Q4 2024 Creative Media & Community Trust Corp Earnings Call
Operator: Good morning, everyone, and welcome to the Creative Media and Community Trust fourth quarter 2024 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.
Good morning, everyone and welcome to the creative media and community trusts fourth quarter 2024 earnings Conference call.
All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
Operator: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then 1 using a touch-tone telephone. To withdraw your questions, you may press star and 2. Please also note today's event is being recorded.
After todays presentation, there will be an opportunity to ask questions to ask a question you May press Star and then one using a touchtone telephone to withdraw your question you May Press Star two.
Please also note today's event is being recorded.
Steve Altebrando: At this time, I'd like to turn the floor over to Steve Altebrando, Portfolio Oversight. Sir, you may begin. Hello everyone and thank you for joining us. My name is Steve Altebrando, the Portfolio Oversight for CMCT. Also on the call today are David Thompson, our Chief Executive Officer, and Barry Berlin, our Chief Financial Officer.
Speaker Change: At this time I'd like to turn the floor over to Steve Ultra Brando portfolio oversight.
Speaker Change: Sir you may begin.
Speaker Change: Hello, everyone and thank you for joining US my name is Steve at the brand out of the portfolio oversight for CMT T. Also on the call today are David Thompson, Our Chief Executive Officer, and Barry Berlin, Our Chief Financial Officer.
Steve Altebrando: 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. Our earnings release includes a reconciliation of non-GAAP financial measures discussed during today's call.
Speaker Change: 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.
Speaker Change: Our earnings release includes a reconciliation of non-GAAP financial measures discussed during today's call.
Steve Altebrando: During 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 other factors that are beyond our control or ability to predict. Although we believe our assumptions are reasonable, there 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.
Speaker Change: During 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.
Speaker Change: Actual results will be affected by known and unknown risks trends uncertainties and other factors that are beyond our control or ability to predict.
Speaker Change: Although we believe our assumptions are reasonable they are not guarantees of future performance and some will prove to be incorrect.
Speaker Change: Therefore, our actual future results can be expected to differ from our expectations and those differences may be material.
Steve Altebrando: 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.
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 with that I'll turn the call over to David Thompson.
David Thompson: With that, I'll turn the call over to David Thompson. Thanks, Steve. Thank you to everyone for joining our call today. I'd like to take a moment to give an update on the progress of our strategic initiatives, and then I'll go over our quarterly results. As we have discussed on previous calls, we remain focused on improving our balance sheet and liquidity, and growing our multifamily portfolio, as well as reducing our traditional office assets. In September, we announced actions to address these priorities. Specifically, we announced our intention to place property-level financing on several of our assets and use the proceeds to fully repay and retire our recourse corporate-level credit facility.
David Thompson: Thanks, Steve Thank you to everyone for joining our call today.
David Thompson: Like to take a moment to give an update on the progress of our strategic initiatives and then I'll go over our quarterly results as.
David Thompson: As we have discussed on previous calls we remain focused on improving our balance sheet and liquidity and growing our multifamily portfolio as well as reducing our traditional office assets.
David Thompson: In September we announced actions to address these priorities, specifically, we announced our intention to place property level financing on several of our assets and use the proceeds to fully repay and retire our recourse corporate level credit facility.
David Thompson: We've made significant progress on this, closing three mortgages since November. And we have used a substantial portion of the proceeds to reduce the balance outstanding on our credit facility, which is now $15 million, down from $169 million at the end of the third quarter. We're working to complete one additional financing, which we expect to close over the coming months, that we expect will provide sufficient proceeds to complete the repayment and full retirement of this recourse credit facility. We are pleased to have made progress on these transactions, particularly in an environment that is very challenging to finance office property.
David Thompson: We made significant progress on those closing three mortgages since November.
David Thompson: And we've used a substantial portion of the proceeds to reduce the balance outstanding on our credit facility, which is now $15 million down from $169 million at the end of the third quarter.
