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Gamblers Intuition

On friday I wrote that after having sold Gramercy Capital a couple of days before, I had decided I couldn’t stay away from the stock and had bought it back (some 20cents higher).  Call it gamblers intuition, or call it luck, I just had a feeling that a settlement of their Realty loans was around the corner.

Well that’s not strictly true.  There were signs.  The stock was rising in a falling market.  Volume was up.  A call to the company by a poster on Investors Hub returned an answer that they were getting closer to a settlement.

Last night after the market closed Gramercy announced that they had settled their mezzanine loan with Goldman, KBS, and Citigroup.

The terms of the deal look quite reasonable.  The company basically hands over their Realty division (less 58 encumbered properties that Gramercy will continue to hold).  In return they get a $10M per year management fee with incentive structure that will provide a  minimum of $3.5M per year.

Gramercy has about 50M shares outstanding, so the fees they will receive from Realty management going forward are around 25 cents per share.  That isn’t small potatoes for a stock trading at $2.80.

More importantly though, the overhang of the unknown is over and investors can begin to value Gramercy on their remaining assets.  Going a long way towards that will be that Gramercy is now able to file its 10-K’s and 10-Q’s.

I expect that the financial statements will show a company with net asset value of $5+ per share.

The sale also leaves a company that is ripe for takeover.  From Bloomberg:

“What remains of Gramercy may be an attractive acquisition target both for buyers of discounted financial assets and someone looking to acquire a public real estate platform,” Ben Thypin, director of market analysis for New York-based Real Capital, said in a telephone interview. “The company may be an appealing target for private-equity firms with dry powder committed to real estate that they need to deploy.”

I am very glad I bought back on Friday.  If it wasn’t for what I perceive as some serious problems in Europe on the horizon, I would probably buy more this morning.

One Comment Post a comment
  1. liverless, two comments.

    I also made the error with the fee (not enough information in first 8K). It is a one time thing. But there are two type of fees playing on the upside. Also, when they filed the 10K they will show most probably negative book value despite the cash and that the CDOs are cash flowing.


    September 10, 2011

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