Monday, April 9, 2012

Gramercy Capital

While many US stocks have risen steadily over the past six months in line with the market, Gramercy Capital (GKK) is an example of one stock that has not. For those who have been raising cash as the market has become more risky (thanks to its higher prices), Gramercy may represent a potential value opportunity.

At first glance, Gramercy looks like a highly-levered, negative equity proposition. But as we've seen and benefited from before, non-recourse debt can make a first-glance situation look worse than it is.

In Gramercy's case, $2.65 billion of the company's $2.70 billion in total liabilities is non-recourse to the parent company! After stripping away the non-recourse debt and the assets which are pledged against it, the parent company's book value (which is on the increase) is more like $230 million and is comprised of mostly cash, real estate and assets held for sale. Meanwhile, the stock trades for $135 million.

There are several complicating matters, including potential cash flow from non-recourse subsidiaries, earnings for property management, and accumulated dividends due to preferred shareholders. All of these issues and then some are discussed over at Variant Perceptions, so if you're interested in digging deeper into this opportunity, I highly recommend reading PlanMaestro's multi-part take on the company, starting at Part I.

Disclosure: No position

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