Business Context and Reporting Period
CIM Commercial Trust Corporation (CMCT), a Maryland REIT, reported unaudited results for the quarter ended March 31, 2020, compared with the quarter ended March 31, 2019. Its businesses comprise office and hotel real estate and SBA 7(a) lending. At quarter-end, its portfolio included nine office properties (including a development site), one hotel and an ancillary parking garage. The filing states that COVID-19 had not significantly disrupted first-quarter operations, but its effects were expected to intensify afterward.
Key Financial Metrics
- Revenue: $25.5 million, down 46.0% from $47.3 million. Rental and property income was $14.8 million; hotel income $7.8 million; interest and other income $3.0 million.
- Profit and per-share results: Net loss was $1.3 million, versus net income of $291.6 million. Net loss attributable to common stockholders was $6.8 million, or $0.46 per diluted share, versus income of $287.6 million, or $18.90 per diluted share. The 2020 common-stockholder result includes preferred dividends and deemed dividends.
- FFO: Negative $1.5 million, compared with negative $14.1 million. The company cautions that FFO is supplemental and is not a measure of liquidity or cash available for dividends.
- Segment net operating income: $11.5 million, down from $24.8 million: office $8.8 million, hotel $1.8 million and lending $1.0 million.
- Cash flow: Operating activities provided $6.0 million, versus $14.4 million. Investing activities used $5.2 million, versus providing $641.7 million in 2019. Financing activities used $3.5 million, versus using $422.7 million. Cash and restricted cash totaled $33.2 million at quarter-end, including $22.8 million of cash and cash equivalents.
- Assets and equity: Total assets were $663.5 million; total liabilities $345.8 million; total equity $279.5 million. Net real estate investments were $509.3 million and net loans receivable $65.2 million.
- Debt and liquidity: Debt, net, was $307.9 million. The secured revolving facility had $159.5 million drawn and approximately $64.9 million available at March 31; it matures in October 2022 and is subject to a borrowing-base calculation. Approximately 68.9% of debt was floating-rate. The company reported a 4.14% fixed rate on its $97.1 million mortgage loan and a 2.41% rate on revolving-facility borrowings.
Material Changes Versus the Prior Comparable Period
- The sharp year-over-year earnings decline chiefly reflects the unusual 2019 quarter, when property sales generated a $377.6 million gain. That quarter also included $66.2 million of real-estate impairment and $25.1 million of debt-extinguishment loss. No property sales, impairment charges or debt-extinguishment losses were recorded in Q1 2020.
- Revenue and segment NOI were lower, substantially reflecting 2019 property sales. Office revenue fell 55.5%; hotel revenue fell 22.1%; lending revenue fell 18.5%. The hotel decline also reflected weaker March occupancy and rates.
- Reported office occupancy was 85.8%, compared with 93.0% a year earlier. Excluding properties sold after the 2019 comparison date, prior-year occupancy was 95.4%. Annualized rent per occupied square foot was $50.20, versus $44.72 on that same adjusted comparison.
- Preferred financing continued: Q1 proceeds from Series A preferred stock, related warrants and Series D preferred stock totaled $8.7 million. The company also established a common-stock ATM program of up to $25 million; no shares had been sold under it as of May 7, 2020.
Outlook, Management Commentary, Risks and Unusual Items
- COVID-19 and rent collection: As of May 5, the company had collected approximately 90% of $4.237 million of April property rent billed, excluding parking tenants; it had collected none of $409,000 billed to parking tenants. Tenants had requested rent deferrals or abatements; management was evaluating requests. Management warned collections could deteriorate and increase reserves or write-offs.
- Hotel and office outlook: Sacramento hotel occupancy fell to 12.8% in April 2020 from 83.3% in April 2019; RevPAR was $16.56 versus $156.38. Management said hotel NOI was likely to be negative in Q2, and possibly Q3. Office leasing, rent collection, renewals and re-leasing could also be adversely affected.
- Lending outlook: The lending portfolio is concentrated in hospitality: 98.8% of loans subject to credit risk were in that industry at March 31. Management expected limited premium income and lower prepayments in Q2 as the secondary market for guaranteed SBA loan portions weakened. CARES Act relief was expected to limit material new delinquencies through August for existing qualifying SBA 7(a) loans. The company had originated $13.5 million of Paycheck Protection Program loans as of May 8.
- Liquidity and borrowing-base risk: The company was negotiating a change to its secured facility’s borrowing-base calculation; if unsuccessful, it might have to repay part of the balance as early as Q2 or Q3. In April, it borrowed a further $50 million, bringing facility borrowings to $209.5 million and availability to about $14.9 million as of May 7. A separate $10 million unsecured revolver entered in early May was undrawn as of May 7.
- Projects and financing: The vast majority of repositioning work at 4750 Wilshire Boulevard and renovations at the Sacramento hotel were temporarily suspended due to COVID-19. The company said it might pay some related-party fees or reimbursements in preferred stock. A May 11 amendment replaced the administrator’s base service fee with an incentive fee; management did not anticipate paying an incentive fee in 2020.
- Other risks and contingencies: Management cited uncertain pandemic duration and economic effects, possible asset impairment, tenant credit deterioration, capital-market access, and the ability to service debt and maintain distributions. A lawsuit seeks a refund of $11.845 million in San Francisco property-transfer-tax penalties, interest and legal fees; a separate contractor-injury case has an unestimable potential loss, with insurance maintained. Management reported no material pending legal proceedings otherwise and no material change to internal controls.
Important Facts for Investors to Verify
- Subsequent rent collections, parking receipts, tenant relief granted and any resulting bad-debt or deferred-rent charges.
- Hotel occupancy, RevPAR and NOI trends, including the timing and cost of resumed renovations.
- Revolving-facility borrowing-base negotiations, remaining availability, covenant compliance and any repayment requirement.
- Performance and repayment of hospitality-concentrated SBA loans, secondary-market sales and PPP loan forgiveness or funding.
- Preferred-stock dividend declarations and cash requirements, common-stock distributions, and any issuance under the ATM or preferred offerings.
- Whether paused capital projects resume, and any revised costs, schedules or impairment assessments.