Press Release

Gramercy Property Trust Reports First Quarter 2017 Financial Results

Company Release - 5/2/2017 4:15 PM ET

NEW YORK--(BUSINESS WIRE)-- Gramercy Property Trust (NYSE:GPT) today reported financial results for the first quarter of 2017.

Operating Results:

 
($ in thousands, except per share data) Three Months Ended
March 31,
2017   2016
Net income (loss) to common shareholders $ 7,568 $ (2,492 )
Net income (loss) per common share $ 0.05 $ (0.02 )
 
FFO available to common shareholders and unitholders $ 67,402 $ 62,066
FFO per common share $ 0.47 $ 0.44
 
Core FFO available to common shareholders and unitholders $ 72,454 $ 76,900
Core FFO per common share $ 0.51 $ 0.54
 
AFFO available to common shareholders and unitholders $ 68,067 $ 72,727
AFFO per common share $ 0.48 $ 0.51
 

First Quarter 2017 Highlights

  • Acquired five properties in separate transactions for an aggregate purchase price of approximately $94.1 million with an initial cash capitalization rate of 7.4%.
  • Disposed of seven buildings including one vacant property for aggregate gross proceeds of $51.7 million. The weighted average remaining lease term for the occupied properties was 6.4 years at closing and the blended exit capitalization rate for the occupied properties was 6.5%.
  • Concluded the asset management agreement with KBS at the end of the first quarter of 2017. The Company earned asset management fees and incremental incentive fees of $1.4 million through the end of the arrangement.
  • In April 2017, raised $274.2 million of net proceeds through a public offering of 10,350,000 common shares.
  • Subsequent to quarter end, the Company and its partners entered into an agreement to sell 100% of Gramercy Property Europe plc for a total purchase price of €1.0 billion ($1.1 billion) with an exit capitalization rate of approximately 6.2%. The transaction and a simultaneous disposition by the Company of its 5.1% minority interest in eight former Goodman Europe joint venture properties is expected to result in net distributions to the Company of approximately €90.7 million ($96.6 million), inclusive of a promoted interest distribution of approximately €7.9 million ($8.4 million). The Company's funded equity in the assets to be sold equals approximately €53.1 million ($56.6 million).
  • Subsequent to quarter end, declared a second quarter 2017 common share dividend of $0.375 per share.

Summary

Gramercy Property Trust (NYSE:GPT) today reported net income to common shareholders of $7.6 million, or $0.05 per diluted common share, for the three months ended March 31, 2017. Net income also includes $4.6 million of gains on disposals of real estate, net of impairments. Net income for the three months ended March 31, 2017 includes a $4.9 million other-than-temporary impairment attributable to the Company's retained CDO bonds.

For the first quarter of 2017, the Company generated NAREIT defined FFO of $67.4 million, or $0.47 per diluted common share, and for the first quarter of 2016, FFO was $62.1 million, or $0.44 per diluted common share. The Company also reported Core FFO of $72.5 million, or $0.51 per diluted common share during the quarter, compared to Core FFO of $76.9 million, or $0.54 per diluted common share for the first quarter of 2016. The Company generated adjusted funds from operations, or AFFO, of $68.1 million, or $0.48 per diluted common share during the first quarter of 2017, compared to AFFO of $72.7 million, or $0.51 per diluted common share for the first quarter of 2016. A reconciliation of FFO, Core FFO and AFFO to net income available to common shareholders is included in this press release.

For the first quarter of 2017, the Company recognized total revenues of approximately $130.0 million, an increase of 3% over total revenues of $126.2 million reported in the prior quarter, primarily attributable to acquisition activity. The Company reaffirms its previously announced outlook for 2017 with expected Core FFO of $2.10 - $2.25 per diluted common share and expected AFFO of $1.95 - $2.10 per diluted common share.

As of March 31, 2017, the Company owned interests in 318 properties containing an aggregate of approximately 66.7 million rentable square feet with 98.4% occupancy and an ABR weighted average remaining lease term of 7.5 years.

