Q1 2025 Creative Media & Community Trust Corp Earnings Call

Operator: Good day and welcome to the Creative Media and Community Trust Corporation first quarter 2025 earnings 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 day and welcome to the creative Media and Community Trust Corporation first quarter 2025 earnings call.

All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the Starkey followed by zero.

Operator: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on a touch-tone phone. To withdraw your question, please press star, then 2. Please note that this event is being recorded.

After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on a touchtone phone.

To withdraw your question. Please press Star then two.

Please note that this event is being recorded.

Steve Altebrando: I would now like to turn the conference over to Steve Altebrando. Please go ahead.

Speaker Change: I would now like to turn the conference over to Steve Alta Brando. Please go ahead Hello, everyone.

Steve Altebrando: Hello everyone and thank you for joining us. My name is Steve Altebrando, the Portfolio Oversight for CMC. Also on the call today are David Thompson, our Chief Executive Officer, and Barry Berlin, our Chief Financial Officer.

Speaker Change: And thank you for joining US my name is Steve Ulta brand out of the portfolio of her site for <unk> 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 reports. Our earnings release includes a reconciliation of non-GAAP financial measures discussed during today's call.

Speaker Change: 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.

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, they are not guarantees of future performance, and some will prove to be incorrect. Therefore, 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 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.

Speaker Change: 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.

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.

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 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. And thank you, everyone, for joining our call today. I'd like to begin by sharing an update on the progress we've made with our strategic initiatives, followed by a review of our results for the quarter. As we've discussed on previous calls, we remain focused on improving our balance sheet and liquidity and accelerating our focus towards premier multifamily assets. With respect to the balance sheet and liquidity, we are pleased to share that we have now fully repaid and retired our recourse corporate level credit facility, a clear demonstration of the progress we've been making on our strategic initiatives.

David Thompson: Thanks, Steve and thank you everyone for joining our call today.

David Thompson: I'd like to begin by sharing an update on the progress we've made with our strategic initiatives followed by a review of our results for the quarter.

David Thompson: As we've discussed on previous calls we remain focused on improving our balance sheet and liquidity and accelerating our focus towards premier multifamily assets.

David Thompson: With respect to the balance sheet and liquidity. We are pleased to share that we have now fully repaid and retired our recourse corporate level credit facility, a clear demonstration of the progress we've been making on our strategic initiatives.

David Thompson: To take a step back, last September we announced our intention to place property-level financing on several of our assets with the objective of using a portion of the proceeds to fully repay and retire the Recourse Credit Facility. When we first discussed this goal, that facility carried a balance of approximately $169 million. In April, we secured a floating-rate mortgage on our Creative Office Campus at 3601 South Congress in Austin, also known as Penfield. This financing marked the conclusion of our broader refinancing program, through which we successfully completed four financings across six properties. We achieved this in a highly challenging environment for office financing.

David Thompson: I take a step back last September we announced our intention to place property level financing on several of our assets with the objective of using a portion of the proceeds to fully repay and retire the recourse credit facility.

David Thompson: When we first discussed this goal that facility carried a balance of approximately $169 million in.

David Thompson: In April we secured a floating rate mortgage on our creative office campus at 30, 601, South Congress and Austin also noticed Penfield. This financing marks the conclusion of our broader refinancing program through which we successfully completed four financings across six properties.

David Thompson: We achieved this in a highly challenging environment for office financing.

David Thompson: As of today, the majority of the debt is held at the property level in the form of mortgages, and this is non-recourse to CMCT itself. In addition, we now have 12 unencumbered assets, further enhancing our financial flexibility. With respect to our other main priority, growing the multifamily portion of the portfolio, including JVs, we now have four operating assets. These include 1150 Clay and Channel House in the Bay Area and 701 South Hudson and 1902 Park Avenue in Los Angeles. Our fifth operating asset, 1915 Park in Los Angeles, will be delivered on time in the third quarter.

David Thompson: As of today the majority of the debt is held at the property level in the form of mortgages and this is nonrecourse to C. N C T itself.

David Thompson: In addition, we know how 12 unencumbered assets further enhancing our financial flexibility.

David Thompson: With respect to our other main priority growing the multifamily portion of the portfolio, including JV as we now have four operating assets.

David Thompson: These include 11, 50, clay and channel House in the Bay area and.

David Thompson: 701, South Hudson and 19 O to Park Avenue in Los Angeles, Our Pip operating asset 1915 Park in Los Angeles will be delivered on time in the third quarter we.

David Thompson: We believe there is significant opportunity to grow our multifamily net operating income through improving occupancy and marking rents to the current market. And lastly, we continue to actively evaluate potential asset sales with the goal of strengthening our balance sheet, improving our liquidity, and growing our portfolio of premier multifamily assets.

