Q4 2021 Creative Media & Community Trust Corporation Earnings Call
Good day and welcome to the Creative Media and Community Trust Corporation fourth quarter 2021 earnings call.
All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star, then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions.
To ask a question, you may press star then 1 on your telephone keypad. To withdraw your question, please press star then 2. Please note, this event is being recorded.
I would now like to turn the conference over to Steve Altobrando, Portfolio Oversight.
Steve Altobrando: Hello everyone and thank you for joining us. My name is Steve Altobrando, the Portfolio Oversight for CNBC.
Speaker Change: Also on the call today is David Thompson, our Chief Executive Officer. Xiao Kouba, Co-Founder of CIM Group and CMCT Board Member, and Nate DeBacker, our Chief Financial Officer.
Yeah.
David Thompson: This call is being webcast and will be temporarily archived on the investor relations section of our website where you can also find our earnings release and latest investor presentation. Our earnings release includes reconciliations of non-GAAP financial measures discussed during today's call.
Okay.
Good day and welcome to the creative Media and Community Trust Corporation fourth quarter 2021 earnings call.
All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing Star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad.
Speaker Change: During the course of this call, we will make forward-looking statements. These forward-looking statements are based on the beliefs of, assumptions made by, and information currently available to us. Our actual results will be affected by known and unknown risks, trends, uncertainties, and factors that are beyond our control or ability to predict.
Speaker Change: Although we believe that our assumptions are reasonable, they are not guarantees of future performance, and some will prove to be incorrect. Therefore, our actual future results can be expected to differ from our expectations, and those differences may be material.
Draw. Your question. Please press Star then two please note. This event is being recorded.
I'd now like to turn the conference over to Steve also Brando portfolio oversight.
Speaker Change: For a more detailed description of potential risks, please refer to our SEC filings, which can be found in the investor relations section of our website.
Please go ahead.
Yeah.
Hello, everyone and thank you for joining US my name is Steve at the brand portfolio oversight for C. M C G.
Speaker Change: We'll start the call off today with David, who will discuss some exciting developments with our business and our 2022 strategy, then Shaul will outline our vision for the future of the office and multifamily market, and I will discuss some updates to our portfolio, and then Nate will finish up with our fourth quarter results. Then we'll be happy to take your questions. David? Thanks, Steve.
On the call today is David Thompson, our Chief Executive Officer, Shao Kubota co founder of CIM group at CMC, Tibor and number eight the Barker, our chief Financial Officer.
This call is being webcast and will be temporarily archived on the Investor Relations section of our website, where you can also find our earnings release and latest Investor presentation. Our earnings release includes reconciliations of non-GAAP financial measures discussed during today's call.
David Thompson: This morning, we announced our fourth quarter 2021 earnings, which were marked by strong results in our lending segment and improving performance at our one hotel asset. Our office net operating income declined year over year, but we continue to see a significant increase in leasing activity, and we're making progress on our value add asset.
During the course of this call we will make forward looking statements. These forward looking statements are based on the lease up assumptions made by and information currently available to us our actual results will be affected by known and unknown risks trends uncertainties and factors that are beyond our control or ability to predict.
David Thompson: In early January , CIM Group, the manager of CMCT, agreed to a reduction in the management fee that amounts to approximately $0.21 per share in annual cost savings.
Although we believe that our assumptions are reasonable they are not guarantees of future performance and some will prove to be incorrect. Therefore, our actual future results can be expected to differ from our expectations and those differences may be material for.
David Thompson: This reduced fee started January 1, 2022, and we will start seeing the benefit in the first quarter of 2022.
David Thompson: We'll get into more detail on our performance in the quarter later in the call, but first I wanted to take some time to speak about some exciting updates for our business and our go forward strategy.
For a more detailed description of potential risks. Please refer to our SEC filings, which can be found in the investor Relations section of our website.
We will start the call off today with David <unk>, who will discuss some exciting developments with our business and our 2022 strategy then shall will outline our vision for the future of the office and multifamily market and I will discuss some updates to our portfolio and then they will finish up with our fourth quarter results that we will be happy to take your questions David.
David Thompson: As you know, we're seeing a shift in the live work lifestyle with many high growth companies and employees embracing hybrid in person and work from home structures and committing to locations and vibrant culture oriented walkable communities. We believe that many of these underlying trends.
David Thompson: To reflect this belief, last week we changed our name to Creative Media and Community Trust.
Thanks, Steve and thank you for joining our call today.
David Thompson: This change was made to highlight and sharpen our focus on investing in and developing premier multifamily and creative office properties that cater to fast-growing industries like tech, media, and entertainment.
This morning, we announced our fourth quarter 2021 earnings which were marked by strong results from our lending segment and improving performance at our one hotel asset.
Our office net operating income declined year over year, but we continue to see a significant increase in leasing activity and we're making progress on our value add assets.
David Thompson: We distinguish creative office from traditional office as bright, open, thoughtfully designed, and comfortable spaces that encourage creativity, flexibility, and collaboration.
In early January CIM group, the manager of C. M. A C. T agreed to a reduction in the management fee that amounts to approximately 21 cents per share in annual cost savings.
David Thompson: I'd like to turn it over to Shaul Kuba to discuss this strategy in further detail. Thanks, David.
Reduced fees started January one 2022, and we will start seeing the benefit in the first quarter of 2022.
Shaul Kuba: considerable change in the office and multi-family lens.
Well get into more detail on our performance in the quarter later in the call, but first I wanted to take some time to speak about some exciting updates for our business and our go forward strategy.
Shaul Kuba: Years before the pandemic, we were already seeing the trend towards hybrid work lifestyle. As David described.
As you know, we're seeing a shift in the live work lifestyle with many high growth companies and employees embracing hybrid in person and work from home structures and pivoting to locations and vibrant culture oriented walkable communities. We believe that many of these underlying trends are secular.
