CIM Commercial Trust Corporation — 2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014. The filing is for CIM Commercial Trust Corporation (formerly PMC Commercial Trust), not a company identified in the request metadata as Creative Media & Community Trust Corp.
Business context and reporting period
The company owns and operates urban office, multifamily and hotel properties, managed by CIM Group affiliates. It completed its merger with CIM Urban on March 11, 2014; the merger was accounted for as a reverse acquisition, with CIM Urban as accounting acquirer. Accordingly, 2014 includes the acquired legacy lending business only from the merger date, while 2013 and 2012 principally reflect CIM Urban, limiting comparability.
At year-end, the real estate portfolio comprised 24 office properties and ancillary assets (about 5.6 million rentable square feet), five multifamily properties (930 units) and three hotels (1,070 rooms). The lending segment was classified as held for sale under a board-approved plan to deconsolidate it.
Financial and operating highlights
| Metric | 2014 | 2013 | Change / context |
|---|---|---|---|
| Total revenue | $256.2 million | $235.8 million | Up 8.6% |
| Total expenses | $249.1 million | $221.1 million | Up 12.7% |
| Income from continuing operations | $12.0 million | $14.7 million | Lower year over year |
| Net income attributable to stockholders | $24.4 million | $14.5 million | Includes lending income and merger-related bargain purchase gain |
| EPS attributable to stockholders | $0.25 | $0.15 | Reverse-split adjusted |
| FFO | $93.6 million | $83.3 million | Up 12.4%; non-GAAP measure |
| Cash from operating activities | $66.8 million | $61.8 million | Up from prior year |
| Cash and cash equivalents | $17.6 million | $16.8 million | Balance-sheet cash excludes $9.9 million classified in held-for-sale assets |
Real estate segment net operating income (NOI) was $127.4 million, down from $129.2 million. Office NOI was $104.7 million, hotel NOI $16.4 million and multifamily NOI $6.3 million. Year-end office occupancy was 85.1%, multifamily occupancy 92.8%, and hotel occupancy 81.3%; hotel RevPAR was $99.61 versus $94.06 in 2013. The filing gives differing 2013 office occupancy figures in separate tables, so the comparable value is not clear.
Revenue by continuing-operation segment was $179.3 million for office, $56.1 million for hotels and $20.7 million for multifamily. Hotel revenue rose 37.9%, primarily reflecting a full year of LAX Holiday Inn operations after foreclosure in 2013. Multifamily expenses included a $4.475 million obligation to refund New York tax abatements; the company said the settlement was completed in February 2015.
Debt, liquidity and capital allocation
Year-end balance-sheet debt was $608.7 million; total consolidated indebtedness was approximately $650.6 million including $41.9 million of debt associated with held-for-sale assets. Debt increased from $395.1 million in 2013. The company had $360 million drawn under its $850 million unsecured credit facility and $490 million available at December 31, 2014; the facility matures in September 2016, with two conditional one-year extensions. The company reported compliance with financial covenants.
Mortgages payable totaled $221.8 million, with $77.1 million of principal scheduled in 2015. Management intended to use the facility’s $75 million delayed-draw term loan to repay mortgages of approximately $73.0 million maturing in 2015. Floating-rate borrowings represented 65.7% of debt; management estimated a 12.5-basis-point LIBOR change would affect annual earnings by about $532,000.
Cash used in investing activities was $60.3 million, including $63.4 million for two office acquisitions. Financing activities provided $4.3 million; the company reported $144.3 million of aggregate distributions/payments during 2014, including the merger-related special dividend. Regular quarterly dividends in the second through fourth quarters were $0.21875 per share. The board declared the same quarterly amount in March 2015; future dividends remain discretionary.
Material changes, outlook and risks
- The March 2014 merger transformed the company from its legacy lending business toward an equity REIT focused on office properties. The company also completed a one-for-five reverse stock split in April 2014.
- Two 2014 office acquisitions were 4750 Wilshire Boulevard for $44.9 million and Lindblade Media Center for $18.5 million. Office revenue increased 2.4%, while office NOI declined, reflecting higher costs and other property-level effects.
- Net income included a $4.9 million bargain purchase gain from the merger. Other notable items included $12.6 million of lending-segment income from the acquisition date through year-end and a $1.2 million gain from settlement of a contractual obligation. FFO is not cash flow or a measure of funds available for dividends.
- The held-for-sale lending portfolio included $189.1 million of net loans receivable and generated $12.6 million of income for the post-acquisition period. Loans were heavily concentrated in hospitality (about 94.5%); weighted average contractual rate was 5.8%, and loans over 30 days delinquent were 0.1%. Completion and terms of the planned sale were not assured.
- Management expected multifamily revenue at its New York property to decline in 2015 after its corporate-housing tenant’s lease ended in March 2015, with plans to re-lease units individually. No formal earnings or FFO guidance is provided in the supplied filing text.
- Major risks include geographic concentration (California generated 60.4% of 2014 property revenue; Washington, D.C. 24.7%), government-tenant exposure, office lease expirations and vacancies, hotel-cycle sensitivity, debt and interest-rate exposure, and REIT qualification. About 15.3% of occupied office square footage was scheduled to expire in 2015. Government agencies accounted for 24.7% of rental and other property income.
- CIM Group affiliates control approximately 98.2% of voting power and provide management and advisory services under related-party agreements. The filing highlights potential conflicts of interest, fees that are not performance-based, and limited termination rights. It reports no other material pending or threatened legal proceedings beyond routine matters.
Important facts for investors to verify
- Progress, expected timing and proceeds of the lending-segment sale, including how deconsolidation would affect reported results and debt.
- Refinancing or repayment plans for 2015 mortgage maturities and the $360 million credit-facility balance due in 2016, plus current covenant headroom and borrowing availability.
- Office leasing outcomes for 2015 expirations, particularly at BB&T Center and Washington, D.C. properties, and reconciliation of the filing’s differing historical office-occupancy figures.
- Performance of the New York multifamily property after conversion from corporate housing, including occupancy, rental rates and the completed tax-abatement refund.
- Dividend coverage using recurring cash flow after interest, capital expenditures and leasing costs; reported FFO alone does not establish coverage.
- Related-party fees, governance safeguards and the effect of CIM Group’s controlling ownership on investment allocation and shareholder rights.