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Gramercy (GPT) Unveils E-Commerce Distribution Facilities JV

Gramercy Property Trust GPT has been making concerted efforts to benefit from the current e-commerce boom. The company recently unveiled a joint venture for acquisitions, ownership and management of newly constructed Class A, e-commerce distribution facilities throughout the United States. It is in talks with a number of institutional capital partners, and a deal has already been chalked out with a sovereign investor to anchor the venture.

Notably, amid an e-commerce boom, growth in industries and companies opting for consolidation of operations for improving supply chain efficiencies, and shifting closer to large population centers, demand for logistics infrastructure and efficient distribution networks has been increasing. In fact, per a report from Prologis Inc. PLD, for a given level of revenues, online retailers require three times the distribution center space compared with traditional retailers.

This is helping the industrial real estate market to grow and providing scope for REITs like Gramercy, Prologis, DCT Industrial Trust Inc. DCT and Liberty Property Trust LPT to flourish. Therefore, this new venture of Gramercy is a strategic fit.

The initial acquisition of the venture is a $642-million portfolio, being acquired on a forward basis. This consists of seven newly constructed Class A bulk distribution properties, aggregating 6.0 million square feet of space.

This acquisition is slated to take place in phases. The buyout of the first four properties, worth $360 million in total, is projected to occur during fourth-quarter 2017. The other tranche, comprising three properties worth $282 million, is likely to take place in third-quarter 2018. These assets are located in Dallas, TX, Inland Empire, CA (2), Jacksonville, FL, the New England I-95 Corridor, Southern NJ, and Winchester, VA.

Each of the buildings would be fully leased to a top e-commerce company, in a bid to leverage on the rising demand for e-commerce distribution facilities. The leases are, however, separate but each has an initial 15-year term, with annual 1.75-2.00% rental escalations.

Gramercy expects to make a contribution in the range of 25-50% of the equity to the venture. This is estimated in the band of $64-$128 million at target leverage levels,s per the company’s press release. Moreover, the company plans funding the first acquisition with 55-60% property level mortgage debt.

In a separate press release, the company also noted that it has agreed to acquire a 41-property portfolio (spanning 7.8 million square feet of space) of modern warehouse industrial buildings for $479 million. Such efforts are anticipated to drive the company’s long-term growth.

Currently, Gramercy carries a Zacks Rank #3 (Hold). In addition, shares of Gramercy have gained 5.8% year to date, outperforming 2.8% growth recorded by the industry. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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