could decrease the value of those assets and reduce
the investment return to our stockholders. Revenues from our properties could
decrease. Such events would make it more difficult for us to meet our debt
service obligations and limit our ability to pay distributions to our
stockholders.

•Certain of our debt obligations have variable interest rates with interest and
related payments that vary with the movement of LIBOR or other indices.
Increases in these indices could increase the amount of our debt payments and
limit our ability to pay distributions to our stockholders.

All forward-looking statements should be read in light of the risks identified
in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December
31, 2021 (the "2021 Annual Report on Form 10-K"). Any of the assumptions
underlying the forward-looking statements included herein could be inaccurate,
and undue reliance should not be placed upon on any forward-looking statements
included herein. All forward-looking statements are made as of the date of this
Quarterly Report on Form 10-Q, and the risk that actual results will differ
materially from the expectations expressed herein will increase with the passage
of time. Except as otherwise required by the federal securities laws, we
undertake no obligation to publicly update or revise any forward-looking
statements made after the date of this Quarterly Report on Form 10-Q, whether as
a result
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of new information, future events, changed circumstances or any other reason. In
light of the significant uncertainties inherent in the forward-looking
statements included in this Quarterly Report on Form 10-Q, and the risks
described in Part I, Item 1A of the 2021 Annual Report on Form 10-K, the
inclusion of such forward-looking statements should not be regarded as a
representation by us or any other person that the objectives and plans set forth
in this Quarterly Report on Form 10-Q will be achieved.

Overview


We are a Maryland corporation that was formed on September 18, 2008, to invest
in and manage a portfolio of income-producing retail properties, located in the
United States, real estate-owning entities and real estate-related assets,
including the investment in or origination of mortgage, mezzanine, bridge and
other loans related to commercial real estate. During the first quarter of 2016,
we also invested, through joint ventures, in two significant retail projects
under development, one of which was substantially completed during the year
ended December 31, 2020. We have elected to be taxed as a real estate investment
trust ("REIT") for federal income tax purposes, commencing with the taxable year
ended December 31, 2009, and we have operated and intend to continue to operate
in such a manner. We own substantially all of our assets and conduct our
operations through our operating partnership, of which we are the sole general
partner. We also own a majority of the outstanding limited partner interests in
the operating partnership.

Since our inception, our business has been managed by an external advisor. We do
not have direct employees and all management and administrative personnel
responsible for conducting our business are employed by our advisor. Currently
we are externally managed and advised by SRT Advisor, LLC, a Delaware limited
liability company (the "Advisor") pursuant to an advisory agreement with the
Advisor (the "Advisory Agreement") initially executed on August 10, 2013, and
subsequently renewed every year through 2022. The current term of the Advisory
Agreement terminates on August 9, 2023. The Advisor is an affiliate of PUR
Management LLC, which is an affiliate of L3 Capital, LLC. L3 Capital, LLC is a
real estate investment firm focused on institutional quality, value-add, prime
urban retail and mixed-use investment within first tier U.S. metropolitan
markets.

Impact of COVID-19 and Market Outlook


Given the ongoing workforce shortages, global supply chain bottlenecks and
shortages, recent macroeconomic trends, including inflation and rising interest
rates, we continue to monitor and address risks related to the COVID-19 pandemic
and the general state of the economy on our portfolio and retail tenants. As of
September 30, 2022, all of our tenants have resumed paying rent and while we
believe that the COVID-19 pandemic has and could continue to negatively impact
our financial condition and results of operations, including but not limited to,
declines in real estate rental revenues, the inability to sell certain
properties at a favorable price, and a decrease in construction and leasing
activity, we believe that the initial impacts from the pandemic to our portfolio
and tenants have started to subside.

During the nine months ended September 30, 2022, inflation in the United States
has accelerated and is currently expected to continue at an elevated level in
the near-term. Rising inflation could have an adverse impact on our variable
rate debt or the refinancing of our fixed rate debt, as well as general and
administrative expenses, as these costs could increase at a rate higher than our
rental and other revenue. In addition, our retail tenants may experience
decreased revenue as a result of rising inflation and reduced consumer spending.
The Federal Reserve has recently started raising interest rates to combat
inflation and restore price stability and it is expected that rates will
continue to rise throughout the remainder of 2022. As a result, to the extent
our exposure to increases in interest rates is not eliminated through interest
rate swaps or other protection agreements, such increases may result in higher
debt service costs, which will adversely affect our cash flows.