David Thompson: We believe there is significant opportunity to grow our multifamily net operating income through improving occupancy and marketing rents to the current market.

David Thompson: And lastly, we continue to actively evaluate potential 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 first quarter results, our core FFO improved by approximately $1.9 million dollars from the prior quarter, primarily due to higher net operating income and lower preferred dividends. Our net operating income increased by approximately $2.6 billion from the prior quarter, primarily driven by a $2.6 billion improvement at our hotel.

David Thompson: Turning to our first quarter results, our core F O improve by approximately $1 $9 million from the prior quarter, primarily due to higher net operating income and lower preferred dividends.

David Thompson: Our net operating income increased by approximately $2 $6 billion in the prior quarter, primarily driven by a $2 6 million dollar improvement at our hotel.

David Thompson: While the first half of the year is typically the strongest seasonally for our hotel, we're also seeing the clear benefits from the recently completed renovation of our hotel asset, the Sheraton Grand Sacramento. First quarter in a while, the hotel increased 15% on a year over year basis. Our office NOI improved by 1.9 million dollars from the prior quarter, and we are seeing a pickup in leasing activity, particularly in Los Angeles and in Austin.

David Thompson: While the first half of the year is typically the strongest seasonally for a home for our hotel. We're also seeing the clear benefits from the recently completed renovation of our hotel asset the Sheraton Grand Sacramento.

David Thompson: First quarter, NOI, though hotel increased 15% on a year over year basis.

David Thompson: Our office NOI improved by $1 $9 million from the prior quarter and we are seeing a pickup in leasing activity, particularly in Los Angeles and in Austin.

David Thompson: Our multifamily NOI decreased by $1.5 million from the prior quarter, primarily due to lower occupancy in the seasonally slower winter months. Our lending NOI declined approximately $390,000, primarily due to a decrease in interest income as a result of loan payoffs and lower interest rates.

David Thompson: Our multifamily NOI decreased by $1.5 million from the prior quarter, primarily due to lower occupancy in the seasonally slower winter months.

David Thompson: Our lending NOI declined approximately 390000, primarily due to a decrease in interest income as a result of loan pay offs and lower interest rates.

Steve Altebrando: With that, I will turn it over to Steve to provide more detail on the portfolio. Thanks, David. I would like to provide some more details on our segments. Starting with multifamily, we continue to focus on growing our premier newer vintage multifamily portfolio. As David mentioned, we believe there is a significant opportunity to grow our multifamily net operating income through improving occupancy and increasing rents to current markets. Starting in Los Angeles, we continue to make progress on the lease up of 701 South Hudson, the residential component of our partial office to residential conversion, completed towards the end of last year.

David Thompson: With that I will turn it over to Steve to provide more detail on the portfolio.

Steve: Thanks, David I would like to provide some more details on our segments starting with multifamily we continue to focus on growing our premier newer vintage multifamily portfolio as David mentioned, we believe there is a significant opportunity to grow our multifamily net operating income through improving occupancy and increasing rents to current market.

David Thompson: <unk>.

David Thompson: Starting in Los Angeles, we continue to make progress on the lease up of 701, South Hudson the residential component of our partial office to residential conversion completed towards the end of last year.

Steve Altebrando: The top two floors of the property were converted into 68 high-end residential units, while the ground-floor creative office, known as 4750 Wilshire, remains 100% one. The asset is located in Hancock Park, an affluent, supply-constrained residential submarket of L.A. Multifamily occupancy at the property reached approximately 41% at the end of the quarter, up from 22% at the year-end. We continue to make further progress in the second quarter as our least percentage as of early May is approximately 63%. Given recent zoning changes, we also believe there's an opportunity to develop additional units on the back surface lot.

David Thompson: The top two floors of the property were converted into 68 high end residential units, while the Groundfloor Creative office known as 47 50 wheelchair remains 100% leased.

David Thompson: The asset is located in Hancock Park in affluent supply constrained residential submarket of L. A.

David Thompson: Multifamily occupancy at the property reached approximately 41% at the end of the quarter up from 22% at the year end.

David Thompson: We continue to make further progress in the second quarter as our lease percentage as of early may is approximately 63%.

David Thompson: Given recent zoning changes we also believe there's an opportunity to develop additional units on the back surface lot. This potential second phase we benefit from development and operational efficiencies. For example, amenities are already built out in phase one.

Steve Altebrando: This potential second phase would benefit from development and operational efficiency. For example, amenities are already built out in phase. We believe this will be an attractive project and we will share more details in the future as we progress through the pre-development phase. Also in Los Angeles, we have one development underway at 1915 Park, which is a 36 unit ground up multifamily development in Echo Park, a highly desirable walkable sub market with attractive dining and entertainment options. This development is a joint venture with an international pension fund and is being built on land adjacent to our office building at 1910 West St.

