Good day, and welcome to the Creative Media and Community Trust Corporation First Quarter 2024 Earnings Conference Call. I would now like to hand the conference over to Steve Altebrando. Please proceed.

Hello, everyone, and thank you for joining us. My name is Steve Altebrando, the portfolio oversight for CMCT. Also on the call today are 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 this call. During 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 other 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. Following our last call 7 weeks ago, where we gave some insights into our intra-quarter occupancy and development activity, we are pleased to report our first quarter 2024 results. Overall, we saw improvement from the fourth quarter of 2023, which was primarily due to higher net operating income in our office and hotel segments, the latter of which was largely due to seasonality. Even with the improvement from last quarter, our cash flow continues to be impacted by elevated short-term interest rates. We are evaluating ways to strengthen our balance sheet and improve our cash flow, including potentially selling assets and reducing our debt. In addition, we expect to eventually benefit from lower interest rates on our floating rate debt and lower preferred dividends as the Fed funds rate is expected to come down over time. As a reminder, our Series A1 preferred dividend is the greater of 6% or Fed funds plus 2.5%. As for our results in the quarter, our same-store office NOI increased 9% year-over-year to $7.4 million, primarily due to improved NOI at our Beverly Hills property driven by the commencement of our 20-year lease with the Rolls-Royce dealership. We're working on the build-out for the lease and anticipate the grand opening toward the end of this year or early next. Overall, our office lease percentage remained stable in the quarter at 84% and we executed approximately 37,000 square feet of office leases in the quarter. While our fourth quarter hotel segment NOI increased quarter-over-quarter, largely as a result of seasonality. It was consistent at $4.1 million for both Q1 2024 and Q1 2023. Hotel trends are still strong, and we anticipate starting our long-planned renovation on our hotel asset in the second half of this year. We believe this renovation will significantly benefit the asset as our hotel is one of two hotels located directly across the street from Sacramento's Convention Center, which itself underwent a major renovation and expansion in 2021. Our lending segment NOI decreased year-over-year, primarily due to what we have previously described on these calls, the impact of the securitization completed a year ago, which increased interest expense attributable to that segment but also generated significant proceeds for CMCT. Our multifamily segment generated $900,000 of NOI in the quarter. Our occupancy improved significantly to 86.2% at the end of the first quarter from 79.3% at the end of 2023, although the rental rate at our two largest properties, Channel House and 1150 Clay located in Oakland, has been below our expectations. Turning to our development pipeline. We don't have much new to report since we just recently spoke. However, we continue to be on track to deliver two new multifamily assets in Los Angeles, one later this year at 750 Wilshire and one in mid-2025 at 1915 Park Avenue. Between our required properties and development activity, we are trying to grow the multifamily side of our portfolio and achieve more balance between creative office and multifamily assets. With that, I will turn it over to Steve to provide a further update on the portfolio.

Thanks, David. I would like to provide an update on our operating assets, starting with multifamily. As David mentioned, on a consolidated basis at quarter end, our multifamily segment was 86.2% occupied compared to 79.3% at the end of the fourth quarter. In Echo Park, Los Angeles, at our multifamily asset at 1902 Park, occupancy increased to 90.7% at the end of the quarter, up 140 basis points from the 2023 year-end. We have been executing new leases for new tenants at substantially higher rates than our in-place rents. Monthly rent per occupied unit was about $1,800 as of the end of the first quarter. This represents a 29% increase from a year ago. And our rate for new tenants generally exceeds $2,200 per month, more than a 20% increase from our in-place rents. In Oakland, we continue to make significant progress in improving occupancy. But as David referenced, our rental rate at Channel House and 1150 Clay have been below expectations. As we have previously discussed, there was significant supply growth in the Oakland market from 2018 through 2022. The market continues to absorb this excess supply, and we are encouraged by our ability to secure leases at these properties. It's important to note that we believe local rents need to increase dramatically before it is economical to see new multifamily construction. So we expect minimal new supply for the foreseeable future. The pipeline for development in East Bay is well below the average for the top 25 U.S. markets. Turning to our office segment. We leased approximately 37,000 square feet in the first quarter. Our occupancy rate at the end of the first quarter was 83.4% compared to 83.8% at the end of 2023, and our lease percentage was 84%, down about 40 basis points from the end of 2023. With that, I'll turn it over to Barry.

