Full Circle: "BGC gets court OK on Grubb & Ellis acquisition"

"BGC Partners Inc. said Tuesday that it has received bankruptcy court approval for its acquisition of Grubb & Ellis Co. and plans to complete the buyout shortly."

No details... This trade wrapped up about a year ago.

"Grubb & Ellis files for bankruptcy; BGC to buy assets"

Just in: "Commercial real estate services firm Grubb And Ellis Co filed for bankruptcy protection on Sunday and said it has agreed to sell substantially all its assets to BGC Partners"

We covered in April of 2011, which was 60% lower than our first mention. That post was pretty prescient! Here is the history of that trade.

Grubb & Ellis Provides Update on Strategic Process (GBE)

Totally useless press release.

No position.

Covered Grubb

It is down 60 percent since it was first mentioned on Credit Bubble Stocks.

Grubb & Ellis (GBE) Cancels Its Consent Solicitation

"The consent solicitation of Grubb & Ellis Company (the “ Company ”) with respect to its 7.95% Senior Convertible Notes Due 2015 (the “ Notes ”), which the Company initially launched on March 8, 2011 to seek the approval to amend certain provisions in Section 9.01 (Events of Default) of the Indenture, dated as of May 7, 2010 (the “ Indenture ”) which governs the Notes, expired at 5:00 p.m., New York City time, on April 11, 2011. The Company did not receive the requisite consents from the holders of the Notes to amend the Indenture and accordingly, the Indenture remains unchanged. The Company retains the right to re-solicit consents pursuant to a new consent solicitation at a future date should it choose to do so."

Grubb & Ellis (GBE) Files Notice of Failure to Satisfy a Continued Listing Rule

On April 7, 2011, Grubb & Ellis Company received written notice from NYSE Regulation, Inc. that the 30 trading-day average closing price of its common stock had fallen below $1.00 and as a consequence, the Company was no longer in compliance with the continued listing criteria of the New York Stock Exchange  relating to minimum average trading price.

WSJ: "As Grubb Struggles, Its Chief Weighs Options"

A long article in WSJ today about the difficulties at Grubb & Ellis. A must-read if you are following the GBE trade. This paragraph echoes one of my early observations about these human services firms:

In recent years, in a bid to boost its brokerage business, Grubb has increased the "split," the percentage of commissions that brokers get to keep. The firm hoped to attract better brokers by offering them roughly 65%, compared with the 50% to 55% being offered by other firms. But the move cut into the firm's profits.

Right. It doesn't take that much capital to start a brokerage firm, which means that the employees have quite a bit of negotiating leverage to demand higher splits.

Grubb & Ellis (GBE) Extends the Expiration Date For its Consent Solicitation Again

Just released in an 8-K:

Grubb & Ellis Company (the “Company”) has extended the expiration date for its consent solicitation with respect to its 7.95% Senior Convertible Notes Due 2015 from 5:00 p.m. New York City time, on April 4, 2011 to 5:00 p.m., New York City time, on April 11, 2011, unless further extended by the Company in accordance with the terms of the consent solicitation.

No information about how the consent solicitation is going.

It's Not Every Day

That your largest short position falls 33 percent.

Grubb & Ellis (GBE) Getting Crushed Today

Down over 14%, probably in reaction to the press release on Friday.

Friday Evening SEC Filing from Grubb & Ellis (GBE)

This evening, Grubb & Ellis put out another SEC filing as part of its continuing saga.

Among other developments, the company has extended the expiration date for its consent solicitation with respect to its 7.95% Senior Convertible Notes Due 2015 from 5:00 p.m. New York City time, on March 25, 2011 to 5:00 p.m., New York City time, on April 4, 2011, unless further extended by the Company in accordance with the terms of the consent solicitation. Also, the company has increased the consent fee.

