Mortgage REIT Insider: Walking the Plank

One of these days, I’ll be able to write a positive column about the mortgage REIT sector. Today, however, is not one of those days. This week was one of the ugliest yet for the mortgage finance companies, with vicious selling spurred on by potential bankruptcy at mall REIT giant General Growth Properties (GGP) and the news that two major commercial loans near default are sinking newly-minted CMBS JPMorgan Chase Commercial Mortgage Securities Trust 2008-C2. With that, let’s take a look at which mortgage REITs are in danger of walking the plank this week. Bye-bye Big Board Continuing with last week’s theme, yet another round of mREITs are getting ready to be booted from the NYSE. Impac Mortgage (IMH) is gone effective today, banished to the Pink Sheets as its stock hovers at a nickel a share. A stunning 88 percent drop in Thursday’s trading of Newcastle Investment (NCT) shares bought the diversified REIT’s market cap to just $8 million, well below the NYSE’s minimum $25 million market cap. JRT Investment Trust (JRT) also fell below the NYSE threshold, as its share price dipped below $1 for the first time. Not too far behind are Friedman Billings Ramsey (FBR), Crystal River Capital (CRZ) and Alesco Financial (AFN), which are but pennies per share away from falling below the minimum market capitalization. Thornburg still in the thorny weeds I could have included Thornburg Mortgage (TMA) in the above category, as its common shares dove yet another 60 percent this week — dragging the jumbo lender’s market cap to just $17 million. Thornburg’s litany of problems goes far beyond its public listing, however. Despite closing the long-awaited tender offer for its preferred shares and reducing the annual interest rate on its Senior Subordinated Notes from 18 percent to 12 percent, Thornburg failed to make the periodic interest payment due on its 8 percent Senior Notes because it lacked available cash. Although TMA insisted it would make the payment within the allowed 30-day grace period, Standard & Poor’s Rating Services disagreed, saying that it does not think a swift repayment is likely. As a result, the ratings agency slashed Thornburg’s counterparty credit rating to D, the lowest possible. Editor’s note: Patrick Harden is a Certified Public Accountant with three years of experience in auditing publicly-traded real estate investment trusts. For the past few years, he has been involved in the mortgage finance industry as a member of the financial reporting group at a publicly-traded mortgage bank. His column covering mortgage REITs runs every Friday. Disclosure: The author (sadly) was long shares of NCT, and held no other positions in any of the stocks mentioned when this story was published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.