Mortgage REIT CBRE Realty Finance Suspends Dividend

by REIT Wrecks on December 18, 2008

Mortgage REIT CBRE Realty Finance has been fatally stung by its aggressive commercial real estate loan origination activities, which began at the worst possible time: 2005. CRTYZ.OB hardly has a nice ring to it, but on November 7th, the New York Stock Exchange permanently de-listed CBF (CBRE Realty Finance) due to its inability to satisfy the NYSE’s minimum share price and market cap. It now trades rather ignominiously on the pink sheets, but probably not for long.

If you’re an investor, don’t feel too badly. Arbor Realty Trust (ABR), which is now in a heap of trouble for its purchase of Extended Stay Hotels in a joint venture with the Lightstone Group, bid $8/share for CBF last fall in a nasty battle for control of the stuggling Mortgage REIT. CBF fought Arbor’s bid off, but the new CRTYZ.OB closed yesterday at 18 cents a share.

Shortly after that $0.18 close yesterday, the Company made its misery official and complete by announcing that it had suspended its quarterly cash dividend in order to “maintain the Company’s financial flexibility”. The Company will definitely need the cash. Fortunately, most remaining investors gave up at the end of the third quarter when CBRE Realty Finance reported that it was just barely meeting the over collateralization tests on its two CDOs (See “What is a CDO”).

From the Company’s September 30, 2008 10Q:

Our most restrictive covenants on our CDOs had an asset over collateralization ratio of 1.16x and 1.13x for CDO I and CDO II, respectively, compared to minimum requirements of 1.12x and 1.10x.

If CBF/CRTYZ.OB fails these “O/C” tests, the cash flow from these CDOs will be diverted to the more senior tranches in these deals. These CDOs will then be in technical default, and in this environment it’s really only a matter of time before senior bond holders foreclose on the remaining collateral and wipe out CBF’s equity. Scroll down for links to more news, research and analysis on REIT Dividends.

REIT Investments

Disclosure: None, thank goodness.


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