Creative Media & Community Trust Corporation Reports 2022 Third Quarter Results

Creative Media & Community Trust Corporation (NASDAQ: CMCT and TASE: CMCT-L) (“we”, “our”, “CMCT”, or the “Company”) today reported operating results for the three and nine months ended September 30, 2022.

Third Quarter 2022 Highlights

Real Estate Portfolio

• Stabilized office portfolio⁽¹⁾ was 86.5% leased.
• Executed 58,666 square feet of leases with terms longer than 12 months.
• Purchased an Austin, Texas property for $1.9 million. We are currently working on multifamily pre-development on this and an already owned adjacent site.

Financial Results

• Repurchased $4.4 million of common stock at an average price of $7.10 per share.
• Repurchased $66.7 million of Series L Preferred Stock at approximately 96.6% of stated value.
• Net loss attributable to common stockholders of $11.7 million, or $0.50 per diluted share.
• Funds from operations (“FFO”) attributable to common stockholders⁽³⁾ was $(6.6) million, or $(0.28) per diluted share.
• Core FFO attributable to common stockholders⁽⁴⁾ was $(1.5) million, or $(0.07) per diluted share.

Management Commentary

“We had another quarter of robust leasing activity and continue to make progress on our multifamily value-add and development pipeline,” said David Thompson, Chief Executive Officer of Creative Media & Community Trust Corporation. “We executed an approximately 18,000 square foot lease for the retail space at our Beverly Hills property in the quarter – we expect to start recognizing revenue on this lease during the first half of 2023.

“CMCT has an attractive pipeline of multifamily development opportunities. We plan to start converting 4750 Wilshire Boulevard’s unleased space into luxury multifamily units by early 2023 and, in connection with the project, anticipate closing on equity contributions from coinvestors and a mortgage on the property at about the same time. We intend to leverage our distribution and development capabilities to execute on our pipeline using an asset-light approach, where we raise third party capital on an asset level basis, maintain a minority interest and earn a percentage of the profits. We believe this asset light approach is a compelling model for the Company that will contribute to strong returns on invested capital.

“We also took steps to improve our balance sheet and liquidity which we believe will position us to take advantage of potential market opportunities. We saw an increase in our preferred capital raising activity and expect to refinance our credit facility in the fourth quarter. In addition, we repurchased 621,088 shares of common stock in the quarter and repurchased $66.7 million of Series L Preferred Stock at a 3.4% discount to stated value.”

Third Quarter 2022 Results

Real Estate Portfolio

As of September 30, 2022, our real estate portfolio consisted of 19 assets, all of which were fee-simple properties, including one office property which the Company has an approximate 44% ownership interest through its investment in an unconsolidated joint venture. The portfolio included 13 office properties and four development sites (one being used as a parking lot), totaling approximately 1.3 million rentable square feet, and one 503-room hotel with an ancillary parking garage.

Financial Results

Net loss attributable to common stockholders was $11.7 million, or $0.50 per diluted share of common stock, for the three months ended September 30, 2022, compared to a net loss attributable to common stockholders of $3.2 million, or $0.14 per diluted share of common stock, for the same period in 2021.

FFO attributable to common stockholders⁽³⁾ was $(6.6) million, or $(0.28) per diluted share of common stock, for the three months ended September 30, 2022, compared to $1.8 million, or $0.08 per diluted share of common stock, for the same period in 2021. The increase in net loss attributable to common stockholders and decrease in FFO and was primarily attributable to an increase in redeemable preferred stock redemptions of $4.8 million (resulting from amounts recognized in connection with the Series L Repurchase (defined on page 3) during the three months ended September 30, 2022), a decrease in lending segment net operating income of $3.7 million, an increase in redeemable preferred stock dividends declared or accumulated of $1.9 million, a decrease in office segment net operating income of $994,000 and an increase in general and administrative expenses of $600,000. The aforementioned amounts were partially offset by an increase in hotel segment net operating income of $1.5 million, a decrease in asset management fees of $1.3 million and a decrease in provision for income taxes of $759,000.

Core FFO attributable to common stockholders⁽⁴⁾ was $(1.5) million, or $(0.07) per diluted share of common stock, for the three months ended September 30, 2022, compared to $2.0 million, or $0.08 per diluted share of common stock, for the same period in 2021. The decrease in Core FFO is attributable to the aforementioned changes in FFO, while not impacted by the increases in redeemable preferred stock redemption as these are excluded from our Core FFO calculation.

Segment Information

Our reportable segments during the three months ended September 30, 2022 and 2021 consisted of two types of commercial real estate properties, namely, office and hotel, as well as a segment for our lending business. Total Segment net operating income (“NOI”)⁽⁵⁾ was $10.1 million for the three months ended September 30, 2022, compared to $13.3 million for the same period in 2021.

