Good day, and welcome to Creative Media & Community Trust Second Quarter 2022 Earnings Call. All participants will be in listen-only mode. Please note this event is being recorded. Now, I'd like to turn the conference over to Mr. Steve Altebrando, Portfolio Oversight for CMCT. Please go ahead, sir.

Good morning, everyone, and thank you for joining us. My name is Steve Altebrando, and I'm the Portfolio Oversight for CMCT. Also on the call today is David Thompson, our Chief Executive Officer; Shaul Kuba, Co-Founder, CIM Group and CMCT Board member; and Nate DeBacker, our Chief Financial Officer. 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 and latest investor presentation. Our earnings release includes reconciliations of non-GAAP financial measures discussed during today's call. During the course of this call, we will make forward-looking statements. These forward-looking statements are based on the beliefs of, the assumptions made by, and the information currently available to us. Our actual results will be affected by known and unknown risks, trends, uncertainties, and factors that are beyond our control or our ability to predict. Although we believe that our assumptions are reasonable, they 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. 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.

Thanks, Steve, and thank you for joining our call today. This morning, we announced our second quarter 2022 earnings. We are pleased that we generated a large increase in our FFO on a year-over-year basis, accelerated leasing activity, made significant progress on our value-add assets, and we continue to add to our development pipeline. Starting with our earnings, our core FFO per share was $0.11 in the second quarter compared to $0.06 in the prior year period. The significant year-over-year improvement was primarily driven by improving results at our one owned hotel as well as a significant reduction in our cost structure. On the cost side, our corporate overhead, which includes asset management fees, G&A, and expense reimbursements, declined by 34% from the prior year period. This was driven by the reduction in the management fees we announced earlier this year. We executed approximately 39,000 square feet of leases in the quarter, and our lease pipeline for the second half of the year is strong. We continue to make progress on our value-add assets, most notably at our Beverly Hills building, where we just executed an approximately 18,000-square-foot long-term lease with a Rolls-Royce dealership. The ground-level retail is now 100% leased, and the entire building is now more than 90% leased. Entering this year, the building was just 67% occupied. Finally, we've assembled a very attractive growth pipeline, a majority of which is multifamily focused. In the quarter, we closed on our second Jefferson Park site, where we plan to develop multifamily. We will seek to raise third-party capital on a portion of these investments, which will reduce the risk profile for CMCT and improve our returns if we structure the deals so CMCT can earn or promote. So overall, we're very pleased with the direction of the Company, given improving earnings, increased leasing activity, progress made on our value-add assets, and a compelling pipeline of growth. I would now like to turn the call over to Shaul Kuba.

Thanks, David. Before I get into updates on our development activities, I'd like to take a moment to reiterate CMCT's investment strategy. CMCT is primarily focused on two things: First, being a leader in investing and developing creative office assets in vibrant markets catering to fast-growing industries like technology, media, and entertainment. The demand for creative office space that is comfortable and modern continues to grow. Tenants are seeking bright, open, thoughtfully designed spaces that encourage creativity, flexibility, and collaboration. We continue to believe the creative office market is a more compelling opportunity and less competitive and less capital-intensive than traditional office. Next, we are focused on investing and developing multifamily in the same markets, where there is an influx of employees working in those creative office locations. With professionals spending more time working from home, there is a greater demand for premium amenities as well as proximity to entertainment, dining, and culture. With this new real estate dynamic in place, we continue to build an attractive pipeline of opportunities. As David mentioned, for certain development and value-add opportunities, we look to bring in co-investors at the asset level so CMCT can supplement its return or promote. We believe this is a very compelling business model for CMCT that will provide strong returns on capital, a model where CIM Group's distribution and development capability provide significant competitive advantage. CIM has more than 180 global institutional investors. It has developed over $11 billion of assets across the United States and has more than 100 professionals in our development group with experience in urban planning, construction, design, architecture, engineering, and project management. Now an update on a few of our development opportunities. For our Jefferson Park multifamily plan, we closed on the second site during the second quarter, following the closing of the initial one in the first quarter. We plan to develop about 150 units across both of those sites. We have made progress towards receiving the necessary entitlement and still expect to break ground on the first site in 2023. We are excited about those sites in the Jefferson Park submarket of Los Angeles, as it is strategically located in the path of growth and in close proximity to Culver City and just 1.5 miles from the University of Southern California. We continue to expect breaking ground in 2023 on our 36-unit multifamily property in the Echo Park neighborhood of Los Angeles at 1910 West Sunset Boulevard, which we acquired with a joint venture partner earlier this year. The asset is located in the middle of the trendy submarket in a walkable area that also has a dozen dining and entertainment options. In East Austin, we acquired 1007 East 7th Street in early July. This property is adjacent to our 1021 East 7th Street property, allowing us to increase the size of our planned development. We filed our entitlement application in July and expect that process to take about eight months. We are currently evaluating both multifamily and creative office uses for that site. We sit in one of the most desirable locations in Austin, given its proximity to the CBD and numerous dining and entertainment options. Also in Austin, we continue to evaluate adding additional density to our 16-acre Penfield creative office campus. In June, the city council agreed to a zoning change that may allow us to add even more density than we initially planned. We are excited about the potential opportunities at this tremendous campus. The property is currently 99% leased. In Culver City, we continue to work towards a redevelopment of our Washington Boulevard asset that is 100% leased through early 2025. We are currently working with the city and community on the design. The asset is centrally located in the submarket where there is very strong demand for technology and entertainment companies. Neighboring office standards include HBO, Sony, Amazon, Apple, and Microsoft. Right now, we are working hard to put ourselves in a position to go vertical on those projects by getting all the necessary approval and completing the design work. We will continue to monitor construction costs. Given the increase in borrowing costs and lower availability of credit and widening cap rates, we expect development to slow and development costs may potentially come down. For an update on our stabilized portfolio and value-add opportunities, I'll return the call to Steve.

