Maryland
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45-4071747
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(State or Other Jurisdiction of Incorporation or
Organization)
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(IRS Employer Identification No.)
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Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts
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02458-1634
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(Address of Principal Executive Offices)
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(Zip Code)
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Page
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June 30,
|
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December 31,
|
||||
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2017
|
|
2016
|
||||
ASSETS
|
|
|
|
|
||||
Real estate properties:
|
|
|
|
|
||||
Land
|
|
$
|
1,035,579
|
|
|
$
|
1,038,686
|
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Buildings and improvements
|
|
3,132,584
|
|
|
3,103,734
|
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||
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4,168,163
|
|
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4,142,420
|
|
||
Accumulated depreciation
|
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(275,434
|
)
|
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(242,628
|
)
|
||
|
|
3,892,729
|
|
|
3,899,792
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|
||
Properties held for sale
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|
23,089
|
|
|
—
|
|
||
Acquired real estate leases, net
|
|
496,792
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|
|
506,298
|
|
||
Cash and cash equivalents
|
|
21,683
|
|
|
22,127
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|
||
Restricted cash
|
|
69
|
|
|
44
|
|
||
Rents receivable, including straight line rents of $111,821 and $117,008, respectively, net of allowance for doubtful accounts of $895 and $873, respectively
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114,430
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|
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124,089
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||
Deferred leasing costs, net
|
|
11,380
|
|
|
10,051
|
|
||
Other assets, net
|
|
113,418
|
|
|
77,281
|
|
||
Total assets
|
|
$
|
4,673,590
|
|
|
$
|
4,639,682
|
|
|
|
|
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|
||||
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
|
||||
Unsecured revolving credit facility
|
|
$
|
67,000
|
|
|
$
|
327,000
|
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Unsecured term loan, net
|
|
348,622
|
|
|
348,373
|
|
||
Senior unsecured notes, net
|
|
1,774,769
|
|
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1,430,300
|
|
||
Mortgage notes payable, net
|
|
245,235
|
|
|
245,643
|
|
||
Accounts payable and other liabilities
|
|
95,353
|
|
|
101,605
|
|
||
Assumed real estate lease obligations, net
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|
73,200
|
|
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77,622
|
|
||
Rents collected in advance
|
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16,436
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18,815
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|
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Security deposits
|
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8,332
|
|
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11,887
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|
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Due to related persons
|
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13,389
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|
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4,475
|
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Total liabilities
|
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2,642,336
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2,565,720
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||||
Commitments and contingencies
|
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||||
Shareholders' equity:
|
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|
||||
Common shares of beneficial interest, $.01 par value: 125,000,000 shares authorized; 89,442,647 and 89,427,869 shares issued and outstanding, respectively
|
|
894
|
|
|
894
|
|
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Additional paid in capital
|
|
2,180,054
|
|
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2,179,669
|
|
||
Cumulative net income
|
|
474,696
|
|
|
441,307
|
|
||
Cumulative other comprehensive income
|
|
35,206
|
|
|
20,472
|
|
||
Cumulative common distributions
|
|
(659,596
|
)
|
|
(568,380
|
)
|
||
Total shareholders' equity
|
|
2,031,254
|
|
|
2,073,962
|
|
||
Total liabilities and shareholders' equity
|
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$
|
4,673,590
|
|
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$
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4,639,682
|
|
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Three Months Ended June 30,
|
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Six Months Ended June 30,
|
||||||||||||
|
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2017
|
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2016
|
|
2017
|
|
2016
|
||||||||
|
|
|
|
|
|
|
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|
||||||||
REVENUES:
|
|
|
|
|
|
|
|
|
||||||||
Rental income
|
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$
|
97,041
|
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$
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96,615
|
|
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$
|
194,385
|
|
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$
|
194,475
|
|
Tenant reimbursements and other income
|
|
18,829
|
|
|
18,289
|
|
|
37,779
|
|
|
37,661
|
|
||||
Total revenues
|
|
115,870
|
|
|
114,904
|
|
|
232,164
|
|
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232,136
|
|
||||
|
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|
|
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||||||||
EXPENSES:
|
|
|
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|
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|
|
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|
||||
Real estate taxes
|
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10,836
|
|
|
10,522
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|
|
21,679
|
|
|
20,810
|
|
||||
Other operating expenses
|
|
13,523
|
|
|
12,635
|
|
|
26,390
|
|
|
25,593
|
|
||||
Depreciation and amortization
|
|
34,317
|
|
|
33,405
|
|
|
68,057
|
|
|
66,874
|
|
||||
Acquisition related costs
|
|
—
|
|
|
—
|
|
|
—
|
|
|
58
|
|
||||
General and administrative
|
|
8,181
|
|
|
7,374
|
|
|
23,069
|
|
|
14,350
|
|
||||
Write-off of straight line rents receivable, net
|
|
—
|
|
|
—
|
|
|
12,517
|
|
|
—
|
|
||||
Loss on asset impairment
|
|
—
|
|
|
—
|
|
|
4,047
|
|
|
—
|
|
||||
Loss on impairment of re
al estate assets
|
|
229
|
|
|
—
|
|
|
229
|
|
|
—
|
|
||||
Total expenses
|
|
67,086
|
|
|
63,936
|
|
|
155,988
|
|
|
127,685
|
|
||||
|
|
|
|
|
|
|
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|
||||||||
Operating income
|
|
48,784
|
|
|
50,968
|
|
|
76,176
|
|
|
104,451
|
|
||||
|
|
|
|
|
|
|
|
|
||||||||
Dividend income
|
|
396
|
|
|
475
|
|
|
793
|
|
|
475
|
|
||||
Interest expense (including net amortization of debt issuance costs, premiums and discounts of $1,568, $1,376, $2,972 and $2,750, respectively)
|
|
(22,808
|
)
|
|
(20,584
|
)
|
|
(43,895
|
)
|
|
(41,193
|
)
|
||||
Income before income tax expense and equity in earnings of an investee
|
|
26,372
|
|
|
30,859
|
|
|
33,074
|
|
|
63,733
|
|
||||
Income tax expense
|
|
(85
|
)
|
|
(124
|
)
|
|
(187
|
)
|
|
(263
|
)
|
||||
Equity in earnings of an investee
|
|
374
|
|
|
17
|
|
|
502
|
|
|
94
|
|
||||
Net income
|
|
26,661
|
|
|
30,752
|
|
|
33,389
|
|
|
63,564
|
|
||||
Net income allocated to noncontrolling interest
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(33
|
)
|
||||
Net income attributed to SIR
|
|
26,661
|
|
|
30,752
|
|
|
33,389
|
|
|
63,531
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||||
Other comprehensive income
(loss):
|
|
|
|
|
|
|
|
|
|
|
||||||
Unrealized gain (loss) on investment in available for sale sec
urities
|
|
(1,348
|
)
|
|
9,457
|
|
|
14,520
|
|
|
26,278
|
|
||||
Unrealized gain (loss) on interest rate swap
|
|
(97
|
)
|
|
(308
|
)
|
|
34
|
|
|
(1,210
|
)
|
||||
Equity in unrealized gain of an investee
|
|
58
|
|
|
43
|
|
|
180
|
|
|
95
|
|
||||
Other comprehensive income
(loss)
|
|
(1,387
|
)
|
|
9,192
|
|
|
14,734
|
|
|
25,163
|
|
||||
Comprehensive income
|
|
25,274
|
|
|
39,944
|
|
|
48,123
|
|
|
88,727
|
|
||||
Comprehensive income allocated to noncontrolling interest
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(33
|
)
|
||||
Comprehensive income attributed to SIR
|
|
$
|
25,274
|
|
|
$
|
39,944
|
|
|
$
|
48,123
|
|
|
$
|
88,694
|
|
|
|
|
|
|
|
|
|
|
||||||||
Weighted average common shares outstanding - basic
|
|
89,338
|
|
|
89,292
|
|
|
89,334
|
|
|
89,289
|
|
||||
Weighted average common shares outstanding - diluted
|
|
89,362
|
|
|
89,315
|
|
|
89,356
|
|
|
89,306
|
|
||||
|
|
|
|
|
|
|
|
|
||||||||
Net income attributed to SIR per common share - basic and diluted
|
|
$
|
0.30
|
|
|
$
|
0.34
|
|
|
$
|
0.37
|
|
|
$
|
0.71
|
|
|
Six Months Ended June 30,
|
||||||
|
2017
|
|
2016
|
||||
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
||||
Net income
|
$
|
33,389
|
|
|
$
|
63,564
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
