HRPT Properties Trust

A Massachusetts-based real estate investment trust becomes one of Hawaii's largest industrial landowners

August, 2005

It’s no secret how HRPT Properties Trust (NYSE:HRP) earned its spot on this year’s ranking of the state’s largest companies. The acquisition of $480 million worth (224 acres) of land from Damon Estate in December 2003 secured HRPT spots on both Hawaii Business’ Top 20 Wealthiest Landowners and Top 250 lists, at No. 11 and No. 151, respectively. The bigger mystery is how much higher the Massachusetts-based firm will climb over the next few years as it continues to aggressively seek additional investments in the Islands. Just as this year’s Top 250 issue went to press, HRPT was already closing one more significant land purchase – the 188-acre James Campbell Industrial Park (the largest industrial park in the state), which it purchased from Campbell Estate for $115.5 million in June.

“We’ve now got 18 million square feet of land in Hawaii, and that makes us one of, if not the largest, industrial landowners in the state of Hawaii,” says Adam Portnoy, executive vice president of HRPT. “And we haven’t targeted a specific dollar amount or time frame for investment in Hawaii, but we certainly are very excited about the Hawaiian market and we are looking at new opportunities for investment.”

Already, Hawaii is the fourth of HRPT’s seven largest markets, which together, represent two-thirds of the company’s net operating income. “In 2003 and 2004, we purchased around $1.6 billion of property across the country and, of that, about 25 percent of our acquisitions were in Hawaii,” says Portnoy. “And then obviously in 2005 we added the Campbell Estate lands.”

In 2004, the former Damon Estate property brought in $34.6 million of net operating income for HRPT, and the company estimates that the Campbell Estate lands will generate an additional $8.7 million per year in net rent income. Portnoy says: “The limited amount of new industrial development that’s occurring, the growth in the local economy, the growth in population and the existing industrial vacancy rate of less than 1 percent – those are all good trends that would say that these properties will be strong investments for us, and that, over time, their values should go up.”

So far, HRPT’s local investments have been mostly in industrial lands, but, on the Mainland, the company primarily owns and leases office buildings, so that may be a natural area of expansion in the future. According to Portnoy, HRPT has already looked at several office buildings in downtown Honolulu, as well as some retail spaces. “We don’t normally do retail, but, in Hawaii, if we owned just the ground and not the buildings, we might consider it,” he says.

In fact, becoming a large landowner in Hawaii meant doing quite a few things differently. The company, which, on average, tends to hold investments for around 10 to 15 years, had to adopt an even longer-term strategy for its local investments, since most of its tenants hold long-term leases, hindering any redevelopment prospects. HRPT also had to downshift the speed at which it was accustomed to doing business transactions to suit the local market. “I’m not trying to offend locals], but one of the challenges we encountered with the Damon transaction is that things take a little longer in Hawaii to get done,” says Portnoy. “We initially would have liked to have made a couple of changes or negotiate some leases a little quicker than we were able to. But learning and understanding how business is done in Hawaii is hopefully something we can apply to our future acquisitions.” Of which, he’s pretty sure, there will be at least a few more.

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Jacy L. Youn