Moving on to financial highlights. Let's start with our segment NOI, which was $13.6 million for the first quarter of 2024 compared to $13 million in the prior year comparable period. This increase in NOI of around $600,000 was driven by increases of $1.1 million in our office segment and $240,000 in our multifamily segment, which were partially offset by a decrease of $570,000 from our lending segment. Our office segment NOI increased to $7.9 million from $6.8 million in the prior year comparable period. The decrease of $1.1 million was primarily driven by higher rental revenues at an office property in Beverly Hills, California, and an office property in Los Angeles, California, due to increased occupancy in addition to higher income from an unconsolidated office entity in Echo Park, Los Angeles during the quarter. Our hotel segment NOI remained consistent at $4.1 million for the first quarter of 2024 and 2023. For our lending division, NOI decreased to $800,000 from $1.4 million in the prior year comparable period, primarily due to the increased interest expense. We issued debt through a securitization transaction last year in March, with the interest relating to the securitization being directly expensed at the Lending segment level. Lastly, we began reporting multifamily segment NOI in the first quarter of 2023. After we acquired two multifamily properties in Oakland in late January and late March, as well as invested in another multifamily property in Los Angeles through a 50-50 joint venture investment. During the first quarter of 2024, we reported multifamily segment NOI of approximately $900,000 compared to approximately $680,000 for the prior year comparable period. The operations of the Oakland properties provided around $1.4 million of NOI compared to breakeven during the first quarter of 2023, largely due to the multifamily segment not having an entire quarter of operations during the first quarter of 2023 due to the acquisition of the properties occurring during the quarter. This net increase in NOI was partially offset by a $1.3 million swing in equity pickup from our investment in the JV from NOI of approximately $800,000 during the first quarter of 2023 to a loss of $400,000 during the first quarter of 2024. For our non-segment expenses, we had a decrease in depreciation and amortization expense of $3 million, which was primarily due to a decrease in acquired in-place lease intangible assets amortization for our multifamily properties in Oakland, which have been fully amortized prior to the first quarter of 2024. We also had a decrease in transaction-related costs of around $2.7 million, which were elevated in the first quarter of 2023 as a result of the Oakland multifamily property acquisitions during that period. Partially offsetting these non-segment expense decreases was an increase in non-segment allocated interest expense, which increased by around $2.1 million. The increase was primarily due to market interest rate rise and the assumption of mortgages in connection with the acquisition of our two multifamily properties in Oakland and borrowing on our revolver in connection with the acquisitions. Our FFO was negative $0.26 per diluted share compared to negative $0.21 in the prior year comparable period. And our core FFO was negative $0.19 per diluted share compared to a positive $0.06 per share in the prior year period. These reductions were primarily driven by the increase in interest expense, as well as an increase in redeemable preferred stock dividends of approximately $2.4 million. Finally, regarding liquidity during the quarter, we raised an additional $19.1 million in net proceeds from the sale of our Series A1 preferred stock. As David mentioned, although our core FFO improved from last quarter, our cash flow continues to be impacted by elevated short-term interest rates. It is important to note that we are evaluating ways to strengthen our balance sheet and improve our cash flow, including potentially selling assets and reducing our debt.

And we'll start with a question from Brandon McCarthy from Sidoti. Brandon, you may proceed.

This is Stephan Guillaume on for Brendan McCarthy. First question I have is regarding potential asset sales, how would you describe the deal flow now? And are any sales dependent on a lower rate environment?

Yes, let me take that. I think when you look at our portfolio of assets, we view that we've got a pretty desirable portfolio. The assets that we have, we think will still trade at pretty low cap rates. But obviously, we're living in an environment today with higher short-term interest rates. So asset sales are accretive to our cash flow. And that's really our goal here is to improve the cash flow that will allow us to be in a better position to participate in what we expect to be a real estate recovery and potential opportunities that we'll see down the road. In terms of what assets we would potentially sell, we're really in the process of evaluating that right now. Our overall goal here is to sell enough assets so we can significantly pay down our credit fully. That's broadly the way that we're thinking about it.

