Maryland
|
|
26-4273474
|
(State or Other Jurisdiction of Incorporation or Organization)
|
|
(IRS Employer Identification No.)
|
Large accelerated filer ☒
|
|
Accelerated filer ☐
|
|
|
|
Non-accelerated filer ☐
|
|
Smaller reporting company ☐
|
|
|
|
Emerging growth company ☐
|
|
|
Title of Each Class
|
|
Trading Symbol(s)
|
|
Name Of Each Exchange On Which Registered
|
Common Shares of Beneficial Interest
|
|
OPI
|
|
The Nasdaq Stock Market LLC
|
5.875% Senior Notes due 2046
|
|
OPINI
|
|
The Nasdaq Stock Market LLC
|
|
|
March 31,
|
|
December 31,
|
||||
|
|
2019
|
|
2018
|
||||
ASSETS
|
|
|
|
|
|
|
||
Real estate properties:
|
|
|
|
|
|
|
||
Land
|
|
$
|
918,992
|
|
|
$
|
924,164
|
|
Buildings and improvements
|
|
3,001,385
|
|
|
3,020,472
|
|
||
Total real estate properties, gross
|
|
3,920,377
|
|
|
3,944,636
|
|
||
Accumulated depreciation
|
|
(386,688
|
)
|
|
(375,147
|
)
|
||
Total real estate properties, net
|
|
3,533,689
|
|
|
3,569,489
|
|
||
Assets of properties held for sale
|
|
23,999
|
|
|
253,501
|
|
||
Investment in unconsolidated joint ventures
|
|
42,505
|
|
|
43,665
|
|
||
Acquired real estate leases, net
|
|
1,000,960
|
|
|
1,056,558
|
|
||
Cash and cash equivalents
|
|
20,153
|
|
|
35,349
|
|
||
Restricted cash
|
|
4,464
|
|
|
3,594
|
|
||
Rents receivable, net
|
|
67,776
|
|
|
72,051
|
|
||
Deferred leasing costs, net
|
|
30,788
|
|
|
25,672
|
|
||
Other assets, net
|
|
202,864
|
|
|
178,704
|
|
||
Total assets
|
|
$
|
4,927,198
|
|
|
$
|
5,238,583
|
|
|
|
|
|
|
||||
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
||
Unsecured revolving credit facility
|
|
$
|
80,000
|
|
|
$
|
175,000
|
|
Unsecured term loans, net
|
|
234,674
|
|
|
387,152
|
|
||
Senior unsecured notes, net
|
|
2,360,063
|
|
|
2,357,497
|
|
||
Mortgage notes payable, net
|
|
326,202
|
|
|
335,241
|
|
||
Liabilities of properties held for sale
|
|
178
|
|
|
4,271
|
|
||
Accounts payable and other liabilities
|
|
114,613
|
|
|
145,536
|
|
||
Due to related persons
|
|
5,626
|
|
|
34,887
|
|
||
Assumed real estate lease obligations, net
|
|
18,838
|
|
|
20,031
|
|
||
Total liabilities
|
|
3,140,194
|
|
|
3,459,615
|
|
||
|
|
|
|
|
||||
Commitments and contingencies
|
|
|
|
|
|
|
||
|
|
|
|
|
||||
Shareholders’ equity:
|
|
|
|
|
|
|
||
Common shares of beneficial interest, $.01 par value: 200,000,000 shares authorized,
48,091,903 and 48,082,903 shares issued and outstanding, respectively
|
|
481
|
|
|
481
|
|
||
Additional paid in capital
|
|
2,610,666
|
|
|
2,609,801
|
|
||
Cumulative net income
|
|
180,901
|
|
|
146,882
|
|
||
Cumulative other comprehensive income (loss)
|
|
(297
|
)
|
|
106
|
|
||
Cumulative common distributions
|
|
(1,004,747
|
)
|
|
(978,302
|
)
|
||
Total shareholders’ equity
|
|
1,787,004
|
|
|
1,778,968
|
|
||
Total liabilities and shareholders’ equity
|
|
$
|
4,927,198
|
|
|
$
|
5,238,583
|
|
|
Three Months Ended March 31,
|
||||||
|
2019
|
|
2018
|
||||
Rental income
|
$
|
174,777
|
|
|
$
|
108,717
|
|
|
|
|
|
||||
Expenses:
|
|
|
|
||||
Real estate taxes
|
18,392
|
|
|
12,964
|
|
||
Utility expenses
|
9,381
|
|
|
6,690
|
|
||
Other operating expenses
|
30,136
|
|
|
22,837
|
|
||
Depreciation and amortization
|
77,521
|
|
|
44,204
|
|
||
Loss on impairment of real estate
|
3,204
|
|
|
6,116
|
|
||
Acquisition and transaction related costs
|
584
|
|
|
—
|
|
||
General and administrative
|
8,723
|
|
|
9,606
|
|
||
Total expenses
|
147,941
|
|
|
102,417
|
|
||
|
|
|
|
||||
Gain on sale of real estate
|
22,092
|
|
|
—
|
|
||
Dividend income
|
980
|
|
|
304
|
|
||
Unrealized gain on equity securities
|
22,128
|
|
|
12,931
|
|
||
Interest income
|
248
|
|
|
116
|
|
||
Interest expense (including net amortization of debt premiums, discounts
|
|
|
|
||||
and issuance costs of $2,841 and $965, respectively)
|
(37,133
|
)
|
|
(22,766
|
)
|
||
Loss on early extinguishment of debt
|
(414
|
)
|
|
—
|
|
||
Income (loss) from continuing operations before income tax expense and
|
|
|
|
||||
equity in net losses of investees
|
34,737
|
|
|
(3,115
|
)
|
||
Income tax expense
|
(483
|
)
|
|
(32
|
)
|
||
Equity in net losses of investees
|
(235
|
)
|
|
(577
|
)
|
||
Income (loss) from continuing operations
|
34,019
|
|
|
(3,724
|
)
|
||
Income from discontinued operations
|
—
|
|
|
10,289
|
|
||
Net income
|
34,019
|
|
|
6,565
|
|
||
Other comprehensive loss:
|
|
|
|
|
|
||
Unrealized loss on financial instrument
|
(98
|
)
|
|
—
|
|
||
Equity in unrealized gain (loss) of investees
|
66
|
|
|
(41
|
)
|
||
Other comprehensive loss
|
(32
|
)
|
|
(41
|
)
|
||
Comprehensive income
|
$
|
33,987
|
|
|
$
|
6,524
|
|
|
|
|
|
||||
Net income
|
$
|
34,019
|
|
|
$
|
6,565
|
|
Preferred units of limited partnership distributions
|
—
|
|
|
(278
|
)
|
||
Net income available for common shareholders
|
$
|
34,019
|
|
|
$
|
6,287
|
|
|
|
|
|
||||
Weighted average common shares outstanding (basic)
|
48,031
|
|
|
24,760
|
|
||
Weighted average common shares outstanding (diluted)
|
48,046
|
|
|
24,760
|
|
||
|
|
|
|
||||
Per common share amounts (basic and diluted):
|
|
|
|
|
|
||
Income (loss) from continuing operations
|
$
|
0.71
|
|
|
$
|
(0.16
|
)
|
Income from discontinued operations
|
$
|
—
|
|
|
$
|
0.42
|
|
Net income available for common shareholders
|
$
|
0.71
|
|
|
$
|
0.25
|
|
|
Number
of Shares
|
|
Common Shares
|
|
Additional
Paid In Capital
|
|
Cumulative
Net Income
|
|
Cumulative
Other
Comprehensive
Income (Loss)
|
|
Cumulative
Common
Distributions
|
|
Total
|
|||||||||||||
Balance at December 31, 2018
|
48,082,903
|
|
$
|
481
|
|
|
$
|
2,609,801
|
|
|
$
|
146,882
|
|
|
$
|
106
|
|
|
$
|
(978,302
|
)
|
|
$
|
1,778,968
|
|
|
Share grants
|
9,000
|
|
—
|
|
|
865
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
865
|
|
|||||||
Amounts reclassified from cumulative other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
