GPT - Gramercy Property Trust

[MrB]

I think the odds are high that the company is sold. However, I doubt it will be a quick process. It is complicated and the buyers are few and will need to be educated. Also, the "admin" will need to be out of the way e.g. yesterday's announcement is another step in that direction.

There are natural buyers and I will be surprised if they don't get something done. Great platform for free.

 

However, the fact that the price has not reacted is a concern; the market is not even close to pricing in a deal.

[alertmeipp]

I remember I was in a company couple years ago in a similar situation (KCAP) - Large liability which are not recourse to the parent. Ended up making nice change while keep getting div along the way.

 

 

[MrB]

The following will be true for the US as well. I suppose for a CDO/corporate with cash this will be an opportunity.

Anyone care to comment on the potential negatives?

 

 

http://www.ft.com/intl/cms/s/0/5db16990-25a8-11e1-856e-00144feabdc0.html#axzz1gF0DdvT0?ftcamp=crm/email/20111213/nbe/ExclusiveComment/product

 

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Bankers are worried about how a wall of corporate debt set to mature in 2012 will be refinanced as the bulk of outstanding collateralised loan obligations – structured investment vehicles that buy loans made to private equity firms to finance acquisitions – goes into run-down mode.

 

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By the end of next year, the majority of CLOs will have gone “static”. By 2014, more than 98 per cent of European CLOs will have have a reached the same point, according to a report by Standard & Poor’s."

[PlanMaestro]

This might help.  All new information from last night.

 

http://www.sec.gov/Archives/edgar/data/1287701/000114420411068840/v242569_ex99-1.htm

 

BTW, that link is the proforma "clean" financial statements after the handout of Gramercy Realty to KBS.

 

The non-VIEs assets are a good guideline for Corporate assets that can be used to assess the margin safety since CDO debt is non-recourse to Corporate.  However, these consolidated numbers need two intra-company adjustments, specially for the balance sheet:

 

• Positive -Senior CDO bonds owned by Corporate: $54.0 million at par of the most senior/safe, market value at $40.3 million, that netted against the CDO debt
  
• Negative -Mortgages for Corporate real estate: that are issued against Corporate properties (Makalei/Whiteface, Sterling, and bank branches inherited from Realty) by the CDOs. Each of those three is an independent mortgage non recourse to each other.
  

 

The net effect is somewhat negative to the $2.7 per share of Corporate net-assets that has been floating around (closer to $2-$2.1 per share if bonds valued at 70% par). But that is supposing that all RE owned by corporate is worth 0 (that is implied by asset value in the pro-forma), that I completely disagree with (though they are burning some cash).

 

These properties had LTV protection when foreclosed and most of them are at very low value in the books (per room, per lot, per sqf, per branch). Also they come with financing included (from Gramercy CDOs) so they might be of interest even fora distress buyer at higher prices than book.

[astrob77]

Plan,

 

your estimate of corporate net assets of 2-2.1 is very close to Indaba's low case estimate of 2.38 and after adjusting for the lower cash balance brings it to almost exactly where you have corp net assets pegged.  Did you make any further adjustments to how Indaba is valuing the real estate and securities?  seems like the securities are slightly higher than the 38mm they estimated and real estate is slightly lower than their 28 estimate.  I'm curious how you constructed the 0.60-0.70 hit to the original 2.70?

 

Thanks!

[PlanMaestro]

The following will be true for the US as well. I suppose for a CDO/corporate with cash this will be an opportunity.

Anyone care to comment on the potential negatives?

 

The potential negative is a deflation spiral, with banks forced to foreclose and then sell hitting their capital ratios. I do not see it coming though, it seems like with banks floating in deposits what they are looking for is this kind of opportunity to lend.

[PlanMaestro]

Plan,

 

your estimate of corporate net assets of 2-2.1 is very close to Indaba's low case estimate of 2.38 and after adjusting for the lower cash balance brings it to almost exactly where you have corp net assets pegged.  Did you make any further adjustments to how Indaba is valuing the real estate and securities?  seems like the securities are slightly higher than the 38mm they estimated and real estate is slightly lower than their 28 estimate.  I'm curious how you constructed the 0.60-0.70 hit to the original 2.70?

 

Thanks!

