|
|
|
001-34364
|
|
26-4273474
|
(Commission File Number)
|
|
(IRS Employer Identification No.)
|
|
|
|
Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts
|
|
02458-1634
|
(Address of Principal Executive Offices)
|
|
(Zip Code)
|
|
OFFICE PROPERTIES INCOME TRUST
|
|
|
|
|
|
|
|
|
By:
|
/s/ Jeffrey C. Leer
|
|
Name:
|
Jeffrey C. Leer
|
|
Title:
|
Chief Financial Officer and Treasurer
|
|
|
|
|
|
|
|
Sale of
|
|
|
||||||
|
|
|
|
|
Historical
|
|
500 First Street
(A)
|
|
Pro Forma
|
||||||
ASSETS
|
|
|
|
|
|
||||||||||
|
Real estate properties:
|
|
|
|
|
|
|||||||||
|
|
Land
|
$
|
924,164
|
|
|
$
|
—
|
|
|
$
|
924,164
|
|
||
|
|
Buildings and improvements
|
3,020,472
|
|
|
—
|
|
|
3,020,472
|
|
|||||
|
|
|
Total real estate properties, gross
|
3,944,636
|
|
|
—
|
|
|
3,944,636
|
|
||||
|
|
Accumulated depreciation
|
(375,147
|
)
|
|
—
|
|
|
(375,147
|
)
|
|||||
|
|
|
Total real estate properties, net
|
3,569,489
|
|
|
—
|
|
|
3,569,489
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||||
|
Assets of properties held for sale
|
253,501
|
|
|
(45,734
|
)
|
|
207,767
|
|
||||||
|
Investment in unconsolidated joint ventures
|
43,665
|
|
|
—
|
|
|
43,665
|
|
||||||
|
Acquired real estate leases, net
|
1,056,558
|
|
|
—
|
|
|
1,056,558
|
|
||||||
|
Cash and cash equivalents
|
35,349
|
|
|
—
|
|
|
35,349
|
|
||||||
|
Restricted cash
|
3,594
|
|
|
—
|
|
|
3,594
|
|
||||||
|
Rents receivable, net
|
72,051
|
|
|
—
|
|
|
72,051
|
|
||||||
|
Deferred leasing costs, net
|
25,672
|
|
|
—
|
|
|
25,672
|
|
||||||
|
Other assets, net
|
178,704
|
|
|
—
|
|
|
178,704
|
|
||||||
|
Total assets
|
$
|
5,238,583
|
|
|
$
|
(45,734
|
)
|
|
$
|
5,192,849
|
|
|||
|
|
|
|
|
|
|
|
|
|
||||||
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
||||||||||
|
Unsecured revolving credit facility
|
$
|
175,000
|
|
|
$
|
—
|
|
|
$
|
175,000
|
|
|||
|
Unsecured term loans, net
|
387,152
|
|
|
(69,800
|
)
|
|
317,352
|
|
||||||
|
Senior unsecured notes, net
|
2,357,497
|
|
|
—
|
|
|
2,357,497
|
|
||||||
|
Mortgage notes payable, net
|
335,241
|
|
|
—
|
|
|
335,241
|
|
||||||
|
Liabilities of properties held for sale
|
4,271
|
|
|
—
|
|
|
4,271
|
|
||||||
|
Accounts payable and other liabilities
|
145,536
|
|
|
—
|
|
|
145,536
|
|
||||||
|
Due to related persons
|
34,887
|
|
|
—
|
|
|
34,887
|
|
||||||
|
Assumed real estate lease obligations, net
|
20,031
|
|
|
—
|
|
|
20,031
|
|
||||||
|
Total liabilities
|
3,459,615
|
|
|
(69,800
|
)
|
|
3,389,815
|
|
||||||
|
|
|
|
|
|
|
|
|
|
||||||
|
Commitments and contingencies
|
|
|
|
|
|
|||||||||
|
|
|
|
|
|
|
|
|
|
||||||
|
Shareholders' equity:
|
|
|
|
|
|
|||||||||
|
|
Common shares of beneficial interest, $.01 par value:
|
|
|
|
|
|
||||||||
|
|
200,000,000 shares authorized, 48,082,903 shares issued and outstanding
|
481
|
|
|
—
|
|
|
481
|
|
|||||
|
|
Additional paid in capital
|
2,609,801
|
|
|
—
|
|
|
2,609,801
|
|
|||||
|
|
Cumulative net income
|
146,882
|
|
|
24,066
|
|
|
170,948
|
|
|||||
|
|
Cumulative other comprehensive income
|
106
|
|
|
—
|
|
|
106
|
|
|||||
|
|
Cumulative common distributions
|
(978,302
|
)
|
|
—
|
|
|
(978,302
|
)
|
|||||
|
Total shareholders' equity
|
1,778,968
|
|
|
24,066
|
|
|
1,803,034
|
|
||||||
|