Property Acquisitions

In the first quarter of 2017, the Company acquired five industrial properties in separate transactions for an aggregate purchase price of approximately $94.1 million with an initial cash capitalization rate of 7.4%. In the first quarter of 2017, the Company also completed a build-to-suit property valued at $29.6 million and acquired a vacant property for $2.4 million.

Subsequent to quarter end, the Company acquired two properties in Savannah, Georgia and Baltimore, Maryland and entered into one build-to-suit transaction in Spartanburg, South Carolina, for total estimated investments across all three of $77.3 million at an initial cash capitalization rate of 7.8%.

First quarter 2017 property acquisitions are summarized in the chart below:

 
($ in thousands)
 
Acq. Date   Location   MSA  

Property
Type

 

Rentable
Square
Feet

 

Purchase
Price

  Occupancy  

Acq.
Cash NOI

  S/L NOI
3/2/2017   Fort Worth, TX   Dallas   Industrial   618,728   $ 24,275   100.0%   $ 1,789   $ 1,848
3/24/2017 Fort Worth, TX Dallas Industrial 660,087 15,465 91.0% 1,366 N/A1
3/30/2017 Suwanee, GA Atlanta Industrial 176,820 11,165 100.0% 762 809
3/30/2017 Durham, NC Raleigh/Durham Industrial 132,000 9,200 100.0% 706 765
3/30/2017 Douglasville, GA2 Atlanta Industrial 453,150   33,979   100.0%   2,316   2,463
Totals 2,040,785   $ 94,084   97.1%   $ 6,939   $ 5,885
 
1.     The second Fort Worth, TX acquisition was not fully stabilized at closing. NTM Cash NOI represents GPT's leasing and other assumptions over the first year of ownership. S/L NOI is not included due to partial vacancy in the asset at the current time.
 
2. The Douglasville, GA acquisition purchase price and NTM Cash NOI is shown gross, inclusive of a credit received at closing from the seller for abated rent.
 

Property Dispositions

Pursuant to the Company's previously announced disposition plan, during the quarter, the Company disposed of seven buildings including one vacant property for aggregate gross proceeds of $51.7 million. The weighted average remaining lease term for the occupied properties was 6.4 years at closing and the blended exit capitalization rate for the occupied properties was 6.5%.

During the first quarter of 2017, the Company recorded net gain on disposals of $17.4 million for the seven assets sold during the quarter and impairment charges of $12.8 million related to two assets which are under contract to be sold in the second quarter.

Subsequent to quarter end, the Company disposed of two retail bank branches and one single-tenant office for $47.0 million.

First quarter 2017 property dispositions are summarized in the chart below:

 
($ in thousands)
Disp. Date   Location   MSA   Property Type  

Rentable
Square Feet

 

Sale
Price

 

Disp. Cash
NOI

2/17/2017   Chantilly, VA   Baltimore/Washington   Office   71,504   $   25,250   $ 1,832
3/8/2017 Spokane, WA Other Office 86,304 2,625 (370 )
3/22/2017 Canada1 Other Industrial 297,620 16,823 1,045
3/31/2017 Long Beach, CA Los Angeles Office 11,722 2,675 111
3/31/2017 Lynwood, CA Los Angeles Office 11,096 2,450 103
3/31/2017 Long Beach, CA Los Angeles Office 9,626   1,860     84  
Totals 487,872   $   51,683     $ 2,805  
 
1.     Represents two properties disposed of in Canada.
 

European Joint Ventures

At March 31, 2017, the Company owned a 14.2% interest in Gramercy Property Europe plc ("Gramercy Europe"), an 80% interest in the Goodman U.K. joint venture, and a 5.1% interest in eight former Goodman Europe joint venture properties (now 94.9% owned by Gramercy Europe).

During the first quarter of 2017, Gramercy Europe acquired one property. Since inception, Gramercy Europe has acquired 35 properties for €725.0 million, which includes the properties previously part of the former Goodman Europe joint venture.