comprehensive income to net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(371
|
)
|
|
—
|
|
|
(371
|
)
|
||||||
Net current period other comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(32
|
)
|
|
—
|
|
|
(32
|
)
|
||||||
Net income available for common shareholders
|
—
|
|
|
—
|
|
|
—
|
|
|
34,019
|
|
|
—
|
|
|
—
|
|
|
34,019
|
|
||||||
Distributions to common shareholders
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(26,445
|
)
|
|
(26,445
|
)
|
||||||
Balance at March 31, 2019
|
48,091,903
|
|
$
|
481
|
|
|
$
|
2,610,666
|
|
|
$
|
180,901
|
|
|
$
|
(297
|
)
|
|
$
|
(1,004,747
|
)
|
|
$
|
1,787,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance at December 31, 2017
|
24,786,479
|
|
$
|
248
|
|
|
$
|
1,968,960
|
|
|
$
|
108,144
|
|
|
$
|
60,427
|
|
|
$
|
(807,736
|
)
|
|
$
|
1,330,043
|
|
|
Cumulative adjustment upon adoption of ASU No. 2016-01
|
—
|
|
|
—
|
|
|
—
|
|
|
60,281
|
|
|
(60,281
|
)
|
|
—
|
|
|
—
|
|
||||||
Adjustment upon adoption of ASU No. 2014-09
|
—
|
|
|
—
|
|
|
—
|
|
|
712
|
|
|
—
|
|
|
—
|
|
|
712
|
|
||||||
Balance at January 1, 2018
|
24,786,479
|
|
248
|
|
|
1,968,960
|
|
|
169,137
|
|
|
146
|
|
|
(807,736
|
)
|
|
1,330,755
|
|
|||||||
Shares forfeitures or repurchases
|
(153
|
)
|
|
—
|
|
|
(11
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(11
|
)
|
||||||
Net current period other comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(41
|
)
|
|
—
|
|
|
(41
|
)
|
||||||
Net income available for common shareholders
|
—
|
|
|
—
|
|
|
—
|
|
|
6,287
|
|
|
—
|
|
|
—
|
|
|
6,287
|
|
||||||
Distributions to common shareholders
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(42,632
|
)
|
|
(42,632
|
)
|
||||||
Balance at March 31, 2018
|
24,786,326
|
|
$
|
248
|
|
|
$
|
1,968,949
|
|
|
$
|
175,424
|
|
|
$
|
105
|
|
|
$
|
(850,368
|
)
|
|
$
|
1,294,358
|
|
|
|
Three Months Ended March 31,
|
||||||
|
|
2019
|
|
2018
|
||||
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
||
Net income
|
|
$
|
34,019
|
|
|
$
|
6,565
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
||
Depreciation
|
|
23,629
|
|
|
17,172
|
|
||
Amortization of debt premiums, discounts and issuance costs, net
|
|
2,841
|
|
|
965
|
|
||
Amortization of acquired real estate leases
|
|
53,837
|
|
|
26,790
|
|
||
Amortization of deferred leasing costs
|
|
1,350
|
|
|
1,120
|
|
||
Gain on sale of real estate
|
|
(22,092
|
)
|
|
—
|
|
||
Loss on impairment of real estate
|
|
3,204
|
|
|
6,116
|
|
||
Loss on early extinguishment of debt
|
|
414
|
|
|
—
|
|
||
Straight line rental income
|
|
(6,794
|
)
|
|
(3,091
|
)
|
||
Other non-cash expenses, net
|
|
593
|
|
|
(334
|
)
|
||
Unrealized gain on equity securities
|
|
(22,128
|
)
|
|
(12,931
|
)
|
||
Equity in net losses of investees
|
|
235
|
|
|
577
|
|
||
Equity in earnings of Select Income REIT included in discontinued operations
|
|
—
|
|
|
(10,289
|
)
|
||
Distributions of earnings from Select Income REIT
|
|
—
|
|
|
10,289
|
|
||
Change in assets and liabilities:
|
|
|
|
|
|
|
||
Rents receivable
|
|
14,390
|
|
|
(1,893
|
)
|
||
Deferred leasing costs
|
|
(7,985
|
)
|
|
(2,091
|
)
|
||
Other assets
|
|
2,873
|
|
|
2,296
|
|
||
Accounts payable and other liabilities
|
|
(30,387
|
)
|
|
(9,679
|
)
|
||
Due to related persons
|
|
(29,257
|
)
|
|
3,685
|
|
||
Net cash provided by operating activities
|
|
18,742
|
|
|
35,267
|
|
||
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
||
Real estate improvements
|
|
(12,969
|
)
|
|
(11,020
|
)
|
||
Distributions in excess of earnings from Select Income REIT
|
|
—
|
|
|
2,419
|
|
||
Distributions in excess of earnings from unconsolidated joint ventures
|
|
521
|
|
|
823
|
|
||
Proceeds from sale of properties, net
|
|
262,779
|
|
|
18,797
|
|
||
Net cash provided by investing activities
|
|
250,331
|
|
|
11,019
|
|
||
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
||
Repayment of mortgage notes payable
|
|
(8,954
|
)
|
|
(899
|
)
|
||
Repayment of unsecured term loans
|
|
(153,000
|
)
|
|
—
|
|
||
Borrowings on unsecured revolving credit facility
|
|
85,000
|
|
|
25,000
|
|
||
Repayments on unsecured revolving credit facility
|
|
(180,000
|
)
|
|
(25,000
|
)
|
||
Repurchase of common shares
|
|
—
|
|
|
(11
|
)
|
||
Preferred units of limited partnership distributions
|
|
—
|
|
|
(278
|
)
|
||
Distributions to common shareholders
|
|
(26,445
|
)
|
|
(42,632
|
)
|
||
Net cash used in financing activities
|
|
(283,399
|
)
|
|
(43,820
|
)
|
||
|
|
|
|
|
||||
Increase (decrease) in cash, cash equivalents and restricted cash
|
|
(14,326
|
)
|
|
2,466
|
|
||
Cash, cash equivalents and restricted cash at beginning of period
|
|
38,943
|
|
|
19,680
|
|
||
Cash, cash equivalents and restricted cash at end of period
|
|
$
|
24,617
|
|
|
$
|
22,146
|
|
Interest paid
|
|
$
|
49,545
|
|
|
$
|
27,733
|
|
Income taxes paid
|
|
$
|
7
|
|
|
$
|
—
|
|
|
|
March 31,
|
||||||
|
|
2019
|
|
2018
|
||||
Cash and cash equivalents
|
|
$
|
20,153
|
|
|
$
|
17,380
|
|
Restricted cash
|
|
4,464
|
|
|
4,766
|
|
||
Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows
|
|
$
|
24,617
|
|
|
$
|
22,146
|
|
Year
|
|
Amount
|
||
2019
|
|
$
|
409,264
|
|
2020
|
|
504,511
|
|
|
2021
|
|
476,943
|
|
|
2022
|
|
435,405
|
|
|
2023
|
|
390,252
|
|
|
Thereafter
|
|
1,286,197
|
|
|
Total
|
|
$
|
3,502,572
|
|
|
|
For the Three Months
|
||||
|
|
Ended March 31,
|
||||
|
|
2019
|
|
2018
|
||
Weighted average common shares for basic earnings per share
|
|
48,031
|
|
|
24,760
|
|
Effect of dilutive securities: unvested share awards
|
|
15
|
|
|
—
|
|
Weighted average common shares for diluted earnings per share
(1)
|
|
48,046
|
|
|
24,760
|
|
(1)
|
For the three months ended March 31, 2018,
two
unvested common shares were not included in the calculation of diluted earnings per share because to do so would have been antidilutive.