Office

Same-Store

Same-store⁽²⁾ office Segment NOI⁽⁵⁾ decreased to $6.7 million for the three months ended September 30, 2022, compared to $6.8 million in the same period in 2021, while same-store⁽¹⁾ office Cash NOI⁽⁶⁾ excluding lease termination income increased to $7.1 million for the three months ended September 30, 2022, compared to $7.0 million in the same period in 2021. The increase in same-store⁽¹⁾ office Cash NOI⁽⁶⁾ excluding lease termination income was primarily due to increased rental revenue at an office property in Austin, Texas as a result of higher rental rates and higher occupancy and an increase in rental revenues at an office property in Los Angeles, California and an office property in Beverly Hills, California, both as a result of increased occupancy. These amounts were partially offset by increased operating expenses at the aforementioned office property in Austin, Texas and at an office property in Oakland, California. The decrease in Same-store⁽²⁾ office Segment NOI⁽⁵⁾ was a result of lease termination income earned during the three months ended September 30, 2021.

At September 30, 2022, the Company’s same-store⁽²⁾ office portfolio was 83.3% occupied, an increase of 490 basis points year-over-year on a same-store⁽²⁾ basis, and 86.1% leased, an increase of 820 basis points year-over-year on a same-store⁽²⁾ basis¹. The annualized rent per occupied square foot⁽⁷⁾ on a same-store⁽²⁾ basis was $55.10 at September 30, 2022 compared to $52.50 at September 30, 2021. During the three months ended September 30, 2022, the Company executed 52,285 square feet of leases with terms longer than 12 months at our same-store⁽²⁾ office portfolio.

Total

Office Segment NOI⁽⁵⁾ decreased to $6.5 million for the three months ended September 30, 2022, from $7.5 million for the same period in 2021. The decrease is primarily due to a decrease in non-same-store⁽²⁾ office Segment NOI⁽⁵⁾ of $877,000. This included a loss from our unconsolidated entity (acquired in February 2022) included in non-same-store office Segment NOI of $204,000 for the three months ended September 30, 2022, primarily due to increases in the unconsolidated joint venture’s administrative expenses as well as expenses related to the unconsolidated joint venture’s mortgage debt origination.

Hotel

Hotel Segment NOI⁽⁵⁾ increased to $2.4 million for the three months ended September 30, 2022, from $877,000 for the same period in 2021, due to an increase in occupancy and average daily rate as a result of the hospitality industry continuing to recover from the impact of COVID-19.

Lending

Our lending segment primarily consists of our SBA 7(a) lending platform, which is a national lender that primarily originates loans to small businesses in the hospitality industry. Lending Segment NOI⁽⁵⁾ was $1.2 million for the three months ended September 30, 2022, compared to $4.9 million for the same period in 2021. The decrease is primarily due to lower premium income as a result of lower loan sale volume and a reduction in the market premium achieved during the three months ended September 30, 2022, compared to the three months ended September 30, 2021. We expect lending revenue to be lower materially for the fourth quarter of 2022, when compared to the fourth quarter of 2021 because of lower loan origination volume compared to 2021, a year when the SBA temporarily increased guaranteed percentages for SBA 7(a) loan originations.

Debt and Equity

In May 2022, CMCT’s Board of Directors authorized a repurchase program of up to $10 million of the Company’s common stock (the “SRP”). During the three months ended September 30, 2022, CMCT repurchased 621,088 shares at an average price of $7.10 per share. As of September 30, 2022, CMCT has made repurchases totaling $4.7 million in aggregate under the SRP.

On September 15, 2022, CMCT repurchased 2,435,284 shares of its Series L Preferred Stock in a privately negotiated transaction (the “Series L Repurchase”). The shares were repurchased at a purchase price of $27.40 per share (a 3.4% discount to the stated value of $28.37) plus $1.12 per share of accrued and unpaid dividends (or $2.7 million in the aggregate). The total cost to complete the Series L Repurchase, including transactions costs of $700,000, was $70.1 million. In connection with the Series L Repurchase, the Company recognized redeemable preferred stock redemptions of $4.8 million on its consolidated statement of operations for the three and nine months ended September 30, 2022.

During the three months ended September 30, 2022, we issued 2,667,001 shares of Series A1 Preferred Stock for aggregate net proceeds of $57.4 million. Net proceeds represent gross proceeds offset by costs specifically identifiable to the offering, such as commissions, dealer manager fees and other offering fees and expenses. Additionally, during the three months ended September 30, 2022, we had net incremental borrowings of $10.0 million on our revolving credit facility.

In addition, thus far in the fourth quarter of 2022, we have issued another 2,027,305 shares of Series A1 Preferred stock for aggregate net proceeds of approximately $46.5 million.

Dividends

On September 22, 2022, we declared a quarterly cash dividend of $0.0850 per share of our common stock, which was paid on October 17, 2022.

