Creative Media & Community Trust Corp annual report, FY2023

Creative Media & Community Trust Corporation — FY2023 Form 10-K

Reporting period: Fiscal year ended December 31, 2023; comparative figures are for FY2022. The company is a Maryland REIT, externally operated by CIM Group affiliates, with office, hotel, multifamily and SBA 7(a) lending businesses. This is an annual filing, not a standalone Q4 earnings report.

Business context and portfolio

At year-end, the portfolio comprised 27 real estate assets, including five held through unconsolidated joint ventures, and nine development sites. The portfolio included 13 office properties with approximately 1.3 million rentable square feet, one 503-room hotel and three multifamily properties.
Office occupancy was 83.8%, up from 77.7% in 2022; annualized rent per occupied square foot rose to $57.17 from $52.57. Multifamily occupancy was 79.3%; the properties were acquired during 2023, so there is no comparable 2022 operating period.
The Sacramento hotel’s occupancy rose to 75.1% from 73.0%; ADR increased to $194.12 from $172.95, and RevPAR to $145.80 from $126.19.
Kaiser represented 28.7% of annualized office rent. The company reports significant California concentration; all loans subject to credit risk were concentrated in hospitality.

Financial performance and liquidity

Metric	FY2023	FY2022
Total revenue	$119.3 million	$101.9 million
Total expenses	$170.2 million	$95.0 million
Net income (loss)	$(51.5) million	$5.9 million
Net loss attributable to common stockholders	$(75.7) million; $(3.33) per share	$(25.8) million; $(1.11) per share
FFO attributable to common stockholders	$(26.4) million	$(5.4) million
Cash provided by operating activities	$12.0 million	$32.4 million

Revenue increased 17.0%, but expenses rose 79.1%. The company attributed the larger net loss mainly to $32.1 million more depreciation and amortization, including rapid amortization of acquired multifamily in-place leases, and $22.4 million more unallocated interest expense.
Total segment net operating income was nearly unchanged at $47.0 million versus $46.8 million. Office segment NOI was $28.4 million versus $29.3 million; hotel NOI increased to $13.1 million from $11.1 million; multifamily contributed $1.9 million after 2023 acquisitions; lending NOI fell to $3.6 million from $6.4 million.
Year-end total assets were $891.2 million, versus $690.2 million; net investments in real estate were $704.8 million, versus $502.0 million. Cash and cash equivalents were $19.3 million, with a further $24.9 million restricted, compared with $46.2 million and $11.3 million, respectively, in 2022.
Debt, net of issuance costs and discounts, was $471.6 million, versus $184.3 million; debt principal at face value was approximately $475.4 million. Total liabilities were $514.4 million. The 2022 Credit Facility had $153.2 million outstanding and approximately $53.0 million available at year-end; as of March 21, 2024, outstanding borrowings were $158.2 million and availability approximately $48.0 million.
Net cash used in investing activities was $88.7 million, versus $22.3 million; financing activities provided $63.4 million, versus $13.7 million. Cash and restricted cash combined fell to $44.2 million from $57.5 million.

Material changes and unusual items

The company acquired two Oakland multifamily properties and related development land in early 2023, and acquired interests in additional joint ventures. It reported $282.9 million of acquisitions of four assets from entities affiliated with a CIM-managed fund, excluding transaction costs.
In February 2023, it sold an 80% interest in 4750 Wilshire Boulevard for $34.4 million, retaining 20% through a joint venture and recognizing a $1.1 million gain. The joint venture is converting two floors from office to multifamily use.
Depreciation and amortization increased to $52.5 million from $20.3 million, including $27.7 million of acquired in-place lease amortization. No long-lived asset impairment was recorded in either year.
Interest expense increased to $35.1 million from $9.6 million. In March 2023, the lending business issued $54.1 million of SBA 7(a) loan-backed notes; net proceeds were approximately $43.3 million.
The company completed the cash redemption of all remaining Series L preferred stock in January 2023 at a total cost of $83.8 million. It issued $103.2 million of net preferred-stock proceeds during FY2023 and paid $29.5 million of preferred dividends.
Common dividends were $0.085 per share quarterly, or $0.34 for the year. A $0.085 per-share dividend declared in March 2024 was scheduled for payment in April 2024.

Outlook, risks and contingencies

No numerical earnings or distribution guidance is provided. Management expects to operate in a relatively high-interest-rate environment in 2024. It plans development and repositioning, including the 4750 Wilshire conversion, an approximately $20.9 million Sheraton Grand renovation and a joint venture’s approximately $19.3 million 1915 Park Avenue multifamily project, of which CMCT’s expected share is $9.7 million.
Debt maturities warrant attention: $66.6 million of fixed-rate mortgage debt was due June 2024, with a one-year extension option the company expected to exercise or refinance; the 2022 Credit Facility matures December 2025, with conditional extension options. A $87.0 million variable-rate mortgage matures in July 2025. Variable-rate debt was generally unhedged, and management estimated a 50-basis-point SOFR change would affect annual earnings by about $1.1 million.
Office leasing remains a key risk: 15.6% of office rentable area was available for lease at year-end, and 18.6% of occupied office area was scheduled to expire in 2024. Kaiser’s leases include significant upcoming expirations and termination rights; negotiations for a long-term extension were ongoing, with no assurance an agreement would be executed.
Other stated risks include California and tenant concentration, weaker office demand and leasing, hotel cyclicality, inflation and construction costs, refinancing and liquidity access, SBA program and hospitality-credit exposure, environmental and natural-disaster losses, and conflicts arising from CIM-affiliate management and transactions. Related-party asset management fees were $2.6 million; property management fees and onsite cost reimbursements were $2.1 million and $5.8 million, respectively.
The company disclosed $12.6 million of SBA loan funding commitments and $5.0 million of future tenant-improvement and construction obligations. It reported no material pending litigation generally, but noted a contractor-injury lawsuit for which a potential loss range could not be estimated; management did not expect a material adverse effect. No off-balance-sheet arrangements were reported.
Management and Deloitte concluded internal control over financial reporting was effective as of December 31, 2023; Deloitte issued unqualified opinions on the financial statements and internal controls. The audit identified real estate impairment evaluation as a critical audit matter.

Important facts for investors to verify

Cash available for operations after considering restricted cash, preferred dividends, development spending, debt service and upcoming maturities; confirm the 2024 mortgage extension or refinancing and current credit-facility availability.
Progress and economics of Kaiser lease negotiations, 2024 expirations, office vacancy and leasing incentives, and actual rent collections.
Actual costs, financing, timing and expected returns for the hotel renovation and multifamily conversions and developments.
Quality and performance of hospitality-concentrated SBA loans, credit-loss reserves, securitization obligations and SBA guarantee compliance.
Preferred-stock redemption and dividend obligations, any reliance on asset sales or new securities to fund distributions, and potential common-share dilution.
Valuation assumptions underpinning real estate and NAV, particularly given the filing’s discussion of appraisal estimates, impairment judgments and the common stock trading below estimated NAV.