8-K
CIM REAL ESTATE FINANCE TRUST, INC. (CMRF)
| UNITED STATES |
|---|
| SECURITIES AND EXCHANGE COMMISSION |
| Washington, D.C. 20549 |
FORM 8-K
| CURRENT REPORT |
|---|
| PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Date of Report (Date of earliest event reported): February 11, 2022
| CIM Real Estate Finance Trust, Inc. |
|---|
| (Exact Name of Registrant as Specified in Its Charter) |
Commission file number 000-54939
| Maryland | 27-3148022 | |
|---|---|---|
| (State or other jurisdiction of<br>incorporation or organization) | (I.R.S. Employer Identification Number) | |
| 2398 East Camelback Road, 4th Floor | ||
| Phoenix, | Arizona | 85016 |
| (Address of principal executive offices) | (Zip Code) | |
| (602) | 778-8700 | |
| (Registrant’s telephone number, including area code) | ||
| None | ||
| (Former name or former address, if changed since last report) |
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol | Name of each exchange on which registered |
|---|---|---|
| None | None | None |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act o
| Item 2.01 | Completion of Acquisition or Disposition of Assets. |
|---|
As previously reported, on December 20, 2021, certain subsidiaries (collectively, the “Seller”) of CIM Real Estate Finance Trust, Inc. (the “Company” or “CMFT”) entered into an Agreement of Purchase and Sale, as amended (the “Purchase and Sale Agreement”) with American Finance Trust, Inc. (now known as The Necessity Retail REIT, Inc.) (NASDAQ: AFIN) (“AFIN”), American Finance Operating Partnership, L.P. (now known as The Necessity Retail REIT Operating Partnership, L.P.) (“AFIN OP”), and certain of their subsidiaries (collectively, the “Purchaser”). The Purchaser is not affiliated with the Seller. Under the terms of the Purchase and Sale Agreement, the Seller agreed to sell to the Purchaser 79 shopping centers and two single-tenant properties encompassing approximately 9.5 million gross rentable square feet of commercial space across 27 states for total consideration of $1.32 billion (the “Purchase Price”). The Purchase Price includes the Purchaser’s option to seek the assumption of certain existing debt, and Purchaser’s issuance of up to $53.4 million in value of AFIN’s Class A common stock, par value $0.01 per share (“AFIN Common Stock”), or Class A units in AFIN OP (“AFIN OP Units”), subject to certain limits described more fully in the Purchase and Sale Agreement.
The sale of 44 of the properties under contract for sale pursuant to the Purchase and Sale Agreement closed on February 11, 2022 for total consideration of $557.0 million, which consists of $530.3 million in cash proceeds (inclusive of $9.6 million in earnout proceeds) and $26.7 million of AFIN Common Stock, which shares are restricted and subject to certain registration rights as described in the Purchase and Sale Agreement. The remaining 37 properties are expected to close in phases during the first and early second quarter of 2022.
After the repayment of approximately $348.2 million of debt and $6.7 million of certain transaction costs, the Company will redeploy the net sale proceeds into investments in senior secured loans and credit leases, consistent with its core business strategy as a credit-focused real estate investment trust.
| Item 9.01 | Financial Statements and Exhibits. |
|---|
Explanatory Note
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Company is providing the pro forma financial information required by Item 9.01 related to the sale of 44 properties on February 11, 2022 (the “Initial Closing”), along with the remaining 37 properties expected to close during 2022 (the “Proposed Closing”).
In addition, as previously reported, on December 16, 2021, the Company completed a merger (the “Merger”) with CIM Income NAV, Inc. (“CIM Income NAV”), pursuant to the Agreement and Plan of Merger, dated as of September 21, 2021, by and among the Company, Cypress Merger Sub, LLC, a wholly owned subsidiary of the Company (“Merger Sub”), and CIM Income NAV. The merger was a stock-for-stock transaction whereby CIM Income NAV merged into a wholly-owned subsidiary of CMFT.
The accompanying unaudited pro forma condensed consolidated balance sheet of the Company as of September 30, 2021 is presented as if each of the Merger, the Initial Closing and the Proposed Closing had occurred on September 30, 2021. The accompanying unaudited pro forma condensed consolidated statements of operations of the Company for the nine months ended September 30, 2021 and for the year ended December 31, 2020 are presented as if each of the Merger, the Initial Closing and the Proposed Closing had occurred on January 1, 2020.