||||
Depreciation
|
39,927
|
|
|
38,931
|
|
||
Net amortization of debt issuance costs, premiums and discounts
|
2,972
|
|
|
2,750
|
|
||
Amortization of acquired real estate leases and assumed real estate lease obligations
|
26,520
|
|
|
26,510
|
|
||
Amortization of deferred leasing costs
|
792
|
|
|
676
|
|
||
Write-off of straight line rents and provision for losses on rents receivable
|
12,564
|
|
|
150
|
|
||
Straight line rental income
|
(10,780
|
)
|
|
(12,571
|
)
|
||
Impairment losses
|
4,276
|
|
|
—
|
|
||
Other non-cash expenses, net
|
(359
|
)
|
|
(236
|
)
|
||
Equity in earnings of an investee
|
(502
|
)
|
|
(94
|
)
|
||
Change in assets and liabilities:
|
|
|
|
||||
Restricted cash
|
(25
|
)
|
|
1,127
|
|
||
Rents receivable
|
4,136
|
|
|
1,443
|
|
||
Deferred leasing costs
|
(2,005
|
)
|
|
(3,408
|
)
|
||
Other assets
|
(270
|
)
|
|
1,233
|
|
||
Accounts payable and other liabilities
|
(2,873
|
)
|
|
(3,973
|
)
|
||
Rents collected in advance
|
(2,379
|
)
|
|
(1,976
|
)
|
||
Security deposits
|
184
|
|
|
(21
|
)
|
||
Due to related persons
|
8,914
|
|
|
564
|
|
||
Net cash provided by operating activities
|
114,481
|
|
|
114,669
|
|
||
|
|
|
|
||||
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
||||
Real estate acquisitions and deposits
|
(80,205
|
)
|
|
(1,000
|
)
|
||
Real estate improvements
|
(8,177
|
)
|
|
(4,255
|
)
|
||
Net cash used in investing activities
|
(88,382
|
)
|
|
(5,255
|
)
|
||
|
|
|
|
||||
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
||||
Proceeds from issuance of senior unsecured notes, afte
r discounts
|
345,394
|
|
|
—
|
|
||
Proceeds from borrowings
|
145,000
|
|
|
65,000
|
|
||
Payments of borrowings
|
(422,534
|
)
|
|
(88,127
|
)
|
||
Payment of debt iss
uance costs
|
(3,187
|
)
|
|
—
|
|
||
Distributions to common shareholders
|
(91,216
|
)
|
|
(89,374
|
)
|
||
Purchase of noncontrolling interest
|
—
|
|
|
(3,908
|
)
|
||
Distributions to noncontrolling interest
|
—
|
|
|
(66
|
)
|
||
Net cash used in financing activities
|
(26,543
|
)
|
|
(116,475
|
)
|
||
|
|
|
|
||||
Decrease in cash and cash equivalents
|
(444
|
)
|
|
(7,061
|
)
|
||
Cash and cash equivalents at beginning of period
|
22,127
|
|
|
17,876
|
|
||
Cash and cash equivalents at end of period
|
$
|
21,683
|
|
|
$
|
10,815
|
|
|
|
|
|
||||
SUPPLEMENTAL DISCLOSURES:
|
|
|
|
||||
Interest paid
|
$
|
39,359
|
|
|
$
|
38,408
|
|
Income taxes paid
|
$
|
373
|
|
|
$
|
391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
|
Number of
|
|
Rentable
|
|
|
|
|
|
|
|
Acquired
|
|||||||||
|
|
|
|
Properties/
|
|
Square
|
|
Purchase
|
|
|
|
Building and
|
|
Real Estate
|
|||||||||
Date
|
|
Location
|
|
Buildings
|
|
Feet
|
|
Price
|
|
Land
|
|
Improvements
|
|
Leases
|
|||||||||
April 2017
|
|
Norfolk, VA
|
|
1 / 1
|
|
288,662
|
|
|
$
|
55,465
|
|
|
$
|
4,497
|
|
|
$
|
32,464
|
|
|
$
|
18,504
|
|
May 2017
|
|
Houston, TX
|
|
1 / 1
|
|
84,150
|
|
|
20,459
|
|
|
887
|
|
|
12,594
|
|
|
6,978
|
|
||||
|
|
|
|
2 / 2
|
|
372,812
|
|
|
$
|
75,924
|
|
|
$
|
5,384
|
|
|
$
|
45,058
|
|
|
$
|
25,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|||||
|
|
|
|
Notional
|
|
|
|
|
|
|
|
of Liability
|
|||||
|
|
|
|
Amount as of
|
|
Interest
|
|
Effective
|
|
Maturity
|
|
as of
|
|||||
|
|
Balance Sheet Location
|
|
June 30, 2017
|
|
Rate
(1)
|
|
Date
|
|
Date
|
|
June 30, 2017
|
|||||
Interest rate swap
|
|
Accounts payable and other liabilities
|
|
$
|
41,000
|
|
|
4.16
|
%
|
|
1/29/2015
|
|
8/3/2020
|
|
$
|
614
|
|
(1)
|
The interest rate consists of the underlying index swapped to a fixed rate rather than floating rate LIBOR, plus a premium.
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||
Amount of loss recognized in cumulative other comprehensive income (effective portion)
|
|
$
|
(148
|
)
|
|
$
|
(405
|
)
|
|
$
|
(87
|
)
|
|
$
|
(1,401
|
)
|
Amount of gain reclassified from cumulative other comprehensive income into interest expense (effective portion)
|
|
$
|
51
|
|
|
$
|
97
|
|
|
$
|
121
|
|
|
$
|
191
|
|
|
|
|
|
Fair Value at Reporting Date Using
|
||||||||||||
|
|
|
|
Quoted Prices in
|
|
|
|
Significant
|
||||||||
|
|
|
|
Active Markets for
|
|
Significant Other
|
|
Unobservable
|
||||||||
|
|
|
|
Identical Assets
|
|
Observable Inputs
|
|
Inputs
|
||||||||
Description
|
|
Total
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
||||||||
Recurring Fair Value Measurements:
|
|
|
|
|
|
|
|
|
||||||||
Assets:
|
|
|
|
|
|
|
|
|
||||||||
Investment in RMR Inc.
(1)
|
|
$
|
77,200
|
|
|
$
|
77,200
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
||||||||
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
||||||
Interest rate swap
(2)
|
|
$
|
(614
|
)
|
|
$
|
—
|
|
|
$
|
(614
|
)
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
||||||||
Non-Recurring Fair Value Measurements:
|
|
|
|
|
|
|
|
|
||||||||
Assets:
|
|
|
|
|
|
|
|
|
||||||||
Properties held for sale
(3)
|
|
$
|
17,260
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
17,260
|
|
(1)
|
Our
1,586,836
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). Our historical cost basis for these shares is
$42,686
. The unrealized gain of
$34,514
for these shares as of
June 30, 2017
is included in cumulative other comprehensive income in our condensed consolidated balance sheet.
|
(2)
|
As discussed in Note 5, we have an interest rate swap agreement in connection with a
$41,000
mortgage note. This interest rate swap agreement is carried at fair value and is included in accounts payable and other liabilities in our condensed consolidated balance sheets and is valued using Level 2 inputs. The fair value of this instrument is determined using interest rate pricing models. Considerable judgment is necessary to develop estimated fair values of financial assets and liabilities. Accordingly, the estimate presented in the table above is not necessarily indicative of the amount for which we could be liable upon extinguishment of the liability.
|
(3)
|
As of
June 30, 2017
, we recorded a loss on impairment of real estate assets of $
229
to reduce the carrying value of one vacant property located in Maynard, MA from $
17,489
to its estimated fair value less costs to sell of $
17,260
. We estimated the fair value of this property based upon a negotiated sale agreement less estimated sale costs.
|
|
|
At June 30, 2017
|
|
At December 31, 2016
|
||||||||||||
|
|
Carrying
|
|
Estimated
|
|
Carrying
|
|
Estimated
|
||||||||
|
|
Value
(1)
|
|
Fair Value
|
|
Value
(1)
|
|
Fair Value
|
||||||||
Senior unsecured notes, due 2018 at 2.85%
|
|
$
|
349,277
|
|
|
$
|
351,474
|
|
|
$
|
348,667
|
|
|
$
|
352,074
|
|
Senior unsecured notes, due 2020 at 3.60%
|
|
$
|
396,578
|
|
|
$
|
405,344
|
|
|
$
|
395,955
|
|
|
$
|
400,656
|
|
Senior unsecured notes, due 2022 at 4.15%
|
|
$
|
295,718
|
|
|
$
|
303,132
|
|
|
$
|
295,301
|
|
|
$
|
297,186
|
|
Senior unsecured notes, due 2024 at 4.250%
|
|
$
|
342,326
|
|
|
$
|
347,870
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Senior unsecured notes, due 2025 at 4.50%
|
|
$
|
390,870
|
|
|
$
|
401,616
|
|
|
$
|
390,377
|
|
|
$
|
387,030
|
|
Mortgage notes payable
|
|
$
|
245,235
|
|
|
$
|
245,812
|
|
|
$
|
245,643
|
|
|
$
|
243,845
|
|
(1)
|
Includes unamortized debt issuance costs, premiums and discounts.
|
|
|
Three Months Ended June 30, 2017
|
||||||||||||||
|
|
Unrealized Gain (Loss)
|
|
Unrealized
|
|
Equity in
|
|
|
||||||||
|
|
on Investment
|
|
Gain (Loss)
|
|
Unrealized Gain
|
|
|
||||||||
|
|
in Available for
|
|
on Derivative
|
|
(Loss) of an
|
|
|
||||||||
|
|
Sale Securities
|
|
Instruments
(1)
|
|
an Investee
(2)
|
|
Total
|
||||||||
Balance at March 31, 2017
|
|
$
|
35,862
|
|
|
$
|
500
|
|
|
$
|
231
|
|
|
$
|
36,593
|
|
|
|
|
|
|
|
|
|
|
||||||||
Other comprehensive income (loss) before reclassifications
|
|
(1,348
|
)
|
|
(148
|
)
|
|
73
|
|
|
(1,423
|
)
|
||||
Amounts reclassified from cumulative other comprehensive income to net income
|
|
—
|
|
|
51
|
|
|
(15
|
)
|
|
36
|
|
||||
Net current period other comprehensive income (loss)
|
|
(1,348
|
)
|
|
(97
|
)
|
|
58
|
|
|
(1,387
|
)
|
||||
Balance at June 30, 2017
|
|
$
|
34,514
|
|
|
$
|
403
|
|
|
$
|
289
|
|
|
$
|
35,206
|
|
(1)
|
Amounts reclassified from cumulative other comprehensive income are included in interest expense in our condensed consolidated statements of comprehensive income.
|
(2)
|
Amounts reclassified from cumulative other comprehensive income are included in equity in earnings of an investee in our condensed consolidated statements of comprehensive income.
|
|
|
Six Months Ended June 30, 2017
|
||||||||||||||
|
|
Unrealized Gain
|
|
Unrealized
|
|
Equity in
|
|
|
||||||||
|
|
on Investment
|
|
Gain (Loss)
|
|
Unrealized Gain
|
|
|
||||||||
|
|
in Available for
|
|
on Derivative
|
|
(Loss) of an
|
|
|
||||||||
|
|
Sale Securities
|
|
Instruments
(1)
|
|
Investee
(2)
|
|
Total
|
||||||||
Balance at December 31, 2016
|
|
$
|
19,994
|
|
|
$
|
369
|
|
|
$
|
109
|
|
|
$
|
20,472
|
|
|
|
|
|
|
|
|
|
|
||||||||
Other comprehensive income (loss) before reclassifications
|
|
14,520
|
|
|
(87
|
)
|
|
197
|
|
|
14,630
|
|
||||
Amounts reclassified from cumulative other comprehensive income to net income
|
|
—
|
|
|
121
|
|
|
(17
|
)
|
|
104
|
|
||||
Net current period other comprehensive income
|
|
14,520
|
|
|
34
|
|
|
180
|
|
|
14,734
|
|
||||
Balance at June 30, 2017
|
|
$
|
34,514
|
|
|
$
|
403
|
|
|
$
|
289
|
|
|
$
|
35,206
|
|
(1)
|
Amounts reclassified from cumulative other comprehensive income are included in interest expense in our condensed consolidated statements of comprehensive income.
|
(2)
|
Amounts reclassified from cumulative other comprehensive income are included in equity in earnings of an investee in our condensed consolidated statements of comprehensive income.
