Houlihan Lokey Advises Franklin BSP Realty Trust

Houlihan Lokey is pleased to announce that Franklin BSP Realty Trust, Inc. (FBRT) completed its merger with Capstead Mortgage Corp. (Capstead) on October 19, 2021. The transaction creates the fourth largest publicly traded commercial mortgage REIT with nearly $2.0 billion of total equity capital. The combined company trades on the NYSE under the ticker “FBRT” and is externally managed by Benefit Street Partners (BSP). Houlihan Lokey served as lead financial advisor to FBRT.

At closing, the common stockholders of Capstead received approximately $583 million or $5.97 per share of stock in FBRT* and approximately $92 million or $0.94 per share of cash for a total transaction value of approximately $674 million or $6.91 per common share. The consideration represented approximately 115.75% of Capstead’s adjusted common book value as of September 30, 2021. FBRT’s external manager, BSP, provided approximately $71 million, or 78%, of the total cash consideration paid to Capstead shareholders in the transaction. Pro forma for the transaction, FBRT shareholders own approximately 64%, and former Capstead shareholders own approximately 36% of the combined company. In addition, Capstead’s $258 million of Series E 7.5% Cumulative Redeemable Preferred Stock has been exchanged into equivalent preferred shares of FBRT.

As part of the transaction, the FBRT Board of Directors has been expanded to eight, including the appointment of three former Capstead independent directors. Upon closing, the FBRT Board authorized a new $65 million share repurchase program at prices below the company’s most recently reported book value per share. This repurchase program will be operative following the conclusion of the $35 million share repurchase program that BSP, as external manager to FBRT, agreed to fund in connection with the merger.

Formed in 1985 and based in Dallas, Texas, Capstead was an internally managed real estate investment trust, or REIT, for federal income tax purposes. Capstead earned income from investing in a leveraged portfolio of primarily residential adjustable-rate mortgage pass-through securities, referred to as ARM securities, issued and guaranteed by government-sponsored enterprises, either Fannie Mae or Freddie Mac, or by an agency of the federal government, Ginnie Mae.

Franklin BSP Realty Trust, Inc., is a publicly traded commercial mortgage REIT that originates, acquires, and manages a diversified portfolio of commercial real estate debt secured by properties located in the United States. Prior to its merger with Capstead, FBRT was known as Benefit Street Partners Realty Trust, Inc., and was a private, non-traded REIT with approximately $3 billion of assets and $1 billion of equity capital. FBRT is externally managed by BSP.

Benefit Street Partners LLC is a leading credit-focused alternative asset management firm with over $33 billion in assets under management as of August 31, 2021. BSP manages assets across a broad range of complementary credit strategies, including private/opportunistic debt, structured credit, high yield, special situations, and commercial real estate. Based in New York, the BSP platform was established in 2008. BSP is a wholly owned subsidiary of Franklin Templeton. Franklin Resources, Inc. (NYSE:BEN) is a global investment management organization with subsidiaries operating as Franklin Templeton and serving clients in over 165 countries. With offices in more than 30 countries and approximately 1,300 investment professionals, the California-based company has over 70 years of investment experience and over $1.5 trillion in assets under management as of September 30, 2021.

Houlihan Lokey served as lead financial advisor to FBRT.