David Thompson: We believe this will be an attractive project and we will share more details in the future as we progress through the pre development phase.

David Thompson: Also in Los Angeles, we have one development underway at 1915 Park, which is a 36 unit ground up multifamily development in Echo Park, a highly desirable walkable sub market with attractive dining and entertainment options.

David Thompson: Development is a joint venture with an international pension fund its been and is being built on land adjacent to our office building at 1910 West Sunset we.

Steve Altebrando: Clair. We expect to begin lease up of this asset in the third quarter. In Oakland, we saw lower occupancy through the seasonally slower winter months, but we are already beginning to see a pickup in the second. As we have noted on these calls before, we continue to believe the recovery of the Oakland residential market will take some time, given the broader economic headwinds and local market dynamics. One encouraging factor is the limited pipeline of new supply. Elevated construction costs have made new development increasingly difficult, which we think will benefit our completed.

David Thompson: We expect to begin lease up of this asset in the third quarter.

David Thompson: In Oakland, we saw lower occupancy through the seasonally slower winter months, but we are already beginning to see a pickup in the second quarter as.

David Thompson: As we have noted on these calls before we continue to believe the recovery of the Oakland residential market will take some time, given the broader economic headwinds in local market dynamics.

David Thompson: One encouraging factor is the limited pipeline of new supply.

David Thompson: Elevated construction costs have made new development increasingly difficult, which we think will benefit our completed properties.

Steve Altebrando: Turning to the office segment, we executed approximately 30,000 square feet of leases in the quarter, which was in addition to the nearly 176,000 square feet of leases completed in the fourth quarter. As David mentioned, we have been seeing leasing activity pick up in LA and Austin, where we have active pipeline. Our office lease percentage was 71.4% at the end of the quarter.

David Thompson: Turning to the office segment, we executed approximately 30000 square feet of leases in the quarter, which was in addition to the nearly 176000 square feet of leases completed in the fourth quarter.

David Thompson: As David mentioned, we have been seeing leasing activity pick up in la and Austin, where we have active pipelines.

David Thompson: Our office lease percentage was 71, 4% at the end of the corner and when excluding our office building Oakland our lease percentage was 83%.

Steve Altebrando: And when excluding our office building Oakland, our lease percentage was 83%.

Steve Altebrando: Turning to our hotel, we have completed the renovation of all 500 plus rooms at our hotel asset in Sacramento. We were pleased to have a strong first quarter with net operating income improving 15% from the prior year period. We anticipate starting a renovation of the public space later this year, largely using proceeds from operations, future funding from the mortgage and $8 million of key money we received as part of the extension of our management agreement with Marriott. believe the asset will be very well positioned heading into 2026.

David Thompson: Turning to our hotel, we have completed the renovation of all 500 plus rooms at our hotel asset in Sacramento.

David Thompson: We were pleased to have a strong first quarter with net operating income improving 15% from the prior year period, we anticipate starting a renovation of the public space. Later this year largely using proceeds from operations future funding from the mortgage and $8 million of key money. We received as part of the extension of our management agreement with Marriott.

David Thompson: Leave the asset will be very well positioned heading into 2026.

Barry Berlin: With that, I'll turn the call over to Barry. Thank you, Steve.

Barry: With that I'll turn the call over to Barry.

Barry: Thank you Steve.

Barry Berlin: Good morning. I'm going to spend a few minutes going over the comparative financial highlights for the first quarter of 2025 versus the first quarter of 2024, starting with our segment NOI, which was $11.8 million in the first quarter of 2025, compared to $13.6 million in the prior year comparable period. Broken down by segment, the decrease of $1.8 million was driven by decreases of $764,000 for all. $1.5 million from our multifamily project. $199,000 from our lending business partially offset by an increase of $622,000 in NOI from our hotel property Our office segment NOI for Q1 2025 was $7.1 million versus $7.9 million during Q1 2024.

Barry: Good morning.

Speaker Change: I'm going to spend a few minutes going over the comparative financial highlights for the first quarter of 2025 versus the first quarter of 2024, starting with our segment NOI, which was $11 $8 million in the first quarter of 2025.

Barry: Compared to $13 $6 million in the prior year comparable period.

Barry: Broken down by segment. The decrease of one $8 billion was driven by decreases of $764000 for office properties $1.5 million from our multifamily properties.

Barry: $99000 from our lending business, partially offset by an increase of $622000 and NOI from our hotel property.

Barry: Our office segment NOI for Q1, 2025 was $7 $1 million versus $7 $9 million during Q1 2024.