 

I do not have Indaba's filling at hand, but from what I remembered it was not much different from what I did. The most important difference is that they were more conservative in their estimates of the value of the CDO's equity tranches,

 

The hit was estimated supposing that the REO was a Zero (VERY conservative), and assuming the senior CDO bonds owned by corporate at 70% par

[astrob77]

So in assuming REO was 0, you were essentially saying they could potentially hand over the keys to those properties as the associated mortgages were all non recourse correct?

[PlanMaestro]

So in assuming REO was 0, you were essentially saying they could potentially hand over the keys to those properties as the associated mortgages were all non recourse correct?

 

Exactly

[Olmsted]

One thing I have not really seen in discussions on GKK's value is tax losses.  Since they turned over the realty division's properties, they must have taken a pretty hefty charge (PlanMaestro's article "Gramercy Capital: The Mystery" puts realty book value at $10.6/share).  Shouldn't those losses be valuable to them, or another party, if a transaction is structured properly?

 

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

[PlanMaestro]

One thing I have not really seen in discussions on GKK's value is tax losses.  Since they turned over the realty division's properties, they must have taken a pretty hefty charge (PlanMaestro's article "Gramercy Capital: The Mystery" puts realty book value at $10.6/share).  Shouldn't those losses be valuable to them, or another party, if a transaction is structured properly?

 

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

 

Good that you mention it. I am waiting for the 10K (March?) to have a more informed opinion. For the moment, they are not going to pay taxes for a while and are using the NOLs to shield them from paying divs to either the prefs or common while increasing liquidity

[PlanMaestro]

Other takes on Gramercy with different levels of skepticism:

 

http://longtermvalue.wordpress.com/2012/01/09/getting-the-toes-wet-with-gramercy-capital-gkk/

http://reminiscensesofastockblogger.wordpress.com/2011/09/11/gramercy-cdo-2006/

http://www.whopperinvestments.com/gramercy-capital-gkk-this-aint-your-daddys-net-net

http://bmexpress.blogspot.com/2011/12/gramercy-capital-gkk.html

http://www.gurufocus.com/news/155619/gramercy-capital-gkk--a-good-idea

http://seekingalpha.com/article/314040-gramercy-capital-finding-value-in-mortgage-reit-cdos?source=feed

[Hielko]

What do you think about the lack of insider buying? If the company is really that safe and undervalued you expect that the insiders would be buying.

 

And something else; as far as I can understand the CDO assets in the GKK CDO's are not marked to market right? And the overcollateralization test values assets at par as long as interest payments are being made?

[PlanMaestro]

What do you think about the lack of insider buying? If the company is really that safe and undervalued you expect that the insiders would be buying.

 

And something else; as far as I can understand the CDO assets in the GKK CDO's are not marked to market right? And the overcollateralization test values assets at par as long as interest payments are being made?

 

First a reminder, the margin of safety is provided by the assets at Corporate that are in the neighborhood of the current price. The upside assumes some value from CDOs 2005 and 2006 that are performing.

 

Would I like to have insiders buying? Yes. Do I care much that they have not? Not really, Actually I would have been confounded.  For much of 2011 they were in protracted negotiations regarding Realty (material event) and now it seems they are entering in a process to sell the company (material event). Also CEO and President would receive some significant shares if they sell the company so it is not like they have no incentives to do the right thing. Board is controlled by SLG that still has like 10% of the shares and has to approve the sale.

 

Regarding the CDOs, the 10K includes a supplement with the valuations of assets and liabilities at market value. You might be surprised that the M2M equity value is higher. CDO bonds continue to be highly discounted and the company continues to buy them back. You wonder if that is a signal of distress? The thing is that all CDO bonds, competitors too, are being heavily discounted because they have no natural buyers and there are sellers out there ... like European financials.

 

Same as banks, M2M can distract from an appreciation of the real value of the assets. Just look at the valuation of their competitors. Cash flow, cash flow, cash flow.

 

[astrob77]

Breaking News From WSJ.com's Developments Blog

Private Equity Checks In At Jameson Inn Chain

Colony Capital LLC is going budget.

 

The California-based private equity firm on Monday won a hard-fought battle among creditors for control of the Jameson Inn chain of 103 budget hotels in the Southeast and Midwest U.S.

 

Beating back legal challenges from rival debt holder Gramercy Capital Corp., Colony on Monday submitted the only bid at a foreclosure auction in New York on the chain, according to a person familiar with the matter.

 

Colony, which holds roughly $80 million of senior mezzanine debt tied to Jameson's hotels, has angled to foreclose since last August, when Jameson's $330 million of debt came due without payment.

