UPDATE 1-Gramercy says '09 dividend restricted by debt terms

* Q4 FFO up 50 pct at $35.9 mln

* FFO/shr $0.69 vs $0.37 market view

* Says may pay dividend required for REIT status

* Sees potential credit losses as tenants, creditors hit

* Shares rise 10 pct

March 12 (Reuters) - Real estate investment trust Gramercy Capital Corp (GKK.N) said it posted a 50 percent rise in quarterly funds from operations (FFO), which also topped market view, but said it is restricted from paying dividends in 2009 under the terms of a new debt agreement.

Under the terms of the junior subordinated notes, the company is restricted from paying dividends on its common and preferred stock other than payments required to maintain REIT qualification, it said.

In January, Gramercy exchanged $150 million of its outstanding trust preferred securities for the same amount of newly issued unsecured junior subordinated notes, it said.

The company did not provide earnings outlook citing high levels of uncertainty, but said tighter credit markets may affect the financial condition and liquidity of tenants of its realty segment and borrowers of its finance segment, resulting in increased potential for credit losses.

The company reported a 44 percent rise in net operating income, while its rental revenue surged 32-fold during the quarter.

It also said it has one debt maturity in 2009 of about $52.6 million, which is secured by an office building.

Gramercy said it is in compliance with all covenants governing its borrowing arrangements.

In December, the company had halted its dividend for the fourth quarter to retain capital.

Shares of the company recovered from early losses and were up 10 percent at 76 cents in late morning trade on the New York Stock Exchange.

For the alerts, double click on [ID:nWNAB3353] (Reporting by Adheesha Sarkar in Bangalore; Editing by Gopakumar Warrier)