NovaStar sheds REIT stuff

NovaStar Financial Inc., the troubled residential lender, today said it would give up its status as a real estate investment trust. Falling market capitalization and liquidity demands have hampered the Kansas City, Mo.-based company’s ability to come up with the $157 million dividend needed to maintain REIT status. As a result, NovaStar’s REIT status will be terminated, retroactive to Jan. 1, 2006, and the firm will file its taxes as a C corporation rather than a REIT. However, the company hopes it can delay paying those taxes until it can offset the 2006 income tax liability with a refund for the losses it expects to incur this year. Loss of the REIT status will also bruise NovaStar’s third-quarter financials, the firm said in a statement. Quarterly reports will include an expense for a 20006 tax provision, and NovaStar is still determining the amount of income tax expense it will face in the period.