Gramercy Property Trust Inc. Reports Second Quarter 2014 Financial Results

NEW YORK--()--Gramercy Property Trust Inc. (NYSE:GPT):

HIGHLIGHTS

  • Generated funds from operations (“FFO”) before discontinued operations and excluding acquisition costs and one-time charges of $4.8 million or $0.05 per diluted common share.
  • Generated adjusted funds from operations (“AFFO”) of $5.6 million or $0.06 per diluted common share.
  • Reaffirms previous guidance of estimated quarterly run-rate FFO for Q3 2014 and Q4 2014 of $0.09 - $0.11 per share.
  • Raised $218.1 million of net proceeds through a public offering of 46,000,000 shares of common stock.
  • Closed on the acquisition of the Company's joint venture partner's interest in the Bank of America Portfolio at a valuation for the consolidated investment of $395.2 million, comprised of 67 properties totaling 3.1 million square feet.
  • Closed on a $400.0 million senior unsecured credit facility, consisting of a $200.0 million senior revolving credit facility and a $200.0 million senior term loan.
  • Acquired seven properties for a total purchase price of approximately $96.2 million (initial cap rate 7.3% and annualized straight-line cap rate 8.2%) with an average weighted lease term of 12.5 years.
  • In July, closed the previously announced acquisition of a portfolio of three industrial properties for a total purchase price of approximately $69.0 million (initial cap rate 9.0% and annualized straight-line rent cap rate 8.8%) with an average weighted lease term of 6.6 years.
  • In connection with the above noted transaction, issued 3.8 million limited partnership units (“OP Units”) of GPT Property Trust LP, the Company’s operating partnership, based on the closing price of $6.19 per share of Company common stock on July 9, 2014.
  • Ended the quarter with approximately $298.7 million of liquidity, as compared to approximately $153.4 million of liquidity reported in prior quarter.
  • Subsequent to quarter end, received reimbursement of past CDO servicing advances totaling approximately $7.5 million, leaving approximately $1.3 million outstanding.

SUMMARY

Gramercy Property Trust Inc. (NYSE:GPT) today reported net income to common stockholders of $61.6 million, or $0.65 per diluted common share for three months ended June 30, 2014, inclusive of a gain on remeasurement at fair value of the Company’s previously held joint venture interest of $72.3 million, or $0.76 per diluted common share, related to the Company's acquisition of its joint venture partner's interest in the Bank of America Portfolio. For the quarter, the Company generated FFO of $(2.6) million, or $(0.03) per diluted common share, inclusive of (i) a loss from discontinued operations of $(0.4) million, or $(0.00) per diluted common share, (ii) acquisition costs of $1.7 million, or $0.02 per diluted common share, and (iii) one-time charges of $5.3 million, or $0.06 per diluted common share, relating to the write-off of costs in connection with the extinguishment of the Company’s secured borrowing facility and relating to the remeasurement of the equity component of the Company’s exchangeable senior notes. For the quarter, the Company generated AFFO of $5.6 million, or $0.06 per diluted common share. A reconciliation of FFO and AFFO to net income (loss) available to common stockholders is included on page 10 of the press release.

For the second quarter of 2014, the Company recognized total revenues of approximately $20.6 million, an increase of 32% over total revenues of $15.6 million reported in the prior period.

COMMON STOCK OFFERING

In May 2014, the Company completed an underwritten public offering of 46,000,000 shares of its common stock, which includes the exercise in full by the underwriters of their option to purchase 6,000,000 additional shares of common stock. The shares of common stock were issued at a public offering price of $4.98 per share and the net proceeds from the offering were approximately $218.1 million, after deducting the underwriting discount and offering expenses. A portion of the net proceeds were used to fund the acquisition of the Company’s joint venture partner’s interest in the Bank of America Portfolio joint venture as further described below. The remaining proceeds will be used for general corporate purposes, including acquisitions of target assets with the Company’s investment strategies and for working capital purposes.

