Press Release

Gramercy Property Trust Reports First Quarter 2016 Financial Results

Company Release - 5/4/2016 6:30 AM ET

NEW YORK--(BUSINESS WIRE)-- Gramercy Property Trust (NYSE:GPT)

Highlights

  • Generated Core FFO of $76.9 million or $0.18 per diluted common share for the first quarter of 2016 compared to $20.8 million or $0.13 per diluted common share for the first quarter of 2015, an increase of 38.5% per diluted common share.
  • Generated NAREIT defined funds from operations ("FFO") of $62.1 million or $0.15 per diluted common share for the first quarter of 2016 compared to $17.0 million or $0.11 per diluted common share for the first quarter of 2015, an increase of 36.4% per diluted common share.
  • Generated adjusted funds from operations ("AFFO") of $72.7 million or $0.17 per diluted common share for the first quarter of 2016 compared to $16.9 million or $0.11 per diluted common share for the first quarter of 2015, an increase of 54.5% per diluted common share.
  • During the first quarter of 2016, disposed of four multi-tenant office portfolios in Weston, Florida, Cincinnati, Ohio, Jersey City, New Jersey and Sterling, Virginia for an aggregate sale price of approximately $646.3 million equating to a weighted average cap rate of 5.7%. Aggregate sale price reflects 100% of gross proceeds for the Weston, Florida property, of which the Company owned 80% through a joint venture. The cap rate assumes no Net Operating Income ("NOI") for vacant 70 Hudson and stabilized 2016 cash NOI for 90 Hudson, which is adjusted for free rent credits granted to the buyer.
  • Acquired three properties in two separate transactions for an aggregate purchase price of approximately $52.8 million (7.6% initial cap rate; 9.3% annualized straight-line cap rate) with a weighted average lease term at closing of approximately 17.6 years in the first quarter of 2016.
  • Subsequent to quarter end, the Company acquired a 12-building industrial portfolio for an aggregate purchase price of approximately $115.2 million (8.1% initial cap rate; 8.9% annualized straight-line cap rate) with a weighted average lease term of approximately 13.3 years at closing.
  • The Company declared a first quarter 2016 dividend of $0.11 per common share. The dividend was paid on April 15, 2016 to holders of record as of March 31, 2016.
  • As of March 31, 2016, the Company maintained approximately $939.8 million of liquidity at quarter end compared to approximately $681.3 million of liquidity reported at the end of the prior quarter.
  • During the first quarter of 2016, the Company extinguished $329.7 million of mortgage debt, which included the Company's 80% share of the debt associated with the Weston, FL office portfolio which was extinguished at the time of sale in January 2016, and reduced borrowings on the Revolving Credit Facility by $175.0 million.
  • Subsequent to quarter end, the Company agreed to sell its 80% interest in a nine property European joint venture with Goodman Group to the Company's European property fund, which will also buy out Goodman’s 20% interest in the venture.

Summary

Gramercy Property Trust (NYSE: GPT) today reported a net loss to common shareholders of $(2.5) million, or $(0.01) per diluted common share for the three months ended March 31, 2016. For the quarter, the Company generated FFO of $62.1 million, or $0.15 per diluted common share. FFO and net loss to common shareholders includes loss on extinguishment of debt, acquisition costs and a mark-to-market charge on interest rate swaps aggregating to $6.1 million or $0.01 per diluted common share for the quarter ended March 31, 2016. For the quarter, the Company generated Core FFO of $76.9 million, or $0.18 per diluted common share. The Company generated AFFO of $72.7 million, or $0.17 per diluted common share for the three months ended March 31, 2016. A reconciliation of FFO, Core FFO and AFFO to net income available to common shareholders is included on page 7 of this press release.

For the first quarter of 2016, the Company recognized total revenues of approximately $120.5 million, an increase of 72.1% over total revenues of $70.0 million reported in the prior quarter.

Property Acquisitions

In the first quarter of 2016, the Company acquired three properties in two separate transactions for a total purchase price of approximately $52.8 million (7.6% initial cap rate; 9.3% annualized straight-line cap rate) with a weighted average lease term at closing of approximately 17.6 years.

