RMR Mortgage Trust and Tremont Mortgage Trust Announce Agreement to Merge

Rhea-AI Summary

RMR Mortgage Trust (Nasdaq: RMRM) and Tremont Mortgage Trust (Nasdaq: TRMT) have entered into a merger agreement, with TRMT merging into RMRM. This strategic move aims to create a larger, more diversified commercial mortgage REIT, targeting nearly $1 billion in assets post-merger. The deal is projected to enhance distributable earnings and yield annual savings of $1.4 to $1.6 million. Shareholders of RMRM will own approximately 70% of the new entity, while TRMT shareholders will hold 30%. The merger is slated for Q3 2021, pending shareholder approvals.

Positive

• Merger creates a more diversified REIT with assets expected to approach $1 billion.
• Projected annual savings of $1.4 to $1.6 million enhance distributable earnings.
• RMRM shareholders expected to own 70% of the combined entity, boosting their equity stake.

Negative

• None.

RMR Mortgage Trust (Nasdaq: RMRM) and Tremont Mortgage Trust (Nasdaq: TRMT) today announced that they have entered into a definitive merger agreement pursuant to which TRMT will merge with and into RMRM, with RMRM continuing as the surviving company. The merger is expected to create a more diversified commercial mortgage real estate investment trust, or REIT, focused on middle market transitional bridge loans with assets expected to approach $1 billion when fully invested. The merger is expected to be accretive to distributable earnings in 2022 with the potential to realize annual expense savings of $1.4 million to $1.6 million, or $0.10 to $0.11 per common share, due to the elimination of certain duplicative public company costs.

Tom Lorenzini, President of RMRM and TRMT, made the following statement:

“We are excited to announce this merger of two highly complementary businesses that will create a larger, more diversified commercial mortgage REIT. This combination greatly enhances our financial strength and provides attractive benefits to the shareholders of both companies. We believe that with increased scale and an expanded capital base the combined company will be much better positioned to access capital markets, increase operating efficiency, and deliver more attractive risk-adjusted returns for our shareholders.”

Certain Expected Strategic Transaction Benefits

• Enhanced scale with fully invested assets expected to approach $1 billion
• Accretive to the distributable earnings of both RMRM and TRMT
• Expanded capital base, float and shareholder liquidity
• Improved access to capital markets with the potential of a reduced cost of capital
• Increased portfolio diversification among investments and asset class exposure
• Greater market visibility to drive increased transaction volume
• Seamless integration, as existing senior management team remains in place

Under the terms of the merger agreement, each TRMT common share will be converted into 0.520 of one newly issued RMRM common share. Based on the closing prices of RMRM’s and TRMT’s common shares on Friday, April 23, 2021, the implied offer price is approximately $6.55 per TRMT common share, which represents a premium of 6% and 9% to the closing price and the volume weighted average price, respectively, for the 30 trading days ending on April 23, 2021. Upon the closing of the merger, RMRM shareholders are expected to own approximately 70% of the combined company’s outstanding common shares, while TRMT shareholders are expected to own approximately 30% of the combined company’s outstanding common shares.

Based on the closing price of RMRM’s common shares on April 23, 2021, the equity market capitalization of the combined company would be approximately $180 million. Tremont Realty Advisors LLC, the manager of RMRM and TRMT, or the Manager, will continue to manage the combined company and has waived any termination fee that would otherwise be payable by TRMT as a result of the merger.

On a pro forma basis as of today, the combined company will have a loan portfolio consisting of the following characteristics:

• 22 first mortgage loans with aggregate loan commitments of $519 million;
• Average funded loan size of $21 million;
• Weighted average maximum maturity, which assumes all borrower extension options have been exercised, of 3.2 years; and
• Weighted average interest rate of LIBOR plus 3.91% and a weighted average loan-to-value of 66%.

The merger and other transactions contemplated by the merger agreement and the terms thereof were evaluated, negotiated and recommended, as applicable to each of RMRM’s and TRMT’s board of trustees by special committees of each of RMRM’s and TRMT’s board of trustees, respectively, each comprised solely of RMRM’s and TRMT’s disinterested, independent trustees, respectively, and were separately unanimously approved and adopted by RMRM’s and TRMT’s independent trustees and by RMRM’s and TRMT’s board of trustees, with independent trustees unanimously approving the merger and other transactions contemplated by the merger agreement.

The merger is expected to close during the third quarter of 2021, subject to the requisite approvals by RMRM and TRMT shareholders and other customary closing conditions. RMRM’s greater than 5% shareholder has agreed to vote in favor of the issuance of common shares in the merger at RMRM’s special meeting of shareholders. TRMT’s greater than 5% shareholder has agreed to vote in favor of the merger and other transactions contemplated by the merger agreement at TRMT’s special meeting of shareholders.

UBS Investment Bank is acting as exclusive financial adviser to the RMRM special committee and Skadden, Arps, Slate, Meagher & Flom LLP is acting as legal advisor to RMRM (acting through the special committee). Citigroup Global Markets Inc. is acting as exclusive financial adviser to the TRMT special committee and Sullivan & Worcester LLP is acting as legal adv

FAQ

What are the details of the RMRM and TRMT merger?

RMRM will merge with TRMT, with each TRMT share converting into 0.520 new RMRM shares. The merger aims for a combined asset value of nearly $1 billion.

What benefits are expected from the merger between RMRM and TRMT?

The merger is expected to enhance scale, improve access to capital markets, and yield annual savings of $1.4 to $1.6 million.

When is the RMRM and TRMT merger expected to close?

The merger is anticipated to close in Q3 2021, subject to shareholder approvals.

How will the merger affect RMRM shareholders?

Post-merger, RMRM shareholders are expected to own approximately 70% of the combined company's common shares.

What is the projected equity market capitalization of the combined company?

The combined entity is projected to have an equity market capitalization of about $180 million based on RMRM's closing price prior to the merger announcement.