CIM Commercial Trust Corporation Reports 2018 Fourth Quarter Results

3/18/2019

DALLAS--CIM Commercial Trust Corporation (NASDAQ & TASE:CMCT) ("we", "our", “CMCT”, “CIM Commercial”, or the "Company"), a real estate investment trust ("REIT") that primarily acquires, owns, and operates Class A and creative office assets in vibrant and improving metropolitan communities throughout the United States, today reported operating results for the three months and year ended December 31, 2018.

Fourth Quarter 2018 Highlights

  • Annualized rent per occupied square foot1 on a same-store basis increased 6.9% to $43.64 as of December 31, 2018 compared to $40.82 as of December 31, 2017; annualized rent per occupied square foot across all properties was $45.21 as of December 31, 2018.
  • Our same-store office portfolio was 95.4% leased as of December 31, 2018.
  • During the fourth quarter of 2018, we executed 160,927 square feet of leases with terms longer than 12 months, of which 119,476 square feet were recurring leases executed at our same-store office portfolio, representing same-store cash rent growth per square foot of 56.1%.
  • Net loss attributable to common stockholders was $(4,948,000), or $(0.11) per diluted share, for the fourth quarter of 2018 compared to net income attributable to common stockholders of $20,366,000, or $0.36 per diluted share, for the fourth quarter of 2017.
  • Same-store office segment NOI2 decreased 5.9%, while same-store office cash NOI2 decreased 15.2%, for the fourth quarter of 2018 from the corresponding period in 2017.
  • Same-store office segment net operating income (“NOI”), excluding lease termination income,2 increased 7.9%, and same- store office cash NOI, excluding lease termination income,2 increased 6.6%, for the fourth quarter of 2018 from the corresponding period in 2017.
  • Funds from operations (“FFO”) attributable to common stockholders3 was $8,497,000, or $0.19 per diluted share, for the fourth quarter of 2018 compared to $10,261,000, or $0.18 per diluted share, for the fourth quarter of 2017.

Management Commentary

Charles E. Garner II, CEO of CIM Commercial Trust Corporation, stated, “We generated strong same-store NOI growth, excluding lease termination income, in the fourth quarter as compared to the year-earlier period. The increase was driven by higher average rent per square foot and reflects the strength of our portfolio. We are well positioned to grow through same-store growth, development, and accretive acquisitions.”

Program to Unlock Embedded Value in Our Portfolio and Improve Trading Liquidity of Our Common Stock

We sold six properties in early March 2019 as part of our previously announced program to unlock embedded value in our portfolio and improve the trading liquidity of our common stock. The properties were located in Oakland, California, San Francisco, California, and Washington, D.C. and represent more than 50% of the properties that we targeted for sale in connection with the program. Three additional properties are being actively marketed for sale.

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1 Annualized rent per occupied square foot represents gross monthly base rent under leases commenced as of the specified periods, multiplied by twelve. This amount reflects total cash rent before abatements. Where applicable, annualized rent has been grossed up by adding annualized expense reimbursements to base rent. Annualized rent for certain office properties includes rent attributable to retail.

 

2 Please see our definition of "same-store" on page 10 and a reconciliation of these metrics to net income starting on page 11.

 

3 Please see page 8 for a reconciliation of net (loss) income attributable to common stockholders to FFO attributable to common stockholders and a discussion of the benefits and limitations of FFO as a supplemental measure of operating performance.

 

After the completion of such property sales, we intend to provide liquidity to our common stockholders by returning a significant portion of the net proceeds from the property sales to them. Further, we expect that shares of our common stock held by our majority stockholder will be distributed to a diverse group of holders which we expect to be comprised of some of the current investors of such majority stockholder. We believe that these actions will improve the trading liquidity of our common stock and that the price of our common stock will better reflect the strength of our underlying portfolio.

We intend to continue to maintain a highly-flexible capital structure and expect to continue to target a 45% common equity percentage of total capitalization, based on fair value.

Financial Highlights

As of December 31, 2018, our real estate portfolio consisted of 21 assets, all of which were fee-simple properties. The portfolio included 19 office properties (including one parking garage and two development sites, one of which is being used as a parking lot), totaling approximately 3.4 million rentable square feet and one hotel with an ancillary parking garage, which has a total of 503 rooms. We also operate a lending business.

Fourth Quarter 2018

Net loss attributable to common stockholders was $(4,948,000), or $(0.11) per diluted share of common stock, for the three months ended December 31, 2018, compared to net income attributable to common stockholders of $20,366,000, or $0.36 per diluted share of common stock, for the three months ended December 31, 2017. The decrease is primarily attributable to the gain on sale of real estate of $23,005,000 recognized during the three months ended December 31, 2017, and increases in certain costs during the three months ended December 31, 2018, including an increase of $2,358,000 in redeemable preferred stock dividends declared and accumulated, an increase of $587,000 in transaction costs and an increase of $545,000 in depreciation and amortization, partially offset by an increase of $579,000 in net operating income of our operating segments and a decrease of $484,000 in interest expense not allocated to our operating segments.

