Case Studies.Disciplined Capital Recycling
Single-Tenant Office.

Extensive and disciplined underwriting enabled GRT to assume managed tenant credit risk and realize a substantial near-term gain upon sale of the asset

DreamWorks – Glendale, CA

Product

Single-Tenant Office

Purchase Date

Jul-2015

Transaction Size

497,403 SF
  • Challenge: The property was acquired in July 2015. At acquisition, DreamWorks Animation (“DreamWorks”) occupied 100% of the Class “A” property for its headquarters pursuant to a lease with a WALT of 19.6 years. The property’s location in Los Angeles’ “Media District” is home to an unparalleled concentration of major movie studio production headquarters including Disney/ABC, Comcast-NBC/Universal and Warner Brothers. However, at acquisition, DreamWorks had a sub-investment-grade credit rating of “B-” by S&P
  • Resolution: After extensive credit underwriting and analysis, GRT determined that the most logical transition for the tenant would be an M&A transaction. That conclusion was based on its relatively small market cap ($1.7bn), the intrinsic value of its content library, and the numerous large-cap suitors that showed recent interest in acquiring the firm.
    • Given the long-term lease and its prime location in the Media District, GRT decided to take on managed tenant credit risk realizing that a potential acquisition by a large-cap company would result in a significant value creation. GRT’s near-term M&A projection proved to be accurate. In August 2016, just one year after GRT’s acquisition of the property, Comcast (S&P: “A-”) acquired DreamWorks. Comcast’s acquisition of the tenant dramatically improved the tenant’s credit profile, and as a result, offered an opportunity for GRT to realize a substantial gain upon sale
    • After a thorough hold vs. sell evaluation, GRT sold the property in November 2017 at a cap rate of 4.71% for $290mm ($631 PSF), resulting in a $75mm gross profit
  • Benefits:
    • Thoughtful underwriting and managed risk taking allowed GRT to achieve substantial gain upon sale
    • The proceeds were used to acquire four assets (two industrial and two office) in high-growth markets with a WALT of 14.5 years, allowing the REIT to continue its growth