Overview

CIM Commercial Trust Corporation (CMCT) is a non-traded real estate investment trust (REIT) that invests in a diversified portfolio of senior secured mortgage loans, net-leased properties, and other credit investments. As of December 31, 2024, CMCT’s portfolio included $3.4 billion in loans, $345.8 million in real estate-related securities, and $1.0 billion in commercial real estate properties across 16 industry sectors.

CMCT’s operating results are primarily influenced by interest income from its credit investments, rental income from its properties, and interest expense on its debt. The company’s business model is structured so that rising interest rates generally correlate with increases in net income, while declining rates lead to decreases.

Financial Performance

For the year ended December 31, 2024, CMCT reported a net loss of $292.3 million, or $0.67 per share. This was a significant decline compared to the prior year, when the company generated net income of $28.1 million.

The decrease in profitability was primarily driven by a $191.5 million increase in the provision for credit losses, primarily due to asset-specific reserves on several first mortgage loans and CMBS positions. Revenues also declined by $84.9 million, reflecting lower interest income from the credit portfolio and reduced rental income from property dispositions.

On the positive side, CMCT was able to reduce its total debt by $756.5 million during 2024, lowering its debt-to-assets ratio to 62.6%. The company also generated $161.2 million in cash flow from operations, which covered its $196.7 million in distributions to shareholders.

Credit Portfolio

As of December 31, 2024, CMCT’s credit portfolio consisted of 68 loans with a net book value of $3.4 billion, as well as $345.8 million in real estate-related securities. The portfolio included:

• $3.1 billion in first mortgage loans, with a weighted average interest rate of 7.7%
• $41.5 million in liquid corporate senior loans, with a weighted average rate of 9.9%
• $254.6 million in corporate senior loans, with a weighted average rate of 10.5%

The credit portfolio was diversified by property type, with the largest exposures in office (51.2%), multifamily (29.5%), and industrial (9.6%) assets. Geographically, the loans were concentrated in the South (38.9%), West (29.1%), and East (23.0%) regions of the U.S.

A key risk factor for the credit portfolio is the $392.1 million in current expected credit losses (CECL) that CMCT has reserved against. This represents an 8.2% allowance on the total loan balance, up significantly from 2.2% the prior year. The increase was driven by asset-specific reserves on several underperforming loans.

Real Estate Portfolio

CMCT’s real estate portfolio consisted of 187 commercial properties totaling 5.8 million rentable square feet, with a net book value of $1.0 billion as of December 31, 2024. The portfolio was 100% leased, with a weighted average remaining lease term of 10.5 years.

The top tenants by annualized rental income were CVS (10%), Cabela’s (8%), United Oil (8%), Lowe’s (7%), and Walgreens (5%). The portfolio was diversified across 16 industry sectors, with the largest exposures in health/personal care (15%), manufacturing (12%), sporting goods (11%), and automotive (9%).

During 2024, CMCT acquired two new properties for $44.1 million and disposed of seven properties and 11 condominium units for total proceeds of $128.0 million. The dispositions resulted in a net gain of $1.9 million.

Same-store net operating income for the real estate portfolio remained relatively flat year-over-year, but non-same store NOI declined by $19.8 million due to the property sales. CMCT recorded $52.2 million in real estate impairment charges during the year.

Liquidity and Capital Resources

As of December 31, 2024, CMCT had $181.3 million in cash and cash equivalents, as well as $91.8 million in unused borrowing capacity under its debt facilities. The company’s primary sources of liquidity include operating cash flow, proceeds from asset sales, and secured or unsecured borrowings.

CMCT’s total debt outstanding was $3.2 billion as of year-end, with a weighted average interest rate of 5.5%. This included $1.7 billion in repurchase facilities, $758.5 million in ABS mortgage notes, $606.5 million in variable-rate notes, and $124.5 million in credit facilities.

The company expects to meet its liquidity needs through a combination of operating cash flow, asset sales, and new debt or equity financing. CMCT believes it has sufficient resources to satisfy its operating requirements for the foreseeable future without needing to raise additional capital.

Distributions and Share Redemptions

CMCT paid total distributions of $196.7 million, or $0.45 per share, during 2024. This was funded entirely from operating cash flow. The company also redeemed approximately 7.3 million shares under its share redemption program for $45.0 million at an average price of $6.15 per share.

However, CMCT was only able to fulfill a small portion of the total redemption requests it received, as the program remained oversubscribed. As of year-end, there were unfulfilled redemption requests for an additional 144.5 million shares.

Outlook and Risks

Looking ahead, CMCT faces several key risks and uncertainties that could impact its future performance:

• Continued volatility in interest rates and the potential for further increases, which could strain borrowers’ ability to service debt
• Ongoing challenges in the office and retail real estate sectors, which could lead to additional credit losses and property impairments
• Potential declines in commercial real estate values and rental rates, which would negatively affect the company’s portfolio
• Oversubscription of the share redemption program, limiting CMCT’s ability to provide liquidity to shareholders

To navigate these challenges, CMCT will need to closely monitor its credit exposures, actively manage its real estate assets, and maintain a strong liquidity position. The company’s diversified investment strategy and focus on senior secured loans and net-leased properties may help mitigate some of these risks.

Overall, CMCT’s 2024 financial results reflect the volatile market environment, with credit-related charges weighing heavily on profitability. While the company’s liquidity remains adequate, the elevated level of credit losses and property impairments is a concerning trend that bears close watching. Shareholders should carefully consider these risks and uncertainties as they evaluate CMCT’s long-term prospects.