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%.
A subsidiary of Mavik Capital Management, LP (“Mavik”), the
external manager of TPT, has committed to use reasonable best
efforts to purchase or cause a third party to purchase shares of
WMC Class A common stock with an aggregate purchase price of up to
$4.0 million after the closing and prior to the three-month
anniversary of the completion of the merger to support the combined
company's common stock trading level, subject to the terms of the
equity support agreement.
“This transaction provides for a valuation of WMC’s equity based
on its adjusted book value per share, which is significantly
greater than WMC’s market capitalization based on recent trading
levels. It will also enable WMC shareholders to benefit from
increased operational scale and cost synergies and represents an
attractive long-term investment opportunity in a diversified,
credit-oriented platform positioned for growth,” said Bonnie
Wongtrakool, Chief Executive Officer of WMC. “With reduced leverage
levels and increased liquidity as a combined company, we believe
WMC shareholders will greatly benefit from the partnership of a
well-capitalized institutional partner in TPT, which brings a
proven track record and has developed broad and deep expertise
investing across cycles, property types, and markets.”
“This compelling combination is a unique opportunity to
establish a diversified REIT that prioritizes capital preservation,
maintains a robust balance sheet, and consistently generates
attractive risk-adjusted returns for its shareholders,” said Vik
Uppal, Chief Executive Officer of TPT.
Anticipated Benefits to WMC and TPT Stockholders from the
Merger
- Combined adjusted book value of approximately $436 million
(prior to deducting transaction expenses)
- Diversified investment portfolio with focus on shorter-tenor,
floating-rate, low-LTV CRE loans
- Opportunity to redeploy capital over time and increase exposure
to CRE loans and equity investments to take advantage of attractive
pricing environment and generate compelling total returns
- Significant leverage reduction and reduced operating expenses
(as a percentage of combined capital base)
- Enhanced shareholder liquidity following the staggered
conversion period for TPT shareholders
For a more detailed description of the anticipated benefits to
WMC and TPT stockholders from the Merger, please see the investor
presentation included as Exhibit 99.2 to WMC’s and TPT’s Form 8-Ks
furnished with the U.S. Securities and Exchange Commission (the
“SEC”) on June 28, 2023.
Management, Governance and Corporate Headquarters
Upon completion of the merger, TPT’s CEO, Vik Uppal, will serve
as CEO and Chairman of the combined company, which will be
headquartered in New York, New York. The Board of the combined
company is expected to have eight directors and will consist of six
TPT-designated directors and two WMC-designated directors. The
combined company will be externally managed by a subsidiary of
Mavik.
Timing and Approvals
The transaction has been unanimously approved by each of the
Boards of Directors of TPT and WMC. The transaction is expected to
close during the fourth quarter of 2023, subject to the respective
approvals by the stockholders of TPT and WMC and other customary
closing conditions. WMC has entered into a voting agreement with
key stockholders of TPT under which such stockholders have
committed to vote in favor of the transaction, subject to the terms
and conditions of the voting agreement.
Advisors
Raymond James is acting as exclusive financial advisor, and
Alston & Bird LLP is acting as legal advisor to TPT. JMP
Securities, a Citizens Company, is acting as exclusive financial
advisor, and Skadden, Arps, Slate, Meagher & Flom LLP is acting
as legal advisor to WMC.
