Artistic Media & Neighborhood Belief (CMCT, fka CIM Industrial Belief) (~$20MM market cap) is a tire hearth of a REIT (externally managed by CIM Group) that owns a mix of conventional workplace, “artistic workplace”, multi-family and a resort, the vast majority of that are situated in California. I owned CMCT briefly again in 2021 as it was the goal of an activist marketing campaign, CIM Group ultimately 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 business actual property market has struggled considerably as the results of gradual 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 situated.
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 method to enhance belongings (and thus exterior administration charges) with out issuing frequent inventory at under NAV and CIM additionally had an affiliate act as a placement agent to gather extra charges. As the actual property asset worth dropped at CMCT and most well-liked inventory issuance did not gradual (CMCT was issuing most well-liked inventory as current as earlier this 12 months), the frequent inventory felt the ache and was the wrong way up. Moreover, their financial institution credit score facility is now not in compliance with its monetary covenants.
Earlier this 12 months, CMCT tried to promote a handful of belongings so as to increase money and payoff the credit score facility, however the purchaser wasn’t in a position to shut:
CMCT just lately explored the sale of a number of high-quality belongings to enhance its frequent fairness ratio. The provide CMCT obtained mirrored what the Firm believed to be the truthful 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 slightly than a sale of those belongings.
CMCT’s most well-liked inventory is convertible into frequent shares on the possibility of the issuer. Subsequentially to the failed asset sale, in September, CMCT determined to “enhance its frequent fairness ratio” by changing some most well-liked inventory to frequent:
As a part of its program to enhance its frequent fairness ratio, the Company is suspending its Collection A1 Most popular Inventory providing and asserting the redemption of roughly 2.2 million shares of Collection A Most popular Inventory and roughly 2.6 million shares of Collection A1 Most popular Inventory, with the redemption value to be paid in shares of frequent inventory in accordance with the phrases of the Collection A Most popular Inventory and Collection A1 Most popular Inventory, respectively.
In whole, they redeemed $118.9MM (~$345MM is remaining) of most well-liked inventory with 60,526,804 frequent shares, or at a value 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, practically 4x’ing the shares excellent to motivated sellers), when the worth dropped as a result of compelled 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 beneath the 2022 Credit score Facility by getting into into new financing preparations to repay quantities excellent beneath 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 beneath the 2022 Credit score Facility and to pay for the Resort 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 enough to repay all quantities excellent beneath the 2022 Credit score Facility, with the remainder for use for common 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 beneath the 2022 Credit score Facility are possible based mostly on the next: (1) the Firm has executed time period sheets with the respective lenders beneath 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 might be the topic of the Sheraton Refinancing and the Los Angeles Refinancing and (4) the Firm’s plans and efforts thus far to acquire extra 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 meant to mitigate the related situation that might increase substantial doubt in regards to the Firm’s skill to proceed as a going concern inside one 12 months after the date that the interim monetary info contained on this Quarterly Report on Kind 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 consequence from the end result of occasions described on this paragraph.
Probably there’s some worth right here if the corporate is ready to change from recourse to non-recourse debt and experience out any actual property restoration. CMCT does have a sequence of potential growth websites, (by 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 and so they 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 corporations name workers again into the workplace) and they are going to save roughly $8 million per 12 months in most well-liked dividends on account of the conversion. But the inventory is down ~90% from the conversion value. Might this be a possible January impact beneficiary? Once more, tremendous speculative, however I believe it would.
In try to find out how a lot if any worth is right here, a technique is to again into an implied cap charge of 5.8% based mostly on the last-twelve months of web working revenue, 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 means, CMCT pays CIM Group a base administration payment based mostly on the NAV which is set by a 3rd occasion, they used to reveal NAV, however I have never seen it known as out for year-end 2023. However based mostly on the quarterly payment (0.25% of Internet Asset Worth Attributable to Widespread Stockholders) you may again into the NAV.
After all 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 possibility disguised as frequent inventory on business actual property values enhancing and rates of interest persevering with to fall.
- CMCT might convert extra most well-liked to frequent 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 known as out as being non-core and probably 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 had been patrons 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 more likely to do it once more to avoid wasting their administration payment revenue.
