Growing Trends. . .

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hcshareholder
Posts: 2
Joined: Sun Jul 10, 2011 12:13 pm

Growing Trends. . .

Post by hcshareholder » Sun Jul 10, 2011 12:43 pm

Did ya'll see the GBE Healthcare II press release on Thursday? They acquired a $75M portfolio of 5 buildings in PA. Sounds pretty good. The 8-K gives a little bit more of the story though. In order to acquire this $75M portfolio ($75M was the contract price) they REIT used two secured revolving credit lines; one for $52.87M and another for $22.0M. Between the two revolving credit lines they used $74.9M in debt to finance a $75M acquisition. Where's the equity? $100,000 is in the property, but $2.1M went to the acquisition fee, plus whatever the closing costs were. Similar to what we saw Cole do last week (there's a whole separate thread on this website under the heading "Cole Tries to Sneak One Past Investors") this fund is leveraging their acquisitions like it is 2006 again and exposing their investors to risk that they are not properly compensated for. For an industry that claims to be bringing in over a half-billion in equity every month it is very concerning to see these two deals being clsoed at 99% and 97% leverage.

The truth, of course, about the Grubb & Ellis deal is that every dollar they raise is needed to support the sputtering, faltering mothership known as GBE. Their stock is teetering around $.30/share (off 80% from its 12 month high) and a series of missed preferred equity payments and the failure of Colony to move forward with an aquisition of the company have depleted the company's value and, more importantly, their cash. The REIT is the only cash cow they have left and they are siphoning off all the cash they can to stay afloat.

Funds like these have good platforms and the ability to raise tons of cash and buy good assets. But weak parent or related companies ultimately weaken the funds themselves. Potential investors need to be aware of the health of the parent company. With GBE, as a public company, this is uniquely simple and I would advise all investors to carefully consider their health before investing. It certainly seems that, with this acquisition in particular, investors are extending a lifeline to the parent.

johnniesac
Posts: 1
Joined: Mon Jul 11, 2011 7:46 am

Re: Growing Trends. . .

Post by johnniesac » Mon Jul 11, 2011 7:58 am

HC shareholder:
I am an investor in Grubb & Ellis Healthcare REIT II and would like to call to your attention your misunderstanding on this investment. The REIT adopted a smart strategy of utilizing their secured lines of credit to acquire assets and then put permanent financing on them after closing if they so wish. Having lines of credit enables them to make daily pay-downs as they raise their equity, which means that they don’t have to build up cash in order to buy assets. This is a very efficient way to manage equity since it allows the REIT to match up equity with acquisitions. As with many of their acquisitions, these lines of credit were used to acquire the five building portfolio in Philadelphia.

Grubb & Ellis Healthcare REIT II is a low leverage REIT. As a matter of fact, they were only levered 24% at the end of the first quarter ended March 31, 2011 and by my estimate, they are only around 40% levered right now. The secured lines of credit you mentioned are limited to 60%-65% loan to value on the assets that secure the line so there is no way they could lever 99% even if they wanted to. In spite of having one of the lowest leverage ratios in the industry, Grubb & Ellis Healthcare REIT is one of the top performing REIT’s according to third party due diligence firms such as Snyder Kearney and Robert A Stanger & Co.

As far as the issues you point out on their sponsor, Grubb & Ellis Company, I am comfortable that based on the performance of the REIT today (full coverage of their distribution by MFFO), it will continue to thrive regardless of the performance of their sponsor. Despite this being a blog, it is important to support your claims with facts and actually do a little research before posting something.

hcshareholder
Posts: 2
Joined: Sun Jul 10, 2011 12:13 pm

Re: Growing Trends. . .

Post by hcshareholder » Thu Jul 14, 2011 5:12 am

Johnnie,

You sound like an insider, are you sure you're not Danny Prosky? Lol.

Anyway, the only fact I presented in my earlier post came straight out of the 8-K i referenced (the fact that the property was bought with 99.9% leverage). Do you dispute that fact? Do you dispute that $75M of debt on a fund that has only raised about $250M of equity in 2 years of its offering feels like an additional 30% of leverage on the enitire fund? Is it true that all of the equity that went into the deal went to pay fees? Is it true that GBE benefitted from the payment of those fees? So far, all I gave were facts. Also you claim that the revolving lines of credit are "limited to 60-65% LTV". So are you telling me that this acquisition is really valued at $115M? The filing clearly states that $74.9M from the line was used to acquire the properties.

The second part is an opinion, i agree. That's what blogs are for. I'm sure you won't be putting that kind of information in an 8-K, so its up to investors and advisors to put that information together based on the facts available. And your statement that the health of thie REIT has nothing to do with the health of the parent company is absurd. Despite the obvious analogies (if you have cancer everywhere in your body except your left hand, how does the future look for said left hand) the long term survival of GBE is critical for this fund. It would not be able to secure a $75M revolving credit facility with 99.9% LTV if it were a start-up REIT with $200M worth of assets acoording to the last 10-Q. I'm particularly surprised that you didn't make one claim that the parent company was healthy or on its way to recovery. You must be reading the writing on the wall as well. Why else would insiders sell off over a million shares in the last quarter, led by Jeff Hanson?

Finally, as to the statement that two due diligence firms are claiming that this is one of the "top performing REITs" how about a few links to that? Even though this is a blog, it is important to support your claims with facts and be able to reference where these facts come from.

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