CIM Commercial Trust Corporation — FY 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. The filing is an annual report, not a standalone quarterly filing; selected fourth-quarter figures are noted below. The company is a REIT focused primarily on office real estate in urban markets, with multifamily, hotel and lending operations. Lending is classified as held for sale and discontinued operations.
Financial performance and portfolio
| Metric | FY 2015 | FY 2014 |
|---|---|---|
| Total revenue | $268.4 million | $256.2 million |
| Income from continuing operations | $4.1 million | $12.0 million |
| Income from discontinued operations | $20.3 million | $12.6 million |
| Net income attributable to stockholders | $24.4 million | $24.4 million |
| FFO | $93.7 million | $93.6 million |
| Cash provided by operating activities | $77.0 million | $66.8 million |
| Cash and cash equivalents, including held-for-sale assets | $140.6 million | $27.6 million |
| Debt on balance sheet | $662.9 million | $608.7 million |
Revenue increased 4.8%, while net income attributable to stockholders was essentially flat. Continuing-operations income declined, reflecting higher interest and related-party fees, higher depreciation, and the absence of the $4.9 million 2014 bargain-purchase gain. FY 2015 net income included a $3.1 million gain on an office sale and $5.2 million gain from the lending-segment loan sale. FFO was nearly unchanged year over year.
Operating segments: Office revenue was $188.3 million and NOI was $107.5 million; hotel revenue was $61.4 million and NOI was $19.5 million; multifamily revenue was $18.7 million and NOI was $6.6 million. Total segment NOI rose to $133.5 million from $127.4 million. Office occupancy was 86.9% versus 85.1%; multifamily occupancy was 92.4% versus 92.8%. Hotel occupancy was 82.1%, ADR $132.61 and RevPAR $108.88.
Portfolio: At year-end, the company held 33 properties: 24 office and ancillary assets totaling about 5.6 million rentable square feet, five multifamily properties with 930 units, and three hotels with 1,070 rooms. Office, hotel and multifamily generated approximately 70.1%, 22.9% and 7.0% of continuing-operations revenue, respectively. California and Washington, D.C. together represented 86.4% of property revenue.
Fourth quarter: Revenue from continuing operations was $67.9 million; income from continuing operations was $3.1 million; discontinued-operations income was $8.3 million; and net income attributable to stockholders was $11.4 million.
Material changes and liquidity
- In December 2015, the company sold substantially all commercial mortgage loans for $84.9 million of proceeds, recognizing a $5.2 million gain after transaction costs. The lending segment remains held for sale; the company is soliciting buyers for the remaining business and expects the disposition process to extend beyond one year.
- In November 2015, it drew the full $385 million unsecured term loan, using proceeds to repay its revolving credit facility. The term loan matures in May 2022; swaps fix its rate at an all-in 3.16% through May 2020.
- The $850 million unsecured credit facility had $107 million outstanding and $450 million available at year-end; it matures in September 2016, with two conditional one-year extensions. Management intended to exercise an extension or identify alternative financing.
- Reported consolidated indebtedness was approximately $710.1 million including debt associated with assets held for sale. The company reported compliance with financial covenants at year-end.
- Operating cash flow was $77.0 million; investing activities provided $64.3 million, largely reflecting loan-sale and property-sale proceeds; financing activities used $28.3 million. Dividends paid in 2015 totaled $85.4 million, or $0.875 per share. A $0.21875-per-share quarterly dividend was declared in March 2016.
Outlook, risks and unusual items
Management provided no quantified earnings or operating guidance. Its stated strategy is to prioritize Class A and creative office investments in targeted urban communities, grow cash flow through acquisitions and asset management, and consider disposing of non-office or non-strategic assets. Courtyard Oakland was sold in February 2016 for $43.8 million, with an approximately $24.7 million gain; this is a subsequent event, not FY 2015 income.
Key risks include the concentration of property revenue in California and Washington, D.C.; office vacancies and lease expirations (11.3% of occupied office space was scheduled to expire in 2016); tenant concentration, including federal-government exposure; debt refinancing and interest-rate risk; and reliance on CIM Group affiliates under fee arrangements and with limited termination rights. CIM affiliates and related holders controlled approximately 98.2% of voting power, contributing to limited public float and trading liquidity. REIT qualification, environmental and regulatory compliance, natural disasters, and completion of the lending-segment sale are additional risks.
Related-party costs are material: the advisor earned $24.9 million in asset-management fees in 2015; the manager earned a $1.0 million base service fee plus $3.0 million for other services. The New York multifamily tax-abatement reimbursement was a notable prior-period item: $4.7 million was paid in February 2015 after a $4.5 million liability was recorded in 2014. No material pending litigation was reported. Management and the auditor concluded internal control over financial reporting was effective; the financial-statement audit opinion was unqualified.
Investor verification priorities
- Review the remaining lending-segment assets, liabilities, operating costs, and expected timing and proceeds of its planned sale.
- Assess the September 2016 credit-facility maturity, extension conditions, available capacity, and refinancing alternatives.
- Track 2016 office lease expirations, occupancy and rent renewals, particularly in Sacramento, Charlotte and Washington, D.C.
- Reconcile reported debt and cash figures, distinguishing continuing operations from balances associated with assets held for sale.
- Evaluate dividend coverage against operating cash flow, capital spending, debt service and REIT distribution requirements.
- Review related-party fees, governance and control concentration, and the effects of the February 2016 hotel disposition.