Gramercy Property Trust Looks to Growth After Second-Quarter Earnings

By Markets Fool.com

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Image source: Gramercy Property Trust.

Gramercy Property Trust's(NYSE: GPT) second-quarter earnings included a 38% year-over-year increase in adjusted funds from operations per share, and an announcement of its intention to ramp up property purchases in the second half of 2016.

By the numbers

Metric

Q2 2016

Q2 2015

Adjusted funds from operations (AFFO)

$0.18 per share

$0.13 per share

Same-store net operating income growth

0.6%

9.3%

Acquisitions

$354.9 million

$368.6 million

Data source: Gramercy Property Trust investor relations.

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What happened this quarter?

  • Gramercy was actively buying and selling properties. It sold $116.2 million of property at a weighted average cap rate of 8.8%, while acquiring $354.9 million of property at a 7.3% initial cap rate. Its acquired properties had a weighted average remaining lease term of approximately 12 years.
  • The company ended the quarter with occupancy of 98.4%. High occupancy is what drives a REIT's ability to pay consistent dividends to shareholders. This suggests that improving occupancy is an unlikely lever for future earnings growth, however.
  • Company President Benjamin Harris pointed out that after selling $1.6 billion in assets in the last year, the company has worked through the bulk of its disposition plan. (As a reminder, Gramercy is primarily selling assets it acquired through its all-stock merger with Chambers Street Properties that closed in 2015.)
  • The company reported that same-store net operating income (NOI) grew 1.8% year over year in its industrial portfolio, while same-store NOI declined by about 0.8% in its office portfolio. In all, its domestic portfolio saw same-store NOI grow by 0.6% year over year.

What management had to say

Gramercy Property Trust's CEO, Gordon DuGan, pointed to acquisitions driving the balance of its activity for the rest of the year. On the company's conference call, he said that he expects the company to "be a net acquirer" of assets and especially so in the fourth quarter of 2016. He noted that Gramercy "will effectively finish the repositioning" of its portfolio in the third quarter of 2016.

DuGan warned that the third quarter would be a "trough" for earnings, as the company is slowly rebuilding its portfolio after robust sales activity throughout 2016. However, Gramercy is quickly acquiring new properties, and is currently on track to reach its goal of acquiring $1 billion of assets this year based on its pipeline and $228 million of acquisitions it expects to close in the third quarter.

Looking ahead

Ultimately, the timing and size of future deals will affect the company's profitability in any given quarter, but the company is very much on track to meet its goals for rotating its portfolio in 2016.

Gramercy has plenty of capacity to buy new properties. The company had total liquidity of $908 million at the end of the second quarter, and carried debt equal to just 4.2 times EBITDA, lower than many of its peers, giving it plenty of firepower to beef up its portfolio in the second half of 2016.

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Jordan Wathen has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Gramercy Property Trust. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.