Maryland
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26-4273474
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(State or Other Jurisdiction of Incorporation or Organization)
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(IRS Employer Identification No.)
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Title of Each Class
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Trading Symbol(s)
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Name Of Each Exchange On Which Registered
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Common Shares of Beneficial Interest
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OPI
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The Nasdaq Stock Market LLC
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5.875% Senior Notes due 2046
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OPINI
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The Nasdaq Stock Market LLC
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Large accelerated filer
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☒
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Accelerated filer
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☐
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Non-accelerated filer
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☐
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Smaller reporting company
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☐
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Emerging growth company
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☐
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Page
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June 30,
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December 31,
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||||
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2019
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2018
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||||
ASSETS
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Real estate properties:
|
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Land
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$
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875,019
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$
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924,164
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Buildings and improvements
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2,941,375
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3,020,472
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Total real estate properties, gross
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3,816,394
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3,944,636
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Accumulated depreciation
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(394,060
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)
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(375,147
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)
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Total real estate properties, net
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3,422,334
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3,569,489
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Assets of properties held for sale
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126,014
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253,501
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Investments in unconsolidated joint ventures
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41,634
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43,665
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Acquired real estate leases, net
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924,594
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1,056,558
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Cash and cash equivalents
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21,102
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35,349
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Restricted cash
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3,583
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3,594
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Rents receivable, net
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70,639
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72,051
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Deferred leasing costs, net
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34,697
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25,672
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Other assets, net
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159,725
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178,704
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Total assets
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$
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4,804,322
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$
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5,238,583
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||||
LIABILITIES AND SHAREHOLDERS’ EQUITY
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Unsecured revolving credit facility
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$
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65,000
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$
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175,000
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Unsecured term loans, net
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169,827
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387,152
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Senior unsecured notes, net
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2,362,629
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2,357,497
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Mortgage notes payable, net
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325,293
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335,241
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Liabilities of properties held for sale
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1,953
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4,271
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Accounts payable and other liabilities
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159,055
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145,536
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Due to related persons
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6,593
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34,887
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Assumed real estate lease obligations, net
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17,486
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20,031
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Total liabilities
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3,107,836
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3,459,615
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Commitments and contingencies
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Shareholders’ equity:
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Common shares of beneficial interest, $.01 par value: 200,000,000 shares authorized,
48,113,444 and 48,082,903 shares issued and outstanding, respectively
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481
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481
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Additional paid in capital
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2,611,570
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2,609,801
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Cumulative net income
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116,127
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146,882
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Cumulative other comprehensive income (loss)
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(495
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)
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106
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Cumulative common distributions
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(1,031,197
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)
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(978,302
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)
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Total shareholders’ equity
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1,696,486
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1,778,968
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Total liabilities and shareholders’ equity
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$
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4,804,322
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$
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5,238,583
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Three Months Ended June 30,
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Six Months Ended June 30,
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||||||||||||
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2019
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2018
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2019
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2018
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Rental income
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$
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176,032
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$
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108,085
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$
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350,809
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$
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216,802
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Expenses:
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Real estate taxes
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18,147
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12,365
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36,539
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25,330
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Utility expenses
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7,470
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6,018
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16,851
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12,707
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Other operating expenses
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29,692
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21,599
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59,828
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44,436
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Depreciation and amortization
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73,913
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42,671
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151,434
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86,875
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Loss on impairment of real estate
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2,380
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(316
|
)
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5,584
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5,800
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Acquisition and transaction related costs
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98
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—
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682
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—
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General and administrative
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8,744
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4,449
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17,467
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14,055
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||||
Total expenses
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140,444
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86,786
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288,385
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189,203
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||||
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Gain (loss) on sale of real estate
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(17
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)
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17,329
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22,075
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17,329
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Dividend income
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980
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304
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1,960
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608
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Unrealized gain (loss) on equity securities
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(66,135
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)
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10,321
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(44,007
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)
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23,252
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Interest income