 

However, Gramercy, which owned a $40 million slice of mezzanine debt junior to Colony's, had thwarted the foreclosure since October by putting Jameson under bankruptcy protection. Gramercy also filed lawsuits to block the foreclosure in federal and state courts. By last Friday, Gramercy's legal challenges had failed, this person said.

 

—Kris Hudson

[PlanMaestro]

 

 

Damn, it would have been nice to keep that property, it was a good one. Anyway, Jameson Inn was already written off 100% for OC purposes and CDO 2005 passed again its most recent test .

 

Breaking News From WSJ.com's Developments Blog

Private Equity Checks In At Jameson Inn Chain

Colony Capital LLC is going budget.

 

The California-based private equity firm on Monday won a hard-fought battle among creditors for control of the Jameson Inn chain of 103 budget hotels in the Southeast and Midwest U.S.

 

Beating back legal challenges from rival debt holder Gramercy Capital Corp., Colony on Monday submitted the only bid at a foreclosure auction in New York on the chain, according to a person familiar with the matter.

 

Colony, which holds roughly $80 million of senior mezzanine debt tied to Jameson's hotels, has angled to foreclose since last August, when Jameson's $330 million of debt came due without payment.

 

However, Gramercy, which owned a $40 million slice of mezzanine debt junior to Colony's, had thwarted the foreclosure since October by putting Jameson under bankruptcy protection. Gramercy also filed lawsuits to block the foreclosure in federal and state courts. By last Friday, Gramercy's legal challenges had failed, this person said.

 

—Kris Hudson

[astrob77]

Where did you see CDO 2005 passing its most recent test? Can you provide the report please?

[heth247]

 

Damn, it would have been nice to keep that property, it was a good one. Anyway, Jameson Inn was already written off 100% for OC purposes and CDO 2005 passed again its most recent test .

 

That's great news! Thanks, Plan.  People on Yahoo msg board would be dying to know that, but I'll let them find their way to here to get the answer. :)

 

If you don't mind, could you share by how much margin does 2005 pass its OC test? Do you think it may fail again?  As Hoffman_brad said, the credit of those assets within the CDOs essentially improved because of the Realty transfer, what could be the next shoe to drop and cause it to fail again? thanks very much.

 

[PlanMaestro]

They are trying to do just enough so the CDOs distribute while maximizing assets at corporate... you know the non-recourse and all that.

[astrob77]

so if I remember correctly they need to maintain compliance until the January test for corporate to receive a distribution right? thanks for the updates plan!

[PlanMaestro]

so if I remember correctly they need to maintain compliance until the January test for corporate to receive a distribution right? thanks for the updates plan!

 

This test was the critical one, payment at the end of the month

[heth247]

Barely Heth, barely. They are doing just enough so the CDOs distribute while maximizing assets at corporate... you know the non-recourse and all that.

 

Plan, it has always puzzeled me that they have been keeping that big pile of cash for so long without earning them anything.

 

If they sell the company, buyer will not over pay for the cash they have. Cash is just cash, its value won't go up or down. Why keeping such a big pile of cash? Why not using them to enhance their CDO asset so that they may fetch a better value out of it?

[astrob77]

so if I remember correctly they need to maintain compliance until the January test for corporate to receive a distribution right? thanks for the updates plan!

 

This test was the critical one, payment at the end of the month

I see Wow this really is great news then!  so the most recent test you were referring to was the January test?  Since I remember the crucial tests being Jan, April, July, Oct?  What was the date of the test?  And I'm assuming 2006 passed as well then?? What a great start to 2012!!

[heth247]

This test was the critical one, payment at the end of the month

 

Plan, on Yahoo msg board, you mentioned that you wonder why GKK has not get a credit line yet... As I understand it, credit line is for short term financing, what good does that do to GKK?  If you were talking about long-term credit line, wouldn't the borrowing cost be too much?

[PlanMaestro]

This test was the critical one, payment at the end of the month

 

Plan, on Yahoo msg board, you mentioned that you wonder why GKK has not get a credit line yet... As I understand it, credit line is for short term financing, what good does that do to GKK?  If you were talking about long-term credit line, wouldn't the borrowing cost be too much?

 

It can be repo or warehouse financing. RAS, NCT and others have used it to restart lending or buyback CDO bonds. It is not the same as having CDO financing, but the spread and principal payment is still good ... actually excellent for CDO bonds.