Shaul Kuba: was an early institutional participant in creative office and modern multifamily, especially in Los Angeles. The pandemic
To reflect this belief last week, we changed our name to creative media and community Trust. This change was made to highlight and sharpen our focus on investing in and developing premier multifamily and creative office properties that cater to SaaS growing industries like Tech media and entertainment.
Shaul Kuba: We have positioned the company to capitalize on what we think is a very significant opportunity over the long term.
Shaul Kuba: Going forward, CMCT will primarily focus on two.
We're just fingers creative office from traditional office as bright open thoughtfully designed uncomfortable spaces that encourage creativity flexibility and collaboration.
Shaul Kuba: First, we will be a leader in investing in and developing creative office assets in vibrant market, catering to fast-growing industry like technology, media, and entertainment.
I'd like to turn it over to shallow Cuba to discuss this strategy in further detail.
Thanks, David there is been.
Shaul Kuba: Tenant from a range of industries are demanding office space that is comfortable and moderate.
A considerable change in the office and multifamily landscape.
Years before the pandemic, we were already seeing that trend towards hybrid work lifestyle.
Shaul Kuba: If you have a great product, great market, there is a very strong tenant demand.
Shaul Kuba: Second, we will invest in and develop multi-family.
David described here yeah.
Well, it's an early institutional participant and creative office and modern multifamily.
Shaul Kuba: in those same markets that benefit from those changes, business dynamics.
Especially in Los Angeles.
Shaul Kuba: Since professionals are spending more time working from home, there is a great demand for premium amenities as well as proximity to entertainment, dining, and culture.
The pandemic accelerated the trend nationally.
In response, we are.
Have positioned the company to capitalize on what we think is a very significant opportunity over the long term.
Going forward the CMC team will primarily focus on two things.
Shaul Kuba: We have seen significant bifurcation based on product and location. Traditional office can be challenging asset class.
First we will be a leader in investing in and developing creative office asset and vibrant market catering to fast growing industry like technology media and entertainment.
Shaul Kuba: But we continue to see strong demand for creative art.
Shaul Kuba: which only makes up about 5% of the U.S. office market.
Tenant from a range of industries are demanding office space that is comfortable.
Shaul Kuba: Leasing for creative office is nearly back to a pre-pandemic level.
And moderate.
Shaul Kuba: and it is commanded a 40% plus rate print.
If you have a great product great market. There is a very strong tenant demand.
Shaul Kuba: Potential tenants for creative office space are primarily focused on product and location.
Second we will invest in and develop multifamily in dose SaaS market that benefit from those changes business dynamic.
Shaul Kuba: They want to be in a space that have modern, comfortable, and a cool aesthetic that inspire employees.
Since professionals are spending more time working from home there is a great demand for premium amenities as well as proximity to entertainment dining and culture.
Shaul Kuba: as a tool to retain and attract top talent.
Shaul Kuba: and motivate professionals to want to come back to the office.
Back to the office market, we have seen significant bifurcation based on product and location traditional office can be challenging asset class.
Shaul Kuba: we will invest in market where those dynamic exist.
Shaul Kuba: We will look to grow markets where we're already in Austin, Los Angeles, and the Bay Area. And we are open to investing in other major markets.
It is competitive and capital intensive.
But we continue to see strong demand for creative office.
Which only makes up about 5% of the U S office market.
I think for creative office is nearly back to pre pandemic level.
Shaul Kuba: and developer across the U.S. CIM group has resources, market knowledge, relationship, and boots on the ground.
And it is commanded a 40% plus.
Rate premium but.
Potential tenant for creative office space are primarily focused on product and location.
Shaul Kuba: With this new real estate dynamic in place, we have been working hard to assemble an attractive pipeline of opportunity.
While pricing a secondary.
They want to be in a space that have more.
Shaul Kuba: at Core Assets, Value Add and Development Opportunities.
Modern comfortable and a core aesthetic.
Shaul Kuba: A recent acquisition in Echo Park is a great example of our new business focus.
That inspire employees the creative office space is used.
As a tool to retain and attract top talent.
Shaul Kuba: Last month CMCT acquired 1910 West Sunset Boulevard, a 99,000 square feet office property in the Echo Park neighborhood in LA.
And more of it professionals to want to come back to the office.
We will invest in markets, where those dynamic exist.
Shaul Kuba: The property is located in an emerging, trendy sub-market in a walkable area that also has dozens of dining and entertainment options.
We will look to grow in markets, where we already have in Austin and Los Angeles.
The Bay area and.
And we are open to investing in other major market.
Shaul Kuba: An eight-story tall with a floor-to-ceiling window. It is the tallest building in Echo Park with views in all directions.
There, we see those dynamic.
Okay.
And there's a long standing order.
And developer across the U S. C. I am group has resources market knowledge relationships and boots on the ground.
Shaul Kuba: We plan to reposition the property into creative office space.
Shaul Kuba: that will appeal to tenants in fashion and entertainment.
With this new real estate dynamic in place, we have been working hard to assemble attractive pipeline of opportunity.
Shaul Kuba: We also plan to develop approximately 50 multifamily units on a surface parking lot in the back.
We are looking.
At core assets value add and development opportunities.
Shaul Kuba: Also in February , we closed on a development site in Jefferson Park, a sub-market of Los Angeles.
Our recent acquisition in Echo Park is a great example of our new business focus last month's CMC to acquire 19 at 10 West Sunset Boulevard, and 99000 square feet of office property in the Echo Park neighborhood in L. A.
Shaul Kuba: The second site under contract, we intend to develop a total of about 200 units.
Shaul Kuba: For certain development and value-add opportunities, we will look to bring co-investors at the asset level.
The property is located in an emerging trend a submarket and our Bookable area that also has doesn't off.
Shaul Kuba: for which we partner with a sovereign wealth fund, we believe those type of co-investment gives CMCT significant advantage as we get the benefit of the value creation as well as diversification, and in some instances,
Dining and entertainment option.