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||
Weighted average common shares for basic earnings per share
|
|
89,338
|
|
|
89,292
|
|
|
89,334
|
|
|
89,289
|
|
Effect of dilutive securities: unvested share awards
|
|
24
|
|
|
23
|
|
|
22
|
|
|
17
|
|
Weighted average common shares for diluted earnings per share
|
|
89,362
|
|
|
89,315
|
|
|
89,356
|
|
|
89,306
|
|
|
|
All Properties
|
|
Comparable Properties
(1)
|
||||||||
|
|
As of June 30,
|
|
As of June 30,
|
||||||||
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||
Total buildings, leasable land parcels and easements
(2)
|
|
364
|
|
|
360
|
|
|
360
|
|
|
360
|
|
Total rentable square feet
(3)
|
|
45,186
|
|
|
44,706
|
|
|
44,706
|
|
|
44,706
|
|
Percent leased
(4)
|
|
95.9
|
%
|
|
96.8
|
%
|
|
95.9
|
%
|
|
96.8
|
%
|
(1)
|
Consists of 360 buildings, leasable land parcels and easements that we owned continuously since January 1, 2016.
|
(2)
|
Includes
229
buildings, leasable land parcels and easements with approximately
17,778
square feet which are primarily leasable industrial and commercial lands located in Hawaii.
|
(3)
|
Subject to modest adjustments when space is re-measured or re-configured for new tenants and when land leases are converted to building leases.
|
(4)
|
Percent leased includes (i) space being fitted out for occupancy pursuant to existing leases as of
June 30, 2017
, if any, and (ii) space which is leased but is not occupied or is being offered for sublease by tenants, if any.
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||
|
|
June 30,
|
|
June 30,
|
||||||||||
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||
Average annualized effective rental rates per square foot leased:
(1)
|
|
|
|
|
|
|
|
|
||||||
All properties
|
|
$
|
10.60
|
|
|
$
|
10.56
|
|
|
10.66
|
|
|
10.65
|
|
Comparable properties
(2)
|
|
$
|
10.48
|
|
|
$
|
10.56
|
|
|
10.59
|
|
|
10.65
|
|
(1)
|
Average annualized effective rental rates per square foot leased represent annualized total revenue during the period specified divided by the average rentable square feet leased during the period specified.
|
(2)
|
Comparable properties for the three months ended June 30, 2017 and 2016 consist of 360 buildings, leasable land parcels and easements that we owned continuously since April 1, 2016. Comparable properties for the six months ended June 30, 2017 and 2016 consist of 360 buildings, leasable land parcels and easements that we owned continuously since January 1, 2016.
|
|
|
|
|
|
|
|
|
Cumulative
|
|
|
|
Percent of
|
|
|
||||||||
|
|
|
|
|
|
Percent of
|
|
Percent of
|
|
|
|
Total
|
|
Cumulative
|
||||||||
|
|
|
|
|
|
Total
|
|
Total
|
|
Annualized
|
|
Annualized
|
|
Percent of Total
|
||||||||
|
|
|
|
Rented
|
|
Rented
|
|
Rented
|
|
Rental
|
|
Rental
|
|
Annualized
|
||||||||
|
|
Number of
|
|
Square Feet
|
|
Square Feet
|
|
Square Feet
|
|
Revenue
|
|
Revenue
|
|
Rental Revenue
|
||||||||
Period/Year
|
|
Tenants
|
|
Expiring
(1)
|
|
Expiring
(1)
|
|
Expiring
(1)
|
|
Expiring
|
|
Expiring
|
|
Expiring
|
||||||||
7/1/2017 - 12/31/2017
|
|
6
|
|
|
339
|
|
|
0.8
|
%
|
|
0.8
|
%
|
|
$
|
3,430
|
|
|
0.7
|
%
|
|
0.7
|
%
|
2018
|
|
26
|
|
|
1,038
|
|
|
2.4
|
%
|
|
3.2
|
%
|
|
12,038
|
|
|
2.6
|
%
|
|
3.3
|
%
|
|
2019
|
|
21
|
|
|
1,954
|
|
|
4.5
|
%
|
|
7.7
|
%
|
|
9,061
|
|
|
2.0
|
%
|
|
5.3
|
%
|
|
2020
|
|
18
|
|
|
937
|
|
|
2.2
|
%
|
|
9.9
|
%
|
|
7,623
|
|
|
1.6
|
%
|
|
6.9
|
%
|
|
2021
|
|
20
|
|
|
1,400
|
|
|
3.2
|
%
|
|
13.1
|
%
|
|
12,833
|
|
|
2.8
|
%
|
|
9.7
|
%
|
|
2022
|
|
71
|
|
|
3,839
|
|
|
8.9
|
%
|
|
22.0
|
%
|
|
49,468
|
|
|
10.7
|
%
|
|
20.4
|
%
|
|
2023
|
|
25
|
|
|
3,043
|
|
|
7.0
|
%
|
|
29.0
|
%
|
|
40,269
|
|
|
8.7
|
%
|
|
29.1
|
%
|
|
2024
|
|
23
|
|
|
7,001
|
|
|
16.2
|
%
|
|
45.2
|
%
|
|
69,021
|
|
|
14.9
|
%
|
|
44.0
|
%
|
|
2025
|
|
17
|
|
|
1,770
|
|
|
4.1
|
%
|
|
49.3
|
%
|
|
26,474
|
|
|
5.7
|
%
|
|
49.7
|
%
|
|
2026
|
|
8
|
|
|
1,701
|
|
|
3.9
|
%
|
|
53.2
|
%
|
|
26,403
|
|
|
5.7
|
%
|
|
55.4
|
%
|
|
Thereafter
|
|
108
|
|
|
20,318
|
|
(2)
|
46.8
|
%
|
|
100.0
|
%
|
|
205,843
|
|
|
44.6
|
%
|
|
100.0
|
%
|
|
Total
|
|
343
|
|
|
43,340
|
|
|
100.0
|
%
|
|
|
|
$
|
462,463
|
|
|
100.0
|
%
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Weighted average remaining lease term (in years):
|
|
|
|
10.2
|
|
|
|
|
|
|
9.7
|
|
|
|
|
|
(1)
|
Rented square feet is pursuant to existing leases as of
June 30, 2017
, and includes (i) space being fitted out for occupancy, if any, and (ii) space which is leased but is not occupied or is being offered for sublease by tenants, if any.
|
(2)
|
Rented square feet excludes a 35 square foot expansion to be constructed prior to the commencement of the lease.
|
|
|
Annualized
|
||
|
|
Rental Revenue
|
||
|
|
as of June 30, 2017
|
||
|
|
Scheduled to Reset
|
||
7/1/2017 - 12/31/2017
|
|
$
|
868
|
|
2018
|
|
2,525
|
|
|
2019
|
|
10,811
|
|
|
2020 and thereafter
|
|
19,608
|
|
|
Total
|
|
$
|
33,812
|
|
|
|
|
|
|
|
|
|
% of
|
||||
|
|
|
|
Rented
|
|
% of Total
|
|
Annualized Rental
|
||||
Tenant
|
|
Property Type
|
|
Sq. Ft.
(1)
|
|
Rented Sq. Ft.
(1)
|
|
Revenue
|
||||
1.
|
Shook, Hardy & Bacon L.L.P.
|
|
Mainland Office
|
|
596
|
|
|
1.4
|
%
|
|
3.9
|
%
|
2.
|
Tellabs, Inc.
|
|
Mainland Office
|
|
820
|
|
|
1.9
|
%
|
|
3.6
|
%
|
3.
|
Amazon.com, Inc.
|
|
Mainland Industrial
|
|
3,048
|
|
|
7.0
|
%
|
|
3.5
|
%
|
4.
|
Noble Energy, Inc.
|
|
Mainland Office
|
|
497
|
|
|
1.1
|
%
|
|
3.2
|
%
|
5.
|
Bank of America, National Association
|
|
Mainland Office
|
|
554
|
|
|
1.3
|
%
|
|
3.1
|
%
|
6.
|
Tesoro Corporation
|
|
Mainland Office
|
|
618
|
|
|
1.4
|
%
|
|
3.0
|
%
|
7.
|
F5 Networks, Inc.
|
|
Mainland Office
|
|
299
|
|
|
0.7
|
%
|
|
2.9
|
%
|
8.
|
WestRock Company
|
|
Mainland Office
|
|
311
|
|
|
0.7
|
%
|
|
2.4
|
%
|
9.
|
Orbital ATK, Inc.
|
|
Mainland Office
|
|
337
|
|
|
0.8
|
%
|
|
2.2
|
%
|
10.
|
Technicolor SA
|
|
Mainland Industrial
|
|
1,371
|
|
|
3.2
|
%
|
|
2.1
|
%
|
11.
|
Tyson Foods, Inc.
|
|
Mainland Office
|
|
248
|
|
|
0.6
|
%
|
|
2.1
|
%
|
12.
|
Novell, Inc.
|
|
Mainland Office
|
|
406
|
|
|
0.9
|
%
|
|
1.7
|
%
|
13.
|
FedEx Corporation
|
|
Mainland Office; Mainland Industrial
|
|
795
|
|
(2)
|
1.8
|
%
|
|
1.7
|
%
|
14.
|
PNC Bank, National Association
|
|
Mainland Office
|
|
441
|
|
|
1.0
|
%
|
|
1.4
|
%
|
15.
|
ServiceNow, Inc.
|
|
Mainland Office
|
|
149
|
|
|
0.3
|
%
|
|
1.3
|
%
|
16.
|
Allstate Insurance Company
|
|
Mainland Office
|
|
458
|
|
|
1.1
|
%
|
|
1.3
|
%
|
17.
|
Church & Dwight Co., Inc.
|
|
Mainland Office
|
|
250
|
|
|
0.6
|
%
|
|
1.3
|
%
|
18.
