CIM Commercial Trust (NASDAQ: CMCT and TASE: CMCT-L) today
announced that Richard Ressler, Chairman of the Board of CIM
Commercial Trust, has sent the following letter to Engine
Capital.
May 26, 2020
Engine Capital LP 1345 Avenue of the Americas, 33rd Floor New
York, NY 10105 (212) 321-0048
Dear Mr. Ajdler:
We are in receipt of your letter dated May 18, 2020 addressed to
the Board of Directors of CIM Commercial Trust Corporation (“CMCT”
or the “Company”). We appreciate your investment in CMCT and your
feedback. We are aware of your background as an activist investor
and are therefore not surprised that you converted your Schedule
13G filing to a Schedule 13D filing. CMCT maintains an open
dialogue with its shareholders (as evidenced by our prior
discussions with you) and welcomes input about the direction and
strategy of the Company.
Our Board agrees that an important strategic objective of CMCT
is to narrow the gap between the current share price and the net
asset value per share of the Company’s common stock. We also
believe that increasing the underlying value of our shares is an
equally, if not more, important strategic objective. These
objectives can sometimes be in conflict over the short term, but
our Board respectfully and strongly disagrees with your statement
that the Board may be favoring the interests of the Company’s
external operator and administrative services provider (“CIM” or
“CIM Group”) because it considers more than one narrow
objective.
As you know, affiliates of CIM and officers and directors of
CMCT own for their own respective accounts more than 20% of the
outstanding shares of CMCT’s common stock, most of which was
purchased at a price of $19.17 per share in October 2019. CIM’s
alignment with its fellow shareholders, as the largest shareholder
of CMCT, is obvious and economically dwarfs the fees it earns for
its services. That alignment is evident in the way CIM has managed
CMCT since 2014. As you are well aware, CMCT has been one of the
most active U.S. listed REITs in selling assets, selling
approximately $991 million of assets in 2019, despite the fact that
such sales have significantly reduced fees paid to CIM Group. As a
result of such sales, the Company distributed $42 per share (as a
special dividend) to its shareholders in 2019.
The Board and CIM believe that your suggestion that CMCT pursue
a liquidation of CMCT’s real estate assets in the near term
reflects a fundamental misperception of the private real estate
market as it exists today and would destroy much of our shareholder
value.
With respect to the other issues and concerns raised in your
letter, please review the comments below as they make clear that
the Company agrees they are important issues that had already been
identified and addressed through actions taken—and that will
continue to be taken—to deal with each of them:
At-the-Market Program. To date, the Company has sold zero
shares under the ATM program. As previously communicated to you (as
indicated by your letter) and disclosed in the Company’s public
filings, the Company does not intend to use the program to sell
shares of common stock at current price levels. Having an
At-the-Market common stock offering program in place is not the
same as using the program to sell shares. Having the program in
place allows the Company to act quickly if and when the combination
of share price and intended use of proceeds leads the Board to
determine that a sale of shares is in the best interests of the
Company and its shareholders.
Fees Paid in Common Stock. As the Company disclosed in
its Quarterly Report on Form 10-Q for the first quarter of 2020
filed on May 11, if the Company intends to pay CIM with shares in
lieu of cash going forward, it would do so with the Company’s
preferred stock instead of common stock. With respect to the first
quarter payment of CIM’s fees in shares of common stock in lieu of
cash, please take note of the circumstances. In the best interest
of the Company, as the COVID-19 pandemic threatened the financial
strength of companies throughout the world, CIM Group agreed to
accept its first quarter management fees in shares of common stock
in lieu of cash to ensure that CMCT remained in compliance with the
fixed charge coverage ratio included in the terms of the Series L
Preferred Stock as well as to maximize liquidity during a time
period of significant uncertainty caused by COVID-19. As a point of
reference, CIM received payment with shares valued at $11.60, a
10.90% premium to Friday’s closing price of $10.46.
Costs. Management of the Company as well as CIM Group
have been actively reviewing the overhead and other costs of the
Company. CMCT is still experiencing the aftermath of costs
associated with being a much larger company. During 2019, CMCT
rapidly sold off many of its real estate holdings and CIM has been
working to reduce the expenses of running CMCT. As an example, the
Company disclosed in its Quarterly Report on Form 10-Q for the
first quarter of 2020 filed on May 11 that an affiliate of CIM
Group agreed to permanently eliminate its base services fee, which
amounted to approximately $1.1 million annually (subject to
inflation), and replace it with an incentive fee with a hurdle
rate. The incentive fee hurdle for the first quarter of 2020 would
have required CMCT to achieve a Core FFO per share of $0.23 for
such quarter before any incentive payments could be earned. For
reference, Core FFO per share for the quarter was negative. Based
on the expected performance of the Company for the rest of 2020, as
previously disclosed, an incentive fee is unlikely to be earned in
2020 and, at this point, without substantial earnings improvements
beyond those currently contemplated, it is unlikely that any
incentive fee will be earned in 2021. Additionally, CMCT expects
various cost reduction programs implemented by the Company and CIM
will further reduce costs at the Company over the balance of this
year.
