Terra Property Trust, Inc. (TPT) a commercial estate REIT and Western Asset Mortgage Capital Corporation (WMC) a mortgage REIT announced at the end of June 2023 they would enter into a definitive merger agreement under which TPT and WMC would combine to form one big REIT with total assets reaching $1.2 billion and $436 million of adjusted book value.
With reduced leverage levels and increased liquidity as a combined company, it was believed WMC shareholders would benefit from the partnership of a well-capitalized institutional partner. TPT brings a proven track record in commercial REITs and has developed broad expertise investing across various commercial property types.
Under the terms of the Agreement, WMC will issue to TPT stockholders newly designated shares of WMC Class B common stock. TPT stockholders will receive a certain number of shares of WMC Class B common stock, which will be determined by dividing TPT’s adjusted book value per share by WMC’s adjusted book value per share.
Certain adjustments agreed upon will be reflected in the book values of each company. 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 example, WMC’s and TPT’s adjusted book values per share would be $17.30 and $13.58 respectively, with every TPT share getting exchanged on a pro forma basis for 0.785 WMC shares.
This sounds like it would benefit the WMC shareholders because 100% of its adjusted book value is $106 million compared to WMC’s market capitalization of approximately $50 million based on the current WMC share price.
Talking of which, the share price didn’t move much on announcement of the news of TPT and WMC merger staying at $9.31.
However, the WMC share price started sliding the next day after it was announced that Halper Sadeh would start investigating the merger questioning whether the merger is fair to the WMC’s sharfeholders. Currently (6th July 2023) share price is $8.39. The 52-week low is $7.24 and it feels like it might go below that. We’ll keep an eye on how this investigation is resolved.
