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Gramercy Capital Corp. Reports Fourth Quarter And Full Year 2012 Financial Results

Stocks in this article: GKK

As of December 31, 2012, the Company maintained $105.4 million of unrestricted cash as compared to approximately $175.2 million reported as of September 30, 2012. In February 2013, the Company sold a portfolio of repurchased notes previously issued by the Company’s 2006 and 2005 CDOs, generating cash proceeds of approximately $34.4 million. The Company’s current cash balance after taking into account the net proceeds from the CDO sale and the purchase of the Memphis industrial property is approximately $118.0 million.

Management, general and administrative expenses from continuing operations, or MG&A, were $25.3 million for the year ended December 31, 2012. MG&A for the year ended December 31, 2012 also included one-time increases in salaries and benefits expense of approximately $1.2 million which were comprised of payments to former executives pursuant to the expiration of employment contracts and the payment of signing bonuses for a new management team effective July 1, 2012. MG&A also includes $2.6 million of costs related to the Company’s strategic review process, expensed at the conclusion of the process in the second quarter of 2012. MG&A for the quarter ended December 31, 2012 was approximately $4.0 million, compared to $8.3 for the prior quarter. The decrease in management, general and administrative expenses of $4.3 million is primarily attributable to reduced salary and benefit expenses and a reduction in professional fees.

Gramercy Finance

In September 2012, in an investor presentation, the Company summarized the recommendations resulting from the conclusion of an operational review completed by the Company’s new management team hired in June 2012. Included in those recommendations was the need to streamline the business and reduce ongoing MG&A costs in order to manage the Company’s liquidity and grow its equity base, with the goal to invest in net lease assets to create durable cash flows. One of the recommendations resulting from that operational review was to explore options for the Company’s CDO management business including the potential sale of collateral management contracts, senior bonds previously repurchased by the Company (these repurchased bonds are eliminated in the Company’s consolidated balance sheet), and junior bonds and CDO equity. The Company chose to pursue these measures due to the significant decline in the cash flows generated by the Company’s CDOs in 2012 as a result of the failure of the CDO’s overcollateralization tests. During periods when these CDO covenants are not satisfied, cash flows that would otherwise be paid to the Company as a subordinate bondholder, holder of the preferred shares and in respect of the subordinate collateral management fees are diverted from the Company to repay principal and interest on the senior-most outstanding CDO bonds. A summary of the distributions and fees received from the CDOs in 2012 were as follows:

 

Collateral Manager Fees and CDO Distributions

CDO 2005-1   CDO 2006-1   CDO 2007-1    
Fees   Distributions Fees   Distributions Fees   Distributions Total
1Q 2012

$

2,399

 

$

3,495

 

$

1,027

 

$

9,160

 

$

172

 

$

-

 

$

16,253

 

2Q 2012 3,134 1,907 965 6,311 169 - 12,486
3Q 2012 332 - 933 8,238 169 - 9,672
4Q 2012   300     -     380     -     169     -     849  
Total 2012 $ 6,165   $ 5,402   $ 3,305   $ 23,709   $ 679   $ -   $ 39,260  

On January 30, 2013, the Company entered into a purchase and sale agreement to transfer the collateral management and sub-special servicing agreements for its three CDOs, CDO 2005-1, CDO 2006-1 and CDO 2007-1, to CWCapital for approximately $9.9 million, less certain adjustments and closing costs. The transaction closed on March 18, 2013. The Company retained the subordinate bonds, preferred shares and ordinary shares of the three CDOs, which may provide the potential to recoup additional proceeds over the remaining life of the CDOs based upon the resolution of underlying assets within the CDOs, however, there is no guarantee that the Company will realize any proceeds from its equity position, or what the timing of these proceeds might be. In February 2013, the Company also sold a portfolio of repurchased notes previously issued by two of the three CDOs, generating cash proceeds of approximately $34.4 million. In addition, the Company expects to receive additional cash proceeds for past CDO servicing advances of approximately $14.0 million when specific assets within the CDOs are liquidated.

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