Eight storey tall with a floor to ceiling window. It is the tallest building in Echo park with viewers in all direction.
Glad to reposition the property into creative office space.
Shaul Kuba: We expect to be able to share more detail on additional deals in the pipeline on future call.
Two tenants in fashion and entertainment.
Next are already in the area.
We also plan to develop approximately 15 will multifamily units on a surface parking lot in the back.
Speaker Change: Thanks, Shaul. As we shift our business to the vision Shaul described, we're focused on a few strategic goals this year.
Also in February we closed on a development site in Jefferson Park Submarket of Los Angeles.
Speaker Change: First, we will continue to seek to divest non-core assets over time, assets that are not premier multifamily or creative office.
And we have.
Speaker Change: We plan to redeploy the proceeds and the type of assets shall we'll describe.
Second site under contract, we intend to develop a total of about 200 units.
Speaker Change: As you may recall, we sold approximately a billion dollars worth of traditional office assets in 2019, which was a big first step in sharpening our focus toward creative office and premier multifamily.
For certain development and value add opportunities, we will look to bring core investor.
Speaker Change: Second, we're working to create greater financial flexibility and are actively monitoring the debt in preferred financial markets. Third, we continue to focus
Asset level.
We did this with the Echo Park acquisition.
Which we partner with a sovereign wealth fund we believe those type of coin investment gave C. M City, a significant advantage as we get the benefit of the value creation as well as diversification.
Speaker Change: As I mentioned earlier, our manager, CIM Group, agreed to a reduction in our management fee that amounts to approximately 21 cents per share in annual cost savings, which we are starting to see the benefits of in the first quarter of 2022.
And in some instances fee income.
We expect to be able to share more detail on additional deals in the pipeline on future calls.
Speaker Change: We also believe there is an opportunity to further reduce GNA costs.
Speaker Change: And fourth, we continue to make progress on the value-add assets in our portfolio. For an update, I will turn it back.
I'll turn the call back to David.
Thanks, Joe as we shift our business to Division shovel described we're focused on a few strategic goals this year.
Speaker Change: Thanks, David. We continue to make progress on our value-add portfolio.
Speaker Change: Starting with 4750 Wilshire in Los Angeles, we're continuing to actively market the space for an office user while simultaneously pursuing entitlements that convert the unleased space to luxury for rent multifamily.
First we will continue to seek to divest noncore assets overtime assets that are not premier multifamily or creative office.
We plan to redeploy the proceeds and the type of asset Shoal described as.
Speaker Change: The return profile on the conversion has been improving as multifamily market rent.
As you May recall, we sold approximately $1 billion worth of traditional office assets in 2019, which was a big first step and sharpening our focus toward creative office and Premier multifamily.
Speaker Change: In February , we received design review approval, which was the most significant step required for.
Speaker Change: We anticipate having the option to start the conversion in the second half of 2022 with an anticipated construction timeline of about.
Second we're working to create greater financial flexibility and are actively monitoring the debt and preferred financial markets.
Third we continue to focus on reducing our cost structure as I mentioned earlier, our manager Shyam group agreed to a reduction in our management fee that amounts to approximately 21 cents per share in annual cost savings, which we are starting to see the benefits of in the first quarter of 2022. We also believe there's an opportunity to further reduce G&A.
Speaker Change: At 9460 Wilshire Boulevard and Beverly Hills, our lease percentage increased to approximately 73% at year-end from 65% at the end of the first quarter of 2021. The remaining vacancy is
Speaker Change: 9460 Wilshire is located in one of the most prominent locations in LA in the prestigious Golden Triangle of Beverly Hills.
Costs.
And fourth we continue to make progress on the value add assets in our portfolio for an update I will turn it back to Steve.
Speaker Change: The building is located immediately next to the Four Seasons Beverly Wilshire and it's just one block from Rodeo Drive.
Speaker Change: Given the prime location of the retail and the extended term tenants are seeking, we were patient in backfilling leases that expired over the last
Thanks, David we continue to make progress on our value add portfolio, starting with $47 50, Wilshire in Los Angeles, we're continuing to actively market the space for an office user while simultaneously pursuing entitlements to convert the only space to luxury for rent multifamily.
Speaker Change: We're pleased that we're seeing an uptick in interest in the space and proving.
Speaker Change: One update on our stabilized portfolio. At our Penfield Creative Office campus in Austin, we signed an approximately 20,000 square foot lease with Google Fiber in the fourth quarter, taking our lease percentage at Penfield to about 97%.
Profile on the conversion has been improving as multifamily market rents increase.
In February we received design review approval, which was the most significant step required for approval.
Speaker Change: Earlier this year, Google Fiber exercised an option to take another $5,000.
We anticipate having the option to start the conversion in the second half of 2022 with an anticipated construction timeline of about 18 months.
Speaker Change: We expect to start seeing the benefit of these leases in the 2nd quarter of 2022. With that, I'll turn it over.
At 90, 460, bullshit Boldhearted in Beverly Hills, our lease percentage increased to approximately 73% at year end from 65% at the end of the first quarter of 2021.
Speaker Change: Thank you, Steve. Fourth quarter core FFO was 3 cents per diluted share compared to a loss of 21 cents in the prior year period.
Speaker Change: Our total segment net operating income increased to $12.1 million from $7.4 million in the prior year period. The increase was primarily driven by an increase in the lending and hotel segment. Hotel segment NOI increased to $1.8 million from a loss of $393,000.
The remaining vacancy it's primarily the retail.
90, 460 wheelchairs located in one of the most prominent locations in L. A in the prestigious Golden triangle of Beverly Hills.
The buildings located immediately next to the four seasons Beverly Wilshire and it's just one block from Rodeo drive.
Speaker Change: Occupancy improved to 69.9% in the quarter, up from 26.8%.