The accompanying unaudited pro forma condensed consolidated financial statements reflect all adjustments that, in the opinion of management, are necessary to present fairly the pro forma financial position and results of operations of the Company as of and for the periods indicated; however, the accompanying unaudited pro forma condensed consolidated financial statements are not intended to be indicative of the financial position or results of operations that would have actually occurred nor do they purport to represent the financial position or results of operations for future periods. The retrospectively adjusted financial position and results of operations for the indicated periods when reported in the post-sale periodic reports may differ from the pro forma financial statements presented herein. The unaudited pro forma condensed consolidated financial statements should be read in conjunction with the historical consolidated financial statements and notes accompanying the Company’s Quarterly Report on Form 10-Q for the nine months ended September 30, 2021 and the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. The unaudited pro forma condensed consolidated statements of operations do not include the impact of any strategies that management may have considered in order to efficiently manage the Company's operations had the sale occurred on January 1, 2020. Pro forma adjustments have not been made in the accompanying pro forma condensed consolidated statements of operations of the Company for the estimated gain on disposition resulting from the sale, for any reimbursements or payments resulting from the sale, or for the use of proceeds resulting from the sale.
| Financial Statements and Exhibits | |
|---|---|
| (b) Pro Forma Financial Information | |
| Pro Forma Condensed Consolidated Balance Sheet as of September 30, 2021 (Unaudited) | 4 |
| Pro Forma Condensed Consolidated Statement of Operations for the Nine Months Ended September 30, 2021 (Unaudited) | 5 |
| Pro FormaCondensedConsolidated Statement of Operations for the Year Ended December 31, 2020 (Unaudited) | 6 |
| Notes to Pro FormaCondensedConsolidated Financial Statements (Unaudited) | 7 |
| (c) Shell Company Transactions | |
| None | |
| (d) Exhibits | |
| None |
CIM REAL ESTATE FINANCE TRUST, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
As of September 30, 2021
(in thousands, except share and per share amounts) (Unaudited)
| CMFT | CIM Income NAV | Merger Transaction Accounting Adjustments | Combined Company Pro - Forma | Disposition Transaction Accounting Adjustments | CMFT | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| As Reported | As Reported | Initial Closing | Proposed Closing | Pro - Forma | ||||||||||||||||
| (a) | (a) | (b) | (b) | |||||||||||||||||
| ASSETS | ||||||||||||||||||||
| Real estate assets: | ||||||||||||||||||||
| Land | $ | 812,308 | $ | 133,030 | $ | 26,540 | (c) | $ | 971,878 | $ | (129,785) | $ | (195,284) | $ | 646,809 | |||||
| Buildings, fixtures and improvements | 2,145,479 | 610,753 | 30,510 | (c) | 2,786,742 | (463,051) | (620,239) | 1,703,452 | ||||||||||||
| Intangible lease assets | 347,370 | 103,021 | 9,854 | (c) | 460,245 | (56,037) | (86,511) | 317,697 | ||||||||||||
| Condominium developments | 189,277 | — | — | 189,277 | — | — | 189,277 | |||||||||||||
| Total real estate assets, at cost | 3,494,434 | 846,804 | 66,904 | (c) | 4,408,142 | (648,873) | (902,034) | 2,857,235 | ||||||||||||
| Less: accumulated depreciation and amortization | (459,138) | (117,313) | 117,313 | (d) | (459,138) | 94,597 | 149,756 | (214,785) | ||||||||||||
| Total real estate assets, net | 3,035,296 | 729,491 | 184,217 | 3,949,004 | (554,276) | (752,278) | 2,642,450 | |||||||||||||
| Investments in CIM UII Onshore, net | — | 53,032 | — | 53,032 | — | — | 53,032 | |||||||||||||
