Creative Media & Community Trust Corporation — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Dollar amounts below are in millions unless otherwise noted. The company is a REIT with office, hotel and SBA lending operations.
Financial performance and position
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $26.4 | $22.7 | $51.2 | $41.6 |
| Net income (loss) | $2.9 | $0.5 | $5.2 | $(3.1) |
| Net loss attributable to common stockholders | $(2.3) | $(4.2) | $(5.2) | $(12.4) |
| FFO attributable to common stockholders (non-GAAP) | $2.6 | $0.9 | $4.8 | $(2.3) |
- Q2 revenue rose 16.5%; hotel revenue increased 175.4% to $9.1 million, while lending revenue declined 52.9% to $2.8 million. Six-month revenue rose 23.2%.
- Q2 total expenses were $23.4 million versus $21.2 million; six-month expenses were $45.7 million versus $43.3 million. Higher hotel and property operating costs partly offset lower related-party management fees.
- At June 30, assets were $677.7 million, including $502.6 million of net real estate, $22.8 million invested in an unconsolidated venture, and $68.5 million of net loans. Net debt was $207.8 million. Cash and cash equivalents were $16.5 million, plus $11.2 million restricted cash.
- For the first six months, operating cash flow was $25.3 million (up from $17.8 million); investing cash use was $35.7 million (versus $4.8 million); financing cash provided was $4.5 million (versus $12.9 million). Cash and restricted cash fell $6.0 million to $27.7 million.
- Debt principal was $209.6 million at June 30, including $75.0 million drawn on the secured revolver, $97.1 million of fixed-rate mortgage debt and $27.1 million of junior subordinated notes. Approximately 53.6% of debt was floating-rate; management estimated a 50-basis-point LIBOR move would affect annual earnings by about $562,000.
Operating changes and business activity
- Office revenue grew 5.4% in Q2 and 4.8% for the half-year, primarily from improved occupancy at an Austin property. Office portfolio occupancy was 78.1%, compared with 78.0% a year earlier; annualized rent per occupied square foot was $54.13 versus $52.32.
- Hotel recovery drove higher revenue and NOI: six-month occupancy was 73.3% versus 38.8%, ADR was $174.48 versus $119.99, and RevPAR was $127.98 versus $46.52. Hotel segment NOI was $3.2 million in Q2 versus approximately zero, and $5.6 million for the half-year versus a loss of $0.8 million.
- Lending segment NOI fell to $1.7 million in Q2 from $5.0 million and to $3.4 million for the half-year from $7.2 million, reflecting lower loan-sale volume and market premiums. Loans subject to credit risk were 99.9% concentrated in hospitality; all were current at June 30. Loan-loss reserves were $1.0 million.
- The company acquired two Los Angeles multifamily development sites for a combined $7.9 million and invested approximately $22.4 million for a 44% interest in a Los Angeles office joint venture. A further $1.9 million Austin property acquisition closed July 1.
- Preferred stock dividends declared or accumulated were $5.2 million in Q2 and $10.2 million for the half-year. Common stockholders still had a net loss after preferred dividends and related adjustments.
Outlook, liquidity and risks
- Management expects lending revenue to be materially lower in the second half of 2022 than in the second half of 2021, citing lower expected originations, reduced demand for variable-rate loans, and expected prepayments affecting servicing revenue. No consolidated earnings or revenue guidance was provided.
- The $75.0 million revolver balance at quarter-end matured in October 2022. The company was pursuing refinancing and submitted an extension notice in July to extend maturity to October 2023, subject to conditions. By August 3, the balance had fallen to $50.0 million. Refinancing was not assured.
- Series L preferred holders obtain redemption rights in November 2022. The company may also redeem shares; payment may be in cash or common stock at its discretion, subject to the governing terms. The filing does not state whether holders will exercise their rights or the amount that may be redeemed.
- Management cites COVID-19 uncertainty, inflation and higher interest rates, development execution, office leasing and occupancy, and general market conditions as risks. Kaiser represented 29.2% of annualized rental income for the three months ended June 30, 2022.
- Other commitments included $7.1 million of loan-funding commitments and $6.0 million of future tenant-improvement and construction obligations. The filing reports no material pending litigation expected to have a material adverse effect, while noting an insured contractor-injury lawsuit for which potential losses could not be estimated.
Most important facts for investors to verify
- Whether the revolver was refinanced or its extension conditions were satisfied, and the resulting borrowing cost and availability.
- Potential Series L redemptions, the chosen form of payment, and the effect on cash, leverage and distributions.
- Whether the expected second-half lending downturn materialized, including changes in loan originations, premiums, prepayments and hospitality-sector credit exposure.
- Office occupancy, lease renewals and rent trends, including concentration in the Kaiser tenant; and the pace, cost and funding of planned development.
- Cash available after debt service, preferred dividends, common dividends, capital spending and loan commitments. FFO is a non-GAAP measure and is not a substitute for operating cash flow or liquidity.