Gramercy Property Trust (NYSE:GPT) has worked hard to find promising real estate properties that can generate the income and total returns that its investors count on. Yet after such a favorable period for the real estate market, some investors worry that the best of times are coming to an end, and that could hurt REITs like Gramercy.

Coming into Tuesday's first-quarter financial report, Gramercy Property Trust investors were hoping that the REIT would be able to keep its core funds from operations and overall revenue growing. Gramercy's results fell short of those hopes, and it's possible that the REIT's predictions for sluggishness in 2017 could be coming true. Let's look more closely at Gramercy Property Trust and how it fared during the quarter.

Building under Gramercy Property Trust.

A Gramercy property. Image source: Gramercy Property Trust.

Gramercy Property Trust deals with ups and downs

Gramercy's first-quarter results showed some of the cross-currents in the industry. Revenue climbed 8% to $130 million, as rental revenue gains offset declines in third-party management fees and operating expense reimbursements. The REIT reversed a year-ago loss with a generally accepted accounting principles (GAAP) profit of $7.57 million, but the more important adjusted funds from operations dropped 6% to $68.1 million. The key core funds from operations figure fell to $0.51 per share, which was less than investors had expected to see.

Looking more closely at Gramercy's results, the REIT made a lot of moves during the quarter. The company sold five industrial properties, spending $94.1 million, with a capitalization rate of 7.4%. An additional property was built to suit, and a vacant property acquisition brought total spending to $126 million. The industrial properties totaled about 2.04 million square feet and were concentrated in Texas and the Southeast. Meanwhile, Gramercy also made substantial dispositions of property, selling seven buildings for $51.7 million. Cap rates of 6.5% were fairly favorable, and the resulting reduction in square footages amounted to about 488,000 square feet. The biggest disposition occurred in Canada, with other sales on the West Coast and in the Washington, D.C., area. Gramercy also executed three new leases covering 165,000 square feet, while renewals covered another 700,000 square feet and had lease terms in the seven to nine year range.

Another big transaction involved Gramercy's European operations. The company decided after the quarter ended to sell 100% of Gramercy Europe's assets, with total gross valuations of about $1.1 billion. The move will result in Gramercy's being much more focused on its U.S. properties, with a much smaller presence in Europe.

Finally, Gramercy's asset management business wound up an agreement with KBS, selling off nearly 700 properties on KBS' behalf to earn substantial incentive and management fees. As a result, going forward, fee revenue will be lower because of the winding up of the KBS agreement.

What's next for Gramercy?

Gramercy didn't add any color to the guidance that it gave last quarter, but there was little in the results from the first quarter to suggest major changes. That suggests that Gramercy is comfortable with results that could closely resemble what the REIT produced in 2016.

However, one thing that Gramercy has gotten aggressive about is in its efforts to raise capital. During the first quarter, the company issued about 731,000 shares of stock, raising about $19.7 million through its ongoing market issuance program. However, last month, Gramercy did a much larger underwritten public offering of 10.35 million shares, with underwriters getting additional allocations. The net proceeds from the offering amounted to almost $275 million, and the REIT says that it intends to use the money to fund future acquisitions of target assets, as well as regular working capital. It's telling that the share price has remained above where Gramercy sold shares in the offering.

Gramercy's shareholders didn't react immediately to the news, with after-hours trading producing no change in the stock price following the announcement. What's more important to Gramercy's long-term prospects is that the real estate market stay strong and that investment opportunities remain abundant for the REIT going forward.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.