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241
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149
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489
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265
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||||
Interest expense (including amortization of debt premiums, discounts
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||||||||
and issuance costs of $2,863, $892, $5,704 and $1,856, respectively)
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(35,348
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)
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(23,304
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)
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(72,481
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)
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(46,070
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)
|
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Loss on early extinguishment of debt
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(71
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)
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—
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(485
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)
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—
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Income (loss) from continuing operations before income tax benefit (expense)
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and equity in net losses of investees
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(64,762
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)
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26,098
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(30,025
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)
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22,983
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|
||||
Income tax benefit (expense)
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130
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|
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(83
|
)
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(353
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)
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(115
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)
|
||||
Equity in net losses of investees
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(142
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)
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(629
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)
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(377
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)
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(1,206
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)
|
||||
Income (loss) from continuing operations
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(64,774
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)
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25,386
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(30,755
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)
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21,662
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|
||||
Income from discontinued operations
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—
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4,309
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—
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|
|
14,598
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|
||||
Net income (loss)
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(64,774
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)
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29,695
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(30,755
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)
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36,260
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|
||||
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
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|
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Unrealized loss on financial instrument
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(269
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)
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—
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(367
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)
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—
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||||
Equity in unrealized gain (loss) of investees
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71
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34
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137
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(7
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)
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||||
Other comprehensive income (loss)
|
(198
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)
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34
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(230
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)
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(7
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)
|
||||
Comprehensive income (loss)
|
$
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(64,972
|
)
|
|
$
|
29,729
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|
|
$
|
(30,985
|
)
|
|
$
|
36,253
|
|
|
|
|
|
|
|
|
|
||||||||
Net income (loss)
|
$
|
(64,774
|
)
|
|
$
|
29,695
|
|
|
$
|
(30,755
|
)
|
|
$
|
36,260
|
|
Preferred units of limited partnership distributions
|
—
|
|
|
(93
|
)
|
|
—
|
|
|
(371
|
)
|
||||
Net income (loss) available for common shareholders
|
$
|
(64,774
|
)
|
|
$
|
29,602
|
|
|
$
|
(30,755
|
)
|
|
$
|
35,889
|
|
|
|
|
|
|
|
|
|
||||||||
Weighted average common shares outstanding (basic)
|
48,049
|
|
|
24,763
|
|
|
48,040
|
|
|
24,762
|
|
||||
Weighted average common shares outstanding (diluted)
|
48,049
|
|
|
24,766
|
|
|
48,040
|
|
|
24,763
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Per common share amounts (basic and diluted):
|
|
|
|
|
|
|
|
|
|
|
|
||||
Income (loss) from continuing operations
|
$
|
(1.35
|
)
|
|
$
|
1.02
|
|
|
$
|
(0.64
|
)
|
|
$
|
0.86
|
|
Income from discontinued operations
|
$
|
—
|
|
|
$
|
0.17
|
|
|
$
|
—
|
|
|
$
|
0.59
|
|
Net income (loss) available for common shareholders
|
$
|
(1.35
|
)
|
|
$
|
1.20
|
|
|
$
|
(0.64
|
)
|
|
$
|
1.45
|
|
|
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
|
|
|||||||
Share grants
|
24,000
|
|
|
—
|
|
|
971
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
971
|
|
||||||
Share repurchases
|
(2,245
|
)
|
|
—
|
|
|
(63
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(63
|
)
|
||||||
Share forfeitures
|
(214
|
)
|
|
—
|
|
|
(4
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4
|
)
|
||||||
Net current period other comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(198
|
)
|
|
—
|
|
|
(198
|
)
|
||||||
Net loss available for common shareholders
|
—
|
|
|
—
|
|
|
—
|
|
|
(64,774
|
)
|
|
—
|
|
|
—
|
|
|
(64,774
|
)
|
||||||
Distributions to common shareholders
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(26,450
|
)
|
|
(26,450
|
)
|
||||||
Balance at June 30, 2019
|
48,113,444
|
|
$
|
481
|
|
|
$
|
2,611,570
|
|
|
$
|
116,127
|
|
|
$
|
(495
|
)
|
|
$
|
(1,031,197
|
)
|
|
$
|
1,696,486
|
|
|
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, 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
|
|
|||||||
Share 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
|
|
|||||||
Share grants
|
5,250
|
|
|
—
|
|
|
297
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
297
|
|
||||||
Share repurchases
|
(113)
|
|
—
|
|
|
(7
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7
|
)
|
|||||||
Equity in unrealized gain of investees
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
34
|
|
|
—
|
|
|
34
|
|
||||||
Net income available for common shareholders
|
—
|
|
|
—
|
|
|
—
|
|
|
29,602
|
|
|
—
|
|
|
—
|
|
|
29,602
|
|
||||||
Distributions to common shareholders
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(42,634
|
)
|
|
(42,634
|
)
|
||||||
Balance at June 30, 2018
|
24,791,463
|
|
$
|
248
|
|
|
$
|
1,969,239
|
|
|
$
|
205,026
|
|
|
$
|
139
|
|
|
$
|
(893,002
|
)
|
|
$
|
1,281,650
|
|
|
|
Six Months Ended June 30,
|
||||||
|
|
2019
|
|
2018
|
||||
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
||
Net income (loss)
|
|
$
|
(30,755
|
)
|
|
$
|
36,260
|
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
|
|
|
|
|
|
|
||
Depreciation
|
|
46,091
|
|
|
34,037
|
|
||
Amortization of debt premiums, discounts and issuance costs
|
|
5,704
|
|
|
1,856
|
|
||
Amortization of acquired real estate leases
|
|
105,460
|
|
|
52,238
|
|
||
Amortization of deferred leasing costs
|
|
2,771
|
|
|
2,288
|
|
||
Gain on sale of real estate
|
|
(22,075
|
)
|
|
(17,329
|
)
|
||
Loss on impairment of real estate
|
|
5,584
|
|
|
5,800
|
|
||
Loss on early extinguishment of debt
|
|
485
|
|
|
—
|
|
||
Straight line rental income
|
|
(12,461
|
)
|
|
(5,835
|
)
|
||
Other non-cash (income) expenses, net
|
|
1,288
|
|
|
(2
|
)
|
||
Unrealized (gain) loss on equity securities
|
|
44,007
|
|
|
(23,252
|
)
|
||
Equity in net losses of investees
|
|
377
|
|
|
1,206
|
|
||
Equity in earnings of Select Income REIT included in discontinued operations
|
|
—
|
|
|
(14,590
|
)
|
||
Net gain on issuance of shares by Select Income REIT included in discontinued operations
|
|
—
|
|
|
(8
|
)
|
||
Distributions of earnings from Select Income REIT
|
|
—
|
|
|
14,590
|
|
||
Change in assets and liabilities:
|
|
|
|
|
|
|
||
Rents receivable
|
|
15,886
|
|
|
4,870
|
|
||
Deferred leasing costs
|
|
(15,208
|
)
|
|
(4,141
|
)
|
||
Other assets
|
|
6,104
|
|
|
4,870
|
|
||
Accounts payable and other liabilities
|
|
(16,858
|
)
|
|
(1,631
|
)
|
||
Due to related persons
|
|
(28,610
|
)
|
|
2,270
|
|
||
Net cash provided by operating activities
|
|
107,790
|
|
|
93,497
|
|
||
|
|
|
|
|
||||
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
||
Real estate improvements
|
|
(21,126
|
)
|
|
(21,324
|
)
|
||
Distributions in excess of earnings from Select Income REIT
|
|
—
|
|
|
10,827
|
|
||
Distributions in excess of earnings from unconsolidated joint ventures
|
|
1,121
|
|
|
2,233
|
|
||
Proceeds from sale of properties, net
|
|
288,885
|
|
|
142,189
|
|
||
Net cash provided by investing activities
|
|
268,880
|
|
|
133,925
|
|
||
|
|
|
|
|
||||
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
||
Repayment of mortgage notes payable
|
|
(9,970
|
)
|
|
(1,808
|
)
|
||
Repayment of unsecured term loans
|
|
(218,000
|
)
|
|
—
|
|
||
Borrowings on unsecured revolving credit facility
|
|
85,000
|
|
|
70,000
|
|
||
Repayments on unsecured revolving credit facility
|
|
(195,000
|
)
|
|
(188,000
|
)
|
||
Repurchase of common shares
|
|
(63
|
)
|
|
(18
|
)
|
||
Redemption of preferred units of limited partnership
|
|
—
|
|
|
(20,221
|
)
|
||
Preferred units of limited partnership distributions
|
|
—
|
|
|
(646
|
)
|
||
Distributions to common shareholders
|
|
(52,895
|
)
|
|
(85,266
|
)
|
||
Net cash used in financing activities
|
|
(390,928
|
)
|
|
(225,959
|
)
|
||
|
|
|
|
|
||||
Increase (decrease) in cash, cash equivalents and restricted cash
|
|
(14,258
|
)
|
|
1,463
|
|
||
Cash, cash equivalents and restricted cash at beginning of period
|
|
38,943
|
|
|
19,680
|
|
||
Cash, cash equivalents and restricted cash at end of period
|
|
$
|
24,685
|
|
|
$
|
21,143
|
|
|
|
Six Months Ended June 30,
|
||||||
|
|
2019
|
|
2018
|
||||
Interest paid
|
|
$
|
68,640
|
|
|
$
|
43,958
|
|
Income taxes paid
|
|
$
|
457
|
|
|
$
|
38
|
|
|
|
June 30,
|
||||||
|
|
2019
|
|
2018
|
||||
Cash and cash equivalents
|
|
$
|
21,102
|
|
|
$
|
18,695
|
|
Restricted cash (1)
|
|
3,583
|
|
|
2,448
|
|
||
Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows
|
|
$
|
24,685
|
|
|
$
|
21,143
|
|
(1)
|
Restricted cash consists of amounts escrowed for future real estate taxes, insurance, leasing costs, capital expenditures and debt service, as required by certain of our mortgage debts.
|
Year
|
|
Amount
|
||
2019
|
|
$
|
271,840
|
|
2020
|
|
511,039
|
|
|
2021
|
|
481,801
|
|
|
2022
|
|
440,217
|
|
|
2023
|
|
393,610
|
|
|
Thereafter
|
|
1,326,552
|
|
|
Total
|
|
$
|
3,425,059
|
|
|
|
For the Three Months
|
|
For the Six Months
|
||||||||
|
|
Ended June 30,
|
|
Ended June 30,
|
||||||||
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
||||
Weighted average common shares for basic earnings per share
|
|
48,049
|
|
|
24,763
|
|
|
48,040
|
|
|
24,762
|
|
Effect of dilutive securities: unvested share awards
|
|
—
|
|
|
3
|
|
|
—
|
|
|
1
|
|
Weighted average common shares for diluted earnings per share (1)
|
|
48,049
|
|
|
24,766
|
|
|
48,040
|
|
|
24,763
|
|
(1)
|
For the three and six months ended June 30, 2019, 27 and 6 unvested common shares, respectively, were not included in the calculation of diluted earnings per share because to do so would have been antidilutive.
|
Date of Sale
|
|
Number of Properties
|
|
Location
|
|
Rentable Square
Feet
|
|
Gross
Sales Price (1)
|
|||
Feb 2019 (2)
|
|
34
|
|
Northern Virginia and Maryland
|
|
1,635,868
|
|
|
$
|
198,500
|
|
Mar 2019 (3)
|
|
1
|
|
Washington, D.C.
|
|
129,035
|
|
|
70,000
|
|
|
May 2019 (4)
|
|
1
|
|
Buffalo, NY
|
|
121,711
|
|
|
16,900
|
|
|
May 2019
|
|
1
|
|
Maynard, MA
|
|
287,037
|
|
|
5,000
|
|
|
June 2019
|
|
1
|
|
Kapolei, HI
|
|
416,956
|
|
|
7,100
|
|
|
|
|
38
|
|
|
|
2,590,607
|
|
|
$
|
297,500
|
|
(1)
|
Gross sales price includes purchase price adjustments, if any, and excludes closing costs.
|
(2)
|
We recorded a $447 loss on impairment of real estate during 2019 as a result of this sale.
|
(3)
|
We recorded a $22,075 gain on sale of real estate during 2019 as a result of this sale.
|
(4)
|
We recorded a $5,137 loss on impairment of real estate during 2019 as a result of this sale.
