The board of Columbia Real Estate Investments Inc. voted yesterday to dissolve the company, saying it was, in effect, being put out of business because of the lowest mortgage rates in 25 years.
The company said that, pending shareholder approval, it would sell its assets and distribute the proceeds to shareholders.
"We don't feel we can continue to produce the levels of return we have in the past without significantly changing the way we do business and making it more risky to shareholders -- and we're not prepared to do that," said Thomas F. Ireton, senior vice president and general counsel of Columbia National Inc., which manages the Columbia-based real estate investment trust.
Columbia Real Estate Investments, founded in 1985, invests in residential mortgages and securities backed by residential mortgages. The company had assets of $122 million as of Sept. 30.
In recent years, Mr. Ireton said, Columbia Real Estate Investments had provided investors with a 10 percent to 12 percent annual rate of return, but that figure had dropped to between 9 percent and 10 percent in the past year.
He said the lower returns to investors were almost exclusively the result of a high level of mortgage refinancings, brought on by the drop in mortgage rates. The quick payoffs of mortgages reduced the amount of money the company received in interest. For the nine months that ended Sept. 30, revenue declined 44.7 percent, to $10.4 million, compared with the same period a year earlier.
Yesterday's board vote was the first step in dissolving the company. Under Maryland law, both the board of directors and two-thirds of the shareholders must approve a liquidation. The company said it is trying to schedule a shareholder meeting in March to vote on the proposed dissolution.
If the shareholders approve the board's recommendation, the REIT's assets would be sold, and the cash generated would be distributed to shareholders.
David J. Gallitano, the company's chairman, said in a statement that "after considering the strategic business alternatives available to the company, dissolution appears to return maximum value to our shareholders."