|
Compass Group USA, Inc.
|
|
Mainland Office
|
|
267
|
|
|
0.6
|
%
|
|
1.3
|
%
|
19.
|
Restoration Hardware,
Inc.
|
|
Mainland Indust
rial
|
|
1,195
|
|
|
2.8
|
%
|
|
1.3
|
%
|
20.
|
Tailored Brands, Inc.
|
|
Mainland Office
|
|
206
|
|
|
0.5
|
%
|
|
1.2
|
%
|
21.
|
Automatic Data Processi
ng, Inc.
|
|
Mainland Office
|
|
289
|
|
|
0.7
|
%
|
|
1.2
|
%
|
22.
|
Primerica Life Insurance Co
mpany
|
|
Mainland Office
|
|
344
|
|
|
0.8
|
%
|
|
1.1
|
%
|
23.
|
United Launch Alliance, LLC
|
|
Mainland Industrial
|
|
168
|
|
|
0.4
|
%
|
|
1.1
|
%
|
24.
|
American Tire Distri
butors, Inc.
|
|
Mainland Office
|
|
722
|
|
|
1.7
|
%
|
|
1.1
|
%
|
25.
|
The Southern
Company
|
|
Mainland Office
|
|
448
|
|
|
1.0
|
%
|
|
1.1
|
%
|
26.
|
Red Hat, Inc.
|
|
Mainland Office
|
|
175
|
|
|
0.4
|
%
|
|
1.0
|
%
|
|
Total
|
|
|
|
15,012
|
|
|
34.7
|
%
|
|
51.1
|
%
|
(1)
|
Rented square feet is pursuant to existing leases as of
June 30, 2017
, and includes (i) space being fitted out for occupancy, if any, and (ii) space which is leased but is not occupied or is being offered for sublease by tenants, if any.
|
(2)
|
Square feet excludes a 35 square foot expansion to be constructed prior to the commencement of the lease.
|
|
Comparable Properties Results
(1)
|
|
Acquired Properties Results
(2)
|
|
Consolidated Results
|
||||||||||||||||||||||||||||||||||||
|
Three Months Ended June 30,
|
|
Three Months Ended June 30,
|
|
Three Months Ended June 30,
|
||||||||||||||||||||||||||||||||||||
|
|
|
|
|
$
|
|
%
|
|
|
|
|
|
$
|
|
|
|
|
|
$
|
|
%
|
||||||||||||||||||||
|
2017
|
|
2016
|
|
Change
|
|
Change
|
|
2017
|
|
2016
|
|
Change
|
|
2017
|
|
2016
|
|
Change
|
|
Change
|
||||||||||||||||||||
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||
Rental income
|
$
|
95,392
|
|
|
$
|
96,615
|
|
|
$
|
(1,223
|
)
|
|
(1.3
|
)%
|
|
$
|
1,649
|
|
|
$
|
—
|
|
|
$
|
1,649
|
|
|
$
|
97,041
|
|
|
$
|
96,615
|
|
|
$
|
426
|
|
|
0.4
|
%
|
Tenant reimbursements and other income
|
18,210
|
|
|
18,289
|
|
|
(79
|
)
|
|
(0.4
|
)%
|
|
619
|
|
|
—
|
|
|
619
|
|
|
18,829
|
|
|
18,289
|
|
|
540
|
|
|
3.0
|
%
|
|||||||||
Total revenues
|
113,602
|
|
|
114,904
|
|
|
(1,302
|
)
|
|
(1.1
|
)%
|
|
2,268
|
|
|
—
|
|
|
2,268
|
|
|
115,870
|
|
|
114,904
|
|
|
966
|
|
|
0.8
|
%
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||
Real estate taxes
|
10,661
|
|
|
10,522
|
|
|
139
|
|
|
1.3
|
%
|
|
175
|
|
|
—
|
|
|
175
|
|
|
10,836
|
|
|
10,522
|
|
|
314
|
|
|
3.0
|
%
|
|||||||||
Other operating expenses
|
13,169
|
|
|
12,635
|
|
|
534
|
|
|
4.2
|
%
|
|
354
|
|
|
—
|
|
|
354
|
|
|
13,523
|
|
|
12,635
|
|
|
888
|
|
|
7.0
|
%
|
|||||||||
Total operating expenses
|
23,830
|
|
|
23,157
|
|
|
673
|
|
|
2.9
|
%
|
|
529
|
|
|
—
|
|
|
529
|
|
|
24,359
|
|
|
23,157
|
|
|
1,202
|
|
|
5.2
|
%
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||
Net operating income
(3)
|
$
|
89,772
|
|
|
$
|
91,747
|
|
|
$
|
(1,975
|
)
|
|
(2.2
|
)%
|
|
$
|
1,739
|
|
|
$
|
—
|
|
|
$
|
1,739
|
|
|
91,511
|
|
|
91,747
|
|
|
(236
|
)
|
|
(0.3
|
)%
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||
Other expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||
Depreciation and amortization
|
|
34,317
|
|
|
33,405
|
|
|
912
|
|
|
2.7
|
%
|
|||||||||||||||||||||||||||||
General and administrative
|
|
8,181
|
|
|
7,374
|
|
|
807
|
|
|
10.9
|
%
|
|||||||||||||||||||||||||||||
Loss on impairment of real estate assets
|
|
229
|
|
|
—
|
|
|
229
|
|
|
100.0
|
%
|
|||||||||||||||||||||||||||||
Total other expenses
|
|
42,727
|
|
|
40,779
|
|
|
1,948
|
|
|
4.8
|
%
|
|||||||||||||||||||||||||||||
Operating income
|
|
48,784
|
|
|
50,968
|
|
|
(2,184
|
)
|
|
(4.3
|
)%
|
|||||||||||||||||||||||||||||
Dividend income
|
|
396
|
|
|
475
|
|
|
(79
|
)
|
|
(16.6
|
)%
|
|||||||||||||||||||||||||||||
Interest expense
|
|
(22,808
|
)
|
|
(20,584
|
)
|
|
(2,224
|
)
|
|
10.8
|
%
|
|||||||||||||||||||||||||||||
Income before income tax expense and equity in earnings of an investee
|
|
26,372
|
|
|
30,859
|
|
|
(4,487
|
)
|
|
(14.5
|
)%
|
|||||||||||||||||||||||||||||
Income tax expense
|
|
(85
|
)
|
|
(124
|
)
|
|
39
|
|
|
(31.5
|
)%
|
|||||||||||||||||||||||||||||
Equity in earnings of an investee
|
|
374
|
|
|
17
|
|
|
357
|
|
|
2,100.0
|
%
|
|||||||||||||||||||||||||||||
Net income
|
|
26,661
|
|
|
30,752
|
|
|
(4,091
|
)
|
|
(13.3
|
)%
|
|||||||||||||||||||||||||||||
Net income allocated to noncontrolling interest
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
%
|
|||||||||||||||||||||||||||||
Net income attributed to SIR
|
|
$
|
26,661
|
|
|
$
|
30,752
|
|
|
$
|
(4,091
|
)
|
|
(13.3
|
)%
|
||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||
Weighted average common shares outstanding - basic
|
|
89,338
|
|
|
89,292
|
|
|
46
|
|
|
0.05
|
%
|
|||||||||||||||||||||||||||||
Weighted average common shares outstanding - diluted
|
|
89,362
|
|
|
89,315
|
|
|
47
|
|
|
0.05
|
%
|
|||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||
Net income attributed to SIR per common share - basic and diluted
|
|
$
|
0.30
|
|
|
$
|
0.34
|
|
|
$
|
(0.04
|
)
|
|
(11.8
|
)%
|
||||||||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
Reconciliation of Net Income to Net Operating Income
(3)
:
|
|
|
|||||||||||||||||||||||||||||||||||||||
Net income
|
$
|
26,661
|
|
|
$
|
30,752
|
|
|
|
|
|
||||||||||||||||||||||||||||||
Equity in earnings of an investee
|
(374
|
)
|
|
(17
|
)
|
|
|
|
|
||||||||||||||||||||||||||||||||
Income tax expense
|
85
|
|
|
124
|
|
|
|
|
|
||||||||||||||||||||||||||||||||
Income before income tax expense and equity in earnings of an investee
|
26,372
|
|
|
30,859
|
|
|
|
|
|
||||||||||||||||||||||||||||||||
Interest expense
|
22,808
|
|
|
20,584
|
|
|
|
|
|
||||||||||||||||||||||||||||||||
Dividend income
|
(396
|
)
|
|
(475
|
)
|
|
|
|
|
||||||||||||||||||||||||||||||||
Operating income
|
|
48,784
|
|
|
50,968
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
Loss on impairment of real estate assets
|
|
229
|
|
|
—
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
General and administrative
|
8,181
|
|
|
7,374
|
|
|
|
|
|
||||||||||||||||||||||||||||||||
Depreciation and amortization
|
34,317
|
|
|
33,405
|
|
|
|
|
|
||||||||||||||||||||||||||||||||
Net operating income
|
|
$
|
91,511
|
|
|
$
|
91,747
|
|
|
|
|
|
|
2017
|
|
2016
|
|
|
|
|
||||||||||||||||||
Reconciliation of Net Income Attributed to SIR to Funds From Operations Attributed to SIR and Normalized Funds From Operations Attributed to SIR
(4)
:
|
|
|
|
|
|
|
|
||||||||||||||||||
Net income attributed to SIR
|
$
|
26,661
|
|
|
$
|
30,752
|
|
|
|
|
|
||||||||||||||
Plus: depreciation and amortization
|
34,317
|
|
|
33,405
|
|
|
|
|
|
||||||||||||||||
Plus: loss on impairment of real estate assets
|
229
|
|
|
—
|
|
|
|
|
|
||||||||||||||||
FFO attributed to SIR
|
61,207
|
|
|
64,157
|
|
|
|
|
|
||||||||||||||||
Plus: estimated business management incentive fees
(5)
|
920
|
|
|
—
|
|
|
|
|
|
||||||||||||||||
Normalized FFO attributed to SIR
|
$
|
62,127
|
|
|
$
|
64,157
|
|
|
|
|
|
||||||||||||||
|
|
|
|
|
|
|
|
||||||||||||||||||
FFO attributed to SIR per common share - basic
|
$
|
0.69
|
|
|
$
|
0.72
|
|
|
|
|
|
||||||||||||||
FFO attributed to SIR per common share - diluted
|
$
|
0.68
|
|
|
$
|
0.72
|
|
|
|
|
|
||||||||||||||
Normalized FFO attributed to SIR per common share - basic and diluted
|
$
|
0.70
|
|
|
$
|
0.72
|
|
|
|
|
|
(1)
|
Consists of 360 buildings, leasable land parcels and easements that we owned continuously since April 1, 2016.
