Third Avenue weighs in on proposed merger of Quadra Realty Trust, Hypo Real Estate Capital

By Lisa Kerner

Charlotte, N.C., Feb. 1 - Quadra Realty Trust, Inc. investor Third Avenue Management LLC suggested the company formulate a plan to liquidate rather than be acquired by Hypo Real Estate Capital Corp. for $10.6506 per share.

Third Avenue, in a Feb. 1 letter to Quadra's board of directors, said the acquisition price represents a 24.6% discount to the $14.12 book value per share as of Sept. 30. The investor's letter was included in a schedule 13D filing with the Securities and Exchange Commission.

According to Third Avenue's letter, Quadra entered into a merger agreement with Hypo on Jan. 29 in which Hypo would acquire the 65.3% of Quadra's outstanding common shares that it does not currently own at the $10.6506 per share offer price.

"It seems obvious that even in the worst case scenario, the entire loan portfolio could be sold for an amount that would generate net proceeds of greater than $10.65 per share," Third Avenue said in its letter.

"If the entire portfolio cannot be sold quickly, the loan maturities are relatively short-term, and liquidating distributions could be made to shareholders as proceeds are received from loan payoffs."

Third Avenue noted that Hypo is Quadra's manager and owns approximately 34.7% of Quadra's outstanding common stock.

The investor called it "unconscionable" for Quadra to give Hypo the opportunity "to acquire a portfolio of performing loans at nearly a 14% discount to carrying value." A break-up fee and a top-up option are both included in Quadra's agreement with Hypo.

"Every aspect of this transaction, from the tender offer and merger price to the deal protections given to Hypo, appears to be heavily skewed to the benefit of Hypo at the expense of Quadra's other shareholders," Third Avenue said.

Third Avenue and its affiliates hold 2.33 million shares, or 9.07% of Quadra.

Quadra is a Vancouver, B.C.-based mining company.

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