Creative Media & Community Trust Corp quarterly report, Q2 FY2020

Business context and reporting period

The filing is for CIM Commercial Trust Corporation, a Maryland REIT focused primarily on Class A and creative office properties, with hotel and SBA lending operations. It covers the quarter and six months ended June 30, 2020; financial statements are unaudited. The filing identifies the registrant as CIM Commercial Trust Corporation.

Key financial results

Q2 revenue fell 55.2% year over year; six-month revenue fell 50.0%. Prior-year results included substantial gains on property sales: $55.2 million in Q2 and $432.8 million for the six-month period. The six months of 2019 also included $69.0 million of real estate impairment and $30.0 million of debt-extinguishment losses. No real estate impairment or sale gain was recorded in the 2020 periods.

Q2 segment results: office NOI was $8.3 million, hotel NOI was a loss of $1.1 million, and lending NOI was a loss of $0.1 million. Office, hotel, and lending revenue declined 37.6%, 89.2%, and 46.3%, respectively, versus Q2 2019. The filing does not provide a consolidated operating-margin measure.

Cash flow, balance sheet and liquidity

• Six-month operating cash flow was $5.2 million, versus $24.9 million in 2019. Investing cash flow was $(23.3) million, versus $749.0 million provided in 2019, which included real estate sale proceeds. Financing cash flow was $68.3 million provided, versus $466.9 million used in 2019.
• At June 30, cash and cash equivalents were $75.2 million and restricted cash was $11.0 million, totaling $86.2 million, compared with $35.9 million combined at year-end 2019.
• Total assets were $726.2 million; debt, net, was $371.7 million, up from $307.4 million at December 31, 2019. Total equity was $284.4 million.
• The secured 2018 revolving credit facility had $209.5 million outstanding against a $250 million maximum and no borrowing availability under the borrowing-base calculation. The company was negotiating a modification that could require partial repayment and a higher rate for about one year; if no amendment were reached, repayment of a portion could be demanded.
• A new $10 million unsecured revolving facility was undrawn and available. PPPLF borrowings were $15.5 million, matched to PPP loans and bearing 0.35% interest. The $97.1 million fixed-rate mortgage matures in July 2026; the 2018 revolver matures in October 2022.
• Cash dividends paid in the first half totaled $14.8 million. Common dividends were $0.075 per share for each of Q1 and Q2 2020. Series A, D and L preferred dividends are cumulative, at stated annual rates of 5.5%, 5.65% and 5.5%, respectively.

Material changes, outlook and risks

• COVID-19 operating effects: For Q2 billings, office and retail tenants had paid 90.2% in cash and another 1.0% through security deposits by June 30; 0.3% was deferred, 0.1% recorded as bad debt, and none abated. Parking collections were 21.9%, with 49.6% recorded as bad debt and 12.7% abated. These figures were preliminary; further office and retail collections were reported by August 5.
• Hotel deterioration: Q2 occupancy was 12.5%, ADR $124.49 and RevPAR $15.61, versus 81.7%, $173.08 and $141.42 in Q2 2019. Management expected hotel NOI to be negative in Q3 and Q4 2020. The nearby Sacramento Convention Center closure and hotel renovation plans were additional headwinds; most renovation work was temporarily suspended.
• Office portfolio: Occupancy was 80.6% at June 30, 2020, versus 88.1% a year earlier; 2019 property sales affect comparability. One newly completed Austin office space was unoccupied. Management warned that continuing pandemic effects could weaken collections, leasing and occupancy.
• Lending risk: Loans subject to credit risk were 98.7% concentrated in hospitality. Management cited borrower cash-flow stress and possible higher delinquencies, reserves and losses if government relief ends without further assistance. CARES Act payment support was expected to limit aggregate delinquencies through September 2020. The SBA guarantees PPP loans, subject to lender compliance with program requirements.
• Management response and outlook: The company reduced overhead and property costs, suspended most work on the Wilshire office repositioning and hotel renovations, sought additional liquidity, and amended its services agreement to replace a fixed base fee with an incentive fee. It warned that results and liquidity would remain adversely affected through 2020 if current COVID-19 conditions continued. No quantified full-year earnings guidance was provided.
• Other items: The president was scheduled to retire September 16, 2020; a $450,000 payment was subject to specified conditions, with only a portion expected to be borne by the company. The company reported no material pending legal proceedings, but disclosed ongoing San Francisco transfer-tax refund litigation and an insured injury lawsuit with an unestimable potential loss. It also had $14.0 million of loan commitments and $4.5 million of future tenant-improvement obligations.

Important facts for investors to verify

1. Whether the 2018 revolver borrowing-base amendment was finalized, and any resulting repayment, interest-rate or availability changes.
2. Subsequent rent collections, concessions, bad-debt experience and office occupancy, particularly for parking and other affected tenants.
3. Hotel operating results and the timing, cost and funding of suspended renovation and repositioning projects.
4. Hospitality-loan delinquencies, reserve levels, SBA/PPP forgiveness and guarantee compliance, and secondary-market premiums for guaranteed loan sales.
5. Cash available after debt service and preferred dividends, and the company’s ability to sustain common and preferred distributions amid continued operating pressure.
6. Potential dilution and financing costs from preferred offerings and related-party compensation paid in securities.