NovaStar Financial said it will not declare a planned dividend on its common shares, thereby forfeiting its status as a real estate investment trust under IRS regulations. It said it could not meet the distribution requirement of about $157M of taxable 2006 income due to its inability to complete a planned rights offering, liquidity demands, and a substantial decline in market capitalization over the last few months. "Clearly, we did not anticipate the drop in market value or the level of demands on liquidity caused by the market turmoil this summer. Based on these events, we now believe canceling the previously planned dividend is the only reasonable and prudent course of action," said CEO Scott Hartman. Given the loss of REIT status, which will be retroactive to Jan. 1, 2006, NovaStar said there would be a "significant adverse impact" on third-quarter financial results, including an expense for the 2006 tax provision. Nevertheless, the mortgage lender said it expected an anticipated refund from tax losses this year would offset the new tax liability. NovaStar said it also was discussing its listing status with the New York Stock Exchange. Shares plumetted 18.7% to $6.70 in extended trading following the announcement; they are down 92.3% YTD.
Sources: Press release, Bloomberg, Dow Jones Newswires
Commentary: NovaStar Cancels Preferred Offering, Cuts Jobs • NovaStar's Dividend Woes • Novastar Financial Up 22%: Why Doesn't Anyone Care?
Stocks/ETFs to watch: NFI. Competitors: CFC, WFC. ETFs: XLF, PGF, IYF
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