Four CIM REITs to Merge
September 1, 2020 | Luke Schmidt | Blue Vault
On August 30, 2020, four non-traded REITs sponsored by CIM Group agreed to merge in separate stock-for-stock transactions. CIM Real Estate Finance Trust, Inc. (“CMFT”), Cole Office & Industrial REIT (CCIT II), Inc. (“CCIT II”), Cole Office & Industrial REIT (CCIT III), Inc. (“CCIT III”), and Cole Credit Property Trust V, Inc. (“CCPT V”) agreed to separate mergers. CRFT will be the surviving entity after the completion of the mergers and will retain the name CIM Real Estate Finance Trust, Inc. The transactions are expected to close in the fourth quarter of 2020, subject to customary closing conditions, including the approval of the respective mergers by stockholders of each company. The transactions are expected to close concurrently but are not cross-conditioned on the consummation of the other transactions.
The pro forma combined company would have approximately $5.9 billion in total asset value, creating a leading commercial real estate credit-focused REIT, primarily invested in net lease assets and commercial real estate debt.
“Following the onset of the COVID-19 pandemic and the related economic impact of shutdowns, each of CMFT, CCIT II, CCIT III, and CCPT V undertook comprehensive reviews of their businesses and prospects and concluded that greater scale, tenant diversity, asset type diversity, financial strength and fund raising flexibility would best position each of them to thrive in a post-pandemic economic environment. CIM took immediate action and recommended to the Boards of Directors of each REIT to explore a combination to form a larger, more diversified company focused on long-term value creation,” said Richard Ressler, Principal and Co-Founder of CIM Group. “The Boards of Directors believe that the combined company will provide several benefits for stockholders and will be well-positioned to navigate the post-COVID economic environment with enhanced financial and operational flexibility and efficiency, making the combined company more valuable.”
Subject to the terms and conditions of the merger agreements, CCIT II, CCIT III and CCPT V stockholders would receive, for each share of common stock owned, 1.501,1.093 and 2.691 shares, respectively, of CMFT common stock, which is valued at approximately $10.97 per CCIT II share, $7.99 per CCIT III share and $19.67 per CCPT V share, based on CMFT’s most recently estimated net asset value per share of $7.31.
The combined company will have a larger, more diversified portfolio which will enable it to pursue growth strategies and reposition its portfolio mix of net lease assets, multi-tenant retail assets and CRE debt. As of June 30, 2020, the combined company’s asset mix was approximately 38% retail net lease, 28% multi-tenant retail, 20% office net lease, 11% loans and 3% industrial net lease assets.
The merger transactions will also diversify the combined company’s tenant base. As of June 30, 2020, the pro forma real estate portfolio had 559 properties totaling approximately 25.8 million square feet, with an occupancy rate of approximately 96%, a weighted average lease term of approximately 8.8 years, and, as a percentage of annualized rental income, investment-grade tenancy of approximately 41%, with its top 10 tenants generating approximately 30%, and no tenant generating more than 4.2%, of annualized rental income.
The following table gives the tenants with the largest number of sites in the pro forma portfolio (as of September 1, 2020):
The transactions will also provide the combined company with greater access to debt and equity capital markets and will better position the company for an eventual future liquidity event. The combined company is expected to realize approximately $3.5 million in annual savings due to operational efficiencies.
Following the closings of the merger transactions, former stockholders of CMFT, CCIT II, CCIT III and CCPT V are expected to own approximately 67%, 22%, 1% and 10% of the combined company, respectively. Upon closing, the Board of Directors of the combined company will be increased so that all independent directors of CCIT II, CCIT III and CCPT V that are not currently independent directors of CMFT will be added to the Board. It is anticipated that at the next CMFT annual stockholder meeting, 5 to 7 directors will be recommended for election.
The distribution reinvestment plans and share redemption programs of each REIT will be suspended pending the closing of the proposed transactions.
Sources: SEC, CIM, Blue Vault
