GPT - Gramercy Property Trust

[PlanMaestro]

Gramercy Capital: a Graham stock wrapped in a mystery

http://variantperceptions.wordpress.com/2011/05/28/gramercy-capital-a-graham-stock-wrapped-in-a-mystery/

 

 

Despite the superficial complexity the thesis is simple: a margin of safety based squarely on ring-fenced liquid assets at the holding company. Let’s start with a rhetorical question: would you be willing to buy a $110 million market cap company with the following balance sheet?

 

http://www.aboveaverageodds.com/wp-content/uploads/2011/05/Screen-shot-2011-05-28-at-12.49.28-PM.png

 

That simple and safe balance sheet is Gramercy Corporate’s balance sheet isolated from its two divisions.

 

Gramercy Corporate by itself is not a bargain but is cheap and it has two more cash flow positive divisions (Gramercy Finance and Gramercy Realty). However, with so much cash, fantastic CRE opportunities, and a discount to tangible book value I think Gramercy Corporate would still be a proposition that could trigger the curiosity of a value investor.  Well, it triggered mine and obviously the great thing was: there were more assets and all non-recourse!

 

Open for comments... Plan

 

 

[onyx1]

Plan,

 

Thanks for posting this idea.   I have a bunch of questions, but let me start with some that are very general.  

 

Is the Holdco balance sheet a disclosure item in the GKK 10-K/10-Q (i could not find it in either), or did you have remove consolidated line items from the subs (Grammercy Finance & Grammercy Realty)?

 

Do you have an expectation of when the 2010 10-k will be available?

 

I am familar with cashflow CDO structures like those managed by GKK.  In my quick review of the 2005 Offering Memorandum, the cashflow waterfall contains no rating or market value triggers on the collateral pool that would re-direct cashflow from the equity class, leaving only the par value trigger and the easy to meet interest coverage trigger. Is that the same for 2006?  I ask this because I know that as the CDO market evolved, mezz CDO buyers became wise and demanded extra triggers to protect against a scenario where they were virtually certain to recieve less than par back on their CDO bonds, but since the assets in the collateral pool had not yet defaulted, the equity was still receiving cashflow.   Structures without the extra rating or market value triggers can be very generous to the equity classes, even in distressed markets!

 

Do you have copies of the most recent trustee report for the 2005 and 2006 structures?

 

Looking for forward to getting more information on Grammercy Realty, but in the meantime, is this sub ring fenced as well?

 

Thats all for now.

 

[PlanMaestro]

Do you have copies of the most recent trustee report for the 2005 and 2006 structures?

 

Looking for forward to getting more information on Grammercy Realty, but in the meantime, is this sub ring fenced as well?

 

 

Gramercy Realty is also ring fenced and I would love to discuss the situation in more detail later on. Meanwhile, where can I send you the trustee reports?

[onyx1]

Check your blog email....

[keerthiprasad]

 

I am familar with cashflow CDO structures like those managed by GKK.  In my quick review of the 2005 Offering Memorandum, the cashflow waterfall contains no rating or market value triggers on the collateral pool that would re-direct cashflow from the equity class, leaving only the par value trigger and the easy to meet interest coverage trigger. Is that the same for 2006?  

 

 

Any info about the question onyx posed regarding the 2006?  I am a bit late to this one and trying to figure it out...

[PlanMaestro]

Any info about the question onyx posed regarding the 2006?  I am a bit late to this one and trying to figure it out...

 

The answer is that it is the same as CDO 2005. Pretty standard CRE CDOs where the important trigger is the OC test (overcollateralization test).

[PlanMaestro]

Here are the the follow-up posts including very extensive exhibits in part 4 (indenture, collateral management agreements, offering memoranda, presentations, ...).

 

Consider this a catharsis after my anger when a first version was rejected for the Value Investors Club. And considering most of their accepted admission ideas, I think they rejected the wrong one.

 

Part 1: a Graham stock wrapped in a mystery

http://variantperceptions.wordpress.com/2011/05/28/gramercy-capital-a-graham-stock-wrapped-in-a-mystery/

Part 2: the mystery

http://variantperceptions.wordpress.com/2011/06/02/gramercy-capital-the-mystery/

Part 3: management team

http://variantperceptions.wordpress.com/2011/06/22/gramercy-capital-management-team/

Part 4: loose ends

http://variantperceptions.wordpress.com/2011/06/23/gramercy-capital-loose-ends/

 

 

 

[Packer16]

I was not accepted also for an idea I submitted that was submitted 6 months later at a much higher price with a smaller amount of explination.  I have found some good ideas to dig into there but I have found as many here.  I don't know what there overall track record is but there have been some wipe-outs.

 

Packer 

[MrB]

Recent WILLISTOW news.

http://uk.reuters.com/article/2011/06/01/us-searstower-idUKTRE7506BJ20110601

[MrB]

Nope, you're ahead of me!

[Junto]

I like the research on this one. Thanks for sharing!

[Rabbitisrich]

Interesting situation, thanks for the idea.

 

PlanMaestro, do you run the Variant Perceptions and Above Average Odds Investing sites?