|
Location
|
|
Number of Properties
|
|
Square Feet
|
|
Gross
Sales Price (1) |
||
Hanover, PA
|
|
1
|
|
502,300
|
|
$
|
6,000
|
|
San Diego, CA
|
|
1
|
|
43,918
|
|
8,950
|
|
|
San Diego, CA
|
|
1
|
|
148,488
|
|
26,300
|
|
|
Nashua, NH (2)
|
|
1
|
|
321,800
|
|
25,000
|
|
|
Arlington, TX
|
|
1
|
|
182,630
|
|
14,900
|
|
|
Fremont, CA
|
|
1
|
|
100,728
|
|
25,500
|
|
|
San Jose, CA (2)
|
|
1
|
|
71,750
|
|
14,000
|
|
|
Kansas City, KS
|
|
1
|
|
170,817
|
|
12,900
|
|
|
Topeka, KS
|
|
1
|
|
143,934
|
|
15,600
|
|
|
|
|
9
|
|
1,686,365
|
|
$
|
149,150
|
|
(1)
|
Gross sales price includes purchase price adjustments, if any, and excludes closing costs.
|
(2)
|
The sale of these properties were completed in July 2019.
|
|
Six Months Ended June 30, 2018
|
||
Rental income
|
$
|
375,258
|
|
Net income
|
$
|
33,266
|
|
Net income per common share
|
$
|
0.69
|
|
|
|
|
|
OPI Carrying Value of Investment at
|
|
|
|
|
|
|
|||||||
Joint Venture
|
|
OPI Ownership
|
|
June 30, 2019
|
|
December 31, 2018
|
|
Number of Properties
|
|
Location
|
|
Square Feet
|
|||||
Prosperity Metro Plaza
|
|
51%
|
|
$
|
23,274
|
|
|
$
|
23,969
|
|
|
2
|
|
Fairfax, VA
|
|
328,456
|
|
1750 H Street, NW
|
|
50%
|
|
18,360
|
|
|
19,696
|
|
|
1
|
|
Washington, D.C.
|
|
115,411
|
|
||
Total
|
|
|
|
$
|
41,634
|
|
|
$
|
43,665
|
|
|
3
|
|
|
|
443,867
|
|
Joint Venture
|
|
Interest Rate (1)
|
|
Maturity Date
|
|
Principal Balance at June 30, 2019 (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)
|
|
$
|
131,594
|
|
|
$
|
131,594
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Non-recurring Fair Value Measurements Liabilities:
|
|
|
|
|
|
|
|
|
||||||||
Other Liability (1)
|
|
$
|
19,551
|
|
|
$
|
—
|
|
|
$
|
19,551
|
|
|
$
|
—
|
|
(1)
|
Our 2,801,060 shares of class A common stock of RMR Inc. are included in other assets, net in our condensed consolidated balance sheet and had a fair value at June 30, 2019 of $131,594, based on quoted market prices (Level 1 inputs as defined in the fair value hierarchy under GAAP). On June 26, 2019, we entered into an agreement to sell all of our shares of RMR Inc. class A common stock in an underwritten public offering at a price to the public of $40.00 per share. We completed that sale on July 1, 2019 in accordance with the terms of the underwriting agreement. See Note 11 for additional information regarding this sale. We have elected to account for the contract to sell our shares of RMR Inc. class A common stock using the fair value option, based upon the difference between the contractual offering price (Level 2 inputs as defined in the fair value hierarchy under GAAP) and the fair value of the underlying asset at June 30, 2019. Our historical cost basis for these shares is $111,117 as of June 30, 2019. During the three and six months ended June 30, 2019, we recorded unrealized losses of $39,214 and $17,086, respectively, to adjust our investment in RMR Inc. to its fair value. In addition, during the three and six months ended June 30, 2019, we recorded a loss of $19,551 and estimated expenses of $7,370 related to the agreement to sell our shares of RMR Inc. class A common stock, both of which are included in unrealized gain (loss) on equity securities in our condensed consolidated statements of comprehensive income (loss).
|
|
|
As of June 30, 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 (2)
|
|
$
|
349,810
|
|
|
$
|
350,102
|
|
|
$
|
349,239
|
|
|
$
|
348,903
|
|
Senior unsecured notes, 3.60% interest rate, due in 2020
|
|
399,540
|
|
|
400,856
|
|
|
399,146
|
|
|
399,146
|
|
||||
Senior unsecured notes, 4.00% interest rate, due in 2022
|
|
297,196
|
|
|
303,536
|
|
|
296,735
|
|
|
295,047
|
|
||||
Senior unsecured notes, 4.15% interest rate, due in 2022
|
|
297,266
|
|
|
304,793
|
|
|
296,736
|
|
|
296,736
|
|
||||
Senior unsecured notes, 4.25% interest rate, due in 2024
|
|
338,877
|
|
|
352,121
|
|
|
337,736
|
|
|
337,736
|
|
||||
Senior unsecured notes, 4.50% interest rate, due in 2025
|
|
379,192
|
|
|
401,804
|
|
|
377,329
|
|
|
377,329
|
|
||||
Senior unsecured notes, 5.875% interest rate, due in 2046
|
|
300,748
|
|
|
311,240
|
|
|
300,576
|
|
|
274,288
|
|
||||
Mortgage notes payable
|
|
325,293
|
|
|
333,057
|
|
|
335,241
|
|
|
336,365
|
|
||||
Total
|
|
$
|
2,687,922
|
|
|
$
|
2,757,509
|
|
|
$
|
2,692,738
|
|
|
$
|
2,665,550
|
|
(1)
|
Includes unamortized debt premiums, discounts and issuance costs totaling $50,371 and $55,524 as of June 30, 2019 and December 31, 2018, respectively.
|
(2)
|
In July 2019, we redeemed these senior unsecured notes.
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||
|
|
June 30, 2018
|
|
June 30, 2018
|
||||
Rental income
|
|
$
|
96,415
|
|
|
$
|
196,170
|
|
Tenant reimbursements and other income
|
|
19,592
|
|
|
40,466
|
|
||
Total revenues
|
|
116,007
|
|
|
236,636
|
|
||
|
|
|
|
|
||||
Real estate taxes
|
|
12,442
|
|
|
24,230
|
|
||
Other operating expenses
|
|
13,618
|
|
|
28,900
|
|
||
Depreciation and amortization
|
|
35,009
|
|
|
69,955
|
|
||
General and administrative
|
|
18,081
|
|
|
32,022
|
|
||
Write-off of straight line rent receivable, net
|
|
10,626
|
|
|
10,626
|
|
||
Total expenses
|
|
89,776
|
|
|
165,733
|
|
||
|
|
|
|
|
||||
Dividend income
|
|
396
|
|
|
793
|
|
||
Unrealized gain on equity securities
|
|
13,488
|
|
|
30,388
|
|
||
Interest income
|
|
110
|
|
|
620
|
|
||
Interest expense
|
|
(22,667
|
)
|
|
(46,159
|
)
|
||
Loss on early extinguishment of debt
|
|
—
|
|
|
(1,192
|
)
|
||
Income before income tax expense and equity in earnings of an investee
|
|
17,558
|
|
|
55,353
|
|
||
Income tax expense
|
|
(101
|
)
|
|
(261
|
)
|
||
Equity in earnings of an investee
|
|
7
|
|
|
51
|
|
||
Net income
|
|
17,464
|
|
|
55,143
|
|
||
Net income allocated to noncontrolling interest
|
|
(5,765
|
)
|
|
(10,244
|
)
|
||
Net income attributed to SIR
|
|
$
|
11,699
|
|
|
$
|
44,899
|
|
|
|
|
|
|
||||
Weighted average common shares outstanding (basic)
|
|
89,393
|
|
|
89,388
|
|
||
Weighted average common shares outstanding (diluted)
|
|
89,416
|
|
|
89,398
|
|
||
Net income attributed to SIR per common share (basic and diluted)
|
|
$
|
0.13
|
|
|
$
|
0.50
|
|
(1)
|
Based on properties we owned on June 30, 2019 and 2018, respectively.
|
(2)
|
Based on properties we owned continuously since January 1, 2018.
|
(3)
|
Includes one leasable land parcel as of June 30, 2019.
