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NEWTON, MA—Government Properties Income Trust, a new REIT based here, priced its initial public offering of 10 million shares last week at $20 a share. The company, which will trade on the New York Stock Exchange under the ticker GOV, is the spinoff of a subsidiary of HRPT Properties Trust.

It starts out of the gate owning 29 properties totaling about 3.3 million square feet and leased largely to the US government and several state governments. According to GOV’s prospectus, properties in its portfolio include a 97,000-square-foot office building in Phoenix occupied by the Federal Bureau of Investigation; a 188,000-square-foot Food and Drug Administration office asset in Rockville, MD; a 340,000-square-foot office building in Washington, DC, occupied by Immigration & Customs Enforcement and the Department of Justice; and a 148,000-square-foot Drug Enforcement Administration office building in San Diego.

Proceeds from the offering “will be principally used to repay amounts outstanding under GOV’s credit facility,” according to an announcement from the company.

As its name suggests, the focus of Government Properties Income Trust is on properties that are “majority leased to government tenants,” as it prospectus describes it. “Federal, state and local governments are among the largest users of leased real estate in the United States. We believe that the expected increase in government regulation resulting from the current economic crisis will increase the US Government’s demand for leased office space,” the prospectus states.

“Similarly, we believe that budgetary pressures may cause an increased demand for leased space, as opposed to government owned space, among government tenants generally. Our business plan is to maintain our properties, seek to renew our leases as they expire, selectively acquire additional properties that are majority leased to government tenants and pay distributions to our shareholders.”

While not standard net lease property fare, government-occupied properties are sometimes the targets of single-tenant asset investors as well as more diversified investors or buyers specifically focused on government properties. Government tenants are typically viewed as strong credits and, like corporations, may increasingly favor leasing versus owning real estate, particularly in times of limited capital resources.

While commercial real estate transactions overall are anemic, there are some recent sales of government occupied buildings to look to. Late last year, for example, UrbanAmerica purchased a portfolio of government-occupied office and industrial assets from Rubicon America Trust. And earlier this year, New York City-based net lease REIT CapLease Inc. sold a property leased to the US government at an approximate cap rate of 7.4% to an individual investor in a privately negotiated transaction. “The strong purchase price is reflective of not only the credit quality of the tenant but also the very favorable in-place assumable mortgage debt,” CapLease chairman and CEO Paul McDowell recently said of the deal.

Following the offering, HRPT will own 49.9% of GOV. Like HRPT, GOV will be managed by Reit Management & Research LLC. “RMR began advising and managing businesses that invest in properties leased to government tenants in 1997,” according to GOV’s prospectus. “RMR has extensive experience in dealing with the General Services Administration, or the GSA, and government leasing requirements. The GSA administers most of the non-military real estate requirements of the US Government.”

In addition to the public offering of 10 million shares, the offering’s underwriters have an over-allotment option for an additional 1.5 million share. Merrill Lynch & Co., Morgan Stanley and Wachovia Securities are the joint book running managers for the offering, while Citi, Morgan Keegan & Co, RBC Capital Markets and UBS Investment Bank are joint lead managers.

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