Release Date: May 16, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Creative Media & Community Trust reported an increase in net operating income (NOI) in both office and hotel segments, with office segment NOI up 9% year over year.
- The company has executed approximately 37,000 square feet of office leases in the quarter, maintaining a stable office lease percentage at 84%.
- Multifamily segment occupancy improved significantly to 86.2% at the end of the first quarter from 79.3% at the end of 2023.
- Creative Media & Community Trust is on track to deliver two new multifamily assets in Los Angeles, aiming to balance between creative office and multifamily assets.
- The company has raised an additional $19.1 million in net proceeds from the sale of Series A-1 preferred stock, enhancing its financial flexibility.
Negative Points
- Cash flow continues to be impacted by elevated short-term interest rates, necessitating potential asset sales and debt reduction.
- The lending segment NOI decreased year over year due to increased interest expense from a securitization transaction completed a year ago.
- Rental rates at two of the largest multifamily properties, Channel House and 1150 Clay, have been below expectations.
- The company reported a negative core FFO of $0.19 per diluted share for the first quarter of 2024, compared to a positive $0.06 per share in the prior year period.
- There is ongoing uncertainty in the office segment with upcoming lease expirations, requiring careful management to maintain occupancy and income levels.
Q & A Highlights
Q: Regarding potential asset sales, how would you describe the deal flow now? Are any sales dependent on a lower rate environment?
A: (David Thompson - CEO) We have a desirable portfolio, and while we're in a high interest rate environment, our goal is to improve cash flow through accretive asset sales. We're evaluating which assets to sell or refinance to significantly pay down our credit facility.
Q: Can you discuss the rent spreads in your office portfolio and how renewals are progressing?
A: (Barry Berlin - Managing Director, Finance) The rent spreads were unchanged in the first quarter. We completed about 33,000 square feet of leasing. The office net operating income has picked up, but we still face challenges with upcoming lease expirations.
Q: What types of properties or strategic elements are you considering for disposition activities?
A: (David Thompson - CEO) We're focusing on rebalancing our portfolio towards a mix of multifamily and creative office spaces. The office segment, being the largest part of our portfolio, will likely be a key area for dispositions.
Q: What are the expected returns on near-term development projects?
A: (Barry Berlin - Managing Director, Finance) We target a 75 to 200 basis point spread over current market cap rates for our development projects. However, given the current market conditions with high cap rates and construction costs, we are cautious and waiting for a better environment to proceed with more significant developments.
Q: How do operating fundamentals differ between Oakland and Los Angeles, especially with new multifamily projects coming online?
A: (Barry Berlin - Managing Director, Finance) Los Angeles is currently a stronger market compared to Oakland, which has been challenging due to a significant amount of supply hitting the market simultaneously. We expect it will take time for Oakland to absorb this excess supply and stabilize.
Q: What are the potential impacts on revenue from the Sacramento hotel asset while it undergoes redevelopment?
A: (Barry Berlin - Managing Director, Finance) We anticipate some disruption as rooms will be offline during the renovation, but we plan to manage it floor by floor to minimize impact. The overall effect on NOI should not be significant, as we aim to maintain operations throughout the renovation process.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
