Seeking Alpha

Gramercy raises $47.4M in private offering

  • Gramercy Property Trust (GPT) sells 11.5M shares of common stock via private placement at $4.11 each for gross proceeds of $47.4M. The investors also received one CVR for each common share, entitling them to a one-time cash payment of up to $0.46 should the average stock price in the 10-day period ending March 25, 2014 be less than $4.11 per share (closed last night at $4.04).
  • The deal is expected to close on or about October 7. The investors agree not sell their stock or CVRs before to the end of the lock-up period (March 25).
  • Why the capital raise as the company just closed on a $100M credit facility? The simple explanation is REITs like to raise money, and raising money and effectively deploying it is part of Gramercy's business plan and the path to a $9 stock price as detailed by SA Pro's Chris DeMuth. SA Pro writer Whopper Investments can't help wondering if Gramercy is set to pay its preferred stock dividends (less than $10M) which have been in arrears for some time. Paying off the preferreds is a necessary requisite to instituting a common dividend.
  • Press release.
Comments (17)
  • DeepValueLover
    , contributor
    Comments (8143) | Send Message
     
    Pay the preferreds!!
    5 Oct 2013, 07:44 AM Reply Like
  • TFCAB
    , contributor
    Comments (1942) | Send Message
     
    i am more than ready for this thing to rock
    5 Oct 2013, 10:00 AM Reply Like
  • Steven Reiman
    , contributor
    Comments (348) | Send Message
     
    They made representations in their quarterly presentations that they had enough equity capacity to bring the preferred's current without a raise so not sure how that would be the impetus for a private placement unless there are additional acquisitions in the works.
    5 Oct 2013, 02:07 PM Reply Like
  • Steven Reiman
    , contributor
    Comments (348) | Send Message
     
    Also, why is there no mention in the release of what the proceeds will be used for? Generally that is included in releases like this (ie. proceeds will be used for general corporate purposes, investment in XYZ, pay off loans etc.).
    5 Oct 2013, 02:18 PM Reply Like
  • gsterling
    , contributor
    Comments (552) | Send Message
     
    I'm hoping there will be another press release next week explaining what they are doing with these funds. I agree the communication has been poor and shareholders need to be filled in.
    5 Oct 2013, 07:12 PM Reply Like
  • gsterling
    , contributor
    Comments (552) | Send Message
     
    The way they did this it seems to me they were looking to get the funds fast. Otherwise they could have just done a public offering.
    5 Oct 2013, 07:17 PM Reply Like
  • Wilson Wang
    , contributor
    Comments (817) | Send Message
     
    Public offering is a lot more expensive. And the underwriters commission would be annoying.

     

    Let's see what they have to say after they close it.
    5 Oct 2013, 11:24 PM Reply Like
  • Wilson Wang
    , contributor
    Comments (817) | Send Message
     
    Three scenarios:

     

    1. They have a large acquisition planned out. Something similar to the BAC JV would be splendid. And this equity issuance wouldn't be that bad.

     

    2. The management is using the cash to pay the preferred. One of the worst possible decisions to make as it's essentially cheap financing for them. So paying it now or at the end of the year won't make a difference.

     

    3. They misled investors into believing that they had enough cash for more acquisitions. And the worst possible scenario as the whole thesis behind the investment in GPT is based off of Dugan's ability to lead GPT.

     

    First two scenarios have heavier weightings, and the third one a lower weighting but still possible. All investors can do now is wait and see what the results are.
    6 Oct 2013, 04:33 AM Reply Like
  • gsterling
    , contributor
    Comments (552) | Send Message
     
    They only owe about $13M on the preferreds so that wouldn't explain why they are raising $47.4M.

     

    Scenario 3 is extremely unlikely. If they lied about their cash that would be outright fraud. I couldn't imagine the two third parties participating in this transaction would be willing to engage with GPT in this case.

     

    I think scenario 1 is certainly the most likely, but I just don't like being kept in the dark.
    6 Oct 2013, 09:51 AM Reply Like
  • Wilson Wang
    , contributor
    Comments (817) | Send Message
     
    You might want to check your numbers. They owe 35 mil.

     

    My theory is they pay the preferred with the cash they have on hand, and then use the 47 mil and lever it up with the credit line to get 100 mil in deals.

     

    So they do have a big deal in the pipe and they will use the cash on hand to pay the preferred.
    6 Oct 2013, 10:49 AM Reply Like
  • gsterling
    , contributor
    Comments (552) | Send Message
     
    Thanks for the correction.
    6 Oct 2013, 01:01 PM Reply Like
  • jaha98
    , contributor
    Comments (138) | Send Message
     
    Sounds like a good theory to me. Investors are anxious to get something going while at the same time interested in information. I have heard nothing but good things concerning management from people I trust so I remain optimistic good news is coming. Maybe wishful thinking but we will definitely find out soon. Please keep passing along any updates you hear, I appreciate your thoughts and banter.
    6 Oct 2013, 11:19 AM Reply Like
  • Qniform
    , contributor
    Comments (2458) | Send Message
     
    Does anyone know the identity of the private placement buyer(s)?
    6 Oct 2013, 11:53 AM Reply Like
  • Wilson Wang
    , contributor
    Comments (817) | Send Message
     
    We will eventually know as they will represent a size able amount.
    6 Oct 2013, 12:13 PM Reply Like
  • Thalidomide Baby
    , contributor
    Comments (457) | Send Message
     
    Part of the problem is that this management is quite costly, especially as a percentage, since they are running such a small portfolio. They must grow larger fast to do well and they must need money bad.

     

    This is a sweetheart deal: they are issuing new shares to unknown parties at what they were selling for a few weeks ago with no possible downside. It will be interesting to learn exactly who are the beneficiaries of this largess--it's certainly not the current common shareholders.

     

    I wish I could buy stock with no guaranteed downside, but they didn't offer this deal to me. Why didn't they offer it to current shareholders?
    6 Oct 2013, 12:29 PM Reply Like
  • gsterling
    , contributor
    Comments (552) | Send Message
     
    The CVR only gives them downside protection up to 46 cents so the third parties can certainly lose money if something goes wrong. The good thing is they are also paying market price for the shares. I prefer the CVR to a discounted sale price.
    6 Oct 2013, 01:00 PM Reply Like
  • Thalidomide Baby
    , contributor
    Comments (457) | Send Message
     
    Sorry, I misinterpreted that. You are right: If the stock goes down in the next year, they get a $0.46 or 15% payment.

     

    I would think this deal confirms the present market value is fair; if the shares were undervalued as some believe, they wouldn't have demanded this extra protection.
    6 Oct 2013, 01:18 PM Reply Like
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