FFO attributable to common stockholders was $8,497,000, or $0.19 per diluted share of common stock, for the three months ended December 31, 2018, compared to $10,261,000, or $0.18 per diluted share of common stock, for the three months ended December 31, 2017. The decrease in FFO attributable to common stockholders was primarily attributable to an increase of $2,358,000 in redeemable preferred stock dividends declared and accumulated and an increase of $587,000 in transaction costs, partially offset by an increase of $579,000 in net operating income of our operating segments and a decrease of $484,000 in interest expense not allocated to our operating segments.

Fiscal Year 2018

Net loss attributable to common stockholders was $14,298,000, or $0.33 per diluted share of common stock, for the twelve months ended December 31, 2018, compared to net income attributable to common stockholders of $377,813,000, or $5.47 per diluted share of common stock, for the twelve months ended December 31, 2017.

FFO attributable to common stockholders was $38,930,000, or $0.89 per diluted share of common stock, for the twelve months ended December 31, 2018, compared to $47,540,000, or $0.69 per diluted share of common stock, for the twelve months ended December 31, 2017.

Segment Information

Our reportable segments during the three months ended December 31, 2018 consisted of two types of commercial real estate properties, namely, office and hotel, as well as a segment for our lending business. Our reportable segments during the three months ended December 31, 2017 consisted of three types of commercial real estate properties, namely, office, hotel and multifamily, as well as a segment for our lending business. Net loss attributable to common stockholders was $(4,948,000), or $(0.11) per diluted share of common stock, for the three months ended December 31, 2018, compared to net income attributable to common stockholders of $20,366,000, or $0.36 per diluted share of common stock, for the three months ended December 31, 2017, which represents a decrease of $(25,314,000), or $(0.47) per diluted share of common stock. Total segment NOI was $26,548,000 for the three months ended December 31, 2018, compared to $25,969,000 for the three months ended December 31, 2017. 4

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4 Please see our reconciliations of total segment NOI to net income starting on page 11.

 

Office

Same-Store

Same-store office segment NOI, excluding lease termination income, increased 7.9% on a GAAP basis and increased 6.6% on a cash basis for the three months ended December 31, 2018 compared to the three months ended December 31, 2017. Same-store office segment NOI decreased 5.9% on a GAAP basis and decreased 15.2% on a cash basis for the three months ended December 31, 2018 compared to the three months ended December 31, 2017. The decrease in same-store office segment NOI was primarily due to a decrease in expense reimbursements at one of our Washington, D.C. properties, a decrease in lease termination income at one of our California properties, and an increase in operating expenses at certain of our California properties, partially offset by a decrease in other tenant reimbursable expenses at one of our Washington, D.C. properties and an increase in rental revenue at certain of our California properties due to increases in rental rates.

At December 31, 2018, the Company’s same-store office portfolio was 93.1% occupied, a decrease of 100 basis points year- over-year on a same-store basis, and 95.4% leased, an increase of 20 basis points year-over-year on a same-store basis. The annualized rent per occupied square foot on a same-store basis was $43.64 at December 31, 2018 compared to $40.82 at December 31, 2017. For the three months ended December 31, 2018, the Company executed 119,476 square feet of recurring leases at our same-store office portfolio, representing same-store cash rent growth per square foot of 56.1%.

Total

Office segment NOI increased to $22,498,000 for the three months ended December 31, 2018, from $20,894,000 for the three months ended December 31, 2017.5 The increase was primarily attributable to a decrease in other tenant reimbursable expenses at one of our Washington, D.C. properties, an increase due to the acquisition of two office properties in December 2017 and January 2018, an increase in rental revenue at certain of our California properties due to increases in rental rates, and an increase from real estate tax refunds related to prior years received during the three months ended December 31, 2018 for the property in Washington, D.C. that we sold in October 2017, partially offset by a decrease in expense reimbursements at one of our Washington, D.C. properties, a decrease in lease termination income at one of our California properties, and an increase in operating expenses at certain of our California properties.

Hotel

Hotel segment NOI was $2,848,000 for the three months ended December 31, 2018, compared to $2,958,000 for the three months ended December 31, 2017.5

Multifamily

During the three months ended December 31, 2017, we sold our last multifamily property. Multifamily segment NOI was $407,000 for the three months ended December 31, 2017.5

Lending

Our lending segment primarily consists of our SBA 7(a) lending platform, which is a national lender that primarily originates loans to small businesses in the hospitality industry. Lending segment NOI was $1,202,000 for the three months ended December 31, 2018, compared to $1,710,000 for the three months ended December 31, 2017.5 The decrease was primarily due to a decrease in premium income from the sale of the government guaranteed portion of our SBA 7(a) loans.

