Good day, and welcome to the Creative Media and Community Trust Corporation Second Quarter 2024 Earnings Call. All participants will be in listen-only mode. Please note this event is being recorded. I would like to turn the conference over to Steve Altebrando, Portfolio Oversight. Please go ahead.

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 today's 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. This morning, we released our second quarter 2024 results. Net operating income improved from the first quarter across all our real estate operating segments – office, multifamily, and hotel. While we are pleased with this improvement from last quarter, our cash flow continues to be impacted by elevated short-term interest rates, the known challenges in the office market, and continued soft rental rates at our Bay Area multifamily assets. We are focused on strengthening our balance sheet and improving our cash flow. As such, we continue to evaluate asset sales and other ways to reduce both our recourse debt and overall debt. We also expect to eventually benefit from lower SOFR 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%. We continue to make progress on our development and redevelopment pipeline, and we are ahead of schedule at two of our three active projects. We have two multifamily projects underway and we commenced the room renovation at our one hotel in July. Steve will provide more details in a moment. As for our results in the quarter, our same-store office segment NOI increased 9% year-over-year to $7.6 million. The increase was primarily driven by an increase in our JV income. We had an unrealized gain in the second quarter of 2024, whereas in the second quarter of 2023 we had an unrealized loss. This was primarily driven by appraised values. Overall, our office lease percentage remained stable in the quarter at 83.5% and we executed approximately 52,000 square feet of office leases in the quarter. However, we do expect our occupancy to decline in the third quarter. As previously disclosed, we have a large tenant that returned approximately 130,000 square feet at the end of July at our One Kaiser Plaza office building in Oakland. Our hotel segment NOI increased 5% from the prior year to $4.3 million, primarily due to improving average daily room rates. Our multifamily segment generated $2.3 million of NOI in the quarter compared to $900,000 of NOI in the first quarter of 2024. The increase was driven by occupancy gain, which improved to 92.5% at the end of the second quarter from 79.3% at the end of 2023. However, the rental rate at our two largest properties, Channel House and Eleven Fifty Clay, located in Oakland, continues to be below our expectations. Our lending segment NOI increased 42% year-over-year to $743,000. The increase was primarily due to a decrease in interest expense resulting from the amount of principal repayments on our SBA 7(a) loan backed notes. With that, I will turn it over to Steve to provide a further update on our development pipeline and the portfolio.

Thanks, David. Starting with our development pipeline, we have three projects underway, two multifamily projects in LA and the hotel room renovation in Sacramento. Starting with multifamily, our office to residential project at 4750 Wilshire is nearing completion. 4750 Wilshire is located in Hancock Park, an affluent residential sub-market of LA where housing is supply constrained. This property was previously a three-story office building. We preserved the ground floor creative office space, which is 100% leased, and we have been converting the top two floors to 68 high-end, for-rent residential units. We are on track to complete the project in the third quarter ahead of the previously announced timeline of the fourth quarter. The residential component has been renamed 701 South Hudson, and we have launched the property's website and expect to start marketing units for lease in the coming weeks. We are excited about this project, which we believe reflects CMCT's strategy to invest in and develop premier multifamily and creative office assets in high barrier-to-entry markets. Our second development is 1915 Park in the Echo Park section of Los Angeles with an expected mid-2025 delivery. Upon completion, the new seven-story building will feature 36 units. Echo Park is a highly desirable, walkable neighborhood with dozens of dining and entertainment options. Turning to the hotel, in July, we began an approximately $21 million room renovation at the Sheraton Grand in Sacramento. The renovation includes a refresh of all 503 rooms. We expect to complete the project around the end of 2024 and believe this renovation will generate a solid return on investment. The hotel is one of just two hotels located directly across the street from Sacramento's Convention Center, which itself completed a major renovation and expansion in 2021. Now turning to our operating portfolio. On a consolidated basis, at quarter-end, our multifamily segment was 92.5% occupied, up from 86.2% in the first quarter and 79.3% at the end of the fourth quarter. In Echo Park Los Angeles and our multifamily asset at 1902 Park, occupancy increased to 93.3% at the end of the quarter, up 40 basis points from 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 $1,806 as of the end of the second quarter. This represents a 4% increase from a year ago and our rate for new tenants generally exceeds $2,200 per month, a more than 20% increase from our in-place rents. In Oakland, we continue to make progress, improving occupancy, and we had an increase in NOI this quarter. However, as David referenced, our rental rate at Channel House and Eleven Fifty Clay have been below expectations as the market absorbs the high level of supply added in Oakland from 2018 through 2022. We believe the local rents would need to increase dramatically before it's economical to see new multifamily construction, so we expect minimal new supply for the foreseeable future. The pipeline for development in the East Bay for multifamily remains well below the average for the top 25 US markets. With that, I'll turn it over to Barry.

