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Section 1: 8-K/A (8-K/A)

                                       

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K/A

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

Date of Report (Date of earliest event reported)
March 29, 2019

 

READY CAPITAL CORPORATION

(Exact Name of Registrant as Specified in its Charter)

 

Maryland

 

001-35808

 

90-0729143

(State or Other Jurisdiction
Of Incorporation)

 

(Commission File Number)

 

(IRS Employer
Identification No.)

 

1140 Avenue of the Americas,

7th Floor

New York, NY 10036

(Address of principal executive offices)
(Zip Code)

 

 

Registrant’s telephone number, including area code: (212) 257-4600

 

 

(Former Name or Former Address, if Changed Since Last Report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

o            Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

o            Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

o            Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

o            Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Securities registered pursuant to Section 12(b) of the Exchange Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.0001 par value per share
7.00% Convertible Senior Notes due 2023
6.50% Senior Notes due 2021

 

RC
RCA
RCP

 

New York Stock Exchange
New York Stock Exchange
New York Stock Exchange

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging Growth Company o

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   o

 

 

 


 

EXPLANATORY NOTE

 

On March 29, 2019, Ready Capital Corporation (“Ready Capital”) filed a Current Report on Form 8-K (the “Form 8-K”) with the U.S. Securities and Exchange Commission (the “SEC”) in connection with the consummation on March 29, 2019 (the “Closing Date”) of the transactions contemplated by that certain Agreement and Plan of Merger (the “Merger Agreement”), dated as of November 7, 2018, by and among Ready Capital, Owens Realty Mortgage, Inc., a Maryland corporation (“ORM”) and ReadyCap Merger Sub, LLC, a Delaware limited liability company and a wholly owned subsidiary of Ready Capital (“Merger Sub”). Pursuant to the Merger Agreement, on the Closing Date, ORM merged with and into Merger Sub, with Merger Sub continuing as the surviving company (the “Merger”). This Current Report on Form 8-K/A is being filed to amend the Form 8-K to provide the financial statements and pro forma financial information described below, in accordance with the requirements of Item 9.01 of Form 8-K.

 

Item 9.01 Financial Statements and Exhibits

 

(a) Financial Statements of Businesses Acquired.

 

The required audited consolidated financial statements of ORM as of December 31, 2018 and December 31, 2017 and for each of the years ended December 31, 2018, December 31, 2017 and December 31, 2016 are filed as Exhibits 99.1 and are incorporated herein by reference.

 

(b) Pro Forma Financial Information.

 

The required unaudited pro forma condensed combined financial information with respect to the Merger is filed as Exhibit 99.2 and incorporated herein by reference.

 

(d) Exhibits.

 

2.1

 

Agreement and Plan of Merger, by and among Ready Capital Corporation, ReadyCap Merger Sub LLC and Owens Realty Mortgage, Inc., dated as of November 7, 2018 (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed with the SEC on November 9, 2018).

23.1*

 

Consent of Crowe LLP, independent registered public accounting firm (in respect of Owens Realty Mortgage, Inc.).

99.1

 

Audited consolidated financial statements of Owens Realty Mortgage, Inc. as of December 31, 2018 and December 31, 2017 and for each of the years ended December 31, 2018, December 31, 2017 and December 31, 2016 (incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC by Owens Realty Mortgage, Inc. on March 15, 2019)

99.2*

 

Unaudited pro forma condensed combined financial information of Ready Capital Corporation as of and for the year ended December 31, 2018

 


* Filed herewith.

 

2


 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

Ready Capital Corporation

 

 

 

 

 

 

 

By:

/s/ Andrew Ahlborn

 

Name:

Andrew Ahlborn

 

Title:

Chief Financial Officer

 

 

 

Dated: June 14, 2019

 

 

 

3


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Section 2: EX-23.1 (EX-23.1)

Exhibit 23.1

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

We consent to the incorporation by reference in the registration statements on Form S-3 (Nos. 333-219213, 333-217810 and 333-196296) and Form S-8 (No. 333-216988) of Ready Capital Corporation of our report dated March 15, 2019, relating to the consolidated financial statements of Owens Realty Mortgage, Inc., appearing in the Annual Report on Form 10-K of Owens Realty Mortgage, Inc. for the year ended December 31, 2018, which report is incorporated by reference in the Form 8-K/A of Ready Capital Corporation dated June 14, 2019.

