DEF: Creative Media & Community Trust Seeks Reverse Split

Creative Media & Community Trust Corporation is holding a special meeting to seek stockholder approval for reverse stock splits to maintain its Nasdaq listing.

Summary

• A special meeting of stockholders will be held virtually on September 23, 2025, at 9:00 a.m. Pacific Time.
• Stockholders will vote on three proposals to amend the Company's charter to effect a reverse stock split of common stock by ratios of 1:4, 1:7, or 1:10, at the Board's discretion, at any time prior to September 23, 2026.
• A fourth proposal seeks approval to adjourn the Special Meeting to solicit additional proxies if there are insufficient votes for the reverse stock split proposals.
• The Board of Directors unanimously recommends a vote FOR all proposals.
• These proposals are being re-presented after similar proposals narrowly failed to obtain the requisite affirmative vote of a majority of all votes entitled to be cast at the recent 2025 annual meeting, despite receiving over 82% approval of votes cast.
• The primary purpose of the reverse stock splits is to increase the common stock's bid price to maintain compliance with Nasdaq Listing Rule 5550(a)(2), which requires a minimum bid price of $1.00.
• The Company is no longer eligible for the Nasdaq Compliance Grace Period, meaning immediate delisting could occur if it fails to maintain the minimum bid price.
• Downward pressure on the common stock bid price since August 2024 is attributed to the Company's redemption of Preferred Stock (Series A, Series A1, Series D) by issuing Common Stock, a strategy used to increase common equity and improve liquidity.
• Fractional shares resulting from a reverse stock split will be paid in cash based on the closing price on the effective date.

Sentiment

Score: 3

Explanation: The company is taking necessary steps to address a critical listing compliance issue, which is a positive for continued market access. However, the need for a reverse split, the prior failure to pass it, and the ongoing downward pressure from preferred stock redemptions indicate significant underlying challenges and a weak stock performance. The potential for further dilution and liquidity issues post-split also weighs negatively.

Positives

• Maintaining Nasdaq listing provides market quotations, liquidity, and access to future financing.
• The strategy of redeeming Preferred Stock with Common Stock aims to increase common equity as a percentage of assets and improve liquidity.
• The Board has the flexibility to choose the most appropriate reverse split ratio (1:4, 1:7, or 1:10) based on prevailing market conditions, if approved.

Negatives

• There is no assurance that the market price of common stock will increase proportionately or remain above $1.00 after a reverse stock split.
• Implementation of a reverse stock split may decrease the liquidity of common stock due to a reduced number of outstanding shares.
• The increased proportion of unissued authorized capital stock resulting from a reverse stock split could have anti-takeover effects, although the Board states this is not its intent.
• Stockholders owning odd-lots (less than 100 shares) after a reverse stock split may incur incrementally higher trading costs and experience difficulties selling.
• The prior failure to pass similar proposals at the annual meeting indicates potential challenges in securing full stockholder support or significant shareholder apathy.

Risks

• Failure to approve and implement a reverse stock split could lead to immediate delisting from Nasdaq if the common stock bid price falls below $1.00.
• Delisting from Nasdaq could result in limited availability of market quotations, reduced liquidity, and the common stock being classified as a 'penny stock,' leading to more stringent trading rules and reduced trading activity.
• Delisting may lead to limited news and analyst coverage for the Company, decreasing its visibility.
• A delisting could decrease the Company's ability to issue additional securities or obtain additional financing in the future.
• There is a potential need to register common stock under applicable state securities or 'blue sky' laws for preferred stock redemptions if cash is unavailable, and an inability to redeem preferred stock if such registration cannot be accomplished in a particular state.
• The market price of common stock after a reverse stock split may not increase proportionately or remain in excess of $1.00 per share for a sustained period, and could decrease due to factors unrelated to the split.
• The future issuance of additional shares of common stock, facilitated by the increased authorized but unissued shares post-split, could dilute current stockholders' percentage ownership interest and potentially adversely affect earnings per share and book value per share.
• U.S. holders receiving cash in lieu of fractional shares will generally recognize taxable gain or loss for U.S. Federal income tax purposes.