We believe that the actions we have taken to improve our financial position and
maximize our liquidity, as described further in the "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in our 2021 Annual
Report on Form 10-K, will continue to mitigate the impact to our cash flow
caused by the current macroeconomic trends.

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Property Portfolio


As of September 30, 2022, our wholly-owned property portfolio included six
retail properties, excluding a land parcel, which we refer to as "our
properties" or "our portfolio," comprising an aggregate of approximately 27,000
square feet of multi-tenant, commercial retail space located in one state. We
purchased our properties for an aggregate purchase price of approximately $35.3
million. As of September 30, 2022 approximately 88% of our wholly-owned real
estate investments were leased (based on rentable square footage), with a
weighted-average remaining lease term of approximately 6.0 years. As of December
31, 2021, approximately 86% of our wholly-owned real estate investments were
leased (based on rentable square footage as of December 31, 2021), with a
weighted-average remaining lease term of approximately 6.3 years.


(dollars in thousands)                                                                                          Effective                                        Original
                                                            Rentable Square              Percent                Rent (3)                       Date              Purchase
Property Name (1)                   Location                      Feet                 Leased (2)            (per Sq. Foot)                  Acquired              Price     Debt (4)

Wholly-owned Real Estate Investments

400 Grove Street             San Francisco, CA                   2,000                         100  %       $        48.00                      6/14/2016       $  2,890          $  1,450
8 Octavia Street             San Francisco, CA                   3,640                          47  %                65.31                      6/14/2016          2,740             1,500
Fulton Shops                 San Francisco, CA                   3,758                          66  %                58.43                      7/27/2016          4,595             2,200
450 Hayes                    San Francisco, CA                   3,724                         100  %                98.78                     12/22/2016          7,567             3,650
388 Fulton                   San Francisco, CA                   3,110                         100  %                61.96                       1/4/2017          4,195             2,300
Silver Lake                  Los Angeles, CA                    10,497                         100  %                84.25                      1/11/2017         13,300             6,900
                                                                26,729                                                                                            35,287            18,000

Real Estate Investments owned through Joint Ventures Held for Sale
3032 Wilshire Joint
Venture Property

             Santa Monica, CA                   12,208                          42  %                96.39                       3/8/2016         13,500            12,711
                                                                38,937                                                                                          $ 48,787          $ 30,711

(1)List of properties does not include a residual parcel at Topaz Marketplace as
of September 30, 2022.

(2)Percentage is based on leased rentable square feet of each property as of
September 30, 2022.


(3)Effective rent per square foot is calculated by dividing the annualized
September 30, 2022 contractual base rent by the total square feet occupied at
the property. The contractual base rent does not include other items such as
tenant concessions (e.g., free rent), percentage rent, and expense recoveries.

(4) Debt represents the outstanding balance as of September 30, 2022, and
excludes reclassification of approximately $0.1 million deferred financing
costs, net, as a contra-liability. For more information on our financing, refer
to Note 7. “Notes Payable, Net” to our condensed consolidated financial
statements included in this Quarterly Report.

Properties Under Development


As of September 30, 2022, we had one property under development in Hollywood,
California. This development project is still in the planning phase and
construction has not commenced. During the third quarter of 2022 we expensed
approximately $280 thousand in costs included in the condensed consolidated
statement of operations.
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Results of Operations

Comparison of the three and nine months ended September 30, 2022, versus the
three and nine months ended September 30, 2021.


