CMCT(US:CMCT)2023-03-30 16:00PART I Item 1. Business CMCT is a REIT focused on acquiring and operating premier multifamily and Class A/creative office properties, alongside a hotel and an SBA 7(a) lending platform Portfolio Overview as of December 31, 2022 | Asset Type | Details | | :--- | :--- | | Office Properties | 13 properties totaling approx. 1.3 million rentable sq. ft. | | Office Occupancy | 81.7% | | Hotel | 1 property with 503 rooms | | Hotel RevPAR (FY 2022) | $126.19 | | Development Sites | 4 sites | Segment Revenue Contribution (FY 2022) | Segment | Revenue Contribution (%) | | :--- | :--- | | Office | 54.8% | | Hotel | 34.6% | | Lending | 10.6% | - The company's core strategy is to acquire, develop, and operate premier multifamily and creative office assets in vibrant, high-barrier-to-entry metropolitan communities identified by CIM Group1134 - The lending segment primarily originates SBA 7(a) loans to small businesses, with a historical focus on the limited service and mid-scale hospitality industry666793 Management Fee Structure (Effective Jan 1, 2022) | Fee Type | Description | | :--- | :--- | | Base Fee | 1% annually of Net Asset Value Attributable to Common Stockholders, paid quarterly to the Operator | | Incentive Fee | Payable to the Administrator based on quarterly core FFO exceeding a 7.0% annualized threshold on Adjusted Common Equity | | Capital Gains Fee | 15% of cumulative aggregate realized capital gains minus cumulative losses and previously paid capital gains fees | - The company has significant tenant concentration, with Kaiser Foundation Health Plan, Inc. accounting for 29.8% of annualized rental income for the year ended December 31, 2022126 Item 1A. Risk Factors The company faces diverse risks including reliance on external management, conflicts of interest, anti-takeover provisions, real estate market vulnerabilities, significant debt, and the complexities of maintaining REIT status Risks Related to Our Business - The company's success is highly dependent on the performance and key personnel of the Administrator and Operator, both affiliates of CIM Group. The departure of key individuals could have a material adverse effect112135136 - The company faces risks from uninsured losses or losses exceeding insurance coverage, particularly for events like earthquakes in California, for which coverage may not be sufficient114115141 - Cybersecurity incidents targeting the Operator or Administrator could disrupt operations, compromise confidential data, and negatively impact financial results117143175 - The COVID-19 pandemic has led to long-term changes in workplace practices, such as increased remote work, which has resulted in decreased demand for office space and could negatively impact occupancy and rental rates121146 Risks Related to Conflicts of Interest - The Master Services Agreement and Investment Management Agreement are not easily terminable by the company, even for poor performance, creating a dependency on the Administrator and Operator147181 - The Administrator and Operator are entitled to fees regardless of performance, which may reduce their incentive to devote maximum effort to the company's portfolio124182 - The Operator, Administrator, and their affiliates engage in other real estate activities that may overlap and compete with the company for opportunities, creating potential conflicts in allocation155186187 - Several directors and executive officers hold positions with CIM Group and its affiliates, creating potential conflicts of interest and fiduciary duties that may not align with the best interests of the company's stockholders71156188 Risks Related to Our Organizational Structure - Provisions in the company's charter, bylaws, and Maryland General Corporation Law (MGCL) may deter takeovers, potentially limiting stockholders' ability to sell shares at a premium. These include the Maryland Business Combination Act and Control Share Acquisition Act, though the company has currently opted out of these159160161 - To maintain REIT status, the charter prohibits any person from owning more than 6.25% of the company's stock (in value or number of shares), which can restrict transferability and inhibit changes of control166509 - The liability of the Administrator and Operator is limited under their respective agreements, and the company has agreed to indemnify them against certain liabilities, potentially leaving the company to bear losses from poor performance171203221 Risks Related to Real Estate Assets - A significant portion of the company's properties are located in California, exposing the portfolio to greater risks from adverse economic, regulatory, or natural disaster events in that state174207225 - The company has significant tenant concentration risk, with Kaiser accounting for 29.8% of annualized rental income in 2022. A bankruptcy or default by this tenant would materially impact financial results211228 - The hotel segment's performance is subject to the cyclical nature of the