Subsequent to quarter end, the Company and its partners entered into an agreement to sell 100% of Gramercy Europe's assets to a consortium of clients managed by AXA Investment Managers - Real Assets. The total gross valuation is approximately €1.0 billion ($1.1 billion) with an exit cap rate of approximately 6.2%. The transaction and a simultaneous disposition by the Company of its 5.1% minority interest in eight former Goodman Europe joint venture properties is expected to result in net distributions to the Company of approximately €90.7 million ($96.6 million), inclusive of a promoted interest distribution of approximately €7.9 million ($8.4 million). The Company funded €50.0 million ($53.3 million) of equity capital into Gramercy Europe and has a €3.1 million ($3.3 million) carrying value in the 5.1% minority interest.

Completion of the transaction is subject to the satisfaction of customary conditions. The transaction is expected to close in the third quarter of 2017; however, there can be no assurances that the transaction will close on the terms described herein or at all.

Leasing Activity

During the first quarter of 2017, the Company executed three new leases aggregating approximately 165 thousand square feet for an average lease term of 8.4 years and a leasing spread of 28.1% over prior annual base rent ("ABR"). Also, the Company executed and commenced two lease renewals aggregating approximately 700 thousand square feet for an average lease term of 7.5 years and a leasing spread of 20.4% over prior ABR.

Gramercy Asset Management

The Company's asset and property management business, which operates under the name Gramercy Asset Management, currently manages approximately $1.1 billion of commercial properties for third parties, including $918.0 million in Europe. At the end of the first quarter of 2017, the Company wound up the KBS asset management agreement. The Company sold almost 700 properties in 330 transactions on behalf of KBS, earning $24.0 million in incentive fees, and $35.8 million in fees for property and asset management services provided since December 2013 when the management agreement was renegotiated with KBS.

In the first quarter of 2017, Gramercy Asset Management recognized fee revenues of $4.6 million for property management, asset management, and administrative fees, as compared to $5.2 million for the prior quarter. The decrease in fees of approximately $0.6 million for the first quarter of 2017 is primarily attributable to the wind up of the KBS asset management agreement. Gramercy Asset Management recorded $1.4 million in incentive fees earned from the Company's third-party asset management business for the first quarter of 2017.

Corporate

As of March 31, 2017, the Company maintained approximately $784.5 million of liquidity, as compared to approximately $851.7 million of liquidity reported at the end of the prior quarter. Liquidity includes $56.3 million of unrestricted cash as compared to approximately $67.5 million reported at the end of the prior quarter. During the quarter, the Company drew down $60.0 million and repaid $5.0 million previously drawn on the Senior Unsecured Revolving Credit Facility. As of March 31, 2017, there were $121.8 million of borrowings outstanding under the revolving credit facility.

General and administrative (or "G&A"), expenses were $8.8 million for the quarter ended March 31, 2017 compared to $9.3 million in the prior quarter. G&A expenses included non-cash share compensation costs of approximately $2.1 million for the quarter ended March 31, 2017 compared to $1.6 million in the prior quarter. The decrease in G&A expenses of $0.5 million is primarily due to decreased compensation costs.

During the first quarter of 2017, the Company issued 731,453 shares through its "At-The-Market" equity issuance program ("ATM") for net proceeds of $19.7 million.

Public Offering

In April 2017, the Company completed an underwritten public offering of 10,350,000 common shares, which includes the exercise in full by the underwriters of their option to purchase 1,350,000 additional common shares. The common shares were issued at a public offering price of $27.60 per share and the net proceeds from the offering were approximately $274.2 million.

The Company intends to use the net proceeds of this offering to fund the future acquisition of its target assets and for working capital and other general corporate purposes, which may include the repayment or repurchase of indebtedness.

Dividends

The Company paid a first quarter 2017 dividend on the Company’s 7.125% Series A Cumulative Redeemable Preferred Shares in the amount of $0.44531 per share on March 31, 2017 to preferred shareholders of record as of the close of business on March 15, 2017.

In April, the Company paid a dividend of $0.375 per common share for the first quarter of 2017. The first quarter dividend was paid on April 14, 2017 to holders of record as of March 31, 2017.

Subsequent to quarter end, the Company declared a second quarter 2017 common share dividend of $0.375 per share payable on July 14, 2017 to shareholders of record as of June 30, 2017.

