Executive Summary / Key Takeaways

• Creative Media Community Trust (CMCT) is executing a strategic pivot, accelerating its focus towards premier multifamily assets while actively reducing exposure to traditional office properties and strengthening its balance sheet.
• A major milestone was achieved with the full repayment and retirement of the recourse corporate credit facility in April 2025, significantly improving the balance sheet and liquidity profile, with debt now primarily non-recourse at the property level.
• Multifamily growth is underway through development and lease-up of new assets like 701 South Hudson and 1915 Park in Los Angeles, presenting opportunities to increase Net Operating Income (NOI) despite challenges in the Oakland market.
• The company leverages the vertical integration and expertise of CIM Group, providing operational efficiencies and a competitive edge in acquisition, development, and property management, particularly in its niche creative office and multifamily segments.
• While facing headwinds from elevated interest rates and office market softness, management anticipates future benefits from potential rate reductions and is actively evaluating asset sales to further enhance liquidity and fund strategic priorities.

Setting the Scene: A REIT in Transition

Creative Media Community Trust Corporation (CMCT) operates as a real estate investment trust, primarily focused on acquiring, developing, owning, and operating premier multifamily properties and Class A and creative office assets. The company's strategy centers on identifying and investing in vibrant metropolitan communities across the United States, areas characterized by high barriers to entry, population density, positive demographic trends, and a supportive environment for investment. Complementing its real estate holdings, CMCT also maintains a hotel property in Northern California and a lending platform specializing in SBA 7(a) loans.

CMCT's journey has seen an evolution in its capital structure, marked by continuous public offerings of preferred stock classes (Series A, D, and A1) over several years, alongside strategic shifts in its investment focus. Notably, the company has been actively accelerating its pivot towards premier multifamily assets, aiming for a more balanced portfolio composition. This strategic direction is underpinned by leveraging the deep expertise and vertically integrated capabilities of CIM Group, its affiliated manager.

In a competitive landscape populated by larger, more diversified players like Boston Properties (BXP), SL Green Realty (SLG), and Vornado Realty Trust (VNO), as well as West Coast-focused peers like Kilroy Realty Corporation (KRC), CMCT carves out its niche. While competitors often focus on large-scale, traditional office towers or broad urban redevelopment, CMCT emphasizes creative office spaces tailored to industries like technology, media, and entertainment, alongside its growing multifamily portfolio.

A key differentiator for CMCT lies in the operational model provided by CIM Group's vertical integration. This in-house expertise spans the entire real estate lifecycle, from acquisition and development to finance, leasing, and property management. This integrated approach offers tangible benefits, potentially leading to lower operating costs per unit compared to firms relying heavily on third-party services. It also facilitates faster property improvements and customization, particularly valuable in the creative office segment, and can streamline tenant onboarding. While precise, directly comparable quantitative metrics for the cost savings or speed advantages derived solely from this integration across all competitors are challenging to ascertain from public data, the strategic intent and qualitative benefits articulated by the company suggest a competitive edge in operational efficiency and responsiveness within its targeted niches. Against larger competitors like BXP and SLG, this integration can counter their scale advantages by offering more tailored service and potentially reducing tenant switching costs within CMCT's specific asset types. However, CMCT's smaller scale and geographic concentration in certain markets remain potential vulnerabilities compared to the broader diversification of some peers.

Strategic Execution and Financial Performance

The strategic imperative to strengthen the balance sheet and improve liquidity has been a central theme for CMCT, culminating in a significant achievement in the first quarter of 2025. The company successfully completed a program of placing property-level financings across six assets, utilizing the proceeds to fully repay and retire its recourse corporate-level credit facility. This included securing a floating-rate mortgage on the Penfield office campus in Austin in April 2025, marking the conclusion of this refinancing effort. As a result, the majority of CMCT's debt is now held at the property level and is non-recourse to the corporation itself, a substantial improvement in its financial risk profile. The only remaining corporate debt is $27 million in junior subordinated notes maturing in 2035. This move also increased the number of unencumbered assets to 12, enhancing financial flexibility.