 

/s/ CROWE LLP

 

Sacramento, California

June 14, 2019

 


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Section 3: EX-99.2 (EX-99.2)

Exhibit 99.2

 

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

On March 29, 2019, Ready Capital Corporation, a Maryland corporation (the “Company” or “Ready Capital”) and ReadyCap Merger Sub, LLC, a Delaware limited liability company and a wholly owned subsidiary of Ready Capital (“Merger Sub”), consummated the transactions contemplated by the Agreement and Plan of Merger (the “Merger Agreement”), dated as of November 7, 2018, with Owens Realty Mortgage, Inc., a Maryland corporation (“ORM”) pursuant to which ORM merged with and into Merger Sub, with Merger Sub continuing as the surviving company (the “Merger”).

 

Upon completion of the Merger and under the terms of the Merger Agreement, each outstanding share of common stock, par value $0.01 per share, of ORM (“ORM Common Stock”) (other than shares held by Ready Capital or Merger Sub or by any wholly owned subsidiary of Ready Capital, Merger Sub or ORM, which were automatically cancelled and retired and ceased to exist) was converted into the right to receive from Ready Capital 1.441 newly issued shares of common stock, par value $0.0001 per share, of Ready Capital (the “Ready Capital Common Stock”). No fractional shares of Ready Capital Common Stock were issued in the Merger, and the value of any fractional interests to which a former holder of ORM Common Stock is otherwise entitled was paid in cash.

 

The unaudited pro forma condensed combined balance sheet gives effect to the Merger based on the historical balance sheets of Ready Capital and ORM as of December 31, 2018.  The Ready Capital and ORM balance sheet information was derived from their audited balance sheets at December 31, 2018 that were included in their Annual Reports on Form 10-K for the year then ended, which were each filed with the SEC on March 13, 2019 and March 15, 2019, respectively.

 

The unaudited pro forma condensed combined statements of income is presented for the year ended December 31, 2018 based on the most recently completed fiscal year of Ready Capital and ORM.  The historical results of Ready Capital were derived from its audited consolidated statement of income for the year ended December 31, 2018 that was included in its Annual Report on Form 10-K for the year then ended, filed on March 13, 2019.  The historical results of ORM were derived from its audited consolidated statement of income for the year ended December 31, 2018 that was included in its Annual Report on Form 10-K for the year then ended, filed on March 15, 2019.

 

The adjustments for the unaudited pro forma condensed combined balance sheet as of December 31, 2018 assume the Merger was completed on that date.  The adjustments for the unaudited pro forma condensed combined statements of income for the year ended December 31, 2018 were prepared assuming the Merger was completed on January 1, 2018.  The pro forma adjustments are included only to the extent they are (i) directly attributable to the Merger, (ii) factually supportable and (iii) with respect to the unaudited pro forma condensed combined statements of income, expected to have a continuing impact on the combined results.  The unaudited pro forma condensed combined financial information do not reflect the costs of any integration activities.

 


 

The following unaudited pro forma condensed combined financial information have been prepared for illustrative purposes only and have been adjusted to reflect certain reclassifications in order to conform to Ready Capital’s financial statement presentation.  The unaudited pro forma condensed combined financial information were prepared using the acquisition method of accounting for business combinations pursuant to ASC 805, Business Combinations, with Ready Capital considered the acquirer for accounting purposes.  The statements are not necessarily indicative of the consolidated financial position or results of operations in future periods or the results that actually would have been realized had Ready Capital and ORM been combined during the specified periods.  The following unaudited pro forma condensed combined financial information, including the notes thereto, are qualified in their entirety by reference to, and should be read in conjunction with, the historical financial statements referred to above and other information relating to Ready Capital and ORM contained in their respective Annual Reports on Form 10-K for the year ended December 31, 2018 and any subsequent Quarterly Reports on Form 10-Q.

 

The estimated fair values for the assets acquired and liabilities assumed are preliminary and are subject to change during the measurement period as additional information related to the inputs and assumptions used in determining the fair value of the assets and liabilities becomes available and may result in variances to the amounts presented in the unaudited pro forma condensed combined statements of income.