Total liabilities and shareholders' equity
|
$
|
5,238,583
|
|
|
$
|
(45,734
|
)
|
|
$
|
5,192,849
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of
|
|
|
|
Sale of
|
|
|
||||||||||
|
|
|
|
SIR
|
|
Merger
|
|
500 First
|
|
|
||||||||||
|
|
Historical
|
|
Shares
(B)
|
|
Transactions
(C)
|
|
Street
(E)
|
|
Pro Forma
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Rental income
|
$
|
426,560
|
|
|
$
|
—
|
|
|
$
|
332,036
|
|
|
$
|
(10,507
|
)
|
|
$
|
748,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Real estate taxes
|
|
49,708
|
|
|
—
|
|
|
30,696
|
|
|
(1,000
|
)
|
|
79,404
|
|
|||||
Utility expenses
|
26,425
|
|
|
—
|
|
|
10,400
|
|
|
(272
|
)
|
|
36,553
|
|
||||||
Other operating expenses
|
89,610
|
|
|
—
|
|
|
38,787
|
|
|
(948
|
)
|
|
127,449
|
|
||||||
Depreciation and amortization
|
|
162,488
|
|
|
—
|
|
|
138,700
|
|
|
(336
|
)
|
|
300,852
|
|
|||||
Loss on impairment of real estate
|
|
8,630
|
|
|
—
|
|
|
9,706
|
|
|
—
|
|
|
18,336
|
|
|||||
Acquisition and transaction related costs
|
|
14,508
|
|
|
—
|
|
|
12,989
|
|
|
—
|
|
|
27,497
|
|
|||||
General and administrative
|
|
24,922
|
|
|
—
|
|
|
49,079
|
|
|
(242
|
)
|
|
73,759
|
|
|||||
Write-off of straight line rents receivable, net
|
|
—
|
|
|
—
|
|
|
10,626
|
|
|
—
|
|
|
10,626
|
|
|||||
Total expenses
|
|
376,291
|
|
|
—
|
|
|
300,983
|
|
|
(2,798
|
)
|
|
674,476
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Gain on sale of real estate
|
20,661
|
|
|
—
|
|
|
4,075
|
|
|
—
|
|
|
24,736
|
|
||||||
Dividend income
|
1,337
|
|
|
—
|
|
|
1,745
|
|
|
—
|
|
|
3,082
|
|
||||||
Unrealized loss on equity securities
|
(7,552
|
)
|
|
—
|
|
|
(9,870
|
)
|
|
—
|
|
|
(17,422
|
)
|
||||||
Interest income
|
639
|
|
|
—
|
|
|
701
|
|
|
—
|
|
|
1,340
|
|
||||||
Interest expense
|
|
(89,865
|
)
|
|
10,085
|
|
|
(78,220
|
)
|
|
2,373
|
|
|
(155,627
|
)
|
|||||
Loss on early extinguishment of debt
|
|
(709
|
)
|
|
—
|
|
|
(1,192
|
)
|
|
—
|
|
|
(1,901
|
)
|
|||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Income (loss) from continuing operations before income tax expense and equity in net earnings (losses) of investees
|
|
(25,220
|
)
|
|
10,085
|
|
|
(51,708
|
)
|
|
(5,336
|
)
|
|
(72,179
|
)
|
|||||
Income tax expense
|
(117
|
)
|
|
—
|
|
|
(424
|
)
|
|
—
|
|
|
(541
|
)
|
||||||
Equity in net earnings (losses) of investees
|
(2,269
|
)
|
|
—
|
|
|
516
|
|
|
—
|
|
|
(1,753
|
)
|
||||||
Income (loss) from continuing operations
|
$
|
(27,606
|
)
|
|
$
|
10,085
|
|
|
$
|
(51,616
|
)
|
|
$
|
(5,336
|
)
|
|
$
|
(74,473
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Weighted average common shares outstanding (basic and diluted)
|
24,830
|
|
|
|
|
23,219
|
|
(D)
|
|
|
48,049
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Loss from continuing operations per common share (basic and diluted)
|
$
|
(1.13
|
)
|
|
|
|
|
|
|
|
$
|
(1.56
|
)
|
(A)
|
The adjustments represent the effect of the sale of 500 First Street which was classified as held for sale in OPI's consolidated balance sheet as of December 31, 2018, the application of the proceeds to repay $69,800 under OPI's unsecured term loan due in 2020 and to reflect the estimated gain as a result of the sale of 500 First Street.
