The stock market claimed another victim Monday as poor equity valuations for real estate issues prompted HRPT Properties Trust (NYSE: HRP) to cancel a spinoff and IPO for its office properties.

Last December, the Massachusetts-based company said it would place its office buildings in a separate REIT from its senior housing and health care real estate. The company would then conduct an initial public offering for subsidiary Senior Housing Properties Trust.

But HRPT has cancelled the deal, citing market conditions affecting REITs, specifically those in the health care industry.

“HRPT does not believe that an initial public offering for Senior Housing Properties Trust can be achieved at a price which HRPT considers acceptable,” a statement from HRPT said. “At the same time, HRPT continues to believe that a separation of its businesses into two REITs each with a separate investment focus, is in its shareholders’ best interest and will enable each company to better achieve its growth objectives.”

About $2.3 billion of the company’s $3.2 billion of real estate investments are in office buildings, and about $770 million is invested in senior housing properties. More than 55 percent of these senior housing properties are up-market congregate care facilities leased to Marriott International, Inc. and Brookdale Living Communities, Inc., which have minimal health care components and little or no Medicare or Medicaid revenue.

HRPT will pursue the separation of these assets, creating two publicly owned REITs without an initial public offering. One share of Senior Housing Properties Trust will be distributed to HRPT shareholders for every 10 shares of HRPT owned.

Because there will be no IPO by Senior Housing Properties Trust, HRPT will retain a larger percentage ownership of Senior Housing than had been expected last December The 13.2 million shares of Senior Housing distributed to public shareholders of HRPT will represent 51 percent of the total ownership, with the remaining 49 percent retained by HRPT.

BOMA is working to pump up its stature in the corridors of DC by publicizing the real estate industry’s contribution to the economy.

Based upon its Experience Exchange Report and a random sample of owners’ estimated capital expenditures for last year, the Building Owners and Managers Association International determined that the office sector (as represented by BOMA members) accounted for more than $104 billion of North America’s economy. Real estate taxes paid by owners alone accounted for more than $22 billion.

Other annual expenditures for the office sector include:

• $10 billion on cleaning services
• $2.7 billion in capital expenditures for cleaning
• $4 billion on security
• $2 billion on elevators
• $1.5 billion on HVAC

This release coincides with crucial legislative votes on a tax cut package that would help the real estate industry considerably. Positioning, anyone?

“BOMA members are major contributors to the economy," said BOMA President Richard D. Baier. “The BOMA Index reveals the scope and extent to which other industries rely on BOMA members for the generation of a considerable amount of their business."

The bad news for health care REITs keeps rolling in, like duplicate invoices after major surgery.

BancBoston Robertson Stephens has lowered their rating on Meditrust (NYSE: MT) from a buy to a market performer. Meditrust is a fully integrated REIT that owns, operates and acquires health care and hotel properties nationwide.

BancBoston also lowered its 1999 and 2000 earnings-per-share estimates by $0.23 and $0.41 to $2.04 and $2.08, respectively.

If things don’t start looking up for health care and hotels, there may be some opportunities for bargain buys come Christmas.

Published: August 3, 1999

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