The following table provides summary information about our results of operations
for the three and nine months ended September 30, 2022 and 2021 (amounts in
thousands):

                                                 Three Months Ended
                                                   September 30,
                                                 2022           2021        $ Change      % Change

Rental revenue and reimbursements $ 734 $ 517 $ 217 42.0 %

    Operating and maintenance expenses              273           469      

(196) (41.8) %

    General and administrative expenses             290           373      

(83) (22.3) %

    Depreciation and amortization expenses          254           351      

(97) (27.6) %

    Interest expense                                852           319      

533 167.1 %

    Loss on early lease termination                   -           624      

(624) (100.0) %

    Loss on impairment of real estate               152         5,628      
 (5,476)       (97.3) %
    Operating loss                               (1,087)       (7,247)        6,160        (85.0) %

    Net loss                                 $   (1,087)     $ (6,976)     $  6,160        (88.3) %

                                                 Nine Months Ended
                                                   September 30,
                                                 2022           2021        $ Change      % Change

Rental revenue and reimbursements $ 2,189 $ 1,870 $ 319 17.1 %

    Operating and maintenance expenses            1,323         1,747      

(424) (24.3) %

    General and administrative expenses           1,238         1,184      

54 4.6 %

Depreciation and amortization expenses 846 1,068

(222) (20.8) %

    Interest expense                              1,484           947      

537 56.7 %

    Loss on early lease termination                 190           624      

(434) (69.6) %

    Loss on impairment of real estate             6,035         5,628      
    407          7.2  %
    Operating loss                               (8,927)       (9,328)          401         (4.3) %
    Other income, net                                 -           422          (422)      (100.0) %

    Net loss                                 $   (8,927)     $ (8,906)     $    (21)         0.2  %

Our results of operations for the three and nine months September 30, 2022, are
not necessarily indicative of those expected in future periods.

Revenue


The increase in revenue during the three and nine months ended September 30,
2022, compared to the same periods in 2021, was primarily due to the receipt of
key money from a new tenant as part of new lease agreement at the 388 Fulton
property and new tenants paying rent at the Silverlake and Wilshire Joint
Venture properties.

Operating and maintenance expenses


Operating and maintenance expenses decreased during the three and nine months
ended September 30, 2022, compared to the same periods in 2021, primarily due to
lower bad debt reserves, write-off of uncollectible rents and lower consulting
fees related to Wilshire Joint Venture Property development. Increase partially
offset by higher security costs and tenant legal costs.

General and administrative expenses

General and administrative expenses decreased during the three months ended
September 30, 2022, compared to the same period in 2021, primarily due to lower
audit and other professional fees and lower asset management fees.

General and administrative expenses increased during the nine months ended
September 30, 2022, compared to the same period in 2021, primarily due to higher
legal fees with the increase partially offset by lower asset management fees.

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Depreciation and amortization expenses


Depreciation and amortization expenses decreased during the three and nine
months ended September 30, 2022, compared to the same periods in 2021, primarily
due to the impairment charge incurred during the year ended December 31, 2021 at
the Wilshire Joint Venture Property and the suspension of depreciation at the
Wilshire Joint Venture Property due to the classification of the property as
held for sale in the consolidated balance sheets as of June 30, 2022.

Interest expense


Interest expense remained increased during the three and nine months ended
September 30, 2022, compared to the same period in 2021, primarily due to draw
downs on the Unsecured loan from PUR Holdings Lender, LLC, an affiliate of the
Advisor. Additional increase due to increase in the Secured Overnight Financing
Rate resulting in a higher interest rate on the SRT Loan.

Loss on early lease termination


Loss on early lease termination during the three and nine months ended September
30, 2022 related to the disposal of assets due to the termination of a tenant
lease at the 388 Fulton property.

Loss on early lease termination during the three and nine months ended
September, 2021 related to the disposal of assets due to the termination of
tenant leases at the 400 Grove, 450 Hayes, and Wilshire properties.

Loss on impairment of real estate


Loss on impairment of real estate during the three months ended September 30,
2022, related to the Wilshire Joint Venture of approximately $0.2 million. Loss
on impairment of real estate during the nine months ended September 30, 2022,
related to the Wilshire Joint Venture and Sunset & Gardner Joint Venture of
approximately $2.6 million and $3.5 million, respectively.

Loss on impairment of real estate during the three and nine months ended
September 30, 2021, related to the Wilshire Joint Venture.

Other income, net

Other income, net for the three and nine months ended September 30, 2021,
consisted of a gain on sale of Shops at Turkey Creek of approximately $0.4
million
.

