Creative Media & Community Trust Corporation — FY 2021 Form 10-K
Business context and reporting period. This is the annual report for the fiscal year ended December 31, 2021, not a standalone fourth-quarter report. CMCT is a Maryland REIT operated by CIM Group affiliates. Its businesses are office properties, a Sacramento hotel, and SBA 7(a) small-business lending. At year-end, its portfolio included 11 office properties with approximately 1.3 million rentable square feet, one development site, and a 503-room hotel.
Financial performance and liquidity
| Metric | FY 2021 | FY 2020 | Change |
|---|---|---|---|
| Total revenue | $90.9 million | $77.2 million | +17.8% |
| Total expenses | $88.8 million | $92.9 million | -4.5% |
| Consolidated net loss | $0.9 million | $15.0 million | Loss narrowed |
| Net loss attributable to common stockholders | $20.0 million | $33.5 million | Loss narrowed |
| NAREIT FFO attributable to common stockholders | $0.1 million | $(12.1) million | Improved |
| Net cash provided by operating activities | $46.3 million | $12.8 million | +$33.5 million |
The common-stockholder loss includes $18.8 million of preferred dividends declared or accumulated, preferred-stock deemed dividends, and redemption effects; it therefore differs materially from the consolidated net loss. Net loss was about 0.9% of revenue. FFO is a non-GAAP REIT measure and is not a substitute for operating cash flow or liquidity.
- Segment results: Office revenue was $53.3 million and segment net operating income (NOI) was $29.5 million, down from $31.5 million NOI. Hotel revenue was $17.8 million and NOI was $1.9 million, versus an $0.8 million NOI loss. Lending revenue was $19.8 million and NOI was $15.7 million, versus $2.0 million NOI.
- Property indicators: Office occupancy was 77.7%, compared with 79.3% a year earlier; annualized rent per occupied square foot increased to $52.57 from $50.94. Hotel occupancy improved to 53.6% from 32.3%, while ADR declined to $136.51 from $144.36; RevPAR rose to $73.23 from $46.60.
- Balance sheet: Total assets were $660.9 million; net debt was $201.1 million, with debt at face value of approximately $203.5 million. Cash and cash equivalents were $22.3 million, plus $11.3 million of restricted cash. Loans receivable, net, were $73.5 million; real estate, net, was $498.0 million.
- Cash flows: Investing activities used $12.7 million and financing activities used $43.6 million, versus $38.3 million used and $33.2 million provided, respectively, in 2020. Cash and restricted cash together declined to $33.7 million from $43.6 million.
- Capital and debt: The 2021 rights offering issued 8.52 million common shares at $9.25 per share, producing $78.8 million gross proceeds. The $209.5 million-borrowing-base revolving facility had $60.0 million outstanding at year-end and $117.6 million available; it matures in October 2022. A $97.1 million nonrecourse mortgage bears fixed interest at 4.14% and is due in July 2026. The company reported $32.6 million of loan-funding commitments.
Material changes versus FY 2020
- Revenue growth and the smaller consolidated loss primarily reflected improved lending and hotel performance. Lending revenue rose 137.8%, supported by greater loan-sale premiums and a larger average loan portfolio; hotel revenue rose 34.1% as travel restrictions eased.
- Office revenue fell 3.9%, and occupancy declined 1.6 percentage points. Kaiser accounted for 30.9% of annualized rental income, creating significant tenant concentration.
- Debt at face value declined from approximately $328.2 million to $203.5 million. The company also raised common equity through the rights offering. Common shares outstanding increased from 14.8 million to 23.4 million.
- There were no real estate impairment charges in either year and no property dispositions in 2021. The company acquired a small Los Angeles office property for $2.9 million.
Outlook, risks, contingencies, and unusual items
- Management expected hotel NOI in 2022 to remain below pre-pandemic levels, with COVID-19 effects likely to persist into the first half. Management also cited remote-work trends and office sublease activity as risks to leasing demand.
- The SBA guarantee enhancement that supported 2021 lending premiums ended; guarantee support reverted from 90% to 75% for qualifying loans approved after September 30, 2021. Management warned that originations and loan-sale premiums could decline materially. Lending credit exposure was 99.8% concentrated in hospitality, although 100% of loans subject to credit risk were current at year-end.
- Management expected higher interest expense in 2022 amid rising rates. Approximately 49.8% of debt was floating-rate at year-end, and the company had not hedged that exposure. A 50-basis-point LIBOR change was estimated to affect annual earnings by about $507,000 based on year-end floating-rate debt.
- As of March 10, 2022, the revolving facility balance was $100.0 million. Management expected to extend it to October 2023 and/or refinance it, subject to conditions. Series L preferred holders could require redemption beginning in November 2022; the company was evaluating alternatives, and redemption may be paid in cash or common shares at its discretion.
- A January 2022 fee waiver changed related-party compensation effective January 1, 2022, including a base asset-management fee and revised incentive and capital-gains fee provisions. Management expected related-party fees to decrease in 2022 and did not anticipate a revised incentive fee for that year.
- Other notable items include a $3.0 million income-tax provision, primarily associated with taxable REIT subsidiaries, despite a consolidated pretax profit of $2.1 million; $143,000 of abandoned-transaction costs; and a pending lawsuit seeking a refund of $11.8 million in San Francisco transfer-tax penalties, interest, and legal fees previously paid. The filing reports no material pending or threatened litigation generally, and no off-balance-sheet arrangements.
- Auditors issued unqualified opinions on the financial statements and internal control over financial reporting. The auditor identified real-estate impairment assessment as a critical audit matter; no impairment was recorded.
Most important facts for investors to verify
- How the October 2022 revolving-credit maturity is extended or refinanced, and the resulting borrowing cost, availability, and covenant terms.
- Whether Series L holders exercise redemption rights in November 2022, the amount redeemed, and whether settlement uses cash or shares.
- Whether office occupancy, leasing spreads, and the Kaiser relationship change materially; 20.1% of office space was available for lease at year-end, and Kaiser leases include termination rights subject to penalties.
- Hotel recovery and lending credit quality, including the effects of reduced SBA support, hospitality-sector concentration, and any change in loan-loss reserves.
- Cash available after debt service, preferred dividends, common distributions, and the disclosed loan and tenant-improvement commitments; confirm whether distributions are supported by operating cash flow.