(Source: Business Wire)
Gramercy Capital Corp. (NYSE: GKK):
Third Quarter Highlights
For the quarter, generated funds from operations ("FFO") of negative
$178.2 million, as compared to positive FFO of $30.6 million in the
same quarter of the previous year. On a fully diluted per common share
basis, FFO was negative $3.57 and positive $0.60 for the third quarter
of 2009 and 2008, respectively.
For the quarter, the net loss to common stockholders was $203.1
million, or $4.07 per fully diluted common share, as compared to net
income of $7.3 million, or $0.14 per fully diluted common share, for
the same quarter in the previous year.
Subsequent to quarter end on October 15, 2009, settled an exchange of
$97.5 million of junior subordinated notes due June 30, 2035 for an
equivalent par amount of various classes of bonds previously issued by
the Company's three Collateralized Debt Obligation ("CDO") affiliates
Gramercy Real Estate CDO 2005-1, Gramercy Real Estate CDO 2006-1 and
Gramercy Real Estate CDO 2007-1. The exchange leaves $52.5 million of
junior subordinated notes outstanding.
Maintained approximately $200.1 million of liquidity at quarter end,
an increase of $63.1 million from the $137.0 million of liquidity
reported for the prior quarter. Liquidity at September 30, 2009
included $96.7 million of cash and cash equivalents and $103.4 million
of restricted cash in the Company's three CDOs.
Reduced total balances on the Company's term loan, credit facility and
repurchase facility to $48.9 million on September 30, 2009 from $65.0
million on June 30, 2009.
Gramercy Realty:
Commenced 45 new leases totaling approximately 463,000 square feet
resulting in total portfolio occupancy at quarter end of 86.1%.
Signed an additional 55,000 square feet of new leasing that will
commence in future quarters.
Closed on the sale of 15 properties with an aggregate sales price
of approximately $9.8 million. Approximately $5.2 million of debt
related to these properties was repaid.
Gramercy Finance:
Modified 14 debt investments with an aggregate principal balance
of $362.1 million.
Generated $8.4 million of loan repayments and obtained
approximately $52.5 million of incremental reserves and additional
collateral.
Reduced unfunded commitments associated with existing loans by
$12.1 million to $38.3 million, compared to $50.4 million at June
30, 2009.
Recorded a gross provision for possible loan losses of $205.5
million for the quarter relating to 12 separate loans, which
brings the Company's aggregate reserve for possible loan losses at
September 30, 2009 to $402.0 million in connection with 17
separate loans. Recorded non-cash impairment charges of $12.2
million related to three debt investments designated as held for
sale.
SUMMARY
Gramercy Capital Corp. (NYSE: GKK) today reported results for the third
quarter ended September 30, 2009. Funds from operations ("FFO") was
negative $178.2 million, or $3.57 per fully diluted common share,
compared to positive FFO of $30.6 million, or $0.60 per fully diluted
common share, for the third quarter of 2008. Net loss to common
stockholders was $203.1 million, or $4.07 per fully diluted common
share, for the quarter ended September 30, 2009, compared to net income
of $7.3 million, or $0.14 per fully diluted common share, for the third
quarter of 2008. The Company generated total revenues of $153.6 million
during the third quarter, a decrease of $19.6 million from $173.2
million generated during the same quarter of the prior year.
At September 30, 2009, the Company owned 26.4 million rentable square
feet of commercial real estate in 36 states and the District of Columbia
with an aggregate book value of approximately $3.8 billion, in addition
to $1.5 billion of loan investments, $983.4 million of commercial
mortgage real estate securities investments, and $706.4 million in other
assets. As of September 30, 2009, approximately 54.3% of the Company's
assets were comprised of commercial property, 21.4% of debt investments,
14.1% of commercial mortgage real estate securities and 10.2% of other
assets.
DEBENTURE EXCHANGE
On October 15, 2009, the Company's operating partnership subsidiary (the
"OP") entered into an Exchange Agreement with certain affiliates of
Taberna Capital Management, LLC (collectively, "Taberna"), pursuant to
which the Company and Taberna agreed to exchange (the "Exchange") $97.5
million aggregate principal amount of junior subordinated notes due 2035
for approximately $97.5 million par amount of bonds previously issued by
the Company's CDOs that the Company had repurchased in the open market.