Given the prime location of the retail and the extended term tenants are seeking we were patient and back filling leases that expired over the last two years. We were pleased that we were seeing an uptick in interest in the space and proving rates.
Speaker Change: while the ADR improved $153.77 from $120.86.
Speaker Change: Our lending division segment NOI increased to $3.6 million from $787,000 during 2021.
One update on our stabilized portfolio at our Penfield Creative office campus in Austin, We signed an approximately 20000 square foot lease with Google fiber in the fourth quarter, taking our lease percentage at penfield to about 97%.
Speaker Change: The lending segment benefited from a temporary increase in the maximum SBA guarantee support on loans from 75% to 90%.
Earlier this year, Google fiber exercise an option to take another 5000 square feet we.
Speaker Change: This allowed us to increase the volume of loans originated, leading to an increase in premium income from the sale of the guaranteed portion of our SBA 7A loans. The guaranteed portion is now reverted back to 7A.
We expect to start seeing the benefit of these leases in the second quarter of 2022.
With that I'll turn it over to Nate for an update on the financials.
Thank you Steve fourth quarter core <unk> was three cents per diluted share compared to a loss of 21 cents in the prior year period.
Speaker Change: Our office segment NOI declined to $6.6 million from $7 million, primarily due to lower revenues at office properties in Beverly Hills, Brentwood, and Oakland, all due to decreases in occupancy as compared to the prior year. This was partially offset by an increase in revenues at an office property in Austin due to an increase in occupancy.
Total segment net operating income increased to $12 1 million from $7 4 million in the prior year period.
The increase was primarily driven by an increase in lending and hotel segment.
Hotel segment NOI increased to $1 8 million from a loss of 393000 occupancy.
Speaker Change: However, as Steve and David mentioned, we're seeing leasing activity pick up. We signed approximately 57,000 square feet of leases in the fourth quarter and the first two months of 2022, including a 20,000 square foot lease with Google Fiber at our Austin property.
Occupancy improved to 69, 9% in the quarter up from 26, 8%.
While the ADR improved $153.77 from $120.86.
Speaker Change: Our asset management fee and expense reimbursements for $3.4 million in the fourth quarter. Starting in the first quarter, we expect the management fee to decrease over 50% from the fourth quarter due to the new fee structure that went into effect January 1, 2022.
Our lending Division segment NOI increased to $3 6 million from 787000 during 2021.
The lending segment benefited from a temporary increase in the maximum SBA guarantee support on loans from 75% to 90% prolonged.
Speaker Change: Turning to our liquidity, we had approximately $60 million drawn on our revolver at the end of the year. We estimate we have approximately $117.6 million of availability as of December 31, 2021. Our revolver matures later this year, but as a reminder, we have a one-year extension option which would extend the maturity to October 31, 2023. With that, I will now turn the call over to David.
This allowed us to increase the volume of loans originated leading to an increase in premium income from the sale of the guaranteed portion of our SBA seven Avon.
The guaranteed portion has now reverted back to 75%.
Our office segment NOI declined to $6 6 million from $7 million, primarily due to lower revenues and office properties in Beverly Hills, Brentwood, and Oakland, all due to decreases in occupancy as compared to the prior year. This was partially offset by an increase in revenues at an office property in Austin due to an increase in occupancy.
David Thompson: To wrap up, we are excited about the opportunity ahead of us as we sharpen our focus on creative office and multifamily.
David Thompson: We have great assets and highly desirable sub markets such as Beverly Hills, Culver City, Hollywood, and Austin.
Steven David mentioned, we're seeing leasing activity pick up we signed approximately 57000 square feet of leases in the fourth quarter and the first two months of 2022 including a 20000 square foot lease with Google fiber at our Austin property.
David Thompson: We have a very attractive growth pipeline and look forward to sharing more details on future calls.
David Thompson: For value-add and development assets, we will at times look to co-invest to increase our diversification and supplement returns by generating fee income. And finally, we have significantly reduced our cost structure.
Our asset management fee and expense reimbursements for $3 4 million in the fourth quarter starting in the first quarter, we expect the management fee to decrease over 50% from the fourth quarter due to the new fee structure that went into effect January one 2022 .
Turning to our liquidity, we had approximately $60 million drawn on our revolver at the end of the year. We estimate we have approximately $117 6 million of availability as of December 31, 2021, our revolver matures later this year, but as a reminder, we have a one year extension option, which would extend the maturity to October 31 2023.
David Thompson: We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two.
With that I will now turn the call over to David for some closing remarks.
David Thompson: At this time, we will pause momentarily to assemble our roster.
Thanks, Nate to wrap up we are excited about the opportunity ahead of us as we sharpen our focus on creative office and multifamily.
Speaker Change: The first question comes from Eric Spohn with First Foundation.
We have great assets in highly desirable submarkets, such as Beverly Hills Culver City Hollywood in Austin.
Eric Spohn: Hi, guys. Thanks for taking the question. Appreciate you having this call, especially given you have the board on, Steve. I appreciate that, and David. So thanks for the attendance as well.
We're encouraged by the pickup in our leasing activity.
We have a very attractive growth pipeline and look forward to sharing more details on future calls.
For value add and development assets, we will at times looked to co invest to increase our diversification and supplement returns by generating fee income and finally, we have significantly reduced our cost structure.
Speaker Change: My question, I think, is best for Mr. Kuba, but David or Steve, if you want to weigh in, please. So we applaud you guys' sharper focus on evolving your asset base. We think that's smart.
Operator, you May now open the call to questions.
We will now begin the question and answer session.
Speaker Change: Um, my question is, you know, if your existing assets.
Ask any question you May press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys.
Speaker Change: that you have that are outside of your sharpened focus are indeed monetized as you speculate in the press release.
Speaker Change: or at least open up the idea that they could be. With the shares trading at such a material discount to the net asset value...
At any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
Speaker Change: is the board considering the shares as deserving a material portion of the reinvested capital in a tender? So is that something the board would consider, you know, especially given the forward business trajectory which
At this time, we will pause momentarily to assemble our roster.