Grubb & Ellis (GBE) Extends Expiration Date for Consent Solicitation, Decides Not to Declare Dividend on Its Preferred Stock, Announces That it is Exploring Strategic Alternatives

As I expected, Grubb & Ellis (GBE) just made an announcement (8-K filing after hours):

In light of current market opportunities and unsolicited inquiries that the Company has received, Grubb & Ellis Company (the "Company") has engaged JMP Securities LLC to explore strategic alternatives on behalf of the Company, including the potential sale or merger of the Company.

In addition, the Board of Directors of the Company has determined, as permitted, not to declare a dividend on the Company's 12% cumulative participating perpetual convertible preferred stock, par value $0.01 per share, for the quarter ending March 31, 2011.

The Company has also extended the expiration date for its consent solicitation with respect to its 7.95% Senior Convertible Notes Due 2015 from 5:00 p.m. New York City time, on March 21, 2011 to 5:00 p.m., New York City time, on March 25, 2011, unless further extended by the Company in accordance with the terms of the consent solicitation.

I view this as a triple whammy: very bearish.

If the company is extending the expiration date for the consent solicitation, it is probably because the noteholders have sized up their negotiation position and are realizing that they can demand a higher consent fee, and haven't consented to the company's opening offer.

The company had negative EBITDA in 2009 and 2010, so it is no wonder that they are deciding not to declare a dividend on the preferred stock.

What is bizarre is that the company put out a very happy-sounding press release about these developments, and the headline is about "strategic alternatives" and not the consent solicitation or the preferred stock dividend. For people who trade based on headlines alone, "strategic alternatives" is bullish sounding, and the stock is getting bid up after hours! Great selling opportunity!

Tomorrow is the Deadline for the Grubb & Ellis (GBE) Consent Solicitation

Tomorrow, March 21st at 5:00 pm New York City time, is the deadline for the Grubb & Ellis Company's (GBE) solicitation of consents from the holders of its 7.95% Senior Convertible Notes Due 2015.

It will be very revealing to see what fraction of the noteholders grant their consent in exchange for the company's first consent fee offer. In my opinion, the noteholders have a great deal of leverage and should hold out for more compensation (or just not consent at all).

If this first offer is rejected, that will be very bearish because it can be expected that the company would probably raise its offer, which would mean even more dilution for shareholders if paid in shares of stock.

Grubb & Ellis (GBE) Seeking Consents From the Holders of its 7.95% Senior Convertible Notes

From an 8-K filed by Grubb & Ellis this morning:

On March 8, 2011, Grubb & Ellis Company (the "Company") commenced a solicitation of consents (the "Consent Solicitation") from the holders of its 7.95% Senior Convertible Notes Due 2015 (the "Notes"). The Company is seeking consents to proposed amendments to certain provisions in the Indenture, dated as of May 7, 2010 (the "Indenture"), between the Company as issuer and U.S. Bank National Association as trustee (the "Trustee"), which governs the Notes. The Consent Solicitation will expire at 5:00 p.m., New York City time, on March 21, 2011 (the "Expiration Date"), unless extended by the Company.

The terms and conditions of the consent solicitation are described in the Consent Solicitation Statement, dated March 8, 2011, and related Letter of Consent distributed to the holders of the Notes (collectively, the "Consent Solicitation Materials"). Pursuant to the Consent Solicitation Materials, the Company proposes to amend certain provisions set forth in Section 9.01 (Events of Default) of the Indenture, specifically Sections 9.01(h), (i) and (j) of the Indenture, to provide that Daymark Realty Advisors, Inc. and NNN Realty Advisors, Inc., subsidiaries of the Company (and each of such subsidiaries' direct and indirect subsidiaries) would be excluded from the determination of an event of default under such provisions of the Indenture. The proposed amendments require the consent of the holders of a majority-in-interest of the principal amount of the Notes outstanding as of the Record Date (the "Required Holders").