Thank you, Steve. Good morning. I will be going over some of our financial highlights for the second quarter, starting with segment NOI, which was $16.2 million for the second quarter of 2024 compared to $12 million in the prior year comparable period. This increase of $4.2 million was driven by segment increases of $2.1 million in our office segment, $1.7 million in our multifamily segment, and $200,000 in both our hotel and lending segments. Our office segment NOI increased by $2.1 million to $8.9 million from $6.8 million in the prior-year comparable period. As mentioned by David, this was primarily driven by an unrealized gain on the value of real estate at one of our unconsolidated office entities compared to aggregate unrealized losses at our unconsolidated office entities in the prior-year comparable period. Our hotel segment NOI increased $200,000 to $4.3 million for the second quarter of 2024 compared to $4.1 million in the prior-year comparable period, which was attributed to an increase in revenue per available room driven by increased average daily rates. Our lending division NOI increased to $743,000 from $524,000 in the prior-year comparable period, primarily due to the decreased interest expense resulting from the amount of principal repayments on our SBA 7(a) loan backed notes. And our multifamily segment, which commenced with asset acquisitions during the first quarter of 2023, reported NOI of approximately $2.3 million compared to approximately $522,000 for the prior-year comparable period. The increase was primarily due to higher rental revenues at our multifamily properties in Oakland, California, from increased occupancy and from an increase in monthly rent per occupied unit, as adjusted by rent concessions. Our non-segment expenses had a significant decrease in depreciation and amortization by $14 million, which was driven by the full amortization during 2023 of the acquired in-place lease intangible assets for our Oakland assets. There was no amortization for acquired in-place lease intangible assets during 2024. Partially offsetting the non-segment expense decrease was a $1 million increase in non-segment allocated interest expense, which was primarily due to market interest rate rises and higher average outstanding principal balances on our revolver. The bottom line is that our FFO was a negative $0.14 per diluted share compared to negative $0.19 in the prior-year comparable period, and our core FFO was a negative $0.09 per diluted share compared to a negative $0.17 in the prior-year comparable period. These increases were primarily driven by the increase of $4.2 million in our segment NOI, partially offset by an increase in interest expense of $1 million and an increase in our redeemable preferred stock dividends of approximately $1.7 million. I also wanted to note that during the second quarter of 2024, we recommenced the issuance of our Series A1 preferred stock and raised an additional $8.3 million in net proceeds from the sale of securities during June. We can now open the line for questions.

The first question comes from John Massocca from B. Riley Securities.

Can we go over the leasing situation at Lake Merritt and just how the give back of space is going to impact things in 3Q?

We're currently in the process of lease negotiations with the largest tenant in the building, Kaiser, which is about – today, they lease about two-thirds of the building. So, those negotiations are ongoing. They did give back, and this is something that we previously disclosed, that they gave back about 130,000 square feet at the end of July. That square footage is not part of the negotiation for future lease, but we are in the process of negotiating an extension on their space that expires part of it in 2025 and part of it in 2027.

Maybe on the open multifamily side of things, obviously, it seems like in the current market supply shouldn't be much of an issue, but what are you seeing on the demand side in terms of multifamily in that market?

As you can see by the numbers, we had a pretty good first half in terms of picking up occupancy, which was very encouraging. So I would say, we have seen a pickup in demand. Having said that, the market is still – I think market-wide vacancies are roughly 10% still, which is much better than the trough, which was 17% or 18% a couple of years ago. So we've seen a lot of absorption, but what we really haven't seen yet is a pickup in rate. That continues to be a challenge and it is a very high concessions market at the moment. But we have seen, I would say, a pickup in just overall lease velocity. And we were able to get our occupancy into the low 90s, which was encouraging.

Where would you think you need to trend in those assets before you could start pushing back a little bit on concessions and maybe pushing more aggressively on rate?

Probably in the mid-90s range. And the overall markets, as I mentioned, are somewhere around 90% occupied.

On the balance sheet side of things, given the moves you've seen in interest rates – maybe excluding today, but the moves you've seen in interest rates in the last couple of weeks, how does that impact your outlook for refinancing, anything maybe on the balance that you could pull forward or fix out if rates continue to trend downward, particularly long-term rates?

It's certainly been good to see from our perspective. We have a good amount of floating rate debt, which shows rates coming down has some pretty significant savings for us. But in addition to that, I think what you're more referencing is the potential to potentially fix some of our rate on some longer-term financing. And so, that's something we will take a look at as well as we've seen kind of the five-year come down quite a bit. So there is a potential opportunity for us to swap from floating into some – potentially, we're looking at that right now into some longer-term fixed rate debt.

Last one, in the past calls, you talked about some assets that were being non-core and some disposition opportunities that might be out there. Especially as financing has gotten cheaper for your counterparties in any deals, have negotiations or talks there picked up or is it still kind of a little bit early in the innings on capital recycling and dispositions?

We're still, I would say, more in the evaluation phase. We would like to reduce both our recourse and overall debt. So we are really evaluating and doing some work on an asset-by-asset level to see where we can generate the most value. I think some of the non-core assets that we've discussed in the past, I would also include them in that mix as well, particularly the hotel and lending division.

Would the primary use of proceeds be on the multifamily side still in the same markets you're in today?

I think the primary use of proceeds today really would just be to pay down debt. That's our focus at this moment. Then I think as the market settles a little bit, look to potentially be back as an acquirer. But for now, we really want to get the debt balanced down a bit.

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