425: Ready Capital to Acquire United Development Funding IV in Merger Deal

United Development Funding IV (UDF IV) shareholders are urged to vote in favor of the proposed merger with Ready Capital, a multi-strategy real estate finance company, at the Special Meeting on March 4, 2025.

Summary

• United Development Funding IV (UDF IV) has entered into a definitive agreement to be acquired by Ready Capital, a NYSE-traded real estate finance company.
• The Special Meeting of Shareholders will be held on March 4, 2025, to vote on the proposed merger.
• UDF IV shareholders may receive up to $5.89 per share in value as a result of the merger, based on Ready Capital's closing share price on November 29, 2024.
• The consideration includes up to $2.44 per UDF IV share in pre-closing cash distributions, 0.416 shares of Ready Capital common stock, and 0.416 Contingent Value Rights (CVRs).
• Ready Capital's market capitalization was $1.2 billion as of November 29, 2024, and $1.15 billion as of January 23, 2025.
• Ready Capital has a $9.4 billion portfolio of over 7,500 loans diversified across 50 states & Europe.
• Ready Capital and its affiliates have funded over $110 million of loans originated by UDF IV over the last 10 years, all of which were repaid in full.

Sentiment

Score: 7

Explanation: The document presents a positive outlook on the merger, emphasizing the potential benefits for UDF IV shareholders and highlighting Ready Capital's strong financial profile. However, it also acknowledges certain risks and uncertainties associated with the transaction, leading to a moderately positive sentiment score.

Positives

• The merger is expected to provide UDF IV shareholders with immediate value and potential long-term upside.
• Ready Capital has a strong financial profile with $11.3 billion in total assets.
• Ready Capital has a diversified business model and a broad portfolio of real estate debt investments.
• Ready Capital is externally managed by Waterfall Asset Management, LLC, a successful and proven asset manager.
• UDF IV shareholders will have access to an efficient and scalable operating platform.

Negatives

• The implied value of the stock consideration will fluctuate based on changes in the market price of Ready Capital common stock prior to the closing of the merger.
• The payment of CVRs is contingent and may not generate the full potential value of $0.38 per UDF IV share.
• Abstaining from voting has the same effect as voting against the merger.

Risks

• The merger may not be consummated within the expected time period or at all.
• The merger agreement could be terminated due to certain events, changes, or circumstances.
• UDF IV shareholder approval of the merger may not be obtained.
• The market prices of Ready Capital common stock could be affected, impacting the implied value of shares issued to UDF IV shareholders.
• The amount of pre-closing distributions to UDF IV shareholders could be affected by developments in litigation.
• The amount of contingent consideration could be affected by the performance of specified UDF IV loans and developments in litigation.
• The merger could disrupt management attention from ongoing business operations.
• The announcement of the merger could affect the operating results and businesses of Ready Capital and UDF IV.
• Legal proceedings relating to the merger could arise.
• Key personnel may not be retained.
• Changes in interest rates, the yield curve, and prepayment rates could occur.
• General economic conditions and market conditions could change.
• Inflationary pressures on the capital markets and the general economy could arise.
• Conditions in the market for small balance commercial loans and other investments could change.
• Legislative and regulatory changes could adversely affect the businesses of Ready Capital and UDF IV.
• Integrating an existing lending platform into Ready Capital's operations could pose risks.

Future Outlook

The merger is expected to provide UDF IV shareholders with immediate value and potential long-term upside through ownership of Ready Capital shares, offering access to an efficient and scalable operating platform, a diversified business model, a broad portfolio of real estate debt investments, and the extensive expertise and resources of Ready Capital's external manager, Waterfall.

Management Comments

• The UDF IV Board of Trustees urges you to vote FOR the merger as soon as possible by following the instructions on the enclosed proxy card.
• We urge you to use the enclosed proxy card to vote FOR the Ready Capital merger to protect the value of your UDF IV investment.

Industry Context

The merger reflects a trend of consolidation in the real estate finance industry, where larger entities seek to expand their portfolios and access broader market opportunities. Ready Capital's acquisition of UDF IV aligns with this trend, allowing Ready Capital to further diversify its investments and leverage Waterfall's asset management expertise.

Comparison to Industry Standards

• Ready Capital's $9.4 billion loan portfolio is substantial, placing it among the significant non-bank lenders in the commercial real estate space.
• Companies like Blackstone Mortgage Trust (BXMT) and Starwood Property Trust (STWD) are comparable in terms of market capitalization and portfolio size, although they may have different investment strategies.
• The 14.7% dividend yield (as of January 23, 2025) is relatively high compared to the average dividend yield of REITs and other real estate finance companies.

Stakeholder Impact

• Shareholders of UDF IV are expected to receive value through cash distributions, Ready Capital stock, and potential CVR payments.
• Employees of UDF IV may experience changes as a result of the integration with Ready Capital.
• The merger could impact customers and suppliers of both UDF IV and Ready Capital.

Next Steps

• UDF IV shareholders need to vote on the merger at the Special Meeting on March 4, 2025.
• The merger is subject to customary closing conditions.

Key Dates