Creative Media & Community Trust Corp. — 2019 Form 10-K Summary
Filing identity and period: The supplied filing is for CIM Commercial Trust Corporation, a Maryland REIT, for the fiscal year ended December 31, 2019; it is not titled Creative Media & Community Trust Corp. Figures below reflect the filing entity and full year unless otherwise noted. Per-share amounts are adjusted for the September 2019 one-for-three reverse stock split.
Business context
The company owns and operates office and hotel properties and originates small-business loans, primarily under the SBA 7(a) program. At year-end, it reported 11 real estate assets: nine office properties or ancillary assets totaling about 1.3 million rentable square feet, and one 503-room hotel with related parking and retail. Office occupancy was 86.7%; the Sheraton Grand Hotel’s 2019 RevPAR was $127.09. The company is externally managed by CIM Group affiliates.
Financial performance and position
| Metric | 2019 | 2018 |
|---|---|---|
| Total revenue | $140.0 million | $197.5 million |
| Total expenses | $226.7 million | $195.4 million |
| Gain on real estate sales | $433.1 million | — |
| Net income | $345.5 million | $1.1 million |
| Net income (loss) attributable to common stockholders | $322.7 million | $(14.3) million |
| FFO attributable to common stockholders | $(14.0) million | $38.9 million |
| Cash from operating activities | $41.0 million | $61.5 million |
| Cash and restricted cash at year-end | $35.9 million | $77.2 million |
| Total assets | $667.6 million | $1,342.4 million |
| Debt, net | $307.4 million | $588.7 million |
2019 GAAP earnings were dominated by property-sale gains and should not be viewed as a proxy for recurring performance. The company recorded $69.0 million of real estate impairment and $30.0 million of losses on early debt extinguishment. Segment net operating income fell to $67.3 million from $109.5 million. Basic EPS was $22.11, while diluted EPS was $19.74; these figures were materially affected by sale gains. Fourth-quarter revenue was $26.6 million and net income was a loss of $1.5 million; loss attributable to common stockholders was $11.6 million, or $0.79 per diluted share.
At December 31, debt included a $153.0 million revolving facility, $97.1 million fixed-rate mortgage, $27.1 million junior subordinated notes and $22.3 million SBA loan-backed notes, among other borrowings. The revolving facility had a $250 million maximum subject to borrowing-base limits, with about $73.9 million available at year-end. About 68.8% of debt was floating-rate. The filing reports $405.9 million of contractual obligations, including debt principal and interest, loan commitments, borrower advances and tenant improvements. No off-balance-sheet arrangements were reported.
Material changes versus the prior year
- The company sold ten properties in 2019 for aggregate gross proceeds of $991.0 million, recognizing $433.1 million of gains. No acquisitions were made in 2019. The sales substantially reduced the portfolio, revenue, asset base and debt.
- Revenue declined 29.1%, principally because of asset dispositions; office segment revenue fell 41.2% to $86.9 million. Hotel revenue was nearly flat at $38.7 million, and lending revenue increased 0.9% to $11.0 million.
- Office occupancy was 86.7% at year-end versus 93.2% in 2018; the company also reported 86.7% for the remaining portfolio on a comparable-property basis, down from 94.7%. Hotel occupancy declined to 78.2% from 80.1%, and RevPAR fell to $127.09 from $129.73.
- Debt fell by $281.3 million, but the company incurred $30.0 million in debt-extinguishment losses, including costs of mortgage defeasances and prepayments associated with asset sales.
- The company paid a $42.00-per-share special common dividend, or $613.3 million in aggregate, funded primarily by asset-sale proceeds and revolving-credit borrowings. Regular quarterly common dividends were reduced to $0.075 per share in the second half of 2019 from $0.375 in the first half.
- The company repurchased 2,693,580 Series L preferred shares—one-third of those then outstanding—for $75.2 million, excluding accrued dividends, primarily using revolving-credit borrowings. The offer was oversubscribed.
Outlook, risks and unusual items
- 2020 outlook: No numerical earnings or cash-flow guidance is provided. Management expected office revenue to decline materially in 2020 because of 2019 dispositions. Hotel revenue was also expected to decline materially due to renovations and the emerging COVID-19 outbreak; the filing says the magnitude of COVID-19’s impact could not be predicted.
- Capital projects: Planned work included approximately $15.3 million to add about 42,000 square feet at the Austin property, $14.5 million to reposition 4750 Wilshire Boulevard, and $26.3 million for Sheraton Grand Hotel renovations. About $9.4 million had been incurred on these projects by year-end. Management also cited the Sacramento Convention Center’s temporary closure, then expected to last until November 2020, as a hotel headwind.
- Leasing and concentration: 13.0% of office rentable area was available for lease at year-end, and 15.5% of occupied office area was scheduled to expire in 2020. Kaiser represented 10.8% of total revenue and 17.3% of office revenue in 2019. California generated 80.6% of property revenue and represented 94.4% of real estate investment value.
- Credit exposure: 98.7% of loans subject to credit risk were concentrated in hospitality. The company noted that COVID-19, travel disruption and recession risks could adversely affect hotel operations and borrowers. It funded $39.6 million of new loans in 2019, down from $74.2 million in 2018.
- Liquidity, rates and distributions: The company warned that operating cash flow, financing access and distributions could be affected by market volatility, floating-rate debt and REIT distribution requirements. It expected to seek payment of some 2020 management and service fees in common shares, subject to required consents and approvals, in part to maintain compliance with a Series L preferred-stock coverage restriction. A $25 million common-stock ATM program was established in March 2020; no shares had been sold as of March 16, 2020.
- Governance and contingencies: CIM affiliates provide management and administrative services under agreements that are difficult or not unilaterally terminable, creating potential conflicts of interest. A lawsuit seeks recovery of $11.845 million paid to San Francisco for disputed transfer-tax penalties, interest and legal fees; the outcome is uncertain. The company reported no material pending litigation otherwise. Management and the auditor reported effective internal control over financial reporting; the financial-statement audit opinion was unqualified.
Most important facts for investors to verify
- Separate recurring property and lending performance from the $433.1 million sale gain, $69.0 million impairment and $30.0 million debt-extinguishment loss; assess FFO and operating cash flow rather than headline net income alone.
- Confirm current cash, revolving-facility availability, borrowing-base capacity and debt maturities—particularly the $154.4 million scheduled under “other” debt in 2022—and the effect of floating rates and LIBOR transition.
- Track post-disposition occupancy, lease renewals and tenant concentration, especially Kaiser’s lease rights and expirations, and confirm execution and cost of the Austin, Wilshire and hotel projects.
- Assess the actual effect of COVID-19, hotel renovation work and the convention-center closure on hotel revenue, borrower credit quality, liquidity and distributions; the filing does not quantify these effects.
- Review whether common and preferred distributions remain supported by cash generation, and consider the implications of the special dividend, preferred-stock repurchase, potential fee payments in shares and possible equity issuance below NAV.