Good afternoon, and welcome to the Creative Media & Community Trust First Quarter 2023 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Steve Altebrando. Please go ahead.

Good morning, everyone, and thank you for joining us. My name is Steve Altebrando, Portfolio Oversight for CMCT. Also on the call today is Shaul Kuba, our Chief Investment Officer; David Thompson, our Chief Executive Officer; and Barry Berlin, 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. Our earnings release includes a reconciliation 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, assumptions made by, and 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 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 everyone for joining our call today. We made tremendous strides in the quarter, executing on our previously announced plan to grow the multifamily side of our portfolio to achieve more balance between creative office and multifamily. During the first quarter, we completed the acquisition of two multifamily assets in Oakland and one multifamily property in Los Angeles. These newer vintage, highly-amenitized, premier multifamily assets in high barrier-to-entry markets added 696 units to our growing portfolio. We also started construction on the luxury multifamily portion at 4750 Wilshire in Los Angeles after closing a co-investment and a construction loan in March. This will add another 68 residential units to the portfolio. We believe this is an attractive project given the asset's location in Hancock Park, a supply constrained neighborhood that is adjacent to multimillion-dollar single-family homes. In addition, we have a large pipeline of multifamily development opportunities on land we already own. As we previously mentioned, for value add and development assets, we will look to co-invest to increase our diversification and supplement returns by generating fee income where advantageous, just like we did with 4750 Wilshire. During the quarter, we also took steps to improve our liquidity and balance sheet. We completed a securitization of our loan portfolio that generated net proceeds of approximately $43.3 million. We also generated $23.6 million of proceeds from our Series A1 preferred stock offering in the quarter. These steps to improve liquidity follow the refinancing of our credit facility in the fourth quarter. We believe the refinancing of our secured facility, which is largely backed by several of our high-quality office assets, demonstrates the strength of our portfolio. Turning to the first quarter, we continued to see a strong rebound at our hotel asset, with NOI increasing 73% from the prior-year period. Our office NOI declined year-over-year and declined 1% from the fourth quarter. We have over 50,000 square feet of leases signed but have not yet commenced. Our multifamily segment generated $675,000 of NOI in the quarter. While our lending business NOI declined year-over-year, we were able to generate significant proceeds from the segment through the securitization of the loan portfolio. CMCT reported core FFO of negative $0.06 per share compared to positive $0.10 in the year-earlier period. This was primarily driven by higher interest expense due to our Channel House acquisition, which is still in the process of being leased up. I would now like to turn the call over to Shaul Kuba.

Thank you, David. I'd like to take the time to provide more color on our recent multifamily portfolio expansion and give you an update on the status of our development pipeline, which is also primarily multifamily. As David described, we have focused our acquisition target on new vintage, highly-amenitized, premier assets in high barrier-to-entry markets. We were pleased to add three properties that fit that criteria. First, in Echo Park, in Los Angeles, we completed the acquisition of 50% interest in 1902 Park Avenue, a 75-unit apartment building, in an off-market transaction. Our basis in 1902 Park Avenue is highly attractive at approximately $300,000 per door, which we believe is substantially below replacement cost for a building that was constructed in 2012. We are in the process of making some cosmetic changes, including upgrading the landscaping, lighting, and common amenities to the building, which require limited CapEx. We believe this will have an outsized impact on the desirability of the building for residents and provide significant opportunity to increase rent to market rate over time as new tenants move in. Next, in Oakland, as David mentioned, we completed the acquisition of the Channel House, a 333-unit, 8-story apartment building, and 1150 Clay, a 288-unit, 16-story apartment building. Both assets are premier Class A buildings that were completed in 2021. We believe the current market challenges in the Bay Area and Oakland present us with an opportunity to acquire those assets at a highly attractive basis that is a substantial discount to current replacement cost. Our basis for Channel House is approximately $415,000 per door and for 1150 Clay, it is $535,000 per door. Oakland is a market that saw significant supply growth from 2008 through 2022. This new supply is in the process of being absorbed, which we expect to take a little time. However, the pipeline for new development is significantly below the average for the top 25 U.S. markets, and the rent would need to increase dramatically before it is economic to build. In addition, the cost of renting is significantly lower than owning in this market. Those assets were acquired with attractive mortgages that were in place during the development of those assets. Once those assets are stabilized, we would like to look to refinance into longer-term financing. Turning to our development pipeline. As we have previously discussed on those calls, we conducted an extensive review of our portfolio last year. As a result, we believe we can develop more than 1,500 multifamily units on land we already own in Austin, Los Angeles, the Bay Area, and Sacramento. We continue to make progress on that pipeline. In Los Angeles, we have two ground-up development projects that are now fully entitled, and we are now in the process of obtaining building permits. The first one is a 36-unit multifamily development in Echo Park, adjacent to two other CMCT assets. The second is a 40-unit multifamily project in Jefferson Park. These assets are located in the path of growth, in close proximity to Culver City and just a mile-and-a-half from the University of Southern California. We will have the option to start construction this year on these two ground-up opportunities. For the balance of our pipeline, we continue to work to obtain all the necessary approvals as well as completing design work, which we believe will increase the value of those holdings and allow for future growth. I also wanted to provide an update on 1910 Sunset Boulevard in Echo Park, the office asset we acquired with a JV partner in 2022. Since acquiring the asset, we have been actively upgrading the building to meet the demand of entertainment, media, and technology companies. We are pleased that the leased percentage has now increased to 90%, up 10% from the end of last year. With that, I will turn it over to Steve to provide an update on the portfolio.