As of March 7, 2011, which the Company has fixed as the record date for determining the holders entitled to give consents (the "Record Date"), the aggregate principal amount of the Notes issued and outstanding was $31,500,000. Consenting holders of the Notes are being offered a fee (the "Consent Fee") payable in unregistered shares of common stock, par value $0.01 per share, of the Company (the "Restricted Stock"), in amount equal to 36.0360 shares of Restricted Stock per $1,000 principal amount of Notes. Fractional shares will be rounded to the nearest whole number. The Consent Fee is equal to approximately four percent (4%) of the principal amount of the Notes (per $1,000) based on the ten (10) day volume weighted average closing price of the Company's common stock for the ten (10) trading day period ending on the Record Date.

This does not sound good.

Very Interesting Press Release from Gurbb & Ellis (GBE)

Remember Grubb & Ellis (GBE) with the guarantees of the debt for some of the investment properties it manages?

Last week, the company put out a very interesting press release (8-K) regarding these guarantees:

GERI provided non-recourse/carve-out guarantees for each of these properties. As the Company has previously disclosed in its SEC filings, such "non-recourse/carve-out" guarantees only impose liability on GERI if certain acts prohibited by the loan documents take place. Liability under these non-recourse/carve-out guarantees may be triggered by the voluntary bankruptcy filings made by the two unaffiliated, individual investor entities. As a consequence of these bankruptcy filings, GERI may become liable under these guarantees and related indemnification obligations for the benefit of the mortgage lender in connection with these TIC programs. While GERI's ultimate liability under these guarantees is uncertain as a result of numerous factors, including, without limitation, the amount of the lender's credit bids at the time of foreclosure, the ultimate disposition of the individual bankruptcy proceedings, and the defenses GERI may raise under the guarantees, such liability may be in an amount in excess of the net worth of NNNRA and its subsidiaries, including GERI. NNNRA and GERI are investigating the facts and circumstances surrounding these events, and the potential liabilities related thereto, and intend to vigorously dispute any imposition of any liability under any such guarantee or indemnity obligation.

In the event that GERI receives a demand for payment from the lenders pursuant to such guarantee and indemnity arrangements, in an amount that exceeds $1,000,000, and GERI fails to pay such amount when due, a cross -default under the Company's currently outstanding Convertible Senior Notes (the "Notes") due 2015 will result. The Company intends to seek an amendment to the Notes (which requires a majority of the holders in interest thereunder) relating to any liabilities of NNNRA or its subsidiaries. Should an event of default occur which the Company is unable to cure with an amendment or waiver from the note holders, there would be a material and adverse effect on the company's liquidity and financial position.

This does not sound good.

Meanwhile, the company reported its Fourth-Quarter and Full-Year 2010 Results. Fourth quarter was yet another quarter of value destruction, this time with a net loss of $10.7 million and EBITDA of negative $4.2 million. For the full year 2010, EBITDA was negative $42 million compared with negative $50 million in 2009. These guys burn some serious cash and destroy serious value!

Tangible equity at year end 2010 was negative ~$150 million! There is no way the equity in this company is worth the $87 million reflected in the market cap.

Grubb & Ellis (GBE) Rally Made No Sense

Over a two day period between December 20 and 21, 2010, shares of Grubb & Ellis (GBE) leaped 20% on no news.

A bit of investigation uncovered that daytraders had seized on it as a momentum plaything. The way to find this out is to look at any web service that aggregates inane daytrader "tweets" and other coordinating messages, for example the Yahoo! "Market Pulse" page for GBE.

Check out some of the stunning analysis from those two days.

• $gbe huge vol spike next stop 1.37 then blue skies
• long $GBE swing 1.20. other crappy REITs ($GKK, $RAS, for starters) have already gone in last week or 2

Yes. Other crappy REITs have rallied - why wouldn't this vaguely related one rally too? Obviously, a stock isn't worth the present value of its future cash flows. Instead, it should just have the same "relative strength" / "momentum" as a basket of equally crappy stocks.

As I mentioned in one of my original posts on GBE, " I actually have not heard of anyone who is bullish on GBE for sensible, fundamental reasons. The marginal buyer seems to be a momentum or retail idiot buyer."

In my view, the common shareholders of GBE were basically wiped out in 2009 when the company issued the $90 million in outstanding 12% cumulative participating perpetual convertible stock in order to pay down debt. The preferred is the fulcrum security and I would not want to own anything below it in the capital structure.