Future Outlook

The Board anticipates that a reverse stock split, if effected, will increase the market price of the common stock to maintain compliance with the Nasdaq Minimum Bid Price Rule. However, there is no assurance that the price will increase proportionately, remain above $1.00, or that market capitalization will be maintained. The company may issue additional shares in the future for financings or equity incentive plans.

Management Comments

• "The Board of Directors has determined that approval of the matters to be considered at the Special Meeting is in the best interests of the Company." David Thompson, CEO
• "The Board unanimously recommends a vote FOR each matter to be considered." David Thompson, CEO
• "We believe that the significant volume of Common Stock issued to meet redemption requests and in connection with redemptions at the Company's option has placed significant downward pressure on the bid price of our Common Stock."
• "The proposed Reverse Stock Split is intended to adjust the bid price of the Common Stock upward in an effort to maintain compliance with the Nasdaq Minimum Bid Price Rule."
• "The Board does not intend for the Reverse Stock Split to have any anti-takeover effects."

Industry Context

The need for a reverse stock split to maintain Nasdaq listing is a common issue for companies whose stock price has fallen below the minimum bid requirement. This situation often indicates underlying financial or operational challenges, or significant dilution from prior capital-raising activities or debt/preferred stock conversions. The company's strategy of using common stock for preferred stock redemptions, while improving liquidity and common equity ratios, has exacerbated the share price decline, highlighting a trade-off between balance sheet health and stock market perception.

Corporate Governance

Related Party Transactions

• Directors Richard Ressler, Avraham Shemesh, and Shaul Kuba, founders of CIM Group, LLC, are deemed to beneficially own shares held by CIM Urban Sponsor, LLC, CIM CMCT MLP, LLC, CIM Capital Real Property Management, LLC, and CIM Real Assets & Credit Fund due to their positions. They have shared voting and investment power over these shares but disclaim beneficial ownership except for their pecuniary interest.
• Mr. Ressler has sole voting and investment power over 500 shares of Common Stock held by a subsidiary of a trust formed for his family members.
• Messrs. Shemesh and Kuba each have shared voting and investment power over 185 shares of Common Stock held by their respective family trusts.

Stakeholder Impact

• Shareholders will experience a reduction in the number of shares held, a potential increase in per-share price (though not guaranteed to be proportional), potential for reduced liquidity, and possible anti-takeover effects. Those with fractional shares will receive cash.
• Preferred Stock Holders are currently seeing redemptions of their preferred stock being paid in common stock, which has contributed to downward pressure on the common stock price.
• The Company (CMCT) aims to maintain its Nasdaq listing, improve common equity as a percentage of assets, and enhance liquidity. Failure to pass these proposals could lead to delisting and associated adverse consequences.

Next Steps

• Stockholders to vote on reverse stock split proposals (1:4, 1:7, or 1:10) and meeting adjournment at the Special Meeting on September 23, 2025.
• If approved, the Board will decide, in its sole discretion, whether and at which ratio to effect a reverse stock split by September 23, 2026.
• The Company will issue a press release announcing the effective date of any reverse stock split and file Articles of Amendment with the Maryland SDAT.
• Final voting results will be published in a Current Report on Form 8-K within four business days following the Special Meeting.

Key Dates

Recommendation

The company is in a precarious position, evidenced by its repeated need for a reverse stock split to maintain Nasdaq compliance and the prior failure to secure sufficient votes. While the reverse split is a necessary step to avoid delisting, it does not address the underlying issues causing the low stock price and the significant downward pressure from preferred stock redemptions. The potential for further dilution from future capital raises, reduced liquidity, and the risk that the stock price may not sustain its post-split level, coupled with the 'penny stock' risk if delisted, indicate significant headwinds and a high-risk investment profile. Investors should consider exiting or significantly reducing their exposure.

Keywords

Creative Media & Community Trust Corporation, CMCT, Reverse Stock Split, Nasdaq Listing, SEC Filing, Proxy Statement, Corporate Governance, Stockholder Meeting, Common Stock, Preferred Stock Redemption, Liquidity, Share Price, Delisting Risk, Capital Raise