Subsequent to quarter end, the Company also declared a second quarter 2017 dividend on the Company's 7.125% Series A Cumulative Redeemable Preferred Shares in the amount of $0.44531 per share, payable on June 30, 2017 to preferred shareholders of record as of the close of business on June 20, 2017.

Company Profile

Gramercy Property Trust is a leading global investor and asset manager of commercial real estate. The Company specializes in acquiring and managing high quality, income producing commercial real estate leased to high quality tenants in major markets in the United States and Europe.

To review the Company’s latest news releases and other corporate documents, please visit the Company's website at www.gptreit.com or contact Investor Relations at 888-686-0112.

Conference Call

The Company's executive management team will host a conference call and audio webcast on Wednesday, May 3, 2017, at 11:00 AM EDT to discuss first quarter 2017 financial results. Presentation materials will be posted prior to the call on the Company's website, www.gptreit.com.

Interested parties may access the live call by dialing 1-888-317-6003, or for international participants 1-412-317-6061, using passcode 8507582. Additionally, the live call will be webcast in listen-only mode on the Company’s website at www.gptreit.com in the Investor Relations section.

A replay of the call will be available at 2:00 PM EST, May 3, 2017 through midnight, May 17, 2017 by dialing 1-877-344-7529, or for international participants 1-412-317-0088, using the access code 10104833.

Disclaimer

Non GAAP Financial Measures

The Company has used non-GAAP financial measures as defined by SEC Regulation G in this press release. A reconciliation of each non-GAAP financial measure and the comparable GAAP financial measure can be found in this release.

 
Gramercy Property Trust
Condensed Consolidated Balance Sheets
(Unaudited, dollar amounts in thousands, except per share data)
 
 

March 31,
2017

 

December
31, 2016

Assets:
Real estate investments, at cost:
Land $ 804,044 $ 805,264
Building and improvements 4,108,891 4,053,125
Less: accumulated depreciation (235,318 ) (201,525 )
Total real estate investments, net 4,677,617 4,656,864
Cash and cash equivalents 56,256 67,529
Restricted cash 13,101 12,904
Investment in unconsolidated equity investments 105,187 101,807
Assets held for sale, net 8,962
Tenant and other receivables, net 75,730 72,795
Acquired lease assets, net of accumulated amortization of $154,753 and $133,710 596,811 618,680
Other assets 73,196   72,948  
Total assets $ 5,606,860   $ 5,603,527  
Liabilities and Equity:
Liabilities:
Senior unsecured revolving credit facility $ 121,759 $ 65,837
Exchangeable senior notes, net 109,488 108,832
Mortgage notes payable, net 549,924 558,642
Senior unsecured notes, net 496,524 496,464
Senior unsecured term loans 1,225,000   1,225,000  
Total long-term debt, net 2,502,695 2,454,775
Accounts payable and accrued expenses 42,381 58,380
Dividends payable 53,677 53,074
Below market lease liabilities, net of accumulated amortization of $28,350 and $26,416 216,401 230,183
Liabilities related to assets held for sale 3,128
Other liabilities 49,409   46,081  
Total liabilities 2,867,691   2,842,493  
Commitments and contingencies
Noncontrolling interest in the Operating Partnership 6,129 8,643
Equity:

Common shares, par value $0.01, 141,522,527 and 140,647,971 issued and outstanding at March 31, 2017
and December 31, 2016, respectively

1,415 1,406

Series A cumulative redeemable preferred shares, par value $0.01, liquidation preference $87,500, and
3,500,000 shares authorized, issued and outstanding at March 31, 2017 and December 31, 2016

84,394 84,394
Additional paid-in-capital 3,911,889 3,887,793
Accumulated other comprehensive loss (1,611 ) (4,128 )
Accumulated deficit (1,262,842 ) (1,216,753 )
Total shareholders' equity 2,733,245 2,752,712
Noncontrolling interest in other partnerships (205 ) (321 )
Total equity 2,733,040   2,752,391  
Total liabilities and equity $ 5,606,860   $ 5,603,527  
 
 
Gramercy Property Trust
Condensed Consolidated Statements of Operations
(Unaudited, dollar amounts in thousands, except per share data)
 