I added to my shorts on the second day of the jump. It is so weird to trade against people that absolutely do not care what a stock is worth. To them, it's just bars on a chart.

I do have complete confidence that, over time, my strategy of cash flow and business model analysis with outperform a "buy any dip" or "momentum" investing strategy.

Odd Announcement from Grubb & Ellis (GBE)

Announced today: Grubb & Ellis Equity Advisors is Terminating Relationship with Grubb & Ellis Apartment REIT

"Over the past few months there has been an increasing divergence in perspective between Grubb & Ellis Equity Advisors, as the advisor, and the REIT's board of directors, which has resulted in fundamental differences of opinion as it relates to strategic direction of the REIT. Grubb & Ellis will continue to work constructively with the REIT board over the coming months to ensure that the interests of shareowners are preserved throughout the transition period," said Jeff Hanson, president and chief executive officer of Grubb & Ellis Equity Advisors.

Further: The REIT said it will change its name to Apartment Trust of America Inc. and plans to enter into an advisory agreement with a firm owned by American Realty Capital LLC and ROC REIT Advisors LLC.

This is interesting. I wouldn't say it's bullish.

So Far

This has not been a good earnings season for companies in the Credit Bubble Stocks short portfolio: so far MGM, HOG, WGO and GBE have all disappointed.

Still on deck: USG Corp (USG) on 20-Oct-10.

Grubb & Ellis (GBE) Reports Third Quarter Results and Gives Substantially Lower 2010 EBITDA Projection!

From today's press release:

For the quarter ended Sept. 30, 2010, the company expects to report revenue of approximately $144 million and negative adjusted EBITDA of approximately $3 million. 

The company believes that, while it remains on track to meet its full-year revenue guidance, it no longer expects to achieve its previously announced full-year adjusted EBITDA target of $10 million to $15 million. Full-year adjusted EBITDA for 2010 is now expected to be negative...

"Our prior full-year guidance assumed a higher level of activity than we are currently experiencing in our Investment Management segment," said Thomas P. D'Arcy, president and chief executive officer of Grubb & Ellis. "Due to this weakness and the uneven economic recovery, we are maintaining our full-year revenue target but withdrawing our adjusted EBITDA expectation for 2010."

Aha! I knew they would not be able to achieve the "previously announced" EBITDA target!

Note that the EBITDA numbers are before the inclusion of the dividend on the company's preferred stock, which is senior to the common and carries a 12% coupon.

As I've said before,

Can we agree that a company's capital structure could have so much preferred stock, carrying such a large dividend obligation, that the equity beneath it is worthless?

I don't know why GBE has an almost nine-figure market cap. I just don't see how the equity can have any value. 

Grubb & Ellis (GBE) Still a Short Based on Second Quarter Results

Readers will remember that I was pounding the table about the Grubb & Ellis (GBE) short throughout the spring when it was trading at wildly overvalued levels.

Second quarter EBITDA was negative $10 million and the company's very generous "Adjusted EBITDA" metric was negative $5 million.

Here's the interesting thing: the Management Services (MS) and Transaction Services (TS) segments are both reporting higher revenues than last year. But MS segment income is lower than last year, and the TS segment is still losing money.

That shows the key problem with the human services business model. The reason the segment revenue improvements are not translating into segment income improvements is higher commissions and compensation to employees.

Management "remains committed" to achieving the adjusted EBITDA guidance of $10 million to $15 million. On the conference call, analysts were skeptical since they would have to achieve adjusted EBITDA of $26 million in the second half of the year to cover the $16 million negative from the first half. Management says they are looking for a big fourth quarter.

But even if they achieve the EBITDA guidance for the year, it's barely enough to cover the dividends on the preferred stock! 

I am still short. In my view there is no equity in the company, and the fulcrum security is the $90 million in outstanding 12% cumulative participating perpetual convertible stock. (Market capitalization is only $75 million.)