NEW YORK CITY—Ladenburg Thalmann & Co., an investment advisory firm, is liking what its hearing—and seeing—with respect to Gramercy Property Trust, calling the latter firm “the next blue chip net lease REIT in the making.”
“We believe GPT has all the makings of the next blue chip single-tenant net lease REIT,” says Daniel Donlan, VP of equity research and REITs at Ladenburg. “In our view, there is not a clear net lease leader that is exclusively focused on industrial and office assets. Given GPT CEO Gordon DuGan's 22-year history with W.P. Carey, his deep underwriting experience across a variety of net lease asset types, his strong credibility and growing familiarity with institutional investors, we believe Gramercy can evolve into a blue chip REIT if the capital markets remain open to their ambitious growth plan."
Given the longstanding industry relationships of both DuGan and president Ben Harris, who was WPC's former North American acquisition head, "we do not see sourcing attractive deal flow as a hindrance either," Donlan adds. "With that in mind, we view GPT's 2015 AFFO/sh multiple of 10.1x as grossly undervaluing its sector leading (and potentially industry leading) earnings growth in both 2014 and 2015. We reiterate our buy rating and $7 price target.”
Further, Donlan says, Gramercy is poised to move past what some may perceive as issues now facing the REIT. “With GPT down 6.7% in 2014, which has underperformed the net lease sector average and RMZ by 1,465 basis points and 1,760 basis points, respectively, we believe the REIT is positioned to rally from current levels as said weakness has little to do with the underlying business plan. For instance, with GPT's 95.6% return leading all REITs in 2013, there has understandably been some profit taking and style drift by investors in our view. In addition, with the October private placement lock-up expiring on March 25, we believe the stock was likely pressured into the expiration, as is often the case with such situations. Lastly, with the REIT forecasting a 50/50 equity/debt split to finance its projected 2014 acquisition volume of $600M, we believe the stock has been held back by a perceived equity overhang.”
After several days of meetings with DuGan, Ladenburg is confident in Gramercy Property Trust. ”In light of all the positive takeaways from our meetings, our sense is that REIT dedicated investors are starting to gravitate toward GPT despite its micro-cap size. In fact, in all our years of traveling with small and micro cap REITs, never before have we seen such widespread interest in a name. We strongly advise investors build positions in GPT now versus later.”
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Rayna Katz
Rayna Katz is a seasoned business journalist whose extensive experience includes coverage of the lodging sector, travel and the culinary space. She was most recently content director for a business-to-business publisher, overseeing four publications. While at Meeting News, a travel trade publication, she received a Best Reporting award for a story on meeting cancellations in New Orleans during Hurricane Katrina.