|
(2)
|
Consists of four buildings that we acquired during the period from April 1, 2016 to
June 30, 2017
.
|
(3)
|
The calculation of net operating income, or NOI, excludes certain components of net income in order to provide results that are more closely related to our property level results of operations. We calculate NOI as shown above. We define NOI as income from our rental of real estate less our property operating expenses. NOI excludes amortization of capitalized tenant improvement costs and leasing commissions because we record those amounts as depreciation and amortization. We consider NOI to be an appropriate supplemental measure to net income because it may help both investors and management to understand the operations of our properties. We use NOI to evaluate individual and company wide property level performance, and we believe that NOI provides useful information to investors regarding our results of operations because it reflects only those income and expense items that are generated and incurred at the property level and may facilitate comparisons of our operating performance between periods and with other REITs. NOI does not represent cash generated by operating activities in accordance with GAAP and should not be considered as an alternative to net income, net income attributed to SIR or operating income as an indicator of our operating performance or as a measure of our liquidity. This measure should be considered in conjunction with net income, net income attributed to SIR and operating income as presented in our condensed consolidated statements of comprehensive income. Other real estate companies and REITs may calculate NOI differently than we do.
|
(4)
|
We calculate funds from operations, or FFO, attributed to SIR, and normalized funds from operations, or Normalized FFO, attributed to SIR, as shown above. FFO attributed to SIR is calculated on the basis defined by The National Association of Real Estate Investment Trusts, or NAREIT, which is net income, calculated in accordance with GAAP, plus real estate depreciation and amortization, loss on impairment of real estate assets and the difference between net income and FFO allocated to noncontrolling interest, as well as certain other adjustments currently not applicable to us. Our calculation of Normalized FFO attributed to SIR differs from NAREIT’s definition of FFO because we include business management incentive fees, if any, only in the fourth quarter versus the quarter when they are recognized as expense in accordance with GAAP due to their quarterly volatility not necessarily being indicative of our core operating performance and the uncertainty as to whether any such business management incentive fees will be payable when all contingencies for determining such fees are known at the end of the calendar year and we exclude acquisition related costs expensed under GAAP, loss on asset impairment and Normalized FFO from noncontrolling interest, net of FFO, if any. We consider FFO attributed to SIR and Normalized FFO attributed to SIR to be appropriate supplemental measures of operating performance for a REIT, along with net income, net income attributed to a REIT and operating income. We believe that FFO attributed to SIR and Normalized FFO attributed to SIR provide useful information to investors because by excluding the effects of certain historical amounts, such as depreciation expense, FFO attributed to SIR and Normalized FFO attributed to SIR may facilitate a comparison of our operating performance between periods and with other REITs. FFO attributed to SIR and Normalized FFO attributed to SIR are among the factors considered by our Board of Trustees when determining the amount of distributions to our shareholders. Other factors include, but are not limited to, requirements to maintain our qualification for taxation as a REIT, limitations in our credit agreement and public debt covenants, the availability to us of debt and equity capital, our expectation of our future capital requirements and operating performance and our expected needs and availability of cash to pay our obligations. FFO attributed to SIR and Normalized FFO attributed to SIR do not represent cash generated by operating activities in accordance with GAAP and should not be considered as alternatives to net income, net income attributed to SIR or operating income as an indicator of our operating performance or as a measure of our liquidity. These measures should be considered in conjunction with net income, net income attributed to SIR and operating income as presented in our condensed consolidated statements of comprehensive income. Other real estate companies and REITs may calculate FFO and Normalized FFO differently than we do.
|
(5)
|
Incentive fees under our business management agreement are payable after the end of each calendar year, are calculated based on common share total return, as defined, and are included in general and administrative expense in our condensed consolidated statements of comprehensive income. In calculating net income in accordance with GAAP, we recognize estimated business management incentive fee expense, if any, in the first, second and third quarters. Although we recognize this expense, if any, in the first, second and third quarters for purposes of calculating net income, we do not include such expense in the calculation of Normalized FFO attributed to SIR until the fourth quarter, when the amount of the business management incentive fee expense for the calendar year, if any, is determined.
|
|
Comparable Properties Results
(1)
|
|
Acquired Properties Results
(2)
|
|
Consolidated Results
|
||||||||||||||||||||||||||||||||||||
|
Six Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||||||||||||||||||||||||||
|
|
|
|
|
$
|
|
%
|
|
|
|
|
|
$
|
|
|
|
|
|
$
|
|
%
|
||||||||||||||||||||
|
2017
|
|
2016
|
|
Change
|
|
Change
|
|
2017
|
|
2016
|
|
Change
|
|
2017
|
|
2016
|
|
Change
|
|
Change
|
||||||||||||||||||||
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||
Rental income
|
$
|
192,305
|
|
|
$
|
194,475
|
|
|
$
|
(2,170
|
)
|
|
(1.1
|
)%
|
|
$
|
2,080
|
|
|
$
|
—
|
|
|
$
|
2,080
|
|
|
$
|
194,385
|
|
|
$
|
194,475
|
|
|
$
|
(90
|
)
|
|
—
|
%
|
Tenant reimbursements and other income
|
37,062
|
|
|
37,661
|
|
|
(599
|
)
|
|
(1.6
|
)%
|
|
717
|
|
|
—
|
|
|
717
|
|
|
37,779
|
|
|
37,661
|
|
|
118
|
|
|
0.3
|
%
|
|||||||||
Total revenues
|
229,367
|
|
|
232,136
|
|
|
(2,769
|
)
|
|
(1.2
|
)%
|
|
2,797
|
|
|
—
|
|
|
2,797
|
|
|
232,164
|
|
|
232,136
|
|
|
28
|
|
|
—
|
%
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||
Real estate taxes
|
21,466
|
|
|
20,810
|
|
|
656
|
|
|
3.2
|
%
|
|
213
|
|
|
—
|
|
|
213
|
|
|
21,679
|
|
|
20,810
|
|
|
869
|
|
|
4.2
|
%
|
|||||||||
Other operating expenses
|
25,927
|
|
|
25,593
|
|
|
334
|
|
|
1.3
|
%
|
|
463
|
|
|
—
|
|
|
463
|
|
|
26,390
|
|
|
25,593
|
|
|
797
|
|
|
3.1
|
%
|
|||||||||
Total operating expenses
|
47,393
|
|
|
46,403
|
|
|
990
|
|
|
2.1
|
%
|
|
676
|
|
|
—
|
|
|
676
|
|
|
48,069
|
|
|
46,403
|
|
|
1,666
|
|
|
3.6
|
%
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||
NOI
(3)
|
$
|
181,974
|
|
|
$
|
185,733
|
|
|
$
|
(3,759
|
)
|
|
(2.0
|
)%
|
|
$
|
2,121
|
|
|
$
|
—
|
|
|
$
|
2,121
|
|
|
184,095
|
|
|
185,733
|
|
|
(1,638
|
)
|
|
(0.9
|
)%
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||
Other expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||
Depreciation and amortization
|
|
68,057
|
|
|
66,874
|
|
|
1,183
|
|
|
1.8
|
%
|
|||||||||||||||||||||||||||||
Acquisition related costs
|
|
—
|
|
|
58
|
|
|
(58
|
)
|
|
(100.0
|
)%
|
|||||||||||||||||||||||||||||
General and administrative
|
|
23,069
|
|
|
14,350
|
|
|
8,719
|
|
|
60.8
|
%
|
|||||||||||||||||||||||||||||
Write-off of straight line rents receivable, net
|
|
12,517
|
|
|
—
|
|
|
12,517
|
|
|
100.0
|
%
|
|||||||||||||||||||||||||||||
Loss on asset impairment
|
|
4,047
|
|
|
—
|
|
|
4,047
|
|
|
100.0
|
%
|
|||||||||||||||||||||||||||||
Loss on impairment of real estate assets
|
|
229
|
|
|
—
|
|
|
229
|
|
|
100.0
|
%
|
|||||||||||||||||||||||||||||
Total other expenses
|
|
107,919
|
|
|
81,282
|
|
|
26,637
|
|
|
32.8
|
%
|
|||||||||||||||||||||||||||||
Operating income
|
|
76,176
|
|
|
104,451
|
|
|
(28,275
|
)
|
|
(27.1
|
)%
|
|||||||||||||||||||||||||||||
Dividend income
|
|
793
|
|
|
475
|
|
|
318
|
|
|
66.9
|
%
|
|||||||||||||||||||||||||||||
Interest expense
|
|
(43,895
|
)
|
|
(41,193
|
)
|
|
(2,702
|
)
|
|
6.6
|
%
|
|||||||||||||||||||||||||||||
Income before income tax expense and equity in earnings of an investee
|
|
33,074
|
|
|
63,733
|
