Creative Media & Community Trust Corp quarterly report, Q1 FY2018

Business context and reporting period

This unaudited Form 10-Q covers the three months ended March 31, 2018. The filing identifies the registrant as CIM Commercial Trust Corporation, a REIT focused primarily on office properties in urban communities, with hotel and SBA 7(a) lending operations. This differs from the company name in the request and should be verified.

Key financial metrics

Amounts are in millions of dollars except per-share data and operating statistics.

Investing activities used $115.3 million, including $112.0 million for a property acquisition; financing activities provided $11.5 million. Cash and restricted cash together fell $86.1 million to $70.2 million. The company reported approximately $190 million of available capacity under its unsecured credit facility, subject to covenants, and compliance with its financial covenants at quarter-end.

Material changes versus the prior comparable period

• Revenue declined 27.7%, while total expenses declined 21.5%. The 2017 quarter included a $187.7 million gain on sale of real estate; there was no comparable gain in 2018. Accordingly, net income fell 99.7% and is not a like-for-like indicator of operating performance.
• Segment net operating income was $28.2 million versus $42.1 million. Office revenue declined 28.9%, mainly reflecting properties sold during 2017; lending revenue rose 28.1%. Hotel revenue was broadly stable.
• FFO fell to $10.1 million from $23.4 million, reflecting lower segment NOI, accumulated Series L preferred dividends, and higher corporate G&A, partly offset by lower interest and related-party fees.
• Office portfolio occupancy was 93.9%, compared with 84.5% a year earlier; reported annualized rent per occupied square foot was $43.51 versus $38.12. The portfolio changed through acquisitions and dispositions, so these figures are not wholly comparable.
• Common shares outstanding were 43.8 million, versus 84.0 million weighted-average shares in Q1 2017, following substantial 2017 share repurchases. The quarterly common dividend was $0.125 per share, down from $0.21875.

Outlook, risks, contingencies and unusual items

• Management said 2017 property sales were expected to materially reduce office revenue, expenses, depreciation, and asset-management fees for the rest of 2018; recent office acquisitions were expected to partly offset those effects. Interest expense was also expected to decrease, but the amount depends on future borrowings and financing terms. No specific earnings or FFO guidance was provided.
• The unsecured credit facility was due to mature in September 2018. The company was discussing financing options and possible term-loan refinancing, but gave no assurance that new arrangements would result. A planned securitization of SBA loans, with estimated proceeds of approximately $38.2 million, was also not assured.
• The company acquired 9460 Wilshire Boulevard in Beverly Hills in January for a stated purchase price of $132 million, funded with Series L preferred proceeds.
• The company paid $11.845 million in 2017 in a San Francisco real-property-transfer-tax dispute and filed refund claims in January 2018. It could not estimate whether, or how much, it might recover.
• Series A and Series L preferred stock carry cumulative 5.5% annual dividend rates. Series L dividends had accumulated to $4.588 million at quarter-end; the first cash distribution was scheduled for January 2019. Failure to timely declare or pay Series L distributions can increase its rate, up to 8.5%.
• Other exposures include $23.4 million of SBA lending commitments and $23.0 million of future tenant-improvement and construction obligations. Management reported no material pending legal proceeding other than ordinary-course matters; it also described potential SBA recourse for certain loan-origination or servicing deficiencies.
• Government tenants generated about 19.9% of rental and hotel income, and California represented 76.6% of property revenue. The filing reported no material change to previously disclosed risk factors.

Important facts for investors to verify

• Confirm the issuer identity: the supplied filing is for CIM Commercial Trust Corporation, not the company name in the request.
• Review refinancing progress and the September 2018 credit-facility maturity, including covenant-limited borrowing availability and any subsequent financing disclosures.
• Assess recurring property and lending performance separately from the 2017 real-estate sale gain, asset sales, acquisitions, and preferred-dividend burden.
• Verify the sustainability of common and preferred distributions against operating cash flow, liquidity needs, and cumulative preferred obligations.
• Track the San Francisco tax-refund claims, planned SBA securitization, and concentrations in California and government tenants.