Important Additional Information and Where to Find It
In connection with the proposed merger, WMC expects to file with
the SEC a registration statement on Form S-4 (the “Registration
Statement”) that contains a prospectus of WMC that will also
include a joint proxy statement of WMC and TPT (the “joint proxy
statement/prospectus”). The joint proxy statement/prospectus will
contain important information about WMC, TPT, the proposed merger
and related matters. WMC and TPT also expect to file with the SEC
other documents regarding the merger. STOCKHOLDERS OF WMC AND TPT
ARE URGED TO READ THE REGISTRATION STATEMENT AND THE JOINT PROXY
STATEMENT/PROSPECTUS (INCLUDING ALL AMENDMENTS AND SUPPLEMENTS
THERETO) AND OTHER RELEVANT DOCUMENTS THAT ARE FILED OR WILL BE
FILED BY WMC AND TPT WITH THE SEC, AS WELL AS ANY AMENDMENTS AND
SUPPLEMENTS TO THESE DOCUMENTS) CAREFULLY IF AND WHEN THEY BECOME
AVAILABLE, BECAUSE SUCH DOCUMENTS WILL CONTAIN IMPORTANT
INFORMATION ABOUT WMC, TPT, AND THE PROPOSED MERGER AND RELATED
MATTERS. Stockholders of WMC and TPT may obtain free copies of the
Registration Statement, the joint proxy statement/prospectus and
all other documents filed or that will be filed by WMC or TPT with
the SEC (if and when they become available) through the website
maintained by the SEC at http://www.sec.gov. Copies of documents
filed with the SEC by WMC will be made available free of charge on
WMC’s website at http://www.westernassetmcc.com, or by directing a
request to its Investor Relations, Attention: Larry Clark at (310)
622-8223; email: lclark@finprofiles.com. Copies of documents filed
with the SEC by TPT will be made available free of charge on TPT’s
website at https://www.terrapropertytrust.com, or by directing a
request to its Investor Relations at (212) 257-4666; email:
ir@mavikcapital.com.
This communication is for informational purposes only and shall
not constitute an offer to sell or the solicitation of an offer to
buy any securities or a solicitation of any vote or approval, nor
shall there be any sale of securities in any jurisdiction in which
such offer, solicitation or sale would be unlawful prior to the
registration or qualification under the securities laws of any such
jurisdiction. No offering of securities shall be made, except by
means of a prospectus meeting the requirements of Section 10 of the
U.S. Securities Act of 1933, as amended (the “Securities Act”).
Participants in Solicitation Relating to the Merger
WMC, TPT, and their respective directors and executive officers,
and certain other affiliates of WMC or TPT may be deemed to be
“participants” in the solicitation of proxies from the stockholders
of WMC and TPT in respect of the proposed merger (the “Merger”).
Information regarding WMC and its directors and executive officers
and their ownership of common stock of WMC can be found in WMC’s
definitive proxy statement filed with the SEC on May 2, 2023, and
its most recent Annual Report filed on Form 10-K for the fiscal
year ended December 31, 2022. Information regarding TPT and its
directors and executive officers and their ownership of common
stock of TPT can be found in TPT’s definitive proxy statement filed
with the SEC on April 26, 2023, and its most recent Annual Report
filed on Form 10-K for the fiscal year ended December 31, 2022.
Additional information regarding the interests of such potential
participants will be included in the joint proxy
statement/prospectus and other relevant documents filed with the
SEC in connection with the proposed Merger if and when they become
available. These documents are available free of charge on the
SEC’s website and from WMC or TPT, as applicable, using the sources
indicated above.
Forward-Looking Statements
This press release includes “forward-looking statements,” as
such term is defined in Section 27A of the Securities Act and
Section 21E of the Securities Exchange Act of 1934, as amended, and
such statements are intended to be covered by the safe harbor
provided by the same. These forward-looking statements are based on
current assumptions, expectations, and beliefs of WMC and TPT and
are subject to a number of trends and uncertainties that could
cause actual results to differ materially from those described in
the forward-looking statements. Neither WMC nor TPT can give any
assurance that these forward-looking statements will be accurate.
These forward-looking statements generally can be identified by use
of forward-looking terminology such as “may,” “will,” “target,”
“should,” “expect,” “attempt,” “anticipate,” “project,” “estimate,”
“intend,” “seek,” “continue,” or “believe,” or the negatives
thereof or other variations thereon or comparable terminology.