Financially, the first quarter of 2025 reflected both the ongoing market challenges and the initial impacts of strategic adjustments. The company reported a net loss of $6.3 million for the three months ended March 31, 2025, an increase from the $3.9 million net loss in the prior year period. This wider loss was primarily driven by a decrease in segment net operating income and an increase in interest expense.

Funds from Operations (FFO) attributable to common stockholders, a key REIT performance metric, showed a positive movement, increasing to a negative $5.4 million in Q1 2025 from a negative $5.9 million in Q1 2024. This improvement in FFO, despite the higher net loss, was largely attributable to a decrease in redeemable preferred stock dividends ($5.5 million declared or accumulated in Q1 2025 vs $7.8 million in Q1 2024) and a decrease in preferred stock redemptions ($0.3 million in Q1 2025 vs $0.8 million in Q1 2024), which are adjustments in the FFO calculation. However, Core FFO, which excludes certain items like transaction costs and preferred redemptions, decreased to a negative $5.1 million in Q1 2025 from a negative $4.4 million in Q1 2024, reflecting the underlying pressure from lower segment NOI and higher interest expense.

Segment performance in Q1 2025 was mixed:

• Office: Revenue decreased to $13.1 million from $14.6 million year-over-year, resulting in a lower NOI of $7.1 million compared to $7.9 million. This was primarily due to lower occupancy (70.2% vs 83.4% year-over-year) at an Oakland property, partially offset by stronger performance in Beverly Hills. Management noted a pickup in leasing activity in LA and Austin, but the Oakland market continues to face headwinds, including a large tenant giveback in Q3 2024.
• Hotel: Revenue increased to $12.7 million from $11.9 million, driving NOI up to $4.7 million from $4.1 million. This improvement was attributed to increases in both occupancy (80.0% vs 79.0%) and Average Daily Rate (ADR) ($220.57 vs $211.06), reflecting the benefits of the recently completed room renovation.
• Multifamily: Revenue decreased to $4.1 million from $4.7 million, and the segment reported an operating loss of $0.62 million compared to income of $0.92 million in the prior year. This was primarily due to lower occupancy (80.2% vs 86.2%) and monthly rent per occupied unit ($2,461 vs $2,737) in the seasonally slower winter months, as well as larger unrealized losses from unconsolidated joint ventures. Challenges persist in the Oakland market due to past supply growth, leading to soft rental rates and high concessions, although occupancy has seen some improvement.
• Lending: Revenue decreased slightly to $2.4 million from $2.6 million, with NOI declining to $0.59 million from $0.79 million. This was mainly due to lower interest income resulting from loan payoffs and decreased interest rates.

Interest expense not allocated to segments increased to $9.2 million in Q1 2025 from $8.1 million in Q1 2024, driven by a higher average outstanding principal balance from new mortgage loans, despite paydowns on the credit facility. Transaction-related costs saw a significant decrease, falling to $26,000 from $690,000, reflecting reduced activity in contemplated transactions compared to the prior year.

CMCT's financial performance, particularly the increase in net loss and decrease in Core FFO, underscores the impact of the current high-interest-rate environment and specific market challenges, especially in the office and certain multifamily submarkets. However, the successful execution of the debt refinancing strategy provides a stronger foundation by reducing recourse debt and enhancing liquidity, positioning the company to better navigate these headwinds.

Outlook, Strategic Initiatives, and Competitive Dynamics

Looking ahead, CMCT's outlook is firmly tied to the successful execution of its strategic pivot and the potential for macroeconomic tailwinds. The company is focused on growing its premier multifamily portfolio through development and lease-up. The 701 South Hudson project in Los Angeles, a conversion of former office space to 68 residential units, is seeing lease-up progress, reaching approximately 41% occupancy by the end of Q1 2025 and ~63% leased by early May 2025. The 1915 Park ground-up multifamily development in Echo Park, Los Angeles, is on track for delivery in the third quarter of 2025. Management believes these assets offer significant opportunity to increase multifamily NOI by improving occupancy and achieving market rents. While the Oakland multifamily market remains challenging due to past supply, the expected minimal new supply in the East Bay is seen as a potential positive factor for future recovery.