[PlanMaestro]

Only Variant Perceptions. AAOI invites guest bloggers to write about their favorite stock if he finds it intriguing. We both thought this was the right one for his audience (asymmetric potential).

[PlanMaestro]

Very good conference call by RSO Resource Capital Corp showing the whole range of tools for protecting CDOs (retiring CDO bonds, replacing REO with new loans, reinvesting, creating a new CLO,...). All that while paying a dividend (18% yield!) and growing assets under management. I would be a strong buyer if it was not because GKK completed all my wanted mREIT exposure.

 

http://seekingalpha.com/article/283834-resource-capital-ceo-discusses-q2-2011-results-earnings-call-transcript

[PlanMaestro]

CDO 2005 is alive

 

Fitch raises the outlook for six CDO 2005 tranches from negative to stable but keeps drumming weakness in CRE... well, rating agencies are slow to change tack. But it also had this small nugget:

 

http://www.reuters.com/article/2011/08/04/idUS240063+04-Aug-...

 

"While all overcollateralization tests are now passing, as of the June 2011 trustee report, the CDO was previously failing at least one test since March 2010 leading to the diversion of interest payments due on the junior classes to pay down class A-1."

 

How did Gramercy did that? Replacement strategy

 

"one real estate owned (REO) office property, which was exchanged for a performing office loan, as allowed under the transaction documents"

[enoch01]

Excellent news.  Thanks for the update Plan, and thanks for sharing your work on this name.

[PlanMaestro]

Realty Settlement (finally)

 

 

 

http://www.bloomberg.com/news/2011-09-01/gramercy-capital-rises-after-settling-549-7-million-in-real-estate-loans.html

 

“What remains of Gramercy may be an attractive acquisition target both for buyers of discounted financial assets and someone looking to acquire a public real estate platform,” Ben Thypin, director of market analysis for New York-based Real Capital, said in a telephone interview. “The company may be an appealing target for private-equity firms with dry powder committed to real estate that they need to deploy.”

 

Shares of Gramercy Capital rose to as high as $3.20 after the close of U.S. exchanges. They fell 4 cents to $2.81 in regular trading today.

 

Under the agreement, Gramercy will retain 58 properties. It will also manage the buildings transferred through Dec. 31, 2013, for $10 million a year plus certain costs and incentive fees.

 

 

[onyx1]

Good stuff Plan.  I like this part also:

 

"With the execution of the collateral transfer and settlement agreement, the

Company expects that it will complete and file its annual report on form 10-K

for the fiscal year ended December 31, 2010 and its quarterly reports on form

10-Q for the first and second quarters of 2011 not later than September 30,

2011. "

 

 

[PlanMaestro]

Good stuff Plan.  I like this part also:

 

"With the execution of the collateral transfer and settlement agreement, the

Company expects that it will complete and file its annual report on form 10-K

for the fiscal year ended December 31, 2010 and its quarterly reports on form

10-Q for the first and second quarters of 2011 not later than September 30,

2011. "

 

I look forward to that day... end of a long road.

[MrB]

Outstanding, PM!

[PlanMaestro]

Up 11% on news that it is for sale and private equity interest. That is one catalyst I did not expect and did not write about.

 

http://www.bloomberg.com/news/2011-09-14/gramercy-capital-said-to-consider-sale-after-debt-restructuring.html

[onyx1]

Nice to see them shopping for bidders, but hard to get excited until we see a bid approaching intrinsic value.

[PlanMaestro]

10K finally out and I imagine the delinquent 10Qs are coming over the next weeks. I am not finding surprises just confirmation on things already known by people following the situation:

 

- LOTS of unrestricted cash: should be at least $3 per share after paying the pref arrears and the curing of CDO 2005

- Very cash flow positive: probably around $1 per share before tax

- No recourse debt

- 2 out of 3 CDOs passing OC tests as of July 2011 (numbers included)

- The company is for sale

- Large NOLs for the buyer: the company will not pay taxes for years

- It's a REIT: if it is not sold sooner or later they will reestablish the dividends for the prefs and common

- Cheap: $3 price per share, a net-net

 

It looks ridiculously cheap and with several ST catalysts.

[educatedidiot]

Plan, does GKK provide current collateral levels and outstanding bonds segmented by CDO like some of the other REITs do?  The aggregate equity piece would appear to be negative, but that's obviously driven by the horrific performance of the 2007 CDO.  Clearly there is equity value in the other 2 CDOs but that is difficult to quantify without segmentation, which I didn't find in my brief skim through the 10-K.  Does GKK provide this detail?

 

Thanks in advance

[PlanMaestro]

Plan, does GKK provide current collateral levels and outstanding bonds segmented by CDO like some of the other REITs do?  The aggregate equity piece would appear to be negative, but that's obviously driven by the horrific performance of the 2007 CDO.  Clearly there is equity value in the other 2 CDOs but that is difficult to quantify without segmentation, which I didn't find in my brief skim through the 10-K.  Does GKK provide this detail?

 

Thanks in advance

 

OC Collateral levels by CDO are in the 10K page 71, it does not include debt/colateral but all three CDOs were of similar size when issued and that should provide an order of magnitude. I estimate the collateral of CDOs 2005 plus 2006 at around $200 million ($4 per share)