Mortgage REIT Insider: Outwit, Outplay, Outlast

In the world of mortgage REITs, the game being played is no longer Who Wants to be a Millionaire? Instead, it’s turned into a vicious and bloody game of Survivor — and no one has immunity. CBRE Realty Finance is losing its NYSE listing — and losing its identity, as well. The company was the latest victim to be booted from the Big Board when its market capitalization fell below the required $25 million last week, prompting the NYSE to immediately delist the company. The move was widely anticipated, as CBRE’s share price has languished below $1.00 for some time now. The company began trading on the OTC market this week, and began the processing of splitting from manager CBRE/Melody, which is expected to be complete by the end of the year. The split comes as the company determined that its best (and possibly only available) strategic alternative was to transform to an internally-managed REIT. Without additional access to warehouse lines, a stock that’s trading for pennies on the dollar, and no access to unsecured credit, CBRE may also be transitioning into liquidation mode. American Mortgage Acceptance Company also got sent packing from the NYSE after it disclosed that its total remaining liabilities exceed the current value of its total remaining assets — and that its common shares are “worthless.” AMC was forced to liquidate a number of CMBS investments at auction, as it was unable to rollover its repurchase lines at maturity with any alternative form of financing. With ailing sponsor Centerline Holding Co. (CHC) also on the ropes, American Mortgage seems days away from bankruptcy. Ailing Anthracite While Anthracite Capital (AHR) may have kept its NYSE listing, its cash situation remains every bit as precarious as those that weren’t so lucky. Margin calls from Anthracite’s remaining repurchase debt continue to pressure the company’s liquidity to the point that margin calls are now being met with installment payments instead of upfront cash. And although Anthracite believes it has sufficient liquidity for the next twelve months, this assertion is based on a clean rollover of its Morgan Stanley facility in January, and limited forward margin calls from other lenders. That may be a tall order. AHR says it will still be able to pay a fourth-quarter cash dividend at the current rate, but may need to issue common stock to satisfy 2009 dividend requirements. Can Thornburg tender in time? As margin calls mount at Thornburg Mortgage (TMA), the long-struggling mortgage REIT and ultra-prime jumbo lender, is racing against time to complete the exchange offer for its preferred shares to reduce the interest rate on its Senior Subordinated Notes and raise additional cash. At Nov. 3, Thornburg had $195.3 million in additional potential margin calls, far exceeding the remaining $113.5 million in the Liquidity Reserve Fund. Thornburg continues to sell ARM assets to payoff its remaining warehouse lines and raise excess cash to meet margin calls until it can arrange alternative financing. Surprisingly, however, the REIT requirements may be an issue for TMA, as the company had $1.77/share in undistributed taxable income at September 30. Thornburg must declare a dividend of at least 85 percent of this undistributed taxable income in December or face an excise tax liability. How about more common shares to the rescue? Thornburg has pulled greater miracles out of its hat before, so stay tuned for more of Thornburg’s turmoil. 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 (perhaps thankfully) 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.