Mortgage REIT Insider: At Thornburg, a Never-Ending Story

While the news in the mortgage REIT sector has slowed to a trickle after the frenzy of second quarter earnings, there have been a few interesting developments of late.

Subprime mREIT ECC Capital, which delisted its shares and sold off its origination platform to Bear Stearns & Cos. last year, has managed to stay alive and remain a REIT — something larger competitors NovaStar Financial and New Century Financial couldn’t do. And while the stock price has fallen to just pennies per share, the company announced a surprising $0.16/share dividend — an amount that was almost double the price of an ECC common share when it was announced. The stock price did immediately jump to $0.20/share, but what didn’t jump is the likelihood that ECC will deliver another dividend.

In a recent quarterly report, ECC cautioned that the distribution is the a result of a one-time overcollateralization release and the realization that there’s not much hope of finding attractive new investments.

The Never-Ending Tender
More news from penny stock land — Thornburg Mortgage (TMA: 0.79 0.00%) announced another extension of its tender offer for its preferred stock. Seems the Company needs more time — again.

Thornburg said that it has exceeded the requirement that preferred stockholders tender at least two-thirds of all classes of its preferred stock. But it had to extend the deadline for the tender by another week to negotiate on the Override Agreement regarding future margin calls. The company and the parties to the Override Agreement “continue to negotiate clarifications with respect to the amount, timing, calculation methodology, limits of margin calls and agreed upon uses for the Liquidity Fund.”

Looks like there were some oversights in the rush to get the override.

Gramercy’s Auction Angst
Gramercy Capital Corp.’s (GKK: 1.62 -3.57%) buyout of American Financial Realty Trust has taken a heavy toll on the company’s balance sheet. Gramercy is desperately trying to unload legacy AFR assets to raise cash and improve operating metrics.

The properties that Gramercy is auctioning off consist of 56 vacant bank branch buildings, 12 occupied bank branches and six pieces of land. The value of those properties ranges from $100,000 to $2 million apiece, so Gramercy could raise over $100 million — if the auction goes well. The asset sales will provide precious liquidity for GKK, which has already warned that it will be lowering its dividend in the third quarter.

So far, however, things aren’t looking too promising for Gramercy. Its public fight with owners of San Jose mall Cupertino Square took a new twist when Cupertino’s owners filed bankruptcy this week. The bankruptcy gives control of daily operations back to the owners and delays Gramercy’s attempt to foreclose and auction off the property.

GKK is feuding with the mall’s current management team over the cost of attracting new tenants. Mall owners refuted the claims, saying that “[u]nfortunately, we have had a difference of opinion with Gramercy, and they have never supported our tenanting.”

Maybe Gramercy could locate some better underwriters.

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 two 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 held no 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.