GPT - Gramercy Property Trust

[PlanMaestro]

Really? will it take that much of cash to cure CDO?  I mean $183MM is much more than $25MM they owed in prefs divi.

 

When you say "be involved in recap of the property", do you mean that GKK lend out their unrestricted cash in bridge loan/mezz loan? How much return can they get for that?

 

(1) I said "might" as in might be a lot of things going on at the same time. Cash also means negotiation power and option value when negotiating maturities and foreclosures. It has a value in itself.

(2) Yes. it might protect a loan or be an interesting opportunity in itself if they have the fulcrum security. It depends on the mezz loan.

 

 

[heth247]

(1) I said "might" as in might be a lot of things going on at the same time. Cash also means negotiation power and option value when negotiating maturities and foreclosures. It has a value in itself.

(2) Yes. it might protect a loan or be an interesting opportunity in itself if they have the fulcrum security. It depends on the mezz loan.

 

Thanks, Plan,  I agree. Cash is king.  And if they will depend on the unrestricted cash as a source for lending, then that's really not much. I am still hoping that they can surprise us one day by annoucing that they find a stretegic partener to leverage that amount of money for lending... I hope Im not dreaming...

 

[heth247]

Hi, Plan, I was reading the 10Q in more details this weekend. Got couple of questions, hope you can answer:

 

1. On page 23, the first table in which GKK broke down their loans by property type, in the "Land - Commercial" category, it decreased from $84,431 on 12/31 to $26,254 on 03/31. What caused such a big drop? How does the $79MM Coyote land loan fit into this category now?

 

2. On page 30, where they show the table for asset held-for-sale. It looks like they have one property that may fetch another $10MM in unrestricted cash if sold. Do you know which property it is?

 

thanks.

 

[heth247]

Hi, Plan,

 

I think I found part of the answer to my first question above in 10Q -- most of the big drop in the Land Commercial category of is due to principle payment of loans, which shows up as total of $69MM in their cash flow of investing activities.

 

But I still don't know how to reconcile this category with the Coyote loan.  On the top of the page 25 of the 10Q, they talked about a $70MM "trouble debt restructuring", which looks like the Coyote loan to me. It has been modified and extended to 0.24 years (~3 months). That's not too long. What do you expect to happen after that? Can they keep modifying and extending it indefinitely?

[PlanMaestro]

New CEO, no sale. Still trying to understand the implications, this is what I've been able to find about the new guy:

 

Interview:

 

President WPC: http://www.wpcarey.com/en/pressreleases/1999/1999-12-2-gordon-dugan-appointed-president-wpc.aspx

CEO WPC: http://www.forbes.com/free_forbes/2004/1101/172.html

Split WPC: http://www.rttnews.com/1351969/wp-carey-ceo-gordon-dugan-resigns-after-disagreement-with-chairman-update.aspx

Split: http://www.footnoted.com/buried-treasure/the-family-business/running-afoul-of-the-founder-at-w-p-carey/

Resignation letter: http://www.sec.gov/Archives/edgar/data/1025378/000095012310063605/y85458exv17w1.htm

Track record: http://www.google.com/finance?q=wpc

Northcliffe: http://findarticles.com/p/articles/mi_m3601/is_9_57/ai_n56277685/

Northcliffe: http://northcliffe.com/about-us/north-america/management/gordon-f-dugan

Northcliffe: http://www.realestateglobalnetwork.com/profiles/blogs/gordon-dugan-and-three-other

Annaly: http://www.businesswire.com/news/home/20110616006920/en/Annaly-Capital-Management-Announces-Addition-Gordon-DuGan

 

Presentation 2008: http://knowwpcarey.com/article.cfm?aid=491

 

 

Questions I've been pondering:

 

1. Why did not he continue on his own and instead went back with Annaly and now Gramercy

2. Why he thinks there is more potential with Gramercy than Annaly? Did not he fit in the much larger organization?

3. He looks more like a rainmaker than a deep financial thinker, what about the CDOs and financial alchemy needed?

 

 

 

[heth247]

Based on his resignation letter, he sounds like a person who would rather be his own boss. That may explan why he took the job at GKK. Ironically, WPC's stock price increased from $27 to $45 after he left.