|
(B)
|
The adjustments represent the effect on equity in net earnings of investees and gain on issuance of shares by SIR which is included in income from discontinued operations in OPI's condensed consolidated statement of income (loss), for OPI's sale of 24,918,421 common shares of SIR on October 9, 2018 and the reduction in interest expense related to the application of the net proceeds to repay $435,125 of borrowings outstanding under OPI's revolving credit facility as if this transaction occurred as of January 1, 2018.
|
(C)
|
On December 31, 2018, OPI completed the merger with SIR and acquired SIR's property portfolio of 99 buildings with approximately 16.5 million rentable square feet, or the Merger. As a condition of the Merger, on December 27, 2018, SIR paid a pro rata distribution to SIR's shareholders of record as of the close of business on December 20, 2018 of all 45,000,000 common shares of beneficial interest of Industrial Logistics Properties Trust, or ILPT, that SIR owned, or the ILPT Distribution. The Merger and ILPT Distribution, are collectively referred to herein as the Merger Transactions.
|
|
|
|
|
ILPT
|
|
ILPT
|
|
Pro Forma
|
|
Merger
|
||||||||||
|
|
SIR
(1)
|
|
IPO
(2)
|
|
Distribution
(3)
|
|
Adjustments
|
|
Transactions
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Rental income
|
|
$
|
481,010
|
|
|
$
|
—
|
|
|
$
|
(152,735
|
)
|
|
$
|
3,761
|
|
(4)
|
$
|
332,036
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Expenses:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Real estate taxes
|
|
49,027
|
|
|
—
|
|
|
(18,331
|
)
|
|
—
|
|
|
30,696
|
|
|||||
Utility expenses
|
|
10,400
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10,400
|
|
|||||
Other operating expenses
|
|
50,715
|
|
|
—
|
|
|
(11,928
|
)
|
|
—
|
|
|
38,787
|
|
|||||
Depreciation and amortization
|
|
141,546
|
|
|
—
|
|
|
(27,058
|
)
|
|
24,212
|
|
(5)
|
138,700
|
|
|||||
Loss on impairment of real estate
|
|
9,706
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9,706
|
|
|||||
Acquisition and transaction related costs
|
|
12,989
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12,989
|
|
|||||
General and administrative
|
|
59,898
|
|
|
—
|
|
|
(10,819
|
)
|
|
—
|
|
|
49,079
|
|
|||||
Write-off of straight line rents receivable, net
|
|
10,626
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10,626
|
|
|||||
Total expenses
|
|
344,907
|
|
|
—
|
|
|
(68,136
|
)
|
|
24,212
|
|
|
300,983
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Gain on sale of real estate
|
|
4,075
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,075
|
|
|||||
Dividend income
|
|
1,745
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,745
|
|
|||||
Unrealized loss on equity securities
|
|
(9,870
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(9,870
|
)
|
|||||
Interest income
|
|
898
|
|
|
—
|
|
|
(197)
|
|
|
—
|
|
|
701
|
|
|||||
Interest expense
|
|
(93,147
|
)
|
|
905
|
|
|
15,850
|
|
|
(1,828
|
)
|
(6)
|
(78,220
|
)
|
|||||
Loss on early extinguishment of debt
|
|
(1,192
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,192
|
)
|
|||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Income (loss) from continuing operations before income tax expense and equity in earnings of investees
|
|
38,612
|
|
|
905
|
|
|
(68,946
|
)
|
|
(22,279
|
)
|
|
(51,708
|
)
|
|||||
Income tax expense
|
|
(456
|
)
|
|
—
|
|
|
32
|
|
|
—
|
|
|
(424
|
)
|
|||||
Equity in earnings of investees
|
|
516
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
516
|
|
|||||
Net income (loss)
|
|
38,672
|
|
|
905
|
|
|
(68,914
|
)
|
|
(22,279
|
)
|
|
(51,616
|
)
|
|||||
Noncontrolling interest
|
|
(21,237
|
)
|
|
(1,441
|
)
|
|
22,678
|
|
|
—
|
|
|
—
|
|
|||||
Net income (loss) attributable to OPI
|
|
$
|
17,435
|
|
|
$
|
(536
|
)
|
|
$
|
(46,236
|
)
|
|
$
|
(22,279
|
)
|
|
$
|
(51,616
|
)
|
(1)
|
Represents the results of operations for SIR for the year ended December 31, 2018.
