The nonprime mortgage sector's love affair with real estate investment trusts may be coming to an end.
As its net cost to originate fell to 1.75% in the fourth quarter from 2.08% during the prior period, Aames Investment Corp. announced Thursday its board of directors authorized the elimination of its REIT status. The move is part of a cost-reduction initiative which will enable growth of the loan portfolio, produce an increase in book value and allow the retention of earnings.
Investors are initially cheering the move, with shares of Aames up $0.34 to $5.69 in early trading today.
The Los Angeles-based company said it expects to bring the cost to originate to below 1.50%, in part through the conversion back to a C corporation, and through other moves including the consolidation of its wholesale operation, tightening of its loan pricing matrix and elimination of unprofitable loan products.
The 50-year-old company has a rocky history. Having been previously delisted from the New York Stock Exchange because of a sagging share price amidst negative earnings, the company reemerged on the exchange when it converted to a REIT in 2004.
Aames reported fourth quarter core earnings per share of $0.02 and originations of $1.9 billion. Retail loans reportedly represented 43% of the latest period's production.
The announcement said 10-K filings will be late.