CIM Commercial Trust Corporation — Q1 2015 Form 10-Q
Period: Three months ended March 31, 2015; balance-sheet comparisons are with December 31, 2014. The filing’s registrant name is CIM Commercial Trust Corporation. It primarily owns and operates office, hotel and multifamily properties and is pursuing a sale of its lending segment. The 2014 comparison is affected by the March 2014 merger and includes lending operations only from the merger date.
Key financial results
| Metric | Q1 2015 | Q1 2014 | Change / context |
|---|---|---|---|
| Revenue from continuing operations | $67.2 million | $62.6 million | Up 7.4% |
| Expenses from continuing operations | $67.5 million | $57.2 million | Up 17.9% |
| Income (loss) from continuing operations | $(0.2) million | $10.3 million | 2014 included a $4.9 million bargain-purchase gain |
| Income from discontinued lending operations | $3.0 million | $0.9 million | 2015 included a full quarter of lending activity |
| Net income attributable to stockholders | $2.7 million | $11.2 million | Down 75.6%; diluted EPS was $0.03 versus $0.12 |
| Funds from operations (FFO) | $21.9 million | $27.8 million | Down 21.5%; non-GAAP measure |
| Cash from operating activities | $10.0 million | $12.0 million | Lower chiefly due to working-capital use and loan funding |
| Cash used in investing activities | $19.7 million | $1.1 million | Higher loan funding was a principal factor |
| Cash from (used in) financing activities | $11.8 million | $(3.6) million | 2015 included net borrowings and lower dividends than the merger-affected 2014 period |
Amounts are in U.S. dollars. Q1 2015 segment net operating income was $34.1 million versus $32.6 million. The filing does not present a consolidated operating-margin measure; segment NOI is the company’s stated operating-performance measure.
Financial position and operating metrics
- Assets and equity: Total assets were $2.106 billion, compared with $2.095 billion at year-end. Total equity was $1.342 billion, down from $1.360 billion.
- Debt: Balance-sheet debt was $641.8 million, up from $608.7 million; an additional $41.6 million of secured borrowings was classified with liabilities of assets held for sale. The $395 million outstanding on the $850 million unsecured credit facility left $455 million available at March 31. The facility matures in September 2016, with two conditional one-year extensions. The company reported compliance with its financial covenants.
- Liquidity: Cash and cash equivalents were $20.4 million on the balance sheet; cash inclusive of amounts held for sale was $29.6 million. Restricted cash was $6.8 million outside the held-for-sale assets. A new unsecured term-loan facility of up to $385 million was entered into in May 2015; none had been drawn as of May 8.
- Property operations: Office revenue rose 7.7% and hotel revenue rose 9.6%; multifamily revenue fell 1.6%. Office occupancy was 85.2% versus 84.8%; hotel occupancy was 83.8% versus 80.6%, with RevPAR of $109.52 versus $98.72. Multifamily occupancy declined to 83.1% from 94.4%, largely because the New York corporate-housing tenant left and the property was being re-leased.
- Capital returns: A $0.21875-per-share common dividend was paid in March 2015; cash dividends totaled $21.3 million.
Material changes, outlook and risks
- Management attributed earnings pressure primarily to the absence of the prior-year bargain-purchase gain, increased corporate general and administrative costs, higher related-party fees, increased interest expense from greater borrowings, and higher depreciation and amortization. Office and hotel operating growth partly offset these factors.
- The board-approved plan to sell the lending business remained in place at quarter-end, with the intended result of deconsolidating the lending segment. Assets held for sale totaled $222.2 million and associated liabilities were $49.0 million. The filing gives no sale timetable or quantified proceeds.
- Management expected lower multifamily revenue at the New York property during 2015 as it was re-leased, and expected higher real-estate taxes to continue at Washington, D.C.-area properties. No earnings or revenue guidance was provided.
- In April 2015, the company paid off a mortgage with a March 31 balance of $12.4 million using the revolver. In May, it arranged the additional $385 million term-loan facility. These are subsequent events, not March 31 balances.
- Interest-rate exposure is material: 67.7% of debt, including debt associated with assets held for sale, was floating-rate at March 31. Management estimated that a 12.5-basis-point LIBOR change would affect annual earnings by approximately $576,000.
- Property and tenant concentration is notable: California generated 62.5% of property revenue, and governmental tenants accounted for 22.8% of rental and other property income. Management also cited potential funding constraints, refinancing needs, REIT distribution requirements, and the possibility that financing may not be available on attractive terms.
- A $4.7 million tax-abatement reimbursement settlement was paid in February 2015 relating to a New York property’s prior corporate-housing use. The company reported no other material pending or threatened litigation. It also disclosed a contingent risk that the SBA could seek recovery for losses on guaranteed loans if technical deficiencies were found, though management did not consider assertion probable.
- Related-party asset-management fees and other related-party charges increased. Investors should consider the disclosed management, staffing and reimbursement arrangements when assessing expenses and governance.
Important facts for investors to verify
- Whether and when the lending-segment sale closes, its proceeds, and the effects of deconsolidation on earnings and liquidity.
- The refinancing or repayment plan for the $395 million unsecured facility maturing in September 2016, and any borrowing under the May 2022 term-loan facility.
- The pace of re-leasing at the New York multifamily property and the related occupancy, revenue and tax-abatement effects.
- Whether office and hotel revenue growth can offset rising property costs, corporate expenses, related-party fees and interest expense.
- Floating-rate debt exposure, covenant headroom, future dividend capacity and the concentration of property revenue in California and governmental tenants.