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Trinity Mergerm, Broadmark Will Merge to Form Mortgage REIT
Tuesday 13 August 2019

13 August 2019 - US-based special purpose acquisition company Trinity Merger Corp. (NASDAQ: TMCX) and the Broadmark real estate lending companies and management companies, have entered into a definitive merger agreement for a business combination transaction to create an internally-managed, mortgage real estate investment trust with an expected equity value of USD 1.5bn, the companies said.

The Broadmark companies are specialty commercial real estate finance companies providing construction, land and development financing for commercial and residential properties.

It is expected that Broadmark will have no debt outstanding at closing.

With greater financial strength and additional resources, the combined company will be well-positioned to capitalize on strong nationwide demand for flexible real estate financing solutions.

Under the terms of the merger agreement, Trinity and Broadmark will combine to form Broadmark Realty Capital Inc., a new Maryland corporation that will elect to be taxed as a REIT under the tax code. In connection with the transaction, Broadmark Realty intends to apply for listing of its securities on the New York Stock Exchange under a new ticker symbol.

Founded in 2010 and headquartered in Seattle, Broadmark is a provider of financing to real estate investors and developers across the United States. Broadmark originates short term, first deed of trust mortgages with conservative loan-to-value collateral support.

As of March 31, 2019, Broadmark had approximately USD 992.2m in total committed loans in target geographic regions that exhibit favorable demographic trends.

Since its inception, Broadmark has established a significant network of borrowers, many of whom have become repeat borrowers.

As a complement to its core lending business, Broadmark has cultivated a broad national network of real estate investors and registered investment advisors through which it has successfully raised over USD 820m to fund its loan portfolio from its inception in 2010 through March 31, 2019.

Broadmark believes that its conservative lending approach, strict underwriting and high collateral requirements have significantly contributed to Broadmark's minimal realized loan losses since inception.

To date, Broadmark has consistently delivered monthly unlevered distributions representing annual returns of 10-11% based on invested capital in its lending companies. The combined company will seek to continue to capitalize on these borrower and real estate investor relationships to continue to grow its business and further diversify its overall access to capital.

Under the terms of the merger agreement, Trinity will acquire Broadmark for USD 1.2bn in total consideration, comprised of 92%, or USD1.1 bn, in Broadmark Realty stock and 8%, or USD98 m, in cash.

The cash component of the purchase price will be paid to the equity owners of Broadmark's real estate management companies as part of an internalization transaction and will be funded by Trinity's cash held in trust.

The remainder of the purchase price to be paid will be paid in newly issued shares of Broadmark Realty's common stock.

In addition, Broadmark Realty has entered into a subscription agreement for a USD 75m private placement of Broadmark Realty's common stock with affiliates of Farallon Capital Management, L.L.C., a global asset management firm.

The proceeds from Farallon's investment will be used to fund transaction-related expenses and the ongoing business operations of Broadmark Realty following the consummation of the business combination, including funding new loan origination opportunities in existing and new markets.

Upon closing of the proposed transaction, Jeffrey B. Pyatt, president of Pyatt Broadmark Management, LLC, will become the chief executive officer of Broadmark Realty, and Joseph L. Schocken, Founder and president of Broadmark Capital, will serve as chairman of the board of directors.

The rest of Broadmark's executive team will continue in their respective roles in the combined company.

The board of directors of Trinity and the boards of directors and managers of the Broadmark entities have unanimously approved the proposed transaction.

Completion of the proposed transaction is subject to Trinity stockholder approval; Broadmark equity holder approval; obtaining an amendment to Trinity's outstanding public warrants to remove certain anti-dilution provisions relating to the payment of ordinary periodic cash dividends customary for a REIT; Broadmark Realty retaining at least USD 100m in cash following the consummation of the transactions, the redemption of Trinity shares, if any, and the payment of expenses and indebtedness required to be paid at the closing; and other customary closing conditions.

The parties expect that the proposed transaction will be completed in early November.

B. Riley FBR, Inc. is acting as capital markets advisor and private placement agent to Trinity, Gibson, Dunn and Crutcher LLP is acting as Trinity's legal advisor, and Raymond James and Associates, Inc. is acting as Trinity's financial advisor. CS Capital Advisors, LLC is acting as financial advisor to Broadmark, and Bryan Cave Leighton Paisner LLP is acting as Broadmark's legal advisor.
Details
Date Published: 13/08/2019
Target: Broadmark
Country: USA
Deal Size: 1.5bn (USD)
Sector: Construction/Real Estate
Type: Merger
Financing: Stock
Status: Agreed
Vendor:
Buyer: Trinity Merger Corp
Buyer Advisor: Gibson, Dunn and Crutcher , Raymond James and Associates
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