 


 

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF DECEMBER 31, 2018

 

 

 

Ready Capital
Corporation
(Accounting
Acquirer)

 

ORM
(Accounting
Acquiree)

 

ORM Financial
Statement
Reclass (B)

 

 

 

Pro Forma
Merger
Adjustments

 

 

 

Pro Forma
Combined

 

(In Thousands)

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

54,406

 

$

 

$

1,014

 

a

 

$

(10,000

)

C1

 

$

45,420

 

Cash, cash equivalents, and restricted cash

 

 

4,514

 

(4,514

)

a

 

 

 

 

 

 

Restricted cash

 

28,921

 

 

3,500

 

a

 

 

 

 

 

32,421

 

Loans, net

 

1,193,392

 

141,204

 

 

 

 

 

 

 

 

1,334,596

 

Loans, held for sale, at fair value

 

115,258

 

 

 

 

 

 

 

 

 

115,258

 

Mortgage backed securities, at fair value

 

91,937

 

 

 

 

 

 

 

 

 

91,937

 

Loans eligible for repurchase from Ginnie Mae

 

74,180

 

 

 

 

 

 

 

 

 

74,180

 

Investment in unconsolidated joint ventures

 

33,438

 

 

2,139

 

e

 

5,416

 

C6

 

40,993

 

Derivative instruments

 

2,070

 

 

 

 

 

 

 

 

 

2,070

 

Servicing rights

 

120,062

 

 

 

 

 

 

 

 

 

120,062

 

Receivable from third parties

 

8,888

 

 

 

 

 

 

 

 

 

8,888

 

Other assets

 

63,234

 

417

 

1,105

 

b

 

 

 

 

 

60,017

 

 

 

 

 

 

 

351

 

c

 

 

 

 

 

 

 

 

 

 

 

 

 

2,697

 

d

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,787

)

g

 

 

 

 

 

 

 

Interest and other receivables

 

 

1,105

 

(1,105

)

b

 

 

 

 

 

 

Deferred financing costs

 

 

351

 

(351

)

c

 

 

 

 

 

 

Deferred tax assets, net

 

 

2,697

 

(2,697

)

d

 

 

 

 

 

 

Investment in limited liability company

 

 

2,139

 

(2,139

)

e

 

 

 

 

 

 

Real estate acquired in settlement of loans, held for sale

 

 

34,094

 

22,549

 

f

 

18,062

 

C6

 

82,492

 

 

 

 

 

 

 

7,787

 

g

 

 

 

 

 

 

 

Real estate held for investment

 

 

22,549

 

(22,549

)

f

 

 

 

 

 

 

Assets of consolidated VIEs

 

1,251,057

 

 

 

 

 

 

 

 

 

1,251,057

 

Total Assets

 

$

3,036,843

 

$

209,070

 

$

 

 

 

$

13,478

 

 

 

$

3,259,391

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Secured borrowings

 

834,547

 

 

1,728

 

h

 

 

 

 

 

836,275

 

Lines of credit payable

 

 

1,728

 

(1,728

)

h

 

 

 

 

 

 

Notes and loans payable on real estate

 

12,799

 

 

 

 

 

 

 

 

 

12,799

 

Securitized debt obligations of consolidated VIEs, net

 

905,367

 

 

 

 

 

 

 

 

 

 

905,367

 

Convertible notes, net

 

109,979

 

 

 

 

 

 

 

 

 

 

109,979

 

Senior secured notes, net

 

178,870

 

 

 

 

 

 

 

 

 

 

178,870

 

Corporate debt, net

 

48,457

 

 

 

 

 

 

 

 

 

 

48,457

 

Guaranteed loan financing

 

229,678

 

 

 

 

 

 

 

 

 

 

229,678

 

Contingent consideration

 

1,207

 

 

 

 

 

 

 

 

 

 

1,207

 

Liabilities for loans eligible for repurchase from Ginnie Mae

 

74,180

 

 

 

 

 

 

 

 

 

 

74,180

 

Derivative instruments

 

3,625

 

 

 

 

 

 

 

 

 

 

3,625

 

Dividends payable

 

13,346

 

1,697

 

 

 

 

 

 

 

 

 

15,043

 

Due to Manager

 

 

242

 

(242

)

i

 

 

 

 

 

 

Accounts payable and other accrued liabilities

 

73,512

 

1,245

 

242

 

i

 

 

 

 

 

74,999

 

Total Liabilities

 

$

2,472,768

 

$

17,711

 

$

 

 

 

$

 

 

 

$

2,490,479

 

Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RC Common stock

 

3

 

 

 

 

 

 

1

 

C5

 

4

 

ORM Common stock

 

 

112

 

 

 

 

 

(112

)

C5

 

 

RC Additional paid-in capital

 

540,478

 

 

 

 

 

 

50,562

 

C2

 

725,341

 

 

 

 

 

 

 

 

 

 

 

182,438

 

C3

 

 

 

 

 

 

 

 

 

 

 

 

 

(41,753

)

C4

 

 

 

 

 

 

 

 

 

 

 