The transaction will be accounted for as an exchange of debt and
beginning in the 4th quarter of 2009, the Company's GAAP interest
expense will decrease by approximately $5.3 million annually. As a
condition precedent to the Exchange Agreement, certain indenture
covenants with respect to the junior subordinated notes which restrict
the OP and its subsidiaries from declaring or paying dividends or
distributions and taking certain other corporate actions during the 2009
calendar year have been eliminated from the remaining $52.5 million of
junior subordinated notes outstanding.
LIQUIDITY AND FUNDING
The Company remains focused on extending debt maturities and
restructuring certain debt facilities, actively managing portfolio
credit, generating liquidity from existing assets and leasing vacant
space. Liquidity at September 30, 2009 was $200.1 million, an increase
of $63.1 million from the $137.0 million of liquidity for the prior
quarter. The Company's liquidity at September 30, 2009 included $96.7
million of cash and cash equivalents and $103.4 million of restricted
cash in its three CDOs. Cash and cash equivalents increased $9.1 million
as of September 30, 2009 as compared to $87.6 million at the end of the
second quarter. Restricted cash in the Company's three CDOs increased by
$54.0 million as of September 30, 2009 as compared to $49.4 million at
the end of the second quarter. The increase in restricted cash in the
CDOs was primarily attributable to the sale of a property acquired
through foreclosure.
During the first quarter of 2009, the Company resolved or restructured
substantially all of its recourse debt obligations. From January 1, 2009
through September 30, 2009, the Company's secured and other debt was
reduced by $355.3 million as a result of these restructurings,
additional cash repayments and sales of certain loan investments
classified as held for sale that served as collateral for these
borrowings. In October 2009, Gramercy repaid in full borrowings of $4.3
million under its secured credit facility with an affiliate of Goldman,
Sachs & Co., and terminated the facility. Also in October 2009, the
Company satisfied substantially all of its contingent payment obligation
in connection with a negotiated settlement during the first quarter of
2009 of its $172.3 million unsecured corporate credit facility with a
syndicate of lenders led by KeyBank National Association.
Loan prepayments, partial repayments, and scheduled amortization
payments were $8.4 million during the quarter. Unfunded commitments
associated with existing loans declined to $38.2 million at September
30, 2009 from $50.4 million at June 30, 2009.
Additionally, Gramercy Realty sold 15 properties for an aggregate gross
sales price of approximately $9.8 million. Approximately $5.2 million of
debt related to these properties was repaid.
The Company's CDOs contain minimum interest coverage and asset
overcollateralization covenants that must be satisfied for the Company
to receive cash flow on the interests retained by the Company in its
CDOs and to receive the subordinate collateral management fee earned.
During periods when these covenants are not satisfied for a particular
CDO, cash flows from that CDO that would otherwise be paid to the
Company as a bondholder and holder of the preferred shares may be
diverted away from the Company to repay principal and interest on the
most senior outstanding CDO bonds. As of the most recent distribution
date for each CDO, (10/25/09 for CDOs 2005-1 and 2006-1 and 8/15/09 for
CDO 2007-1), the Company was in compliance with the interest coverage
and asset over collateralization covenants. Future declines in
performance and credit metrics could cause one or more of the Company's
CDOs to fall out of compliance and, in such event, cash flows from the
CDOs to the Company as a bondholder and holder of the preferred shares
may be reduced or eliminated. The chart below is a summary of the
Company's CDO compliance tests as of the most recent distribution date.
Cash Flow Triggers CDO 2005-1 CDO 2006-1 CDO2007-1
Overcollateralization (1)
Current 118.29 % 107.82 % 102.12 %
Limit 117.85 % 105.15 % 102.05 %
Pass/Fail Pass Pass Pass
Interest Coverage (2)
Current 699.70 % 725.64 % N/A
Limit 132.85 % 105.15 % N/A
Pass/Fail Pass Pass N/A
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(1) The overcollateralization ratio divides the total principal balance
of all collateral in the CDO by the total bonds outstanding for the
classes senior to those retained by the Company. To the extent an asset
is considered a defaulted security, the asset's principal balance is
multiplied by the asset's recovery rate which is determined by the
rating agencies.
