GPT - Gramercy Property Trust

[Olmsted]

No surprises from earnings.  More of the same, company continues to cut costs and put money to work.  Here's a highlight from the call:

 

...what we are proving is we can invest money at attractive cap rates. Those cap rates are significantly above where net lease comparable companies trade as they get larger and show a track record of dividends.

 

That arbitrage between where we can buy assets and where ultimately things are being priced at least for the better performing net lease companies is as wide as I have ever seen it. And I will just also say that the net lease business as opposed to most other REIT businesses is very scalable. The largest owner of commercial real estate in the United States as a class are corporations. They own roughly 40% of all commercial real estate. So as companies divest themselves of real estate that presents opportunities for companies like Gramercy to be the buyer of that real estate, and it’s very, very scalable business. Our intention is to show exactly how that works.

 

They'll need to raise more capital sooner or later.  I am glad that a line of credit is their first step.  The longer they push out a common equity raise (and the dividend they'll need to declare to get it), the higher the terminal value will end up being.

 

We are working on a credit facility. We are targeting the end of Q2 or early Q3.

 

 

And don't expect that preferred dividend until they absolutely have to pay it - probably not until they need to declare a common dividend to raise common equity capital:

 

The preferred stock and common stock are not paying dividends currently. I think I have been very clear about it’s when not if. At the same time the preferred in particular because we don’t pay interest or carry-on the accrued portion has a carrying cost of about 6% and that’s a very attractive cost of capital while we continue to repositioned Gramercy and create the portfolio of real estate assets.

 

http://seekingalpha.com/article/1412541-gramercy-property-trust-s-ceo-discusses-q1-2013-results-earnings-call-transcript?source=yahoo

 

 

An aside: anybody know how to change the title of the thread to the new ticker?

[PlanMaestro]

An aside: anybody know how to change the title of the thread to the new ticker?

 

Better?

[Olmsted]

Yes! Thanks!

[PlanMaestro]

http://www.sec.gov/Archives/edgar/data/1287701/000114036113019944/formsc13da.htm

[Olmsted]

Pretty steady selling from our Asian deep value investors.  I've been selling a little too... just a little

[PlanMaestro]

Pretty steady selling from our Asian deep value investors.  I've been selling a little too... just a little

 

http://www.sec.gov/Archives/edgar/data/1287701/000090514813000567/efc13-352_sc13da.htm

[Olmsted]

Huh.  Made a mistake in the first filing.  Odd.

[Myth465]

I bought some today.

Thanks for the idea. I wish I got in sooner, but probably wouldnt have wanted to sort out the CDO.

 

This is very similar to ROIC 2 years ago. If rates stay at 5%, and they buy property at 8% and cut capex, then we will do nicely. Alot of variables but I like Management.

[Olmsted]

Welcome!

 

I was taking a second look through their business plan update today.  One thing I've discussed elsewhere is my thought that their asset management platform is going to end up generating some value for them beyond the initial agreement with KBS to manage the properties Gramercy turned over to them.  I've been corrected for capitalizing asset management revenue when calculating an FFO multiple, since it is seen as being in runoff.  But management has been and is talking about it differently - and in the last few slides you can see how they are thinking about it: to offset G&A, generate fees from managing portfolios where GPT only owns part of a JV, and to source new acquisitions.  That's value creation where everyone expected only runoff revenue.  This team is good.

 

http://ir.gptreit.com/common/download/download.cfm?companyid=GKK&fileid=661386&filekey=b6e5dbaf-496e-4f66-8cb6-6596a1b74400&filename=GPT_BPU_May_2013.pdf

[Myth465]

I agree I really like the team and the options they have. They will run out of cash and debt capacity pretty soon if they continue at this pace. The only team in the REIT space that I have come across that talks similarly is the ROIC guys. They at 8% with plenty of upside via rent escalation, adjacent land, ect. The asset management business is very scalable which is nice, and they are reducing G&A. We may get to book all realty operating income as FFO if they can get G&A down to where its covered by the asset business which would be quite nice.

 

All and all a good idea, with limited downside, and good upside. The risk inmo relates to rates and the high valuations placed on reits due to low rates.

