Investing in Commercial Real Estate

The downturn housing market has overwhelmingly brought about a viral collapse of investor confidence in all companies that were perceived to have a bulk of their assets in property and construction, let alone a REIT. Even companies that had limited exposure to the root issue have suffered the wrath of the wary investor whose fear has yielded buying opportunities for the patient and wise. HRPT Properties Trust (HRP) is a fine example of such an opportunity, and is one that is beginning to show signs of revitalizing strength.

With over $6.3 billion in commercial real estate as of March 2008, HRPT's physical properties cover 65 million square feet across 37 distinct states. Focused on government and medical tenants, the strategy of retaining an evenly split portfolio of tenants that are both stable and able to appreciate value has been the core business practice of HRPT. Limiting secured debt, the trust also holds a "large majority of [its] properties... unencumbered by mortgages."

At its current $7.50 share price, HRP retains a meager market capitalization of $1.69 billion along with an enterprise value of $5.3 billion. With such a significantly-sized capitalization disconnect to its practical valuation it is no surprise that we find that the company's shares have been in a steady decline since early 2007. Falling from a high water mark of about $13.40, HRP has since lost about 44% of its value in a little over a year, a decline undoubtedly fueled by fears spilling over from the mortgage crisis in mid-to-late 2007.

Yet despite a grim decline, company performance remained relatively consistent and widely disproportionate to market activity. 4^th Quarter results yielded a 27% decline, but more importantly 1^st Quarter 2008 showed only a 12% slowing on year-over-year earnings. To date, analysts continue to expect an approximately $1 earnings estimate over the year placing a forward P/E ratio of 6.88 on the company at $7.50.