From the WSJ Real Estate Archives

Luminent Could Lose REIT Status
Because of Subprime Woes

by Jared A. Favole
From The Wall Street Journal Online
October 03, 2007

Luminent Mortgage Capital Inc. (LUM) said Wednesday that the fallout from the subprime mortgage crisis could cut the value of its investment portfolio and may lead to the loss of its real-estate investment trust status.

In its delayed second-quarter report filed with the Securities and Exchange Commission, the company also said a rapid and significant loss of liquidity over a very short period of time caused substantial doubt about its ability "to continue as a going concern for a reasonable period of time."

The San Francisco-based investor in mortgages and mortgage-backed securities said the credit-market instability has hurt its business and "could result in further increases in our borrowing costs, reductions in our liquidity, reductions in the value of our investment portfolio and the possible loss of REIT status."

In addition, Luminent said that owing to recent market disruptions and the the need to sell its assets to satisfy margin calls on its financing agreements, it is now relying on a safe harbor exemption from the Investment Company Act of 1940 so that it isn't considered to be an investment company.

"Failure to maintain an exemption from the Investment Company Act would harm our results of operations," the company said in the risk factors section of the quarterly report. The Investment Company Act imposes various regulatory constraints, and an exemption lasts up to one year.

Luminent reported Wednesday second-quarter net income of $8.8 million, or 20 cents a share, compared with net income of $17.6 million, or 45 cents a share, in the second quarter of 2006.

In a press release in early August, the company reported net income of $13.4 million, or 30 cents a share, for the latest second quarter.

It wasn't immediately clear why the company's second-quarter earnings were different in the quarterly report and press release.

A company representative wasn't immediately available for comment.

Luminent shares closed Tuesday at $1.34.

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