Two commercial mortgage REITs plan merger

Merged business to become fourth-largest in the sector

Two commercial mortgage REITs plan merger

Benefit Street Partners Realty Trust (BSPRT) and Capstead Mortgage have agreed to merge businesses in a bid to create the fourth largest commercial mortgage REIT in the United States.

BSPRT is a publicly registered, non-listed real estate investment trust that buys, originates, and manages a diversified commercial real estate debt portfolio. Capstead is a mortgage REIT that invests in residential adjustable-rate mortgage pass-through securities, commonly known as ARM securities, issued and guaranteed by either Fannie Mae, Freddie Mac, or Ginnie Mae.

The combined company will operate as Franklin Templeton and transition the capital base of Capstead into commercial mortgage loans where BSPRT is focused. The firms claim that the merged entity will become the fourth largest commercial mortgage REIT with nearly $2 billion of pro forma equity, and its common stock will trade on the NYSE under the new ticker symbol FBRT.

The deal is expected to close in the fourth quarter of this year. BSPRT’s external manager, Benefit Street Partners (BSP), a wholly-owned subsidiary of Franklin Templeton, will manage the merged entity.

“This transaction provides Capstead common stockholders with an immediate and sizable cash premium and significant opportunity to participate in the upside of the combined company as it establishes itself as one of the larger publicly traded commercial mortgage REITs,” said Capstead CEO Phillip Reinsch. “Combining with BSPRT will allow Capstead’s stockholders to transition into an ownership position in a leading commercial mortgage REIT capable of generating 10%-plus returns on equity that we believe has significant long-term growth potential.”

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“With the combined capital of BSPRT and Capstead, we are well-positioned to capture opportunities ahead of us and create superior value for our stockholders,” said Richard Bryne, president and CEO of BSPRT. “Coupled with BSP’s strong deal sourcing and underwriting capabilities supported by Franklin Templeton’s world-class sponsorship, the new Franklin BSP Realty Trust will be poised to benefit from the large and compelling commercial real estate lending market opportunity resulting from a significant volume of upcoming commercial real estate debt maturities.”