In real estate, size matters, and most real estate investment trusts are continually on the lookout for new properties to acquire. Gramercy Property Trust (GPT) has done a good job of finding growth opportunities in the past, and in a favorable environment for real estate deals, the REIT has been able to accelerate the pace of its acquisitions in order to maximize its expansion.
Coming into Tuesday's third-quarter financial report, Gramercy investors wanted to see modest improvements in key metrics like funds from operations, but they also sought updates on the long-range prospects for the REIT. Gramercy did a good job of growing, and although some company watchers might have preferred stronger results, the REIT seems to be on track to execute on its long-term strategy. Let's look more closely at Gramercy Property Trust to see how it's been doing lately.
Image source: Gramercy Property Trust.
Gramercy pulls the trigger
Gramercy Property Trust's third-quarter results showed nice improvements from sluggish performance last quarter. Revenue climbed 3% to $134.9 million, which was almost exactly in line with what most of those following the REIT were expecting to see. Net income available to common shareholders came in at $48.6 million, and adjusted funds from operations of $0.51 per share were up from year-ago levels even though it missed the consensus forecast among investors slightly.
Gramercy's biggest news was an explosion in the pace of its acquisitions. The company bought more than 50 properties encompassing more than 11.4 million square feet, spending nearly $869 million to do so. That roughly quadrupled the rate of purchases that Gramercy had in the second quarter, and the company also spent another $88 million to purchase leased land parcels totaling another 3.1 million square feet in the Miami area. By doing so, Gramercy exceeded its target acquisition activity for the full 2017 year by 30%, bringing total investment to $1.3 billion. Occupancy rates on the acquired property average 95% as of Sept. 30, showing the strength of the real estate market right now.
By contrast, Gramercy held a tight rein on the properties already in its portfolio. The REIT sold only eight assets, and proceeds on the sales amounted to less than $22 million. To put the numbers in perspective, Gramercy has only about $168 million in properties on the market right now, along with about $60 million in assets under contract for sale in the immediate future.
In other business, the REIT's Gramercy Property Europe fund completed its sale of all of its assets as expected. it will receive almost $104 million from the transaction. Also, Gramercy executed five new leases and renewed 11 more, and it had success in sustaining pricing that met its financial needs.
CEO Gordon DuGan was happy with how Gramercy did. "We had another busy quarter," DuGan said, "with nearly $1 billion in new acquisitions and the launch of our new e-commerce joint venture." The CEO noted how the portfolio has shifted toward a more industrial bent, and he believes that the move will benefit Gramercy in the near future.
What's next for Gramercy?
Gramercy is optimistic about its future. With good conditions in the industrial market likely to continue, the REIT is confident that its strategic vision will pay off with better results.
The new e-commerce joint venture will be an interesting part of that vision. In August, Gramercy launched the venture to acquire and manage distribution centers for tenants in the e-commerce industry. Gramercy will contribute 51% of the equity needed for the joint venture, and the venture made its first acquisitions, picking up six newly constructed distribution properties totaling 5.2 million square feet and leasing them for a 15-year initial term. If e-commerce continues to grow the way it has in the recent past, then the move could prove prescient as a driver of further expansion for the REIT.
Gramercy's shareholders appeared to be content with the news, and the stock didn't make any substantial moves in after-hours trading immediately following the announcement. Gramercy made real progress during the quarter, and if conditions in the market remain favorable, then the momentum that the REIT is building could deliver rewards into 2018 and beyond.
