Maryland | 26-4273474 | |
(State or Other Jurisdiction of Incorporation or Organization) | (IRS Employer Identification No.) |
Large accelerated filer ☒ | Accelerated filer ☐ | |
Non-accelerated filer ☐ | Smaller reporting company ☐ | |
(Do not check if a smaller reporting company) | ||
Emerging growth company ☐ |
June 30, | December 31, | |||||||
2017 | 2016 | |||||||
ASSETS | ||||||||
Real estate properties: | ||||||||
Land | $ | 269,410 | $ | 267,855 | ||||
Buildings and improvements | 1,652,535 | 1,620,905 | ||||||
Total real estate properties, gross | 1,921,945 | 1,888,760 | ||||||
Accumulated depreciation | (320,005 | ) | (296,804 | ) | ||||
Total real estate properties, net | 1,601,940 | 1,591,956 | ||||||
Equity investment in Select Income REIT | 477,233 | 487,708 | ||||||
Assets of discontinued operations | 12,534 | 12,541 | ||||||
Acquired real estate leases, net | 108,927 | 124,848 | ||||||
Cash and cash equivalents | 12,907 | 29,941 | ||||||
Restricted cash | 344 | 530 | ||||||
Rents receivable, net | 47,717 | 48,458 | ||||||
Deferred leasing costs, net | 21,251 | 21,079 | ||||||
Other assets, net | 82,256 | 68,005 | ||||||
Total assets | $ | 2,365,109 | $ | 2,385,066 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Unsecured revolving credit facility | $ | 155,000 | $ | 160,000 | ||||
Unsecured term loans, net | 547,511 | 547,171 | ||||||
Senior unsecured notes, net | 647,584 | 646,844 | ||||||
Mortgage notes payable, net | 26,991 | 27,837 | ||||||
Liabilities of discontinued operations | 81 | 45 | ||||||
Accounts payable and other liabilities | 64,479 | 54,019 | ||||||
Due to related persons | 5,361 | 3,520 | ||||||
Assumed real estate lease obligations, net | 9,423 | 10,626 | ||||||
Total liabilities | 1,456,430 | 1,450,062 | ||||||
Commitments and contingencies | ||||||||
Shareholders’ equity: | ||||||||
Common shares of beneficial interest, $.01 par value: 150,000,000 and 100,000,000 shares | ||||||||
authorized, respectively, 71,195,178 and 71,177,906 shares issued and outstanding, respectively | 712 | 712 | ||||||
Additional paid in capital | 1,473,936 | 1,473,533 | ||||||
Cumulative net income | 115,420 | 96,329 | ||||||
Cumulative other comprehensive income | 42,350 | 26,957 | ||||||
Cumulative common distributions | (723,739 | ) | (662,527 | ) | ||||
Total shareholders’ equity | 908,679 | 935,004 | ||||||
Total liabilities and shareholders’ equity | $ | 2,365,109 | $ | 2,385,066 |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Rental income | $ | 69,887 | $ | 64,061 | $ | 139,183 | $ | 127,672 | ||||||||
Expenses: | ||||||||||||||||
Real estate taxes | 7,941 | 7,566 | 16,118 | 15,219 | ||||||||||||
Utility expenses | 4,172 | 3,673 | 8,778 | 7,847 | ||||||||||||
Other operating expenses | 15,187 | 13,266 | 29,179 | 26,177 | ||||||||||||
Depreciation and amortization | 20,663 | 17,985 | 41,168 | 36,309 | ||||||||||||
Acquisition related costs | — | 64 | — | 216 | ||||||||||||
General and administrative | 5,086 | 4,008 | 9,048 | 7,534 | ||||||||||||
Total expenses | 53,049 | 46,562 | 104,291 | 93,302 | ||||||||||||
Operating income | 16,838 | 17,499 | 34,892 | 34,370 | ||||||||||||
Dividend income | 303 | 363 | 607 | 363 | ||||||||||||
Interest income | 67 | 10 | 128 | 16 | ||||||||||||
Interest expense (including net amortization of debt premiums and discounts | ||||||||||||||||
and debt issuance costs of $808, $747, $1,615 and $1,219, respectively) | (13,963 | ) | (10,314 | ) | (27,544 | ) | (19,678 | ) | ||||||||
Gain on early extinguishment of debt | — | — | — | 104 | ||||||||||||
Gain on issuance of shares by Select Income REIT | 21 | 16 | 21 | 16 | ||||||||||||
Income from continuing operations before income taxes | ||||||||||||||||
and equity in earnings of investees | 3,266 | 7,574 | 8,104 | 15,191 | ||||||||||||