UNSECURED CREDIT FACILITY

In June 2014, the Company entered into a $400.0 million unsecured credit facility, consisting of a $200.0 million senior term loan (the “Term Loan”) and a $200.0 million senior revolving credit facility (the “Unsecured Credit Facility”) with lead arrangers JP Morgan Chase Bank, N.A., administrative agent, and Merrill Lynch, Pierce, Fenner and Smith Incorporated, as syndication agent. The Company has the ability to increase the amount of the facilities up to a maximum amount of $800.0 million, in the aggregate, subject to lender approval and satisfaction of certain customary conditions.

The Term Loan has an initial term of five years and was used to repay the existing $200.0 million mortgage loan secured by the Bank of America Portfolio at the time of the Company’s acquisition of its joint venture partner’s interest. The Unsecured Credit Facility has an initial term of four years, with an option for a one-year extension, and replaced the Company’s previously existing $150.0 million senior secured revolving credit facility. Interest on outstanding balances on the Term Loan and advances made on the Unsecured Credit Facility, will be incurred at a floating rate. The Term Loan has an initial borrowing rate of One Month LIBOR plus 160 bps and the Unsecured Credit Facility will have an initial borrowing rate of One Month LIBOR plus 165 bps, if and when drawn upon. The facilities include a series of financial and other covenants that the Company must comply with in order to borrow under the facilities. The Company also entered into a fixed rate swap agreement with the lender, JP Morgan Chase, N.A., which has been designated as an effective cash flow hedge, whereby commencing in September 2014 the Company will pay an effective fixed rate of 3.42%, which equals the hedge interest rate of 1.82% plus the applicable base rate of 1.60%.

As of June 30, 2014, there were borrowings of $200.0 million outstanding under the Term Loan and no borrowings outstanding under the Unsecured Credit Facility.

BANK OF AMERICA PORTFOLIO

In June 2014, the Company acquired its joint venture partner’s interest in the Bank of America Portfolio, a portfolio of 67 properties throughout the United States totaling approximately 3.1 million square feet and 97% leased to Bank of America, N.A., under a master lease with expiration dates through June 2023, with total portfolio occupancy of approximately 98%.

The purchase price paid by the Company valued the consolidated investment at $395.2 million. At closing, the Company received an approximately $5.3 million incentive profit credit against the purchase price, in addition to other customary prorations and credits. The Company recorded a gain on remeasurement of the Company’s previously held joint venture interest at fair value of $72.3 million, or $0.76 per diluted common share. The Bank of America Portfolio was encumbered with a $200.0 million floating-rate, interest-only mortgage loan maturing in 2014, which was paid off at closing.

The Bank of America Portfolio’s contribution to FFO is summarized below (amounts in thousands):

 
  Joint Venture   Consolidated   Total
Interest Interest Three months ended
April 1 - June 8 June 9 - June 30 June 30, 2014
Net contribution $ 2,616 $ 1,850 $ 4,466
 
Distributions from BofA joint venture $ 3,100 $

-

$ 3,100
 

The Philips Joint Venture contributed an additional $170,000 to the Company's FFO for the three months ended June 30, 2014, which when added to the Bank of America Portfolio contribution prior to June 9, 2014, results in a total contribution of $2.8 million to the Company’s FFO from unconsolidated joint ventures for the three months ended June 30, 2014.

PROPERTY ACQUISITIONS

In the second quarter of 2014, the Company acquired seven properties in separate transactions for a total purchase price of approximately $96.2 million (7.3% initial cap rate; 8.2% annualized straight-line cap rate) with a 12.5-year average lease term. Property acquisitions are summarized in the chart below:

 
(Dollar amount in thousands)
                Cash   S/L
Investment       Location   MSA   Property Type   Square Feet   Purchase Price   Occupancy   NOI   NOI
Industrial Portfolio
Tampa Tampa, FL Tampa Class B Industrial 175,920 $ 9,500 100 % $ 725 $ 778
Elk Grove Village Elk Grove Village, IL Chicago Class B Industrial 309,284 20,985 100 % 1,427 1,570
Harrisburg Harrisburg, PA Central PA Class B Industrial 183,200 8,329

