Creative Media & Community Trust Corporation (CMCT) is a Maryland-based real estate investment trust (REIT) that primarily acquires, develops, owns, and operates premier multifamily properties situated in vibrant communities throughout the United States, as well as Class A and creative office real assets in markets with similar business and employment characteristics to its multifamily investments. The company seeks to leverage the expertise of CIM Group, its strategic partner, to identify and capitalize on investment opportunities that cater to rapidly growing industries such as technology, media, and entertainment.
Business Overview and History CMCT was founded in 2015 as a Maryland corporation and real estate investment trust (REIT). The company's primary focus has been on acquiring, developing, owning, and operating premier multifamily properties and Class A and creative office real assets in vibrant communities throughout the United States. CMCT leverages the expertise of its parent company, CIM Group, in identifying and evaluating potential investment opportunities.
CIM Group plays a crucial role in CMCT's investment strategy by conducting extensive evaluations of communities before making acquisitions. This process involves identifying distinct districts referred to as "Qualified Communities" that possess high barriers to entry, high population density, positive population trends, and a propensity for growth.
In its early years, CMCT focused on raising capital through continuous public offerings of its preferred stock. The company conducted offerings of its Series A Preferred Stock and Series A Preferred Warrants, as well as its Series A1 Preferred Stock and Series D Preferred Stock. The proceeds from these offerings were used to fund CMCT's real estate acquisitions and development activities.
To expand its investment capabilities, CMCT entered into joint ventures with CIM Group-affiliated entities. These partnerships allowed the company to co-invest in office and multifamily properties, leveraging the expertise and resources of both organizations.
However, CMCT faced significant challenges during the COVID-19 pandemic, which had a negative impact on its hotel and office properties. The company's financial performance suffered, leading to non-compliance with financial covenants under its 2022 credit facility in 2024. In response, CMCT entered into several modification agreements with its lenders to address these issues.
To strengthen its balance sheet and improve its financial position, CMCT took decisive actions. These included redeeming preferred stock in exchange for common stock and suspending its preferred stock offering. Additionally, the company began exploring the sale of several high-quality assets to enhance its capital structure and liquidity.
Financial Overview CMCT's financial performance has been impacted by the shifting real estate landscape in recent years. For the nine months ended September 30, 2024, the company reported a net loss of $15.3 million, compared to a net loss of $42.6 million in the same period of the prior year. This improvement was primarily driven by a decrease in depreciation and amortization expense, as well as lower transaction-related costs.
Funds from operations (FFO), a key metric in the REIT industry, was negative $28.4 million, or negative $1.00 per diluted share, for the three months ended September 30, 2024, compared to negative $7.5 million, or negative $0.31 per diluted share, in the same period of 2023. The decrease in FFO was largely due to an increase in redeemable preferred stock redemptions, a decline in segment net operating income, and higher redeemable preferred stock dividends.
For the most recent quarter (Q3 2024), CMCT reported revenue of $27,459,000, a net loss of $16,606,000, operating cash flow of $10,010,000, and free cash flow of $1,014,000. The company's total revenues for the three months ended September 30, 2024, were $28.62 million, up slightly from $28.12 million in the same period a year earlier.
Liquidity As of September 30, 2024, CMCT's total assets stood at $868.1 million, while its total liabilities amounted to $524.4 million, resulting in a debt-to-total-assets ratio of 60.4%. The company's cash and cash equivalents totaled $18,450,000, providing it with liquidity to fund ongoing operations and strategic initiatives.
CMCT's 2022 Credit Facility has a total capacity of $169.3 million, with a variable interest rate of SOFR plus 2.60%. The facility matures in December 2025, with two one-year extension options. As of September 30, 2024, no amount was available on this credit facility.
Operational Highlights CMCT's real estate portfolio has experienced mixed performance across its various segments. The company operates in three main segments: Office, Hotel, and Multifamily properties, as well as a Lending segment.