Income tax expense | (25 | ) | (35 | ) | (43 | ) | (50 | ) | ||||||||
Equity in earnings of investees | 8,581 | 9,400 | 11,320 | 19,334 | ||||||||||||
Income from continuing operations | 11,822 | 16,939 | 19,381 | 34,475 | ||||||||||||
Loss from discontinued operations | (145 | ) | (126 | ) | (289 | ) | (275 | ) | ||||||||
Net income | 11,677 | 16,813 | 19,092 | 34,200 | ||||||||||||
Other comprehensive income: | ||||||||||||||||
Unrealized gain (loss) on investment in available for sale securities | (1,032 | ) | 7,237 | 11,110 | 20,108 | |||||||||||
Equity in unrealized gain (loss) of investees | (332 | ) | 2,606 | 4,283 | 7,150 | |||||||||||
Other comprehensive income (loss) | (1,364 | ) | 9,843 | 15,393 | 27,258 | |||||||||||
Comprehensive income | $ | 10,313 | $ | 26,656 | $ | 34,485 | $ | 61,458 | ||||||||
Weighted average common shares outstanding (basic) | 71,088 | 71,038 | 71,083 | 71,034 | ||||||||||||
Weighted average common shares outstanding (diluted) | 71,119 | 71,061 | 71,109 | 71,046 | ||||||||||||
Per common share amounts (basic and diluted): | ||||||||||||||||
Income from continuing operations | $ | 0.17 | $ | 0.24 | $ | 0.27 | $ | 0.49 | ||||||||
Loss from discontinued operations | $ | — | $ | — | $ | — | $ | — | ||||||||
Net income | $ | 0.16 | $ | 0.24 | $ | 0.27 | $ | 0.48 |
Six Months Ended June 30, | ||||||||
2017 | 2016 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net income | $ | 19,092 | $ | 34,200 | ||||
Adjustments to reconcile net income to cash provided by operating activities: | ||||||||
Depreciation | 23,398 | 20,781 | ||||||
Net amortization of debt premiums and discounts and debt issuance costs | 1,615 | 1,219 | ||||||
Gain on early extinguishment of debt | — | (104 | ) | |||||
Straight line rental income | (2,404 | ) | (584 | ) | ||||
Amortization of acquired real estate leases | 17,209 | 14,842 | ||||||
Amortization of deferred leasing costs | 1,797 | 1,475 | ||||||
Other non-cash expenses (income), net | 193 | 302 | ||||||
Equity in earnings of investees | (11,320 | ) | (19,334 | ) | ||||
Gain on issuance of shares by Select Income REIT | (21 | ) | (16 | ) | ||||
Distributions of earnings from Select Income REIT | 9,345 | 17,760 | ||||||
Change in assets and liabilities: | ||||||||
Restricted cash | 186 | 678 | ||||||
Deferred leasing costs | (2,087 | ) | (3,409 | ) | ||||
Rents receivable | 2,872 | 1,428 | ||||||
Other assets | (3,071 | ) | 1,120 | |||||
Accounts payable and accrued expenses | 9,871 | 971 | ||||||
Due to related persons | 1,841 | 692 | ||||||
Net cash provided by operating activities | 68,516 | 72,021 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Real estate acquisitions and deposits | (12,648 | ) | (79,285 | ) | ||||
Real estate improvements | (21,996 | ) | (14,149 | ) | ||||
Distributions in excess of earnings from Select Income REIT | 16,072 | 7,158 | ||||||
Net cash used in investing activities | (18,572 | ) | (86,276 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Repayment of mortgage notes payable | (761 | ) | (107,202 | ) | ||||
Proceeds from issuance of senior notes | — | 310,000 | ||||||
Borrowings on unsecured revolving credit facility | 45,000 | 229,000 | ||||||
Repayments on unsecured revolving credit facility | (50,000 | ) | (346,000 | ) | ||||
Payment of debt issuance costs | — | (10,138 | ) | |||||
Repurchase of common shares | (5 | ) | — | |||||
Distributions to common shareholders | (61,212 | ) | (61,169 | ) | ||||
Net cash (used in) provided by financing activities | (66,978 | ) | 14,491 | |||||
Increase (decrease) in cash and cash equivalents | (17,034 | ) | 236 | |||||
Cash and cash equivalents at beginning of period | 29,941 | 8,785 | ||||||
