Mortgage REIT Insider: Thornburg Needs More Time

On Monday, Thornburg Mortgage (TMA) admitted that it will be June 2 before it can report first quarter results. The company said was unable to file its Form 10-Q because it requires additional time to prep its valuation analysis for a recent capital raise (completed at the end of March), and to also determine just how to account for that transaction. The company needs time to figure out how to properly account for the override agreement the company entered into with certain reverse repurchase agreement, securities lending and auction swap agreement counterparties on March 17 — that agreement kept the ultra-jumbo lender from meeting an untimely end in the first quarter. Thornburg currently anticipates it “will report a substantial net loss” when it does report for Q1; a large portion of the loss will come from declines in the fair value of its mortgage-backed securities portfolio. Impac’s Implosion Former Alt-A giant Impac Mortgage Holdings (IMH) finally reported its full-year 2007 results this week, as HW readers know, turning in a stunning $2 billion loss after taking a $1.4 billion provision for possible loan losses. Impac also reported a taxable loss of $1.79 a share in 2007, effectively eliminating any dividend obligation for months to come. Looking at prospects for the future, what wasn’t heavily covered elsewhere is that Impac is in negotiations to convert its remaining reverse repurchase line — with an outstanding balance of $318.7 million at the end of Q4 — into a note. If it can do so, reducing the uncertainty surrounding the line, and if it can settle the repurchase reserves in discontinued operations, Impac thinks it will be able to meet its liquidity needs from cash flows generated by its long-term mortgage portfolio and master servicing fees. Stay tuned. Debt Deals Getting Done A couple of big debt deals got done the week. iStar Financial (SFI) agreed to sell $750 million in unsecured 8.625 percent senior notes, and also obtained a $960 million interest-only first mortgage financing from GE Real Estate. The loan is secured by 34 single-tenant office, R&D and industrial properties in 12 states — a stark departure from iStar’s normal practice of using unsecured funding. Fitch Ratings has noted that if iStar begins to significantly encumber its net lease portfolio, the company could lose its investment grade rating. The REIT’s hand is likely forced here, however, because it needs to retire the debt it assumed to complete an earlier Fremont Investment & Loan acquisition (iStar purchased all of Fremont’s commercial loan business for $1.9 billion in May of last year). NorthStar Realty Finance (NRF) also went to the capital markets this week, completing a $80 million private offering of 11.5 percent unsecured notes. Although the rate on the notes seems high, NorthStar’s common equity is yielding 14.2 percent, so the capital was relatively cheap in comparison. NorthStar plans to use the money to expand its portfolio. IPO Deals Not Getting Done Following the less-than-impressive debut of American Capital Agency (AGNC) last week, MFResidential Investments, a mortgage REIT intending to invest primarily in residential mortgage backed securities and residential mortgage loans, postponed its IPO on Wednesday. The company, which is sponsored by agency mREIT MFA Mortgage (MFA), had planned to offer 16.7 million shares at an expected price of $15. There was no word on how long the IPO will be delayed. Next week, we’ll update you on the MFResidential IPO–and stay tuned to see just how horrible a quarter Thornburg had. I don’t expect it to be pretty. 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 was long NRF, and held no other relevant positions, when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.

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