|
(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 June 30,
|
|
Six Months Ended June 30,
|
||||||||
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
||||
Average effective rental rate per square foot (1):
|
|
|
|
|
|
|
|
|
||||
All properties (2)
|
|
$
|
26.37
|
|
|
$
|
26.87
|
|
|
$26.20
|
|
$26.76
|
Comparable properties (3)
|
|
$
|
28.55
|
|
|
$
|
28.96
|
|
|
$28.48
|
|
$28.75
|
(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 properties we owned on June 30, 2019 and 2018, respectively.
|
(3)
|
Based on properties we owned continuously since April 1, 2018 and January 1, 2018, respectively.
|
|
|
Three Months Ended June 30, 2019
|
|
Six Months Ended June 30, 2019
|
||||||||||||||
|
|
Leased
|
|
Available for Lease
|
|
Total
|
|
Leased
|
|
Available for Lease
|
|
Total
|
||||||
Beginning of period
|
|
26,994
|
|
|
3,140
|
|
|
30,134
|
|
|
29,024
|
|
|
2,876
|
|
|
31,900
|
|
Changes resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Disposition of properties
|
|
(90
|
)
|
|
(735
|
)
|
|
(825
|
)
|
|
(1,601
|
)
|
|
(989
|
)
|
|
(2,590
|
)
|
Lease expirations
|
|
(615
|
)
|
|
615
|
|
|
—
|
|
|
(1,959
|
)
|
|
1,959
|
|
|
—
|
|
Lease renewals (1)
|
|
449
|
|
|
(449
|
)
|
|
—
|
|
|
1,153
|
|
|
(1,153
|
)
|
|
—
|
|
New leases (1)
|
|
122
|
|
|
(122
|
)
|
|
—
|
|
|
243
|
|
|
(243
|
)
|
|
—
|
|
Remeasurements (2)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
(1
|
)
|
End of period
|
|
26,860
|
|
|
2,449
|
|
|
29,309
|
|
|
26,860
|
|
|
2,449
|
|
|
29,309
|
|
(1)
|
Based on leases entered during the three and six months ended June 30, 2019.
|
(2)
|
Rentable square feet are subject to changes when space is remeasured or reconfigured for tenants.
|
|
|
Three Months Ended June 30, 2019
|
|
Six Months Ended June 30, 2019
|
||||||||||||||||||
|
|
Old Effective Rent Per Square Foot (1)
|
|
New Effective Rent Per Square Foot (1)
|
|
Rentable Square Feet
|
|
Old Effective Rent Per Square Foot (1)
|
|
New Effective Rent Per Square Foot (1)
|
|
Rentable Square Feet
|
||||||||||
New leases
|
|
$
|
31.79
|
|
|
$
|
33.58
|
|
|
73
|
|
|
$
|
31.73
|
|
|
$
|
32.68
|
|
|
114
|
|
Lease renewals
|
|
$
|
31.83
|
|
|
$
|
30.64
|
|
|
428
|
|
|
$
|
34.23
|
|
|
$
|
36.42
|
|
|
1,189
|
|
Total leasing activity
|
|
$
|
31.83
|
|
|
$
|
31.07
|
|
|
501
|
|
|
$
|
34.01
|
|
|
$
|
36.10
|
|
|
1,303
|
|
(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 June 30, 2019
|
||||||||||
|
|
New Leases
|
|
Renewals
|
|
Total
|
||||||
Rentable square feet leased
|
|
122
|
|
|
449
|
|
|
571
|
|
|||
Tenant leasing costs and concession commitments (1)
|
|
$
|
8,709
|
|
|
$
|
6,668
|
|
|
$
|
15,377
|
|
Tenant leasing costs and concession commitments per rentable square foot (1)
|
|
$
|
71.66
|
|
|
$
|
14.84
|
|
|
$
|
26.94
|
|
Weighted (by square feet) average lease term (years)
|
|
8.0
|
|
|
6.4
|
|
|
6.7
|
|
|||
Total leasing costs and concession commitments per rentable square foot per year (1)
|
|
$
|
8.92
|
|
|
$
|
2.34
|
|
|
$
|
4.01
|
|
|
|
Six Months Ended June 30, 2019
|
||||||||||
|
|
New Leases
|
|
Renewals
|
|
Total
|
||||||
Rentable square feet leased
|
|
243
|
|
|
1,153
|
|
|
1,396
|
|
|||
Tenant leasing costs and concession commitments (1)
|
|
$
|
22,300
|
|
|
$
|
21,881
|
|
|
$
|
44,181
|
|
Tenant leasing costs and concession commitments per rentable square foot (1)
|
|
$
|
91.82
|
|
|
$
|
18.97
|
|
|
$
|
31.64
|
|
Weighted (by square feet) average lease term (years)
|
|
8.4
|
|
|
6.9
|
|
|
7.2
|
|
|||
Total leasing costs and concession commitments per rentable square foot per year (1)
|
|
$
|
10.94
|
|
|
$
|
2.75
|
|
|
$
|
4.42
|
|
(1)
|
Includes commitments made for leasing expenditures and concessions, such as tenant improvements, leasing commissions, tenant reimbursements and free rent.
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
||||||||
Tenant improvements (1)
|
|
$
|
7,123
|
|
|
$
|
3,854
|
|
|
$
|
12,035
|
|
|
$
|
6,697
|
|
Leasing costs (2)
|
|
6,760
|
|
|
1,626
|
|
|
14,085
|
|
|
3,612
|
|
||||
Building improvements (3)
|
|
7,317
|
|
|
4,048
|
|
|
11,625
|
|
|
6,755
|
|
||||
Recurring capital expenditures
|
|
21,200
|
|
|
9,528
|
|
|
37,745
|
|
|
17,064
|
|
||||
Development, redevelopment and other activities (4)
|
|
959
|
|
|
734
|
|
|
1,185
|
|
|
2,150
|
|
||||
Total capital expenditures
|
|
$
|
22,159
|
|
|
$
|
10,262
|
|
|
$
|
38,930
|
|
|
$
|
19,214
|
|
(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 June 30, 2019, tenants occupying approximately 9.3% of our rentable square feet and responsible for approximately 5.8% of our annualized rental income as of June 30, 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, 2030 and 2034, early termination rights become exercisable by other tenants who currently occupy an additional approximately 0.8%, 5.0%, 1.3%, 2.2%, 0.2%, 0.9%, 1.8%, 0.8%, 0.5%, 0.8%, 0.1% and 0.1% of our rentable square feet, respectively, and contribute an additional approximately 0.8%, 6.5%, 1.5%, 2.1%, 0.3%, 1.4%, 3.2%, 1.1%, 0.6%, 1.0%, 0.1% and 0.0% of our annualized rental income, respectively, as of June 30, 2019. In addition, as of June 30, 2019, 17 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 17 tenants occupy approximately 6.1% of our rentable square feet and contribute approximately 7.0% of our annualized rental income as of June 30, 2019.
|
(2)
|
Leased square feet is pursuant to leases existing as of June 30, 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
|
|
$
|
169,225
|
|
|
25.6
|
%
|
2
|
|
State of California
|
|
Investment Grade
|
|
19,040
|
|
|
2.9
|
%
|
|
3
|
|
Shook, Hardy & Bacon L.L.P.
|
|
Not Rated
|
|
18,854
|
|
|
2.9
|
%
|
|
4
|
|
Bank of America Corporation
|
|
Investment Grade
|
|
16,604
|
|
|
2.5
|
%
|
|
5
|
|
F5 Networks, Inc.
|
|
Not Rated
|
|
14,416
|
|
|
2.2
|
%
|
|
6
|
|
Noble Energy, Inc.
|
|
Investment Grade
|
|
14,149
|
|
|
2.1
|
%
|
|
7
|
|
Marathon Petroleum Corp.
|
|
Investment Grade
|
|
14,141
|
|
|
2.1
|
%
|
|
8
|
|
WestRock Co.
|
|
Investment Grade
|
|
12,842
|
|
|
1.9
|
%
|
|
9
|
|
CareFirst Inc.
|
|
Non Investment Grade
|
|
11,619
|
|
|
1.8
|
%
|
|
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
|
|
CommScope Holding Company, Inc.