Liquidity and Capital Resources


Since our inception, our principal demand for funds has been for the acquisition
of real estate, the payment of operating expenses and interest on our
outstanding indebtedness, the payment of distributions to our stockholders and
investments in unconsolidated joint ventures and development properties. Prior
to the termination of our initial public offering in February 2013 we used
offering proceeds to fund our acquisition activities and our other cash needs.
Currently we have used and expect to continue to use debt financing, net sales
proceeds and cash flow from operations to fund our cash needs.

As of September 30, 2022, our cash and cash equivalents were approximately $0.5
million and we had $0.6 million of restricted cash (funds held by the lenders
for property taxes, insurance, tenant improvements, leasing commissions, capital
expenditures, rollover reserves and other financing needs).

Our aggregate borrowings, secured and unsecured, are reviewed by our board of
directors at least quarterly. Under our Articles of Amendment and Restatement,
as amended, which we refer to as our "charter," we are prohibited from borrowing
in excess of 300% of the value of our net assets. Net assets for purposes of
this calculation is defined to be our total assets (other than intangibles),
valued at cost prior to deducting depreciation, reserves for bad debts and other
non-cash reserves, less total liabilities. However, we may temporarily borrow in
excess of these amounts if such excess is approved by a majority of the
independent directors and disclosed to stockholders in our next quarterly
report, along with an explanation for such excess. As of September 30, 2022 and
December 31, 2021, our borrowings were approximately 173.8% and 120.2%,
respectively, of the value of our net assets.
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The following table summarizes, for the periods indicated, selected items in our
condensed consolidated statements of cash flows (amounts in thousands):

                                                             Nine Months Ended
                                                               September 30,
                                                          2022                2021             $ Change
Net cash provided by (used in):
Operating activities                                  $   (1,784)         $  (1,775)         $       (9)
Investing activities                                      (1,517)             1,838              (3,355)
Financing activities                                       1,970                (38)              2,008

Net (decrease) increase in cash, cash equivalents and
restricted cash

                                       $   (1,331)         $ 

25

Cash Flows from Operating Activities


The change in cash flows from operating activities was primarily due to lower
provisions for losses on tenant receivables, lower depreciation and amortization
expense and lower losses on early lease terminations due to fewer tenants
terminating leases during the nine months ended September 30, 2022 as compared
to the same period in 2021.

Cash Flows from Investing Activities


Cash flows used by investing activities during the nine months ended September
30, 2022, primarily consisted of $0.9 million of additional investment in the
Sunset and Gardner Joint Venture and $0.4 million additional investment in
tenant and building improvements at the Wilshire and Silverlake properties.

Cash flows provided by investing activities during the nine months ended
September 30, 2021, primarily consisted of approximately $3.8 million in
proceeds from the sale of Turkey Creek and partially offset by $1.3 million of
additional investment in the Sunset and Gardner Joint Venture.

Cash Flows from Financing Activities


Cash flows provided by financing activities during the nine months ended
September 30, 2022, primarily consisted of proceeds of $2.0 million from a draw
down on the Unsecured Loan from PUR Holdings Lender, LLC, an affiliate of the
Advisor. Additional cash was provided by construction loan proceeds of
approximately $0.2 million. The increase was partially offset by payment of
financing costs related to the extensions of the Sunset & Gardner and Wilshire
Joint Venture loans.

Cash flows used in financing activities during the nine months ended September
30, 2021, primarily consisted of payment of financing costs related to the
extension of the Sunset & Gardner loan, partially offset by construction loan
proceeds

Short-term Liquidity and Capital Resources


Our principal short-term demand for funds is for the payment of operating
expenses and the payment on our outstanding indebtedness. To date, our cash
needs for operations have been funded by cash provided by property operations,
the sales of properties, debt refinancing, and the sale of shares of our common
stock. We may fund our short-term operating cash needs from operations, from the
sales of properties and from debt.