[Olmsted]

The risk inmo relates to rates and the high valuations placed on reits due to low rates.

 

Agreed.  Six months ago I would have said execution risk, but management is proving themselves.

[PlanMaestro]

Couldn't agree more.

[PlanMaestro]

$14.5 Million Senior Mortgage Financing at 3.28% five-year, fixed-rate.

http://www.cnbc.com/id/100764521

[negative alpha]

Fantastic discussion over at VIC.

 

http://www.valueinvestorsclub.com/value2/Idea/ViewIdea/97512

[Olmsted]

Fantastic discussion over at VIC.

 

http://www.valueinvestorsclub.com/value2/Idea/ViewIdea/97512

 

Any highlights for those of us who are on the outside?

[negative alpha]

Fantastic discussion over at VIC.

 

http://www.valueinvestorsclub.com/value2/Idea/ViewIdea/97512

 

Any highlights for those of us who are on the outside?

 

You should be able to register as a guest. The post is a short story filled under the old ticker GKK.

 

The basic idea is that it's difficult to come up with a valuation that matches current prices using FFO and book multiples. GPT is getting full valuations on the expectations that it can deploy cash into high cap rate properties. There are some comments in that thread that argue however that GPT is probably a difficult short due to low interest rates and cheap financing that are propping up valuations on the asset class. The discussion is interesting.

 

[Myth465]

Very similar to ROIC warrants with less leverage. I have seen the revaluation happen and GPT is making all the right moves so I think it will happen here.

[Olmsted]

You should be able to register as a guest. The post is a short story filled under the old ticker GKK.

 

The basic idea is that it's difficult to come up with a valuation that matches current prices using FFO and book multiples. GPT is getting full valuations on the expectations that it can deploy cash into high cap rate properties. There are some comments in that thread that argue however that GPT is probably a difficult short due to low interest rates and cheap financing that are propping up valuations on the asset class. The discussion is interesting.

 

Thanks - I just read through the short idea and the comment thread.  A very good discussion.  I think the basic point of the short case is fair - but if you think triple-net REITs shouldn't be trading where they do, a better short would be O or NNN.  They're mature; their numbers aren't going to get any better.  Gramercy is on a runway to very clear operational improvement and portfolio growth, and it will be posting better numbers and a dividend in the not-too-distant future.  As irrational as the yield pigs may be, I wouldn't want to step in front of that.  The high individual-property cap rate/low portfolio cap rate arbitrage opportunity is real, and as long as it exists Gramercy's strategy will work.

 

Of course, a completely different risk-reward than 100% ago, but that's what lightening up is for.

 

 

[CorpRaider]

Thanks for sharing.  A potentially 50% overvalued bond alternative play in this environment probably doesn't surprise many.  Seems like one might as well go out and short regulated utilities and pray KKR or Berkshire doesn't come in with a bid. 

[PlanMaestro]

http://www.reuters.com/article/2013/06/05/ny-gpt-idUSnBw055370a+100+BSW20130605

[Myth465]

These guys are moving fast. I like it.

Should help with the revaluation before rates move.

[PlanMaestro]

Gramercy Property Trust Acquires Four Facilities for a Total Purchase Price of Approximately $82 Million

http://online.wsj.com/article/PR-CO-20130701-904354.html

 

 

[Myth465]

Very nice surprise. Pretty soon they will be out of cash and will have to look at raising capital which means restoring the divi, which mean paying the preferred.

Again I like the speed, we should be able to get down to a yield of 5% once the implement a divi.

[Olmsted]

Good interview with DuGan:

 

http://www.thestreet.com/video/11977129/one-net-lease-on-fire.html

 

And a recap of the situation from Brad Thomas:

 

http://seekingalpha.com/article/1548392-gramercy-property-trust-is-gettin-its-turn-at-bat

[Olmsted]

Results out:

 

http://ir.gptreit.com/releasedetail.cfm?ReleaseID=783039

 

No surprises.  Management is executing just as they said they would.  GPT put over $50m to work in the quarter (bought $111m of property), $50m left to go.  Decent progess on cost-cutting.  I think the market was looking forward to hearing about having a credit facility in place, or a timetable for preferred dividends.  No word on either, so some minor disappointment being reflected in trading today.