Artistic Media & Neighborhood Belief (CMCT, fka CIM Business Belief) (~$20MM market cap) is a tire hearth of a REIT (externally managed by CIM Group) that owns a combination of conventional workplace, “artistic workplace”, multi-family and a resort, nearly all of that are positioned in California. I owned CMCT briefly again in 2021 as it was the goal of an activist marketing campaign, CIM Group finally thwarted the activist by doing a dilutive rights providing (and backstopping the rights providing) at $9.25 (the shares commerce for $0.23/share in the present day) to cement voting management. After the rights in 2021, administration owned 45+% of the corporate.
As most know, the industrial actual property market has struggled considerably as the results of sluggish return-to-office tendencies, greater for longer rates of interest and a few location particular points to the Oakland/Bay Space market the place a number of of CMCT’s chunkier belongings are positioned.
This is a fast snapshot of the corporate’s belongings:
CIM Group had an ongoing most well-liked inventory issuance program going at CMCT, it was a technique to improve belongings (and thus exterior administration charges) with out issuing widespread inventory at beneath NAV and CIM additionally had an affiliate act as a placement agent to gather further charges. As the actual property asset worth dropped at CMCT and most well-liked inventory issuance did not sluggish (CMCT was issuing most well-liked inventory as current as earlier this yr), the widespread inventory felt the ache and was the other way up. Moreover, their financial institution credit score facility is now not in compliance with its monetary covenants.
Earlier this yr, CMCT tried to promote a handful of belongings so as to elevate money and payoff the credit score facility, however the purchaser wasn’t capable of shut:
CMCT lately explored the sale of a number of high-quality belongings to enhance its widespread fairness ratio. The provide CMCT acquired mirrored what the Firm believed to be the honest worth of those belongings, however the purchaser was unable to shut. On account of this and the current decline in rates of interest, CMCT has determined to shift its focus to refinancing reasonably than a sale of those belongings.
CMCT’s most well-liked inventory is convertible into widespread shares on the choice of the issuer. Subsequentially to the failed asset sale, in September, CMCT determined to “enhance its widespread fairness ratio” by changing some most well-liked inventory to widespread:
As a part of its program to enhance its widespread fairness ratio, the Company is suspending its Sequence A1 Most popular Inventory providing and saying the redemption of roughly 2.2 million shares of Sequence A Most popular Inventory and roughly 2.6 million shares of Sequence A1 Most popular Inventory, with the redemption worth to be paid in shares of widespread inventory in accordance with the phrases of the Sequence A Most popular Inventory and Sequence A1 Most popular Inventory, respectively.
In complete, they redeemed $118.9MM (~$345MM is remaining) of most well-liked inventory with 60,526,804 widespread shares, or at a worth of $1.96/share.
Most popular inventory holders (in all probability RIA’s within the HNW channel) naturally puked the inventory out (they solely had 22.8 million shares excellent earlier than the popular conversion, almost 4x’ing the shares excellent to motivated sellers), when the value dropped as a result of pressured promoting, it created tax loss promoting and additional spiraling down the drain to $0.23/share the place it trades in the present day. The brand new plan, to refinance on the property stage and repay the credit score facility is printed within the most up-to-date 10-Q:
Administration plans to handle any doable future occasion of default underneath the 2022 Credit score Facility by coming into into new financing preparations to repay quantities excellent underneath the 2022 Credit score Facility. The Firm is within the means of acquiring refinancing for the Firm’s resort in Sacramento, California (the “Sheraton Refinancing”). If accomplished, the Firm intends to make use of the proceeds of the Sheraton Refinancing to repay a part of the quantity excellent underneath the 2022 Credit score Facility and to pay for the Lodge Renovation described above. As well as, the Firm is within the means of acquiring refinancing (the “Los Angeles Refinancing”) for 3 of its properties in Los Angeles, California. If accomplished, the proceeds of the Los Angeles Refinancing, together with a portion of the proceeds from the Sheraton Refinancing, are anticipated to be in an quantity ample to repay all quantities excellent underneath the 2022 Credit score Facility, with the remaining for use for basic company functions. The Firm expects that every of the Sheraton Refinancing and the Los Angeles Refinancing will shut by the top of the primary quarter of 2025.
Administration of the Firm believes that its plans to repay quantities excellent underneath the 2022 Credit score Facility are possible based mostly on the next: (1) the Firm has executed time period sheets with the respective lenders underneath the Sheraton Refinancing and the Los Angles Refinancing; (2) the Firm expects that each the Los Angeles Refinancing and the Sheraton Refinancing will shut by the top of the primary quarter of 2025; (3) the favorable loan-to-value ratios (“LTVs”) of the properties which can be the topic of the Sheraton Refinancing and the Los Angeles Refinancing and (4) the Firm’s plans and efforts so far to acquire further financing to be secured by two properties that it owns (along with the Sheraton Refinancing and the Los Angeles Refinancing), and the favorable LTVs of those two properties. Administration’s plans are supposed to mitigate the related situation that may elevate substantial doubt concerning the Firm’s skill to proceed as a going concern inside one yr after the date that the interim monetary info contained on this Quarterly Report on Type 10-Q is issued. The accompanying consolidated monetary statements have been ready assuming that the Firm will proceed its operations as a going concern and don’t embrace any changes which may outcome from the result of occasions described on this paragraph.
Doubtlessly there’s some worth right here if the corporate is ready to change from recourse to non-recourse debt and trip out any actual property restoration. CMCT does have a sequence of potential growth websites, (by way of CIM) entry to co-investors for challenge particular capital (so they will not want to lift it on the CMCT stage, as a result of they cannot), there is a world the place they do not file for chapter they usually can limp alongside far sufficient to make to the opposite facet of their transition to “artistic workplace” and multi-family. The underlying asset worth of the corporate have not modified a lot since the popular conversion (possible solely improved barely as short-term charges come down and extra firms name workers again into the workplace) and they’ll save roughly $8 million per yr in most well-liked dividends because of the conversion. But the inventory is down ~90% from the conversion worth. May this be a possible January impact beneficiary? Once more, tremendous speculative, however I believe it’d.
In try to find out how a lot if any worth is right here, a method is to again into an implied cap charge of 5.8% based mostly on the last-twelve months of web working earnings, not notably low-cost. Howard Hughes (HHH) simply had an investor day the place they laid out their NAV utilizing an 11% cap charge for his or her workplace properties.
One other method, CMCT pays CIM Group a base administration charge based mostly on the NAV which is set by a 3rd social gathering, they used to reveal NAV, however I have never seen it referred to as out for year-end 2023. However based mostly on the quarterly charge (0.25% of Internet Asset Worth Attributable to Widespread Stockholders) you may again into the NAV.
In fact all the traditional caveats apply to the NAV, there’s an inherent battle of curiosity to inflate it when your administration charges are calculated off it.
- This very possible may very well be a zero, it’s a name choice disguised as widespread inventory on industrial actual property values enhancing and rates of interest persevering with to fall.
- CMCT might convert extra most well-liked to widespread and crash the inventory once more.
- CMCT pays their dividend in shares now, so do not get excited over the looks of an enormous dividend yield.
- They’ve a small SBA lending operation that lends into the mother and pop proprietor/operator resort market, this together with their resort they’ve referred to as out as being non-core and doubtlessly look to promote these belongings to reinvest in additional multi-family developments.
- After the conversion, administration now solely owns 15% of the corporate. Keep in mind, they have been consumers at $9.25, odd that they tanked their very own place to such a level, however now with much less possession, could be much more prone to do it once more to avoid wasting their administration charge earnings.