| Investments in marketable securities | — | 15,774 | — | 15,774 | 26,694 | (e) | 26,694 | (e) | 69,162 | |||||||||||
| Total real estate assets, equity investments and marketable securities, net | 3,035,296 | 798,297 | 184,217 | 4,017,810 | (527,582) | (725,584) | 2,764,644 | |||||||||||||
| Real estate-related securities | 185,247 | — | — | 185,247 | — | — | 185,247 | |||||||||||||
| Loans held-for-investment and related receivables, net | 1,462,292 | — | — | 1,462,292 | — | — | 1,462,292 | |||||||||||||
| Less: Allowance for credit losses | (11,219) | — | — | (11,219) | — | — | (11,219) | |||||||||||||
| Total loans held-for-investment and related receivables, net | 1,451,073 | — | — | 1,451,073 | — | — | 1,451,073 | |||||||||||||
| Cash and cash equivalents | 289,840 | 8,859 | (6,171) | (f) | 292,528 | 175,482 | (g) | 259,881 | (h) | 727,891 | ||||||||||
| Restricted cash | 36,762 | 491 | — | 37,253 | — | (1,874) | 35,379 | |||||||||||||
| Rents and tenant receivables | 60,476 | 16,060 | — | 76,536 | (13,077) | (21,921) | 41,538 | |||||||||||||
| Prepaid expenses and other assets | 16,830 | 1,095 | — | 17,925 | (1,739) | (2,955) | 13,231 | |||||||||||||
| Deferred costs, net | 4,034 | 204 | (204) | (i) | 4,034 | — | — | 4,034 | ||||||||||||
| Due from affiliates | — | — | — | — | — | — | — | |||||||||||||
| Assets held for sale | 1,301 | — | — | 1,301 | — | — | 1,301 | |||||||||||||
| Total assets | $ | 5,080,859 | $ | 825,006 | $ | 177,842 | $ | 6,083,707 | $ | (366,916) | $ | (492,453) | $ | 5,224,338 | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||||||
| Credit facilities, notes payable and repurchase facilities, net | $ | 2,776,215 | $ | 437,166 | $ | 700 | (i) | $ | 3,214,081 | $ | (348,194) | (j) | $ | (497,378) | (j) | $ | 2,368,509 | |||
| Accrued expenses and accounts payable | 36,935 | 4,397 | — | 41,332 | (7,927) | (12,453) | 20,952 | |||||||||||||
| Due to affiliates | 15,124 | 15,690 | (11,523) | (k) | 19,291 | 2 | — | 19,293 | ||||||||||||
| Intangible lease liabilities, net | 24,998 | 10,997 | (5,033) | (c) | 30,962 | (3,296) | (5,872) | 21,794 | ||||||||||||
| Distributions and redemptions payable | 10,985 | 2,278 | — | 13,263 | — | — | 13,263 | |||||||||||||
| Deferred rental income, derivative liabilities and other liabilities | 11,666 | 5,364 | — | 17,030 | (2,092) | (4,230) | 10,708 | |||||||||||||
| Total liabilities | 2,875,923 | 475,892 | (15,856) | 3,335,959 | (361,507) | (519,933) | 2,454,519 | |||||||||||||
| Commitments and contingencies | ||||||||||||||||||||
| Redeemable common stock | 170,629 | — | — | 170,629 | — | — | 170,629 | |||||||||||||
| STOCKHOLDERS’ EQUITY | ||||||||||||||||||||
| Preferred stock, $0.01 par value per share | — | — | — | — | — | — | — | |||||||||||||
| Common stock, $0.01 par value per share | 3,625 | 293 | 454 | (l) | 4,372 | — | — | 4,372 | ||||||||||||
| Capital in excess of par value | 2,991,308 | 489,010 | 47,801 | (l) | 3,528,119 | — | — | 3,528,119 | ||||||||||||
| Accumulated distributions in excess of earnings | (962,190) | (137,490) | 145,443 | (m) | (954,237) | (5,409) | (n) | 27,698 | (n) | (931,948) | ||||||||||
| Accumulated other comprehensive income (loss) | 1,564 | (3,391) | — | (1,827) | — | (218) | (o) | (2,045) | ||||||||||||
| Total stockholders’ equity | 2,034,307 | 348,422 | 193,698 | 2,576,427 | (5,409) | 27,480 | 2,598,498 | |||||||||||||
| Non-controlling interests | — | 692 | — | 692 | — | — | 692 | |||||||||||||
| Total equity | $ | 2,034,307 | $ | 349,114 | $ | 193,698 | $ | 2,577,119 | $ | (5,409) | $ | 27,480 | $ | 2,599,190 | ||||||
| Total liabilities, redeemable common stock and stockholders’ equity | $ | 5,080,859 | $ | 825,006 | $ | 177,842 | $ | 6,083,707 | $ | (366,916) | $ | (492,453) | $ | 5,224,338 |
The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements.