Barry Berlin: The decrease 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 offer.

Barry: The decrease 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: For our multifamily segment NOI, we reported an operating loss of $620,000 during Q1 2025 compared to income of $917,000 for the prior year comparable period. The decrease was primarily due to an unrealized loss on investment in real estate at one of our unconsolidated joint ventures during the first quarter of 2025.

Barry: For our multifamily segment NOI, we reported an operating loss of $620000. During Q1 2025 compared to income of $917000 for the prior year comparable period.

Barry: The decrease was primarily due to an unrealized loss on investment in real estate at one of our unconsolidated joint ventures during the first quarter of 2025.

Barry Berlin: Our hotel segment NOI for Q1 2025 was $4.7 million compared to $4.1 million in the prior year comparable period. The increase was driven by an increase in occupancy and average daily and their lending division, NOI, decreased to $590,000 from $789,000 in the prior year comparable period, primarily due to a decrease in interest income as a result of loan payoffs and lower interest rates.

Barry: Our hotel segment NOI for Q1, 2025 was $4 $7 million compared to $4 $1 million in the prior year comparable period.

Barry: The increase was driven by an increase in occupancy and average daily rate.

Barry: And our lending division NOI decreased to $590000 from $789000 in the prior year comparable period, primarily due to a decrease in interest income as a result of loan pay offs and lower interest rates.

Barry Berlin: Below the segment NOI line, we had an increase of interest expense of $1.1 million, which was driven by a higher aggregate debt balance, which was partially offset by a decrease in transaction-related costs of $664,000. Our FFO was negative $5.4 million or negative $9.42 per diluted share, compared to negative $5.9 million or negative $60.42 per diluted share in the prior year calcual period. The positive movement in our FFO was primarily driven by a decrease in preferred stock dividends of $2.3 million. The Decrease in the Panel Impact of Both Preferred Stock Redemptions of $506,000 and the Transaction Related Cost of $664,000.

Barry: Below the segment NOI line, we had an increase of interest expense of $1 $1 million, which was driven.

Barry: By a higher aggregate debt balance, which was partially offset by a decrease in transaction related costs of $664000.

Barry: <unk> was negative $5 $4 million of negative $9 42 per diluted share compared to negative $5 $9 million or negative $60 42 per diluted share in the prior year comparable period.

Barry: The positive movement in our <unk> was primarily driven by a decrease in preferred stock dividends of $2 $3 million.

Barry: A decrease in the P&L impact of those preferred stock redemption, so $506000 and the transaction related costs of $664000.

Barry Berlin: Partially offsetting the positive impacts to FFO for the quarter, where the $1.18 million decrease in our segment NOI and the increase in interest expense of $1.1 million. Our core FFO was negative $5.1 million or negative $8.85 per diluted share compared to negative $4.4 million or negative $45.15 per diluted share in the prior year comparable period. This decrease in core FFO is attributable to the previously discussed reductions in FFO from segment NOI.

Barry: Partially offsetting the positive impacts that that though for the quarter were the $1.18 million decrease in our segment NOI and the increase in interest expense of $1 $1 billion.

Barry: Our court at that though it was negative $5 $1 million of negative $8 85 per diluted share compared to negative $4 $4 million or negative $45 15 per diluted share in the prior year comparable period.

Barry: This decrease in core of it though is attributable to the previously discussed reductions in that thought though from segment NOI and interest expense.

Barry Berlin: Core FFO calculations exclude reconciliation items to determine FFO that relate to transaction related costs and preferred stock prices.

Barry: Core F O calculations exclude reconciliation items to determine that peso that relate to transaction related costs and preferred stock redemptions.

Barry Berlin: Finally, we completed a refinancing on our office property in Austin, Texas in early April and used a portion of the proceeds from the new mortgage. to fully pay off our credit facility, which has now been retired.

Barry: Finally, we completed a refinancing on our office property in Austin, Texas in early April and used a portion of the proceeds from the new mortgage.

Barry: To fully pay off our credit facility, which has now been retired.

Barry Berlin: and on April 15th we effected the 1 for 25 reverse split on our comments talk that was by our shareholders. With that, we can open the line for questions. Thank you.

Barry: And on April 15th we effected a one for 25 reverse split of <unk>.

Barry: <unk> stock that was approved by our shareholders.

Barry: With that we can open the line for questions.

Speaker Change: Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.

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Operator: At this time, we will pause momentarily to assemble our roster.

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Operator: Seeing no questions, this will conclude our question and answer session as well as conference call.

Speaker Change: Seeing no questions. This will conclude our question and answer session as well as conference call.

Operator: Thank you for attending today's presentation. You may now disconnect.

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Speaker Change: [music].