Okay.
The first question comes from Eric <unk> with first foundation.
Speaker Change: Looks good. Given the updates Steve provided and given the niche you're carving, where's the board's head at on capital reinvestment?
Please go ahead.
Hi, guys. Thanks for taking the question I appreciate you having this call, especially given you have the board on Steve Steve I appreciate that and David So thanks for the attendance as well.
Speaker Change: Yeah, I'm happy to address the question, and this is David Thompson, and Chell can jump in if he wants to add any color, but I guess first, Eric, appreciate the comments, appreciate the question.
My question I think is best for Mr. Cooper, but you know David or Steve If you want to weigh in please.
So we applaud you guys sharper focus on evolving your asset base and we think that's we think that's smart. My question is you know if your existing assets that you have that are outside of your sharpen focus R&D monetize as he speculated in the press release.
David Thompson: Now, with respect to a stock buyback with proceeds from the asset sales, I think it's something that we will always evaluate and is one of the tools that we have in our toolkit.
David Thompson: We certainly agree that the shares are trading well below intrinsic value today. In fact, as you probably know, we had affiliates in the market that were purchasing shares in late 2021.
Or at least open up to the idea that they could be with the shares trading at such a material discount to the net asset value is in the is the board considering.
David Thompson: But really, right now, I mean, our focus is on creating more financial flexibility, reinvesting in our assets to improve the cash flow, and continuing to selectively grow the portfolio. So that's the primary focus. That being said, you know, it's something we will always evaluate when we have proceeds and are looking to deploy. And again, it's always going to be one of the tools in the toolkit.
The shares as a deserving a material portion of the reinvested capital.
And a tender.
So that's something the board would consider you know, especially given the Ford business trajectory, which looks good given the updates you know Steve provided and given kind of the nature of carving.
Yo, whereas the board's head out on capital reinvestment.
David Thompson: Yeah. Eric, this is Shalhoub.
Okay.
Speaker Change: Eric, this is Shaul Kovach, so yeah, I'm just going to echo what David Thompson said.
Yeah I'm happy to address the question. This is David Thompson and Joe can jump in if he wants to add any color, but I guess first Eric I. Appreciate I appreciate the comments I appreciate the question.
Shaul Kovach: And obviously, we are looking right now very hard on every aspect of the business, including
Now with respect to our stock buyback of with proceeds from the asset sales I mean, I think it's something that we will always evaluate and one of the tools we have in our toolkit.
Shaul Kovach: buying back share, whether it's a small amount or a large amount, but everything is on the table for us as we are divesting some of the assets.
We certainly agree that the shares are trading well below intrinsic value today.
In fact as you probably know we were had affiliates in the market that were purchasing shares in late 2021.
Speaker Change: Thanks guys. Yeah, I think to us the value-add and the development stuff makes sense, but you know, you're hearing investing in core real estate, I mean for us, given what you guys have been able to do, especially if something comes up in Sacramento or Oakland, it would be our point of view that we'd like to see some of that returned, especially while the shares have been kicked out of the Russell and at levels that would be so accretive to
But really right now our focus is on creating more financial flexibility reinvesting in our assets to improve the cash flow and continuing to selectively grow the portfolio. So that's the primary focus that being said you know, it's it's something we will always evaluate when we have proceeds in and they're looking to deploy and again is always going to be.
One of the tools in the toolkit.
Yes.
Speaker Change: to owners and I love that you guys have been buying and I hope.
Yeah Eric.
Sure.
Speaker Change: you know, you do it on the company's behalf as well, because I think
Yep.
This is a show called but so yeah, I'm just going to echo what David.
Speaker Change: I think you've got an exciting future and I'd love to see us own more with increasing participation that a buyback or a tender would involve. I don't need it to be for the small assets, but if something were to happen in Oakland or Sacramento, that would be something where we would have our hand up and say we think it would be a great outcome.
Thompson.
<unk> said.
And obviously, we are looking right now very very hard on every.
Aspect of the business, including buying back shares.
Whether it's a small amount of larger mountain, but it's.
Everything is on the table for us as we are divesting some of their assets.
Thanks, guys, Yeah, I think to us the value add and the development stuff makes sense, but you know you hearing go investing in core real estate I mean for US given what you guys are you been able to do especially if something comes up in Sacramento or Oakland.
Speaker Change: The next question comes from Craig Cucera with B Riley Securities.
Craig Cucera: Hey, good morning guys, congrats on the leasing you achieved this quarter and here in the first quarter as well. Appreciate the color on the Google Fiber leases, but can you give us a sense of when the other tenants that sign leases are typically going to take economic occupancy? Is that also maybe second quarter or is that maybe further along in the year?
It would be our point of view that we'd like to see some of that return to especially well while the shares are been kicked out of the Russell and that at levels that would be so accretive to.
Two two owner, so I mean, and I love that you guys have been buying in and I hope.
That you know you'd do it on the company's behalf as well because I think I think you got an exciting future and you know I'd love to see you know US you know one more in with increasing participation.
Craig Cucera: Hey, Craig, this is Steve. I can take that one. It is primarily the second and third quarter.
Craig Cucera: Okay, great. And I think about 13% of your office leases are scheduled to expire this year. Can you give us a sense of what your renewal expectations are and are you aware of any move-outs?
Is that a buyback or a tender would involve and I don't need it to be you know for the smaller assets, but if something were to happen you know in Oakland Sacramento that would be something where we would have her hand up and say, we think it would be a great outcome.
Speaker Change: Sure. So our expectation would be that we would renew at least 50% of those expiring. A good number of the expirations are back-weighted in the year, so it's a little bit early.
Okay.
Great. Thanks, Eric.
Thanks, guys.
The next question comes from Craig Kucera with B Riley Securities. Please go ahead.
