The name of the game in real estate lately has been to find good acquisition opportunities, and real estate investment trust Gramercy Property Trust (NYSE: GPT) has used that strategy well recently. Coming into Tuesday's fourth-quarter financial report, Gramercy Property Trust investors wanted to see recent investments pay off with solid results, and the REIT succeeded in reversing a year-ago decline in funds from operations (FFO) and producing strong growth in core FFO. Yet Gramercy also noted that its 2017 figures might not offer a huge amount of per-share growth, and that could challenge the REIT to find new opportunities to keep gaining size.
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Let's take a closer look at Gramercy Property Trust to see how it did and what's ahead for the REIT.
Image source: Gramercy Property Trust.
Gramercy Property Trust celebrates a solid year
Gramercy's fourth-quarter results were good. Revenue jumped 80% to $126.2 million on the back of acquisitions, with rental revenue and operating expense reimbursements providing most of the upward lift on the top line. The REIT eked out a small GAAP net income, but the more important funds from operations reversed a negative figure in the year-ago quarter to come in at $69.1 million, or $0.49 per share. Core FFO nearly doubled, but the rise in shares outstanding limited per-share gains to just $0.01 compared to the previous year's fourth quarter, at $0.51 per share. Adjusted FFDO of $0.48 per share was up $0.02 from the year-ago period.
Taking a closer look at the report, Gramercy made a huge number of acquisitions. The REIT counted 29 properties in 12 separate transactions among its conquests, and the company spent $718.5 million for properties with weighted average lease terms of 6.4 years. Capitalization rates in the 6.5% to 7% range showed how the real-estate market is getting pricier. The purchases included roughly 12.6 million square feet, and the largest properties were concentrated in key Southern cities such as Atlanta, Memphis, and Charleston, along with Midwestern cities like Cincinnati and Indianapolis.
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On the other side of the equation, Gramercy sold off four single-tenant office buildings. Three U.S. properties brought in more than $106 million, and a small sale in the U.K. provided about 9 million British pounds. Another sale through a joint venture involved a U.K. logistics-based property for 12 million pounds.
Finally, Gramercy had a modest amount of leasing activity. The REIT executed seven renewals totaling 1.7 million square feet, and new leases and renewals commenced during the period added another 2 million square feet to the mix, with average lease terms of six to eight years.
Can Gramercy keep growing?
Looking ahead, Gramercy believes that it should be able to keep taking advantage of key opportunities in the real estate space to foster long-term growth. Yet the company's guidance doesn't show much immediate growth potential for 2017 compared to 2016's final figures. Gramercy believes that core funds from operations should finish between $2.10 and $2.25 per share, which neatly surrounds the $2.21 per share in core FFO that the REIT brought in during 2016. Similarly, adjusted funds from operations of $1.95 to $2.10 per share imply a midpoint right at the $2.03 per share in AFFO that Gramercy produced last year.
Moreover, to attain those figures, Gramercy expects to continue its growth pace. The guidance assumes acquisitions of $400 million to $1 billion during the year, and dispositions of $200 million to $400 million to optimize the real estate portfolio. That would be less than the $1.4 billion that Gramercy spent on acquisitions during 2016.
Gramercy's shareholders didn't have a strong immediate reaction to the news, as share prices didn't move in after-hours trading following the announcement. As long as real estate opportunities remain, however, Gramercy has set the stage to capitalize on them as fully as possible.
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