Creative Media & Community Trust Corporation — Q1 2022 Form 10-Q
Business context and period. Unaudited results cover the three months ended March 31, 2022, compared with Q1 2021; balance-sheet comparisons are to December 31, 2021. CMCT is a REIT with office, hotel and SBA 7(a) lending operations. At quarter-end it reported 16 real estate assets, including an office property held through a 44%-owned joint venture.
Key financial metrics
| Metric | Q1 2022 / March 31, 2022 | Comparable period / prior year-end |
|---|---|---|
| Total revenue | $24.8 million | $18.9 million in Q1 2021 |
| Net income (loss) | $2.3 million | $(3.7) million in Q1 2021 |
| Net loss attributable to common stockholders | $(2.8) million; $(0.12) per share | $(8.2) million; $(0.55) per share in Q1 2021 |
| FFO attributable to common stockholders | $2.2 million | $(3.2) million in Q1 2021 |
| Cash from operations | $8.6 million | $4.6 million in Q1 2021 |
| Cash and restricted cash | $30.6 million, including $17.1 million unrestricted cash | $33.7 million at December 31, 2021 |
| Total assets | $688.3 million | $660.9 million at December 31, 2021 |
| Debt, net | $228.2 million | $201.1 million at December 31, 2021 |
| Office occupancy | 78.9% | 78.7% at March 31, 2021 |
Cash flow from investing was $(33.1) million, including a $22.4 million investment in the Los Angeles joint venture and real estate acquisition and capital spending. Financing provided $21.4 million, principally reflecting revolving-credit borrowings, partly offset by dividends and preferred-stock redemptions. Debt face value was $230.3 million; approximately 56.2% was floating-rate debt. Management estimated that a 50-basis-point LIBOR change would affect annual earnings by approximately $648,000.
Material changes versus Q1 2021
- Revenue increased 31.3%, primarily from hotel recovery: hotel segment revenue rose to $7.8 million from $1.9 million as occupancy, room rates and ancillary business improved following eased COVID-19 restrictions. Hotel occupancy was 69.2% versus 29.8%, and RevPAR was $119.78 versus $34.60.
- Office revenue increased 4.3% to $14.1 million; office segment net operating income rose to $8.0 million from $7.8 million. Office expenses increased 8.2%.
- Lending revenue fell 17.0% to $2.9 million, mainly due to lower premium income from reduced loan-sale volume. Loan balances were concentrated in hospitality: 99.9% of loans subject to credit risk; all such loans were current at quarter-end.
- Total expenses were nearly flat at $22.3 million. Related-party asset management fees fell to $0.9 million from $2.3 million following a fee waiver effective January 1, 2022; general and administrative expense also declined.
- Debt, net rose $27.1 million from year-end, while cash and restricted cash decreased $3.0 million. Loans receivable, net increased to $79.4 million from $73.5 million.
Outlook, liquidity and risks
- No quantified earnings or FFO guidance is provided. Management cautions that Q1 results are not necessarily indicative of full-year results and says COVID-19, inflation, higher interest rates, leasing conditions and broader economic conditions could affect performance.
- The $90.0 million 2018 revolving facility was due to mature in October 2022. Management expected to extend it to October 2023, subject to conditions, and/or refinance it, and stated it expected to implement either or both options. Approximately $106.2 million was available under the facility at March 31.
- The $10.0 million unsecured revolving facility matured May 1, 2022; no amount was outstanding at March 31. The filing also identifies November 2022 redemption rights for Series L preferred stock. Holders may require redemption; CMCT was evaluating options and may pay in cash or, at its discretion, common shares. The potential cash requirement is a significant liquidity consideration.
- CMCT had $16.4 million of loan-funding commitments and $6.7 million of future tenant-improvement and construction obligations at March 31. It stated long-term funding may be uncertain and could require borrowing, securities offerings, asset sales or operating cash.
- Other exposures include a $11.8 million San Francisco real-estate transfer-tax refund lawsuit, a contractor-injury suit for which potential loss cannot be estimated, and possible SBA recovery if technical deficiencies are found in guaranteed loans. Management did not expect material adverse effects from the litigation and said an SBA claim was not considered probable, but an asserted claim could be material.
- Kaiser accounted for 29.4% of annualized rental income, creating tenant concentration risk. Management reported no material change to the 2021 Form 10-K risk factors, effective disclosure controls, and no material subsequent events requiring disclosure.
Most important facts for investors to verify
- Whether the October 2022 revolving debt was extended or refinanced, and the resulting cost, collateral and covenant terms.
- Whether Series L holders exercise November 2022 redemption rights, the amount presented, and whether payment is made in cash or shares.
- Trends in hotel recovery, office occupancy and rent renewals, including the impact of lease expirations and CMCT’s largest tenant concentration.
- Hospitality borrower credit performance and loan-sale volumes, given the lending portfolio’s industry concentration.
- Available liquidity after dividends, preferred-stock obligations, development spending and committed lending; common-stockholders remained in a loss despite company-level net income.
Unless otherwise indicated, dollar amounts are in U.S. dollars; financial statement amounts are rounded to the nearest $0.1 million.