(1)

100 % 595 646
Elgin Elgin, IL Chicago Class B Industrial 112,325 10,350 100 % 795 915
 
Office/Banking Center Portfolio
Malvern Malvern, PA Philadelphia Office/R&D 190,597 $ 28,400 100 % $ 2,118 $ 2,434
Nashville Nashville, TN Nashville Class B Office 88,958 16,475 100 % 1,189 1,304
St. Louis St. Louis, MO St. Louis Bank Branch/Office 25,061 2,153 100 % 214 222
                                     
                    1,085,345   $ 96,192   100 %   $ 7,063   $ 7,869
 
Closed Since Quarter End
Ames Ames, IA Greater Des Moines Class A Industrial 576,876 $ 26,250 100 % $ 2,200 $ 2,224
Buford Buford, GA Atlanta Class A Industrial 550,000 26,040 100 % 2,794 2,517
Wilson       Wilson, NC   Greater Raleigh   Class B Industrial   328,000     16,700   100 %     1,191     1,311
                    1,454,876   $ 68,990   100 %   $ 6,185   $ 6,052
 

(1) Net of $284,460 of free rent and operating expense credit.

 

In addition, the previously announced 117,591 square foot build-to-suit in Hialeah Gardens, Florida, was placed in service and commenced initial annual rent payments of $2.1 million in June 2014. The property has a total value of $26.3 million and a lease expiration of June 2039.

Subsequent to quarter end (as detailed above), the Company closed the previously announced acquisition of a portfolio of three industrial properties totaling approximately 1.5 million square feet for an aggregate purchase price of approximately $69.0 million. The Company assumed three in-place mortgage loans totaling approximately $42.9 million having an average remaining term of 3.2 years until maturity. The Company funded the remaining balance of the purchase price, net of certain closing costs paid in cash, by issuing to the selling investors approximately 3.8 million limited partnership units (“OP Units”) of GPT Property Trust LP, the Company’s operating partnership, based on the closing price of $6.19 per share of Company common stock on July 9, 2014. OP Units can be converted on a 1:1 basis into the Company’s common shares at the election of the unit holder.

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 $1.0 billion of commercial properties leased primarily to regulated financial institutions and affiliated users throughout the United States.

In the second quarter 2014, Gramercy Asset Management recognized fee revenues of $7.1 million in property management, asset management, and administrative fees. The Gramercy Asset Management business generates most of its fee revenues from an asset management agreement with KBS.

CORPORATE

As of June 30, 2014, the Company maintained approximately $298.7 million of liquidity at quarter end, as compared to approximately $153.4 million of liquidity reported the prior quarter. Liquidity includes $98.7 million of unrestricted cash as compared to approximately $61.9 million reported at the end of the prior quarter and availability under the unsecured revolving credit facility of $200.0 million as compared to $91.5 million under the secured revolving credit facility at the end of the prior quarter.

Management, general and administrative (“MG&A”) expenses were $4.5 million for the quarter ended June 30, 2014, as compared to $4.3 million at end of the prior quarter. The Company’s MG&A expenses were related to the following business lines:

 
(Dollar amount in thousands)   Three Months Ended
June 30,   March 31,
2014 2014
Corporate / Investments $ 3,850 $ 3,492

Asset Management

  647   850
Total $ 4,497 $ 4,342
 

MG&A expenses includes non-cash stock compensation costs of approximately $516,000 and $526,000 for the three months ended June 30, 2014 and March 31, 2014, respectively.

DIVIDENDS

The Board of Directors authorized and the Company declared a dividend of $0.035 per common share for the second quarter of 2014 which was paid on July 15, 2014 to holders of record as of June 30, 2014.