Thanks, Shaul. I will provide a quick update on our leasing activity. Starting with the multifamily portfolio. On a consolidated basis, our multifamily was 80.7% occupied at the end of the quarter, as our two largest assets are still in the process of initial lease-up. Occupancy at Channel House increased to 80% at the end of the quarter, up 4 percentage points compared to the end of 2022. And occupancy at 1150 Clay also increased to 80% at the end of the quarter, up 3 percentage points from the end of 2022. In addition, we continue to see occupancy increase into April. At 1902 Park in Los Angeles, our in-place rents are substantially below market, and we have been executing leases for new tenants over 20% higher than our in-place rents. Turning to office, we leased approximately 44,000 square feet in the first quarter. Our occupancy rate at the end of the first quarter was 81.3%, while our lease percentage was 84.4%. We have approximately 51,000 square feet of leases that have been signed but not yet commenced. As I noted on the last call, we entered 2022 with nearly 15% of our leases expiring during the course of the year. This year, it is a much more manageable 11%. In total, we continue to estimate that we will renew more than 70% of these leases. We only have one tenant expiration over the size of 10,000 square feet in 2023. With that, I'll turn it to Barry.

Thank you, Steve. Moving on to financial highlights. Our segment net operating income increased to $13 million compared to $12.2 million in the prior-year comparable period. By business segment, this change is broken out as a $1.8 million increase in our hotel segment NOI, as well as $675,000 of NOI from our newly acquired multifamily segment, partially offset by a decrease in our office segment NOI of $1.2 million and around a $400,000 decrease in our lending segment NOI. More specifically, first, our office segment NOI decreased to $6.8 million from $8 million in the prior-year comparable period, driven mainly by a decrease in the NOI for our same-store properties. This was caused by a decrease in occupancy in an office property in Los Angeles as well as one in San Francisco. In addition, there was an increase in non-reimbursable operating expenses at a property in Beverly Hills, California. Our office segment continued to see improved activity, and we signed approximately 44,000 square feet of leases during the quarter. Please also note that we are not yet seeing the benefit of our lease to the Rolls Royce dealership at our Beverly Hills property. Second, our hotel segment NOI continued its positive period-over-period trend and increased to $4.1 million from $2.4 million in the prior-year comparable period. This was driven by both improved occupancy, which increased to 81% from 69%, and improved ADR, which increased to $202 per room from $173 per room. Third, we began reporting multifamily segment NOI in the first quarter of 2023 after we acquired two multifamily properties in Oakland in February and March, and invested in another multifamily property in Los Angeles through a 50% joint venture investment. Our multifamily segment NOI was $675,000 for the first quarter of 2023. As of March 31, 2023, our multifamily properties were 80.7% occupied with monthly rent per occupied unit of $2,852. Finally, our lending division NOI decreased to $1.4 million from $1.7 million in the prior-year comparable period. The decrease was due to an increase in allocated salary expenses related to the issuance of new SBA 7(a) loan-backed notes in connection with the securitization that closed in March 2023, and an increase in interest expense relating to that debt, as well as lower revenues relating to lower premium income as a result of lower loan sale volume. For our non-segment expenses, we had three main impacts: transfer taxes on our acquired multifamily assets, front-loaded amortization of in-place leases, and interest expense. The largest increase was a $4.5 million increase in depreciation and amortization expense, driven by an increase in acquired in-place lease and tangible assets' amortization at our new multifamily properties located in Oakland, which will continue to be absorbed for the next few quarters. We also had an increase in transaction related costs of $3.4 million relating to the transfer tax expenses incurred in connection with the acquisition of our multifamily properties in Oakland. And non-segment allocated interest expense increased by $3.9 million, primarily due to an increase in the interest rate and average outstanding balance on our credit facility compared to the prior-year comparable period, as well as additional interest expense related to the assumption of two mortgages in connection with the acquisition of our two multifamily properties in Oakland during the quarter. These increases in non-segment expenses were partially offset by a gain of $1.1 million recognized in connection with the sale of 80% of our interest in our property at 4750 Wilshire in Los Angeles. Our FFO was negative $0.21 per diluted share compared to a positive $0.09 in the prior-year comparable period, which was a result of below-the-line transfer taxes and increased interest expense. And our core FFO was negative $0.06 per diluted share compared to a positive $0.10 per share in the prior-year period, primarily driven by the increased interest expense. Finally, our liquidity was bolstered by completion of the securitization and through raising an additional $23.6 million in net proceeds from the sale of our Series A1 preferred stock during the quarter. We also had incremental borrowings on our revolving credit facility of $122 million, mainly due to the asset acquisitions, with $28 million of remaining borrowing capacity as of March 31, 2023. Our credit facility currently has $45 million of borrowing capacity. With that, our host can now turn the call over for questions.