David Thompson: We're working to complete one additional financing what would you expect to close over the coming months that we expect will provide sufficient proceeds to complete the repayment and full retirement of this recourse credit facility.
David Thompson: We are pleased to have made progress on these transactions, particularly in an environment that is very challenging to finance office properties.
David Thompson: After we complete this process, the only corporate debt remaining will be our $27 million junior subordinated notes, which have about 10 years of term remaining and no corporate covenants.
David Thompson: After we complete this process the only corporate debt remaining will be our $27 million junior subordinated notes, which have about 10 years of term remaining and no corporate governance.
David Thompson: We also continue to evaluate asset sales with a goal of strengthening our balance sheet, improving our liquidity, and growing our portfolio of premier multifamily assets. Turning to our fourth quarter results, our core FFO improved by approximately $4.5 million from the prior quarter, primarily due to higher NOI, lower interest expense, and lower preferred dividends, which was due to the redemption of preferred shares in the third quarter. Our net operating income increased by $1.6 million from the third quarter, primarily due to our hotel segment, which increased $1.1 million. Our lending and multifamily divisions generated small increases in NOI, while our office segment had a small quarter-over-quarter decline in NOI.
David Thompson: We also continue to evaluate asset sales with the goal of strengthening our balance sheet, improving our liquidity and growing our portfolio of premier multifamily assets.
David Thompson: Turning to our fourth quarter results, our core F. O were improved by approximately $4.5 million from the prior quarter, primarily due to higher NOI lower interest expense and lower preferred dividends, which was due to the redemption of preferred shares in the third quarter.
David Thompson: Our net operating income increased by $1.6 million from the third quarter, primarily due to our hotel segment, which increased $1 1 billion.
David Thompson: Our lending and multifamily divisions generating small increases in NOI and while our office segment had a small quarter over quarter decline in NOI.
Steve Altebrando: With that, I will turn it over to Steve to provide a further update on our development pipeline, the portfolio, and our co-investment. Thanks, David. I would like to provide some more details on the refinancing that David referenced. In November, we closed the mortgage of up to $92.2 million on our Sheraton Grand Hotel in Sacramento. Proceeds were primarily used to pay down our credit facility and to fund the previously discussed $21 million room renovation of all 505 rooms at the property that is now complete. We anticipate starting a renovation of the public space later this year.
David Thompson: With that I will turn it over to Steve to provide a further update on our development pipeline the portfolio and our co investment activity.
David Thompson: Okay.
David Thompson: Thanks, David I would like to provide some more details on the refinancings that David referenced in November we closed the mortgage of up to $92 $2 million on our Sheraton Grand Hotel in Sacramento.
David Thompson: Seeds were primarily used to pay down our credit facility and to fund. The previously discussed $21 million room renovation of all 505 rooms at the property that is now complete.
David Thompson: We anticipate starting a renovation of the public slate space later this year. The next phase of the renovation will be funded using proceeds from operations future funding from alone and $8 million of key money, we will receive as part of the extension of our management agreement with Marriott.
Steve Altebrando: The next phase of the renovation will be funded using proceeds from operations, future funding from the loan, and $8 million of key money we will receive as part of the extension of our management agreement with Marriott. In December, we closed on $105 million mortgage on our three-property Wilshire portfolio in Los Angeles, which includes high-quality office assets at 11600, 11620, and 9460 Wilshire Boulevard in Brentwood and Beverly Hills. primarily use the proceeds to pay down our credit facility as well as to establish a reserve for a lease up cost. In February, we closed a $5 million mortgage on 8944 Lindblad, a creative office building in Culver City that has a new 10-year lease in place.
David Thompson: In December we closed on $105 million mortgage on our three property Wilshire portfolio in Los Angeles, which includes high quality office assets at 11, 611, 620, and 90 460 Wilshire Boulevard in Brentwood Beverly Hills.
We primarily use the proceeds to pay down our credit facility as well as to establish a reserve for lease up cost.
