Western Asset Mortgage, Terra Property Trust to merge

Terra Property Trust and Western Asset Mortgage Capital jointly announced that they have entered into a definitive merger agreement under which TPT and WMC have agreed to combine to form a REIT that is expected to have approximately $1.2B in assets and $436M of adjusted book value upon completion of the merger. 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, 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, 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. 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.