Benefit Street Partners Realty Trust, a private but publicly listed company, plans to acquire Capstead Mortgage Corp. in a deal that would make the combined entity the fourth largest commercial real estate investment trust with nearly $2 billion in equity.
Capstead’s common stockholders will receive a cash payment equal to a 15.75% premium to its diluted book value per share. In addition, they will receive shares of BSPRT common stock calculated on an adjusted book-for-book basis on a yet-to-be determined date proof to the deal’s closing. (Companies’ book values reflect their assets minus certain liabilities.) The move initially gave a slight lift to Capstead’s publicly-traded stock, which was up at $6.53 per share Monday afternoon, as compared from $6.41 when the market opened.
The proposed acquisition points to an interesting strategy, in which a player from the commercial sector that remained active throughout
Capstead’s short-term adjustable-rate mortgage portfolio will be transitioned into commercial loans after the acquisition. Liquidating the portfolio is a process BSPRT estimates will take roughly a year or so.
“I think it’s achievable in roughly an 18 month period, give or take six months in either direction, depending on deal flow,” said Mike Comparato, head of the real estate group at BSPRT, in an investor call, when asked how long the ARM portfolio’s liquidation might take.
The new combined company will be called Franklin BSP Realty Trust. BSPRT’s external manager is a subsidiary of Franklin Resources. (The parent company also does business under the name Franklin Templeton.)
Capstead manages a portfolio of ARMs guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae. ARMs have made up
BSPRT is the 10th largest commercial mortgage REIT based on equity, including preferred shares.