CIM REAL ESTATE FINANCE TRUST, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 2021
(in thousands, except share and per share amounts) (Unaudited)
| CMFT | CIM Income NAV | Merger Transaction Accounting Adjustments | Combined Company Pro - Forma | Disposition Transaction Accounting Adjustments | CMFT | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| As Reported | As Reported | Initial Closing | Proposed Closing | Pro - Forma | ||||||||||||||||
| (a) | (a) | (b) | (b) | |||||||||||||||||
| Revenues: | ||||||||||||||||||||
| Rental and other property income | $ | 223,026 | $ | 53,934 | $ | 795 | (c) | $ | 277,755 | $ | (52,217) | $ | (62,317) | $ | 163,221 | |||||
| Interest income | 48,168 | 231 | — | 48,399 | — | — | 48,399 | |||||||||||||
| Total revenues | 271,194 | 54,165 | 795 | 326,154 | (52,217) | (62,317) | 211,620 | |||||||||||||
| Operating expenses: | ||||||||||||||||||||
| General and administrative | 11,109 | 2,989 | (4,266) | (d) | 9,832 | (17) | (59) | 9,756 | ||||||||||||
| Property operating | 32,632 | 3,160 | — | 35,792 | (8,103) | (10,041) | 17,648 | |||||||||||||
| Real estate tax | 27,516 | 3,464 | — | 30,980 | (8,386) | (10,146) | 12,448 | |||||||||||||
| Expense reimbursements to related parties | 8,387 | 3,114 | (1,378) | (e) | 10,123 | (95) | (92) | 9,936 | ||||||||||||
| Management fees | 35,035 | — | 11,473 | (f) | 46,508 | (436) | (f) | (423) | (f) | 45,649 | ||||||||||
| Advisory and performance fees | — | 5,806 | (5,806) | (g) | — | — | — | — | ||||||||||||
| Transaction-related | 37 | — | — | 37 | — | — | 37 | |||||||||||||
| Depreciation and amortization | 73,186 | 20,189 | 6,782 | (h) | 100,157 | (15,658) | (18,990) | 65,509 | ||||||||||||
| Real estate impairment | 5,268 | 563 | — | 5,831 | (982) | — | 4,849 | |||||||||||||
| Provision for credit losses | (1,101) | — | — | (1,101) | — | — | (1,101) | |||||||||||||
| Total operating expenses | 192,069 | 39,285 | 6,805 | 238,159 | (33,677) | (39,751) | 164,731 | |||||||||||||
| Gain on disposition of real estate, net | 80,502 | 3,634 | — | 84,136 | — | — | 84,136 | |||||||||||||
| Merger-related expenses, net | (398) | (975) | 1,373 | (i) | — | — | — | — | ||||||||||||
| Operating income | 159,229 | 17,539 | (4,637) | 172,131 | (18,540) | (22,566) | 131,025 | |||||||||||||
| Other expense: | ||||||||||||||||||||
| Gain on investment in CIM UII Onshore | — | 7,590 | — | 7,590 | — | — | 7,590 | |||||||||||||
| Interest expense and other, net | (56,863) | (13,372) | 791 | (j) | (69,444) | 4,487 | (k) | 14,581 | (k) | (50,376) | ||||||||||
| Loss on extinguishment of debt | (4,729) | — | — | (4,729) | 23 | 1 | (4,705) | |||||||||||||
| Total other expense | (61,592) | (5,782) | 791 | (66,583) | 4,510 | 14,582 | (47,491) | |||||||||||||
| Net income | 97,637 | 11,757 | (3,846) | 105,548 | (14,030) | (7,984) | 83,534 | |||||||||||||
| Net income allocated to noncontrolling interest | — | 26 | — | 26 | — | — | 26 | |||||||||||||
| Net income attributable to the Company | $ | 97,637 | $ | 11,731 | $ | (3,846) | $ | 105,522 | $ | (14,030) | $ | (7,984) | $ | 83,508 | ||||||
| Common Stock: | ||||||||||||||||||||
| Net income | $ | 97,637 | $ | 11,731 | $ | (3,846) | $ | 105,522 | $ | (14,030) | $ | (7,984) | $ | 83,508 | ||||||
| Basic and diluted weighted average number of common shares outstanding | 362,387,909 | 29,783,655 | 44,877,170 | (l) | 437,048,734 | — | — | 437,048,734 | ||||||||||||
| Basic and diluted net income per common share | $ | 0.27 | $ | 0.39 | $ | — | $ | 0.24 | $ | — | $ | — | $ | 0.19 |
The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements.
