Maryland REITs continue restructuring strategies -- Gazette.Net



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Washington Real Estate Investment Trust plans to sell its medical office portfolio as it restructures its holdings to focus on core office, multifamily and retail space in the Greater Washington, D.C., region.

The move follows the Rockville company’s 2011 exit from the industrial market and the sale of its outside-the-Beltway office holdings, as WRIT joins other Washington-focused REITs that are undergoing strategic changes amid weaker federal tenant spending.

WRIT said this week it is exploring selling off 17 medical properties, including four buildings totaling 207,000 square feet clustered near Shady Grove Adventist Hospital in Rockville, plus a 125,000-square-foot building in Pikesville, north of Baltimore. The portfolio totals 1.3 million square feet as of the third quarter and contributed 15 percent of the company’s total net operating income.

The company said its medical office division “represents the largest portfolio of institutional quality medical office assets” in the Washington region, with properties also near George Washington Hospital in the District and Inova Fairfax (Va.) Hospital. The company noted only three properties are encumbered by debt totaling about $24 million in mortgages.

The proposed sale of the medical properties is consistent with efforts to strengthen the balance sheet and reduce debt, which means WRIT “survived the financial crisis,” CEO and President George F. McKenzie said Wednesday during a conference call with investment analysts.

“We significantly upgraded the quality of our assets, selling commodity suburban office assets and focusing investment inside the Beltway or in metros,” McKenzie said. “We sold the industrial portfolio, recognizing a gain of $99 million, and redeployed the capital to higher-quality assets with better growth potential. And now we are continuing the strategy to intensify our focus and reduce our verticals by selling the medical office portfolio, which I anticipate will be at a significant premium to valuations our analysts are representing.”

The company also is shrinking its office building presence in Maryland outside the Beltway. In Rockville, it expects to close this quarter on the sale of the 80,000-square-foot Atrium office building at 6101 Executive Blvd. and is under contract to sell Jefferson Plaza, a 113,000-square-foot office building. That follows the sale of 1700 Research Blvd. in Rockville and the Plumtree Medical office building, a 33,341-square-foot property in Bel Air.

WRIT’s restructuring moves — including McKenzie’s announcement that he plans to retire after six years as CEO by the end of 2013 — gave rise to speculation that the company is positioning itself for a possible sale.

During the conference call, John Guinee, an analyst with Stifel Nicolaus, asked, “The phone was ringing off the hook this morning, and everybody asked the same darn question, so I’ve got to ask it of you or of WRIT: You sell the (medical office buildings), the CEO transition issue, you are creating at a big discount to (net asset value), the D.C. office market’s clearly going to be slow for a number of years, 20,000 or 30,000 apartment deliveries in the next few years, plenty of cheap debt out there to lever off a portfolio — what’s the thought of just putting the entire company up for sale?”

McKenzie said the company is on a long-term path to enhance its value, but he did not rule out the possibility of a sale at some point.

“Our initiatives are to continue the growth path that we set forth over almost six years ago,” McKenzie said. “If something happens in the meantime, we will always consider it if it’s in the best interest of the shareholders, but that certainly was not the fundamental reason for the initiatives that we’ve outlined.”

Whatever its future ownership, WRIT said the sale of its medical portfolio would mean its “business will consist entirely of properties where people work, live and shop in one of the strongest real estate markets in the world.”

First Potomac selling off industrial portfolio

First Potomac Realty Trust of Bethesda announced it is exploring the sale of a 24-property industrial portfolio that totals about 4.3 million square feet of space, as it focuses on reducing debt and investing in office space in the Washington region.

“Over the past three years, we have significantly improved our portfolio through the acquisition and development of office properties in the Washington, D.C., metropolitan region,” Douglas J. Donatelli, chairman and CEO, said in a news release. “The steps identified in our plan are designed to position us in the coming years to be the leading owner of high-quality office properties in the region.”

About 2.6 million square feet of the industrial listings with Eastdil Secured are in southern Virginia. But First Potomac also owns buildings from Beltsville to Frederick and Hanover.