Speaker Change: And one other thing I would point out, one of the expirations is in our Penfield property in Austin, and that particular lease is really substantially below market. The market is, you know, we're generally doing leases north of 50. In-place rents on average at that property are around 44, but that particular lease is even below the average.
Yeah, Hey, good morning, guys congrats.
Congrats on leasing you achieved this quarter and here in the first quarter as well I appreciate the color on the Google fiber leases, but can you give us a sense of when.
The other tenants that are signed leases are typically going to take economic occupancy is that also maybe second quarter or is that maybe further along in the year.
Speaker Change: Okay, great. You know, kind of changing gears, not too much commentary on the hotel. I think you guys were about 70% occupied here in the fourth quarter. Has that asset come back enough from an operations perspective? And frankly, has the market come back enough for that to potentially be a disposition candidate here in 2022?
Yeah.
Hey, Craig This is Steve I can take that one it is primarily the second and third quarter.
Okay great.
And I I think about 13% of your office leases are scheduled to expire. This year can you give us a sense of what your renewal expectations are and are you aware of any move outs at this point.
Sure So our expectation would be that we would renew.
Speaker Change: So we are seeing the asset rebound quite a bit. I think probably like most January was a little soft with the spike of Omicron. But after that, we're continuing to see the asset rebound pretty nicely. And generally speaking, the capital markets for hotels is pretty robust right now.
At least 50% of those expiring a good number of them are of the explorations are back weighted in the year. So it's a little bit early I'm. One thing one other thing I would point out one one of the exploration is in R.
Our penfield property in Austin, and that particular leases really substantially below market the.
Speaker Change: Even before the property had come back to the levels that it is at now and it's achieving now, it was certainly a candidate for dismantling.
The market as you know, we're generally doing leases north of 50.
In place rents on an average at that property at around 44, but that particular leases are even below the average.
Speaker Change: Got it. And when you think about some of these larger assets that are stabilized and throwing off cash flow and thinking about recycling capital, are you tilting increasingly, it sounds like, based on the company's sort of new strategy to development, or are you thinking, you know, from the standpoint of kind of current cash flow as well as relates to your dividend and your earnings run rate?
Okay great.
You know kind of changing gears are not not too much commentary on the hotel I think you guys were about 70% occupied here in the fourth quarter is that asset come back enough from an operations perspective, and frankly has the market come back enough for that to potentially be a disposition candidate here in 'twenty.
'twenty two.
Speaker Change: Yeah, well, I think it's really a combination of both, right? And we've got
So we are seeing them the asset rebound quite a bit I think probably like most January was a little soft with the with the spike of omicron.
Speaker Change: a strong, stabilized portfolio. We've got a portion of the portfolio that's value-add, and really where we want to grow the company is going to be in the premier multifamily and in the creative office, and that's where you're going to see more of the development. I think the benefit we have is, as we're structured today, we can have the benefit of those stabilized assets.
But after that we're you know we're continuing to see the asset.
The rebound pretty nicely.
And generally speaking the COO.
Capital markets for for hotels is pretty robust right now.
Speaker Change: Again, and as we complete the work on some of the value-add assets to get them into position to reposition the portfolio, you've got that income while we move toward.
No I wouldn't say with the advent of EBIT.
Even before the property would come back to the levels that it.
Is that now and it's achieving now it was you know certainly a candidate for disposition.
Speaker Change: uh, kind of the new paradigm and, and again, much more focused on, um,
Got it and when you think about some of these larger assets that are that are stabilized that throwing off cash flow.
Speaker Change: multifamily, the creative office, and the development associated with that.
And in thinking about recycling capital are you tilting increasingly it sounds like based on the company's sort of new strategy to get there.
Speaker Change: Got it. And based on your commentary at $47.50, I know that's been an asset for a while that you sort of have been working through approvals, but also trying to lease it. Is it fair to say that you're pretty much at the point where you're more likely than not to move forward with a conversion, or are you still kind of holding out the potential for office, or do you just see more value in ultimately multifamily regardless?
Development or are you thinking you know from the standpoint of kind of current cash flow as well as relates to your dividend and your earnings run rate.
Yeah, well I think it's really a combination of both right I mean, we've got.
Our strong stabilized portfolio, we've got a portion of the portfolio that's value add and really where we want to grow the company is going to be in the premier multifamily and creative office, and that's where you're going to see more of the development. So I think the benefit we have is as we're structured today, we can have the benefit of those stabilized assets.
Speaker Change: Yeah, I mean, I think we're still keeping both options open, you know, I think ideally for us if we could get it leased up in the near term while we move through, you know, some of the space leased up in the near term as we move through the process of getting the approvals for the multifamily option, that would be ideal. And again, kind of back to your first point of keeping some cash flow going while we move forward to the, where we think more value can be created over the long term would be
Again, and as we complete the work on some of the value add assets to get them in a position to reposition the portfolio you've got that income while we move toward.
Kind of a new paradigm and again much more focused on.
Speaker Change: Okay, great. And just when we think about, you know, you've got 1910 West Sunset, which you entered into the joint venture here this quarter to acquire. Can you talk about what you're expecting your total budget to be there? I think the initial investment was about $51 million. You've got 44% of that. But kind of what you're expecting there and how we should think about, you know, some of these other land parcels that you purchased or have under contract from a budgeting perspective as we think about 2022 and 2023.
The multifamily the creative office and the development associated with that.
Got it and is it based on your commentary at 47 50, I know that's been an asset for us for a while that you sort of had been working through approvals, but also trying to lease. It is it fair to say that you're pretty much at the point, where you're more likely than not to move forward with that with the conversion are you still kind of holding out.
The potential for office or do you just see more value than ultimately multifamily regardless.
Speaker Change: It's Steve, I could take this one. So with respect to the land parcels, we haven't disclosed the figure yet, but they're fairly small dollars. I mean, the two Western parcels total would.
Yes, I mean, I think we're still keeping both options open.