|
|
Non Investment Grade
|
|
7,931
|
|
|
1.2
|
%
|
|
16
|
|
PNC Bank
|
|
Investment Grade
|
|
6,897
|
|
|
1.1
|
%
|
|
17
|
|
State of Georgia
|
|
Investment Grade
|
|
6,790
|
|
|
1.0
|
%
|
|
|
Total
|
|
|
|
$
|
362,544
|
|
|
54.8
|
%
|
|
|
|
|
|
|
|
|
|
|
Acquired Properties
|
|
Disposed Properties
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
Results (2)
|
|
Results (3)
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||
|
|
Comparable Properties Results (1)
|
|
Three Months Ended
|
|
Three Months Ended
|
|
Consolidated Results
|
||||||||||||||||||||||||||||||||||||||
|
|
Three Months Ended June 30,
|
|
June 30,
|
|
June 30,
|
|
Three Months Ended June 30,
|
||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
$
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
%
|
||||||||||||||||||||||
|
|
2019
|
|
2018
|
|
Change
|
|
Change
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Change
|
|
Change
|
||||||||||||||||||||||
Rental income
|
|
$
|
88,004
|
|
|
$
|
90,634
|
|
|
$
|
(2,630
|
)
|
|
(2.9
|
%)
|
|
$
|
87,369
|
|
|
$
|
—
|
|
|
$
|
659
|
|
|
$
|
17,451
|
|
|
$
|
176,032
|
|
|
$
|
108,085
|
|
|
$
|
67,947
|
|
|
62.9
|
%
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Real estate taxes
|
|
10,871
|
|
|
10,448
|
|
|
423
|
|
|
4.0
|
%
|
|
7,222
|
|
|
—
|
|
|
54
|
|
|
1,917
|
|
|
18,147
|
|
|
12,365
|
|
|
5,782
|
|
|
46.8
|
%
|
||||||||||
Utility expenses
|
|
4,985
|
|
|
5,332
|
|
|
(347
|
)
|
|
(6.5
|
%)
|
|
2,451
|
|
|
—
|
|
|
34
|
|
|
686
|
|
|
7,470
|
|
|
6,018
|
|
|
1,452
|
|
|
24.1
|
%
|
||||||||||
Other operating expenses
|
|
19,235
|
|
|
18,551
|
|
|
684
|
|
|
3.7
|
%
|
|
10,177
|
|
|
—
|
|
|
280
|
|
|
3,048
|
|
|
29,692
|
|
|
21,599
|
|
|
8,093
|
|
|
37.5
|
%
|
||||||||||
Total operating expenses
|
|
35,091
|
|
|
34,331
|
|
|
760
|
|
|
2.2
|
%
|
|
19,850
|
|
|
—
|
|
|
368
|
|
|
5,651
|
|
|
55,309
|
|
|
39,982
|
|
|
15,327
|
|
|
38.3
|
%
|
||||||||||
Net operating income (4)
|
|
$
|
52,913
|
|
|
$
|
56,303
|
|
|
$
|
(3,390
|
)
|
|
(6.0
|
%)
|
|
$
|
67,519
|
|
|
$
|
—
|
|
|
$
|
291
|
|
|
$
|
11,800
|
|
|
120,723
|
|
|
68,103
|
|
|
52,620
|
|
|
77.3
|
%
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||
Other expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Depreciation and amortization
|
|
73,913
|
|
|
42,671
|
|
|
31,242
|
|
|
73.2
|
%
|
||||||||||||||||||||||||||||||||||
Loss on impairment of real estate
|
|
2,380
|
|
|
(316
|
)
|
|
2,696
|
|
|
nm
|
|
||||||||||||||||||||||||||||||||||
Acquisition and transaction related costs
|
|
98
|
|
|
—
|
|
|
98
|
|
|
nm
|
|
||||||||||||||||||||||||||||||||||
General and administrative
|
|
8,744
|
|
|
4,449
|
|
|
4,295
|
|
|
96.5
|
%
|
||||||||||||||||||||||||||||||||||
Total other expenses
|
|
85,135
|
|
|
46,804
|
|
|
38,331
|
|
|
81.9
|
%
|
||||||||||||||||||||||||||||||||||
Gain (loss) on sale of real restate
|
|
(17
|
)
|
|
17,329
|
|
|
(17,346
|
)
|
|
nm
|
|
||||||||||||||||||||||||||||||||||
Dividend income
|
|
980
|
|
|
304
|
|
|
676
|
|
|
nm
|
|
||||||||||||||||||||||||||||||||||
Unrealized gain (loss) on equity securities
|
|
(66,135
|
)
|
|
10,321
|
|
|
(76,456
|
)
|
|
nm
|
|
||||||||||||||||||||||||||||||||||
Interest income
|
|
241
|
|
|
149
|
|
|
92
|
|
|
61.7
|
%
|
||||||||||||||||||||||||||||||||||
Interest expense
|
|
(35,348
|
)
|
|
(23,304
|
)
|
|
(12,044
|
)
|
|
51.7
|
%
|
||||||||||||||||||||||||||||||||||
Loss on early extinguishment of debt
|
|
(71
|
)
|
|
—
|
|
|
(71
|
)
|
|
nm
|
|
||||||||||||||||||||||||||||||||||
Income (loss) from continuing operations before income tax benefit (expense) and equity in net losses of investees
|
|
(64,762
|
)
|
|
26,098
|
|
|
(90,860
|
)
|
|
nm
|
|
||||||||||||||||||||||||||||||||||
Income tax benefit (expense)
|
|
130
|
|
|
(83
|
)
|
|
213
|
|
|
(256.6
|
%)
|
||||||||||||||||||||||||||||||||||
Equity in net losses of investees
|
|
(142
|
)
|
|
(629
|
)
|
|
487
|
|
|
(77.4
|
%)
|
||||||||||||||||||||||||||||||||||
Income (loss) from continuing operations
|
|
(64,774
|
)
|
|
25,386
|
|
|
(90,160
|
)
|
|
nm
|
|
||||||||||||||||||||||||||||||||||
Income from discontinued operations
|
|
—
|
|
|
4,309
|
|
|
(4,309
|
)
|
|
(100.0
|
%)
|
||||||||||||||||||||||||||||||||||
Net income (loss)
|
|
(64,774
|
)
|
|
29,695
|
|
|
(94,469
|
)
|
|
nm
|
|
||||||||||||||||||||||||||||||||||
Preferred units of limited partnership distributions
|
|
—
|
|
|
(93
|
)
|
|
93
|
|
|
(100.0
|
%)
|
||||||||||||||||||||||||||||||||||
Net income (loss) available for common shareholders
|
|
$
|
(64,774
|
)
|
|
$
|
29,602
|
|
|
$
|
(94,376
|
)
|
|
nm
|
|
|||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||
Weighted average common shares outstanding (basic)
|
|
48,049
|
|
|
24,763
|
|
|
23,286
|
|
|
94.0
|
%
|
||||||||||||||||||||||||||||||||||
Weighted average common shares outstanding (diluted)
|
|
48,049
|
|
|
24,766
|
|
|
23,283
|
|
|
94.0
|
%
|
||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||
Per common share amounts (basic and diluted):
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
Income (loss) from continuing operations
|
|
$
|
(1.35
|
)
|
|
$
|
1.02
|
|
|
$
|
(2.37
|
)
|
|
(232.4
|
%)
|
|||||||||||||||||||||||||||||||
Income from discontinued operations
|
|
$
|
—
|
|
|
$
|
0.17
|
|
|
$
|
(0.17
|
)
|
|
(100.0
|
%)
|
|||||||||||||||||||||||||||||||
Net income (loss) available for common shareholders
|
|
$
|
(1.35
|
)
|
|
$
|
1.20
|
|
|
$
|
(2.55
|
)
|
|
(212.5
|
%)
|
(1)
|
Comparable properties consist of 112 properties we owned continuously since April 1, 2018.
|
(2)
|
Acquired properties consist of 97 properties we acquired since April 1, 2018 and which we owned as of June 30, 2019. On December 31, 2018, we acquired these properties in connection with the Merger.
|
(3)
|
Disposed properties consist of 34 properties we sold in February 2019, one property we sold in March 2019, two properties we sold in May 2019, one property we sold in June 2019 and 18 properties we sold during the period from April 1, 2018 to December 31, 2018.
|
(4)
|
Our definition of Property NOI and our reconciliation of net income (loss) to Property NOI are included below under the heading “Non-GAAP Financial Measures."