David Thompson: In February we closed a $5 million mortgage on 894 for Linde blade, a creative office building in Culver City that has a new 10 year lease in place.
Steve Altebrando: Proceeds will be used for tenant improvements on the new lease and general corporate purposes. As David mentioned, we have made significant progress reducing the balance on our recourse credit facility. In addition, we are in the process of financing 3601 South Congress, also called Penfield, our creative office campus in Austin, Texas, which we expect to complete over the coming months. The proceeds are expected to be used to retire our credit facility. Turning to our multifamily results, NOI modestly increased from the prior quarter, while total occupancy declined about 220 basis points from the prior quarter, it increased 240 basis points year-over-year.
David Thompson: Proceeds will be used for tenant improvements on the new lease and general corporate purposes.
David Thompson: As David mentioned, we have made significant progress reducing the balance on our recourse credit facility in.
David Thompson: In addition, we are in the process of financing 30, 601, South Congress also called Penfield, Our creative office campus in Austin, Texas, which we expect to complete over the coming months. The proceeds are expected to be used to retire our credit facility.
Turning to our multifamily results NOI modestly increased from the prior quarter, while total occupancy declined about 220 basis points from the prior quarter and increased 240 basis points year over year.
Steve Altebrando: We are making progress on our lease up of 701 South Hudson in Los Angeles. residential portion of our partial office to residential top two floor conversion at 4750 Wilshire. The ground floor creative office space is 100% leased and the top two floors were converted to 68 high-end residential units. residential portion of the property is now 40% leased compared to 10% on our last call. The asset is located in Hancock Park, an affluent residential sub market of LA, where housing is supply constrained. Currently have one development underway, 1915 Park, which is a 7 story, 36 unit ground up multifamily development in Echo Park, Los Angeles, a thriving walkable sub market with numerous dining and entertainment options.
We are making progress on our lease up 701, South Hudson in Los Angeles.
David Thompson: Residential portion of a portion of our partial office to residential cop two floor conversion at 47 50 Wilshire.
David Thompson: The ground floor creative office space at 100% leased in the top two floors were converted to 68 high end residential units.
David Thompson: Residential portion of the property is now 40% leased compared to 10% on our last call.
David Thompson: Asset is located in Hancock Park, and affluent residential submarket of La warehousing is supply constrained.
David Thompson: Currently have one development underway 1915 Park, which is a seven story 36 unit ground up multifamily development in Echo Park, Los Angeles, a thriving walkable sub market with numerous dining and entertainment options. This.
Steve Altebrando: This project is a joint venture with an international pension fund and is being developed on land adjacent to our office building at 1910 West Sunset. We continue to expect to deliver the asset mid-year.
David Thompson: This project is a joint venture with an international pension fund and is being developed on land adjacent to our office building at 1910 West Sunset, We continue to expect to deliver the asset mid year.
Steve Altebrando: Turning to our office segment, we executed nearly 176,000 square feet of leases in the fourth quarter as we extended our largest tenant at the end of 2027. Our office lease percentage was 71% at the end of the fourth quarter. When excluding our one office building in Oakland, our lease percentage is 82% at the end of the fourth quarter.
David Thompson: Turning to our office segment, we executed nearly 176000 square feet of leases in the fourth quarter as we extended our largest tenant at the end of 2027.
David Thompson: Our office lease percentage was 71% at the end of the fourth quarter when excluding our one office building in Oakland, our lease percentage was 82% at the end of the fourth quarter our.
Steve Altebrando: Our occupancy has been impacted by work from home trends and challenges in the Bay Area. However, we would note that leasing activity has been steadily picking up, particularly at our LA and Austin assets.
David Thompson: Our occupancy has been impacted by work from home trends and challenges in the Bay area. However, we would note that leasing activity has been steadily picking up particularly at our la and Austin assets with that I'll turn it over to Barry.
Barry Berlin: With that, I'll turn it over to Barry.
David Thompson: Okay.