|
Date of Sale Agreement
|
|
Number of Office Buildings
|
|
Location
|
|
Square Feet
|
|
Gross
Sale Price (1) |
||
November 2018
(2)
|
|
1
|
|
Kapolei, HI
|
|
416,956
|
|
$
|
7,100
|
|
April 2019
(3)
|
|
1
|
|
Buffalo, NY
|
|
121,711
|
|
17,350
|
|
|
Total
|
|
2
|
|
|
|
538,667
|
|
$
|
24,450
|
|
(1)
|
Gross sale price includes purchase price adjustments, if any, and excludes closing costs.
|
(2)
|
Comprises of a leasable land parcel acquired from SIR in the SIR Merger (each as defined below). We expect this sale to close in the second quarter of 2019.
|
(3)
|
During the three months ended March 31, 2019, we recorded a
$2,757
loss on impairment of real estate to reduce the carrying value of this property to its estimated fair value less costs to sell. We expect this sale to close in the second quarter of 2019.
|
|
Three Months Ended March 31, 2018
|
||
Rental income
|
$
|
189,446
|
|
Net income
|
$
|
9,453
|
|
Net income per common share
|
$
|
0.20
|
|
|
|
|
|
OPI Carrying Value of Investment at
|
|
|
|
|
|
|
|||||||
Joint Venture
|
|
OPI Ownership
|
|
March 31, 2019
|
|
December 31, 2018
|
|
Number of Office Buildings
|
|
Location
|
|
Square Feet
|
|||||
Prosperity Metro Plaza
|
|
51%
|
|
$
|
23,498
|
|
|
$
|
23,969
|
|
|
2
|
|
Fairfax, VA
|
|
328,456
|
|
1750 H Street, NW
|
|
50%
|
|
19,007
|
|
|
19,696
|
|
|
1
|
|
Washington, D.C.
|
|
115,411
|
|
||
Total
|
|
|
|
$
|
42,505
|
|
|
$
|
43,665
|
|
|
3
|
|
|
|
443,867
|
|
Joint Venture
|
|
Interest Rate
(1)
|
|
Maturity Date
|
|
Principal Balance at March 31, 2018
(2)
|
||
Prosperity Metro Plaza
|
|
4.09%
|
|
12/1/2029
|
|
$
|
50,000
|
|
1750 H Street, NW
|
|
3.69%
|
|
8/1/2024
|
|
32,000
|
|
|
Weighted Average / Total
|
|
3.93%
|
|
|
|
$
|
82,000
|
|
(1)
|
Includes the effect of mark to market purchase accounting.
|
(2)
|
Reflects the entire balance of the debt secured by the properties and is not adjusted to reflect the interests in the joint venture we do not own. None of the debt is recourse to us.
|
|
|
|
|
Fair Value at Reporting Date Using
|
||||||||||||
Description
|
|
Total
|
|
Quoted Prices in Active Markets for Identical Assets (Level 1)
|
|
Significant Other Observable Inputs
(Level 2) |
|
Significant Unobservable Inputs
(Level 3) |
||||||||
Recurring Fair Value Measurements Assets:
|
|
|
|
|
|
|
|
|
||||||||
Investment in RMR Inc.
(1)
|
|
$
|
170,808
|
|
|
$
|
170,808
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Non-Recurring Fair Value Measurements Assets:
|
|
|
|
|
|
|
|
|
|
|||||||
Assets of properties held for sale
(2)
|
|
$
|
16,848
|
|
|
$
|
—
|
|
|
$
|
16,848
|
|
|
$
|
—
|
|
(1)
|
Our
2,801,061
shares of class A common stock of The RMR Group Inc., or RMR Inc., which are included in other assets in our condensed consolidated balance sheets, are reported at fair value which is based on quoted market prices (Level 1 inputs as defined
|
(2)
|
We estimated the fair value of one building we have agreed to sell located in Buffalo, NY at March 31, 2019 based upon a negotiated sale agreement with a third party less estimated
s
ale costs (Level 2 inputs as defined in the fair value hierarchy under GAAP). See Note 4 for further details.
|
|
|
As of March 31, 2019
|
|
As of December 31, 2018
|
||||||||||||
Financial Instrument
|
|
Carrying Amount
(1)
|
|
Fair Value
|
|
Carrying Amount
(1)
|
|
Fair Value
|
||||||||
Senior unsecured notes, 3.75% interest rate, due in 2019
|
|
$
|
349,524
|
|
|
$
|
350,586
|
|
|
$
|
349,239
|
|
|
$
|
348,903
|
|
Senior unsecured notes, 3.60% interest rate, due in 2020
|
|
399,343
|
|
|
401,040
|
|
|
399,146
|
|
|
399,146
|
|
||||
Senior unsecured notes, 4.00% interest rate, due in 2022
|
|
296,966
|
|
|
300,845
|
|
|
296,735
|
|
|
295,047
|
|
||||
Senior unsecured notes, 4.15% interest rate, due in 2022
|
|
297,001
|
|
|
303,428
|
|
|
296,736
|
|
|
296,736
|
|
||||
Senior unsecured notes, 4.25% interest rate, due in 2024
|
|
338,307
|
|
|
336,137
|
|
|
337,736
|
|
|
337,736
|
|
||||
Senior unsecured notes, 4.50% interest rate, due in 2025
|
|
378,260
|
|
|
387,404
|
|
|
377,329
|
|
|
377,329
|
|
||||
Senior unsecured notes, 5.875% interest rate, due in 2046
|
|
300,662
|
|
|
313,100
|
|
|
300,576
|
|
|
274,288
|
|
||||
Mortgage notes payable
|
|
326,202
|
|
|
328,809
|
|
|
335,241
|
|
|
336,365
|
|
||||
Total
|
|
$
|
2,686,265
|
|
|
$
|
2,721,349
|
|
|
$
|
2,692,738
|
|
|
$
|
2,665,550
|
|
(1)
|
Includes unamortized debt premiums, discounts and issuance costs.
|
|
|
Three Months Ended
|
||
|
|
March 31, 2018
|
||
Rental income
|
|
$
|
99,755
|
|
Tenant reimbursements and other income
|
|
20,874
|
|
|
Total revenues
|
|
120,629
|
|
|
|
|
|
||
Real estate taxes
|
|
11,788
|
|
|
Other operating expenses
|
|
15,282
|
|
|
Depreciation and amortization
|
|
34,946
|
|
|
General and administrative
|
|
13,941
|
|
|
Total expenses
|
|
75,957
|
|
|
|
|
|
||
Dividend income
|
|
397
|
|
|
Unrealized gain on equity securities
|
|
16,900
|
|
|
Interest income
|
|
510
|
|
|
Interest expense
|
|
(23,492
|
)
|
|
Loss on early extinguishment of debt
|
|
(1,192
|
)
|
|
Income before income tax expense and equity in earnings of an investee
|
|
37,795
|
|
|
Income tax expense
|
|
(160
|
)
|
|
Equity in earnings of an investee
|
|
44
|
|
|
Net income
|
|
37,679
|
|
|
Net income allocated to noncontrolling interest
|
|
(4,479
|
)
|
|
Net income attributed to SIR
|
|
$
|
33,200
|
|
|
|
|
||
Weighted average common shares outstanding (basic)
|
|
89,382
|
|
|
Weighted average common shares outstanding (diluted)
|
|
89,390
|
|
|
Net income attributed to SIR per common share (basic and diluted)
|
|
$
|
0.37
|
|
(1)
|
Based on consolidated properties we owned on
March 31, 2019
and
2018
, respectively.
|
(2)
|
Based on consolidated properties we owned on
March 31, 2019
and which we owned continuously since January 1, 2018.
|
(3)
|
Includes two leasable land parcels.
|
(4)
|
Subject to changes when space is remeasured or reconfigured for tenants.