The Board of Directors also authorized and the Company declared the Series A preferred stock quarterly dividend for the period April 15, 2014 through and including July 14, 2014 in the amount of $0.50781 per share, reflecting an annualized distribution of $2.03125 per share. The preferred stock dividend was paid on July 15, 2014 to holders of record as of June 30, 2014.

COMPANY PROFILE

Gramercy Property Trust Inc. is a fully-integrated, self-managed commercial real estate investment company focused on acquiring and managing income-producing industrial and office properties net leased to high quality tenants in major markets throughout the United States. The Company also operates a commercial real estate asset and property management business for third parties.

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 (212) 297-1000.

CONFERENCE CALL

The Company's executive management team will host a conference call and audio webcast on Thursday, August 7, 2014, at 2:00 PM EDT to discuss second quarter financial results. Presentation materials will be posted prior to the call on the Company’s website, www.gptreit.com, in the Investor Relations section under the “Events and Presentations” tab.

The live call will be webcast in listen-only mode on the Company’s website at www.gptreit.com and on Thomson’s StreetEvents Network. The presentation may also be accessed by dialing (888) 771-4371 - Domestic or (847) 585-4405 - International, using pass code “GRAMERCY”.

A replay of the call will be available from August 7, 2014 at 5:00 PM EDT through August 10, 2014 at 11:59 PM EDT by dialing (888) 843-7419 - Domestic or (630) 652-3042 - International, using pass code 3774 8099#.

(GPT-EN)

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 10 of this release.

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 those listed in the Company's Annual Report on Form 10-K and in the Company's Quarterly Reports on Form 10-Q. 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.

Selected Financial Data:

 

Gramercy Property Trust Inc.

Condensed Consolidated Balance Sheets

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

 
 

June 30,

 

December 31,

2014 2013
Assets:
Real estate investments, at cost:
Land $ 160,067 $ 73,131
Building and improvements 645,329 264,581
Less: accumulated depreciation (10,842 ) (4,247 )
Total real estate investments, net 794,554 333,465
Cash and cash equivalents 98,736 43,333
Restricted cash 1,966 179
Investment in joint ventures - 39,385
Servicing advances receivable 8,881 8,758
Retained CDO bonds 7,989 6,762
Tenant and other receivables, net 18,730 5,976
Acquired lease assets, net of accumulated amortization of $5,366 and $1,596 125,351 40,960
Deferred costs, net of accumulated amortization of $810 and $634 10,595 5,815
Other assets 15,096   7,030  
Total assets $ 1,081,898   $ 491,663  
 
Liabilities and Equity:
Liabilities:
Secured revolving credit facility $ - $ 45,000
Exchangeable senior notes, net 107,087 -
Senior unsecured term loan 200,000 -
Mortgage notes payable 123,645   122,180  
Total long term debt 430,732 167,180
Accounts payable and accrued expenses 14,673 11,517
Dividends payable 5,671 37,600
Accrued interest payable 2,089 81
Deferred revenue 18,162 1,581
Below-market lease liabilities, net of accumulated amortization of $969 and $300 52,216 6,077
Derivative instruments, at fair value 2,388 302
Other liabilities 7,990   852  
Total liabilities 533,921   225,190  
Commitments and contingencies - -
 
Equity:

Common stock, par value $0.001, 200,000,000 and 100,000,000 shares authorized, and 117,619,046 and 71,313,043 shares issued and outstanding at June 30, 2014 and December 31, 2013, respectively.

118 71
Series A cumulative redeemable preferred stock, par value $0.001,

liquidation preference $88,146, 4,600,000 shares authorized and 3,525,822 shares issued and outstanding at June 30, 2014 and December 31, 2013.