CIM REAL ESTATE FINANCE TRUST, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2020
(in thousands, except share and per share amounts) (Unaudited)
| CMFT | CIM Income NAV | Merger Transaction Accounting Adjustments | Combined Company Pro - Forma | Disposition Transaction Accounting Adjustments | CMFT | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| As Reported | As Reported | Initial Closing | Proposed Closing | Pro - Forma | ||||||||||||||||
| (a) | (a) | (b) | (b) | |||||||||||||||||
| Revenues: | ||||||||||||||||||||
| Rental and other property income | $ | 261,530 | $ | 72,596 | $ | 515 | (c) | $ | 334,641 | $ | (57,240) | $ | (79,110) | $ | 198,291 | |||||
| Interest income | 29,393 | 345 | — | 29,738 | — | — | 29,738 | |||||||||||||
| Total revenues | 290,923 | 72,941 | 515 | 364,379 | (57,240) | (79,110) | 228,029 | |||||||||||||
| Operating expenses: | ||||||||||||||||||||
| General and administrative | 15,385 | 5,512 | (7,788) | (d) | 13,109 | (71) | (81) | 12,957 | ||||||||||||
| Property operating | 23,399 | 4,971 | — | 28,370 | (6,716) | (12,061) | 9,593 | |||||||||||||
| Real estate tax | 27,691 | 5,703 | — | 33,394 | (9,240) | (13,155) | 10,999 | |||||||||||||
| Management and advisory fees and expenses | 44,743 | 6,382 | 12,563 | (f) (g) | 63,688 | (581) | (f) | (566) | (f) | 62,541 | ||||||||||
| Transaction-related | 905 | 726 | — | 1,631 | (8) | (9) | 1,614 | |||||||||||||
| Depreciation and amortization | 80,973 | 27,647 | 8,314 | (h) | 116,934 | (17,380) | (21,567) | 77,987 | ||||||||||||
| Real estate impairment | 16,737 | 13,851 | — | 30,588 | (5,365) | (7,180) | 18,043 | |||||||||||||
| Provision for credit losses | 68,356 | — | — | 68,356 | — | — | 68,356 | |||||||||||||
| Total operating expenses | 278,189 | 64,792 | 13,089 | 356,070 | (39,361) | (54,619) | 262,090 | |||||||||||||
| Gain on disposition of real estate, net | 27,518 | 627 | — | 28,145 | — | — | 28,145 | |||||||||||||
| Merger-related expenses, net | (2,193) | — | — | (2,193) | — | — | (2,193) | |||||||||||||
| Merger termination fee income | 7,380 | — | — | 7,380 | — | — | 7,380 | |||||||||||||
| Operating income (loss) | 45,439 | 8,776 | (12,574) | 41,641 | (17,879) | (24,491) | (729) | |||||||||||||
| Other expense: | ||||||||||||||||||||
| Loss on investment in CIM UII Onshore | — | (2,660) | — | (2,660) | — | — | (2,660) | |||||||||||||
| Interest expense and other, net | (64,116) | (17,127) | 1,259 | (j) | (79,984) | 3,505 | (k) | 18,533 | (k) | (57,946) | ||||||||||
| Loss on extinguishment of debt | (4,841) | — | — | (4,841) | 9 | 16 | (4,816) | |||||||||||||
| Total other expenses | (68,957) | (19,787) | 1,259 | (87,485) | 3,514 | 18,549 | (65,422) | |||||||||||||
| Net loss | (23,518) | (11,011) | (11,315) | (45,844) | (14,365) | (5,942) | (66,151) | |||||||||||||
| Net income allocated to noncontrolling interest | — | 32 | — | 32 | — | — | 32 | |||||||||||||
| Net loss attributable to the Company | $ | (23,518) | $ | (11,043) | $ | (11,315) | $ | (45,876) | $ | (14,365) | $ | (5,942) | $ | (66,183) | ||||||
| Common Stock: | ||||||||||||||||||||
| Net loss | $ | (23,518) | $ | (11,043) | $ | (11,315) | $ | (45,876) | $ | (14,365) | $ | (5,942) | $ | (66,183) | ||||||
| Basic and diluted weighted average number of common shares outstanding | 311,808,605 | 31,457,553 | 43,203,272 | (l) | 386,469,430 | — | — | 386,469,430 | ||||||||||||
| Basic and diluted net loss per common share | $ | (0.08) | $ | (0.35) | $ | — | $ | (0.12) | $ | — | $ | — | $ | (0.17) |
The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements.
CIM REAL ESTATE FINANCE TRUST, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
TRANSACTION ACCOUNTING ADJUSTMENTS
The transaction accounting adjustments are based on our preliminary estimates and assumptions that are subject to change. The following adjustments have been reflected in the unaudited pro forma condensed consolidated financial information:
Adjustments to the Unaudited Pro Forma Condensed Consolidated Balance Sheet as of September 30, 2021
(a)Reflects the historical unaudited condensed consolidated balance sheets for each of CMFT and CIM Income NAV as of September 30, 2021, which were included in the Quarterly Report on Form 10-Q for each company, each as filed with the Securities and Exchange Commission (the “SEC”) on November 15, 2021.
(b)Reflects the Company’s property-level historical financial position related to the properties involved in each of the Initial Closing and the Proposed Closing as of September 30, 2021, except for certain of the pro forma adjustments described below that are a direct result of the transaction.