Barry Berlin: Thank you, Steve. Good morning. I'm going to spend a few minutes going over the financial highlights for the fourth quarter 2024, starting with our segment NOI, which was $9.2 million for the fourth quarter of 2024, compared to $10.8 million in the prior year comparable period. Broken down by segment, the decrease of $1.6 million was driven by decreases of $193,000 from our office properties, $254,000 from our multifamily properties, $828,000 from our hotel business, and $331,000 from our lending business. Our office segment NOI for Q4 2024 was $5.2 million versus $5.4 million during Q4 2023. The slate drop was driven by a decrease in rental revenue at our office property in Oakland, California, attributable to a decrease in occupancy resulting from a large tenant exercising a partial lease termination option.
Barry: Thank you Steve.
David Thompson: Good morning.
David Thompson: I'm going to spend a few minutes going over the financial highlights for the fourth quarter 2024, starting with our segment NOI, which was $9 $2 million for the fourth quarter of 2024 compared to $10 $8 million in the prior year comparable period.
David Thompson: Broken down by segment the decrease of $1.6 million was driven by decreases of $193000 for office properties $254000 for multifamily properties $828000 from our hotel business and $331000 from our lending business.
David Thompson: Okay.
David Thompson: Our office segment NOI for Q4, 2024 was $5 $2 million versus $5 $4 million during Q4 of 2023.
David Thompson: The slight drop was driven by a decrease in rental revenue at our office property in Oakland, California attributable to a decrease in occupancy, resulting from a large tenant exercising a partial lease termination option.
Barry Berlin: This decrease was partially offset by our unconsolidated office entities, which collectively experienced a decrease in the net unrealized loss on their investments in real estate compared to the prior year period. For our multi-family segment, we reported segment NOI approximately $855,000 during Q4 2024, compared to approximately $1.1 million for the prior year conferral period. The decrease was primarily due to an unrealized loss on investment in real estate and one of our unconsolidated joint ventures during the fourth quarter of 2024. Due to construction related to hotel renovations that began in the third quarter of 2024, our hotel operations had decreased occupancy, causing a drop in NOI of approximately $828,000 to $2.1 million for the fourth quarter of 2024, compared to $2.9 million in the prior year comparable period.
David Thompson: This decrease was partially offset by our unconsolidated office entities, which collectively experienced a decrease in the net unrealized loss on their investments in real estate compared to the prior year period.
David Thompson: For our multifamily segment, we reported segment NOI of approximately $855000. During Q4 2024 compared to approximately $1.1 million for the prior year comparable period the.
David Thompson: The decrease was primarily due to an unrealized loss on investment in real estate and one of our unconsolidated joint ventures during the fourth quarter of 2024.
David Thompson: Due to construction related to hotel renovations that began in the third quarter of 2020 for our hotel operations had decreased occupancy, causing a drop in NOI of approximately $828000 to $2 $1 million for the fourth quarter of 2024 compared to $2 $9 million.
David Thompson: In the prior year comparable period.
Barry Berlin: and our lending division NOI decreased to $980,000 from $1.3 million in the prior year comparable period, primarily due to a decrease in premium income and a decrease in interest income as a result of lower loan originations and loan sale volume. Our below the NOI line activity was relatively flat when comparing the fourth quarter of 2024 to last year. We had an increase in depreciation and amortization of $1.6 million, which was driven by additions to our fixed assets resulting from capital expenditures during 2023 and 2024, as well as a loss on early extinguishment of debt of $1.4 million related to the pay down of the majority of our revolver during the current quarter in advance of its maturity.
David Thompson: And our lending division NOI decreased to $980000 from $1.3 million in the prior year comparable period, primarily due to a decrease in premium income and the decrease in interest income as a result of lower loan originations and loan sale volume.
David Thompson: Our below the NOI line activity was relatively flat when comparing the fourth quarter of 2024 to last year.