On December 30, 2021, in order to fund our short-term liquidity needs we
obtained a $4.0 million Unsecured Loan from PUR Holdings Lender, LLC, an
affiliate of the Advisor. The Unsecured Loan has a term of 12 months with an
interest rate of 7.0% per annum, compounding monthly with the ability to pay-off
during the term of the loan. The Unsecured Loan requires draw downs in
increments of no less than approximately $0.3 million. The Unsecured Loan will
be due and payable upon the earlier of 12 months or the termination of the
Advisory Agreement by us. On March 15, 2022, we and PUR Holdings Lender, LLC,
amended the loan agreement to allow for an extension of the maturity date of the
Unsecured Loan by six months, from December 30, 2022 to June 30, 2023, if we
provide PUR Holdings Lender, LLC, with notice, pay an extension fee, and no
event of default has occurred. On August 2, 2022, PUR Holdings Lender, LLC
agreed to an additional six month extension at the option of the Company to
extend the maturity date until December 31, 2023. The Unsecured Loan is
guaranteed by us.

On August 10, 2022, the due diligence period expired under a Purchase and Sale
Agreement we entered with an unrelated third-party for the sale of the Wilshire
Joint Venture Property located in Santa Monica, California for a sale price of
$16.5 million. On October 11, 2022, we consummated the disposition of the
Wilshire Joint Venture Property for $16.5 million in cash, before customary
closing and transaction costs, resulting in net cash proceeds of approximately
$2.2 million. In connection with the disposition of the Wilshire Joint Venture
Property, we repaid the Wilshire Construction Loan in the amount of
$12.7 million, which was secured by a first Deed of Trust on the Wilshire Joint
Venture Property. The Purchase and Sale
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Agreement was entered on June 30, 2022, and as a result, the Wilshire Joint
Venture Property was classified as held for sale in the consolidated balance
sheets as of September 30, 2022.

Long-term Liquidity and Capital Resources


On a long-term basis, our principal demand for funds will be for real estate and
real estate-related investments, additional investment in our development
projects and the payment of acquisition-related expenses, operating expenses,
distributions to stockholders, future redemptions of shares and interest and
principal payments on current and future indebtedness. Generally, we intend to
meet cash needs for items other than acquisitions and acquisition-related
expenses from our cash flow from operations, debt and sales of properties. On a
long-term basis, we expect that substantially all cash generated from operations
will be used to pay distributions to our stockholders after satisfying our
operating expenses including interest and principal payments. We may consider
future public offerings or private placements of equity. Refer to Note 7. "Notes
Payable, Net" to our condensed consolidated financial statements included in
this Quarterly Report on Form 10-Q for additional information on the maturity
dates and terms of our outstanding indebtedness.

Our ability to access capital on favorable terms as well as to use cash from
operations to continue to meet our liquidity needs could be affected by the
continued effects of the COVID-19 pandemic, the current economic slowdown, the
rising interest rate environment and inflation (or the public perception that
any of these events may continue). The full impact of these events on our rental
revenue and, as a result, future cash from operations cannot be determined at
present.

We believe that our cash on hand, along with other potential aforementioned
sources of liquidity that we may be able to obtain, will be sufficient to fund
our working capital needs and debt obligations for at least the next twelve
months and beyond. However, this forward-looking statement is subject to a
number of uncertainties, including with respect to the duration of the COVID-19
pandemic, and the current economic environment and there can be no guarantee
that we will be successful with our plan. Moreover, over the long term, if our
cash flow from operations does not increase from current levels, we may have to
address a liquidity deficiency. We are actively exploring options should cash
flow from operations not sufficiently improve, including a sale of one or more
assets that are not generating positive cash flow.

Recent Financing Transactions

Multi-Property Secured Financing

On December 24, 2019, we entered into a Loan Agreement (the “SRT Loan
Agreement”) with PFP Holding Company, LLC (the “SRT Lender”) for a non-recourse
secured loan (the “SRT Loan”).