 

Three Months Ended March
31,

2017   2016
Revenues
Rental revenue $ 103,282 $ 92,095
Third-party management fees 4,592 5,046
Operating expense reimbursements 20,368 22,582
Other income 1,752   822  
Total revenues 129,994   120,545  
Operating Expenses
Property operating expenses 23,186 24,169
Property management expenses 3,084 4,521
Depreciation and amortization 62,217 58,248
General and administrative expenses 8,756 7,722
Acquisition expenses   410  
Total operating expenses 97,243   95,070  
Operating Income 32,751 25,475
Other Expenses:
Interest expense (23,056 ) (21,953 )
Net impairment recognized in earnings (4,890 )
Equity in net loss of unconsolidated equity investments (94 ) (2,755 )
Loss on extinguishment of debt (208 ) (5,757 )
Impairment of real estate investments (12,771 )  
Loss from continuing operations before provision for taxes (8,268 ) (4,990 )
Provision for taxes 196   (703 )
Loss from continuing operations (8,072 ) (5,693 )
Income (loss) from discontinued operations before gain on extinguishment of debt (24 ) 2,710
Gain on extinguishment of debt   1,930  
Income (loss) from discontinued operations (24 ) 4,640  
Loss before net gain on disposals (8,096 ) (1,053 )
Net gain on disposals 17,377    
Net income (loss) 9,281 (1,053 )
Net income (loss) attributable to noncontrolling interest (154 ) 120  
Net income (loss) attributable to Gramercy Property Trust 9,127 (933 )
Preferred share dividends (1,559 ) (1,559 )
Net income (loss) available to common shareholders $ 7,568   $ (2,492 )
Basic earnings per share:
Net income (loss) from continuing operations, after preferred dividends $ 0.05 $ (0.05 )
Net income (loss) from discontinued operations   0.03  
Net income (loss) available to common shareholders $ 0.05   $ (0.02 )
Diluted earnings per share:
Net income (loss) from continuing operations, after preferred dividends $ 0.05 $ (0.05 )
Net income (loss) from discontinued operations   0.03  
Net income (loss) available to common shareholders $ 0.05   $ (0.02 )
Basic weighted average common shares outstanding 140,907,399   140,060,405  
Diluted weighted average common shares outstanding 141,875,619   140,060,405  
 
 
Gramercy Property Trust

Reconciliation of Non-GAAP Financial Measure

(Unaudited, dollar amounts in thousands, except per share data)
 
 

Three Months Ended March
31,

2017   2016
Net income (loss) attributable to common shareholders $ 7,568 $ (2,492 )
Add:
Depreciation and amortization 62,217 58,248
FFO adjustments for unconsolidated equity investments 2,253 11,306
Net income (loss) attributable to noncontrolling interest 154 (120 )
Net (income) loss from discontinued operations 24 (4,640 )
Impairment of real estate investments 12,771
Less:
Non-real estate depreciation and amortization (208 ) (236 )
Net gain on disposals (17,377 )  
Funds from operations attributable to common shareholders and unitholders $ 67,402   $ 62,066  
Add:
Acquisition costs 410
Core FFO adjustments for unconsolidated equity investments 4,123
Other-than-temporary impairments on retained bonds 4,890
Loss on extinguishment of debt 208 3,827
Net income from discontinued operations related to properties 4,644
Mark-to-market on interest rate swaps (46 ) 1,830  
Core funds from operations attributable to common shareholders and unitholders $ 72,454   $ 76,900  
Add:
Non-cash share-based compensation expense 2,054 1,150
Amortization of market lease assets 2,908 3,994
Amortization of deferred financing costs and non-cash interest 840 117
Amortization of lease inducement costs 86 86
Non-real estate depreciation and amortization 208 236
Amortization of free rent received at property acquisition 304 339
Less:
AFFO adjustments for unconsolidated equity investments 14 823
Straight-lined rent (7,260 ) (6,761 )
Amortization of market lease liabilities (3,541 ) (4,157 )
Adjusted funds from operations attributable to common shareholders and unitholders $ 68,067   $ 72,727  
Funds from operations per share – basic $ 0.48   $ 0.44  
Funds from operations per share – diluted $ 0.47   $ 0.44  
Core funds from operations per share – basic $ 0.51   $ 0.55  
Core funds from operations per share – diluted $ 0.51   $ 0.54  
Adjusted funds from operations per share – basic $ 0.48   $ 0.52  
Adjusted funds from operations per share – diluted $ 0.48   $ 0.51  
 
