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New Century Ponders Spinoff

New Century Ponders SpinoffREIT shareholder value options discussed

September 21, 2005


A sagging share price has New Century Financial Corp. discussing the possibility of a spinoff.

The Irvine, Calif.-based lender spoke about a spinoff at an investor roundtable luncheon earlier this month in New York, according to a transcript of the meeting.

New Century suggested that its shares have gone down as a result of compressed spreads in the rising interest rate environment. Thus, instead of investors taking “the message of our stock price that something is inherently wrong with the fundamentals of our business, we need to understand that that’s cyclical in our industry,” said Ed Gotschall, vice chairman of finance, in the transcript.

“We believe that when the rising interest rate cycle ends, whether that’s in the near term or over the long term, we will be well positioned to accelerate our growth and profitability and emerge still as a very highly capitalized company,” Gotschall told investors. “We believe that the stock value will go back to a normalized level.”

Part of the real estate investment trust’s strategy to trade at a dividend yield was to transfer some of the earnings from the taxable REIT subsidiary to the REIT. But, if the company is not able to get stock priced properly under that scenario, the alternative will always exist to adjust its REIT and taxable REIT subsidiary business model into two to seek the true value of each, according to the transcript.

Carrie Marrelli, vice president of investor relations, pointed out to that New Century has never said it is planning to spin off its mortgage division, rather the possibility of doing such with the taxable REIT subsidiary was just brought up in conversation due to inquiry from an investor.

Coco Salazar is an assistant editor and staff writer for

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