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Can we agree that a company's capital structure could have so much preferred stock, carrying such a large dividend obligation, that the equity beneath it is worthless?

Good.

Tuesday morning, JMP Securities initiated coverage of a Credit Bubble Stocks short, Grubb & Ellis (GBE) with a "Market Outperform" rating and a price target of $2.50. Apparently, their reasoning was "a better operating environment (sales, leasing, capital raising trends); a much-improved balance sheet post- November preferred equity offering, leading to net cash of $13 million today, versus net debt of $70 mln pre-offering; a new CEO with a solid track record; and a reasonable valuation."

JMP Securities, of course, is the wonderfully un-conflicted underwriter of that November preferred equity offering, which raised $90 million subject to a 12% cumulative preferred dividend and a conversion option struck at $1.65.

That's an annual obligation of $10.8 million, compared to management's forecasted/hoped-for 2010 adjusted EBITDA of... $10 million to $15 million.

Author's disclosure: I am short GBE common stock.

Source: JMP Securities' Grubb & Ellis Rating Comes as No Surprise