|
(5)
|
Percent leased includes (i) space being fitted out for tenant occupancy pursuant to our lease agreements, if any, and (ii) space which is leased, but is not occupied or is being offered for sublease by tenants, if any, as of the measurement date.
|
|
|
Three Months Ended March 31,
|
||||||
|
|
2019
|
|
2018
|
||||
Average effective rental rate per square foot
(1)
:
|
|
|
|
|
||||
All properties
(2)
|
|
$
|
25.96
|
|
|
$
|
26.77
|
|
Comparable properties
(3)
|
|
$
|
28.37
|
|
|
$
|
28.50
|
|
(1)
|
Average effective rental rate per square foot represents annualized total rental income during the period specified divided by the average rentable square feet leased during the period specified.
|
(2)
|
Based on consolidated properties we owned on
March 31, 2019
and
2018
, respectively.
|
(3)
|
Based on consolidated properties we owned on
March 31, 2019
and which we owned continuously since January 1, 2018.
|
|
|
Three Months Ended March 31, 2019
|
|||||||
|
|
Leased
|
|
Available for Lease
|
|
Total
|
|||
Beginning of period
|
|
29,024
|
|
|
2,876
|
|
|
31,900
|
|
Changes resulting from:
|
|
|
|
|
|
|
|
|
|
Disposition of properties
|
|
(1,511
|
)
|
|
(254
|
)
|
|
(1,765
|
)
|
Lease expirations
|
|
(1,344
|
)
|
|
1,344
|
|
|
—
|
|
Lease renewals
(1)
|
|
704
|
|
|
(704
|
)
|
|
—
|
|
New leases
(1)
|
|
121
|
|
|
(121
|
)
|
|
—
|
|
Remeasurements
(2)
|
|
—
|
|
|
(1
|
)
|
|
(1
|
)
|
End of period
|
|
26,994
|
|
|
3,140
|
|
|
30,134
|
|
(1)
|
Based on leases entered during the
three
months ended
March 31, 2019
.
|
(2)
|
Rentable square feet are subject to changes when space is remeasured or reconfigured for tenants.
|
|
|
Three Months Ended March 31, 2019
|
|||||||||
|
|
Old Effective Rent Per Square Foot
(1)
|
|
New Effective Rent Per Square Foot
(1)
|
|
Rentable Square Feet
|
|||||
New leases
|
|
$
|
31.61
|
|
|
$
|
31.07
|
|
|
41
|
|
Lease renewals
|
|
$
|
35.58
|
|
|
$
|
39.67
|
|
|
761
|
|
Total leasing activity
|
|
$
|
35.37
|
|
|
$
|
39.23
|
|
|
802
|
|
(1)
|
Effective rental rate includes contractual base rents from our tenants pursuant to our lease agreements, plus straight line rent adjustments and estimated expense reimbursements to be paid to us, and excluding lease value amortization.
|
|
|
Three Months Ended March 31, 2019
|
||||||||||
|
|
New Leases
|
|
Renewals
|
|
Total
|
||||||
Rentable square feet leased
|
|
121
|
|
|
704
|
|
|
825
|
|
|||
Tenant leasing costs and concession commitments
(1)
|
|
$
|
13,591
|
|
|
$
|
15,213
|
|
|
$
|
28,804
|
|
Tenant leasing costs and concession commitments per rentable square foot
(1)
|
|
$
|
112.00
|
|
|
$
|
21.60
|
|
|
$
|
34.89
|
|
Weighted (by square feet) average lease term (years)
|
|
8.8
|
|
|
7.3
|
|
|
7.5
|
|
|||
Total leasing costs and concession commitments per rentable square foot per year
(1)
|
|
$
|
12.79
|
|
|
$
|
2.98
|
|
|
$
|
4.67
|
|
(1)
|
Includes commitments made for leasing expenditures and concessions, such as tenant improvements, leasing commissions, tenant reimbursements and free rent.
|
|
|
Three Months Ended March 31,
|
||||||
|
|
2019
|
|
2018
|
||||
Tenant improvements
(1)
|
|
$
|
4,912
|
|
|
$
|
2,843
|
|
Leasing costs
(2)
|
|
7,325
|
|
|
1,986
|
|
||
Building improvements
(3)
|
|
4,308
|
|
|
2,707
|
|
||
Development, redevelopment and other activities
(4)
|
|
226
|
|
|
1,416
|
|
(1)
|
Tenant improvements include capital expenditures used to improve tenants’ space or amounts paid directly to tenants to improve their space.
|
(2)
|
Leasing costs include leasing related costs, such as brokerage commissions and other tenant inducements.
|
(3)
|
Building improvements generally include expenditures to replace obsolete building components and expenditures that extend the useful life of existing assets.
|
(4)
|
Development, redevelopment and other activities generally include (i) capital expenditures that are identified at the time of a property acquisition and incurred within a short time period after acquiring the property, and (ii) capital expenditure projects that reposition a property or result in new sources of revenue.
|
(1)
|
The year of lease expiration is pursuant to current contract terms. Some tenants have the right to vacate their space before the stated expirations of their leases. As of
March 31, 2019
, tenants occupying approximately
8.4%
of our consolidated rentable square feet and responsible for approximately
5.2%
of our annualized rental income as of
March 31, 2019
currently have exercisable rights to terminate their leases before the stated terms of their leases expire. Also, in
2019
,
2020
,
2021
,
2022
,
2023
,
2024
,
2025
,
2026
,
2027
,
2028
and
2034
early termination rights become exercisable by other tenants who currently occupy an additional approximately
2.0%
,
4.9%
,
1.4%
,
1.8%
,
0.2%
,
0.9%
,
1.8%
,
0.8%
,
0.3%
,
0.8%
and
0.1%
of our consolidated rentable square feet, respectively, and contribute an additional approximately
2.1%
,
6.5%
,
1.6%
,
1.7%
,
0.3%
,
1.5%
,
3.1%
,
1.1%
,
0.4%
,
1.0%
and
0.0%
of our annualized rental income, respectively, as of
March 31, 2019
. In addition, as of
March 31, 2019
,
21
of our tenants currently have exercisable rights to terminate their leases if the legislature or other funding authority does not appropriate rent amounts in their respective annual budgets. These
21
tenants occupy approximately
6.4%
of our consolidated rentable square feet and contribute approximately
7.4%
of our annualized rental income as of
March 31, 2019
.
|
(2)
|
Leased square feet is pursuant to leases existing as of
March 31, 2019
, and includes (i) space being fitted out for tenant occupancy pursuant to our lease agreements, if any, and (ii) space which is leased, but is not occupied or is being offered for sublease by tenants, if any. Square feet measurements are subject to changes when space is remeasured or reconfigured for new tenants.
|
|
Tenant
|
|
Credit Rating
|
|
Annualized Rental Income
|
|
% of Total Annualized Rental Income
|
||||
1
|
|
U.S. Government
|
|
Investment Grade
|
|
$
|
171,965
|
|
|
25.8
|
%
|
2
|
|
State of California
|
|
Investment Grade
|
|
19,006
|
|
|
2.9
|
%
|
|
3
|
|
Shook, Hardy & Bacon L.L.P.
|
|
Not Rated
|
|
18,854
|
|
|
2.8
|
%
|
|
4
|
|
Bank of America Corporation
|
|
Investment Grade
|
|
16,596
|
|
|
2.5
|
%
|
|
5
|
|
F5 Networks, Inc.
|
|
Not Rated
|
|
14,416
|
|
|
2.2
|
%
|
|
6
|
|
Noble Energy, Inc.
|
|
Investment Grade
|
|
14,149
|
|
|
2.1
|
%
|
|
7
|
|
Andeavor
|
|
Investment Grade
|
|
14,141
|
|
|
2.1
|
%
|
|
8
|
|
WestRock Co.
|
|
Investment Grade
|
|
12,807
|
|
|
1.9
|
%
|
|
9
|
|
CareFirst Inc.