Real estate assets; Intangible lease liabilities
(c)The acquired real estate related identifiable assets and liabilities assumed in connection with the Merger are reflected in the unaudited pro forma condensed consolidated balance sheet at their preliminary relative fair values. The preliminary relative fair values are based, in part, on a valuation prepared by us with assistance of a third-party valuation advisor. The acquired assets and assumed liabilities for an acquired property generally include, but are not limited to: land, buildings and improvements, and to identified intangible assets and liabilities, consisting of the value of above- and below-market leases and the value of in-place leases, and other intangibles, based in each case on their relative fair values. The adjustments reflected in the unaudited pro forma condensed consolidated balance sheet for real estate assets, intangible assets and intangible liabilities represent the differences between the preliminary relative fair value of condensed consolidated properties acquired by CMFT in connection with the Merger, and CIM Income NAV’s historical balances, which are presented as follows (in thousands):
| CIM Income NAV | Merger Transaction Accounting Adjustments | Preliminary Purchase Price Allocations | ||||
|---|---|---|---|---|---|---|
| As Reported | ||||||
| Land | $ | 133,030 | $ | 26,540 | $ | 159,570 |
| Building and improvements | 610,753 | 30,511 | 641,264 | |||
| Acquired in-place leases and other intangibles | 89,808 | 13,164 | 102,972 | |||
| Acquired above-market leases | 13,213 | (3,310) | 9,903 | |||
| Intangible lease liabilities | (10,997) | 5,033 | (5,964) | |||
| Fair value adjustment of assumed notes payable | — | (115) | (115) | |||
| Total estimated purchase price | $ | 835,807 | $ | 71,823 | $ | 907,630 |
The fair value of the tangible assets of an acquired property (which includes land, buildings and improvements) are determined by valuing the property as if it were vacant, and the “as-if-vacant” value is then allocated to land and buildings and improvements based on management’s determination of the relative fair value of these assets. Management determines the as-if-vacant fair value of a property using methods similar to those used by independent appraisers.
The determination of the fair values of above-market and below-market in-place leases requires the use of significant assumptions with regard to the current market rental rates, rental growth rates, capitalization and discount rates, interest rates and other variables. The above-market and below-market lease values are capitalized as intangible lease assets or liabilities. Above-market lease values are amortized as an adjustment of rental income over the remaining terms of the respective leases. Below-market leases are amortized as an adjustment of rental income over the remaining terms of the respective leases, including any fixed rate bargain renewal periods.
The fair values of in-place leases include an estimate of direct costs associated with obtaining a new tenant and opportunity costs associated with lost rentals that are avoided by acquiring an in-place lease. Direct costs associated with obtaining a new tenant include commissions, tenant improvements, and other direct costs and are estimated based on management’s consideration of current market costs to execute a similar lease. The value of opportunity costs is calculated using the contractual amounts to be paid pursuant to the in-place leases over a market absorption period for a similar lease. The fair value of in-place leases are capitalized as intangible lease assets. These intangible lease assets are amortized to expense over the remaining terms of the respective leases.
CIM REAL ESTATE FINANCE TRUST, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Accumulated depreciation and amortization
(d)Reflects the elimination of CIM Income NAV’s historical accumulated depreciation and amortization of real estate assets as of September 30, 2021, including accumulated amortization of above- and below-market rents, as if the Merger had occurred on September 30, 2021 and the remaining useful lives of CIM Income NAV’s real estate assets were reset on that same day.
Investments in marketable securities
(e)Pursuant to the Purchase and Sale Agreement filed with the SEC on December 20, 2021 in the Company’s Current Report on Form 8-K, the Purchase Price includes the issuance of up to $53.4 million in value of AFIN Common Stock or AFIN OP Units to the Company, 50% of which was issued in AFIN Common Stock as part of the Initial Closing.
Cash and cash equivalents
(f)Reflects merger-related transaction costs incurred at closing, including legal, consulting and other professional fees.
(g)Reflects the $557.0 million in total consideration expected to be received under the Initial Closing, less certain other amounts including, but not limited to, the following: the issuance of $26.7 million of AFIN Common Stock to the Company (discussed in (e) above), the repayment of $23.1 million of certain mortgage notes due to the disposition of the underlying properties, the repayment of $325.1 million on the secured first lien mortgage loan, and $6.7 million in certain transaction costs.
(h)Reflects the $789.7 million in total consideration expected to be received under the Proposed Closing, less certain other amounts including, but not limited to, the following: the remaining 50% issuance of AFIN Common Stock or AFIN OP Units to the Company (discussed in (e) above), the assumption by the Purchaser of $357.2 million of certain mortgage notes, repayment of the remaining $126.8 million on the secured first lien mortgage loan, the repayment of a $13.4 million mortgage note due to the disposition of the underlying property, and $6.1 million in certain transaction costs.