On September 22, 2022, we declared a quarterly cash dividend of $0.34375 per share of our Series A Preferred Stock for the fourth quarter of 2022. The dividend will be payable as follows: $0.114583 per share to be paid on November 15, 2022 to Series A Preferred Stockholders of record on November 5, 2022; $0.114583 per share to be paid on December 15, 2022 to Series A Preferred Stockholders of record on December 5, 2022; and $0.114583 per share to be paid on January 17, 2023 to Series A Preferred Stockholders of record on January 5, 2023.

On September 22, 2022, we declared a quarterly cash dividend of $0.375 per share of our Series A1 Preferred Stock for the fourth quarter of 2022. The dividend will be payable as follows: $0.125 per share to be paid on November 15 , 2022 to Series A1 Preferred Stockholders of record on November 5, 2022; $0.125 per share to be paid on December 15, 2022 to Series A1 Preferred Stockholders of record on December 5, 2022; and $0.125 per share to be paid on January 17, 2023 to Series A1 Preferred Stockholders of record on January 5, 2023. For shares of Series A1 Preferred stock issued during the fourth quarter of 2022, the dividend will be prorated from the date of issuance, and the monthly dividend payments will reflect such proration, as applicable.

On September 22, 2022, we declared a quarterly cash dividend of $0.353125 per share of our Series D Preferred Stock for the fourth quarter of 2022. The dividend will be payable as follows: $0.117708 per share to be paid on November 15, 2022 to Series D Preferred Stockholders of record on November 5, 2022; $0.117708 per share to be paid on December 15, 2022 to Series D Preferred Stockholders of record on December 5, 2022; and $0.117708 per share to be paid on January 17, 2023 to Series D Preferred Stockholders of record on January 5, 2023.

Acquisitions

In July 2022, CMCT acquired 1007 E 7th Street in Austin, Texas property for $1.9 million. The property is located on a land site of approximately 7,450 square feet and is adjacent to 1021 E 7th Street, an office building that CMCT acquired in 2020. CMCT is actively working on pre-development plans for a future multifamily development across both sites. In August 2022, CMCT acquired 3109 S Western Avenue in Jefferson Park, Los Angeles property for $700,000. CMCT intends to redevelop approximately seven commercial units totaling 5,635 rentable square feet and six parking stalls starting in 2024.

During the first half of 2022, CMCT also acquired 3101 S Western in Jefferson Park, Los Angeles for $2.3 million (CMCT intends to entitle the property and develop approximately 40 residential units starting in 2023) and 3022 S Western, an adjacent site, for $5.7 million (CMCT intends to entitle the property and develop 119 residential units starting in 2024).

About the Data

Descriptions of certain performance measures, including Segment NOI, Cash NOI, FFO attributable to common stockholders, and Core FFO are provided below. Refer to the subsequent tables for reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measure.

FORWARD-LOOKING STATEMENTS

This press release contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”), which are intended to be covered by the safe harbors created thereby. Such forward-looking statements can be identified by the use of forward-looking terminology such as “may,” “will,” “project,” “target,” “expect,” “intend,” “might,” “believe,” “anticipate,” “estimate,” “could,” “would,” “continue,” “pursue,” “potential,” “forecast,” “seek,” “plan,” or “should,” or “goal” or the negative thereof or other variations or similar words or phrases. Such forward-looking statements include, among others, statements about CMCT’s plans and objectives relating to future growth and outlook. Such forward-looking statements are based on particular assumptions that management of CMCT has made in light of its experience, as well as its perception of expected future developments and other factors that it believes are appropriate under the circumstances. Forward-looking statements are necessarily estimates reflecting the judgment of CMCT’s management and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. These risks and uncertainties include those associated with (i) the scope, severity and duration of the current pandemic of COVID-19, and actions taken to contain the pandemic or mitigate its impact, (ii) the adverse effect of COVID-19 on the financial condition, results of operations, cash flows and performance of CMCT and its tenants and business partners, the real estate market and the global economy and financial markets, among others, (iii) the timing, form, and operational effects of CMCT’s development activities, (iv) the ability of CMCT to raise in place rents to existing market rents and to maintain or increase occupancy levels, (v) fluctuations in market rents, including as a result of COVID-19, (vi) the effects of inflation and higher interest rates on the operations and profitability of CMCT and (vii) general economic, market and other conditions. Additional important factors that could cause CMCT’s actual results to differ materially from CMCT’s expectations are discussed under the section “Risk Factors” in CMCT’s Annual Report on Form 10-K for the year ended December 31, 2021 and in CMCT’s Quarterly Report on Form 10-Q for the period ended September 30, 2022. The forward-looking statements included herein are based on current expectations and there can be no assurance that these expectations will be attained. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond CMCT’s control. Although we believe that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could be inaccurate and, therefore, there can be no assurance that the forward-looking statements included herein will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by CMCT or any other person that CMCT’s objectives and plans will be achieved. Readers are cautioned not to place undue reliance on forward-looking statements. Forward-looking statements speak only as of the date they are made. CMCT does not undertake to update them to reflect changes that occur after the date they are made.

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