Vestin unit issues $60 million in trust securities

Vestin Realty Mortgage II, a real estate investment trust with $294 million in assets, reported late Wednesday that it issued $60 million in trust preferred securities to Merrill Lynch International, Bear Stearns & Co. and Taberna Funding.

The securities bear an annual interest rate of 8.75 percent until 2012. After that, the rate will be the LIBOR, the London Inter Bank Offering Rate, plus 3.5 percent year. LIBOR is the interest rate that banks charge each other for loans. The securities mature in 2020.

Many mortgage REITs use debt to leverage their profits, said James Townsend, chief operating officer of Vestin Group.

"Vestin has used debt in the past but in limited amounts though," Townsend said.

While the preferred securities can enhance profits, they also could result in losses if the average yield drops below 8.75 percent, he confirmed.

"Our idea is to loan the money out at a higher rate (than 8.75 percent)," Townsend said.

"Obviously, we would not have borrowed if we did not have confidence we could lend it out and earn an adequate spread for shareholders," Townsend added.