 

Just like NCT going into the MSR, now GKK shifts into the income-producing net leased RE. Is it more of a equity REIT business than mREIT? Sounds like unleveled return is 8-9% based on one link provided by you Plan. If they can level it up just 2X, I would think it is a better business than MSR, especially given that they have the GKK Realty management plat form.    What do you think?

[heth247]

According to the 8K filed yesterday, GKK will pay Michael Kavourias $750-850K if CDO asset is sold by the end of the year.

 

Are they going to sell off their CDOs?

[PlanMaestro]

RESULTS

 

CDO 2005 failing by such wide margin is clearly not good news. The most likely reason is Coyote that had "performed" much longer that I expected. Now it is time to see what can be done with that property. Also CDO 2006 passing by only a thin margin ... Why they have not negotiated credit lines like their peers... beyond me.

 

On the good side, the disclosure by division was excellent. Exactly what was need to clarify Gramercy's margin of safety. It seems that Realty has substantially reduced its liabilities and is not burning cash. There are reasons to be optimistic on the potential to generate equity and some cash flow from this division.

 

And of course ... cash and investments. Unrestricted corporate cash $192.6 million, fair value of the repurchased CDO bonds of $37.9 million, amount owed from the CDOs for advances $8.3 million. $238.8 million, that after subtracting $26.9 in dividends payable, leaves $211.9M (around $4 per share) for Corporate purposes.

 

If Realty and Finance are able to pay their SG&A (and Realty clearly is) plus the pref divs Gramercy should be more than OK. If CDO 2006 struggles, there is still a wide margin of safety.

 

Ready for the first conference call in almost two years.

[Olmsted]

BargainValueHunter posted this in the BAC thread - it belongs here too:

 

O/T but this thread seems to be the main BAC thread going right now.  :P

GKK related as well (obviously)...

 

http://finance.yahoo.com/news/gramercy-capital-corp-announces-formation-113000734.html

 

The portfolio totals 5.6 million square feet of which approximately 81% is leased to Bank of America, N.A. for a term ending in June 2023. Total portfolio occupancy equals approximately 88%. The projected 2012 net operating income for the portfolio is approximately $41.5 million. The portfolio was previously part of the Company’s Gramercy Realty division, beneficial ownership of which was transferred to KBS pursuant to a collateral transfer and settlement agreement dated September 1, 2011. Bank of America, N.A. senior unsecured debt is currently rated A by Standard & Poor’s and Fitch and A3 by Moody’s.

 

The new CEO is not wasting any time!

 

It does strike me as ironic that GKK had to turn this property over to KBS just a year ago after protracted legal/foreclosure wrangling.

 

I wonder why Gramercy is paying partly in stock.  I would like to see that cease as a signal that the company truly is undervalued.

[PlanMaestro]

It looks like a great deal. They know very well the properties, the price seems right (8.5% caprate, $87 per square foot, 10.9-year remaining lease term), and occupied 88% so there is upside. 8.5% unlevered returns plus they are talking 55-60% non-recourse NNN leverage. They are back in the capital markets!

 

There are two other good signs: a third party is participating in the JV (price discovery) and KBS accepted being paid a little in stock so that looks good for the current stock price at current price (price discovery). Of course I do not like the dilution, but the transaction is so good that I am not surprised that KBS wants to participate somewhat in the upside. GKK had to make concessions on their management fees for the rest of the KBS port too but the proportion looks fair.

 

It is ironic that we became KBS's loan shark:

 

Simultaneously with the execution of the purchase agreement, a Company affiliate and a Garrison affiliate funded as co-lenders an approximately $39.0 million mezzanine loan to certain affiliates of KBS. The loan is secured by cash collateral of $6.0 million and pledges of borrowers’ equity interests in certain entities owning various real estate assets and is guaranteed by KBS. The proceeds of the loan were used by KBS to extinguish certain loans held by third party lenders that were secured by, among other things, pledges of the membership interests being acquired by the joint venture. The loan had a 1% origination fee, bears interest at 10% per annum and has a stated maturity of April 1, 2013

[Olmsted]

There are two other good signs: a third party is participating in the JV (price discovery) and KBS accepted being paid a little in stock so that looks good for the current stock price (price discovery). GKK had to make concessions on their management fees for the rest of the KBS port but it looks fair.

