Ready Capital, Owens Realty Mortgage to Merge

The combined company will operate as Ready Capital, be headquartered in New York City and retain Thomas Capasse as chairman & CEO.
Office and retail property in Manhattan’s Soho submarket refinanced by Ready Capital

Less than two months after changing its name and rebranding from Sutherland Asset Management Corp. to Ready Capital Corp. as part of a larger strategy to improve shareholder value, the New York City-based real estate finance company is taking another big step.  A merger with specialty finance REIT Owens Realty Mortgage that is expected to enhance shareholder liquidity and provide operating leverage across a larger equity base.

The two firms have entered into a definitive merger agreement to combine in a stock-for-stock merger that is expected to close by the end of the first quarter of 2019. Ready Capital stockholders are expected to own about 72 percent of the combined company’s stock, while ORM stockholders would own the remaining 28 percent. The combined company, which will operate under the name Ready Capital, is expected to have pro forma equity capital of more than $750 million.

“We believe the transaction raises incremental capital within minimal tangible book value dilutions and is accretive to forward-looking earnings per share,” Thomas Capasse, Ready Capital’s chairman & CEO, said in a prepared statement. “The combined company will be in a stronger position to execute our business plan, improve operating and cost efficiencies and continue growth in a profitable manner.”

Bryan Draper, president of Walnut Creek, Calif.-based ORM, said in prepared remarks that he believes ORM “shareholders will benefit from the better access to financing, larger size and greater resources of the combined company.”

Once the merger is completed, Capasse will lead the company and Frederick Herbst, chief financial officer of Ready Capital, will remain CFO of the combined company. The board of directors will have seven members, with one director from ORM’s existing board and six directors appointed by Ready Capital.  Headquarters will be in New York City.

Among the merger benefits cited were:

  • increased share float
  • incremental capital to support continued growth across Ready Capital’s platform
  • increased cost efficiencies from larger equity base
  • transaction expected to be accretive to Ready Capital’s earnings per share in 2019

In a call with analysts to discuss the firm’s third-quarter 2018 earnings, Capasse called the planned merger a “classic win-win situation where shareholders of both companies will benefit.” He noted that ORM focuses on originating small balance and middle market commercial real estate loans adding that it was “very similar to our own transitional loan business.” A presentation on the transaction noted that the size of ORM’s loan portfolio was $145.7 million with $133.1 million representing commercial loans and nearly 70 percent of them were in California.

Ready Capital originates, acquires, finances and services small- to medium-sized balance commercial loans and specializes in loans backed by commercial real estate, including agency multifamily, investor and bridge as well as SBA 7 (a) business loans. One of its divisions, Ready Capital Structured Finance, a nationwide CRE bridge and mezzanine lender, announced in September it had closed on non-recourse loans in New York, Arizona, Utah, Florida, North Carolina and California totaling approximately $300 million. The largest of the loans was a $28.8 million non-recourse, interest only, floating-rate loan for the refinance, renovation and stabilization of a 27,600-square-foot office and retail property in Manhattan’s Soho submarket. In May, the company provided the acquisition financing for a 75,000-square-foot office asset in Los Angeles.

Capasse told analysts on the earnings call that ORM had real estate assets that it planned to sell within 1 ½ to two years. Two years ago, ORM and its parent company, Owens Financial Group Inc. sold a multifamily property in North Bay Village, Fla.—Treasures on the Bay—that had 169 condo units, 160 apartments and related land and assets to Interwest Capital Corp. for $75.5 million. At that time, the REIT had been divesting itself of physical real estate assets.

Unanimous approvals

The proposed transaction has been unanimously approved by the boards of Ready Capital and ORM, upon the unanimous recommendation of the ORM Special Committee comprised of independent directors. It needs approval by shareholders of both companies.

Keefe, Bruyette & Woods, a Stifel company, is acting as financial advisor to Ready Capital. Clifford Chance US LLP is Ready Capital’s legal advisor and IRC LLC is serving as its communications advisor. Barclays is financial advisor and Vinson & Elkins LLP is legal advisor to the Special Committee of the Board of Directors of ORM.

Image courtesy of Ready Capital