We will now begin the question-and-answer session. Our first question is from Eric Speron with First Foundation. Please go ahead.

Thank you for taking my question. I appreciate the attendance on the call. My question is about the Sheraton Grand. A couple of years ago, there were discussions about this, and I believe you made the right choice in waiting for occupancy to improve. The numbers this quarter were impressive, and it’s clear that the leisure recovery is strong. As someone focused on CMCT, I’ve heard reports about potential selling of this asset. They previously made the right call by not selling, but I’d like to understand why now might not be the right time to monetize that asset. Additionally, considering your largely unfunded buyback, the progress on the debt front, and the market interest in acquiring the company, could it also be the right time to take advantage of these opportunities? I’d like to hear your thoughts on the hard work that has gone into getting the Sheraton Grand to its current state and your perspective on the potential for both harvesting and seeding opportunities.

Sure. Hey, Eric, I could take this. It's Steve. So, I mean you are correct. We did market the property late 2021 and we decided based on the values at that time that we were better off holding and waiting for the recovery to take place. And as you can see by the numbers, clearly the results have picked up pretty dramatically at the hotel. And as we look forward for the balance of 2023 just in terms of group bookings, we're seeing the trends continue to be very strong both in terms of the number of nights booked, plus the rate that we're seeing are all up meaningfully from 2022. And right now, we're at the point where we are starting to evaluate next steps for the hotel, and I think it really comes down to at some point the hotel does need a refresh. So internally, the evaluation that we're doing is, does it make sense for us to do the refresh and then potentially look to market it, or vice versa? But that's effectively the work that we're doing right now.

It makes complete sense in the current context. Can you discuss the aspect of seed? Clearly, your portfolio is being restructured right in front of us as you shift from office to multifamily assets. You've also managed the debt side effectively. This suggests there may be opportunities, whether related to a third-party offer to acquire the company or financing a share buyback. Can you elaborate on how you view these opportunities for seed? You're clearly focusing on this in your core business, but there are also opportunities within the existing business we own. Would you like to address the seed?

Yes, what are you referring to the seed?

If you divest from the hotel, you'll definitely be investing in new opportunities. It appears that both aspects are improving. I appreciate your response regarding the hotel, and it's what I expected from you. I'm curious about your perspective on potential monetization. What are your capital allocation plans as you evaluate your stock and the repositioning, considering your increased ownership? If we were to see a revaluation and if you decided to sell the hotel, how would you allocate the proceeds from such a significant amount of capital?

We would need to reassess the situation when we are closer to recognizing proceeds. Currently, our main focus is on expanding the multifamily portfolio, and with the recent acquisitions, we are also concentrating on enhancing cash flow in terms of both revenue and costs. Furthermore, we still have some buyback funds available from last year, which we will keep evaluating. We are balancing between repurchasing shares and making internal investments, some of which may not need significant capital as we seek partnerships on these deals. This is our current approach to capital allocation.

Okay. Yes, I believe there's an opportunity to pursue both options if that is the amount involved. Please keep us updated.

The next question is from Gaurav Mehta with EF Hutton. Please go ahead.

Yes, thanks. I wanted to ask you about your multifamily portfolio. The 80% occupancy, and I think you mentioned that occupancy improved in April. When do you expect these assets to stabilize?

From an occupancy perspective, we anticipate reaching a stabilized level within the next 12 months. However, we believe there will still be opportunities for rate growth thereafter, so we wouldn't classify the situation as fully stabilized. In the Oakland market, there has been a significant influx of supply, but we are nearing the end of that phase. This timing makes it an attractive moment to enter the market as supply is being absorbed, and we do not expect any substantial new supply for some time. We feel we are entering at the right point in the cycle, but it will take time before we can increase rates significantly, which is how we approached these acquisitions. Ultimately, we foresee considerable rate opportunities in the future. In summary, we believe occupancy will stabilize within a year, but we anticipate strong rate growth potential from those assets going forward.

Okay. Second question on the office lease expiration. I think you mentioned 11% leases expiring in 2023. What's the timing of those lease expirations in 2023, in which quarters will those leases expire?

Yes, they're pretty evenly spread. None of them are of any material real size. We also mentioned that there was only one lease over 10,000 square feet. So, they're smaller leases that are pretty ratably maturing over this next year.

Okay. Thank you.

This concludes the question-and-answer session, and the conference has also now concluded. Thank you for attending today's presentation. You may now disconnect.