The industrial portfolio was about 80 percent leased as of Sept. 30 and represents about 17 percent of the company’s net operating income.

“A portfolio sale of its industrial properties provides the most efficient means of de-levering the balance sheet while preserving net asset value for shareholders,” the company said. Office properties would represent more than 50 percent of total revenue after the industrial sale.

COPT marketing Colorado holdings

Corporate Office Properties Trust also recently announced a move to concentrate on its core federal military and intelligence tenants and related private contractors by selling off its 16-building portfolio in Colorado Springs, Colo.

The Columbia company hopes to complete the sale by the end of the year, company officials said during a Jan. 15 conference call with stock analysts.

The company, which owns more than 1.1 million square feet in Colorado with major tenants including federal agencies and companies such as BAE Systems, Northrop Grumman and Lockheed Martin, announced in 2011 it would shrink its presence there as part of its strategic restructuring. The Colorado Springs properties had a vacancy rate of 23.5 percent as of Sept. 30, which is more than twice the firm’s nationwide rate of 11.9 percent, according to a filing with the Securities and Exchange Commission.

The company estimates it will generate $160 million through the sale of the buildings and some surrounding land.

Closer to home, COPT also announced it signed an unnamed strategic tenant for 58,000 square feet in the National Business Park in Annapolis Junction, bringing the building to full occupancy.

The tenant leased the final two floors at 410 National Business Park and plans to occupy the property in the third quarter. As of Sept. 30, the property was only 48 percent leased.

“Excluding two buildings on which we recently broke ground, (National Business Park) was 97.6 percent leased at year-end 2012, and is now 99.4 perecent leased,” CEO and President Roger A. Waesche Jr. said in a statement.

Washington Property leases space to Bible college

Lancaster (Pa.) Bible College has leased 18,575 square feet at Washington Property Co.’s Patriot Business Park East in Greenbelt, according to Cushman & Wakefield, which represented the college.

Formerly occupied by the University of Phoenix, the ground-floor space at 7852 Walker Road has 11 fully equipped classrooms, student study areas, offices, a lounge and a library area.

Starting in March, the college will offer local adult learners a variety of academic offerings, including non-degree courses, undergraduate majors, graduate education and a doctorate in leadership. Courses will be available in conventional, online and blended formats, the school said.

“This is as fine an educational facility as anyone can find, and makes a strong statement to our students that we want to provide a quality learning environment,” said college President Peter W. Teague in a statement.

The college is a fully accredited academic institution with its main campus in Lancaster. It recently acquired the academic programs of Washington Bible College and Capital Bible Seminary; the new facility in Greenbelt will be called Lancaster Bible College/Capital Bible Seminary Capital Campus.

Developed by Washington Property from the ground up in 2004, Patriot Business Park comprises twin four-story, 84,000-square-foot class A buildings with access to the Beltway, Baltimore-Washington Parkway, I-95, the Greenbelt Metro station and MARC trains.

Columbia Medical Building sells for $20.6 million

Colliers International Baltimore announced it brokered the sale of the Charter Professional Building on the campus of Howard County General Hospital in Columbia for $20.6 million.

Colliers represented the seller, Aequus I, a partnership of physicians who practice in the building. The purchaser was a real estate investment trust specializing in owning medical office buildings.

“The sale represents perhaps the highest price paid for any medical office building in the Baltimore area for many years, and the amount paid per square foot is among the highest of any medical office building in the entire region last year,” Gary Applestein, managing director and principal for Colliers Baltimore, said in a news release.

The three-story building, at 10700 Charter Drive, has 56,212 square feet. At the time of purchase, it was 98 percent leased and 30 percent occupied by organizations affiliated with Johns Hopkins Medicine, including the Wilmer Eye Institute and Howard County General Hospital.

Commercial real estate news items may be mailed to Robert Rand, The Business Gazette, 9030 Comprint Court, Gaithersburg, Md. 20877; emailed to rrand@gazette.net; or faxed to 301-670-7183.