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Summary

  • Gramercy Property Trust just issued its new series B preferred, which yields 7.125%.
  • This is an attractive yield that is backed by a diversified REIT that owns 110 properties nationwide.
  • Gramercy strengthened its financial position as it redeemed its higher yielding preferreds.

Gramercy Property Trust (NYSE:GPT) has just issued $87.5 million worth of new preferreds. The new series B preferreds have a coupon rate of 7.125% at par value. The company plans to use the net proceeds to redeem its series A preferreds. The series A preferreds have a coupon of 8.125%, which means the company is lowering its overall cost of capital. It's clear that management is taking advantage of the low rate environment while they still can.

Though the new preferred has a lower coupon, I still believe it's an attractive investment for a variety of reasons. For one, the preferred is cumulative, so the only way distributions for the preferred can get cut is if the common dividend is removed first. I don't see this happening given the company's history. Gramercy was paying dividends from 2004 to 2008, but cut its dividend. In 2014, the dividend was restarted as the company's financial position improved. It is unlikely that management will want to put the common dividend at risk again.

In addition, Gramercy has 110 properties spread over 20 states. I like the fact that the company is backed by cash flowing real estate with an average occupancy of 99%. This makes the preferred attractive as investors know that as long as the properties maintain sufficient cash flow, the distributions will be met.

Gramercy's improving financial position also provides some stability here as well. In the last three year, the company grew revenue from $7.7 million to $56.7 million. This is due to management focusing on rapid acquisition of properties in a low rate environment.

Gramercy's series B preferred has a call date of 8/15/2019. The preferred is only temporarily trading on the OTC exchange, but will be listed on the NYSE within 30 days under GPT-B.

This new preferred provides a nice 7%+ distribution stream that is backed by a company that owns real estate around the country. This is a nice little investment to have in income portfolios.

Note: Gramercy's new preferred may have various different names depending on your broker. Some examples include GPT-B, GPT-PB, GPT PRB, etc. Please check with your broker regarding this.

Source: Gramercy Property Trust: A 7.125% Yield For Income Investors