Deferred costs, net; Credit facilities, notes payable and repurchase facilities, net
(i)Reflects adjustments to CIM Income NAV’s credit facility as if the Merger had occurred on September 30, 2021, including the elimination of CIM Income NAV’s deferred costs, net, the fair value adjustment of CIM Income NAV’s debt outstanding, and the write off of CIM Income NAV’s deferred financing costs related to debt outstanding.
(j)Reflects certain amounts expected to be repaid or assumed under the Initial Closing and the Proposed Closing as discussed in (g) and (h) above, including, but not limited to, the following: the repayment of certain mortgage notes due to the disposition of the underlying properties, the assumption by the Purchaser of certain mortgage notes, the repayment of the secured first lien mortgage loan and the repayment and early termination of an interest rate swap agreement on a mortgage note due to the disposition of the underlying property.
Due to affiliates
(k)Reflects the elimination of CIM Income NAV’s historical estimated liability for future stockholder servicing fees payable as of September 30, 2021. Historically, an estimated liability for future stockholder servicing fees payable was recognized at the time each share of CIM Income NAV common stock designated as Class D, Class T and Class S was sold and included in due to affiliates in CIM Income NAV’s condensed consolidated balance sheets. Upon the closing of the Merger, the distribution and stockholder servicing fee obligations relating to the CIM Income NAV common stock designated as Class D, Class T and Class S terminated.
Common stock; Capital in excess of par value
(l)Reflects adjustments to retire CIM Income NAV’s historical common stock and capital in excess of par value as if the Merger had occurred on September 30, 2021. Adjustments included the conversion of each share of CIM Income NAV common stock issued and outstanding as of September 30, 2021 into the right to receive CMFT common stock, as illustrated below:
CIM REAL ESTATE FINANCE TRUST, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| Share conversion: | Conversion Ratios | Converted CMFT Shares | |
|---|---|---|---|
| D Shares | 2.574 | 37,989,069 | |
| T Shares | 2.510 | 33,837,915 | |
| S Shares | 2.508 | 19,460 | |
| I Shares | 2.622 | 2,814,381 | |
| Total | 74,660,825 | ||
| Adjustment to common stock: | (in thousands) | ||
| Elimination of historical CIM Income NAV par value | $ | (293) | |
| Conversion of CIM Income NAV common stock into CMFT common stock (1) | 747 | ||
| Transaction accounting adjustment | $ | 454 | |
| Adjustments to capital in excess of par value: | (in thousands) | ||
| Elimination of historical CIM Income NAV additional-paid-in capital | $ | (489,010) | |
| Conversion of CIM Income NAV common stock into CMFT common stock (1) (2) | 536,811 | ||
| Transaction accounting adjustment | $ | 47,801 | |
| (1) Each share of CMFT common stock has a par value of 0.01 per share included in common stock on the condensed combined balance sheets | |||
| (2) Each share of CMFT common stock has a net asset value (“NAV”) of 7.20 per share (as established by the board of directors on May 25, 2021 using a valuation date of March 31, 2021) included in capital in excess of par value on the condensed consolidated balance sheets |
All values are in US Dollars.
Accumulated distributions in excess of earnings
(m)Reflects the elimination of CIM Income NAV’s historical accumulated distributions in excess of earnings as if the Merger had occurred on September 30, 2021, adjusted for estimated transaction costs to be incurred upon closing.
(n)Reflects the estimated net increase in equity resulting from the Initial Closing and the Proposed Closing, net of the assumption by the Purchaser of certain mortgage notes.
Accumulated other comprehensive income
(o)Reflects the estimated gain resulting from the early termination of an interest rate swap agreement on a mortgage note due to the disposition of the underlying property.
Adjustments to the Unaudited Pro Forma Condensed Consolidated Statements of Operations for the Nine Months Ended September 30, 2021 and the Year Ended December 31, 2020
(a)Reflects the historical unaudited condensed consolidated statements of operations for the nine months ended September 30, 2021, which were included in the Quarterly Report on Form 10-Q for each company, each as filed with the SEC on November 15, 2021, and the Annual Report on Form 10-K for each company, each as filed with the SEC on March 31, 2021, respectively.
(b)Reflects the Company’s property-level historical results of operations related to the properties involved in each of the Initial Closing and the Proposed Closing for the nine months ended September 30, 2021, and the Company’s property-level historical results of operations related to the properties involved in each of the Initial Closing and the Proposed Closing for the year ended December 31, 2020, except the pro forma adjustments described below that are a direct result of the transaction.