 

Good point on the stock, it signals that KBS wants it.  But I still don't like to see companies give away cheap shares.  I really hope they wait to raise capital until they've invested current cash and the stock price reflects it.

 

I agree, a good deal all around.  Spending about $100m or so of their cash (which is earning nothing right now), lever up to $235m or so, get $20.75m in OI before interest.  5% interest would knock that down to $14m.  That's about $.25/share.  Not half bad.

[BargainValueHunter]

BargainValueHunter posted this in the BAC thread - it belongs here too:

 

O/T but this thread seems to be the main BAC thread going right now.  :P

GKK related as well (obviously)...

 

http://finance.yahoo.com/news/gramercy-capital-corp-announces-formation-113000734.html

 

The portfolio totals 5.6 million square feet of which approximately 81% is leased to Bank of America, N.A. for a term ending in June 2023. Total portfolio occupancy equals approximately 88%. The projected 2012 net operating income for the portfolio is approximately $41.5 million. The portfolio was previously part of the Company’s Gramercy Realty division, beneficial ownership of which was transferred to KBS pursuant to a collateral transfer and settlement agreement dated September 1, 2011. Bank of America, N.A. senior unsecured debt is currently rated A by Standard & Poor’s and Fitch and A3 by Moody’s.

 

The new CEO is not wasting any time!

 

It does strike me as ironic that GKK had to turn this property over to KBS just a year ago after protracted legal/foreclosure wrangling.

 

I wonder why Gramercy is paying partly in stock.  I would like to see that cease as a signal that the company truly is undervalued.

 

Thanks for posting here too.

 

I was going to post in this thread after the BAC post but I was called away.

[heth247]

An excellent deal indeed.

 

Just wondering what's the role DuGan played in this deal... it seems to me a deal that's likely already in the making during the Tim&Roger's era.... Maybe DuGan brought in Garrison?

 

 

It looks like a great deal. They know very well the properties, the price seems right (8.5% caprate, $87 per square foot, 10.9-year remaining lease term), and occupied 88% so there is upside. 8.5% unlevered returns plus they are talking 55-60% non-recourse NNN leverage. They are back in the capital markets!

[PlanMaestro]

An excellent deal indeed.

 

Just wondering what's the role DuGan played in this deal... it seems to me a deal that's likely already in the making during the Tim&Roger's era.... Maybe DuGan brought in Garrison?

 

Tim and Roger probably  lost a few friends in the banking industry with their hard negotiation tactics. They were  good war generals but now we have to negotiate the peace. The deal was most def in the cards before DuGan arrival but he may have brought bank financing and Garrison.

[Ross19010]

The issue with single-tenant deals is that the value of the property is binary.  If you lose the tenant at the end of its lease term, it is likely a result of the unattractive location/leasability of the property.  In such an instance, you are left owning a property that is effectively worthless. 

 

I dont know the single-tenant game well, but 10 years strikes me as not the safest of length with a tenant that is actively shrinking its retail footprint.  Before chalking this deal up as "excellent," consider what happens if BAC walks from the majority of these locations in year 10, at its lease expiration.  BAC has about 5900 branches and has vacated 200 in the last 5 quarters.  Assuming these things are on 15-yr leases on average, that means BAC is walking from 1 out of every 2 rolling leases.  Before chalking this deal up as "excellent," I would want to know where the branches are and when these leases were signed.  If they were 15-year leases struck in June 2008, then the ball started rolling on the lease in Jan 2008, which means they could be at very overmarket rents, especially if located in the Midwest.  What do you think a vacant bank branch in some exurb is worth today?  About as much as a common share of GKK. 

 

Also, I would not be shocked to find out that 60% leverage is hyper-amortizing and leaving little, if any, cash flow after debt service to GKK.  If I am a conservative lender, I want to have little or no basis when that lease rolls.  Would they really be "back in the capital markets" then?

 

It's also not right to look at this as an example of the deals in the market.  These two firms (KBS and GKK) are so entangled, it is hard to claim this is arm's length.  Also, Garrison is primarily a high-yield debt player, so I wouldnt be surprised if, when you read the Operating Agreement for this 50/50 JV, Garrison looks more like a high-yield subordinate lender than a pari passu partner.  The private REIT space is raising a lot of capital right now and they are all chasing the single tenant NNN deals.