(2) The interest coverageratio divides interest income by interest
expense for the classes senior to those retained by the Company.
The Company expects that the overcollateralization test for the CDO
2007-1 will fail at the November 2009 distribution date. However, as the
Company does not currently receive cash flows as the holder of the
preferred shares of the CDO 2007-1, no incremental loss of cash flow is
expected.
GRAMERCY REALTY
Gramercy Realty's portfolio consists of office buildings and bank
branches serving primarily investment-grade rated financial
institutions. During the quarter, Gramercy Realty sold 15 properties for
an aggregate sales price of approximately $9.8 million and commenced 45
new leases totaling 463,000 net rentable square feet. During the
quarter, Bank of America and Wachovia lease terminations aggregating
approximately 1.0 million square feet of space became effective as
permitted by the terms of the underlying lease agreements1.
As a result, Gramercy Realty finished the quarter at 86.1% occupancy.
Gramercy Realty's operating property portfolio as of September 30, 2009
is summarized below:
1 In addition, the Company has received termination notices
from Bank of America and Wachovia covering approximately 485,000 square
feet of currently leased space, which terminations become effective at
various times prior to December 2010.
Number of Properties Rentable Square Feet Occupancy
Portfolio At 9/30/09 At 6/30/09 At 9/30/09 At 6/30/09 At 9/30/09 At 6/30/09
Core 643 644 20,132,213 20,018,305 92.7 % 95.7 %
Value - Add 212 205 4,789,824 4,561,161 65.6 % 66.6 %
Subtotal 855 849 24,922,037 24,579,466 87.5 % 90.3 %
Held for Sale 62 84 1,470,420 1,832,235 63.4 % 59.9 %
Total ((1)) 917 933 26,392,457 26,411,701 86.1 % 88.2 %
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(1) Citizens JV (54 properties totaling approximately 251,000 square
feet) is not included in the above table.
Gramercy Realty's top five tenants by percentage of base rent as of
September 30, 2009 were:
Tenant/Financial Institutions CreditRating (1) Number ofLocations RentableSq. Ft. % ofRentableSq. Ft.
1. Bank of America, N.A. Aa3 368 11,675,993 44.2 %
2. Wachovia Bank, National Association ((2)) Aa2 132 4,545,427 17.2 %
3. Regions Financial Corporation ((3)) Baa3 72 661,094 2.5 %
4. Citizens Financial Group ((4)) A1 9 267,585 1.0 %
5. General Services Administration (GSA) AAA 5 243,560 0.9 %
Total 586 17,393,659 65.8 %
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(1) All ratings from Moody's.
(2) Acquired by Wells Fargo Corp.
(3) Individual lease agreements with tenants that are unrated
subsidiaries of Regions Financial Corporation, including Regions Bank
and AmSouth Bank.
(4) Individual lease agreements with tenants that are unrated
subsidiaries of Citizens Financial Group, Inc., including RBS Citizens,
N.A. and Citizens Bank of Pennsylvania. Citizens Financial Group Inc. is
a wholly-owned subsidiary of Royal Bank of Scotland Group PLC.
GRAMERCY FINANCE
As of September 30, 2009, debt investments owned by Gramercy Finance had
a carrying value of approximately $1.5 billion, net of loan loss
reserves, impairments and unamortized fees and discounts totaling $461.5
million, and had associated unfunded commitments of $38.2 million.
Commercial mortgage-backed real estate securities investments had a
carrying value of $983.4 million as of September 30, 2009, net of
impairments, unamortized fees and discounts of $177.0 million.
Asset yields for fixed rate and floating rate debt investments as of
September 30, 2009 were 7.59% and 30-day LIBOR plus 444 basis points,
respectively, compared to 8.16% and 30-day LIBOR plus 457 basis points,
respectively, in the previous quarter. First mortgage loans remain the
majority of Gramercy Finance's debt portfolio, standing at 68.7% at
September 30, 2009, compared to 65.7% in the previous quarter. The
weighted average remaining term of Gramercy Finance's debt investment
portfolio was 1.5 years, as compared to 1.7 years in the prior quarter,
and the weighted average remaining term of Gramercy Finance's combined
debt and real estate securities portfolio was 3.6 years, unchanged from
the prior quarter.
