Terra Property Trust And Western Asset Mortgage Capital Corporation Announced Merger

Author: Charles Gross | June 28, 2023 06:14am

 Terra Property Trust, Inc. ("TPT"), an externally managed real estate investment trust ("REIT") that originates, invests in, and manages loans and assets secured by commercial real estate ("CRE"), and Western Asset Mortgage Capital Corporation (NYSE:WMC), an externally managed REIT that invests in, finances, and manages a portfolio of real estate-related securities, whole loans, and other financial assets, today jointly announced that they have entered into a definitive merger agreement (the "Agreement") under which TPT and WMC have agreed to combine to form a REIT that is expected to have approximately $1.2 billion in assets and $436 million of adjusted book value upon completion of the merger (prior to deducting transaction expenses).

Under the terms of the Agreement, WMC will issue to TPT stockholders newly designated shares of WMC Class B common stock as merger consideration. The number of shares of WMC Class B common stock to be received by TPT stockholders will be based on an exchange ratio to be determined by dividing TPT's adjusted book value per share by WMC's adjusted book value per share, calculated pursuant to the terms of the Agreement. Under the Agreement, the book values of each company will reflect certain agreed adjustments; TPT's book value will include accumulated depreciation and amortization on real estate assets owned, and WMC's will reflect the deconsolidation of variable interest entities. For illustrative purposes, as of March 31, 2023, WMC's and TPT's adjusted book values per share would have been $17.30 and $13.58 (before transaction expenses), respectively, with every TPT share being exchanged on a pro forma basis for 0.785 WMC shares. This would value WMC at 100% of its adjusted book value (prior to deducting transaction expenses) of approximately $106 million as of March 31, 2023, as compared to WMC's market capitalization of approximately $56 million based on the closing price of WMC's common stock on June 27, 2023.

The newly issued WMC Class B common shares will have dividend, distribution, and other rights identical to those of WMC's Class A common shares, except that the newly issued WMC Class B common stock will not be listed on the New York Stock Exchange but will automatically convert into an equal number of shares of WMC Class A common stock in one-third increments on the 6-, 12-, and 18-month anniversaries of the completion of the merger. WMC's stockholders will retain their existing shares, which will be reclassified as Class A common stock at the effective time of the merger and continue to be listed on the New York Stock Exchange under a new name. Upon the closing of the merger, TPT stockholders are expected to own approximately 76% of the combined company's outstanding common stock, while WMC stockholders are expected to own approximately 24%.

Posted In: TPTA WMC