Real estate investment trust Gramercy Property Trust Inc. (GPT) shelled out $17.3 million in cash for acquiring industrial properties in Miami, FL. The move underlines the company’s strategy of acquiring income-producing assets that are leased to a high quality tenant to ensure a steady source of rental income.
Reflecting positive investors’ sentiment, the stock advanced 1.48% during Friday’s regular trading session on the NYSE.
In particular, Gramercy Property acquired three auto salvage sites spanning across 30 acres in Medley, in the Miami MSA region. A large publicly traded global company, offering replacement auto and truck parts, has leased these properties till Jul 2022. The longer lease term is expected to cushion the company against short-term market swings.
Strategic acquisitions play a major role in enhancing Gramercy Property’s top line. For the first year, net operating income of around $1.3 million from these properties is estimated that translates to initial cap rate of 7.4%. The lease has further provisions for rent hikes every 60 months, which is based upon the rise in CPI, subject to a maximum increase.
Notably, Gramercy Property seems to be on an acquisition spree. Recently, the company acquired Chicago, IL-based cold storage facility, covering 187,000 square foot. Valued at $19.1 million, the cold storage facility and dry warehouse is estimated to have 8.1% initial cap rate in the first year.
In the second quarter, Gramercy Property shelled out around $96.2 million for acquiring seven properties with initial cap rate 7.3% and an average weighted lease term of 12.5 years. The company also bought the stake of its joint venture partner in the Bank of America Corp. (BAC) portfolio (97% leased to Bank of America, N.A.), comprising 67 U.S. properties, at a consolidated investment valuation of $395.2 million.
Going forward, we believe that such strategic acquisitions would help the company to ride on the growth trajectory. However, an anticipated rise in interest rates in the long term may hurt its rate sensitive business.
Gramercy Property currently carries a Zacks Rank #3 (Hold). Investors interested in REITs may consider better-ranked stocks like Pebblebrook Hotel Trust (PEB) and DCT Industrial Trust Inc. (DCT). While Pebblebrook sports a Zacks Rank #1, DCT Industrial holds a Zacks Rank #2 (Buy).
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