Saturday, October 5, 2013

Gramercy & Howard Hughes Both Raise Capital

Despite the government shutdown grabbing all the headlines, good management teams at both Gramercy and Howard Hughes are moving forward with their business plans.  In the past two weeks, both have issued press releases announcing capital raises.

Gramercy Property Trust
With Gramercy, it's a little more puzzling as the capital raise raises quite a few questions itself, below is the press released issued Friday after the close of the market.
As of the end of the second quarter (including pending asset purchases), Gramercy had $96.9 million of acquisition capacity, and during the third quarter, they announced only $20 million in asset purchases which about half appeared to be in the pipeline previously, so I'd estimate they have $85 million remaining without any undisclosed purchases.  Additionally, Gramercy announced this quarter that they closed on the long awaited credit facility, which has $63.8 million in initial borrowing capacity.  Since the acquisition capacity numbers already assumed paying the preferred dividend, plus the credit facility, and now an additional $47.4 million in equity raised, what does Gramercy have in mind for all this dry powder?  My best guess would be a rather large acquisition similar to the Bank of America JV that would give Gramercy scale, spread the MG&A expenses over a larger base, diversify their tenants and finally pay the dividend.

One other interesting feature of the equity raised was the corresponding CVRs the private placement investors received protecting their initial downside.  I think this is a good signal from management that a floor is in place here, hopefully they wouldn't risk additional shareholder capital and make this capital raise even more expensive.

CEO Gordon Dugan has delivered all along, it won't be long before we find out what he's been up to lately, I'm hoping for good news.

Howard Hughes
I haven't mentioned Howard Hughes on the blog since I wrote a few posts about them earlier in the spring.  The story is fully intact, this past week management gave a new investor presentation that's available on their website.  I think it's interesting how they're fully going about monetizing their master planned community assets (a difficult asset to have in a public company) and utilizing that cash to develop and redevelop long term operating assets.  It's really going to be a great case study in long term capital allocation that will probably spur additional spin-offs in the future.  But anyway, Howard Hughes recently raised $750 million through the issuance of senior bonds, they had previously announced a $500 million offering, but that must have been oversubscribed.

The redevelopment of their Ward Village development in Honolulu will be capital intensive, so I'm guessing a lot of this money will be directed there in addition to the Shops at Summerlin and their Woodlands commercial development properties.  The potential of Howard Hughes remains great, just the Ward Village alone is a $7 billion opportunity with 30% profit margins, simply just have to sit back and wait.

I apologize for the lack of posts lately, just have been standing still with my holdings (which I think is important sometimes, the best move is often no move at all) and waiting for a few situations to develop.  Hopefully I'll have a few more ideas in the coming weeks to share.  I also just finished up The Manual of Ideas by John Mihaljevic, it was a good read and a nice refresher on different value opportunities/themes as well as providing a lot of good tips for sourcing and screening ideas.

Disclosure: I own shares of GPT and HHC

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