|
|
Non Investment Grade
|
|
11,355
|
|
|
1.7
|
%
|
|
10
|
|
Northrop Grumman Corporation
|
|
Investment Grade
|
|
11,346
|
|
|
1.7
|
%
|
|
11
|
|
Tyson Foods, Inc.
|
|
Investment Grade
|
|
10,253
|
|
|
1.5
|
%
|
|
12
|
|
Technicolor SA
|
|
Non Investment Grade
|
|
10,034
|
|
|
1.5
|
%
|
|
13
|
|
Commonwealth of Massachusetts
|
|
Investment Grade
|
|
9,693
|
|
|
1.5
|
%
|
|
14
|
|
Micro Focus International plc
|
|
Non Investment Grade
|
|
8,710
|
|
|
1.3
|
%
|
|
15
|
|
ARRIS International plc
|
|
Non Investment Grade
|
|
7,931
|
|
|
1.2
|
%
|
|
16
|
|
PNC Bank
|
|
Investment Grade
|
|
6,959
|
|
|
1.1
|
%
|
|
17
|
|
State of Georgia
|
|
Investment Grade
|
|
6,776
|
|
|
1.0
|
%
|
|
18
|
|
ServiceNow, Inc.
|
|
Not Rated
|
|
6,335
|
|
|
1.0
|
%
|
|
|
Total
|
|
|
|
$
|
371,326
|
|
|
55.8
|
%
|
|
|
|
|
|
|
|
|
|
|
Acquired Properties
|
|
Disposed Properties
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
Results
(2)
|
|
Results
(3)
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||
|
|
Comparable Properties Results
(1)
|
|
Three Months Ended
|
|
Three Months Ended
|
|
Consolidated Results
|
||||||||||||||||||||||||||||||||||||||
|
|
Three Months Ended March 31,
|
|
March 31,
|
|
March 31,
|
|
Three Months Ended March 31,
|
||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
$
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
%
|
||||||||||||||||||||||
|
|
2019
|
|
2018
|
|
Change
|
|
Change
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Change
|
|
Change
|
||||||||||||||||||||||
Rental income
|
|
$
|
87,842
|
|
|
$
|
89,723
|
|
|
$
|
(1,881
|
)
|
|
(2.1
|
%)
|
|
$
|
81,097
|
|
|
$
|
—
|
|
|
$
|
5,838
|
|
|
$
|
18,994
|
|
|
$
|
174,777
|
|
|
$
|
108,717
|
|
|
$
|
66,060
|
|
|
60.8
|
%
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Real estate taxes
|
|
10,318
|
|
|
10,718
|
|
|
(400
|
)
|
|
(3.7
|
%)
|
|
7,522
|
|
|
—
|
|
|
552
|
|
|
2,246
|
|
|
18,392
|
|
|
12,964
|
|
|
5,428
|
|
|
41.9
|
%
|
||||||||||
Utility expenses
|
|
6,123
|
|
|
5,960
|
|
|
163
|
|
|
2.7
|
%
|
|
2,971
|
|
|
—
|
|
|
287
|
|
|
730
|
|
|
9,381
|
|
|
6,690
|
|
|
2,691
|
|
|
40.2
|
%
|
||||||||||
Other operating expenses
|
|
18,959
|
|
|
18,932
|
|
|
27
|
|
|
0.1
|
%
|
|
10,081
|
|
|
—
|
|
|
1,096
|
|
|
3,905
|
|
|
30,136
|
|
|
22,837
|
|
|
7,299
|
|
|
32.0
|
%
|
||||||||||
Total operating expenses
|
|
35,400
|
|
|
35,610
|
|
|
(210
|
)
|
|
(0.6
|
%)
|
|
20,574
|
|
|
—
|
|
|
1,935
|
|
|
6,881
|
|
|
57,909
|
|
|
42,491
|
|
|
15,418
|
|
|
36.3
|
%
|
||||||||||
Net operating income
(4)
|
|
$
|
52,442
|
|
|
$
|
54,113
|
|
|
$
|
(1,671
|
)
|
|
(3.1
|
%)
|
|
$
|
60,523
|
|
|
$
|
—
|
|
|
$
|
3,903
|
|
|
$
|
12,113
|
|
|
116,868
|
|
|
66,226
|
|
|
50,642
|
|
|
76.5
|
%
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||
Other expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Depreciation and amortization
|
|
77,521
|
|
|
44,204
|
|
|
33,317
|
|
|
75.4
|
%
|
||||||||||||||||||||||||||||||||||
Loss on impairment of real estate
|
|
3,204
|
|
|
6,116
|
|
|
(2,912
|
)
|
|
(47.6
|
%)
|
||||||||||||||||||||||||||||||||||
Acquisition and transaction related costs
|
|
584
|
|
|
—
|
|
|
584
|
|
|
nm
|
|
||||||||||||||||||||||||||||||||||
General and administrative
|
|
8,723
|
|
|
9,606
|
|
|
(883
|
)
|
|
(9.2
|
%)
|
||||||||||||||||||||||||||||||||||
Total other expenses
|
|
90,032
|
|
|
59,926
|
|
|
30,106
|
|
|
50.2
|
%
|
||||||||||||||||||||||||||||||||||
Gain on sale of real restate
|
|
22,092
|
|
|
—
|
|
|
22,092
|
|
|
nm
|
|
||||||||||||||||||||||||||||||||||
Dividend income
|
|
980
|
|
|
304
|
|
|
676
|
|
|
222.4 %
|
|
||||||||||||||||||||||||||||||||||
Unrealized gain on equity securities
|
|
22,128
|
|
|
12,931
|
|
|
9,197
|
|
|
71.1
|
%
|
||||||||||||||||||||||||||||||||||
Interest income
|
|
248
|
|
|
116
|
|
|
132
|
|
|
113.8
|
%
|
||||||||||||||||||||||||||||||||||
Interest expense
|
|
(37,133
|
)
|
|
(22,766
|
)
|
|
(14,367
|
)
|
|
63.1
|
%
|
||||||||||||||||||||||||||||||||||
Loss on early extinguishment of debt
|
|
(414
|
)
|
|
—
|
|
|
(414
|
)
|
|
nm
|
|
||||||||||||||||||||||||||||||||||
Income (loss) from continuing operations before income tax expense and equity in net losses of investees
|
|
34,737
|
|
|
(3,115
|
)
|
|
37,852
|
|
|
nm
|
|
||||||||||||||||||||||||||||||||||
Income tax expense
|
|
(483
|
)
|
|
(32
|
)
|
|
(451
|
)
|
|
nm
|
|
||||||||||||||||||||||||||||||||||
Equity in net losses of investees
|
|
(235
|
)
|
|
(577
|
)
|
|
342
|
|
|
(59.3
|
%)
|
||||||||||||||||||||||||||||||||||
Income (loss) from continuing operations
|
|
34,019
|
|
|
(3,724
|
)
|
|
37,743
|
|
|
nm
|
|
||||||||||||||||||||||||||||||||||
Income from discontinued operations
|
|
—
|
|
|
10,289
|
|
|
(10,289
|
)
|
|
(100.0
|
%)
|
||||||||||||||||||||||||||||||||||
Net income
|
|
34,019
|
|
|
6,565
|
|
|
27,454
|
|
|
nm
|
|
||||||||||||||||||||||||||||||||||
Preferred units of limited partnership distributions
|
|
—
|
|
|
(278
|
)
|
|
278
|
|
|
(100.0
|
%)
|
||||||||||||||||||||||||||||||||||
Net income available for common shareholders
|
|
$
|
34,019
|
|
|
$
|
6,287
|
|
|
$
|
27,732
|
|
|
nm
|
|
|||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||
Weighted average common shares outstanding (basic)
|
|
48,031
|
|
|
24,760
|
|
|
23,271
|
|
|
94.0
|
%
|
||||||||||||||||||||||||||||||||||
Weighted average common shares outstanding (diluted)
|
|
48,046
|
|
|
24,760
|
|
|
23,286
|
|
|
94.0
|
%
|
||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||
Per common share amounts (basic and diluted):
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
Income (loss) from continuing operations
|
|
$
|
0.71
|
|
|
$
|
(0.16
|
)
|
|
$
|
0.87
|
|
|
(543.8
|
%)
|
|||||||||||||||||||||||||||||||
Income from discontinued operations
|
|
$
|
—
|
|
|
$
|
0.42
|
|
|
$
|
(0.42
|
)
|
|
(100.0
|
%)
|
|||||||||||||||||||||||||||||||
Net income available for common shareholders
|
|
$
|
0.71
|
|
|
$
|
0.25
|
|
|
$
|
0.46
|
|
|
184.0
|
%
|
|||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
(1)
|
Comparable properties consist of
113
buildings we owned on
March 31, 2019
and which we owned continuously since January 1, 2018.