First quarter 2016 property acquisitions are summarized in the chart below:

 
(Dollar amount in thousands)
Acq. Date   Location   MSA   Major Tenants  

Property
Type

 

Square
Feet

 

Purchase
Price

  Occupancy  

Acq. Cash
NOI

 

S/L
NOI

1/28/2016 Bedford Park, IL Chicago Checkers Industrial Products Manufacturing 246,060 $   12,500 100% $ 923 $   1,064
1/28/2016 Moselle, MS Other Checkers Industrial Products Manufacturing 150,000 3,250 100% 300 346
2/22/2016 Indianapolis, IN Indianapolis Specialty Bakery Cold Storage 225,586 37,000   100% 2,784   3,482
621,646 $   52,750   100% $ 4,007   $   4,891
   

Subsequent to quarter end, the Company acquired a 12-building industrial portfolio for an aggregate purchase price of approximately $115.2 million (8.1% initial cap rate; 8.9% annualized straight-line cap rate) with a weighted average lease term of approximately 13.3 years at closing.

Property Dispositions

Per the Company's previously announced disposition plan, the Company disposed of four multi-tenant office portfolios in Weston, Florida, Cincinnati, Ohio, Jersey City, New Jersey and Sterling, Virginia for an aggregate sale price of approximately $646.3 million equating to a weighted average in place cap rate of 5.7%. Aggregate sale price reflects 100% of gross proceeds for the Weston, Florida property, of which the Company owned 80% through a joint venture. The cap rate assumes no NOI for vacant 70 Hudson and stabilized 2016 cash NOI for 90 Hudson, which is adjusted for free rent credits granted to the buyer.

First quarter 2016 property dispositions are summarized in the chart below:

 
(Dollar amount in thousands)
Disp Date   Location   MSA   Major Tenants  

Property
Type

 

Square
Feet

 

Sale
Price

 

Disp. Cash
NOI

1/13/2016 Weston, FL(1) South Florida Multi-Tenant Office 388,113 $   114,786 $   7,349
2/8/2016 Blue Ash, OH Cincinnati Multi-Tenant Office 540,867 87,000 7,874
2/25/2016 Jersey City, NJ(2) New York/New Jersey Multi-Tenant Office 857,940 299,000 11,981
3/29/2016 Sterling, VA Baltimore/Washington Multi-Tenant Office 696,387 145,500   9,704
2,483,307 $   646,286   $   36,908
 
(1)   Weston, FL metrics represent 100% share of the joint venture. The Company's pro-rata share was 80%.
(2) Cash NOI represents stabilized 2016 cash NOI for 90 Hudson, which excludes free rent credits.
 

NOI derived from office assets represents approximately 41% of the Company's aggregate U.S. portfolio NOI on March 31, 2016 as compared to 47% on December 31, 2015. Pro-forma for the acquisition of the 12-building industrial portfolio that occurred subsequent to quarter end, this number drops to 40%.

In connection with the property dispositions, the Company extinguished $288.3 million of mortgage debt, including the Company's 80% share of the debt associated with the Weston, FL office portfolio.

Gramercy European Property Fund

During the first quarter of 2016, the Company contributed €2.2 million to Gramercy Property Europe plc ("Gramercy Europe"). Gramercy Europe acquired three properties in three separate transactions for a total purchase price of approximately €37.4 million and partially funded with €18.3 million non-recourse mortgage financings in the first quarter of 2016. Gramercy Europe contributed a net loss of $0.7 million to the Company's earnings for the quarter.

Since its inception in December 2014, the Company has contributed a total of €25.4 million to Gramercy Europe. As of quarter end, Gramercy Europe had acquired 15 properties aggregating approximately 3.9 million square feet in 11 separate transactions for a total purchase price of approximately €275.0 million.