85,235 85,235
Additional paid-in-capital 1,380,482 1,149,896
Accumulated other comprehensive loss (3,167 ) (1,405 )
Accumulated deficit (914,691 ) (967,324 )
Total equity 547,977   266,473  
Total liabilities and equity $ 1,081,898   $ 491,663  
 
 
Gramercy Property Trust Inc.
Condensed Consolidated Statements of Operations
(Unaudited, dollar amounts in thousands, except per share data)
 
  Three Months Ended June 30,   Six Months Ended June 30,
2014     2013   2014     2013  
Revenues
Rental revenue $ 10,276 $ 1,804 $ 17,770 $ 2,460
Management fees 7,054 13,617 14,019 21,932
Operating expense reimbursements 2,697 196 3,378 304
Investment income 525 617 901 769
Other income   76     70     144     106  
Total revenues   20,628     16,304     36,212     25,571  
Expenses
Property operating expenses:
Property management expenses 4,981 5,016 10,225 11,173
Property operating expenses   2,858     307     3,680     424  
Total property operating expenses 7,839 5,323 13,905 11,597
Other-than-temporary impairment - 1,682 - 1,682
Portion of impairment recognized in other comprehensive loss   -     -     -     -  
Net impairment recognized in earnings - 1,682 - 1,682
Depreciation and amortization 6,760 919 10,145 1,256
Interest expense 3,791 85 6,136 85

Realized loss on derivative instruments

3,415 - 3,300 -
Management, general and administrative 4,497 4,272 8,839 8,694
Acquisition expenses   1,688     698     1,923     1,249  
Total expenses   27,990     12,979     44,248     24,563  

Income (loss) from continuing operations before equity in income (loss)

(7,362 ) 3,325 (8,036 ) 1,008

from joint ventures and provisions for taxes

Equity in net income (loss) of joint ventures   1,125     (2,603 )   1,753     (3,791 )
Income (loss) from continuing operations before provision

(6,237

)

722

(6,283

)

(2,783

)

for taxes, gain (loss) on extinguishment of debt and discontinued operations

 

 

 

 

Gain on remeasurement of previously held joint venture 72,345 - 72,345 -
Loss on extinguishment of debt (1,925 ) - (1,925 ) -
Provision for taxes   (437 )   (4,441 )   (806 )   (4,846 )
Income (loss) from continuing operations 63,746 (3,719 ) 63,331 (7,629 )
Income (loss) from discontinued operations (395 ) (1,175 ) (481 ) 9,970
Gain on sale of joint venture interest to a related party - - - 1,317
Gains from disposals - - - 389,140
Provision for taxes   -     -     -     (2,515 )
Income (loss) from discontinued operations   (395 )   (1,175 )   (481 )   397,912  
Net income (loss) attributable to Gramercy Property Trust Inc. 63,351 (4,894 ) 62,850 390,283
Accrued preferred stock dividends   (1,791 )   (1,790 )   (3,581 )   (3,580 )
Net income (loss) available to common stockholders $ 61,560   $ (6,684 ) $ 59,269   $ 386,703  
Basic earnings per share:
Net income (loss) from continuing operations, after preferred dividends $ 0.66 $ (0.09 ) $ 0.73 $ (0.20 )
Net income (loss) from discontinued operations   -     (0.02 )   (0.01 )   6.79  
Net income (loss) available to common stockholders $ 0.66   $ (0.11 ) $ 0.72   $ 6.59  
Diluted earnings per share:
Net income (loss) from continuing operations, after preferred dividends $ 0.65 $ (0.09 ) $ 0.71 $ (0.20 )
Net income (loss) from discontinued operations   -   (0.02 )   (0.01 )   6.79  
Net income (loss) available to common stockholders $ 0.65   $ (0.11 ) $ 0.70   $ 6.59  
Basic weighted average common shares outstanding   92,753,999     58,605,219     82,116,300     58,641,447  
Diluted weighted average common shares and common share
equivalents outstanding 95,085,817     58,605,219     84,448,723     58,641,447  
 
 
Gramercy Property Trust Inc.
Reconciliation of Non-GAAP Financial Measure
(Unaudited, dollar amounts in thousands, except per share data)
 