CIM REAL ESTATE FINANCE TRUST, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Rental and other property income
(c)The historical total rental revenue for each of CMFT and CIM Income NAV represents fixed contractual payments from operating leases, certain tenant reimbursements for maintenance services (including common-area maintenance services or “CAM”, real estate taxes, insurance and utilities, straight-line rent and amortization of above and below-market rents associated with the leases in effect during the periods presented). The adjustments included in the unaudited pro forma statements of operations recalculate straight-line rent and the amortization of above and below-market rent as if the Merger had occurred on January 1, 2020.
General and administrative
(d)Reflects adjustments to general and administrative expenses due to the elimination of CIM Income NAV as a separate legal entity, including reductions in state income taxes, board of director costs, legal, audit and other professional services, as if the Merger had occurred on January 1, 2020.
Adjustments to the unaudited pro forma condensed consolidated statements of operations for the year ended December 31, 2020 also include advisor reimbursements of certain operating expenses that have been prorated based on average equity under management, pursuant to the Management Agreement (as defined in the consolidated financial statements of CMFT for the fiscal year ended December 31, 2020), as if the Merger had occurred on January 1, 2020.
Expense reimbursements to related parties
(e)Reflects adjustments to expense reimbursements to related parties due to the elimination of CIM Income NAV as a separate legal entity, including reductions in advisor reimbursements of certain operating expenses that have been prorated based on average equity under management pursuant to the Management Agreement, as if the Merger had occurred on January 1, 2020.
Management fees
(f)Reflects adjustments to CMFT’s management fee during the periods presented, which has been pro-rated based on average equity under management pursuant to the Management Agreement as if the Merger, the Initial Closing and the Proposed Closing had occurred January 1, 2020.
Advisory and performance fees
(g)Reflects the elimination of CIM Income NAV’s historical advisory and performance fees as if the Merger had occurred on January 1, 2020.
Depreciation and amortization
(h)Reflects the estimated depreciation and amortization of real estate assets as if the Merger had occurred on January 1, 2020, using their preliminary relative fair values. Assets are depreciated or amortized using the straight-line method over the useful lives of the assets by class. Generally, buildings are depreciated over 40 years, site improvements are amortized over 15 years, and tenant improvements are amortized over the remaining life of the lease or the useful life, whichever is shorter.
Merger-related expenses, net
(i)Reflects the elimination of CMFT’s and CIM Income NAV’s historical merger-related expenses as if the Merger had occurred on January 1, 2020.
Interest expense and other, net
(j)Reflects the elimination of CIM Income NAV’s accumulated amortization of deferred financing costs. For certain terms of CMFT’s debt outstanding, see Note 9 — Credit Facilities, Notes Payable and Repurchase Facilities to the condensed consolidated financial statements in the Company’s Quarterly Report on Form 10-Q for the nine months ended September 30, 2021 and Note 9 — Credit Facilities, Notes Payable and Repurchase Facilities to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020.
(k)Reflects reduced interest expense as a result of certain debt repayments and assumptions related to the properties involved in the Initial Closing and the Proposed Closing, including, but not limited to, the following: the repayment of certain mortgage notes due to the disposition of the underlying properties, the assumption by the Purchaser of certain mortgage notes, the
CIM REAL ESTATE FINANCE TRUST, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
repayment of the secured first lien mortgage loan, and certain adjustments for derivative instruments. For certain terms of CMFT’s debt outstanding, see Note 9 — Credit Facilities, Notes Payable and Repurchase Facilities to the condensed consolidated financial statements in the Company’s Quarterly Report on Form 10-Q for the nine months ended September 30, 2021 and the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020.
(l)Reflects adjustments to retire CIM Income NAV’s historical weighted average shares outstanding as of September 30, 2021, and recalculate the weighted average shares outstanding and basic and diluted net income per common share of CMFT common stock as if the Merger occurred on January 1, 2020. Adjustments include the conversion of each of the approximately 14,758,768 Class D shares, 13,481,241 Class T shares, 7,759 Class S shares and 1,073,372 Class I shares of CIM Income NAV common stock issued and outstanding as of September 30, 2021 into the right to receive 2.574, 2.510, 2.508 and 2.622 shares, respectively, of CMFT common stock, or an aggregate of approximately 74,660,825 shares of CMFT common stock.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Dated: February 15, 2022 | CIM REAL ESTATE FINANCE TRUST, INC. | |
|---|---|---|
| By: | /s/ Nathan D. DeBacker | |
| Name: | Nathan D. DeBacker | |
| Title: | Chief Financial Officer and Treasurer | |
| (Principal Financial Officer) |
12