In the hotel segment, the completed room renovation at the Sheraton Grand Sacramento is expected to enhance performance. The company plans to proceed with a renovation of the public spaces later in 2025, funded partly by operations, future mortgage funding, and an $8 million key money contribution from Marriott (MAR), aiming to position the asset strongly for 2026.

To further strengthen the balance sheet and improve liquidity, CMCT continues to actively evaluate potential asset sales. The primary goal for any proceeds from such dispositions is to reduce overall debt. This aligns with the broader strategy to shift the portfolio composition towards multifamily assets.

Management also anticipates benefiting from potential shifts in the macroeconomic environment. They explicitly expect lower SOFR rates on their floating-rate debt and lower preferred dividends as the Federal Reserve funds rate is projected to decrease over time. This would provide a direct positive impact on cash flow.

In the competitive arena, CMCT's strategic focus differentiates it from larger, more traditional office REITs. While competitors like BXP and SLG command significant market share in gateway cities with large, often trophy assets, CMCT targets a more specific niche in creative office and focuses on vibrant, improving communities. KRC is a more direct peer on the West Coast, also focusing on innovative office spaces. CMCT's financial performance metrics like Net Profit Margin (-22.44% TTM) and EBITDA Margin (30.93% TTM) reflect the current challenges compared to peers like BXP (0.42% Net Margin, 40%+ EBITDA Margin) or KRC (19% Net Margin, 30%+ EBITDA Margin), though direct comparisons can be complex due to portfolio mix and accounting differences (e.g., unrealized gains/losses impacting net income). CMCT's Debt/Equity ratio (1.63 TTM) is within the range of peers (BXP 3.14, SLG 1.15, VNO 1.74, KRC 0.88), but the recent payoff of recourse debt improves its risk profile relative to some.

The vertical integration provided by CIM Group remains a core competitive advantage, potentially allowing for more efficient operations and tailored asset management compared to competitors who may outsource these functions. This could translate into better cost control and faster response to market demands, particularly in the creative and multifamily segments where customization and efficient turnover are valuable. However, CMCT's smaller scale limits its ability to compete on price or access capital markets with the same ease as larger rivals.

Key risks to the outlook include the persistence of elevated interest rates, continued softness in the office market (especially in specific submarkets like Oakland), and potential challenges in achieving expected rental rates and occupancy in the lease-up of new multifamily developments. The ongoing discussions regarding the Channel House Mortgage restructuring highlight a specific financing risk that needs to be resolved. The voluntary delisting from the TASE is not expected to materially impact operations, but maintaining the Nasdaq listing remains important for capital access.

Conclusion

Creative Media Community Trust is undergoing a significant strategic transformation, marked by a decisive pivot towards premier multifamily assets and a successful initiative to fortify its balance sheet through the retirement of recourse debt. While recent financial results reflect the challenging macroeconomic and specific market conditions, particularly within the office segment and certain multifamily submarkets, the company's strategic actions lay a foundation for future growth.

The successful payoff of the corporate credit facility is a critical de-risking event, enhancing financial flexibility. The focus on developing and leasing up new multifamily properties in attractive markets like Los Angeles presents a clear path to increasing NOI and rebalancing the portfolio. Leveraging the vertically integrated expertise of CIM Group provides a distinct operational advantage in executing this strategy. Investors should monitor the progress of multifamily lease-up, the outcome of asset disposition evaluations, and the impact of potential changes in interest rates, which could significantly influence future cash flow and profitability. The ability to navigate persistent office market headwinds and improve performance in the Oakland multifamily portfolio will also be key determinants of CMCT's success in realizing the potential of its strategic evolution.