Creative Media & Community Trust Corporation (CMCT) is a real estate investment trust (REIT) that owns, operates, and develops premier multifamily and creative office assets in vibrant communities throughout the United States. CMCT has faced headwinds in recent quarters, with annual net income of -$48,485,000, annual revenue of $119,258,000, annual operating cash flow of $11,997,000, and annual free cash flow of -$1,329,000. However, CMCT is taking proactive steps to strengthen its financial position and position itself for future growth.
Business Overview
CMCT is a leader in the creative office space, acquiring and developing properties catering to rapidly growing industries such as technology, media, and entertainment. CMCT also owns a portfolio of multifamily properties situated in dynamic markets with similar business and employment characteristics to its creative office investments. Additionally, CMCT owns one hotel in Northern California and a lending platform that originates loans under the Small Business Administration's (SBA) 7(a) loan program.CMCT's strategy is to apply the expertise of its parent company, CIM Group, to the acquisition, development, and operation of top-tier multifamily properties and creative office assets in vibrant and improving metropolitan communities throughout the United States. CIM Group is a vertically-integrated owner and operator of real assets with multi-disciplinary expertise and in-house research, acquisition, credit analysis, development, finance, leasing, and onsite property management capabilities.
Financials
For the first quarter of 2024, CMCT reported a net loss of $3,905,000, a decrease from the net loss of $7,576,000 in the same period of the prior year. CMCT's total revenues for the quarter were $33,998,000, up from $28,912,000 in the first quarter of 2023. This increase was primarily driven by higher rental and other property income, as well as an increase in hotel income.CMCT's office segment saw a 9% year-over-year increase in same-store net operating income (NOI) to $7.4 million, primarily due to improved NOI at CMCT's Beverly Hills property. The hotel segment's NOI remained consistent at $4.1 million for both the first quarter of 2024 and 2023, while the lending segment's NOI decreased to $800,000 from $1.4 million in the prior-year period due to increased interest expense.
CMCT's multifamily segment generated $900,000 in NOI during the first quarter of 2024, compared to $680,000 in the same period of 2023. This increase was largely due to the full-quarter contribution from the two multifamily properties acquired in Oakland, California in late January and late March 2023.
Funds from Operations (FFO) for the first quarter of 2024 was negative $0.26 per diluted share, compared to negative $0.21 per diluted share in the prior-year period. Core FFO, which excludes certain non-recurring items, was negative $0.19 per diluted share, compared to positive $0.06 per share in the first quarter of 2023. The decrease in FFO and Core FFO was primarily driven by an increase in interest expense and higher redeemable preferred stock dividends.
Liquidity
As of March 31, 2024, CMCT had $45.6 million in cash and cash equivalents and restricted cash. CMCT raised an additional $19.1 million in net proceeds from the sale of its Series A1 preferred stock during the first quarter.CMCT's balance sheet is structured to provide flexibility, with non-recourse mortgages, preferred stock, and a senior secured credit facility that is subject to a borrowing base calculation. CMCT is evaluating ways to strengthen its balance sheet and improve cash flow, including potentially selling assets and reducing debt.
Outlook
CMCT is taking proactive steps to navigate the challenging market environment. CMCT is focused on improving its cash flow by evaluating potential asset sales, which could allow it to pay down its credit facility and improve its leverage position. CMCT believes its portfolio of assets will continue to attract buyer interest, despite the higher interest rate environment.Additionally, CMCT is progressing with its development pipeline, including the conversion of an office building in Los Angeles into a multifamily property and the renovation of its hotel asset in Sacramento, California. These projects are expected to contribute to CMCT's future growth, though the hotel renovation may result in some near-term disruption to the property's NOI.
CMCT is also working to increase occupancy and rental rates at its multifamily properties in Oakland, California, where the market has been impacted by a significant influx of new supply in recent years. CMCT believes the pipeline for new multifamily development in the East Bay area is well below the national average, which should benefit its properties as the market continues to absorb the excess supply.
Risks and Challenges
CMCT faces several risks and challenges, including the potential for continued volatility in the real estate market, the impact of higher interest rates on its operations and profitability, and the ability to maintain or increase occupancy levels and rental rates across its portfolio. CMCT's hotel asset is also subject to seasonal fluctuations and cyclical trends in the hospitality industry.Additionally, CMCT's lending segment may be impacted by changes in government policies or regulations related to the SBA 7(a) loan program, as well as the overall credit quality of its loan portfolio.