Subsequent to quarter end, the Company agreed to sell its 80% interest in a European joint venture with an affiliate of Goodman Group (“Goodman”) to Gramercy Europe. In a separate transaction, Gramercy Europe will also buy out Goodman’s 20% interest in the venture, which owns eight logistics warehouses in Germany and one logistics warehouse in France. The buildings being acquired aggregate 5.4 million square feet and are 100% leased to single tenant occupiers with a weighted average lease term of 6.0 years. Closing on Gramercy Europe’s acquisition of Goodman’s 20% interest is expected in late-May 2016 and closing on its acquisition of the Company’s 80% interest is expected in late-June 2016. Both transactions are subject to confirmatory diligence reviews by purchaser and satisfaction of customary closing conditions. Three United Kingdom properties held in a separate Company joint venture with Goodman and one United Kingdom property that is 100% owned by the Company are excluded from the transaction.

Leasing Activity

During the first quarter of 2016, the Company executed three new leases and two lease renewals aggregating 465,372 square feet for an average lease term of 7.5 years. In addition, four new leases and two renewals commenced during the first quarter of 2016 aggregating 357,302 square feet for an average lease term of 10.6 years.

Gramercy Asset Management

The Company's asset and property management business, which operates under the name Gramercy Asset Management, currently manages for third parties approximately $900.0 million of commercial properties, including approximately $459.0 million in Europe.

In the first quarter of 2016, Gramercy Asset Management recognized fee revenues of $5.0 million in property management, asset management, and administrative fees, as compared to $4.7 million for the prior quarter. The increase in fees of approximately $948 thousand for the first quarter of 2016 is primarily attributable to incentive fees earned on properties sold in the managed portfolio but partially offset by declining property management fees due to the reduction in the overall size of the managed portfolio as compared to prior year.

Corporate

As of March 31, 2016, the Company maintained approximately $939.8 million of liquidity at quarter end, as compared to approximately $681.3 million of liquidity reported at the end of the prior quarter. Liquidity includes $67.1 million of unrestricted cash as compared to approximately $128.0 million reported at the end of the prior quarter. Additionally, liquidity includes $145.5 million of cash from sold properties, which is held in escrow for future acquisitions as of March 31, 2016. During the quarter, the Company repaid $175.0 million previously drawn on the Senior Unsecured Revolving Credit Facility. As of March 31, 2016, there were $122.8 million of borrowings outstanding under the Revolving Credit Facility. The Company extinguished $504.7 million of debt during the first quarter of 2016.

Management, general and administrative ("MG&A") expenses were $7.7 million for the quarter ended March 31, 2016 compared to $5.5 million in the prior quarter. MG&A expenses includes non-cash stock compensation costs of approximately $1.2 million and $910 thousand for the three months ended March 31, 2016 and December 31, 2015, respectively. MG&A reflects a full quarter of cost related to the larger scale of the business subsequent to the Chambers Street merger consummated on December 17, 2015. In addition, MG&A for the first quarter of 2016 includes additional legal and audit costs aggregating approximately $594.5 thousand related to regulatory filings completed during the quarter and costs related to the class action lawsuits brought by purported legacy shareholders. Although the parties have entered into a memorandum of understanding which provides for settlement, the Company has incurred legal fees as the settlement remains outstanding.

Dividends

The Board of Trustees authorized and the Company declared a dividend of $0.11 per common share for the first quarter of 2016. The first quarter dividend was paid on April 15, 2016 to holders of record as of March 31, 2016.

The Company’s Board also declared a first quarter 2016 dividend on the Company’s 7.125% Series A Cumulative Redeemable Preferred Shares in the amount of $0.44531 per share, payable on March 31, 2016 to preferred shareholders of record as of the close of business on March 15, 2016.

Company Profile

Gramercy Property Trust is a leading global investor and asset manager of commercial real estate. The Company specializes in acquiring and managing single-tenant, net-leased industrial and office properties purchased through sale-leaseback transactions or directly from property developers and owners. The Company focuses on income producing properties 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 4, 2016, at 2:00 PM EDT to discuss first quarter 2016 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 2026542. 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 5:00 PM EDT on May 4, 2016 through midnight on May 18, 2016 by dialing 1-877-344-7529, or for international participants 1-412-317-0088, using the access code 10082848.