Basic weighted average common shares outstanding – EPS 140,907,399 140,060,405
Weighted average non-vested share based payment awards 485,290
Weighted average partnership units held by noncontrolling interest 620,586   458,101  
Weighted average common shares and units outstanding 141,527,985   141,003,796  
Diluted weighted average common shares and common share equivalents outstanding – EPS1 141,875,619 140,060,405
Weighted average partnership units held by noncontrolling interest 620,586 458,101
Weighted average share based payment awards 471,328 961,155
Weighted average share options   5,445  
Diluted weighted average common shares and units outstanding 142,967,533   141,485,106  
 
1.     For the three months ended March 31, 2016, the diluted weighted average share calculation, which represents the denominator in diluted earnings per share, excludes potentially dilutive securities because including them would have been anti-dilutive during the period.
 

Disclaimers

Non-GAAP Financial Measures

The Company has used non-GAAP financial measures as defined by SEC Regulation G in this press release. A reconciliation of each non-GAAP financial measure and the comparable GAAP financial measure can be found in this release.

Funds from operations (“FFO”): The revised White Paper on FFO approved by the Board of Governors of the National Association of Real Estate Investment Trusts, or NAREIT, defines FFO as net income (loss) (determined in accordance with GAAP), excluding impairment write-downs of investments in depreciable real estate and investments in in-substance real estate investments and sales of depreciable operating properties, plus real estate-related depreciation and amortization (excluding amortization of deferred financing costs), less distributions to noncontrolling interests and gains/losses from discontinued operations and after adjustments for unconsolidated partnerships and joint ventures.

Core FFO and adjusted funds from operations (“AFFO”): Core FFO and AFFO are presented excluding property acquisition costs, loss on extinguishment of debt, other-than-temporary impairments on retained bonds, mark-to-market on interest rate swaps, and one-time charges. AFFO of the Company also excludes non-cash share-based compensation expense, amortization of above- and below-market leases, amortization of deferred financing costs and non-cash interest, amortization of lease inducement costs, non-real estate depreciation and amortization, amortization of free rent received at property acquisition, straight-line rent, and these AFFO adjustments as they pertain to the Company's unconsolidated equity investments. The Company believes that Core FFO and AFFO are useful supplemental measures regarding the Company’s operating performances as they provide a more meaningful and consistent comparison of the Company’s operating performance and allows investors to more easily compare the Company’s operating results.

FFO, Core FFO and AFFO do not represent cash generated from operating activities in accordance with GAAP and should not be considered as alternatives to net income (determined in accordance with GAAP), as indications of our financial performance, or to cash flow from operating activities as measures of our liquidity, nor are they entirely indicative of funds available to fund our cash needs, including our ability to make cash distributions. Our calculations of FFO, Core FFO and AFFO may be different from the calculations used by other companies and, therefore, comparability may be limited.

Forward-looking Information

This press release contains forward-looking information based upon the Company's current best judgment and expectations. Actual results could vary from those presented herein. The risks and uncertainties associated with forward-looking information in this release include, but are not limited to, factors that are beyond the Company's control, including the factors listed in the Company's Annual Report on Form 10-K, in the Company's Quarterly Reports on Form 10-Q and in the Company's Current Reports on Form 8-K. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. For further information, please refer to the Company's filings with the Securities and Exchange Commission.

No Solicitation

This press release shall not constitute an offer to sell or a solicitation of an offer to buy any of the securities, nor shall there be any sale of these securities, in any state or jurisdiction in which such an offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or jurisdiction.

Gramercy Property Trust
Jon W. Clark, 888-686-0112
Chief Financial Officer
or
Ashley M. Mancuso, 888-686-0112
Investor Relations

Source: Gramercy Property Trust