Thanks, Shaul. Starting off with our value-add portfolio, we made significant progress at 9460 Wilshire Boulevard, our office building in Beverly Hills. We signed a long-term lease for the approximately 18,000 square feet of remaining retail with a Rolls-Royce dealership. This will bring the lease percentage at 9460 Wilshire to over 90%. Since our acquisition in 2018, we have originated or renewed leases with all current tenants. We have repositioned the ground floor retail and attracted a high-end tenant that brings additional value to the asset. At the time of the acquisition, the retail space was underutilized as it was leased to a financial adviser and a real estate brokerage firm. The building is very well located in the prestigious Golden Triangle of Beverly Hills, immediately next to the Four Seasons Beverly Wilshire and just one block from Rodeo Drive. For 4750 Wilshire in Los Angeles, we're continuing down our path of converting the unleased portion of the building into luxury multifamily rentals. We are now working on obtaining all the necessary permits and expect to finalize the development budget very shortly. We expect to be able to start this conversion later this year and anticipate a construction timeline of about 18 months. In terms of the stabilized portfolio, we leased approximately 39,000 square feet in the second quarter, and our stabilized portfolio was 87% leased. Our lease spreads increased by approximately 2.4% in the first half of 2022. We have approximately 97,500 square feet of lease expirations for the balance of the year. However, we have a strong pipeline of leasing activity for the second half. We have about 84,000 square feet of leases that were either signed in Q3 or are in LOI that will represent in-place tenants that we expect to renew. This represents approximately 86% of the expirations with still about five months left in the year to make further progress. With that, I'll turn it to Nate.

Thank you, Steve. Second quarter core FFO was $0.11 per diluted share compared to $0.06 in the prior year period. Our total segment net operating income increased to $12.8 million from $12.6 million in the prior year period. The increase was driven by increases in the hotel and office segments. Hotel segment NOI increased to $3.2 million from approximately breakeven in the year-ago period. Occupancy improved to 77.5% in the quarter, up from 47.7%, while the ADR improved to $175.67 from $123.33. Our office segment NOI increased to $7.9 million from $7.6 million primarily due to income from our unconsolidated joint venture entity, which we invested in during February 2022, and which owns a 100,000 square foot office property and a multifamily development site in Los Angeles, California. Additionally, we're continuing to see improving leasing activity. We signed approximately 39,000 square feet of leases in the second quarter. Our Lending division segment NOI decreased to $1.7 million from $5 million in the prior year period. The decrease was primarily due to lower premium income as a result of lower loan sale volume and a reduction in the market premium we received. We expect lending revenue to be lower in the second half of 2022 when compared to the second half of 2021 because of lower loan origination volume compared to 2021, a year when the SBA temporarily increased guaranteed percentages for SBA 7(a) loan originations to 90% from 75%. Our asset management fee expense decreased to $920,000 from $2.3 million in the prior year period. The decrease was due to the new fee structure that went into effect January 1, 2022. Turning to our liquidity, we had approximately $75 million drawn on our revolver at the end of the quarter. We estimate we have approximately $125.9 million of availability as of June 30. We submitted an extension notice in July to extend the facility until October 2023. We're also working to recast the line on a longer-term basis. Finally, we generated $11.3 million of proceeds from preferred stock issued in the second quarter. And so far in the third quarter, we've generated proceeds of $29.9 million, giving us additional financial flexibility. With that, I'll now turn the call over to David for some closing remarks.