|
(2)
|
Acquired properties consist of
99
buildings we acquired since January 1, 2018 and which we owned as of March 31, 2019. On December 31, 2018, we acquired these buildings in connection with the SIR Merger.
|
(3)
|
Disposed properties consist of 34 buildings which we sold in February 2019, one building which we sold in March 2019 and 19 buildings we sold during 2018.
|
(4)
|
Our definition of Consolidated Property NOI and our reconciliation of net income to Consolidated Property NOI are included below under the heading “Non-GAAP Financial Measures."
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
||||
Reconciliation of Net Income Available for Common Shareholders to Consolidated Property NOI:
|
|
|
|
|||||||||||||||||||||
Net income available for common shareholders
|
|
$
|
34,019
|
|
|
$
|
6,287
|
|
||||||||||||||||
Preferred units of limited partnership distributions
|
|
—
|
|
|
278
|
|
||||||||||||||||||
Net income
|
|
34,019
|
|
|
6,565
|
|
||||||||||||||||||
Income from discontinued operations
|
|
—
|
|
|
(10,289
|
)
|
||||||||||||||||||
Income (loss) from continuing operations
|
|
34,019
|
|
|
(3,724
|
)
|
||||||||||||||||||
Equity in net losses of investees
|
|
235
|
|
|
577
|
|
||||||||||||||||||
Income tax expense
|
|
483
|
|
|
32
|
|
||||||||||||||||||
Loss on early extinguishment of debt
|
|
414
|
|
|
—
|
|
||||||||||||||||||
Interest expense
|
|
37,133
|
|
|
22,766
|
|
||||||||||||||||||
Interest income
|
|
(248
|
)
|
|
(116
|
)
|
||||||||||||||||||
Unrealized gain on equity securities
|
|
(22,128
|
)
|
|
(12,931
|
)
|
||||||||||||||||||
Dividend income
|
|
(980
|
)
|
|
(304
|
)
|
||||||||||||||||||
Gain on sale of real estate
|
|
(22,092
|
)
|
|
—
|
|
||||||||||||||||||
General and administrative
|
|
8,723
|
|
|
9,606
|
|
||||||||||||||||||
Acquisition and transaction related costs
|
|
584
|
|
|
—
|
|
||||||||||||||||||
Loss on impairment of real estate
|
|
3,204
|
|
|
6,116
|
|
||||||||||||||||||
Depreciation and amortization
|
|
77,521
|
|
|
44,204
|
|
||||||||||||||||||
Consolidated Property NOI
|
|
$
|
116,868
|
|
|
$
|
66,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
||||
Net income available for common shareholders
|
|
$
|
34,019
|
|
|
$
|
6,287
|
|
||||||||||||||||
Add (less): Depreciation and amortization:
|
|
|
|
|
||||||||||||||||||||
Consolidated properties
|
|
77,521
|
|
|
44,204
|
|
||||||||||||||||||
Unconsolidated joint venture properties
|
|
1,751
|
|
|
2,185
|
|
||||||||||||||||||
FFO attributable to Select Income REIT
|
|
—
|
|
|
18,488
|
|
||||||||||||||||||
Loss on impairment of real estate
|
|
3,204
|
|
|
6,116
|
|
||||||||||||||||||
Equity in earnings from Select Income REIT included in discontinued operations
|
|
—
|
|
|
(10,289
|
)
|
||||||||||||||||||
Gain on sale of real estate
|
|
(22,092
|
)
|
|
—
|
|
||||||||||||||||||
Unrealized gain on equity securities
|
|
(22,128
|
)
|
|
(12,931
|
)
|
||||||||||||||||||
FFO available for common shareholders
|
|
72,275
|
|
|
54,060
|
|
||||||||||||||||||
Add (less): Acquisition and transaction related costs
|
|
584
|
|
|
—
|
|
||||||||||||||||||
Loss on early extinguishment of debt
|
|
414
|
|
|
—
|
|
||||||||||||||||||
Normalized FFO attributable to Select Income REIT
|
|
—
|
|
|
15,606
|
|
||||||||||||||||||
FFO attributable to Select Income REIT
|
|
—
|
|
|
(18,488
|
)
|
||||||||||||||||||
Estimated business management incentive fees
|
|
—
|
|
|
2,887
|
|
||||||||||||||||||
Normalized FFO available for common shareholders
|
|
$
|
73,273
|
|
|
$
|
54,065
|
|
||||||||||||||||
|
|
|
|
|
||||||||||||||||||||
FFO per common share available for common shareholders (basic and diluted)
|
|
$
|
1.50
|
|
|
$
|
2.18
|
|
||||||||||||||||
Normalized FFO per common share available for common shareholders (basic and diluted)
|
|
$
|
1.53
|
|
|
$
|
2.18
|
|
•
|
our ability to maintain or increase the occupancy of, and the rental rates at, our properties;
|
•
|
our ability to control operating expenses and capital expenses at our properties;
|
•
|
our ability to successfully complete our pending property sales and to sell properties that we market for sale; and
|
•
|
our ability to purchase additional properties which produce cash flows from operations in excess of our cost of acquisition capital and property operating expenses and capital expenses.
|
•
|
Our remaining term loan, which matures on March 31, 2020, is prepayable without penalty at any time. We are required to pay interest at a rate of LIBOR plus a premium, which was
140
basis points per annum at
March 31, 2019
, on the amount outstanding under this term loan. The interest rate premium is subject to adjustment based upon changes to our credit ratings. As of
March 31, 2019
, the annual interest rate for the amount outstanding under this term loan was
3.9%
. On March 19, 2019, we repaid $65,000 of the principal balance without penalty using proceeds from the sale of an office building located in Washington, D.C., leaving a principal balance remaining under this term loan of
$235,000
.
|
•
|
Our other term loan, which was scheduled to mature on March 31, 2022, was repaid in full on February 11, 2019 using proceeds from the sale of a property portfolio in Northern Virginia and Maryland.
|
Year
|
|
Debt Maturities
|
||
2019
|
|
$
|
353,100
|
|
2020
|
|
710,707
|
|
|
2021
|
|
14,420
|
|
|
2022
|
|
625,518
|
|
|
2023 and thereafter
|
|
1,350,564
|
|
|
Total
|
|
$
|
3,054,309
|
|
Debt
|
|
Principal Balance
(1)
|
|
Annual Interest Rate
(1)
|
|
Annual Interest Expense
(1)
|
|
Maturity
|
|
Interest Payments Due
|
||||
Senior unsecured notes
|
|
$
|
350,000
|
|
|
3.750%
|
|
$
|
13,125
|
|
|
2019
|
|
Semi-annually
|
Senior unsecured notes
|
|
400,000
|
|
|
3.600%
|
|
14,400
|
|
|
2020
|
|
Semi-annually
|
||
Senior unsecured notes
|
|
300,000
|
|
|
4.150%
|
|
12,450
|
|
|
2022
|
|
Semi-annually
|
||
Senior unsecured notes
|
|
300,000
|
|
|
4.000%
|
|
12,000
|
|
|
2022
|
|
Semi-annually
|
||
Senior unsecured notes
|
|
350,000
|
|
|
4.250%
|
|
14,875
|
|
|
2024
|
|
Semi-annually
|
||
Senior unsecured notes
|
|
400,000
|
|
|
4.500%
|
|
18,000
|
|
|
2025
|
|
Semi-annually
|
||
Senior unsecured notes
|
|
310,000
|
|
|
5.875%
|
|
18,213
|
|
|
2046
|
|
Quarterly
|
||
Mortgage note (one building in Washington, D.C.)