 

It's likely I am nitpicking and this is a good deal, but I would expect a little more thoughtful consideration from a group like this. 

[PlanMaestro]

Abstract reasoning runs into problems when faced with the specifics.

 

1. These are NOT bank branches. These are OFFICE PROPERTIES

2. BBD1 includes some of the best properties in former AFR portfolio.

3. BBD1 has a $341M mortgage 27.5 years amortization schedule, hyper amortization is a bit of a stretch for a 60:40

4. Bought at $83/SQF

5. They know the properties, know as in they owned them.

http://www.scribd.com/doc/45333524/GKK-Acquisition-AFR

 

Since this is your first post in this board, may I suggest tuning down the condescending tone?

 

 

[Ross19010]

haha, noted - may have gotten a little carried away there, but only because I have such high expectations for Mr Maestro! Coming from a long-time variant perceptions reader, I hope you have ridden MPG through.  It looks like the value is starting to come to roost.

 

Missed that it was office but that is not much better, maybe worse.  Gives me less doubt that these are early 08 bubble leases 120-150% of today's market and that BAC is vacating a lot of this space at maturity.  Probably better long-term value though.  Dont know exactly what you mean by #3 but if you are comparing the 2007 financing of these assets to what is financeable today (or what is the right financing), that is a comparison of night and day.

 

May be a good deal, may not be - very dependent on year 10.  I am wary of a new CEO dumping a huge cash hoard on a deal whose verdict doesnt come in for 10 years.

[PlanMaestro]

haha, noted - may have gotten a little carried away there, but only because I have such high expectations for Mr Maestro! Coming from a long-time variant perceptions reader, I hope you have ridden MPG through.  It looks like the value is starting to come to roost.

 

Missed that it was office but that is not much better, maybe worse.  Gives me less doubt that these are early 08 bubble leases 120-150% of today's market and that BAC is vacating a lot of this space at maturity.  Probably better long-term value though.  Dont know exactly what you mean by #3 but if you are comparing the 2007 financing of these assets to what is financeable today (or what is the right financing), that is a comparison of night and day.

 

May be a good deal, may not be - very dependent on year 10.  I am wary of a new CEO dumping a huge cash hoard on a deal whose verdict doesnt come in for 10 years.

 

Well, welcome Ross. Sorry for coming hard on this again, but BBD1 is not an early 08 bubble lease nor its debt.

 

AFR / Bank of America deal

http://www.costar.com/News/Article/AFR-Completes-Bank-of-America-Deal/51962

 

Also, bank office properties are much, much better than branches. They are usually located in city centers so even if they are old the replacement value will increase over time. You can see good and bad examples in the presentation attached in the previous post and BBD1 is mostly about the good.

 

 

[PlanMaestro]

BBD1 includes, among others, the former LaSalle Building. One million square foot in downtown Chicago. I think it might be worth more than $83/sqf

 

BBD1 properties, addresses, sqf,

http://agreements.realdealdocs.com/Mortgage-Loan-Purchase-Agreement/MORTGAGE-LOAN-PURCHASE-AGREEMENT-1603052/

 

BBD1 property type (item 15)

http://www.sec.gov/Archives/edgar/data/1215087/000091412104000484/ge763560-ex99_1.txt

 

KBS 10K (more detail)

http://www.secinfo.com/d1C3Dm.pxp.5w.htm

 

 

 

[Ross19010]

Thanks for the links and the efforts.  Cant make complete sense of them but are these the 2003/2004 securitization docs from the original acquisition?  Does that mean there is existing debt that they are assuming on this portfolio?  That doesnt seem to line-up with the press release about new financing, although I guess they could pre-pay and refinance and/or not close for 6-9 mos until debt matures or is freely pre-payable. 

 

They filed some docs on the deal today.  Towards the middle of exhibit 2.1, there looks like a list of the BBD1 collateral.  There appears to be one building in Chicago, 231 South LaSalle, and one building in Charlotte, 525 North Tryon.  Those are the only two where Seller is obtaining tenant estoppels so guessing they may be only buildings of material size (and without BAC as the only material tenant).  Random sample of some locations revealed mostly branches/backoffices.  Curious if you see anything differently there.