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 on page 7 of this release.

 

Gramercy Property Trust

Condensed Consolidated Balance Sheets

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

 
  March 31, 2016   December 31, 2015
Assets:
Real estate investments, at cost:
Land $   683,110 $   702,557
Building and improvements 3,279,424 3,313,747
Less: accumulated depreciation (114,389 ) (84,627 )
Total real estate investments, net 3,848,145 3,931,677
Cash and cash equivalents 67,124 128,031
Restricted cash 166,552 17,354
Investment in unconsolidated equity investments 527,269 580,000
Servicing advances receivable 1,382
Retained CDO bonds 8,786 7,471
Assets held for sale, net 10,548 420,485
Tenant and other receivables, net 43,209 34,234
Acquired lease assets, net of accumulated amortization of $84,671 and $54,323 631,048 682,174
Deferred costs, net of accumulated amortization of $1,558 and $892 17,152 13,950
Goodwill 3,477 3,568
Other assets 24,999   14,192  
Total assets $   5,348,309   $   5,834,518  
Liabilities and Equity:
Liabilities:
Senior unsecured revolving credit facility $ 122,760 $ 296,724
Exchangeable senior notes, net 107,205 106,581
Mortgage notes payable, net 491,360 530,222
Senior unsecured notes, net 148,935 99,124
Senior unsecured term loans, net 1,225,000   1,225,000  
Total long-term debt, net 2,095,260 2,257,651
Accounts payable and accrued expenses 29,667 59,808
Dividends payable 46,790 8,980
Accrued interest payable 5,860 4,546
Deferred revenue 36,041 36,031

Below market lease liabilities, net of accumulated amortization of $21,240

and $17,083

238,115 242,456
Liabilities related to assets held for sale 376 291,364
Derivative instruments, at fair value 27,461 3,442
Other liabilities 9,060   8,271  
Total liabilities 2,488,630   2,912,549  
Commitments and contingencies
Noncontrolling interest in operating partnership 11,334 10,892
Equity:

Common shares, par value $0.01, 421,500,741 and 420,523,153 shares issued and

outstanding at March 31, 2016 and December 31, 2015, respectively.

4,215 4,205

Series A cumulative redeemable preferred shares, par value $0.01, liquidation

preference $87,500, 3,500,000 shares authorized, issued and outstanding at

March 31, 2016.

84,394 84,394
Additional paid-in-capital 3,880,925 3,879,932
Accumulated other comprehensive loss (20,527 ) (5,751 )
Accumulated deficit (1,100,285 ) (1,051,454 )
Total shareholders' equity 2,848,722 2,911,326
Noncontrolling interest in other partnerships (377 ) (249 )
Total equity 2,848,345   2,911,077  
Total liabilities and equity $   5,348,309   $   5,834,518  
 
 

Gramercy Property Trust

Condensed Consolidated Statements of Operations

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

 
 

Three Months Ended
March 31,

2016   2015
Revenues
Rental revenue $   92,095 $   31,190
Third-party management fees 5,046 8,186
Operating expense reimbursements 22,582 8,138
Investment income 443 238
Other income 379   183  
Total revenues 120,545   47,935  
Operating Expenses
Property operating expenses 24,169 8,383
Property management expenses 4,521 5,166
Depreciation and amortization 58,248 18,698
General and administrative expenses 7,722 4,773
Acquisition and merger-related expenses 410   3,506  
Total operating expenses 95,070   40,526  
Operating Income 25,475 7,409
Other Expense:
Interest expense (21,953 ) (6,270 )
Equity in net loss of unconsolidated equity investments (2,755 ) (1 )
Loss on extinguishment of debt (5,757 )  
Income (loss) from continuing operations before provision for taxes (4,990 ) 1,138
Provision for taxes (703 ) (1,114 )
Income (loss) from continuing operations (5,693 ) 24
Income (loss) from discontinued operations 4,640   (62 )
Net loss (1,053 ) (38 )
Net loss attributable to noncontrolling interest 120   42  
Net income (loss) attributable to Gramercy Property Trust (933 ) 4
Preferred share dividends (1,559 ) (1,559 )
Net loss available to common shareholders $   (2,492 ) $   (1,555 )
Basic earnings per share:
Net loss from continuing operations, after preferred dividends $ (0.02 ) $ (0.01 )
Net income from discontinued operations 0.01    
Net loss available to common shareholders $   (0.01 ) $   (0.01 )
Diluted earnings per share:
Net loss from continuing operations, after preferred dividends $ (0.02 ) $ (0.01 )
Net income from discontinued operations 0.01    
Net loss available to common shareholders $   (0.01 ) $   (0.01 )
Basic weighted average common shares outstanding 420,181,216   149,115,357  
Diluted weighted average common shares and common share equivalents outstanding 420,181,216   149,115,357  
 