ISS Recommendation. We respect ISS’s position. At the
same time, however, ISS’s rating system on executive compensation
is not designed to evaluate the external management structure under
which the Company operates. For example, CMCT is not directly
responsible for bearing any of the compensation of its Chief
Executive Officer and Chief Financial Officer. CIM Group pays for
such compensation.
CMCT CEO. As with any externally managed entity, the
Company benefits from the role played by its executive officers
(including, in our case, David Thompson as CEO) within the external
manager and other vehicles operated by the external manager. In the
case of the Company, David’s involvement in the real estate equity
and debt markets enhances the perspective he brings as CEO. David
is a talented executive with decades of experience in the real
estate industry and will devote as much time as is necessary to
manage the affairs of the Company.
As the largest shareholder of the Company, the interests of CIM,
as operator, and CMCT are obviously strongly aligned. Management,
CIM Group, and the Board intend to continue to build shareholder
value by increasing NAV and distributable cash flow through
operating improvements, deploying capital in high-return projects
and taking advantage of dislocation in the current market. We
expect these efforts, for the benefit of all shareholders, will be
appreciated by current and potential shareholders and the value of
CMCT shares will reflect the intrinsic value of those shares and
contribute to increasing shareholder value. Committing to
liquidating assets of the Company at a time of tremendous market
dislocation and uncertainty will create the opposite result.
Despite the many conversations between Engine and CMCT over the
last 6 months, we haven’t had the opportunity to address all of
your points in a comprehensive manner until now. We hope this
response provides additional detail and clarity about the actions
undertaken, and in process, regarding each issue in your letter. As
we have mentioned in our conversations, we welcome input from you
and our other shareholders as we continue our focus on building
shareholder value that benefits all of our shareholders.
Yours sincerely,
/s/ Richard Ressler
Richard Ressler Chairman of the Board of Directors
ABOUT CIM COMMERCIAL TRUST CORPORATION
CIM Commercial Trust is a real estate investment trust that
primarily acquires, owns, and operates Class A and creative office
assets in vibrant and improving metropolitan communities throughout
the United States. Its properties are primarily located in Los
Angeles and the San Francisco Bay Area. CIM Commercial Trust is
operated by affiliates of CIM Group, L.P., a vertically-integrated
owner and operator of real assets with multi-disciplinary expertise
and in-house research, acquisition, credit analysis, development,
finance, leasing, and onsite property management capabilities.
www.cimcommercial.com
FORWARD-LOOKING STATEMENTS
This press release contains "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of
1995, including, among others, statements about CIM Commercial's
outlook for net income (loss), NOI and derivations thereof. Such
forward-looking statements are based on particular assumptions that
management of CIM Commercial has made in light of its experience,
as well as its perception of expected future developments and other
factors that it believes are appropriate under the circumstances.
Forward-looking statements are necessarily estimates reflecting the
judgment of CIM Commercial's management and involve a number of
risks and uncertainties that could cause actual results to differ
materially from those suggested by the forward-looking statements.
These risks and uncertainties include those associated with (i) the
scope, severity and duration of the current pandemic of the novel
coronavirus, or COVID-19, and actions taken to contain the pandemic
or mitigate its impact, (ii) the potential adverse effect of the
COVID-19 pandemic on the financial condition, results of
operations, cash flows and performance of CIM Commercial and its
tenants and business partners, the real estate market and the
global economy and financial markets, (iii) the timing, form, and
operational effects of CIM Commercial's development activities,
(iv) the ability of CIM Commercial to raise in place rents to
existing market rents, (v) fluctuations in market rents, including
as a result of COVID-19, and (vi) general economic, market and
other conditions. The forward-looking statements included herein
are based on current expectations and there can be no assurance
that these expectations will be attained. Assumptions relating to
the foregoing involve judgments with respect to, among other
things, future economic, competitive and market conditions and
future business decisions, all of which are difficult or impossible
to predict accurately and many of which are beyond our control.
Although we believe that the assumptions underlying the
forward-looking statements are reasonable, any of the assumptions
could be inaccurate and, therefore, there can be no assurance that
the forward-looking statements included in this earnings release
will prove to be accurate. In light of the significant
uncertainties inherent in the forward-looking statements included
herein, the inclusion of such information should not be regarded as
a representation by us or any other person that our objectives and
plans will be achieved. For a further list and description of the
risks and uncertainties inherent in forward-looking statements, see
CIM Commercial's Annual Report on Form 10-K for the fiscal year
ended December 31, 2019 and Quarterly Report on Form 10-Q for the
quarter ended March 31, 2020. Forward-looking statements are not
guarantees of performance or results and speak only as of the date
such statements are made. CIM Commercial undertakes no obligation
to publicly update or release any revisions to its forward-looking
statements, whether to reflect new information, future events,
changes in assumptions or circumstances or otherwise, except as
required by law.
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version on businesswire.com: https://www.businesswire.com/news/home/20200526005245/en/
Media Relations: Bill Mendel, 212-397-1030
bill@mendelcommunications.com or Shareholder Relations:
Steve Altebrando, 646-652-8473 shareholders@cimcommercial.com
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