In the Office segment, as of September 30, 2024, the company's same-store office portfolio was 72.2% leased, down from 82.6% at the end of the previous year. This decline was primarily attributable to lower occupancy at an office property in Oakland, California. Office segment revenue for the three months ended September 30, 2024, was $13.82 million, compared to $14.05 million in the prior year period. Annualized rent per occupied square foot in the Office segment increased to $60.31 as of September 30, 2024, up from $56.93 a year earlier.
The Hotel segment, which includes the Sheraton Grand Sacramento Hotel, experienced a decrease in occupancy and average daily rate (ADR) during the third quarter of 2024, primarily due to the ongoing renovation work at the property. Hotel segment revenue was $7.14 million for the three months ended September 30, 2024, down from $7.95 million in the prior year period. RevPAR (revenue per available room) for the nine months ended September 30, 2024, was $145.74, compared to $149.01 in the prior year period.
In the Multifamily segment, CMCT's properties were 92.0% occupied as of September 30, 2024, up from 84.1% at the end of the previous year. This improvement was driven by higher occupancy and increased monthly rent per occupied unit, net of rent concessions. Multifamily segment revenue was $4.77 million for the three months ended September 30, 2024, up from $3.33 million a year earlier.
The company's Lending division, which originates loans under the Small Business Administration's (SBA) 7(a) loan program, reported revenue of $2.72 million for the three months ended September 30, 2024, compared to $2.57 million in the prior year period. The increase was primarily due to higher premium income from loan sales, partially offset by decreased interest income from higher loan payoffs.
Outlook and Strategic Initiatives In response to the shifting real estate landscape, CMCT has taken several strategic actions to strengthen its balance sheet and liquidity, while accelerating its transition towards a greater focus on premier multifamily assets.
In September 2024, the company announced that it had suspended its offering of Series A1 Preferred Stock and redeemed a significant number of its Series A1 and Series A Preferred Stock, using shares of its common stock. These actions are expected to simplify CMCT's capital structure and improve its financial flexibility.
Additionally, the company is in the process of obtaining refinancing for its Sheraton Grand Sacramento Hotel, as well as three of its properties in Los Angeles, California. If completed, the proceeds from these refinancing efforts are anticipated to be used to repay the outstanding balance on CMCT's 2022 Credit Facility, with the remaining funds available for general corporate purposes.
CMCT's management team is also exploring strategic partnerships and co-investment opportunities to leverage its expertise and access to capital, while reducing its overall capital outlay. This asset-light approach is expected to contribute to stronger returns on invested capital while mitigating risk.
Risks and Challenges CMCT, like other REITs, faces a range of risks and challenges that could impact its financial performance and growth prospects. These include:
1. Macroeconomic conditions: The company's operations are subject to fluctuations in the broader economy, which can affect demand for its real estate assets, occupancy rates, and rental rates.
2. Competitive landscape: CMCT operates in highly competitive real estate markets, where it competes with other REITs, private investors, and developers for attractive investment opportunities.
3. Reliance on CIM Group: The company's strategic partnership with CIM Group is critical to its success, and any disruptions or changes in this relationship could adversely affect CMCT's operations and growth.
4. Financing risk: CMCT's ability to obtain financing on favorable terms is essential for its ongoing operations and expansion plans. Any difficulties in securing financing could hinder the company's growth and development initiatives.
5. Regulatory and legal risks: As a REIT, CMCT must comply with various regulatory requirements, and any changes in the regulatory landscape could impact the company's business model and financial performance.
Despite these challenges, CMCT's management team remains committed to navigating the shifting real estate landscape and positioning the company for long-term success. The company's focus on premier multifamily assets, strategic partnerships, and balanced capital structure are expected to be key drivers of its future growth and profitability.
Conclusion Creative Media & Community Trust Corporation is a diversified REIT that has been actively shaping its portfolio and capital structure to adapt to the evolving real estate market. While the company has faced some headwinds in recent quarters, its strategic initiatives to strengthen its balance sheet and accelerate its transition towards premier multifamily assets are expected to position CMCT for improved financial performance and long-term value creation. As the company continues to execute on its strategic plan, investors will be closely monitoring CMCT's ability to navigate the shifting landscape and capitalize on emerging opportunities in the real estate sector.