Creative Media & Community Trust Corporation — Q1 2024 10-Q
Reporting period: Three months ended March 31, 2024; unaudited. CMCT is a REIT focused on office and multifamily real estate, with one hotel and an SBA 7(a) lending business.
Financial and operating results
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Total revenue | $34.0 million | $28.9 million |
| Total expenses | $37.3 million | $38.1 million |
| Net loss | $3.9 million | $7.6 million |
| Net loss attributable to common stockholders | $12.3 million; $0.54 per share | $12.7 million; $0.56 per share |
| FFO attributable to common stockholders (non-GAAP) | $(5.9) million | $(4.8) million |
| Net cash provided by operating activities | $1.6 million | $2.8 million |
Revenue rose 17.6%; management attributed the improvement in GAAP net loss mainly to lower depreciation and amortization and transaction costs, and higher segment net operating income. These benefits were partly offset by higher interest expense. FFO worsened, reflecting higher interest expense, preferred dividends and preferred-stock redemptions. Total segment net operating income was $13.6 million, versus $13.0 million.
By segment, office revenue was $14.6 million, hotel revenue $11.9 million, multifamily revenue $4.7 million and lending revenue $2.6 million. Multifamily’s year-over-year increase primarily reflects a full quarter of income from properties acquired in Q1 2023. Hotel RevPAR was $166.84 versus $162.85. Office occupancy was 83.4% versus 81.3%; multifamily occupancy was 86.2% versus 80.7%.
Balance sheet, debt and liquidity
At March 31, 2024, total assets were $887.5 million, net real estate investments $700.6 million and loans receivable, net, $56.2 million. Cash and cash equivalents were $21.3 million, with a further $24.3 million restricted. Debt, net, was $472.8 million; total liabilities were $515.4 million and total equity was $372.1 million. Debt, net, increased from $471.6 million at December 31, 2023.
Cash from operations was positive, but lower year over year. Investing activities used $0.4 million, compared with $91.1 million used in Q1 2023, when the company made significant real estate acquisitions. Financing activities provided $0.2 million, versus $77.7 million in the prior-year quarter.
Credit facility covenant: CMCT was not in compliance with a financial covenant under its $150 million 2022 credit facility at March 31, constituting an event of default. On May 14, 2024, lenders waived the default for the March 31 test period. The company cannot borrow under the facility without lender consent until conditions are met, including an acceptable revised business plan and restored covenant compliance. At March 31, $158.2 million was outstanding and $48.0 million was available; by May 14, $173.2 million was outstanding and availability was approximately zero. The waiver does not cover the June 30 test period or later periods. CMCT is seeking a longer-term amendment, but gives no assurance it will be obtained.
A $87.0 million variable-rate mortgage secured by Channel House bears interest at SOFR plus 3.36%. Management says property rents will likely be insufficient to cover debt service and is discussing restructuring with the lender; failure to modify the loan and make payments could trigger default remedies. Separately, the company exercised an extension in April for a $66.6 million mortgage, moving its maturity out one year.
Outlook, risks and unusual items
- No formal company-wide earnings guidance is provided. Management identifies possible liquidity sources including new or amended financing, securities offerings, asset sales, co-investments and operating cash flow, but cautions that funding needs may exceed available resources.
- Planned capital projects include the $20.9 million Sheraton Grand Hotel renovation, expected to start in the second half of 2024 and finish by Q3 2025; CMCT reports $1.6 million of pre-construction costs incurred. Its share of the 4750 Wilshire conversion is estimated at $6.2 million, with completion expected in Q4 2024. Its share of the 1915 Park multifamily development is estimated at $8.5 million, with completion expected by Q3 2025. Project funding and timing remain subject to conditions and financing.
- Preferred-stock dividends declared or accumulated were $7.8 million in the quarter; common dividends were $0.085 per share. Preferred dividends are cumulative, but declarations and payments remain subject to board discretion and available funds.
- Interest-rate exposure remains material: a 50-basis-point change in SOFR would have an estimated annual earnings impact of approximately $1.1 million. About 47.4% of debt was floating rate at quarter-end.
- Office leasing, occupancy and rent renewals; higher rates and inflation; hotel seasonality; and lending credit quality are identified risks. Office occupancy and multifamily occupancy improved, while multifamily rent per occupied unit was lower year over year. Kaiser Foundation Health Plan represented 29.5% of annualized office rental income.
- Loans subject to credit risk were concentrated entirely in hospitality; 97.8% were current, while $1.6 million were classified in substandard categories. CMCT serviced $230.5 million of SBA-guaranteed loan balances and says an SBA recovery claim for origination or servicing deficiencies could be material, though it does not expect such a claim based on historical experience.
- No material pending legal proceedings were reported, although a subsidiary faces a contractor-injury lawsuit for which potential loss cannot be estimated. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Key facts for investors to verify
- Whether CMCT restores covenant compliance for the June 30, 2024 test period and secures a durable 2022 credit facility amendment; monitor borrowing restrictions and lender remedies.
- Progress on Channel House mortgage restructuring and the property’s ability to cover debt service.
- Liquidity and funding capacity for debt service, preferred redemptions and dividends, loan commitments, and planned development and renovation spending.
- Whether office and multifamily leasing, hotel performance, and hospitality loan credit quality support the reported operating trends and projected project timelines.