Creative Media & Community Trust Corp. — FY2020 Form 10-K
Filing and period: The supplied filing is for CIM Commercial Trust Corporation, for the fiscal year ended December 31, 2020—not a standalone Q4 report. It includes unaudited quarterly results. The filing was signed March 16, 2021.
Business context
The company is a REIT focused principally on Class A and creative office properties in selected U.S. metropolitan communities. It also owns a hotel and operates an SBA small-business lending business. At year-end, its real estate portfolio comprised 9 office properties, one development site, and a 503-room hotel, with an ancillary parking garage. Affiliates of CIM Group manage and operate the company.
Financial and operating metrics
| Metric | FY2020 | FY2019 |
|---|---|---|
| Total revenue | $77.2 million | $140.0 million |
| Net income (loss) | $(15.0) million | $345.5 million |
| Net income (loss) attributable to common stockholders | $(33.5) million; $(2.27) per share | $322.7 million; $22.11 per share |
| FFO attributable to common stockholders | $(12.1) million | $(14.0) million |
| Net cash from operating activities | $12.8 million | $41.0 million |
| Net cash from (used in) investing activities | $(38.3) million | $917.2 million |
| Net cash from (used in) financing activities | $33.2 million | $(1.0) billion |
- Segments: Office revenue was $55.5 million and segment NOI was $31.5 million; hotel revenue was $13.3 million and segment NOI was a loss of $0.8 million; lending revenue was $8.3 million and segment NOI was $2.0 million. Total segment NOI was $32.6 million, down from $67.3 million.
- Office operations: Year-end occupancy was 79.3%, versus 86.7% in 2019. Annualized rent per occupied square foot increased to $50.94 from $48.18. About 19.5% of office rentable area was available for lease; 8.6% of occupied area was scheduled to expire in 2021.
- Hotel operations: FY2020 occupancy was 32.3%, ADR was $144.36, and RevPAR was $46.60, compared with 78.2%, $162.54, and $127.09, respectively, in 2019.
- Balance sheet and liquidity: Total assets were $685.6 million, cash and cash equivalents were $33.6 million, and restricted cash was $10.0 million. Net debt carrying value was $324.3 million. Loans receivable, net, were $83.1 million, with loan-loss reserves of $0.9 million.
- Debt: Floating-rate borrowings represented 66.0% of debt at year-end; fixed-rate mortgage debt represented 34.0%. The $97.1 million mortgage bears 4.14% and matures in 2026. The secured revolving facility had $166.5 million outstanding, approximately $28.0 million available, and matures in October 2022. A 12.5-basis-point LIBOR move was estimated to affect annual earnings by about $270,000.
Changes versus prior period and unusual items
- Revenue fell 44.8% year over year, reflecting 2019 property sales and COVID-19 effects. Office revenue declined 36.2%; hotel revenue declined 65.6%; lending revenue declined 24.1%.
- The 2019 results included $433.1 million of gains on real estate sales and $69.0 million of impairment charges; neither item recurred in 2020. The company sold ten properties in 2019 for an aggregate gross price of approximately $991.0 million.
- Despite the reported net loss, FFO improved by $1.9 million year over year, mainly because 2019 included substantial debt-extinguishment losses and preferred-stock redemptions. FFO remained negative and is not a substitute for operating cash flow or funds available for distributions.
- Operating cash flow decreased by $28.2 million. Investing cash flow shifted from substantial inflows in 2019, when asset-sale proceeds were received, to outflows in 2020. Financing cash flow was positive in 2020, whereas 2019 included the $613.3 million special common dividend.
- The company acquired one Austin office property in November 2020 for approximately $6.1 million and reported no 2020 property dispositions.
- Common dividends were $0.075 per share each quarter in 2020, or $0.30 for the year. Preferred shares carry cumulative stated dividend rates of 5.50% for Series A, 5.65% for Series D, and 5.50% for Series L.
Outlook, risks, and contingencies
- Management said COVID-19 had adversely affected, and was likely to continue affecting, operations, financial condition, results, and liquidity at least through the first half of 2021. The company expected hotel NOI to remain negative in the first half of 2021; no numerical earnings or revenue guidance was provided.
- Office and retail rent collection was 98.3% in Q4 2020, while parking rent collection was 22.8%; parking rent was 64.3% recorded as bad debt. Hotel Q4 2020 occupancy, ADR, and RevPAR were 26.8%, $120.86, and $32.39, respectively, versus 71.9%, $156.63, and $112.61 in Q4 2019.
- The company temporarily suspended most work on the 4750 Wilshire office repositioning and Sheraton Grand renovations. Estimated remaining project budgets were approximately $14.5 million and $26.3 million, respectively; $2.2 million had been paid toward each project by year-end.
- Nearly all credit-risk-bearing loans were concentrated in hospitality (99.1%). Management warned that ongoing pressure on limited-service hospitality borrowers could require further loan-loss reserves and potentially material loan losses. Most borrowers received CARES Act payment relief.
- Major risks include office leasing and tenant concentration (Kaiser accounted for 30.0% of annualized rental income), hotel demand, concentration in California, leverage and refinancing, variable interest rates and LIBOR transition, and access to capital. The company also disclosed related-party management arrangements and potential conflicts; it generally cannot terminate the investment management agreement unilaterally.
- Material commitments included $34.1 million of loan funding commitments and $7.6 million of tenant-improvement and construction obligations. The filing reported no material pending litigation overall, but disclosed a lawsuit seeking an $11.8 million San Francisco property-transfer-tax refund and a separate contractor-injury case for which potential losses could not be estimated. No off-balance-sheet arrangements were reported.
- Management and the auditor concluded that internal control over financial reporting was effective. Deloitte issued unqualified opinions on the 2020 financial statements and internal controls.
Key facts for investors to verify
- Whether office leasing, occupancy, rent collections, and the Kaiser relationship have changed since year-end 2020, including potential tenant termination rights.
- Hotel recovery and the timing, cost, and funding of the suspended Sheraton renovations; confirm whether the forecast of negative hotel NOI for H1 2021 was realized.
- Hospitality loan performance, subsequent reserve changes, borrower relief and forgiveness outcomes, and the extent to which SBA guarantees protect the company from losses.
- Revolver availability and borrowing-base restrictions, debt maturities and refinancing plans, floating-rate exposure, and LIBOR replacement provisions.
- Cash available for debt service and distributions, including cumulative preferred dividends, redemption obligations, and any further payment of management fees in stock rather than cash.
- Actual project spending and remaining commitments, and the status and possible recovery from the San Francisco tax-refund litigation.