I think ideally for us if we could get it leased up in the near term, while we move through.
Steve Altobrando: of less than $10 million. And I think Shaul also mentioned in his script that these are developments that, on the development side, we would look to bring on co-investors and seek to also generate a fee off the development.
Some of the space leased up and the mood in the near term as we move through the process of getting the approvals for the multifamily option that would be ideal and again kind of back to your first point of keeping some cash flow going while we move forward to the where we think more value can be created over the long term would be.
Steve Altobrando: With respect to West Sunset, on the office redevelopment, it's fairly small dollars as well. We also have not provided that figure, but you're basically talking about adding some amenity space, potentially redoing the lobby. But that particular asset, the in-place rents are really pretty substantially below what market is.
We'd like to take it.
Okay, Great and just when we think about our you know you've got 1910, West Sunset, which you, which you entered into the joint venture here. This quarter to acquire can you talk about what you're expecting your total budget to be there I think the initial investment was about 51 million, you've got 44% of that but kind of.
Steve Altobrando: So, yeah, it's not a really heavy redevelopment, it's more of a value-add, newer lobby, a little bit more amenities, potentially a roof deck.
What you're expecting there and how we should think about you know some of these other land parcels that you purchased or have under contract from it from a budgeting perspective, as we think about 2022 and 'twenty three.
Speaker Change: Got it. And I want to say at the time of the rights offering and sort of thinking back to this fall, I think we were expecting that you guys might be doing a little bit more on the core plus side, you know, maybe buying some assets that are currently cash flowing. Is that still the expectation for this year or do you anticipate any capital or the vast majority of capital that you have in availability on your line to go into more of these developments, possibly structured as joint ventures?
Yeah.
It is Steve I can take this one so with respect to the land parcels, we haven't disclosed the figure yet, but they're they're fairly small dollars.
The two western parcels total would be less.
Less than $10 million I think shallow also mentioned in his script that we these are developments that on the development side, we would look to bring on co investors.
And and seek to also generate a fee.
After the development.
With respect to west Sunset.
Speaker Change: Really both. I mean, we're really looking at both core as well as value-add and development.
On the office redevelopment, it's fairly small dollars as well. We also have not provided that figure, but you're you're basically you're talking about adding some amenity space.
Speaker Change: Got it. But you don't currently have any acquisitions, core acquisitions under contract or moving names. Do you have any sense of a pipeline there or or is that still TBD? TBD, nothing is imminent, but we're continuing to look.
Potentially redoing the lobby, but that that particular asset the in place rents are really pretty substantially below what what market is so.
So yes, it's not a really heavy redevelopment. It's you know it's more of a value add.
Better newer lobby a little bit more amenities potentially.
Roof deck those sorts of things.
Got it and and and I want to say at the time of the rights offering and sort of thinking back to this fall I think we were expecting that you guys might be doing a little bit more on the on the core plus side you know me.
Speaker Change: And we have a question from John Moran with Rivadi and Company. Please go ahead.
To be buying some some assets that are currently cash flowing is that still the expectation for this year or do you anticipate any capital or the <unk>.
John Moran: Yeah, hi, Steve. I had two questions. One is, you guys normally would have your NAV published by now in some form or another, either in your slide deck or an AK file.
Majority of capital that you have in availability on your line to.
To go into more of these developments, possibly structured as joint ventures.
Speaker Change: something you're going to do this year, and when might we see that? And then for Shaul, my question is, is there
Really both I mean, we were really looking at both core.
As well as value add and development.
Shaul: Is there an asset management business that's going to be embedded in CMCT going forward, or is this just a feature on a couple of deals, and what, you know,
Got it but you don't currently have any acquisitions core acquisitions under contract or moving games do you have any sense of a pipeline there or where is that still TBD.
TBD nothing is imminent, but we're continuing to look.
Shaul: for illustrative purposes, just what are the terms of those deals look like?
Ah Okay, alright, thanks, I appreciate your time.
Thanks, Greg appreciate it.
Shaul: terms of uh... participation fees except for if you if you can please
Yeah.
Okay.
Just one moment.
Okay.
Yeah.
Speaker Change: Go ahead, Shell. Go ahead, Steve. No, go ahead. I'll add. Go ahead.
Yeah.
Steve Altobrando: Okay yeah so on the on the NAV question so you may recall the reason we had published the NAV was because of the preferred stock offering had some warrants that were priced based off and that pricing was struck off the NAV. We no longer have that component so we you know we have not we're not planning to publicly update the the NAV.
And we have a question from John Moran with robotic <unk> Company. Please go ahead.
Yeah, Hi, Steve I had two questions one is.
You guys normally would have your N. A V published by now in some form or another either in your slide deck.
An 8-K filing is that.
Something youre going to do this year and when might we see that and then for.
Steve Altobrando: We obviously, as David mentioned, believe the stock's trading well below the intrinsic value, but we're not planning to continue to publish the net asset value. And then with respect to the co-investments, it really varies in terms of the pricing. I'll let Kjell answer the strategic question, but it's generally in the context of 1% of commitments plus a promote is generally the structure that we see on co-investments.
Joe.
Mike <unk>.
Question is this is this.
Is there an asset management business, it's going to be embedded in CMC T going forward or is this just a feature on a couple of deals.
And what.
What are the terms can you just sort of.
For illustrative purposes, just what are the terms of that.
Deals look like in terms of participation fees et cetera. If you can please.
Steve Altobrando: I think the idea of bringing in co-investors to asset and going through our channel of distribution to co-investors
Oh I see.
Go ahead, Sean go ahead.
Yeah.
Steve Altobrando: is to create a small little competition among our co-investors and basically pick up the best.
I'll add to it.
Okay. Yeah. So on the on the N V question. So you may recall. The reason we had published D. E V was because of the preferred stock offering had some warrants that were priced based off and that pricing was struck off the <unk>.