|
|
(30,659
|
)
|
|
(48.1
|
)%
|
|||||||||||||||||||||||||||||
Income tax expense
|
|
(187
|
)
|
|
(263
|
)
|
|
76
|
|
|
(28.9
|
)%
|
|||||||||||||||||||||||||||||
Equity in earnings of an investee
|
|
502
|
|
|
94
|
|
|
408
|
|
|
434.0
|
%
|
|||||||||||||||||||||||||||||
Net income
|
|
33,389
|
|
|
63,564
|
|
|
(30,175
|
)
|
|
(47.5
|
)%
|
|||||||||||||||||||||||||||||
Net income allocated to noncontrolling interest
|
|
—
|
|
|
(33
|
)
|
|
33
|
|
|
(100.0
|
)%
|
|||||||||||||||||||||||||||||
Net income attributed to SIR
|
|
$
|
33,389
|
|
|
$
|
63,531
|
|
|
$
|
(30,142
|
)
|
|
(47.4
|
)%
|
||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||
Weighted average common shares outstanding - basic
|
|
89,334
|
|
|
89,289
|
|
|
45
|
|
|
0.05
|
%
|
|||||||||||||||||||||||||||||
Weighted average common shares outstanding - diluted
|
|
89,356
|
|
|
89,306
|
|
|
50
|
|
|
0.05
|
%
|
|||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||
Net income attributed to SIR per common share - basic and diluted
|
|
$
|
0.37
|
|
|
$
|
0.71
|
|
|
$
|
(0.34
|
)
|
|
(47.9
|
)%
|
||||||||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
Reconciliation of Net Income to NOI
(3)
:
|
|
|
|||||||||||||||||||||||||||||||||||||||
Net income
|
$
|
33,389
|
|
|
$
|
63,564
|
|
|
|
|
|
||||||||||||||||||||||||||||||
Equity in earnings of an investee
|
(502
|
)
|
|
(94
|
)
|
|
|
|
|
||||||||||||||||||||||||||||||||
Income tax expense
|
187
|
|
|
263
|
|
|
|
|
|
||||||||||||||||||||||||||||||||
Income before income tax expense and equity in earnings of an investee
|
33,074
|
|
|
63,733
|
|
|
|
|
|
||||||||||||||||||||||||||||||||
Interest expense
|
43,895
|
|
|
41,193
|
|
|
|
|
|
||||||||||||||||||||||||||||||||
Dividend income
|
(793
|
)
|
|
(475
|
)
|
|
|
|
|
||||||||||||||||||||||||||||||||
Operating income
|
|
76,176
|
|
|
104,451
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
Loss on impairment of real estate assets
|
|
229
|
|
|
—
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
Loss on asset impairment
|
|
4,047
|
|
|
—
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
Write-off of straight line rents receivable, net
|
12,517
|
|
|
—
|
|
|
|
|
|
||||||||||||||||||||||||||||||||
General and administrative
|
23,069
|
|
|
14,350
|
|
|
|
|
|
||||||||||||||||||||||||||||||||
Acquisition related costs
|
—
|
|
|
58
|
|
|
|
|
|
||||||||||||||||||||||||||||||||
Depreciation and amortization
|
68,057
|
|
|
66,874
|
|
|
|
|
|
||||||||||||||||||||||||||||||||
NOI
|
|
$
|
184,095
|
|
|
$
|
185,733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
|
|
|
||||
Reconciliation of Net Income Attributed to SIR to FFO Attributed to SIR and Normalized FFO Attributed to SIR
(4)
:
|
|
|
|
|
|
|
|
||||||||||||||||||
Net income attributed to SIR
|
$
|
33,389
|
|
|
$
|
63,531
|
|
|
|
|
|
||||||||||||||
Plus: depreciation and amortization
|
68,057
|
|
|
66,874
|
|
|
|
|
|
||||||||||||||||
Plus: loss on impairment of real estate assets
|
229
|
|
|
—
|
|
|
|
|
|
||||||||||||||||
Plus: net income allocated to noncontrolling interest
|
—
|
|
|
33
|
|
|
|
|
|
||||||||||||||||
Less: FFO allocated to noncontrolling interest
|
—
|
|
|
(77
|
)
|
|
|
|
|
||||||||||||||||
FFO attributed to SIR
|
101,675
|
|
|
130,361
|
|
|
|
|
|
||||||||||||||||
Plus: acquisition related costs
|
—
|
|
|
58
|
|
|
|
|
|
||||||||||||||||
Plus: estimated business management incentive fees
(5)
|
8,766
|
|
|
—
|
|
|
|
|
|
||||||||||||||||
Plus: loss on asset impairment
(6)
|
4,047
|
|
|
—
|
|
|
|
|
|
||||||||||||||||
Normalized FFO attributed to SIR
|
$
|
114,488
|
|
|
$
|
130,419
|
|
|
|
|
|
||||||||||||||
|
|
|
|
|
|
|
|
||||||||||||||||||
FFO attributed to SIR per common share - basic and diluted
|
$
|
1.14
|
|
|
$
|
1.46
|
|
|
|
|
|
||||||||||||||
Normalized FFO attributed to SIR per common share - basic and diluted
|
$
|
1.28
|
|
|
$
|
1.46
|
|
|
|
|
|
(1)
|
Consists of 360 buildings, leasable land parcels and easements that we owned continuously since January 1, 2016.
|
(2)
|
Consists of four buildings that we acquired during the period from January 1, 2016 to
June 30, 2017
.
|
(3)
|
See footnote (3) on page 21 for the definition of NOI.
|
(4)
|
See footnote (4) on page 21 for the definitions of FFO attributed to SIR and Normalized FFO attributed to SIR.
|
(5)
|
See footnote (5) on page 21 for more information on incentive fees under our business management agreement.
|
(6)
|
During the three months ended March 31, 2017, we recorded a $4,047 loss on asset impairment for unamortized lease intangibles related to a lease associated with a tenant bankruptcy at a property located in Hanover, PA.
|
•
|
maintain or improve the occupancy of, and the rental rates at, our properties;
|
•
|
control our operating expenses; and
|
•
|
purchase additional properties which produce cash flows in excess of our costs of acquisition capital and our property operating expenses.
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
|
June 30,
|
|
June 30,
|
||||||||||||
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||
Tenant improvements
(1)
|
|
$
|
61
|
|
|
$
|
902
|
|
|
$
|
389
|
|
|
$
|
916
|
|
Leasing costs
(2)
|
|
630
|
|
|
121
|
|
|
2,032
|
|
|
3,260
|
|
||||
Building improvements
(3)
|
|
1,209
|
|
|
1,021
|
|
|
1,903
|
|
|
1,125
|
|
||||
Development, redevelopment and other activities
(4)
|
|
2,451
|
|
|
1,187
|
|
|
3,172
|
|
|
1,935
|
|
||||
|
|
$
|
4,351
|
|
|
$
|
3,231
|
|
|
$
|
7,496
|
|
|
$
|
7,236
|
|
(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, legal costs and tenant inducements.
|
(3)
|
Building improvements generally include (i) expenditures to replace obsolete building components and (ii) 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 revenues.
|
|
New Leases
|
|
Renewals
|
|
Totals
|
||||||
Square feet leased during the period
|
41
|
|
|
161
|
|
|
202
|
|
|||
Total leasing costs and concession commitments
(1)
|
$
|
2,494
|
|
|
$
|
14
|
|
|
$
|
2,508
|
|
Total leasing costs and concession commitments per square foot
(1)
|
$
|
60.83
|
|
|
$
|
0.09
|
|
|
$
|
12.42
|
|
Weighted average lease term by square feet (years)
|
12.4
|
|
|
35.9
|
|
|
31.1
|
|
|||
Total leasing costs and concession commitments per square foot per year
(1)
|
$
|
4.91
|
|
|
$
|
—
|
|
|
$
|
0.40
|
|
(1)
|
Includes commitments made for leasing expenditures and concessions, such as tenant improvements, leasing commissions, tenant reimbursements and free rent.
|
|
|
|
|
Annual
|
|
Annual
|
|
|
|
Interest
|
|||||
|
|
Principal
|
|
Interest
|
|
Interest
|
|
|
|
Payments
|
|||||
Debt
|
|
Balance
(1)
|
|
Rate
(1)
|
|
Expense
(1)
|
|
Maturity
|
|
Due
|
|||||
Senior unsecured notes
|
|
$
|
350,000
|
|
|
2.85
|
%
|
|
$
|
9,975
|
|
|
2018
|
|
Semi-Annually
|
Senior unsecured notes
|
|
400,000
|
|
|
3.60
|
%
|
|
14,400
|
|
|
2020
|
|
Semi-Annually
|
||
Senior unsecured notes
|
|
300,000
|
|
|
4.15
|
%
|
|
12,450
|
|
|
2022
|
|
Semi-Annually
|
||
Senior unsecured notes
|
|
350,000
|
|
|
4.250
|
%
|
|
14,875
|
|
|
2024
|
|
Semi-Annually
|
||
Senior unsecured notes
|
|
400,000
|
|
|
4.50
|
%
|
|
18,000
|
|
|
2025
|
|
Semi-Annually
|
||
Mortgage note (two buildings in Carlsbad, CA)
(2)
|
|
17,361
|
|
|
5.95
|
%
|
|
1,033
|
|
|
2017
|
|
Monthly
|
||
Mortgage note (one building in Harvey, IL)
|
|
1,968
|
|
|
4.50
|
%
|
|
89
|
|
|
2019
|
|
Monthly
|
||
Mortgage note (one building in Columbus, OH)
|
|
2,361
|
|
|
4.50
|
%
|
|
106
|
|
|
2019
|
|
Monthly
|
||
Mortgage note (one building in Ankeny, IA)
|
|
12,360
|
|
|
3.87
|
%
|
|
478
|
|
|
2020
|
|
Monthly
|
||
Mortgage note (one building in Philadelphia, PA)
(3)
|
|
41,000
|
|
|
4.16
|
%
|
|
1,706
|
|
|
2020
|
|
Monthly
|
||
Mortgage note (one building in Chester, VA)
|
|
48,750
|
|
|
3.99
|
%
|
|
1,945
|
|
|
2020
|
|
Monthly
|
||
Mortgage note (three buildings in Seattle, WA)
|
|
71,000
|
|
|
3.55
|
%
|
|
2,521
|
|
|
2023
|
|
Monthly
|
||
Mortgage note (one building in Chicago, IL)
|
|
50,000
|
|
|
3.70
|
%
|
|
1,850
|
|
|
2023
|
|
Monthly
|
||
|
|
$
|
2,044,800
|
|
|
|
|
$
|
79,428
|
|
|
|
|
|
(1)
|
The principal balance, annual interest rate and annual interest expense are the amounts stated in the applicable contracts. In accordance with GAAP, our carrying value and recorded interest expense may differ from these amounts because of market conditions at the time we issued or assumed these debts.
|
(2)
|
This mortgage note was repaid at par on July 3, 2017.
|
(3)
|
Interest on this mortgage note is payable at a rate equal to LIBOR plus a premium but has been fixed by a cash flow hedge which sets the rate at approximately
4.16%
until August 3, 2020, which is the maturity date of the mortgage note.