The SRT Loan is secured by first deeds of trust on our five San Francisco assets
(Fulton Shops, 8 Octavia, 400 Grove, 450 Hayes and 388 Fulton Street) as well as
our Silverlake Collection located in Los Angeles. The SRT Loan matures on
January 9, 2023. We have an option to extend the term of the loan for two
additional twelve-month periods, subject to the satisfaction of certain
covenants and conditions contained in the SRT Loan Agreement. We have the right
to prepay the SRT Loan in whole at any time or in part from time to time,
subject to the payment of certain expenses, costs or liabilities potentially
incurred by the SRT Lender as a result of the prepayment and subject to certain
other conditions contained in the loan documents. Individual properties may be
released from the SRT Loan collateral in connection with bona fide third-party
sales, subject to compliance with certain covenants and conditions contained in
the SRT Loan Agreement.

As of September 30, 2022, the SRT Loan had a principal balance of approximately
$18.0 million. The SRT Loan is a floating Secured Overnight Financing Rate
("SOFR") rate loan which bears interest at 30-day SOFR (with a floor of 1.50%)
plus 2.80%. The default rate is equal to 5% above the rate that otherwise would
be in effect. Monthly payments are interest-only with the entire principal
balance and all outstanding interest due at maturity.

Pursuant to the SRT Loan, we must comply with certain matters contained in the
loan documents including but not limited to, (i) requirements to deliver audited
and unaudited financial statements, SEC filings, tax returns, pro forma budgets,
and quarterly compliance certificates, and (ii) minimum limits on our liquidity
and tangible net worth. The SRT Loan contains customary covenants, including,
without limitation, covenants with respect to maintenance of properties and
insurance, compliance with laws and environmental matters, covenants limiting or
prohibiting the creation of liens, and transactions with affiliates.

In connection with the SRT Loan, we executed customary non-recourse carveout and
environmental guaranties, together with limited additional assurances with
regard to the condominium structures of the San Francisco assets.

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Loans Secured by Properties


On May 7, 2019, we refinanced and repaid our financing with Lone Oak Fund, LLC
with a new construction loan from ReadyCap Commercial, LLC (the "Lender") (the
"Wilshire Construction Loan"). As of September 30, 2022, the Wilshire
Construction Loan had a principal balance of approximately $12.7 million, with
future funding available up to a total of approximately $13.9 million, and bears
an interest rate of 1-month LIBOR (with a floor of 2.467%) plus an interest
margin of 4.25% per annum, payable monthly. On October 11, 2022, we consummated
the disposition of the Wilshire Joint Venture Property for $16.5 million in
cash, before customary closing and transaction costs. In connection with the
disposition of the Wilshire Joint Venture Property, we repaid the Wilshire
Construction Loan in the amount of $12.7 million, which was secured by a first
Deed of Trust on the Wilshire Joint Venture Property. We executed a guaranty
that guaranties that the loan interest reserve amounts are kept in compliance
with the terms of the loan agreement. The Lender also required that a principal
in the upstream owner of our joint venture partner in the Wilshire Joint Venture
(the "Guarantor"), guarantees performance of borrower's obligations under the
loan agreement with respect to the completion of capital improvements to the
property. We executed an Indemnity Agreement in favor of the Guarantor against
liability under that completion guaranty except to the extent caused by gross
negligence or willful misconduct, as well as for liabilities incurred under the
Environmental Indemnity Agreement executed by the Guarantor in favor of the
Lender. We used working capital funds of approximately $3.1 million to repay the
difference between the Wilshire Construction Loan initial advance and the prior
loan, to pay transaction costs, as well as to fund certain required interest and
construction reserves.

Loans Secured by Properties Under Development


On October 29, 2018, we entered into a loan agreement with Lone Oak Fund, LLC
(the "Sunset & Gardner Loan"). The Sunset & Gardner Loan has a principal balance
of approximately $8.7 million, and had an interest rate of 6.9% per annum. At
each maturity date in October 2019, 2020 and 2021, in connection with an
extension of the loan for an additional twelve-month period, the interest rate
of the loan was changed to 6.5%, 7.3% and 7.0%, respectively. On September 7,
2022, the Company extended the Sunset & Gardner Loan for an additional
twelve-month period under the same terms, except an increase in the interest
rate to 8.6% per annum. The new maturity date is October 31, 2023. The Sunset &
Gardner Loan is secured by a first Deed of Trust on the Sunset & Gardner
Property.

