Creative Media & Community Trust Corporation (CIM Commercial Trust Corporation)
Form 10-Q for the quarter ended June 30, 2021. The filing identifies the registrant as CIM Commercial Trust Corporation, a REIT focused primarily on office properties, with hotel and SBA lending operations. Unless otherwise noted, amounts are in millions of dollars.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $22.7 | $16.5 | $41.6 | $42.0 |
| Net income (loss) | $0.5 | $(4.0) | $(3.1) | $(5.3) |
| Net loss attributable to common stockholders | $(4.2) | $(8.1) | $(12.4) | $(14.9) |
| Basic and diluted loss per share | $(0.28) | $(0.55) | $(0.83) | $(1.02) |
| FFO attributable to common stockholders | $0.9 | $(2.9) | $(2.3) | $(4.5) |
Q2 revenue rose 37.3%, while six-month revenue declined 1.2%. Q2 improvement reflected higher lending income and a partial hotel recovery; six-month results also reflected weaker hotel and office revenue. Six-month total expenses fell 9.8% to $43.3 million. For Q2, segment NOI was $7.6 million for office, a $2,000 loss for hotel, and $5.0 million for lending; total segment NOI was $12.6 million.
- Cash flow: Six-month operating cash flow was $17.8 million, versus $5.2 million in 2020; investing cash use was $4.8 million, versus $23.3 million; financing cash flow was $12.9 million, versus $68.3 million. Cash and restricted cash totaled $69.5 million at period-end, up from $43.6 million at year-end 2020.
- Balance sheet: Total assets were $704.8 million. Net debt was $260.7 million, down from $324.3 million at December 31, 2020. Total liabilities were $297.8 million; total equity was $364.5 million. Real estate, net, was $498.5 million and loans receivable, net, were $81.9 million.
- Debt and liquidity: At June 30, $107.0 million was drawn on the secured 2018 revolving facility, with approximately $87.5 million available; the separate unsecured facility had $10.0 million available and no balance drawn. The 2018 facility matures in October 2022, subject to an extension option. A $97.1 million mortgage is fixed-rate at 4.14% and due July 2026. After quarter-end, the company repaid $25.0 million on the 2018 facility; as of August 2, $82.0 million remained drawn.
- Capital and distributions: A June rights offering issued 8.52 million common shares at $9.25 per share, raising $78.8 million gross before reported offering costs of $1.9 million. Common dividends were $0.075 per share quarterly. Preferred stock dividends are cumulative and carry stated rates of 5.50% for Series A and L and 5.65% for Series D.
Material changes versus prior comparable periods
- Q2 lending revenue increased to $5.8 million from $1.6 million, primarily from premiums on sales of guaranteed SBA loans and a larger average lending portfolio. Management attributed higher premiums partly to increased SBA guarantee support, which could revert to 75% by congressional action.
- Q2 hotel revenue rose to $3.5 million from $1.1 million as restrictions eased; however, first-half hotel revenue fell 42.8% to $5.4 million. Six-month hotel occupancy was 38.8%, ADR was $119.99, and RevPAR was $46.52, compared with 39.2%, $159.75, and $62.59, respectively, in 2020.
- Office revenue declined 3.0% in Q2 and 6.2% for the first half, primarily because of lower occupancy at properties in Los Angeles and Beverly Hills. Portfolio office occupancy was 78.0% at June 30, versus 80.6% a year earlier; annualized rent per occupied square foot increased to $52.32 from $50.29.
- Common shares outstanding rose to 23.37 million from 14.83 million at year-end, principally due to the rights offering. Debt repayments and lower revolver borrowings contributed to the decline in debt.
Outlook, risks, contingencies, and unusual items
- No specific earnings or revenue guidance was provided. Management said business, financial condition, results, and liquidity had been adversely affected by COVID-19 and would likely remain affected for the rest of 2021. It expected hotel NOI in the second half of 2021 to remain below pre-pandemic comparable-period levels.
- COVID-19-related exposure remains significant for hotel operations, parking, and lending borrowers concentrated in limited-service hospitality. Parking tenants paid 32.3% of contractual rent for Q2, with 67.7% recorded as bad debt. Office and retail collections were generally consistent with pre-pandemic levels, according to management.
- Management reported that 99.9% of loans subject to credit risk were current at June 30, but 99.7% of that loan exposure was concentrated in hospitality. Loan loss reserves were $0.93 million. The company cautioned that further economic disruption could increase reserves and losses.
- Outstanding loan funding commitments were $61.1 million; the company said most were prime-based SBA loans, with guaranteed portions intended for sale. Future lease-related tenant improvement and construction obligations totaled $8.0 million.
- The company is pursuing an $11.8 million refund claim against San Francisco for previously paid transfer-tax penalties, interest, and legal fees. It also disclosed a contractor-injury lawsuit for which it could not estimate potential losses, although it did not expect a material adverse effect. SBA could seek recovery for losses arising from technical deficiencies in loan origination or servicing; management said such a claim was not expected based on historical experience.
- The filing reported no material pending or threatened legal proceedings beyond ordinary-course matters, no material changes to the risk factors in the 2020 Form 10-K, and effective disclosure controls. No off-balance-sheet arrangements were reported.
Important facts for investors to verify
- Whether office occupancy, tenant collections, and rent renewals improve, particularly given the 78.0% occupancy rate and the concentration of 31.0% of annualized rental income in one tenant, Kaiser.
- Whether hotel performance recovers and whether COVID-19 variants or renewed restrictions further affect hotel revenue and cash flow.
- How SBA guarantee levels, loan-sale premiums, hospitality borrower performance, and PPP forgiveness affect lending income and credit losses.
- The company’s ability to manage the October 2022 revolver maturity, borrowing-base availability, covenants, and ongoing preferred and common distributions.
- Whether the San Francisco tax-refund litigation or contractor-injury case produces material costs, and whether the $61.1 million of loan commitments and $8.0 million of property obligations require significant cash funding.