  For the Three Months Ended   For the Year Ended
June 30, 2014   June 30, 2013 June 30, 2014   June 30, 2013
Net income (loss) available to common shareholders $ 61,560 $ (6,684 ) $ 59,269 $ 386,703
Add:
Depreciation and amortization 6,760 919 10,145 1,721
FFO adjustments for unconsolidated joint ventures 1,661 2,266 3,952 4,647
Non-cash impairment of real estate investments - - - -
Less:
Non-real estate depreciation and amortization (220 ) (46 ) (376 ) (551 )
Gain on remeasurement of previously held joint venture (72,345 ) - (72,345 ) -
Gain on sale of real estate   -       -       -       -  
Funds from operations $ (2,584 ) $ (3,545 ) $ 645   $ 392,520  
 
(Income) loss from discontinued operations 395 1,175 481 (397,912 )
FFO adjustment for discontinued operations   -     -     -     (15 )
 
FFO before discontinued operations $ (2,189 ) $ (2,370 ) $ 1,126   $ (5,407 )
 
 
Add:
Property acquisition costs 1,688 698 1,923 1,249
Non-cash stock-based compensation expense 516 577 1,042 989
Amortization of above market lease assets 360 39 599 75
Amortization of deferred financing costs and non-cash interest 925 6 1,278 6
Amortization of lease inducement costs 44 - 88 -
Other-than-temporary impairments on retained bonds - 1,682 - 1,682
Return on construction advances 173 - 358 -
Non-real estate depreciation and amortization 220 46 376 551
Loss on extinguishment of debt 1,925 - 1,925 -
Loss on derivative instruments 3,415 - 3,300 -
Amortization of free rent received at property acquisition 223 - 223 -
Less:
AFFO adjustments for joint ventures (321 ) 3,121 (773 ) 4,644
Straight-lined rent (916 ) (518 ) (1,732 ) (651 )
Incentive fees, net of taxes - (3,166 ) - (3,326 )
Amortization of below market lease liabilities   (514 )   (104 )   (674 )   (117 )
 
Adjusted Funds from Operations $ 5,550   $ 11   $ 9,059   $ (305 )
 
Funds from operations per share - basic $ (0.03 ) $ (0.06 ) $ 0.01   $ 6.69  
 
Funds from operations per share - diluted $ (0.03 ) $ (0.06 ) $ 0.01   $ 6.69  
 
FFO before discontinued operations - basic $ (0.02 ) $ (0.04 ) $ 0.01   $ (0.09 )
 
FFO before discontinued operations - diluted $ (0.02 ) $ (0.04 ) $ 0.01   $ (0.09 )
 
Adjusted funds from operations per share - basic $ 0.06   $ 0.00   $ 0.11   $ (0.01 )
 
Adjusted funds from operations per share - diluted $ 0.06   $ 0.00   $ 0.11   $ (0.01 )
 

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, gains or losses from debt restructurings and sales of depreciable operating properties, plus real estate-related depreciation and amortization (excluding amortization of deferred financing costs), less distributions to non-controlling interests and gains/losses from discontinued operations and after adjustments for unconsolidated partnerships and joint ventures. FFO does not represent cash generated from operating activities in accordance with GAAP and should not be considered as an alternative to net income (determined in accordance with GAAP), as an indication of our financial performance, or to cash flow from operating activities (determined in accordance with GAAP) as a measure of our liquidity, nor is it entirely indicative of funds available to fund our cash needs, including our ability to make cash distributions. Our calculation of FFO may be different from the calculation used by other companies and, therefore, comparability may be limited.

Contacts

Gramercy Property Trust Inc.
Jon W. Clark, 212-297-1000
Chief Financial Officer
or
Emily Pai, 212-297-1000
Investor Relations

Contacts

Gramercy Property Trust Inc.
Jon W. Clark, 212-297-1000
Chief Financial Officer
or
Emily Pai, 212-297-1000
Investor Relations