CIM Commercial Trust Corporation — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016. The filing is unaudited and was filed under the name CIM Commercial Trust Corporation; the company primarily owns and operates Class A and creative office properties, with hotel, multifamily and lending activities. The lending segment was classified as held for sale.
Financial performance and position
| Metric | Q1 2016 | Q1 2015 / prior date |
|---|---|---|
| Total revenue | $66.4 million | $67.2 million |
| Net income attributable to stockholders | $27.0 million; $0.28 per share | $2.7 million; $0.03 per share |
| FFO | $20.3 million | $21.9 million |
| Cash from operating activities | $7.1 million | $10.0 million |
| Cash and cash equivalents | $92.9 million | $124.6 million at Dec. 31, 2015 |
| Restricted cash | $48.8 million | $7.3 million at Dec. 31, 2015 |
| Debt, excluding debt in assets held for sale | $656.5 million | $656.8 million at Dec. 31, 2015 |
| Total assets / total equity | $2.106 billion / $1.295 billion | $2.092 billion / $1.297 billion at Dec. 31, 2015 |
- Continuing-operations segment net operating income was $34.4 million, up from $34.1 million; approximately 51.8% of total revenue.
- Net income included a $24.7 million gain from selling the Courtyard Oakland hotel. Without that gain, the headline year-over-year earnings increase would not represent recurring operating performance.
- Cash used in investing activities was $28.5 million; cash used in financing activities was $13.0 million. The quarter-end cash decline included a $42.8 million hotel-sale proceeds balance placed in restricted cash for a planned like-kind exchange.
- Common dividends paid were $0.21875 per share, totaling $21.4 million.
Changes versus the prior comparable period
- Revenue decreased 1.3%. Office revenue fell 1.2% and hotel revenue fell 2.8%; multifamily revenue increased 3.1%.
- Net income rose sharply from $2.7 million to $27.0 million, primarily because of the hotel-sale gain. FFO, which excludes real estate sale gains, declined 7.1% to $20.3 million.
- Operating cash flow declined by $2.9 million, mainly reflecting greater funding of loans held for sale. Interest expense increased $1.2 million; related-party asset management and other fees increased $0.5 million.
- Office occupancy was 83.2%, down from 85.2%; multifamily occupancy was 93.5%, up from 83.1% (the prior period included a New York property transitioning from corporate housing to individual leases). Hotel occupancy was 81.1%, compared with 83.8%; ADR and RevPAR increased.
Outlook, risks and unusual items
- The company intended to exercise an extension option or secure alternative funding for its $850 million unsecured credit facility, which matures in September 2016. At March 31, $107 million was outstanding under that facility and $450 million was available. The separate $385 million term loan matures in 2022; swaps fixed its rate at 3.16% through May 2020. The company reported covenant compliance.
- Management continued to solicit buyers for the remaining lending business after changing from a whole-business sale to component sales; completion was expected to extend beyond one year. Lending assets held for sale were $150.9 million, with associated liabilities of $63.5 million.
- Management expected a revenue shortfall at a Washington, D.C. office property to persist for the rest of 2016 following a large tenant departure; a replacement lease for about 113,000 square feet was not expected to commence until mid-2017. Portfolio office occupancy and lease renewal/re-leasing outcomes remain risks.
- Geographic exposure is concentrated: California represented 64.6% of property revenue and 51.9% of real estate investments. Government tenants supplied 20.1% of rental and other property income.
- Floating-rate exposure is material. Before swaps, a 12.5-basis-point LIBOR move was estimated to affect annual earnings by about $715,000. The filing also identifies counterparty risk on swaps.
- Commitments included $110.4 million of loan funding commitments and $42.1 million of future tenant-improvement and construction obligations. The filing reported no material pending litigation, no material change to previously disclosed risk factors, and no off-balance-sheet arrangements.
- Management gave no specific earnings guidance. It cautioned that quarterly results are not necessarily indicative of full-year results and that future dividends may differ from historical levels.
Investor facts to verify
- Progress on refinancing or extending the September 2016 credit facility, available borrowing capacity, and covenant headroom.
- Timing, terms and proceeds from the planned sale of the remaining lending segment, including the recoverability of its loans and commitments.
- Office leasing progress, especially the replacement Washington, D.C. tenant, and subsequent occupancy and rent trends.
- Use and release timing of restricted hotel-sale proceeds, and whether the intended Section 1031 exchange is completed.
- Recurring earnings and cash generation relative to dividends, separating the hotel-sale gain from ongoing performance.