Terra Property Trust Inc. and Western Asset Mortgage Capital Corp. have entered into a definitive merger agreement under which they will combine to form a REIT that’s expected to have about $1.2 billion in assets and $436 million of adjusted book value on completion of the merger, before deducting transaction expenses, the companies announced on Wednesday, June 28.
Both are externally managed REITs. TPT originates, invests in and manages loans and assets secured by commercial real estate, and WMC invests in, finances and manages a portfolio of real estate–related securities, whole loans and other financial assets.
As consideration, TPT stockholders will receive newly designated shares of WMC Class B common stock. The number of shares will be based on the two companies’ adjusted book value per share.
The new WMC shares will be identical to existing Class A common shares, except that they will not be NYSE-listed and will convert into an equal number of WMC Class A common shares over 18 months after the completion of the merger.
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WMC stockholders will retain their existing shares, which will be reclassified as Class A common stock on the closing of the merger and will continue to be NYSE-listed under a new name. The new name has not yet been finalized, a WMC spokesperson told Commercial Property Executive.
On the merger’s closing, TPT stockholders are expected to own approximately 76 percent of the combined company’s outstanding common stock, while WMC stockholders are expected to own approximately 24 percent.
In a prepared statement, WMC CEO Bonnie Wongtrakool noted that “a valuation of WMC’s equity based on its adjusted book value per share … is significantly greater than WMC’s market capitalization based on recent trading levels.”
The merged company reportedly is expected to have a diversified investment portfolio focused on shorter-tenor, floating-rate, low-LTV commercial real estate loans, as well as “significant leverage reduction and reduced operating expenses (as a percentage of combined capital base).”
The nuts and bolts
On completion of the merger, TPT’s CEO, Vik Uppal, will serve as chairman & CEO of the combined company, which will be headquartered in New York City. Wongtrakool will not be an officer of the company, the spokesperson told Commercial Property Executive.
The combined company’s board is expected to have eight directors: six designated by TPT and two designated by WMC. The combined company will be externally managed by a subsidiary of Mavik Capital Management LP.
The merger has already been unanimously approved by each of the companies’ boards. It’s expected to close during the fourth quarter of 2023, subject to stockholder approvals and other customary closing conditions.
Raymond James is exclusive financial advisor and Alston & Bird LLP is legal advisor to TPT. JMP Securities, a Citizens Company, is exclusive financial advisor and Skadden, Arps, Slate, Meagher & Flom LLP is legal advisor to WMC.