|
|
|
Impact of an Increase in Interest Rates
|
|||||||||||||
|
|
|
|
|
|
Total Interest
|
|
Annual
|
|||||||
|
|
Interest Rate
|
|
Outstanding
|
|
Expense
|
|
Earnings Per
|
|||||||
|
|
Per Year
(1)
|
|
Debt
(2)
|
|
Per Year
|
|
Share Impact
(3)
|
|||||||
At June 30, 2017
|
|
2.21
|
%
|
|
$
|
417,000
|
|
|
$
|
9,216
|
|
|
$
|
0.10
|
|
100 basis point increase
|
|
3.21
|
%
|
|
$
|
417,000
|
|
|
$
|
13,386
|
|
|
$
|
0.15
|
|
(1)
|
Weighted based on the respective interest rates and outstanding borrowings under our floating rate debt as of
June 30, 2017
.
|
(2)
|
Excludes our $41,000 mortgage note hedged by our interest rate swap agreement.
|
(3)
|
Based on the diluted weighted average common shares outstanding for the six months ended
June 30, 2017
.
|
|
|
Impact of an Increase in Interest Rates
|
|||||||||||||
|
|
|
|
|
|
Total Interest
|
|
Annual
|
|||||||
|
|
Interest Rate
|
|
Outstanding
|
|
Expense
|
|
Earnings Per
|
|||||||
|
|
Per Year
(1)
|
|
Debt
(2)
|
|
Per Year
|
|
Share Impact
(3)
|
|||||||
At June 30, 2017
|
|
2.23
|
%
|
|
$
|
1,100,000
|
|
|
$
|
24,530
|
|
|
$
|
0.27
|
|
100 basis point increase
|
|
3.23
|
%
|
|
$
|
1,100,000
|
|
|
$
|
35,530
|
|
|
$
|
0.40
|
|
(1)
|
Weighted based on the respective interest rates of our floating rate debt as of
June 30, 2017
, assuming we were fully drawn on our revolving credit facility and our term loan remained outstanding.
|
(2)
|
Excludes our $41,000 mortgage note hedged by our interest rate swap agreement.
|
(3)
|
Based on the diluted weighted average common shares outstanding for the six months ended
June 30, 2017
.
|
•
|
THE LIKELIHOOD THAT OUR TENANTS WILL PAY RENT OR BE NEGATIVELY AFFECTED BY CYCLICAL ECONOMIC CONDITIONS,
|
•
|
THE LIKELIHOOD THAT OUR TENANTS WILL RENEW OR EXTEND THEIR LEASES OR THAT WE WILL BE ABLE TO OBTAIN REPLACEMENT TENANTS,
|
•
|
OUR ACQUISITIONS OF PROPERTIES,
|
•
|
OUR SALES OF PROPERTIES,
|
•
|
OUR ABILITY TO COMPETE FOR ACQUISITIONS AND TENANCIES EFFECTIVELY,
|
•
|
THE LIKELIHOOD THAT OUR RENTS MAY INCREASE WHEN RENTS ARE RESET AT OUR LEASED LANDS IN HAWAII,
|
•
|
OUR ABILITY TO PAY DISTRIBUTIONS TO OUR SHAREHOLDERS AND THE AMOUNT OF SUCH DISTRIBUTIONS,
|
•
|
THE FUTURE AVAILABILITY OF BORROWINGS UNDER OUR REVOLVING CREDIT FACILITY,
|
•
|
OUR POLICIES AND PLANS REGARDING INVESTMENTS, FINANCINGS AND DISPOSITIONS,
|
•
|
OUR ABILITY TO RAISE EQUITY OR DEBT 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 WE BENEFIT FROM OUR OWNERSHIP OF RMR INC.,
|
•
|
OUR EXPECTATION THAT WE BENEFIT FROM OUR OWNERSHIP OF AIC, AND FROM OUR PARTICIPATION IN INSURANCE PROGRAMS ARRANGED BY AIC,
|
•
|
OUR QUALIFICATION FOR TAXATION AS A REIT,
|
•
|
THE CREDIT QUALITIES OF OUR TENANTS, AND
|
•
|
OTHER MATTERS.
|
•
|
THE IMPACT OF CHANGES IN THE ECONOMY AND THE CAPITAL MARKETS ON US AND OUR TENANTS,
|
•
|
COMPETITION WITHIN THE REAL ESTATE INDUSTRY, PARTICULARLY IN THOSE MARKETS IN WHICH OUR PROPERTIES ARE LOCATED,
|
•
|
COMPLIANCE WITH, AND CHANGES TO, FEDERAL, STATE AND LOCAL LAWS AND REGULATIONS, ACCOUNTING RULES, TAX LAWS AND SIMILAR MATTERS,
|
•
|
LIMITATIONS IMPOSED ON OUR BUSINESS AND OUR ABILITY TO SATISFY COMPLEX RULES IN ORDER FOR US TO QUALIFY FOR TAXATION AS A REIT FOR U.S. FEDERAL INCOME TAX PURPOSES,
|
•
|
ACTUAL AND POTENTIAL CONFLICTS OF INTEREST WITH OUR RELATED PARTIES, INCLUDING OUR MANAGING TRUSTEES, RMR LLC, RMR INC., GOV, AIC, AND OTHERS AFFILIATED WITH THEM, AND
|
•
|
ACTS OF TERRORISM, OUTBREAKS OF SO CALLED PANDEMICS OR OTHER MANMADE OR NATURAL DISASTERS BEYOND OUR CONTROL.
|
•
|
ENHANCEMENTS HAVE BEEN MADE TO OUR CONTROLS RELATING TO THE ELECTRONIC PAYMENTS THAT WE BELIEVE WILL REDUCE THE RISK OF OUR BECOMING A VICTIM OF FUTURE FRAUDS RELATED TO PAYMENTS OF OUR FUNDS, INCLUDING BY WIRE TRANSFERS. HOWEVER, CYBER-
|
•
|
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 OUR PROPERTY OPERATING COSTS, THAT EXCEED OUR CAPITAL COSTS. WE MAY BE UNABLE TO IDENTIFY PROPERTIES THAT WE WANT TO ACQUIRE OR TO NEGOTIATE ACCEPTABLE PURCHASE PRICES, ACQUISITION FINANCING OR LEASE TERMS FOR NEW PROPERTIES,
|
•
|
CONTINGENCIES IN OUR ACQUISITION AND SALE AGREEMENTS MAY NOT BE SATISFIED AND OUR PENDING ACQUISITIONS AND SALES MAY NOT OCCUR, MAY BE DELAYED OR THE TERMS OF SUCH TRANSACTIONS MAY CHANGE,
|
•
|
RENTS THAT WE CAN CHARGE AT OUR PROPERTIES MAY DECLINE BECAUSE OF CHANGING MARKET CONDITIONS OR OTHERWISE,
|
•
|
A SIGNIFICANT NUMBER OF OUR HAWAII PROPERTIES ARE LANDS LEASED FOR RENTS THAT ARE PERIODICALLY RESET BASED ON THEN CURRENT FAIR MARKET VALUES. REVENUES FROM OUR PROPERTIES IN HAWAII HAVE GENERALLY INCREASED DURING OUR OWNERSHIP AS THE LEASES FOR THOSE PROPERTIES HAVE BEEN RESET OR RENEWED. ALTHOUGH WE EXPECT THAT RENTS FOR OUR HAWAII PROPERTIES WILL INCREASE IN THE FUTURE, WE CANNOT BE SURE THEY WILL. FUTURE RENTS FROM THESE PROPERTIES COULD DECREASE OR NOT INCREASE TO THE EXTENT THEY HAVE IN THE PAST,
|
•
|
WE MAY NOT SUCCEED IN FURTHER DIVERSIFYING OUR REVENUE SOURCES, AND ANY DIVERSIFICATION WE MAY ACHIEVE MAY NOT MITIGATE OUR PORTFOLIO RISKS OR IMPROVE THE SECURITY OF OUR REVENUES OR OUR OPERATING PERFORMANCE,
|
•
|
WE ARE CURRENTLY DEVELOPING A 35,000 SQUARE FOOT EXPANSION OF A BUILDING ON A PROPERTY WE OWN IN OKLAHOMA. WE EXPECT TO SPEND APPROXIMATELY $5.2 MILLION TO COMPLETE THIS EXPANSION, OF WHICH $2.7 MILLION REMAINED UNSPENT AS OF JUNE 30, 2017. IN ADDITION, AS OF JUNE 30, 2017, WE HAVE ESTIMATED UNSPENT LEASING RELATED OBLIGATIONS OF $24.3 MILLION WHICH EXCLUDES THE ESTIMATED EXPANSION COSTS NOTED IN THE PRECEDING SENTENCE. IT IS DIFFICULT TO ACCURATELY ESTIMATE DEVELOPMENT AND TENANT IMPROVEMENT COSTS. THIS DEVELOPMENT PROJECT AND OUR UNSPENT LEASING RELATED OBLIGATIONS MAY COST MORE OR LESS AND MAY TAKE LONGER TO COMPLETE THAN WE CURRENTLY EXPECT, AND WE MAY INCUR INCREASING AMOUNTS FOR THESE AND SIMILAR PURPOSES IN THE FUTURE,
|
•
|
OUR POSSIBLE REDEVELOPMENT OF CERTAIN OF OUR HAWAII PROPERTIES MAY NOT BE REALIZED OR BE SUCCESSFUL,
|
•
|
THE UNEMPLOYMENT RATE OR ECONOMIC CONDITIONS IN AREAS WHERE OUR PROPERTIES ARE LOCATED MAY BECOME WORSE IN THE FUTURE. SUCH CIRCUMSTANCES OR OTHER CONDITIONS MAY REDUCE DEMAND FOR LEASING OFFICE AND INDUSTRIAL SPACE. IF THE DEMAND FOR LEASING OFFICE AND INDUSTRIAL SPACE IS REDUCED, WE MAY BE UNABLE TO RENEW LEASES WITH OUR TENANTS AS LEASES EXPIRE OR ENTER INTO NEW LEASES AT RENTAL RATES AS HIGH AS EXPIRING RATES AND OUR FINANCIAL RESULTS MAY DECLINE,
|
•
|
OUR BELIEF THAT THERE IS A LIKELIHOOD THAT TENANTS MAY RENEW OR EXTEND OUR LEASES WHEN THEY EXPIRE 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,
|
•
|
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,
|
•
|
WE MAY INCUR SIGNIFICANT COSTS TO PREPARE A PROPERTY FOR A TENANT, PARTICULARLY FOR SINGLE TENANT PROPERTIES,
|
•
|
A TENANT OF TWO OF OUR PROPERTIES HAS FILED FOR BANKRUPTCY AND REJECTED ITS TWO LEASES WITH US. ALTHOUGH WE HOLD A SECURITY DEPOSIT OF $3.7 MILLION FROM THIS TENANT, OUR ABILITY TO APPLY THAT SECURITY DEPOSIT MAY BE SUBJECT TO BANKRUPTCY COURT APPROVAL. IN ADDITION, WE WOULD NOT RECEIVE ANY ADDITIONAL CASH PAYMENT WHEN WE APPLY THE SECURITY DEPOSIT. ALTHOUGH THE SUBTENANT AT ONE OF THE TWO PROPERTIES CONTINUES TO PAY RENT TO US IN AN AMOUNT EQUAL TO THE RENT UNDER THE FORMER TENANT'S LEASE, THE SUBTENANT HAS CERTAIN RIGHTS TO TERMINATE ITS SUBLEASE, INCLUDING UPON ONE YEAR'S ADVANCE NOTICE. WE ARE IN DISCUSSIONS WITH THIS SUBTENANT TO CONVERT ITS SUBLEASE TO A DIRECT LEASE WITH US. WE CAN PROVIDE NO ASSURANCE THAT WE WILL BE SUCCESSFUL IN REACHING AGREEMENT WITH THIS SUBTENANT OR THAT THE TERMS OF ANY AGREEMENT WITH THE SUBTENANT WILL BE SIMILAR TO THE TERMS OF THE REJECTED LEASE WITH THE BANKRUPT FORMER TENANT, INCLUDING THE AMOUNT OF RENT UNDER ANY SUCH AGREEMENT,
|
•
|
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 CREDIT FACILITIES WILL BE HIGHER THAN LIBOR PLUS A PREMIUM BECAUSE OF FEES AND EXPENSES ASSOCIATED WITH SUCH FACILITIES,
|
•
|
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 RECEIVED AN ASSESSMENT FROM THE STATE OF WASHINGTON FOR REAL ESTATE EXCISE TAX, INTEREST AND PENALTIES OF $2.8 MILLION ON CERTAIN PROPERTIES WE ACQUIRED IN CONNECTION WITH OUR ACQUISITION OF COLE CORPORATE INCOME TRUST, INC. IN JANUARY 2015. ALTHOUGH WE BELIEVE WE ARE NOT LIABLE FOR THIS TAX AND ARE DISPUTING THIS ASSESSMENT, WE MAY NOT SUCCEED IN HAVING ALL OR ANY PART OF THIS ASSESSMENT NULLIFIED,
|
•
|
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., GOV, 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, AND
|
•
|
THE PREMIUMS USED TO DETERMINE THE INTEREST RATE PAYABLE ON OUR REVOLVING CREDIT FACILITY AND TERM LOAN AND THE FACILITY FEE PAYABLE ON OUR REVOLVING CREDIT FACILITY ARE BASED ON OUR CREDIT RATINGS. FUTURE CHANGES IN OUR CREDIT RATINGS MAY CAUSE THE INTEREST AND FEES WE PAY TO INCREASE.
|
|
|
|
|
|
|
|
|
Maximum
|
|||||||
|
|
|
|
|
|
Total Number of
|
|
Approximate Dollar
|
|||||||
|
|
|
|
|
|
Shares Purchased
|
|
Value of Shares that
|
|||||||
|
|
Number of
|
|
Average
|
|
as Part of Publicly
|
|
May Yet Be Purchased
|
|||||||
|
|
Shares
|
|
Price Paid
|
|
Announced Plans
|
|
Under the Plans or
|
|||||||
Calendar Month
|
|
Purchased
(1)
|
|
per Share
|
|
or Programs
|
|
Programs
|
|||||||
June 2017
|
|
222
|
|
|
$
|
24.03
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Total
|
|
222
|
|
|
$
|
24.03
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Exhibit Number
|
|
Description
|
|
|
|
3.1
|
|
Composite Copy of Amended and Restated Declaration of Trust, dated March 9, 2012, as amended to date. (Incorporated by reference to the Company’s Registration Statement on Form S-4, File No. 333-199445.)
|
|
|
|
3.2
|
|
Amended and Restated Bylaws of the Company, adopted September 7, 2016. (Incorporated by reference to the Company’s Current Report on Form 8-K dated September 7, 2016.)
|
|
|
|
4.1
|
|
