Real estate investment trusts have been on fire the past couple of years, as the economy has improved and interest rates (and capitalization rates) have fallen.
However, trees don't grow all the way to the sky. Last quarter, HRPT's Properties Trust
During the earnings call, management remarked that this was the first quarter in many years in which nationwide office occupancy fell slightly, since demand wasn't keeping up with supply.
HRPT also saw a shift in leadership in its real estate markets. Because of abundant development in Washington, D.C., which has had 2 million square feet in new development per quarter, and southern California, those markets fell out of HRPT's top tier of strongest markets. In their place were Boston and Philadelphia, where HRPT had success preleasing 50% of the Comcast
HRPT continued to diversify and build on its strategy of going into markets that aren't quite as high-profile. During the quarter, HRPT purchased four office buildings in South Carolina and Massachusetts, with 391,000 square feet and 96.3% occupancy, for $42.6 million at a very healthy 9.8% cap rate.
Although nationwide occupancy was slightly down, HRPT did see some positive trends. Management noted that competitors were pushing for stronger rental rates and fewer concessions of free rent. Tenant improvement dollars have largely stayed constant, but lessors are getting longer lease terms as a result -- which means, on a net basis, the landlord is getting higher rents.
It's hard to tell which way the wind will blow, because interest rates -- and thus, future capitalization rates -- and liquidity can be unpredictable. But HRPT offers a tempting 7% dividend yield, which is high relative to peers like Boston Properties
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Fool contributor Emil Lee is an analyst and a disciple of value investing. He doesn't own shares in any of the companies mentioned above. Emil appreciates your comments, concerns, and complaints. The Motley Fool has a disclosure policy.