All right. Can you also talk about rent spreads in your portfolio and how renewals have progressed?

Yes, sure. I can take that. So I think they were about unchanged for the first quarter. We did about 33,000 square feet of leasing, which is not a large sample size, but nothing unusual on the sprint side.

Got it. I guess the last one for me. With the recent occupancy gain in the office portfolio, is it fair to say that obvious net operating income has a positive outlook now?

I think we'll see. I mean we did see office NOI pick up quite a bit this quarter, but the fourth quarter is an easier comp. But we still do have some expirations coming our way. So yes, I think we still have some work to do in terms of renewals.

And our next question comes from John Massocca from B. Riley.

So maybe going back to the dispositions. Is there any specific property types or maybe strategic elements to the disposition activity you might be considering?

Again, I think we're really in the process of evaluating that right now. Obviously, if you look at our portfolio, the largest part of it still would remain the office product that we have. So that's probably likely to be a key place that we'll start and look at. And we've talked about historically trying to get this, and I mentioned on the call as well, getting more balanced between the multifamily and the creative office going forward. So I think that's going to be a logical place for us to start.

Okay. And then maybe what are the outlooks for some of the returns on some of these development projects, particularly those that are more kind of near-term in the pipeline?

Yes. I mean we generally target a 75 basis points to 100 basis points spread in terms of our return on cost versus the current market cap rate. I think we're on track. We have the two assets underway, which we think this is achievable. I think candidly, it's tougher to develop in the market today given where cap rates are and where construction costs are. So we have a much more significant development pipeline, but we haven't really been rushing to start that just because the return hurdles are not necessarily meeting our expectations. So we're doing a little pre-development work but waiting for a better environment.

Okay. And then in terms of just the multifamily environment, how big is the divergence between what you're seeing in terms of operating fundamentals in Oakland versus Los Angeles, just given where some of your new products will be coming online in Los Angeles?

Yes. Yes. Well, L.A. is definitely a better market at the moment where we're seeing trends that are pretty strong. Whereas Oakland, it's just a more challenging submarket because there was just a large amount of supply that hit all at once, and that was a result of developers wanting to start projects before an affordable housing mandate was coming into place. As a result, a lot of development started at the same time. It's just an unusual market with how much supply hit at once. It's just going to take some time to work that off. We've seen a lot of that excess supply being absorbed. I think at one point, the market was 20% vacant; now it's less than 10%. So there's definitely been an improvement in occupancy, but it's just going to take time.

Okay. And then with the Sacramento hotel asset, what's the potential impact broadly to the revenue contribution from that property while it's undergoing some redevelopment activity?

Yes. So we're expecting some disruption, but it will be limited, the way we're looking to manage this. Effectively, we'll be doing a few floors at once, so we're going to go floor by floor and make sure there's a buffer between the floors to prevent disturbances to other guests. We really hope to complete this renovation without a significant falloff in NOI, but we will have some rooms offline for about a 9-month period. So while there will be some disruption, we expect it would not be a major decline in NOI.

Okay. And then maybe last one for me, just bigger picture. You talked about potential levers you could pull to reduce leverage. But is there anything you think strategically to increase liquidity in the common stock or just overall size of the common stock to make it slightly more institutionally relevant? I'm trying to think if there are other big picture ideas that are being bounced around beyond selling assets and deleveraging?

Well, I think the way we really set up our balance sheet does give us quite a bit of flexibility. We have non-recourse mortgages. We have the preferred stock outstanding, which can obviously be converted to common stock. We also have our senior secured credit facility, which is a borrowing base facility that’s secured by five or six assets within the portfolio. So we really did set the balance sheet up for a tougher environment, like what we're seeing today. Clearly, the way that our balance sheet is set up gives us a lot of flexibility and potential levers to improve cash flow and leverage the company over time. Without getting into more detail than that, I do think we have quite a bit of flexibility based on how we've structured the balance sheet.

And this concludes the question-and-answer session as well as the conference. Thank you so much for attending today's presentation. You may now disconnect. Have a great day.