LAS VEGAS– Vestin Realty Mortgage II, Inc. (Nasdaq:VRTB – News), a real estate investment trust (“REIT”), announced results of operations for the year ended December 31, 2008.
The Company reported a net loss of approximately $130.2 million or ($8.86) per share for the year ended December 31, 2008 compared with net income of approximately $16.9 million, or $1.14 per share for the year ended December 31, 2007.
The Company noted that the losses for the year ended December 31, 2008 were in large part due to non-performing loans, and the Company’s recording of loan loss provisions of approximately $83.7 million. In addition, the Company incurred write downs for real estate held for sale of approximately $47.2 million for the year ended December 31, 2008. The loan loss provisions and write downs for real estate held for sale are non-cash items. Net cash flow from operating activities was approximately $7.8 million.
As of December 31, 2008, the Company had 39 loans outstanding with an aggregate principal amount approximating $225.0 million, of which 20 loans with an aggregate principal amount approximating $144.9 million were considered non-performing. Loans are considered non-performing when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement or when the payment of interest is 90 days past due. Non-performing loans increased from December 31, 2007, when the Company reported eight loans representing approximately $30.6 million as non-performing loans. The Company has commenced foreclosure proceedings with respect to 19 of the non-performing loans. In addition, the Company is conducting workout discussions with certain non-performing borrowers; however, no assurance can be made as to whether these discussions will be successful. As of December 31, 2008, we owned 11 properties that we acquired through foreclosure, compared with two properties owned as of December 31, 2007.
As of December 31, 2008, shareholder equity was $9.46 per common share. The Company had on its balance sheet approximately $8.0 million of cash, $146.8 million of investment in real estate loans, net of allowance of $78.2 million, $24.4 million in real estate held for sale and approximately $69.0 million in total liabilities as of December 31, 2008.
As of December 31, 2008, we were not in compliance with the revised tangible net worth covenant and the debt to tangible net worth covenant in the First Supplemental Indenture governing our junior subordinated notes. On March 25, 2009, we entered into a letter agreement with Taberna, agent for the holders of the junior subordinated notes, providing for a waiver of all financial covenants effective December 31, 2008 through June 30, 2009. In addition, pursuant to the letter agreement we will exchange $20 million of the junior subordinated notes for certain replacement securities, which we expect to acquire for approximately $10 million of cash. This will reduce our obligation on the junior subordinated notes to approximately $36.3 million, which should facilitate future compliance with financial covenants set forth in the First Supplemental Indenture. This transaction would result in a net gain of approximately $9 million including transaction costs.
Michael V. Shustek, Chairman and Chief Executive Officer, said, “Our disappointing results are largely attributable to the economic environment the country is experiencing. 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.”
The Company’s Annual Earnings conference call will be held April 3, 2009 at 9:00 a.m. PDT. You can access this call by dialing 888-422-7128, code number 573868.