|
|
|
|
|
|
|
|
|
|
|
Acquired Properties
|
|
Disposed Properties
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
Results (2)
|
|
Results (3)
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||
|
|
Comparable Properties Results (1)
|
|
Six Months Ended
|
|
Six Months Ended
|
|
Consolidated Results
|
||||||||||||||||||||||||||||||||||||||
|
|
Six Months Ended June 30,
|
|
June 30,
|
|
June 30,
|
|
Six Months Ended June 30,
|
||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
$
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
%
|
||||||||||||||||||||||
|
|
2019
|
|
2018
|
|
Change
|
|
Change
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Change
|
|
Change
|
||||||||||||||||||||||
Rental income
|
|
$
|
175,520
|
|
|
$
|
180,033
|
|
|
$
|
(4,513
|
)
|
|
(2.5
|
%)
|
|
$
|
168,465
|
|
|
$
|
—
|
|
|
$
|
6,824
|
|
|
$
|
36,769
|
|
|
$
|
350,809
|
|
|
$
|
216,802
|
|
|
$
|
134,007
|
|
|
61.8
|
%
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Real estate taxes
|
|
21,114
|
|
|
21,095
|
|
|
19
|
|
|
0.1
|
%
|
|
14,608
|
|
|
—
|
|
|
817
|
|
|
4,235
|
|
|
36,539
|
|
|
25,330
|
|
|
11,209
|
|
|
44.3
|
%
|
||||||||||
Utility expenses
|
|
11,069
|
|
|
11,283
|
|
|
(214
|
)
|
|
(1.9
|
%)
|
|
5,347
|
|
|
—
|
|
|
435
|
|
|
1,424
|
|
|
16,851
|
|
|
12,707
|
|
|
4,144
|
|
|
32.6
|
%
|
||||||||||
Other operating expenses
|
|
38,071
|
|
|
37,362
|
|
|
709
|
|
|
1.9
|
%
|
|
20,187
|
|
|
—
|
|
|
1,570
|
|
|
7,074
|
|
|
59,828
|
|
|
44,436
|
|
|
15,392
|
|
|
34.6
|
%
|
||||||||||
Total operating expenses
|
|
70,254
|
|
|
69,740
|
|
|
514
|
|
|
0.7
|
%
|
|
40,142
|
|
|
—
|
|
|
2,822
|
|
|
12,733
|
|
|
113,218
|
|
|
82,473
|
|
|
30,745
|
|
|
37.3
|
%
|
||||||||||
Net operating income (4)
|
|
$
|
105,266
|
|
|
$
|
110,293
|
|
|
$
|
(5,027
|
)
|
|
(4.6
|
%)
|
|
$
|
128,323
|
|
|
$
|
—
|
|
|
$
|
4,002
|
|
|
$
|
24,036
|
|
|
237,591
|
|
|
134,329
|
|
|
103,262
|
|
|
76.9
|
%
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||
Other expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Depreciation and amortization
|
|
151,434
|
|
|
86,875
|
|
|
64,559
|
|
|
74.3
|
%
|
||||||||||||||||||||||||||||||||||
Loss on impairment of real estate
|
|
5,584
|
|
|
5,800
|
|
|
(216
|
)
|
|
(3.7
|
%)
|
||||||||||||||||||||||||||||||||||
Acquisition and transaction related costs
|
|
682
|
|
|
—
|
|
|
682
|
|
|
nm
|
|
||||||||||||||||||||||||||||||||||
General and administrative
|
|
17,467
|
|
|
14,055
|
|
|
3,412
|
|
|
24.3
|
%
|
||||||||||||||||||||||||||||||||||
Total other expenses
|
|
175,167
|
|
|
106,730
|
|
|
68,437
|
|
|
64.1
|
%
|
||||||||||||||||||||||||||||||||||
Gain on sale of real estate
|
|
22,075
|
|
|
17,329
|
|
|
4,746
|
|
|
27.4
|
%
|
||||||||||||||||||||||||||||||||||
Dividend income
|
|
1,960
|
|
|
608
|
|
|
1,352
|
|
|
222.4
|
%
|
||||||||||||||||||||||||||||||||||
Unrealized gain (loss) on equity securities
|
|
(44,007
|
)
|
|
23,252
|
|
|
(67,259
|
)
|
|
nm
|
|
||||||||||||||||||||||||||||||||||
Interest income
|
|
489
|
|
|
265
|
|
|
224
|
|
|
84.5
|
%
|
||||||||||||||||||||||||||||||||||
Interest expense
|
|
(72,481
|
)
|
|
(46,070
|
)
|
|
(26,411
|
)
|
|
57.3
|
%
|
||||||||||||||||||||||||||||||||||
Loss on early extinguishment of debt
|
|
(485
|
)
|
|
—
|
|
|
(485
|
)
|
|
nm
|
|
||||||||||||||||||||||||||||||||||
Income (loss) from continuing operations before income tax expense and equity in net losses of investees
|
|
(30,025
|
)
|
|
22,983
|
|
|
(53,008
|
)
|
|
(230.6
|
%)
|
||||||||||||||||||||||||||||||||||
Income tax expense
|
|
(353
|
)
|
|
(115
|
)
|
|
(238
|
)
|
|
207.0
|
%
|
||||||||||||||||||||||||||||||||||
Equity in net losses of investees
|
|
(377
|
)
|
|
(1,206
|
)
|
|
829
|
|
|
(68.7
|
%)
|
||||||||||||||||||||||||||||||||||
Income (loss) from continuing operations
|
|
(30,755
|
)
|
|
21,662
|
|
|
(52,417
|
)
|
|
(242.0
|
%)
|
||||||||||||||||||||||||||||||||||
Income from discontinued operations
|
|
—
|
|
|
14,598
|
|
|
(14,598
|
)
|
|
(100.0
|
%)
|
||||||||||||||||||||||||||||||||||
Net income (loss)
|
|
(30,755
|
)
|
|
36,260
|
|
|
(67,015
|
)
|
|
(184.8
|
%)
|
||||||||||||||||||||||||||||||||||
Preferred units of limited partnership distributions
|
|
—
|
|
|
(371
|
)
|
|
371
|
|
|
(100.0
|
)%
|
||||||||||||||||||||||||||||||||||
Net income (loss) available for common shareholders
|
|
$
|
(30,755
|
)
|
|
$
|
35,889
|
|
|
$
|
(66,644
|
)
|
|
(185.7
|
%)
|
|||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||
Weighted average common shares outstanding (basic)
|
|
48,040
|
|
|
24,762
|
|
|
23,278
|
|
|
94.0
|
%
|
||||||||||||||||||||||||||||||||||
Weighted average common shares outstanding (diluted)
|
|
48,040
|
|
|
24,763
|
|
|
23,277
|
|
|
94.0
|
%
|
||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||
Per common share amounts (basic and diluted):
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||
Income (loss) from continuing operations
|
|
$
|
(0.64
|
)
|
|
$
|
0.86
|
|
|
$
|
(1.50
|
)
|
|
(174.4
|
%)
|
|||||||||||||||||||||||||||||||
Income from discontinued operations
|
|
$
|
—
|
|
|
$
|
0.59
|
|
|
$
|
(0.59
|
)
|
|
(100.0
|
%)
|
|||||||||||||||||||||||||||||||
Net income (loss) available for common shareholders
|
|
$
|
(0.64
|
)
|
|
$
|
1.45
|
|
|
$
|
(2.09
|
)
|
|
(144.1
|
%)
|
(1)
|
Comparable properties consist of 112 properties we owned continuously since January 1, 2018.
|
(2)
|
Acquired properties consist of 97 properties we acquired since January 1, 2018. On December 31, 2018, we acquired these properties in connection with the Merger.
|
(3)
|
Disposed properties consist of 34 properties we sold in February 2019, one property we sold in March 2019, two properties we sold in May 2019, one property we sold in June 2019 and 19 properties we sold during 2018.
|
(4)
|
Our definition of Property NOI and our reconciliation of net income (loss) to Property NOI are included below under the heading “Non-GAAP Financial Measures."