 

http://www.sec.gov/Archives/edgar/data/1287701/000114420412047691/v322135_ex2-1.htm

 

[PlanMaestro]

Thanks for the links and the efforts.  Cant make complete sense of them but are these the 2003/2004 securitization docs from the original acquisition?  Does that mean there is existing debt that they are assuming on this portfolio?  That doesnt seem to line-up with the press release about new financing, although I guess they could pre-pay and refinance and/or not close for 6-9 mos until debt matures or is freely pre-payable. 

 

That is the debt that KBS assumed when the port was transferred (and was GKK's previously). It is maturing in 2013 and  that might explain why KBS is selling.

 

They filed some docs on the deal today.  Towards the middle of exhibit 2.1, there looks like a list of the BBD1 collateral.  There appears to be one building in Chicago, 231 South LaSalle, and one building in Charlotte, 525 North Tryon.  Those are the only two where Seller is obtaining tenant estoppels so guessing they may be only buildings of material size (and without BAC as the only material tenant).  Random sample of some locations revealed mostly branches/backoffices.  Curious if you see anything differently there.

 

http://www.sec.gov/Archives/edgar/data/1287701/000114420412047691/v322135_ex2-1.htm

 

You can find in one of those attachments the sqf of the other facilities. Some of them are individual buildings of a large cluster (ie: several in Jacksonville backoffice, Phoenix next to the airport). There are no branches in that list.

[paologorgo]

Form 4 by Lenehan, William:

http://ir.gramercycapitalcorp.com/secfiling.cfm?filingID=1179110-12-13431

 

20000  shares A @ $2.62

[Olmsted]

Newcastle just sold their interests in one of their CDOs as part of its liquidation.  They received $130m for $89.75 face of sub notes and the equity tranches.

 

CORRECTION from previous: CDO X was a performing CDO.

 

Newcastle Investment Corp. (NYSE: NCT) (the “Company”) today announced that it has completed the sale of 100% of its interests in CDO X to the sole owner of the senior notes and another third party, in connection with the liquidation and termination of CDO X. The Company received $130 million for $89.75 million face amount of subordinated notes and all of its equity in CDO X. The sale and resulting deconsolidation of CDO X from the Company’s balance sheet will eliminate the impact of CDO X’s negative net book value and generate an approximately $200 million gain for the third quarter.

 

A condition to the sale of its interests was the right to purchase certain collateral held by CDO X. This collateral includes eight securities with a face amount of $101 million. The Company purchased the securities for 49.4% of par, or approximately $50 million. Following this purchase, the net proceeds of the sale were approximately $80 million.

 

Kenneth Riis, the Company’s CEO said: “We were able to structure a very positive transaction for the Company, which highlights our ability to actively manage our CDOs and extract value for our shareholders. This transaction allowed us to monetize the CDO, while retaining collateral at attractive returns. The Company’s future equity cash flows and principal recoveries from its interests in CDO X were subordinate to $1.12 billion face amount of senior notes and highly sensitive to the ultimate performance of the $1.30 billion of underlying collateral. By eliminating the uncertainty of our recovery, this transaction has enhanced the Company’s risk profile. We intend to invest the remaining proceeds using little or no leverage, with the goal of generating higher cash on cash returns than holding CDO X to maturity.”

 

CDO X is the second CDO liquidated by the Company over the past two years. The Company currently manages five other CDOs, and the underlying collateral has an aggregate face amount of approximately $2.42 billion as of June 30, 2012.

 

 

 

http://bit.ly/UQBjCE

 

[Olmsted]

I don't do technical analysis, and I try not to read the tea leaves and think about "price action" - but if the last 7 weeks of GKK trading do not scream "accumulation", I don't know what does.

[PlanMaestro]

One of the real estate owned by CDO 2005

 

http://www.bizjournals.com/sanfrancisco/morning_call/2012/09/antiochs-roddy-ranch-project-returns.html

 

A proposed development of estate-style homes on 540 acres just south of Antioch is seeing new life, the Contra Costa Times reports.

 

Gramercy Capital Corp. and former rodeo star and cattle rancher Jack Roddy are working to gain development rights for the land. The development process, which has been on and off for 15 years, was restarted with the city's releasing of draft environmental documents in August.

 

The project would build some 570 custom homes on lots between 15,000 and 20,000 square feet.