 

 

111

 

C5

 

 

 

 

 

 

 

 

 

 

 

 

 

(29,973

)

C7

 

 

 

 

 

 

 

 

 

 

 

 

 

23,478

 

C6

 

 

 

ORM Additional paid-in capital

 

 

182,438

 

 

 

 

 

(182,438

)

C3

 

 

ORM Treasury stock

 

 

 

(41,753

)

 

 

 

 

41,753

 

C4

 

 

RC Retained earnings (deficit)

 

5,272

 

 

 

 

 

 

(5,315

)

C1

 

(43

)

 

 

 

 

 

 

 

 

 

 

29,973

 

C7

 

29,973

 

ORM Retained earnings (deficit)

 

 

50,562

 

 

 

 

 

(50,562

)

C2

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,500

)

C1

 

(4,500

)

Accumulated other comprehensive income/ (loss)

 

(922

)

 

 

 

 

 

 

 

 

(922

)

Total common stockholders’ equity

 

544,831

 

191,359

 

 

 

 

13,663

 

 

 

749,853

 

Non-controlling interests

 

19,244

 

 

 

 

 

 

(185

)

C1

 

19,059

 

 

 

 

 

 

 

 

 

 

 

 

C7

 

 

 

Total Stockholders’ Equity

 

$

564,075

 

$

191,359

 

$

 

 

 

$

13,478

 

 

 

$

768,912

 

Total Liabilities and Stockholders’ Equity

 

$

3,036,843

 

$

209,070

 

$

 

 

 

$

13,478

 

 

 

$

3,259,391

 

 


 

 

 

Ready Capital
Corporation
(Accounting
Acquirer)

 

ORM
(Accounting
Acquiree)

 

ORM Financial
Statement
Reclass (B)

 

 

 

Pro Forma
Merger
Adjustments

 

 

 

Pro Forma
Combined

 

 

 

(In Thousands)

 

 

 

 

 

 

 

 

 

Common shares outstanding

 

32,105,112

 

8,482,880

 

 

 

 

 

12,223,830

 

 

 

44,328,942

 

Book value per common share

 

$

16.97

 

$

22.56

 

 

 

 

 

 

 

 

 

$

16.92

 

 


 

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 2018

 

(In Thousands, except share data)

 

Ready
Capital
Corporation
(Accounting
Acquirer)

 

ORM
(Accounting
Acquiree)

 

ORM
Financial
Statement
Reclass (B)

 

 

 

Pro Forma
Merger
Adjustments

 

 

 

Pro Forma
Combined

 

Interest income

 

$

169,499

 

$

12,281

 

$

 

 

 

$

919

 

C8

 

$

182,699

 

Interest expense

 

(109,238

)

(2,133

)

 

 

 

 

 

 

(111,371

)

Net interest income before provision for loan losses

 

$

60,261

 

$

10,148

 

$

 

 

 

$

919

 

 

 

$

71,135

 

Provision for (recovery of) loan losses

 

(1,701

)

239

 

 

 

 

 

 

 

 

 

(1,462

)

Net interest income after provision for loan losses

 

$

58,560

 

$

10,387

 

$

 

 

 

$

919

 

 

 

$

69,866

 

Non-interest income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage banking activities

 

59,852

 

 

 

 

 

 

 

 

 

 

59,852

 

Net realized gain on financial instruments

 

38,409

 

 

 

 

 

 

 

 

 

 

 

38,409

 

Net unrealized gain on financial instruments

 

4,853

 

 

 

 

 

 

 

 

 

 

 

4,853

 

Other income

 

5,586

 

386

 

 

 

 

 

151

 

C9

 

6,123

 

Income on unconsolidated joint venture

 

12,148

 

 

 

 

 

 

 

 

 

 

12,148

 

Servicing income, net

 

27,075

 

 

 

 

 

 

 

 

 

 

27,075

 

Gains on sales of real estate, net

 

 

4,611

 

 

 

 

 

 

 

 

 

4,611

 

Rental and other income from real estate properties

 

 

4,129

 

 

 

 

 

 

 

 

 

4,129

 

Total non-interest income

 

$

147,923

 

$

9,126

 

$

 

 

 

$

151

 

 

 

$

157,200

 

Non-interest expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee compensation and benefits

 

(56,602

)

 

 

 

 

 

 

 

 

 

 

(56,602

)

Allocated employee compensation and benefits from related party

 

(4,200

)

 

 

 

 

 

 

 

 

 

 

(4,200

)

Variable expenses on residential mortgage banking activities

 

