Inlet Capital

Inlet Track Record: Glenborough Realty Trust, Commercial Office

Opportunity:

Underperforming office REIT. 45 properties, 8 million square feet (Assets as of June 30, 2006). Office and office development. Washington DC, New Jersey, Southern California, Boston, San Francisco, Tampa, Denver, and other. Founded: 1978, IPO: October 2, 1996, NYSE: GLB

Public market valuation issues:

  • Management credibility and ability to execute business plan. Limited balance sheet options for expansion
  • Leadership succession (retirement of founder)
  • Limited stock research coverage
  • Geographically fragmented portfolio
  • The opportunity was originated through a close and longstanding relationship with the Board and Senior Management. Mr. Locker was previously involved as an investment banker in GLB’s IPO and subsequent offerings.

Transaction:

  • Glenborough acquired by Morgan Stanley Real Estate: November 2006.
  • Purchase Price: $1.9 billion, $26 / Share (Announced August 21, 2006)
  • Keith Locker appointed as independent Director May 10, 2005. Member of compensation and audit committees and served as Director through completion of purchase of GLB by MS.
  • As independent Director, Mr. Locker led process within GLB board to retain advisors, examine options, market the company, and select purchaser.

Result:

  • Purchase price was 8.2% premium over Aug. 18, 2006 price and 14.0% premium over 30 day average ending Aug 18, 2006 and a 29.8% premium over the one-year average trading price ending Aug. 18, 2006. 33.5% share price appreciation during Mr. Locker’s tenure as Director (May 12, 2005: $19.57, November 30, 2006: $26.12).
  • $26 sale at premium to NAV: Management NAV: $19.08 to $21.34.
  • Sale multiple equal to the average office REIT Multiple of forward FFO: 16.4x vs. GLB average FFO multiple of 11.1x