Real estate investment trusts report large losses

By Steve Green

Monday, March 30, 2009 | 9 a.m.

A pair of Las Vegas real estate investment trusts operated by businessman Michael Shustek are reporting big losses for 2008, as the recession pushed numerous borrowers into default.

Vestin Realty Mortgage I Inc. said it lost $21.5 million or $3.14 per share vs. a profit of $2.8 million or 41 cents per share in 2007.

The results were announced after the stock market closed Friday. Stock in that trust closed that day at 80 cents. It traded as high as $6 in early 2007.

The trust took a loan-loss provision of about $12.3 million in 2008 and wrote down the value of real estate held for sale by about $7.8 million.

As of Dec 31, the trust had 27 loans outstanding with a principal amount of about $46.1 million, of which 16 loans totaling $35.4 million were considered non-performing. Loans in non-performing status at the end of 2007 were eight notes totaling $16.9 million. The trust said it's foreclosing on 15 of the past-due loans. Also, at the end of 2008, the company held seven properties it acquired through foreclosure, compared with one at the end of 2007.

Also, Vestin Realty Mortgage II said it lost $130.2 million or $8.86 per share vs. a 2007 profit of $16.9 million or $1.14 a share. Its stock closed at $2.04 after trading as high as $15.96 in the second quarter of 2007. Its provision for loan losses in 2008 was $83.7 million and it wrote down the value of assets held for sale by $47.2 million.

That trust as of Dec. 31 had 39 loans outstanding with a principal amount of about $225 million, of which 20 loans with a principal amount of about $144.9 million were non-performing. Non-performing loans increased from eight totaling $30.6 million at the end of 2007. Foreclosure proceedings are under way for 19 of the non-performing loans. The trust said that at the end of the year, it owned 11 properties acquired through foreclosure vs. two at the end of 2007.

The trusts have loans in eight states. The trusts typically make short-term, higher-risk loans compared to regular bank loans. Borrowers often seek to replace the Vestin financing with longer-term take-out loans.

Mortgage II trust said that at the end of December, it was not in compliance with the net worth covenant for its junior subordinated notes, but has obtained a waiver from its lenders through June 30 as it replaces $20 million of the notes for securities.

“Our disappointing results are largely attributable to the economic environment the country is experiencing,'' Shustek, chairman and chief executive, said in a statement. "The severe downturn in the real estate market and the increased difficulties faced by our borrowers in obtaining take-out financing as a result of the disruptions in the credit markets, has caused a number of our loans to become non-performing or delinquent and has caused a decline in the appraised value of the collateral securing the company's loan portfolio. We are working aggressively to resolve our problem loans; however, this process will take time and our near-term operating results are likely to suffer from the level of non-performing assets.”

Earlier in March, Vestin Realty Mortgage I said Mike Micone resigned from its board of directors and the remaining directors appointed Robert J. Aalberts to fill the vacancy. Aalberts was a member of the board from January 2006 until he resigned in January 2008.

Vestin said it had no disagreements with Micone and that he advised the company that he resigned because of other commitments requiring his time.