Loan with Affiliate


On December 30, 2021, we obtained a $4.0 million unsecured loan (the "Unsecured
Loan") from PUR Holdings Lender, LLC, an affiliate of the Advisor. The Unsecured
Loan has a term of 12 months with an interest rate of 7.0% per annum,
compounding monthly with the ability to pay-off during the term of the loan. The
Unsecured Loan requires draw downs in increments of no less than approximately
$0.3 million. The Unsecured Loan will be due and payable upon the earlier of 12
months or the termination of the Advisory Agreement by us. The Unsecured Loan is
guaranteed by us. On March 15, 2022, we and PUR Holdings Lender, LLC, amended
the loan agreement to allow for an extension of the maturity date of the
Unsecured Loan by six months, from December 30, 2022 to June 30, 2023, if we
provide PUR Holdings Lender, LLC, with notice, pay an extension fee, and no
event of default has occurred. On August 2, 2022, PUR Holdings Lender, LLC
agreed to an additional six month extension at the option of the Company to
extend the maturity date until December 31, 2023. As of September 30, 2022 the
Unsecured Loan had an outstanding balance of approximately $3.0 million.

Guidelines on Total Operating Expenses


We reimburse our Advisor for some expenses paid or incurred by our Advisor in
connection with the services provided to us, except that we will not reimburse
our Advisor for any amount by which our total operating expenses at the end of
the four preceding fiscal quarters exceed the greater of (1) 2% of our average
invested assets, as defined in our charter; and (2) 25% of our net income, as
defined in our charter, or the "2%/25% Guidelines" unless a majority of our
independent directors determines that such excess expenses are justified based
on unusual and non-recurring factors. For the three and nine months ended
September 30, 2022 and 2021, our total operating expenses did not exceed the
2%/25% Guidelines.

Our Advisory Agreement provides that the Advisor shall not be required to
reimburse to us any operating expenses incurred during a given period that
exceed the applicable limit on "Total Operating Expenses" (as defined in the
Advisory Agreement) to the extent that such excess operating expenses are
incurred as a result of certain unusual and non-recurring factors approved by
our board of directors.
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Inflation


The majority of our leases at our properties contain inflation protection
provisions applicable to reimbursement billings for common area maintenance
charges, real estate tax and insurance reimbursements on a per square foot
basis, or in some cases, annual reimbursement of operating expenses above a
certain per square foot allowance. We expect to include similar provisions in
our future tenant leases designed to protect us from the impact of inflation.
Due to the generally long-term nature of these leases, annual rent increases, as
well as rents received from acquired leases, may not be sufficient to cover
inflation and rent may be below market rates.

REIT Compliance


To qualify as a REIT for tax purposes, we are required to annually distribute at
least 90% of our REIT taxable income, subject to certain adjustments, to our
stockholders. We must also meet certain asset and income tests, as well as other
requirements. If we fail to qualify as a REIT in any taxable year, we will be
subject to federal income tax (including any applicable alternative minimum tax)
on our taxable income at regular corporate rates and generally will not be
permitted to qualify for treatment as a REIT for federal income tax purposes for
the four taxable years following the year during which our REIT qualification is
lost unless the IRS grants us relief under certain statutory provisions. Such an
event could materially adversely affect our net income and net cash available
for distribution to our stockholders.

Quarterly Distributions


As set forth above, in order to qualify as a REIT, we are required to distribute
at least 90% of our annual REIT taxable income, subject to certain adjustments,
to our stockholders. Our board of directors will continue to evaluate the amount
of future quarterly distributions based on our operational cash needs.

Some or all of our distributions have been paid, and in the future may continue
to be paid, from sources other than cash flows from operations.


In light of the COVID-19 pandemic, its impact on the economy and the related
future uncertainty, on March 27, 2020, our board of directors determined to
suspend the payment of any dividend for the quarters ending March 31, 2020, and
to reconsider future dividend payments on a quarter by quarter basis. Dividend
payments were not reinstated as of September 30, 2022.

