Gramercy Property Trust: An Alternative Way To Trade The E-Commerce Boom

Reflecting the online behemoth's dominance, shares of the company have been on a roll. Amazon's stock is currently trading at $953.29, off its all-time closing highs of $1,052.80 reached on July 26.

For those who cannot afford to buy the pricey Amazon shares, here is an alternative — a cheap way to play the e-commerce boom.

Into The Business Of Leasing

Real estate investment trust Gramercy Property Trust GPT announced Tuesday a new joint venture to own and manage Class A distribution centers leased to e-commerce tenants on long-term leases across the country.

The company indicated it is in discussions with institutional capital partners, with one sovereign investor having agreed to anchor the venture. Gramercy said it would contribute between 25 and 50 percent of equity to the venture, valued between $64 million and $128 million at targeted leverage levels.

Announcing plans for the joint venture, the company said its first acquisition is a forward purchase contract for $642 million, to be used to buy seven newly constructed Class A bulk distribution properties. The purchase of the first four properties to be bought for $360 million would happen in the fourth quarter of 2018, with the remaining three purchases planned for the third quarter of 2018.

The company intends to finance the acquisition with a 55–60 percent property level mortgage debt.

Distribution Centers: An Emerging Opportunity In Logistics

The news comes amid indication from Amazon that it plans to increase its distribution center presence. A distribution center is a warehouse that feeds warehouses rather than delivering products out to operation.

In fact, Amazon suggested that its recent agreement to buy Whole Foods Market, Inc. WFM is a step to increase its capacity of distribution centers.

Giving one of the rationales for the proposed Whole Foods buy, a tweet by the Wall Street Journal's financial editor Dennis Berman said, "Amazon did not just buy Whole Foods grocery stores. It bought 431 upper-income, prime-location distribution nodes for everything it does."

Also underlining the importance of distribution centers, Wal-Mart Stores Inc WMT recently applied for a patent for a drone-deploying blimp, according to the Bloomberg.

Incidentally, Amazon has secured a patent for such a flying warehouse back in April 2016. These flying warehouses from which drones set out to handle the last mile delivery, which thus far has been the prerogative of local delivery companies, will also serve as a restocking location for the drones.

In turn, these blimps may have to get their stocks from a distribution center, given the constraint with respect to capacity.

Considering everything, online or brick-and-mortar retailers having an e-commerce presence may prefer to have these distribution centers leased out to them than investing heavily in purchasing them: It is here companies such as Gramercy Property Trust have a lucrative opening.