Steve Altobrando: deal and promote for CMCT. All the fees and the promoter are all going to be flowing to CMCT. So, you know, I think it's going to be asset by asset.
We no longer have that component. So we you know we have not a we're not planning to publically update.
<unk>.
Steve Altobrando: We're going to negotiate really hard for CMCT, on behalf of CMCT. Multifamily sites, probably gonna demand and generate higher promote and higher fee for CMCT than the creative office space.
You know, we obviously as David mentioned believes the stock is trading well below the intrinsic value, but we're not planning to continue to publish to the net asset value and then with respect to the wood.
With respect to the co investments it really varies in terms of the pricing I'll, let Joel answer the strategic question, but it's generally in the context of 1% of commitments plus a promote is generally the structure that we see on co investments.
Steve Altobrando: We can line up a tenant that has a good credit. We're probably going to generate a very nice.
Okay.
Steve Altobrando: fee and promote for that asset. So, you know, we're just in the beginning stages of creating that.
Yeah.
I think they they the idea of bringing in co investors to two asset and going through our channel of distribution to core investors.
Steve Altobrando: you know, that that opportunity and.
<unk> is to create a small little competition among.
Steve Altobrando: We'll see. We need to build up the pipeline. We're looking for very attractive assets so they can actually want to participate and compete on the co-invest opportunity.
Among our core investors.
And basically pick up the best deal and promote for C. M. C. P. All the fees and the promote all going to be flowing to C. N C T.
Steve Altobrando: But do those deals look like your one-off joint ventures that you?
So you know I think it's going to be asset by asset.
We're going to negotiate really hard for a C. M. C. T on behalf of C. N C. A T.
Steve Altobrando: I guess the follow-up is just, is a promote, what is a promote? In other words, is this something where there's a preferred return?
Multifamily sites, probably gonna demand and generate a higher promote.
In higher fee for C M. A C T.
Than the creative office space.
Steve Altobrando: The Promote can go from 20% Promote to 50% Promote, again, it all depends on the asset and the asset class.
Now if we can generate a deal that has.
We can line up a tenant that has a good credit, we're probably going to generate a very nice.
C N and promote for that asset. So you know we're just in the beginning stages of creating that debt.
Steve Altobrando: So I'm not, I'm not going to have, we're not going to have a very, uh, uh,
You know that that.
Steve Altobrando: a standard Coinvest memo, I think it's going to be more tailored to each asset.
Opportunity and and.
Well see I mean, you know we need to build up the pipeline, we're looking for a very attractive assets. So they can actually.
Steve Altobrando: So in some cases, we may be demanding 50% of the promote.
Wanted to participate and compete on the colon breast opportunity.
Steve Altobrando: In some cases, it might be just 20%.
But do those were.
Were those deals look like your one off.
Speaker Change: But John , you are thinking about it right. I mean, it generally is there's a base fee and then there is an effectively an incentive fee if you achieve some predetermined hurdle.
Joint ventures that you do see I am.
Yeah.
And a follow up is just that.
As a promote.
What is a promote in other words is there is this something where theres a preferred return.
John Moran: Okay, yeah, I was just trying to I don't know if there's anything you say about what the structure of these things look like so both of those projects at Echo Park.
And yours.
Your your spa.
Splitting the.
The promote.
John Moran: not only look like pretty large projects, they're certainly large based on your current liquidity position. So I mean, can you say how those might be capitalized, what that would look like?
The promote can go from 20% promote to 50 per cent per month again, it's all dependent on the asset and the asset class.
Yeah.
So I'm not I'm not going to have we're not gonna have a very.
Speaker Change: You know, how much debt do you put in the joint ventures? What's the debt look like? And, and, you know, capital contributions from a partner, hypothetical partner.
A standard Coinbase memo I think it's gonna be more tailored to each asset.
Speaker Change: Does that make sense? It looks like both of those, each of those projects would be, I don't know, $100 million.
So in some cases, the promote might be we may be demanding 50% of the promote.
Speaker Change: Well, with respect to La Brea, I mean, we haven't closed on that yet. So it's a little bit too early. But I mean, generally, the way we are thinking about this is with CMTT having, you know, a minority investment in the in some of these deals, call it 20 percent or so, and then you co-invest the other 80 percent. And, you know, you're supplementing.
In some cases it might be just 20%.
But John you are thinking about it right I mean, it generally is a base fee and then there is an effectively an incentive fee.
You would achieve some.
Predetermined hurdle.
Okay. Yeah, I was just trying to I don't know if theres anything you can say about what the structure of these things look like so both of those projects Echo Park and La Brea.
Speaker Change: Thunset, as you mentioned, as we talked about a little bit earlier on the call, that's a much smaller project.
Not only look like pretty large projects. There's certainly large based on your current liquidity position. So I mean can you say what how how.
Speaker Change: This concludes our question and answer session and the Creative Media and Community Trust Corporation fourth quarter 2021 earnings call. Thank you for attending today's presentation. You may now disconnect.
Those might be capitalize what that what that would look like.
You know how much debt you put in the joint ventures, what's that look like in <unk> and <unk>.
Our capital contributions from our partner hypothetical partner.
Speaker Change: ? ? ? ? ? ? ? ? ? ? ?
Is that does that make sense it looks it looks like both of those each of those projects would be.
I don't know $100 million plus projects.
Well with respect to the brain I mean, we haven't closed on that yet so it's a little bit too early but I mean generally the way we are thinking about this is with <unk> having.
Our minority investment in the in some of these deals.
Call it 20% or so and then you co invest the other 80% and in <unk>.
Were supplementing our return with with fee income.
Dunn said as you mentioned.
As we talked about a little bit earlier on the call that's not.
It's a much smaller project.
Okay. Thank you.
Thanks, Sean.
This concludes our question and answer session and the creative Media and community Trust Corporation fourth quarter 2021 earnings call. Thank you for attending today's presentation you may now disconnect.
Yeah.
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