David Thompson: We had an increase in depreciation and amortization of $1 $6 million, which was driven by additions to our fixed assets, resulting from capital expenditures during 2023, and 2024 as well as a loss on early extinguishment of debt of $1.4 million related to the pay down of the majority of our revolver.
David Thompson: During the current quarter in advance of its maturity.
Barry Berlin: These reductions to our NOI were partially offset by a decrease in interest expense not allocated to our operating segments of around $1.1 million, due mostly to a decrease in aggregate fund level and property level debt outstanding, a decrease in transaction related costs of $1 million, and a decrease in G&A expenses of $800,000. Our FFO was negative $8.7 million, or negative $0.93 per diluted share, compared to negative $9.9 million, or negative $4.07 per diluted share, in the prior year accountable period, and our core FFO was negative $7 million, or negative $0.75 per diluted share, compared to negative $8.4 million, or negative $3.46 per diluted share in the prior year comparable period.
David Thompson: These reductions to our NOI were partially offset by a decrease in interest expense not allocated to our operating segments of around $1.1 million due mostly to a decrease in aggregate fund level and property level debt outstanding a decrease in transaction related costs of $1 million and a decrease in G&A.
David Thompson: Fences or $800000.
David Thompson: Our F O was negative $8 $7 million or negative <unk> 93 per diluted share compared to negative $9 $9 million or negative $4.07 per diluted share in the prior year comparable period, and our core <unk> was negative $7 million or negative 75.
David Thompson: <unk> per diluted share compared to negative $8 $4 million or negative $3.46.
David Thompson: Our diluted share in the prior year comparable period.
Barry Berlin: The increase in FFO and core FFO was primarily due to a decrease in redeemable preferred stock dividends of approximately $1.3 million.
David Thompson: The increase in S S, though and core <unk> was primarily due to a decrease in redeemable preferred stock dividends.
David Thompson: Approximately $1.3 billion.
Barry Berlin: Finally, we are seeking shareholder approval to do a 1 for 25 reverse stock split. While our recent preferred common redemptions improved our cash flow, liquidity, and balance sheet, it also increased the amount of common shares outstanding, contributing to a lower stock price.
David Thompson: Finally, we are seeking shareholder approval to do a one for 25 reverse stock split.
David Thompson: While our recent preferred common redemptions approved our cash flow liquidity and balance sheet. It also increased the amount of common shares outstanding contributing to a lower stock price.
David Thompson: Yeah.
Operator: With that, we can now open the line for questions. Ladies and gentlemen, at this time, we'll begin the question and answer session. If you would like to ask a question, please press star and then 1 using a touch-tone telephone. To withdraw your questions, you may press star and 2. If you are using a speakerphone, we do ask that you please pick up your handset prior to pressing the keys to ensure the best sound quality. Once again, that is star and then 1 to join the question queue. We'll pause momentarily to assemble the roster. Once again, if you would like to ask a question, please press star and 1.
David Thompson: With that we can now open the line for questions.
Speaker Change: Ladies and gentlemen at this time, we'll begin the question and answer session. If you would like to ask a question. Please press star and then one using a touchtone telephone.
David Thompson: Withdraw your question you May press Star and two.
David Thompson: If you are using a speaker phone, we do ask that you. Please pick up your handset prior depressing the keys to ensure the best sound quality.
David Thompson: Once again that is star and then one to join the question queue.
David Thompson: We will pause momentarily to assemble the roster.
David Thompson: Once again, if you would like to ask a question. Please press star and one.
Operator: And ladies and gentlemen, in showing no questions at this time, we'll close today's question and answer session as well as today's conference call. We do thank you for attending today's presentation.
David Thompson: And ladies and gentlemen, im showing no questions. At this time, we will close today's question and answer session as well as today's conference call. We do thank you for attending today's presentation. You may now disconnect your lines.
Operator: You may now disconnect your lines.
David Thompson: Yeah.
David Thompson: [music].
David Thompson: Okay.
David Thompson: [music].
Yes.