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
||||||||
Reconciliation of Net Income (Loss) Available for Common Shareholders to Property NOI:
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
Net income (loss) available for common shareholders
|
|
$
|
(64,774
|
)
|
|
$
|
29,602
|
|
|
$
|
(30,755
|
)
|
|
$
|
35,889
|
|
||||||||||||||||
Preferred units of limited partnership distributions
|
|
—
|
|
|
93
|
|
|
—
|
|
|
371
|
|
||||||||||||||||||||
Net income (loss)
|
|
(64,774
|
)
|
|
29,695
|
|
|
(30,755
|
)
|
|
36,260
|
|
||||||||||||||||||||
Income from discontinued operations
|
|
—
|
|
|
(4,309
|
)
|
|
—
|
|
|
(14,598
|
)
|
||||||||||||||||||||
Income (loss) from continuing operations
|
|
(64,774
|
)
|
|
25,386
|
|
|
(30,755
|
)
|
|
21,662
|
|
||||||||||||||||||||
Equity in net losses of investees
|
|
142
|
|
|
629
|
|
|
377
|
|
|
1,206
|
|
||||||||||||||||||||
Income tax (benefit) expense
|
|
(130
|
)
|
|
83
|
|
|
353
|
|
|
115
|
|
||||||||||||||||||||
Loss on early extinguishment of debt
|
|
71
|
|
|
—
|
|
|
485
|
|
|
—
|
|
||||||||||||||||||||
Interest expense
|
|
35,348
|
|
|
23,304
|
|
|
72,481
|
|
|
46,070
|
|
||||||||||||||||||||
Interest income
|
|
(241
|
)
|
|
(149
|
)
|
|
(489
|
)
|
|
(265
|
)
|
||||||||||||||||||||
Unrealized (gain) loss on equity securities
|
|
66,135
|
|
|
(10,321
|
)
|
|
44,007
|
|
|
(23,252
|
)
|
||||||||||||||||||||
Dividend income
|
|
(980
|
)
|
|
(304
|
)
|
|
(1,960
|
)
|
|
(608
|
)
|
||||||||||||||||||||
(Gain) loss on sale of real estate
|
|
17
|
|
|
(17,329
|
)
|
|
(22,075
|
)
|
|
(17,329
|
)
|
||||||||||||||||||||
General and administrative
|
|
8,744
|
|
|
4,449
|
|
|
17,467
|
|
|
14,055
|
|
||||||||||||||||||||
Acquisition and transaction related costs
|
|
98
|
|
|
—
|
|
|
682
|
|
|
—
|
|
||||||||||||||||||||
Loss on impairment of real estate
|
|
2,380
|
|
|
(316
|
)
|
|
5,584
|
|
|
5,800
|
|
||||||||||||||||||||
Depreciation and amortization
|
|
73,913
|
|
|
42,671
|
|
|
151,434
|
|
|
86,875
|
|
||||||||||||||||||||
Property NOI
|
|
$
|
120,723
|
|
|
$
|
68,103
|
|
|
$
|
237,591
|
|
|
$
|
134,329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
||||||||
Net income (loss) available for common shareholders
|
|
$
|
(64,774
|
)
|
|
$
|
29,602
|
|
|
$
|
(30,755
|
)
|
|
$
|
35,889
|
|
||||||||||||||||
Add (less): Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Consolidated properties
|
|
73,913
|
|
|
42,671
|
|
|
151,434
|
|
|
86,875
|
|
||||||||||||||||||||
Unconsolidated joint venture properties
|
|
1,410
|
|
|
2,185
|
|
|
3,161
|
|
|
4,370
|
|
||||||||||||||||||||
FFO attributable to Select Income REIT
|
|
—
|
|
|
12,414
|
|
|
—
|
|
|
30,902
|
|
||||||||||||||||||||
Loss on impairment of real estate
|
|
2,380
|
|
|
(316
|
)
|
|
5,584
|
|
|
5,800
|
|
||||||||||||||||||||
Equity in earnings from Select Income REIT included in discontinued operations
|
|
—
|
|
|
(4,301
|
)
|
|
—
|
|
|
(14,590
|
)
|
||||||||||||||||||||
(Gain) loss on sale of real estate
|
|
17
|
|
|
(17,329
|
)
|
|
(22,075
|
)
|
|
(17,329
|
)
|
||||||||||||||||||||
Unrealized (gain) loss on equity securities
|
|
66,135
|
|
|
(10,321
|
)
|
|
44,007
|
|
|
(23,252
|
)
|
||||||||||||||||||||
FFO available for common shareholders
|
|
79,081
|
|
|
54,605
|
|
|
151,356
|
|
|
108,665
|
|
||||||||||||||||||||
Add (less): Acquisition and transaction related costs
|
|
98
|
|
|
—
|
|
|
682
|
|
|
—
|
|
||||||||||||||||||||
Loss on early extinguishment of debt
|
|
71
|
|
|
—
|
|
|
485
|
|
|
—
|
|
||||||||||||||||||||
Normalized FFO attributable to Select Income REIT
|
|
—
|
|
|
11,292
|
|
|
—
|
|
|
26,898
|
|
||||||||||||||||||||
FFO attributable to Select Income REIT
|
|
—
|
|
|
(12,414
|
)
|
|
—
|
|
|
(30,902
|
)
|
||||||||||||||||||||
Net gain on issuance of shares by Select Income REIT included in discontinued operations
|
|
—
|
|
|
(8
|
)
|
|
—
|
|
|
(8
|
)
|
||||||||||||||||||||
Estimated business management incentive fees
|
|
—
|
|
|
(2,150
|
)
|
|
—
|
|
|
737
|
|
||||||||||||||||||||
Normalized FFO available for common shareholders
|
|
$
|
79,250
|
|
|
$
|
51,325
|
|
|
$
|
152,523
|
|
|
$
|
105,390
|
|
||||||||||||||||
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
FFO per common share available for common shareholders (basic)
|
|
$
|
1.65
|
|
|
$
|
2.21
|
|
|
$
|
3.15
|
|
|
$
|
4.39
|
|
||||||||||||||||
FFO per common share available for common shareholders (diluted)
|
|
$
|
1.65
|
|
|
$
|
2.20
|
|
|
$
|
3.15
|
|
|
$
|
4.39
|
|
||||||||||||||||
Normalized FFO per common share available for common shareholders (basic and diluted)
|
|
$
|
1.65
|
|
|
$
|
2.07
|
|
|
$
|
3.17
|
|
|
$
|
4.26
|
|
•
|
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 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 June 30, 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 June 30, 2019, the annual interest rate for the amount outstanding under this term loan was 3.8%. During the six months ended June 30, 2019, we repaid $130,000 of the principal balance without penalty using proceeds from the sales of properties, leaving a principal balance remaining under this term loan of $170,000. On July 1, 2019, we repaid an additional $105,000 of the principal balance of this term loan using proceeds from the sale of our shares of class A common stock of RMR Inc.
|
•
|
In February 2019, we repaid in full our $250,000 term loan, which was scheduled to mature on March 31, 2022 and had a principal balance of $88,000 as of December 31, 2018, without penalty, using proceeds from the sale of a property portfolio.
|
Year
|
|
Debt Maturities
|
|
||
2019
|
|
$
|
352,084
|
|
(1)
|
2020
|
|
645,707
|
|
(2)
|
|
2021
|
|
14,420
|
|
|
|
2022
|
|
625,518
|
|
|
|
2023 and thereafter
|
|
1,270,564
|
|
|
|
Total
|
|
$
|
2,908,293
|
|
|
(1)
|
On July 15, 2019, we redeemed, at par plus accrued interest, our $350,000 senior unsecured notes that had a maturity date in August 2019 using cash on hand and borrowings under our revolving credit facility.
|
(2)
|
On July 1, 2019, we repaid $105,000 of the principal balance of the term loan using the proceeds from the sale of our shares of class A common stock of RMR Inc.
|
Debt
|
|
Principal Balance (1)
|
|
Annual Interest Rate (1)
|
|
Annual Interest Expense (1)
|
|
Maturity
|
|
Interest Payments Due
|
||||
Senior unsecured notes (2)
|
|
$
|
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 property in Washington, D.C.)
