Creative Media & Community Trust Corporation (CIM Commercial Trust Corporation)
Business context and reporting period. Unaudited Form 10-Q for the quarter and nine months ended September 30, 2020. The REIT owns and operates office and hotel properties and originates SBA 7(a) loans. At quarter-end it reported eight office properties, one hotel, one parking garage and one development site; office occupancy was 79.5%.
Key financial results
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Total revenue | $17.3 million | $29.2 million | $59.4 million | $113.3 million |
| Net income (loss) | $(5.3) million | $2.9 million | $(10.6) million | $347.0 million |
| Net income (loss) attributable to common stockholders | $(9.7) million | $(1.6) million | $(24.6) million | $334.3 million |
| Segment net operating income | $6.6 million | $12.9 million | $25.2 million | $55.8 million |
| FFO attributable to common stockholders | $(4.4) million | $3.3 million | $(8.9) million | $(7.8) million |
| Net cash from operating activities | Not stated quarterly | $7.2 million | $32.6 million |
Amounts are rounded. FFO is a non-GAAP REIT measure; the filing cautions that it is not a liquidity measure or a substitute for GAAP cash flow.
Financial position and liquidity
- At September 30, 2020, total assets were $688.1 million, cash and cash equivalents $32.1 million, restricted cash $9.9 million, net real estate $504.3 million, and net loans receivable $89.3 million.
- Debt, net of costs and discounts, was $326.5 million, up from $307.4 million at December 31, 2019. Debt included $166.5 million drawn on the secured 2018 revolver, a $97.1 million mortgage due July 2026, and $16.0 million of Federal Reserve PPPLF borrowing tied to PPP loans.
- The 2018 revolver had approximately $28 million available and the separate unsecured revolver had $10 million available, both as of quarter-end. The modified facility requires at least $15 million of defined liquid assets during its deferral period through June 30, 2021; it also imposes a $15 million reserve against borrowing availability. The 2018 revolver matures in October 2022.
- Nine-month investing cash use was $31.9 million, principally reflecting $24.1 million of loan fundings and $13.2 million of real estate additions. Financing provided $30.8 million, including net debt borrowings and preferred-stock proceeds. Cash and restricted cash increased by $6.0 million from year-end.
- Common dividends were $0.075 per share quarterly during the first three quarters of 2020. Preferred dividends are cumulative and carry stated annual rates of 5.5% for Series A, 5.65% for Series D and 5.5% for Series L.
Material changes versus prior periods
- Q3 revenue fell 40.7% year over year; segment NOI declined by $6.3 million. Hotel segment revenue fell 79.3%, office revenue fell 19.9%, and lending revenue fell 17.8%.
- The hotel’s Q3 occupancy was 24.1%, versus 77.2% a year earlier; RevPAR was $29.16 versus $114.33. Nine-month RevPAR was $51.37 versus $131.97.
- Nine-month revenue and segment NOI also reflect the 2019 property disposals. The 2019 comparison included $433.1 million of real-estate sale gains, $69.0 million of impairment charges, and $30.0 million of debt-extinguishment losses; there were no real-estate sales or impairments in the first nine months of 2020.
- COVID-19 bad-debt expense was $1.4 million in Q3 and $1.9 million year to date. The company increased loan-loss reserves during Q3. At September 30, 100% of loans subject to credit risk were current, but the portfolio was 99% concentrated in hospitality borrowers.
- The company issued common shares to its related-party operator in lieu of cash for Q1 asset-management fees and Series A preferred shares for Q2 fees; management expected to pay Q3 and Q4 asset-management fees in Series A preferred shares, subject to applicable requirements and the operator’s agreement.
Outlook, commentary, risks and unusual items
- Management said COVID-19 had adversely affected business, financial condition, results and liquidity and expected effects to continue through the rest of 2020 and at least the first half of 2021. No quantified earnings or revenue guidance was provided.
- Management expected hotel NOI to remain negative in Q4 2020 and likely through at least the first half of 2021. It also warned that office rent collections, renewals and occupancy could weaken and hospitality-loan delinquencies and losses could rise if relief did not continue.
- For Q3, office and retail tenants had paid 95.5% of billed rent by September 30, with another 1.4% collected by November 4. Parking collections were 34.9%, with 62.6% recorded as bad debt. These figures were preliminary and unaudited. October collections were 92.8% for office and retail and 19.2% for parking, as of October 31.
- Management reduced costs, paused most work on the 4750 Wilshire office repositioning and Sheraton Grand renovations, and added liquidity through new facilities and a revolver amendment. Projects were estimated to cost $14.5 million and $26.3 million, respectively, with most work temporarily suspended due to COVID-19.
- Contingencies include $5.9 million of loan-funding commitments and $4.4 million of future tenant-improvement and construction obligations. The company is pursuing an $11.8 million San Francisco real-estate transfer-tax refund; it also disclosed an injury lawsuit for which it could not estimate a loss range, but did not expect a material adverse effect. SBA may seek recovery for losses tied to technical deficiencies in loan origination or servicing.
- The 2018 revolver amendment increased borrowing costs during the deferral period and reduced availability; the related modification generated a $281,000 debt-extinguishment loss. Management also identified a potential California commercial-property-tax risk from Proposition 15, whose outcome was uncertain at the filing date.
Important facts for investors to verify
- Subsequent office, retail and parking rent collections, concessions and bad-debt levels, including whether preliminary October data changed.
- Hotel occupancy, RevPAR, operating costs and the timing and funding of paused renovations.
- Hospitality-loan delinquencies, reserve adequacy, realized losses and PPP loan forgiveness or repayment.
- Revolver borrowing-base availability, the $15 million liquid-asset requirement, covenant compliance and the October 2022 maturity/refinancing plan.
- Ability to meet cumulative preferred dividends and redemption obligations while sustaining common dividends; confirm the terms and cash-versus-stock settlement options for each preferred series.
- Resolution of the San Francisco tax litigation, the contractor injury claim and any material SBA recovery action.