Thanks, Nate. In closing, I'd like to reiterate our key strategic goals for the Company. First, continue to make progress on our value-add assets and our development pipeline. We believe our asset-light approach provides an opportunity to generate very strong returns on invested capital. Second, create greater financial flexibility. As Nate mentioned, our credit facility matures in late 2023 when accounting for our extension option. We are actively working to extend longer term. We raised approximately $30 million in Series A1 preferred stock so far in the third quarter. Third, keep our cost structure in check. Earlier this year, CIM Group agreed to a reduction in our management fee that amounts to approximately $0.21 per share in annual cost savings, which we started to see the benefits of in the first quarter of this year. We are also focused on keeping our recurring G&A level. Fourth, balance our portfolio more towards multifamily and creative office over time. We're excited about the opportunity ahead of us as we continue to sharpen our focus on these two compelling asset classes. To wrap up, we have great assets in highly desirable submarkets such as Beverly Hills, Culver City, Hollywood, and Austin. We are encouraged by the pickup in our leasing activity. We have a very attractive growth pipeline, and we look forward to sharing more details on future calls. For value-add and development assets, we will at times look to co-invest to increase our diversification and supplement returns by generating fee income. And finally, we have significantly reduced our cost structure. I want to note that starting this week, Barry Berlin will assume the role of Chief Financial Officer for CMCT. Barry has been the Executive Vice President of CMCT since 2008 and oversees the lending division. I want to thank Nate for his dedication and service to CMCT. This change will allow him to focus on his growing responsibilities within CIM Group. Operator, you may now open the call to questions.

First question comes from Craig Kucera of B. Riley Securities.

Yes. You started significantly ramping up your preferred equity issuance here in the third quarter. Are you anticipating using those proceeds just to fund the various developments that you have? Or does that amount of capital maybe make you start to think about making some acquisitions?

So really, it's both. I mean, there are a couple of things going on. One, there is some preferred stock that we can call about roughly $152 million later this year. So some of it potentially could be used for that. But in addition to that, we—as we outlined in the call—we have a good development pipeline, although we are looking to bring in co-investors on that pipeline. So the capital committed should be on the smaller side. But we are also looking to really specifically add to the multifamily portion of the portfolio as well for new acquisitions.

Okay, great. And is that a situation when you go to sort of the constant offering that it's going to be somewhat problematic to stop? Or do you have some leeway on how much preferred you ultimately take?

There is some leeway in terms of how actively we are working on marketing the preferred. So right now, given that we can call a significant amount of preferred towards the end of the year. We are looking to raise as much capital as possible, particularly as we want to grow the multifamily side of the business. At any time, we can kind of change gears on the preferred and how hard we want to push on it. If we find ourselves where we are in a situation where we have too much preferred, then we could always pull back on that.

Yes, Craig, this is David Thompson. I'd just add to that, to Steve's point, we—certainly in the near term, with the our ability to call the Series L and the various needs we have or want some desires across growing the portfolio. I don't think it's something we're worried about in the near term. But as Steve noted, we do have the ability to make tweaks and pull some levers if we want to slow that down in the future.

Yes. Okay, fair enough. And as far as the new lease at your Beverly Hills property with Rolls-Royce, can you comment on what the new lease rent is relative to the prior tenant?

Sure. So on a grossed-up basis, it would exceed more than 10% above what the prior tenant was paying.

Great. And as far as—in your opening commentary, you discussed your lease expirations for the rest of the year, and I think you backfilled close to 86% of those. Are you seeing similar leasing spreads to what you achieved in the first half of the year? I think you mentioned somewhere in the 2% to 3% range.

That's correct, yes. It should be in a similar range.

Great. And just one more for me. It's a housekeeping item. There's a pretty significant variance in your straight-line rent this quarter. Without a lot of leasing, I think the prior three quarters had been positive. Is there any one-time adjustments there? Or any color there?

No, there were no unusual adjustments in the quarter, maybe driven by some of the larger leasing activity that came online starting midway through the quarter, but nothing unusual.

Our next question will be from John Moran, Robotti & Company.

Can you give any idea just roughly what the gross spend is on this development pipeline that's in place? Just sort of a general idea.

So I mean, it really is project by project. So I think as Shaul outlined, we're doing a lot of the predevelopment work and the design work right now. And then as we would get closer to embarking on any of these individual projects, we will certainly disclose on an asset-by-asset basis what the expected spend would be. And as we mentioned, CMCT would be only a portion of the spend because we would bring in co-investors. So we're lining up several opportunities. We have more than five in the portfolio right now. We're not really ready to give the exact spend today because we're still working through the design and the development budget.

Okay, that's fair. With respect to that co-investment program, is there any thought to doing a fund inside of CMCT or would this all be separate account one-off partners?

Yes. We've looked at both, but right now it would most likely be a one-off co-investment process that we would run on an asset-by-asset basis.

And then just one more. If you were inclined to put an existing asset into a joint venture partnership with one of these investors, would you do that with any of your, I guess, what I'd call properties that are non-core to your strategy? So like Oakland comes to mind or Brentwood, I guess, they seem like great assets, but maybe not creative office. Would you consider co-investors for those properties?

I mean, the short answer is yes, we would consider it. I think what we generally see is in terms of co-investments, there generally is more interest in value add and opportunistic returns as opposed to stable. But we would not, in any way, be opposed to joint venturing any of our stabilized assets if we thought it made sense.

Thank you. That concludes our question-and-answer session. It also concludes our conference. Thank you for attending today's presentation. You may now disconnect.