|
|
33,301
|
|
|
5.720%
|
|
1,905
|
|
|
2020
|
|
Monthly
|
||
Mortgage note (one property in Philadelphia, PA)
|
|
40,418
|
|
|
4.400%
|
|
1,778
|
|
|
2020
|
|
Monthly
|
||
Mortgage note (one property in Lakewood, CO)
|
|
2,310
|
|
|
8.150%
|
|
188
|
|
|
2021
|
|
Monthly
|
||
Mortgage note (one property in Fairfax, VA)
|
|
13,303
|
|
|
5.877%
|
|
782
|
|
|
2021
|
|
Monthly
|
||
Mortgage note (one property in Washington, D.C.)
|
|
26,870
|
|
|
4.220%
|
|
1,134
|
|
|
2022
|
|
Monthly
|
||
Mortgage note (three properties in Seattle, WA)
|
|
71,000
|
|
|
3.550%
|
|
2,521
|
|
|
2023
|
|
Monthly
|
||
Mortgage note (one property in Chicago, IL)
|
|
50,000
|
|
|
3.700%
|
|
1,850
|
|
|
2023
|
|
Monthly
|
||
Mortgage note (one property in Washington, D.C.)
|
|
24,311
|
|
|
4.800%
|
|
1,167
|
|
|
2023
|
|
Monthly
|
||
Mortgage note (one property in Washington, D.C.)
|
|
66,780
|
|
|
4.050%
|
|
2,705
|
|
|
2030
|
|
Monthly
|
||
Total
|
|
$
|
2,738,293
|
|
|
|
|
$
|
117,093
|
|
|
|
|
|
(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 the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
|
(2)
|
On July 15, 2019, we redeemed, at par plus accrued interest, all of our $350,000 3.75% senior unsecured notes that had a maturity date in August 2019. We used cash on hand and borrowings under our revolving credit facility to make this prepayment.
|
Debt
|
|
Our JV Ownership Interest
|
|
Principal Balance (1)(2)
|
|
Annual Interest Rate (1)
|
|
Annual Interest Expense (1)
|
|
Maturity
|
|
Interest Payments Due
|
||||
Mortgage note (two properties in Fairfax, VA)
|
|
51%
|
|
$
|
50,000
|
|
|
4.09%
|
|
$
|
2,045
|
|
|
2029
|
|
Monthly
|
Mortgage note (one property in Washington, D.C.)
|
|
50%
|
|
32,000
|
|
|
3.69%
|
|
1,181
|
|
|
2024
|
|
Monthly
|
||
Total
|
|
|
|
$
|
82,000
|
|
|
|
|
$
|
3,226
|
|
|
|
|
|
(1)
|
The principal balances and annual interest rates 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 June 30, 2019
|
|
3.7
|
%
|
|
$
|
235,000
|
|
|
$
|
8,695
|
|
|
$
|
0.18
|
|
One percentage point increase
|
|
4.7
|
%
|
|
$
|
235,000
|
|
|
$
|
11,045
|
|
|
$
|
0.23
|
|
(1)
|
Weighted based on the respective interest rates and outstanding borrowings under our revolving credit facility and our term loan as of June 30, 2019.
|
(2)
|
Based on the weighted average shares outstanding (diluted) for the six months ended June 30, 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 June 30, 2019
|
|
3.5
|
%
|
|
$
|
920,000
|
|
|
$
|
32,200
|
|
|
$
|
0.67
|
|
One percentage point increase
|
|
4.5
|
%
|
|
$
|
920,000
|
|
|
$
|
41,400
|
|
|
$
|
0.86
|
|
(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 June 30, 2019.
|
(2)
|
Based on the weighted average shares outstanding (diluted) for the six months ended June 30, 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 Merger,
|
•
|
Our expectation that we benefit from our relationships with RMR Inc.,
|
•
|
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.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 our target payout ratio for distributions to shareholders of 75% of 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, and we may not realize the proceeds we may target and we may determine to set a different target proceeds amount for our dispositions,
|
•
|
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,
|
•
|
We expect to enter agreements to sell the properties we are currently marketing for sale by the end of 2019. However, we may not succeed in entering into such agreements by that time or at all,
|
•
|
We expect to turn our attention to accretively growing our property portfolio upon completion of our dispositions. However, we may not succeed in making acquisitions that are accretive and future acquisitions could be dilutive,
|
•
|
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. 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 $2.0 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. 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 Merger and therefore may not realize the benefits we expect from the Merger, and
|
•
|
It is difficult to accurately estimate leasing related obligations and costs of development and tenant improvement costs. Our unspent leasing related obligations and development costs 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
Approximate Dollar
|
|
|
|
|
|
|
|
|
Shares Purchased
|
|
|
Value of Shares that
|
|
|
Number of
|
|
|
|
|
|
as Part of Publicly
|
|
|
May Yet Be Purchased
|
|
|
Shares
|
|
Average Price
|
|
|
Announced Plans
|
|
|
Under the Plans or
|
|
Calendar Month
|
|
Purchased (1)
|
|
Paid per Share
|
|
or Programs
|
|
Programs
|
|||
April 2019
|
|
1,795
|
|
$
|
28.96
|
|
|
—
|
|
$
|
—
|
May 2019
|
|
450
|
|
|
23.97
|
|
|
—
|
|
|
—
|
Total
|
|
2,245
|
|
$
|
27.96
|
|
|
—
|
|
$
|
—
|
(1)
|
These common share withholdings and purchases were made to satisfy tax withholding and payment obligations of one of our Trustees and a former officer of RMR LLC in connection with the vesting of awards of our common shares. We withheld and purchased these shares at their fair market values based upon the trading prices of our common shares at the close of trading on Nasdaq on the purchase dates.
|
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
|
|
|
|
10.1
|
|
|
|
10.2
|
|
|
|
10.3
|
|
|
|
31.1
|
|
|
|
31.2
|
|
|
|
32.1
|
|
|
|
101.INS
|
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
|
101.SCH
|
XBRL Taxonomy Extension Schema Document. (Filed herewith.)
|
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase Document. (Filed herewith.)
|
101.DEF
|
XBRL Taxonomy Extension Definition Linkbase Document. (Filed herewith.)
|
101.LAB
|
XBRL Taxonomy Extension Label Linkbase Document. (Filed herewith.)
|
101.PRE
|
XBRL Taxomony Extension Presentation Linkbase Document. (Filed herewith.)
|
104
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
|
|
OFFICE PROPERTIES INCOME TRUST
|
|
|
|
|
|
|
|
|
By:
|
/s/ David M. Blackman
|
|
|
David M. Blackman
|
|
|
President and Chief Executive Officer
|
|
|
Dated: August 2, 2019
|
|
|
|
|
By:
|
/s/ Matthew C. Brown
|
|
|
Matthew C. Brown
|
|
|
Chief Financial Officer and Treasurer
|
|
|
(principal financial officer and principal accounting officer)
|
|
|
Dated: August 2, 2019
|
(a)
|
If to Indemnitee, to: The address set forth on the signature page hereto.
|
(b)
|
If to the Company to:
|
Inf
|
OFFICE PROPERTIES INCOME TRUST
|
|
|
|
|
|
By:
|
|
|
Name:
|
|
|
Title:
|
|
|
|
|
|
|
|
|
[INDEMNITEE]
|
|
|
|
|
|
|
|
|
|
|
|
Indemnitee’s Address:
|
|
|
|
|
|
[ ]
|
WITNESS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Print name of witness
|
|
Print name of Indemnitee
|
Name of Signatory
|
Date
|
Matthew C. Brown
|
June 1, 2019
|
Donna D. Fraiche
|
January 15, 2019
|
William A. Lamkin
|
January 15, 2019
|
Jeffrey C. Leer
|
January 1, 2019
|
David M. Blackman
|
May 24, 2018
|
Barbara D. Gilmore
|
May 24, 2018
|
John L. Harrington
|
May 24, 2018
|
Mark L. Kleifges
|
May 24, 2018
|
Elena Poptodorova
|
May 24, 2018
|
Adam D. Portnoy
|
May 24, 2018
|
Jeffrey P. Somers
|
May 24, 2018
|
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: August 2, 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: August 2, 2019
|
/s/ Matthew C. Brown
|
|
Matthew C. Brown
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/ Matthew C. Brown
|
|
|
Matthew C. Brown
Chief Financial Officer and Treasurer |