Similarly, statements herein that describe certain plans,
expectations, goals, projections, and statements about the proposed
Merger, including its financial and operational impact, the
benefits of the Merger, the expected timing of completion of the
Merger, and other statements of management’s beliefs, intentions or
goals also are forward-looking statements. It is uncertain whether
any of the events anticipated by the forward-looking statements
will transpire or occur, or if any of them do, what impact they
will have on the results of operations and financial condition of
the combined company. There are a number of risks and
uncertainties, many of which are beyond the parties’ control, that
could cause actual results to differ materially from the
forward-looking statements included herein, including, but not
limited to, the risk that the Merger will not be consummated within
the expected time period or at all; the occurrence of any event,
change or other circumstances that could give rise to the
termination of the Agreement; the inability to obtain stockholder
approvals relating the Merger and issuance of shares in connection
therewith or the failure to satisfy the other conditions to
completion of the Merger in a timely manner or at all; risks
related to disruption of management’s attention from ongoing
business operations due to the proposed Merger; the risk that any
announcements relating to the Merger could have adverse effects on
the market price of common stock of WMC; the risk that the Merger
and its announcement could have an adverse effect on the operating
results and businesses of WMC and TPT; the outcome of any legal
proceedings relating to the Merger; the ability to successfully
integrate the businesses following the Merger; the ability to
retain key personnel; conditions in the market for mortgage-related
investments; availability of suitable investment opportunities;
changes in interest rates; changes in the yield curve; changes in
prepayment rates; the availability and terms of financing; general
economic conditions; market conditions; inflationary pressures on
the capital markets and the general economy; conditions in the
market for commercial and residential loans, securities and other
investments; legislative and regulatory changes that could
adversely affect the businesses of WMC or TPT; risks related to the
origination and ownership of loans and other assets, which are
typically short-term loans that are subject to higher interest
rates, transaction costs and uncertainty on loan repayments; risks
relating to any future impact of the COVID-19 pandemic, including
the responses of governments and industries, on the real estate
sector; credit risks; servicing-related risks, including those
associated with foreclosure and liquidation; the state of the U.S.
and to a lesser extent, international economy generally or in
specific geographic regions; the general volatility of the
securities markets in which WMC or TPT participate; WMC or TPT’s
ability to maintain their respective qualification as a real estate
investment trust for U.S. federal income tax purposes; and WMC or
TPT’s ability to maintain their respective exemption from
registration under the Investment Company Act of 1940, as amended.
All such factors are difficult to predict, including those risks
set forth in the WMC’s annual reports on Form 10-K, quarterly
reports on Form 10-Q, and current reports on Form 8-K that are
available on its website at http://www.westernassetmcc.com and on
the SEC’s website at http://www.sec.gov, and those risks set forth
in TPT’s annual reports on Form 10-K, quarterly reports on Form
10-Q, and current reports on Form 8-K that are available on TPT’s
website at http://www.terrapropertytrust.com and on the SEC’s
website at http://www.sec.gov. The forward-looking statements
included in this press release are made only as of the date hereof.
Readers are cautioned not to place undue reliance on these
forward-looking statements that speak only as of the date hereof.
Neither WMC nor TPT undertakes any obligation to update these
forward-looking statements to reflect subsequent events or
circumstances, except as required by applicable law.
About Western Asset Mortgage Capital Corporation
WMC is a real estate investment trust that invests in, finances,
and manages a diverse portfolio of assets consisting of Residential
Whole Loans, Non-Agency RMBS, and to a lesser extent GSE Risk
Transfer Securities, Commercial Loans, Non-Agency CMBS, Agency
RMBS, Agency CMBS, and ABS. The company is externally managed and
advised by Western Asset Management Company, LLC, an investment
advisor registered with the Securities and Exchange Commission and
a wholly-owned subsidiary of Franklin Resources, Inc.
About Terra Property Trust, Inc.
Terra Property Trust, Inc. is an externally managed real estate
investment trust that originates, invests in, and manages loans and
assets secured by commercial real estate across the United States.
The company’s objective is to continue to provide attractive
risk-adjusted returns to its stockholders, primarily through
current income and capital appreciation. The company has elected to
be taxed as a real estate investment trust for U.S. federal income
tax purposes commencing with its taxable year ended December 31,
2016. The company is externally advised by Terra REIT Advisors,
LLC, an affiliate of Mavik Capital Management, LP.
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version on businesswire.com: https://www.businesswire.com/news/home/20230627801085/en/
Western Asset Mortgage Capital Corporation Investor Relations
Contact: Larry Clark Financial Profiles, Inc. (310) 622-8223
lclark@finprofiles.com Media
Contacts Western Asset Mortgage Capital Corporation
Tricia Ross Financial Profiles, Inc. (310) 622-8226
tross@finprofiles.com Terra Property Trust, Inc. Jonathan Keehner /
Erik Carlson Joele Frank, Wilkinson Brimmer Katcher (212)
355-4449
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