(22,228

)

 

 

 

 

 

 

 

 

 

 

(22,228

)

Professional fees

 

(6,999

)

 

 

 

 

 

 

 

 

 

 

(6,999

)

Management fees — related party

 

(8,176

)

(2,906

)

 

 

 

 

321

 

C10

 

(10,761

)

Incentive fees — related party

 

(1,143

)

 

 

 

 

 

 

 

 

 

 

(1,143

)

Loan servicing expense

 

(15,545

)

 

 

(95

)

m

 

 

 

 

 

(15,640

)

Other operating expenses

 

(28,747

)

 

 

(5,204

)

j, k, l

 

 

 

 

 

(33,951

)

Rental and other expenses on real estate properties

 

 

(3,859

)

 

 

 

 

 

 

 

 

(3,859

)

General and administrative expense

 

 

(3,389

)

3,389

 

j

 

 

 

 

 

 

Depreciation and amortization

 

 

(762

)

762

 

k

 

 

 

 

 

 

Impairment losses on real estate properties

 

 

 

(1,053

)

1,053

 

l

 

 

 

 

 

 

Servicing fees to Manager

 

 

(95

)

95

 

m

 

 

 

 

 

 

Total non-interest expense

 

$

(143,640

)

$

(12,064

)

$

 

 

 

$

321

 

 

 

$

(155,383

)

Income before provision for income taxes

 

$

62,843

 

$

7,449

 

$

 

 

 

$

1,391

 

 

 

$

71,683

 

Provision for income (taxes) benefit

 

(1,386

)

(560

)

 

 

 

 

 

 

 

(1,946

)

Net income

 

$

61,457

 

$

6,889

 

$

 

 

 

$

1,391

 

 

 

$

69,737

 

Less: Net income attributable to non-controlling interest

 

2,199

 

 

 

 

 

35

 

C8 - C10

 

2,234

 

Net income attributable to common stockholders

 

$

59,258

 

$

6,889

 

$

 

 

 

$

1,356

 

 

 

$

67,503

 

Earnings per common share — basic

 

$

1.84

 

$

0.79

 

 

 

 

 

 

 

 

 

$

1.52

 

Earnings per common share — diluted

 

$

1.84

 

$

0.79

 

 

 

 

 

 

 

 

 

$

1.52

 

Weighted-average shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

32,085,975

 

8,764,568

 

 

 

 

 

12,223,830

 

 

 

44,309,805

 

Diluted

 

32,102,184

 

8,764,568

 

 

 

 

 

12,223,830

 

 

 

44,326,014

 

 


 

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

(A)                            Basis of Presentation

 

Under the terms of the Merger Agreement, in connection with the Merger, each outstanding share of ORM Common Stock was converted into the right to receive a number of shares of Ready Capital Common Stock determined by dividing Ready Capital’s adjusted book value per share by the ORM adjusted book value per share each as calculated at a time and pursuant to certain calculation principles set forth in the Merger Agreement (“Exchange Ratio”).

 

On March 29, 2019, the Company completed the acquisition of ORM, through a merger of ORM with and into a wholly owned subsidiary of the Company, in exchange for approximately 12.2 million shares of the Company’s common stock.  In accordance with the Merger Agreement, the number of shares of the Company’s common stock issued was based on an exchange ratio of 1.441 per share.  The total purchase price for the merger of $179.3 million consisted exclusively of the Company’s common stock issued in exchange for shares of ORM common stock and cash paid in lieu of fractional shares of the Company’s common stock, and was based on the $14.67 closing price of the Company’s common stock on March 29, 2019.  Upon the closing of the transaction, the Company’s historical stockholders owned approximately 72% of the combined company’s stock, while historical ORM stockholders owned approximately 28% of the combined company’s stock.

 

Calculation of Preliminary Estimated Total Consideration Transferred

 

 

 

(in thousands, except share and per share data)

 

 

 

ORM total stockholders’ equity at December 31, 2018

 

$

191,359

 

Less: Merger transaction expenses — ORM

 

(4,500

)

Less: Other changes in equity

 

(285

)

Fair value adjustment to Real Estate Owned

 

18,062

 

Fair value adjustment to Investment in unconsolidated joint venture

 

5,416

 

ORM adjusted book value

 

$

210,052

 

 

 

 

 

ORM shares outstanding at December 31, 2018

 

8,482,880

 

Exchange ratio

 

x

1.441

 

Shares issued

 

12,223,830

 

Market price as of March 29, 2019

 

x

14.67

 

Estimated total consideration transferred based on value of shares issued

 

$

179,324

 

Total estimated bargain purchase gain

 

$

30,728

 

 

Bargain purchase gain represents the excess of the fair value of the underlying net assets acquired and liabilities assumed over the total consideration transferred.  This determination of bargain purchase gain is preliminary and is subject to change when the evaluation is complete.