Form of Common Share Certificate. (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012.)
|
|
|
|
4.2
|
|
Indenture, dated February 3, 2015, between the Company and U.S. Bank National Association. (Incorporated by reference to the Company’s Current Report on Form 8-K dated January 29, 2015.)
|
|
|
|
4.3
|
|
First Supplemental Indenture, dated February 3, 2015, between the Company and U.S. Bank National Association, including the forms of 2.85% Senior Note due 2018, 3.60% Senior Note due 2020, 4.15% Senior Note due 2022 and 4.50% Senior Note due 2025. (Incorporated by reference to the Company’s Current Report on Form 8-K dated January 29, 2015.)
|
|
|
|
4.4
|
|
Second Supplemental Indenture, dated May 15, 2017, between the Company and U.S. Bank National Association, including the form of 4.250% Senior Notes due 2024. (Filed herewith.)
|
|
|
|
4.5
|
|
Registration Rights and Lock-Up Agreement, dated June 5, 2015, among the Company, ABP Trust (f/k/a Reit Management & Research Trust), Barry M. Portnoy and Adam D. Portnoy. (Incorporated by reference to the Company’s Current Report on Form 8-K dated June 5, 2015.)
|
|
|
|
10.1
|
|
Summary of Trustee Compensation. (Incorporated by reference to the Company's Current Report on Form 8-K dated May 23, 2017.)
|
|
|
|
12.1
|
|
Computation of Ratio of Earnings to Fixed Charges. (Filed herewith.)
|
|
|
|
31.1
|
|
Rule 13a-14(a) Certification. (Filed herewith.)
|
|
|
|
31.2
|
|
Rule 13a-14(a) Certification. (Filed herewith.)
|
|
|
|
31.3
|
|
Rule 13a-14(a) Certification. (Filed herewith.)
|
|
|
|
31.4
|
|
Rule 13a-14(a) Certification. (Filed herewith.)
|
|
|
|
32.1
|
|
Section 1350 Certification. (Furnished herewith.)
|
|
|
|
101.1
|
|
The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017 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 Cash Flows and (iv) related notes to these financial statements, tagged as blocks of text and in detail. (Filed herewith.)
|
|
SELECT INCOME REIT
|
|
|
|
|
|
|
|
|
By:
|
/s/ David M. Blackman
|
|
|
David M. Blackman
|
|
|
President and Chief Operating Officer
|
|
|
Dated: July 25, 2017
|
|
|
|
|
|
|
|
By:
|
/s/ John C. Popeo
|
|
|
John C. Popeo
|
|
|
Chief Financial Officer and Treasurer
|
|
|
(principal financial and accounting officer)
|
|
|
Dated: July 25, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
Year Ended December 31,
|
||||||||||||||||||||
|
June 30, 2017
|
|
2016
|
|
2015
|
|
2014
|
|
2013
|
|
2012
|
||||||||||||
Earnings:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Income from continuing operations (including gains on sales of properties, if any) before income tax expense and equity in earnings of an investee
|
$
|
33,074
|
|
|
$
|
116,665
|
|
|
$
|
75,419
|
|
|
$
|
105,983
|
|
|
$
|
92,662
|
|
|
$
|
65,896
|
|
Fixed charges
|
43,895
|
|
|
82,620
|
|
|
73,885
|
|
|
12,974
|
|
|
13,763
|
|
|
7,565
|
|
||||||
Adjusted earnings
|
$
|
76,969
|
|
|
$
|
199,285
|
|
|
$
|
149,304
|
|
|
$
|
118,957
|
|
|
$
|
106,425
|
|
|
$
|
73,461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Fixed charges:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Interest expense (including net amortization of debt issuance costs, premiums and discounts)
|
$
|
43,895
|
|
|
$
|
82,620
|
|
|
$
|
73,885
|
|
|
$
|
12,974
|
|
|
$
|
13,763
|
|
|
$
|
7,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Ratio of Earnings to Fixed Charges
|
1.8x
|
|
|
2.4x
|
|
|
2.0x
|
|
|
9.2x
|
|
|
7.7x
|
|
|
9.7x
|
|
1.
|
I have reviewed this quarterly report on Form 10-Q of Select Income REIT;
|
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.
|
5
|
|
|
|
|
|
Date: July 25, 2017
|
|
/s/ Barry M. Portnoy
|
|
||
|
|
Barry M. Portnoy
|
|
||
|
|
Managing Trustee
|
|
1.
|
I have reviewed this quarterly report on Form 10-Q of Select Income REIT;
|
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.
|
5
|
|
|
|
|
|
Date: July 25, 2017
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/s/ Adam D. Portnoy
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Adam D. Portnoy
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Managing Trustee
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1.
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I have reviewed this quarterly report on Form 10-Q of Select Income REIT;
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2.
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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;
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3.
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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;
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4.
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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:
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a.
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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;
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b.
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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;
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c.
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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
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d.
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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
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5.
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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):
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a.
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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
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b.
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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.
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5
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Date: July 25, 2017
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/s/ David M. Blackman
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David M. Blackman
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President and Chief Operating Officer
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1.
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I have reviewed this quarterly report on Form 10-Q of Select Income REIT;
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2.
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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;
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3.
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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;
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4.
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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:
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a.
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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;
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b.
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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;
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c.
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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
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d.
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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
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5.
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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):
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a.
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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
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b.
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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.
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5
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Date: July 25, 2017
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/s/ John C. Popeo
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John C. Popeo
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Chief Financial Officer and Treasurer
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1)
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The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
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2)
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The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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9
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/s/ Barry M. Portnoy
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/s/ David M. Blackman
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Barry M. Portnoy
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David M. Blackman
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Managing Trustee
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President and Chief Operating Officer
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/s/ Adam D. Portnoy
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/s/ John C. Popeo
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Adam D. Portnoy
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John C. Popeo
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Managing Trustee
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Chief Financial Officer and Treasurer
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Date: July 25, 2017
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