Debt and Equity

During the three months ended December 31, 2018, we issued 391,451 Series A preferred units, with each Series A preferred unit consisting of one share of Series A preferred stock and one warrant to purchase 0.25 shares of our common stock, resulting in net proceeds of approximately $9,011,000. Net proceeds represent gross proceeds offset by costs specifically identifiable to the offering of the Series A preferred units, such as commissions, dealer manager fees, and other offering fees and expenses.

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5 Please see our reconciliations of office, hotel, multifamily and lending segment NOI to net income starting on page 11.

 

In October 2018, CIM Commercial entered into a revolving credit facility with a bank syndicate pursuant to which CIM Commercial can borrow up to a maximum of $250,000,000, subject to a borrowing base calculation. The revolving credit facility is secured by deeds of trust on certain properties and bears interest at (i) the base rate plus 0.55% or (ii) LIBOR plus 1.55%. At December 31, 2018, $130,000,000 was outstanding under the revolving credit facility. Subsequent to December 31, 2018, we repaid the outstanding balance on this facility, which was $130,000,000 at such time. We expect the revolving credit facility to remain in place following our program to unlock embedded value in our portfolio and improve trading liquidity of our common stock.

Dispositions

In March 2019 we completed the disposition of six assets in San Francisco, California; Oakland, California; and Washington, D.C.

Dividends

On December 4, 2018, we declared a quarterly cash dividend of $0.125 per share of our common stock, which was paid on December 27, 2018 to stockholders of record at the close of business on December 14, 2018.

In addition, we declared an annual cash dividend of $1.56035 per share of our Series L preferred stock. The dividend paid for 2018 also included a prorated dividend to cover the period from and including the original date of issuance of the Series L preferred stock to and including December 31, 2017. The dividend was paid on January 17, 2019 to stockholders of record at the close of business on December 31, 2018.

Further, we declared a quarterly cash dividend of $0.34375 per share of our Series A preferred stock, or portion thereof for issuances during the period from October 1, 2018 to December 31, 2018, which was paid on January 15, 2019 to stockholders of record at the close of business on January 5, 2019.

About CIM Commercial

CIM Commercial is a real estate investment trust that primarily acquires, owns, and operates Class A and creative office assets in vibrant and improving metropolitan communities throughout the United States. Its properties are primarily located in Los Angeles, the San Francisco Bay Area and Washington, D.C. CIM Commercial is operated by affiliates of CIM Group, L.P., a vertically-integrated owner and operator of real assets with multi-disciplinary expertise and in-house research, acquisition, credit analysis, development, finance, leasing, and onsite property management capabilities (www.cimcommercial.com).

FORWARD-LOOKING STATEMENTS

The information set forth herein contains "forward-looking statements." You can identify these statements by the fact that they do not relate strictly to historical or current facts or discuss the business and affairs of CIM Commercial on a prospective basis. Further, statements that include words such as "may," "will," "project," "might," "expect," “target,” "believe," "anticipate," "intend," "could," "would," "estimate," "continue," "pursue," "potential", "forecast", "seek", "plan", or "should" or the negative or other words or expressions of similar meaning, may identify forward-looking statements.

CIM Commercial bases these forward-looking statements on particular assumptions that it has made in light of its experience, as well as its perception of expected future developments and other factors that it believes are appropriate under the circumstances. These forward-looking statements are necessarily estimates reflecting the judgment of CIM Commercial and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. These forward-looking statements are subject to risks, uncertainties and other factors, including those associated with (i) CIM Commercial's ability to consummate the sales of properties currently targeted for sale, (ii) the extent to which capital is returned to stockholders, if at all, and the timing thereof, (iii) the decision of CIM Commercial's majority stockholder to distribute shares of CIM Commercial common stock to its investors and (iv) general economic, market and other conditions. For a further list and description of the risks and uncertainties inherent in forward-looking statements, see CIM Commercial's Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

As you read and consider the information herein, you are cautioned to not place undue reliance on these forward-looking statements. These statements are not guarantees of performance or results and speak only as of the date hereof. These forward-looking statements involve risks, uncertainties and assumptions. In light of these risks and uncertainties, there can be no assurance that the results and events contemplated by the forward-looking statements contained herein will in fact transpire. New factors emerge from time to time, and it is not possible for CIM Commercial to predict all of them. Nor can CIM Commercial assess the impact of each such factor or the extent to which any factor, or combination of factors may cause results to differ materially from those contained in any forward looking statement. CIM Commercial undertakes no obligation to publicly update or release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events, except as required by law.

 

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