 

Gramercy Property Trust

Reconciliation of Non-GAAP Financial Measures

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

 
 

Three Months Ended March 31,

2016   2015
Net loss attributable to common shareholders and unitholders $   (2,492 ) $   (1,555 )
Add:
Depreciation and amortization 58,248 18,698
FFO adjustments for unconsolidated equity investments 11,306 78
Net loss attributed to noncontrolling interest (120 ) (42 )
Net income (loss) from discontinued operations (4,640 ) 62
Less:
Non real estate depreciation and amortization (236 ) (216 )
Funds from operations attributable to common shareholders and unitholders $   62,066   $   17,025  
Add:
Acquisition costs 410 3,506
Core FFO adjustments for unconsolidated equity investments 4,123
Loss on extinguishment of debt 3,827
European Fund setup costs 221
Net income from discontinued operations related to properties 4,644
Mark-to-market on interest rate swaps 1,830    
Core funds from operations attributable to common shareholders and unitholders $   76,900   $   20,752  
Add:
Non-cash share-based compensation expense 1,150 834
Amortization of market lease assets 3,994 870
Amortization of deferred financing costs and non-cash interest 117 575
Amortization of lease inducement costs 86 44
Non-real estate depreciation and amortization 236 216
Amortization of free rent received at property acquisition 339 579
Less:
AFFO adjustments for unconsolidated equity investments 823 (1 )
Straight-lined rent (6,761 ) (2,172 )
Amortization of market lease liabilities (4,157 ) (4,822 )
Adjusted funds from operations attributable to common shareholders and unitholders $   72,727   $   16,875  
Funds from operations per share – basic $   0.15   $   0.11  
Funds from operations per share – diluted $   0.15   $   0.11  
Core funds from operations per share – basic $   0.18   $   0.14  
Core funds from operations per share – diluted $   0.18   $   0.13  
Adjusted funds from operations per share – basic $   0.17   $   0.11  
Adjusted funds from operations per share – diluted $   0.17   $   0.11  
 
Basic weighted average common shares outstanding – EPS 420,181,216 149,115,357
Weighted average non-vested share based payment awards 1,455,871 822,095
Weighted average partnership units held by noncontrolling interest 1,374,302   1,701,391  
Weighted average common shares and units outstanding 423,011,389   151,638,843  
Diluted weighted average common shares and common share equivalents outstanding – EPS (1) 420,181,216 149,115,357
Weighted average partnership units held by noncontrolling interest 1,374,302 1,701,391
Weighted average non-vested share based payment awards 2,883,465 2,039,175
Weighted average share options 16,336 50,058
Phantom shares 488,779
Dilutive effect of Exchangeable Senior Notes   1,737,718  
Diluted weighted average common shares and units outstanding 424,455,319   155,132,478  
 
(1)   For the three months ended March 31, 2016 and 2015, the diluted weighted average share calculation, which is the denominator in diluted earnings per share, excludes potentially dilutive securities because they would have been anti-dilutive during those periods.
 

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 on page 7 of this release.

Fund 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 and other 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, 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.

Gramercy Property Trust
Jon W. Clark, 888-686-0112
Chief Financial Officer
or
Brittany A. Sanders, 888-686-0112
Investor Relations

Source: Gramercy Property Trust