Funds From Operations


Funds from operations ("FFO") is a supplemental non-GAAP financial measure of a
real estate company's operating performance. The National Association of Real
Estate Investment Trusts, or "NAREIT", an industry trade group, has promulgated
this supplemental performance measure and defines FFO as net income, computed in
accordance with GAAP, plus real estate related depreciation and amortization and
excluding extraordinary items and gains and losses on the sale of real estate,
and after adjustments for unconsolidated joint ventures (adjustments for
unconsolidated partnerships and joint ventures are calculated to reflect FFO.)
It is important to note that not only is FFO not equivalent to our net income or
loss as determined under GAAP, it also does not represent cash flows from
operating activities in accordance with GAAP. FFO should not be considered an
alternative to net income as an indication of our performance, nor is FFO
necessarily indicative of cash flow as a measure of liquidity or our ability to
fund cash needs, including the payment of distributions.

We consider FFO to be a meaningful, additional measure of operating performance
and one that is an appropriate supplemental disclosure for an equity REIT due to
its widespread acceptance and use within the REIT and analyst communities.
Comparison of our presentation of FFO to similarly titled measures for other
REITs may not necessarily be meaningful due to possible differences in the
application of the NAREIT definition used by such REITs.
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Our calculation of FFO attributable to common shares and Common Units and the
reconciliation of net income (loss) to FFO is as follows (amounts in thousands,
except shares and per share amounts):

                                                             Three Months Ended                           Nine Months Ended
                                                               September 30,                                September 30,
FFO                                                      2022                  2021                   2022                  2021
Net loss                                           $      (1,087)         $     (6,976)         $      (8,927)         $     (8,906)
Adjustments:

Gain on disposal of assets                                     -                     -                      -                  (422)

Depreciation of real estate                                  205                   309                    710                   932
Amortization of in-place leases and leasing
costs                                                         49                    42                    136                   136
Loss on impairment of real estate                            152                 5,628                  6,035                 5,628
FFO attributable to common shares and Common
Units (1)                                          $        (681)         $ 

(997) $ (2,046) $ (2,632)


FFO per share and Common Unit (1)                  $       (0.06)         $ 

(0.09) $ (0.19) $ (0.24)


Weighted average common shares and units
outstanding (1)                                       10,957,289            10,957,204             10,957,289            10,957,204


(1)Our common units have the right to convert a unit into common stock for a
one-to-one conversion. Therefore, we are including the related non-controlling
interest income/loss attributable to common units in the computation of FFO and
including the common units together with weighted average shares outstanding for
the computation of FFO per share and common unit.

Related Party Transactions and Agreements


We are currently party to the Advisory Agreement, pursuant to which the Advisor
manages our business in exchange for specified fees paid for services related to
the investment of funds in real estate and real estate-related investments,
management of our investments and for other services. Refer to Note 11. "Related
Party Transactions" to our condensed consolidated financial statements included
in this Quarterly Report on Form 10-Q for a discussion of the Advisory Agreement
and other related party transactions, agreements and fees.

Critical Accounting Policies and Estimates


Our interim unaudited condensed consolidated financial statements have been
prepared in accordance with GAAP and in conjunction with the rules and
regulations of the SEC. The preparation of our financial statements requires
significant management judgments, assumptions and estimates about matters that
are inherently uncertain. These judgments affect the reported amounts of assets
and liabilities and our disclosure of contingent assets and liabilities at the
dates of the financial statements and the reported amounts of revenue and
expenses during the reporting periods. With different estimates or assumptions,
materially different amounts could be reported in our financial statements.
Additionally, other companies may utilize different estimates that may impact
the comparability of our results of operations to those of companies in similar
businesses. A discussion of additional accounting policies that management
considers critical in that they involve significant management judgments,
assumptions and estimates is included in our 2021 Annual Report on Form 10-K.

Subsequent Events

On October 11, 2022, we consummated the disposition of the Wilshire Joint
Venture Property for $16.5 million in cash, before customary closing and
transaction costs of $1.6 million, resulting in net cash proceeds of
approximately $2.2 million.. In connection with the disposition of the Wilshire
Joint Venture Property, we repaid the construction loan from ReadyCap
Commercial, LLC
in the amount of $12.7 million, which loan was secured by a
first Deed of Trust on the Wilshire Joint Venture Property.

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