lodging industry, seasonality, and risks from pandemics or other events that reduce travel300301327 - The office portfolio faces risks from changing work trends, such as telecommuting and flexible schedules, which could erode demand for office space and pressure rental rates215233 - Inflation may adversely affect operations by increasing construction, maintenance, operating, and interest expenses, which could negatively impact profitability366397 Risks Related to Debt Financing - The company has incurred significant indebtedness, which could make it more vulnerable to economic downturns, leave insufficient cash for operations or distributions, and potentially lead to defaults or foreclosures402434 - The company relies on external capital for future needs. Difficulty in obtaining financing due to market volatility could prevent it from meeting maturing obligations or making new acquisitions404436 - Increases in interest rates could significantly raise debt service payments on variable-rate debt, reducing cash flow available for distributions. As of December 31, 2022, the company had $83.3 million in variable-rate debt407439 Risks Related to Our Lending Operations - The lending operations have a high industry concentration, with 99.9% of loans subject to credit risk as of December 31, 2022, being in the hospitality industry, making the portfolio vulnerable to downturns in that sector451483 - The company's ability to originate and sell government-guaranteed loans is dependent on the continuation of the SBA 7(a) Program, which could be curtailed or altered by the federal government456488 - Failure to comply with SBA regulations in originating or servicing loans could result in the SBA refusing to honor its guaranty, transferring the liability back to the company and potentially causing significant losses458490 U.S. Federal Income and Other Tax Risks - Failure to qualify and maintain REIT status would result in significant adverse tax consequences, including being subject to federal income tax at regular corporate rates, which would substantially reduce funds available for distributions461462494 - To maintain REIT status, the company must distribute at least 90% of its REIT taxable income annually. This requirement may force the company to borrow funds or sell assets at unfavorable times to make necessary distributions472503 - The value of the company's assets consisting of stock or securities of one or more Taxable REIT Subsidiaries (TRSs) cannot exceed 20% of its total assets. Failure to comply with this limit would jeopardize its REIT status464497 Risks Related to Our Common Stock and Preferred Stock - There is no public market for the company's Preferred Stock, and one is not expected to develop, limiting liquidity for these securities479510 - The rights of common stockholders to receive dividends and distributions upon liquidation are junior to the rights of preferred stockholders515521546 - The company has the option to pay the redemption price for its Preferred Stock in either cash or shares of Common Stock, which could result in dilution to existing common stockholders520549 - The dual-listing of the Common Stock on Nasdaq and the TASE may result in price variations and unexpected volatility due to different currencies, trading hours, and other factors563589 Item 1B. Unresolved Staff Comments The company has no unresolved staff comments from the SEC - None597 Item 2. Properties As of December 31, 2022, the company's real estate portfolio consisted of 19 assets, including 13 office properties totaling approximately 1.3 million rentable square feet with 81.7% occupancy, one 503-room hotel, and four development sites Office Portfolio Summary (December 31, 2022) | Portfolio Type | Rentable Square Feet | % Occupied | % Leased | Annualized Rent (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Consolidated | 1,219,146 | 82.2% | 84.9% | $55,615 | | Unconsolidated (44% owned) | 100,506 | 74.8% | 80.4% | $3,403 | | Total Office Portfolio | 1,319,652 | 81.7% | 84.5% | $59,018 | Hotel Portfolio Summary (December 31, 2022) | Property | Rooms | % Occupied (TTM) | RevPAR (TTM) | | :--- | :--- | :--- | :--- | | Sheraton Grand Hotel | 503 | 73.0% | $126.19 | Top 5 Tenants by Annualized Rental Revenue (December 31, 2022) | Tenant | Annualized Rent (in thousands) | % of Total Annualized Rent | | :--- | :--- | :--- | | Kaiser Foundation Health Plan, Inc. | $17,610 | 29.8% | | MUFG Union Bank, N.A. | $3,927 | 6.7% | | F45 Training Holdings, Inc. | $2,427 | 4.1% | | 3 Arts Entertainment, Inc. | $2,396 | 4.1% | | Westwood One, Inc. | $1,979 | 3.4% | | Total Top 5 | $28,339 | 48.1% | Office Lease Expiration Schedule | Year of Expiration | Square Feet Expiring | % of Square Feet Expiring | | :--- | :--- | :--- | | 2023 | 120,565 | 11.2% | | 2024 | 98,306 | 9.1% | | 2025 | 440,772 | 40.9% | | 2026 | 97,285 | 9.0% | | Thereafter | 219,042 | 28.8% | Item 3. Legal Proceedings The company is not currently involved in any material pending or threatened legal proceedings beyond routine litigation in the ordinary course of business - The company is not involved in any material legal proceedings outside of routine litigation incidental to its business579998 Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable605 PART II Item 5. Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock is dual-listed on Nasdaq and the Tel Aviv Stock Exchange, with 357 holders of record and a closing price of $4.30 as of March 22, 2023 - The company's common stock trades on both the Nasdaq (CMCT) and the Tel Aviv Stock Exchange (CMCT-L)607 - On December 20, 2022, the company issued 36,663 shares of Series A1 Preferred Stock to the Operator as payment for $916,575 in asset management fees for Q3 2022583 Item 6. Reserved This item is reserved and contains no information - Item 6 is reserved634 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Net income increased to $5.9 million in 2022, driven by hotel recovery and reduced management fees, despite a decline in lending segment income, with liquidity enhanced by a new credit facility and preferred stock offerings Results of Operations Financial Performance Comparison (in thousands) | Metric | FY 2022 | FY 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $101,906 | $90,926 | $10,980 | 12.1% | | Total Expenses | $94,994 | $88,785 | $6,209 | 7.0% | | Net Income (Loss) | $5,945 | $(851) | $6,796 | N/A | FFO Attributable to Common Stockholders (in thousands) | Metric | FY 2022 | FY 2021 | | :--- | :--- | :--- | | Net loss attributable to common stockholders | $(25,785) | $(19,979) | | Depreciation and amortization | 20,348 | 20,112 | | FFO attributable to common stockholders | $(5,437) | $133 | - Hotel revenue increased by 97.3% to $35.2 million in 2022, driven by a significant recovery in occupancy and average daily rate post-COVID-19680 - Lending revenue decreased by 45.6% to $10.8 million in 2022, primarily due to lower premium income from reduced loan sale volume compared to 2021, when the SBA had temporarily increased guaranteed percentages651 - Asset management and other fees to related parties decreased by 60.5% to $3.6 million in 2022, mainly as a result of a new Fee Waiver agreement effective January 1, 2022654 Liquidity and Capital Resources - In December 2022, the company refinanced its credit facility, replacing it with a new facility that includes a $56.2 million term loan and a $150.0 million revolver, maturing in December 2025690694 - The company redeemed all outstanding Series L Preferred Stock, completing a $70.1 million repurchase in September 2022 and redeeming the remaining shares for $83.8 million in January 2023672700 - The company is conducting a continuous public offering of its Series A1 Preferred Stock. As of December 31, 2022, aggregate net proceeds from its various preferred stock offerings totaled $318.2 million697 - In March 2023, the lending division completed a securitization of SBA 7(a) loans, issuing $54.1 million of loan-backed notes with net proceeds of approximately $43.3 million287667 Cash Flow Analysis - Net cash provided by operating activities decreased by $13.9 million in 2022 compared to 2021, primarily due to a $10.8 million decrease in net proceeds from the sale of guaranteed loans659 - Net cash used in investing activities increased by $9.6 million, mainly due to a $12.4 million net investment in an unconsolidated joint venture and a $4.8 million increase in capital expenditures689 - Net cash from financing activities increased by $57.3 million, driven by a $112.4 million increase in net proceeds from preferred stock issuance and a $106.0 million increase in net proceeds from debt660 Item 7A. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate changes, with 47.9% of its debt being floating rate, leading to an estimated $446,000 annual earnings impact from a 50 basis point rate change Debt Composition by Interest Rate Type (as of Dec 31, 2022) | Rate Type | Amount (in millions) | Percentage of Total Debt | | :--- | :--- | :--- | | Fixed Rate | $97.1 | 52.1% | | Floating Rate | $89.3 | 47.9% | - Based on floating rate debt levels at year-end 2022, a 50 basis point change in LIBOR and SOFR would result in an approximate annual earnings impact of $446,000710 Item 8. Financial Statements and Supplementary Data This item incorporates by reference the company's audited consolidated financial statements, related notes, and the independent auditors' report, beginning on page F-1 - The required financial statements and supplementary data are incorporated by reference to the information beginning on page F-1711 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reported no changes in or disagreements with its accountants on accounting and financial disclosure - None712 Item 9A. Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2022, with no material changes reported - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2022739 - Management's assessment concluded that internal control over financial reporting was effective as of December 31, 2022. This was audited by Deloitte & Touche, LLP, which concurred716740 - There were no changes in internal control over financial reporting during the fourth quarter of 2022 that materially affected, or are reasonably likely to materially affect, internal controls722 Item 9B. Other Information This item is not applicable - Not applicable771 Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable - Not applicable723 PART III Items 10, 11, 12, 13, and 14 Information for these items, covering Directors, Executive Officers, Corporate Governance, Executive Compensation, Security Ownership, Related Transactions, and Accountant Fees, is incorporated by reference from the 2023 Proxy Statement - Information for Items 10 through 14 is incorporated by reference from the company's 2023 Proxy Statement772773774 PART IV Item 15. Exhibits and Financial Statement Schedules This section lists the financial statements, schedules, and exhibits filed as part of the Annual Report on Form 10-K, detailed on pages F-1 and 72-74 - This item provides a list of all financial statements, schedules, and exhibits filed with or incorporated by reference into the Form 10-K775776 Item 16. Form 10-K Summary No Form 10-K summary was provided - None754 Financial Statements and Notes Notes to Consolidated Financial Statements The notes provide detailed financial information including real estate acquisitions, unconsolidated joint ventures, lending portfolio concentration, debt refinancing, preferred stock activity, related-party transactions, segment performance, and subsequent events Note 3. Investments in Real Estate Purchase Price Allocation for Acquisitions (in thousands) | Asset Component | 2022 ($) | 2021 ($) | | :--- | :--- | :--- | | Land | $10,491 | $1,839 | | Buildings and improvements | $164 | $1,061 | | Other | $132 | $33 | | Net assets acquired | $10,787 | $2,933 | Note 4. Investment in Unconsolidated Entity - In February 2022, the company invested approximately $22.4 million to acquire a 44% interest in an unconsolidated joint venture that purchased an office property in Los Angeles for a gross price of $51.0 million241242 Note 5. Loans Receivable Loans Receivable, Net (in thousands) | Category | Dec 31, 2022 ($) | Dec 31, 2021 ($) | | :--- | :--- | :--- | | SBA 7(a) loans receivable, subject to credit risk | $56,116 | $42,103 | | SBA 7(a) loans receivable, subject to loan-backed notes | $0 | $18,050 | | Other loans receivable | $6,244 | $13,107 | | Total Loans Receivable, Net | $62,547 | $73,543 | - As of December 31, 2022, 99.9% of the company's loans subject to credit risk were concentrated in the hospitality industry252 Note 7. Debt Total Debt, Net (in thousands) | Category | Dec 31, 2022 ($) | Dec 31, 2021 ($) | | :--- | :--- | :--- | | Mortgage Payable | $97,006 | $96,980 | | Secured Borrowings | $6,237 | $6,976 | | Other Debt | $81,024 | $97,189 | | Total Debt, Net | $184,267 | $201,145 | - In December 2022, the company refinanced its 2018 credit facility with a new 2022 credit facility, which includes a $56.2 million term loan and a $150.0 million revolver, maturing in December 2025262 Note 10. Redeemable Preferred Stock - In September 2022, the company repurchased 2,435,284 shares of its Series L Preferred Stock for $70.1 million943 - On December 23, 2022, the company announced it would redeem all remaining outstanding shares of Series L Preferred Stock for $83.8 million, which was completed on January 25, 2023609948 Note 13. Related-Party Transactions Fees and Reimbursements to Related Parties (in thousands) | Fee/Expense Type | FY 2022 ($) | FY 2021 ($) | | :--- | :--- | :--- | | Asset management fees | $3,570 | $9,030 | | Property management fees & reimbursements | $5,777 | $4,716 | | Expense reimbursements - corporate | $1,925 | $2,050 | | Expense reimbursements - lending segment | $1,929 | $1,921 | | Offering-related fees | $2,685 | $796 | Note 17. Segment Disclosure Segment Net Operating Income (in thousands) | Segment | FY 2022 ($) | FY 2021 ($) | | :--- | :--- | :--- | | Office | $29,330 | $29,511 | | Hotel | $11,114 | $1,880 | | Lending | $6,380 | $15,670 | | Total Segment NOI | $46,824 | $47,061 | Segment Assets (in thousands) | Segment | Dec 31, 2022 ($) | Dec 31, 2021 ($) | | :--- | :--- | :--- | | Office | $471,677 | $449,843 | | Hotel | $99,082 | $101,308 | | Lending | $76,148 | $96,729 | Note 18. Subsequent Events - In January and March 2023, the company acquired significant interests in two large multifamily properties in Oakland, California for a combined purchase price of over $260 million, including assumed debt286318 - In February 2023, the company closed a co-investment transaction for its 4750 Wilshire property, selling an 80% interest to three international co-investors for approximately $34.4 million to fund its conversion to multifamily units317 - On March 9, 2023, the lending division completed a securitization of SBA 7(a) loans, issuing $54.1 million of loan-backed notes287