|
(2)
|
The adjustments represent the effect on income allocated to noncontrolling interest and interest expense assuming the redemption of $350,000 of SIR’s 2.85% senior unsecured notes due 2018 and the repayment of SIR’s $350,000 term loan from proceeds of the ILPT IPO occurred as of January 1, 2018.
|
(3)
|
The adjustments represent the deconsolidation of ILPT as a result of the ILPT Distribution as if this distribution occurred as of January 1, 2018. The amounts being adjusted are directly attributable to revenue and expenses associated with ILPT's properties and debt.
|
(4)
|
The adjustments represent estimated non-cash straight line rent and non-cash amortization of above and below market leases related to the leases acquired from SIR. The weighted average lease term for above and below market leases was 5.8 years and 5.7 years, respectively, as of December 31, 2018. The components of the rental income adjustments are as follows:
|
|
For the Year Ended
|
||
|
December 31, 2018
|
||
Non-cash, straight line rent adjustments
|
$
|
9,253
|
|
Non-cash, net above and below market lease amortization
|
(5,492
|
)
|
|
|
$
|
3,761
|
|
(5)
|
The adjustment eliminates SIR historical depreciation and amortization expense of $114,488 for the year ended December 31, 2018. The adjustment also includes estimated depreciation and amortization expense of $138,700 based on the fair value of the assets acquired in the Merger for the year ended December 31, 2018. Real estate investments are depreciated on a straight line basis over the estimated useful lives up to 40 years. Capitalized acquired in place leases, exclusive of the value of acquired above market and below market lease values, are amortized on a straight line basis over the 7.2 year weighted average remaining lease term as of December 31, 2018.
|
(6)
|
The adjustments to interest expense represent: (i) the elimination of SIR historical interest expense related to its revolving credit facility and historical senior unsecured note discount amortization, (ii) an increase in interest expense related to borrowings under OPI's revolving credit facility which was used to repay SIR’s outstanding revolving credit facility balance at the closing of the Merger, and (iii) an increase in senior unsecured note discount amortization due to the adjustments to reduce SIR’s senior unsecured notes to reflect changes in market interest rates as of December 31, 2018. The amortization is calculated beginning from January 1, 2018 with the assumption that the SIR senior unsecured notes were assumed by OPI at their fair value. The components of the interest expense adjustments are as follows:
|
|
For the Year Ended
|
||
Acquisition Borrowings on Revolving Credit Facility:
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December 31, 2018
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||
Estimated additional borrowings on revolving credit facility
|
$
|
108,000
|
|
Weighted average interest rate
|
3.00
|
%
|
|
Estimated annual interest expense
|
3,240
|
|
|
Less SIR historical revolving credit facility interest
|
(5,139
|
)
|
|
Total revolver adjustment
|
(1,899
|
)
|
|
Senior note discount pro forma adjustment
|
3,727
|
|
|
Total adjustment
|
$
|
1,828
|
|
(D)
|
The adjustment represents the issuance of 23,282,704 OPI common shares to SIR shareholders at the closing of the Merger.
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(E)
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The adjustments represent the historical revenues and expenses of 500 First Street for the year ended December 31, 2018 and the reduction in interest expense related to the application of the net proceeds to repay $69,800 under OPI's unsecured term loan due in 2020 as if these transactions had occurred on January 1, 2018.
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