The aggregate carrying values, allocated by investment type, and
weighted average yields of Gramercy Finance's debt and commercial
mortgage real estate securities investments as of September 30, 2009
were:
Debt Investments($ in 000) Percentage Fixed Rate:Effective Yield (1) Floating Rate:Effective Spread (1)
Whole Loans - floating rate $ 904,774 60.5 % --- 403 bps
Whole Loans - fixed rate 122,839 8.2 % 6.89 % ---
Subordinate Mortgage Interests - floating rate 77,761 5.2 % --- 259 bps
Subordinate Mortgage Interests - fixed rate 44,900 3.0 % 8.85 % ---
Mezzanine Loans - floating rate 218,825 14.6 % --- 597 bps
Mezzanine Loans - fixed rate 86,037 5.8 % 7.99 % ---
Preferred Equity - floating rate 28,198 1.9 % --- 1,064 bps
Preferred Equity - fixed rate 12,247 0.8 % 7.20 % ---
Subtotal 1,495,581 100.0 % 7.59 % 444 bps
Commercial Mortgage - Backed Real Estate Securities - floating rate 71,078 7.2 % --- 315 bps
Commercial Mortgage - Backed Real Estate Securities - fixed rate 912,289 92.8 % 7.75 % ---
Subtotal 983,367 100.0 % 7.75 % 315 bps
Total $ 2,478,948 7.71 % 437 bps
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(1) Weighted Average Effective Yield and Weighted Average
Effective Spread calculations include loans classified as
Non-Performing. The schedule includes Non-Performing loans classified as
Whole Loans - Floating Rate of approximately $73.4 million with an
effective spread of 638 basis points and Non-Performing loans classified
as Mezzanine - Floating Rate of approximately $12.9 million with an
effective spread of 858 basis points.
During the quarter, the Company modified 14 loans with an aggregate
principal balance of $362.1 million and four loans with an aggregate
principal balance of $183.8 million were extended "by right" by their
borrowers.
The Company recorded a gross provision for possible loan losses of
$205.5 million for the quarter, or $4.12 per fully diluted common share,
relating to 12 separate loans, based on the Company's quarterly review
of its loan portfolio. The Company's reserve for possible loan losses at
September 30, 2009 was $402.0 million in connection with 17 separate
loans. The Company recorded a non-cash impairment charge of $12.2
million, or $0.24 per fully diluted common share, related to three debt
investments designated as held for sale. In addition, the Company
charged an unrealized loss of $1.4 million to the statement of
operations on a CMBS investment deemed to be other than temporarily
impaired. At September 30, 2009, Gramercy Finance's debt investments
designated as held for sale, had a carrying value of $43.9 million, net
of associated valuation allowances of $44.4 million. For the three
months ended September 30, 2009, the Company incurred charge-offs of
$80.8 million related to realized losses on five loan investments.
Realized losses are recognized as a direct write-down of the loan
investment with a corresponding charge-off to the reserve.
At September 30, 2009, Gramercy Finance had ten non-performing loans
with a carrying value of $86.2 million, net of associated valuation
allowances of $161.2 million, as compared to 11 non-performing loans
with a carrying value of $123.9 million, net of associated valuation
allowances of $201.8 million at June 30, 2009. At September 30, 2009,
six loans with an aggregate carrying value of $219.5 million, net of
associated valuation allowances of $195.9 million, were classified as
sub-performing, as compared to 19 loans with an aggregate carrying value
of $474.4 million, net of associated valuation allowances of $83.3
million at June 30, 2009.
INVESTMENT ACTIVITY
Gramercy Finance acquired or originated two debt investments during the
third quarter with an aggregate carrying value of $3.7 million, net of
unamortized fees, discounts and unfunded commitments. Gramercy also
acquired $83.8 million par value of commercial mortgage-backed real
estate securities.