|
|
33,504
|
|
|
5.720%
|
|
1,916
|
|
|
2020
|
|
Monthly
|
||
Mortgage note (one building in Philadelphia, PA)
|
|
40,591
|
|
|
4.114%
|
|
1,670
|
|
|
2020
|
|
Monthly
|
||
Mortgage note (one building in Lakewood, CO)
|
|
2,614
|
|
|
8.150%
|
|
213
|
|
|
2021
|
|
Monthly
|
||
Mortgage note (one building in Fairfax, VA)
|
|
13,368
|
|
|
5.877%
|
|
786
|
|
|
2021
|
|
Monthly
|
||
Mortgage note (one building in Washington, D.C.)
|
|
27,041
|
|
|
4.220%
|
|
1,141
|
|
|
2022
|
|
Monthly
|
||
Mortgage note (three buildings in Seattle, WA)
|
|
71,000
|
|
|
3.550%
|
|
2,521
|
|
|
2023
|
|
Monthly
|
||
Mortgage note (one building in Chicago, IL)
|
|
50,000
|
|
|
3.700%
|
|
1,850
|
|
|
2023
|
|
Monthly
|
||
Mortgage note (one building in Washington, D.C.)
|
|
24,411
|
|
|
4.800%
|
|
1,172
|
|
|
2023
|
|
Monthly
|
||
Mortgage note (one building in Washington, D.C.)
|
|
66,780
|
|
|
4.050%
|
|
2,705
|
|
|
2030
|
|
Monthly
|
||
Total
|
|
$
|
2,739,309
|
|
|
|
|
$
|
117,037
|
|
|
|
|
|
(1)
|
The principal balances and interest rates are the amounts stated in the contracts. In accordance with GAAP, our carrying values and recorded interest expense may differ from these amounts because of market conditions at the time we issued or assumed these debts. For more information, see Notes 7 and 8 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
|
Debt
|
|
Our JV Ownership Interest
|
|
Principal Balance
(1)(2)
|
|
Annual Interest Rate
(1)
|
|
Annual Interest Expense
(1)
|
|
Maturity
|
|
Interest Payments Due
|
||||
Mortgage note (two buildings) in Fairfax, VA
|
|
51%
|
|
$
|
50,000
|
|
|
4.09%
|
|
$
|
2,045
|
|
|
2029
|
|
Monthly
|
Mortgage note (one building) in Washington, DC
|
|
50%
|
|
32,000
|
|
|
3.69%
|
|
1,181
|
|
|
2024
|
|
Monthly
|
||
Total
|
|
|
|
$
|
82,000
|
|
|
|
|
$
|
3,226
|
|
|
|
|
|
(1)
|
The principal balance, annual interest rate and annual interest expense are the amounts stated in the applicable contract. In accordance with GAAP, the joint ventures' recorded interest expense may differ from these amounts because of market conditions at the time they incurred the debt.
|
(2)
|
Reflects the entire balance of the debt secured by the properties and is not adjusted to reflect the part of the joint venture arrangement interests we do not own.
|
|
|
Impact of Changes in Interest Rates
|
|||||||||||||
|
|
Annual Interest Rate
(1)
|
|
Outstanding Debt
|
|
Total Interest Expense Per Year
|
|
Annual Earnings Per Share Impact
(2)
|
|||||||
At March 31, 2019
|
|
3.8
|
%
|
|
$
|
315,000
|
|
|
$
|
11,970
|
|
|
$
|
0.25
|
|
One percentage point increase
|
|
4.8
|
%
|
|
$
|
315,000
|
|
|
$
|
15,120
|
|
|
$
|
0.31
|
|
(1)
|
Weighted based on the respective interest rates and outstanding borrowings under our revolving credit facility and our term loans as of
March 31, 2019
.
|
(2)
|
Based on the weighted average shares outstanding (diluted) for the
three
months ended
March 31, 2019
.
|
|
|
Impact of an Increase in Interest Rates
|
|||||||||||||
|
|
Annual Interest Rate
(1)
|
|
Outstanding Debt
|
|
Total Interest Expense Per Year
|
|
Annual Earnings Per Share Impact
(2)
|
|||||||
At March 31, 2019
|
|
3.6
|
%
|
|
$
|
985,000
|
|
|
$
|
35,460
|
|
|
$
|
0.74
|
|
One percentage point increase
|
|
4.6
|
%
|
|
$
|
985,000
|
|
|
$
|
45,310
|
|
|
$
|
0.94
|
|
(1)
|
Weighted based on the respective interest rates and outstanding borrowings under our revolving credit facility (assuming fully drawn) and our term loan as of
March 31, 2019
.
|
(2)
|
Based on the weighted average shares outstanding (diluted) for the
three
months ended
March 31, 2019
.
|
•
|
Our sales and acquisitions of properties,
|
•
|
Our ability to compete for acquisitions and tenancies effectively,
|
•
|
The likelihood that our tenants will pay rent or be negatively affected by cyclical economic conditions or government budget constraints,
|
•
|
The likelihood that our tenants will renew or extend their leases and not exercise early termination options pursuant to their leases or that we will obtain replacement tenants,
|
•
|
The likelihood that our rents will increase when we renew or extend our leases or enter new leases,
|
•
|
Our ability to pay distributions to our shareholders and to sustain the amount of such distributions,
|
•
|
Our policies and plans regarding investments, financings and dispositions,
|
•
|
The future availability of borrowings under our revolving credit facility,
|
•
|
Our expectation that there will be opportunities for us to acquire, and that we will acquire, additional properties primarily leased to single tenants and tenants with high credit quality characteristics such as governmental entities,
|
•
|
Our expectations regarding demand for leased space,
|
•
|
Our ability to raise debt or equity capital,
|
•
|
Our ability to pay interest on and principal of our debt,
|
•
|
Our ability to appropriately balance our use of debt and equity capital,
|
•
|
Our credit ratings,
|
•
|
Our expectation that our shareholders will benefit from the SIR Merger,
|
•
|
Our expectation that we benefit from our ownership interest in and other relationships with RMR Inc.,
|
•
|
Our expectation that we benefit from our ownership interest in and other relationships with AIC and from our participation in insurance programs arranged by AIC,
|
•
|
The credit qualities of our tenants,
|
•
|
Our qualification for taxation as a REIT,
|
•
|
Changes in federal or state tax laws, and
|
•
|
Other matters.
|
•
|
The impact of conditions in the economy and the capital markets on us and our tenants,
|
•
|
The impact of a U.S. government shutdown on our ability to collect rents or pay our operating expenses, debt obligations and distributions to shareholders on a timely basis,
|
•
|
Competition within the real estate industry, particularly in those markets in which our properties are located,
|
•
|
The impact of changes in the real estate needs and financial conditions of our tenants,
|
•
|
Compliance with, and changes to, federal, state and local laws and regulations, accounting rules, tax laws and similar matters,
|
•
|
Actual and potential conflicts of interest with our related parties, including our managing trustees, RMR LLC, RMR Inc., AIC and others affiliated with them,
|
•
|
Limitations imposed on our business and our ability to satisfy complex rules in order for us to maintain our qualification for taxation as a REIT for U.S. federal income tax purposes, and
|
•
|
Acts of terrorism, outbreaks of so-called pandemics or other manmade or natural disasters beyond our control.