 

(B)                            Accounting Presentation and Policies

 

Financial Statement Reclassifications

 

The unaudited pro forma condensed combined financial information has been compiled in a manner consistent with the accounting policies adopted by Ready Capital.  Certain balances from

 


 

the consolidated financial statements of ORM were reclassified to conform the presentation to that of Ready Capital.

 

The following Balance Sheet reclassifications have been made from ORM’s balance sheet information derived from its audited balance sheet at December 31, 2018 that was included in its Annual Report on Form 10-K for the year then ended, which was filed with the Securities and Exchange Commission on March 15, 2019:

 

Assets:

 

a)                                     Reclassified Restricted cash out of Cash, cash equivalents, and restricted cash and into Restricted cash.

 

b)                                     Reclassified Interest and other receivables to Other Assets

 

c)                                      Reclassified Deferred financing costs to Other Assets

 

d)                                     Reclassified Deferred tax assets, net to Other Assets

 

e)                                      Reclassified Investment in limited liability company to Investment in unconsolidated joint ventures

 

f)                                       Reclassified Real Estate held-for-investment to Real Estate held for sale

 

g)                                      Reclassified Real Estate Owned from Other Assets to Real Estate held for sale

 

Liabilities:

 

h)                                     Reclassified Lines of credit payable to Secured borrowings

 

i)                                         Reclassified Due to Manager to Accounts payable and other accrued liabilities

 

The following Statement of Income reclassification have been made from ORM’s income statement information derived from its audited statement of operations for the year ended December 31, 2018 that was included in its Annual Report on Form 10-K for the years then ended, which was filed with the Securities and Exchange Commission on March 15, 2019:

 

Expenses:

 

j)                                        Reclassified General and administrative expense to Other operating expenses

 

k)                                     Reclassified Depreciation and amortization to Other operating expenses

 

l)                                         Reclassified Impairment losses on real estate properties to Other operating expenses

 

m)                                 Reclassified Servicing fees to Manager to Loan servicing expense

 


 

(C)                            Pro Forma Merger Adjustments

 

The unaudited pro forma combined balance sheet as of December 31, 2018 reflects the following adjustments:

 

C1)                            Adjustment relates to the recognition and payment of estimated one-time merger obligations and estimated total costs of $10.0 million including:

 

a)                                     transactions costs related to the Merger of $5.5 million paid by Ready Capital, the accounting acquirer, allocated $5.3 million to common stockholders and $0.2 million to Non-controlling interests;

 

b)                                     transaction costs related to the Merger of $4.5 million paid by ORM, the accounting acquiree

 

C2)                            Adjustment relates to the elimination of ORM historical accumulated retaining earnings of $50.6 million

 

C3)                            Adjustment relates to the elimination of ORM historical additional paid-in capital of $182.4 million

 

C4)                            Adjustment relates to the elimination of ORM historical treasury stock of $41.8 million

 

C5)                            Adjustment of $112 thousand to reflect elimination of ORM historical common stock, $0.01 par value, and issuance of new Ready Capital Common Stock, $0.0001 par value

 

C6)                            Adjustment of $18.1 million to the Real Estate held for sale to fair value balance and $5.4 million to the Investment in unconsolidated joint ventures balance.

 

C7)                            Adjustment relates to the bargain purchase gain of $30.7 million, allocated $30.0 million to common stockholders and $0.7 million to Non-controlling interests.

 

C8)                            Adjustment relates to the recognition of additional accretion of discount due to certain origination fees paid to the ORM Manager that would be retained by the Combined Company and amortized over the life of the loan.

 

C9)                            Adjustment relates to additional income for fees paid to the ORM Manager under the terms of the ORM Management Agreement that would be retained by the Combined Company under the Ready Capital Management Agreement.

 

C10)                     Adjustment relates to the impact (a reduction) of the management fees under Ready Capital Management Agreement and removal of ORM historical advisory fees.

 

Ready Capital believes, with the exception of the adjustment to the Real Estate Owned and Investment in unconsolidated joint venture balances indicated in C6, all ORM balance sheet accounts approximate fair value.  There is no tax impact relating to income items, as they are included in non taxable entities.

 


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