|
•
|
Our ability to make future distributions to our shareholders and to make payments of principal and interest on our indebtedness depends upon a number of factors, including our future earnings, the capital costs we incur to lease our properties and our working capital requirements. We may be unable to pay our debt obligations or to maintain our current rate of distributions on our common shares and future distributions may be reduced or eliminated,
|
•
|
Our ability to grow our business and increase our distributions depends in large part upon our ability to buy properties and lease them for rents, less their property operating costs, that exceed our capital costs. We may be unable to identify properties that we want to acquire, and we may fail to reach agreement with the sellers and complete the purchases of any properties we want to acquire. In addition, any properties we may acquire may not provide us with rents less property operating costs that exceed our capital costs or achieve our expected returns,
|
•
|
We may fail to achieve its target payout ratio for its distributions to shareholders of 75% of its cash available for distribution. Further, our Board of Trustees sets and resets our distribution rate from time to time after considering many factors, including cash available for distribution. Accordingly, future dividend rates may be increased or decreased and there is no assurance as to the rate at which future dividends will be paid,
|
•
|
As part of our long term financing plans to reduce our leverage, we expect to dispose of certain of our assets. Currently, we are marketing or plan to market for sale certain properties. We cannot be sure we will sell any of these properties or what the terms of any sales may be. We may sell some or all of these properties at prices that are less than we expect and less than our carrying values and we may otherwise incur losses as a result of considering and pursuing these sales. Further, we may elect to change which properties we may seek to sell, which could result in different properties and/or fewer or greater number of properties being sold or marketed for sale. In addition, we may not receive the proceeds we may hope from any sale of some or all of the shares of RMR Inc. common stock that we own, if we elect to sell any of those shares,
|
•
|
We may not succeed in reducing our leverage to levels we plan or that the market or credit rating agencies believe appropriate. Further, we may not maintain any reduction in our leverage that we may attain,
|
•
|
Some of our tenants may not renew expiring leases, and we may be unable to obtain new tenants to maintain or increase the historical occupancy rates of, or rents from, our properties,
|
•
|
Some government tenants may exercise their rights to vacate their space before the stated expirations of their leases, and we may be unable to obtain new tenants to maintain the historical occupancy rates of, or rents from, our properties,
|
•
|
Rents that we can charge at our properties may decline upon renewals or expirations because of changing market conditions or otherwise,
|
•
|
Leasing for some of our properties depends on a single tenant and we may be adversely affected by the bankruptcy, insolvency, a downturn of business or a lease termination of a single tenant,
|
•
|
Our belief that there is a likelihood that tenants may renew or extend our leases prior to their expirations whenever they have made significant investments in the leased properties, or because those properties may be of strategic importance to them, may not be realized,
|
•
|
Our belief that the reduction in government tenant space utilization and the consolidation of government tenants into government owned real estate is substantially complete may prove misplaced if these prior trends continue or do not moderate to the extent we expect,
|
•
|
Contingencies in our acquisition and sale agreements may not be satisfied and any expected acquisitions and sales and any related lease arrangements we expect to enter may not occur, may be delayed or the terms of such transactions or arrangements may change,
|
•
|
The competitive advantages we believe we have may not in fact exist or provide us with the advantages we expect. We may fail to maintain any of these advantages or our competition may obtain or increase their competitive advantages relative to us,
|
•
|
We intend to conduct our business activities in a manner that will afford us reasonable access to capital for investment and financing activities. However, we may not succeed in this regard and we may not have reasonable access to capital,
|
•
|
Continued availability of borrowings under our revolving credit facility is subject to our satisfying certain financial covenants and other credit facility conditions that we may be unable to satisfy,
|
•
|
Actual costs under our revolving credit facility or other floating rate debt will be higher than LIBOR plus a premium because of fees and expenses associated with such debt,
|
•
|
The interest rates payable under our floating rate debt obligations depend upon our credit ratings. We currently have a negative credit ratings outlook by Moody's which may imply that our credit ratings may be downgraded. If our credit ratings are downgraded, our borrowing costs will increase,
|
•
|
Our ability to access debt capital and the cost of our debt capital will depend in part on our credit ratings. If our credit ratings are downgraded, we may not be able to access debt capital or the debt capital we can access may be expensive,
|
•
|
We may be unable to repay our debt obligations when they become due,
|
•
|
The maximum borrowing availability under our revolving credit facility and term loan may be increased to up to
$2.2
billion on a combined basis in certain circumstances; however, increasing the maximum borrowing availability under our revolving credit facility and term loan is subject to our obtaining additional commitments from lenders, which may not occur,
|
•
|
We have the option to extend the maturity date of our revolving credit facility upon payment of a fee and meeting other conditions; however, the applicable conditions may not be met,
|
•
|
We may incur significant costs to prepare a property for a tenant, particularly for single tenant properties,
|
•
|
We may spend more for capital expenditures than we currently expect,
|
•
|
Any joint venture arrangements that we may enter may not be successful,
|
•
|
The business and property management agreements between us and RMR LLC have continuing 20 year terms. However, those agreements permit early termination in certain circumstances. Accordingly, we cannot be sure that these agreements will remain in effect for continuing 20 year terms,
|
•
|
We believe that our relationships with our related parties, including RMR LLC, RMR Inc., AIC and others affiliated with them may benefit us and provide us with competitive advantages in operating and growing our business. However, the advantages we believe we may realize from these relationships may not materialize,
|
•
|
We may fail to execute successfully on our expanded business strategy or increased scale of our business resulting from the SIR Merger and therefore may not realize the benefits we expect from the SIR Merger, and
|
•
|
As of
March 31, 2019
, we had estimated unspent leasing related obligations of $63.6 million. Our unspent leasing related obligations may cost more and may take longer to complete than we currently expect, and we may incur increased amounts for these and similar purposes in the future.
|
Exhibit Number
|
Description
|
3.1
|
|
|
|
3.2
|
|
|
|
4.1
|
|
|
|
4.2
|
|
|
|
4.3
|
|
|
|
4.4
|
|
|
|
4.5
|
|
|
|
4.6
|
|
|
|
4.7
|
|
|
|
4.8
|
|
|
|
4.9
|
|
|
|
4.10
|
|
|
|
4.11
|
|
|
|
4.12
|
|
|
|
31.1
|
|
|
|
31.2
|
|
|
|
32.1
|
|
|
|
101.1
|
The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2019 formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Statements of Shareholders' Equity, (iv) the Condensed Consolidated Statements of Cash Flows, and (iv) related notes to these financial statements, tagged as blocks of text and in detail. (Filed herewith.)
|
|
OFFICE PROPERTIES INCOME TRUST
|
|
|
|
|
|
|
|
|
By:
|
/s/ David M. Blackman
|
|
|
David M. Blackman
|
|
|
President and Chief Executive Officer
|
|
|
Dated: May 3, 2019
|
|
|
|
|
By:
|
/s/ Jeffrey C. Leer
|
|
|
Jeffrey C. Leer
|
|
|
Chief Financial Officer and Treasurer
|
|
|
(principal financial officer and principal accounting officer)
|
|
|
Dated: May 3, 2019
|
1.
|
I have reviewed this Quarterly Report on Form 10-Q of Office Properties Income Trust;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
|
|
Date: May 3, 2019
|
/s/ David M. Blackman
|
|
David M. Blackman
President and Chief Executive Officer
|
1.
|
I have reviewed this Quarterly Report on Form 10-Q of Office Properties Income Trust;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
|
|
Date: May 3, 2019
|
/s/ Jeffrey C. Leer
|
|
Jeffrey C. Leer
Chief Financial Officer and Treasurer
|
1)
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
|
|
|
|
|
/s/ David M. Blackman
|
|
|
David M. Blackman
President and Chief Executive Officer
|
|
|
|
|
|
|
|
|
/s/ Jeffrey C. Leer
|
|
|
Jeffrey C. Leer
Chief Financial Officer and Treasurer |