Cash and cash equivalents at end of period | $ | 12,907 | $ | 9,021 |
Supplemental cash flow information: | ||||||||
Interest paid | $ | 25,747 | $ | 17,343 | ||||
Income taxes paid | $ | 82 | $ | 76 |
For the Three Months | For the Six Months | |||||||||||
Ended June 30, | Ended June 30, | |||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||
Weighted average common shares for basic earnings per share | 71,088 | 71,038 | 71,083 | 71,034 | ||||||||
Effect of dilutive securities: unvested share awards | 31 | 23 | 26 | 12 | ||||||||
Weighted average common shares for diluted earnings per share | 71,119 | 71,061 | 71,109 | 71,046 |
Number | |||||||||||||||||||||||||
of | Buildings | Other | |||||||||||||||||||||||
Acquisition | Properties/ | Square | Purchase | and | Assumed | ||||||||||||||||||||
Date | Location | Type | Buildings | Feet | Price | Land | Improvements | Assets | |||||||||||||||||
Jan-17 | Manassas, VA | Office | 1/1 | 69,374 | $ | 12,648 | $ | 1,562 | $ | 8,244 | $ | 2,842 |
June 30, | December 31, | |||||||
2017 | 2016 | |||||||
Real estate properties, net | $ | 12,259 | $ | 12,260 | ||||
Other assets | 275 | 281 | ||||||
Assets of discontinued operations | $ | 12,534 | $ | 12,541 | ||||
Other liabilities | $ | 81 | $ | 45 | ||||
Liabilities of discontinued operations | $ | 81 | $ | 45 |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Rental income | $ | 5 | $ | 28 | $ | 12 | $ | 56 | ||||||||
Real estate taxes | (25 | ) | (23 | ) | (49 | ) | (46 | ) | ||||||||
Utility expenses | (34 | ) | (29 | ) | (80 | ) | (79 | ) | ||||||||
Other operating expenses | (62 | ) | (73 | ) | (115 | ) | (149 | ) | ||||||||
General and administrative | (29 | ) | (29 | ) | (57 | ) | (57 | ) | ||||||||
Loss from discontinued operations | $ | (145 | ) | $ | (126 | ) | $ | (289 | ) | $ | (275 | ) |
Fair Value at Reporting Date Using | ||||||||||||||||
Quoted Prices in | Significant | |||||||||||||||
Estimated | Active Markets for | Significant Other | Unobservable | |||||||||||||
Fair | Identical Assets | Observable Inputs | Inputs | |||||||||||||
Description | Value | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
Recurring Fair Value Measurements Assets: | ||||||||||||||||
Investment in RMR Inc. (1) | $ | 59,072 | $ | 59,072 | $ | — | $ | — | ||||||||
Non-Recurring Fair Value Measurements Assets: | ||||||||||||||||
Property held for sale and classified as discontinued operations (2) | $ | 12,259 | $ | — | $ | — | $ | 12,259 |
(1) | Our 1,214,225 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 $26,888 as of June 30, 2017. The net unrealized gain of $32,184 for these shares as of June 30, 2017 is included in cumulative other comprehensive income in our condensed consolidated balance sheets. |
(2) | We estimated the fair value of this property at June 30, 2017 based upon broker estimates of value less estimated sale costs (Level 3 inputs as defined in the fair value hierarchy under GAAP). |
As of June 30, 2017 | As of December 31, 2016 | |||||||||||||||
Carrying Amount (1) | Fair Value | Carrying Amount (1) | Fair Value | |||||||||||||
Senior unsecured notes, 3.75% interest rate, due in 2019 | $ | 347,524 | $ | 353,386 | $ | 346,952 | $ | 354,078 | ||||||||
Senior unsecured notes, 5.875% interest rate, due in 2046 | 300,060 | 321,036 | 299,892 | 292,268 | ||||||||||||
Mortgage note payable, 5.88% interest rate, due in 2021 (2) | 13,731 | 14,528 | 13,841 | 14,492 | ||||||||||||
Mortgage note payable, 7.00% interest rate, due in 2019 (2) | 8,587 | 8,902 | 8,778 | 9,188 | ||||||||||||
Mortgage note payable, 8.15% interest rate, due in 2021 (2) | 4,673 | 4,988 | 5,218 | 5,575 | ||||||||||||
$ | 674,575 | $ | 702,840 | $ | 674,681 | $ | 675,601 |
(1) | Carrying amount includes certain unamortized debt issuance costs and unamortized premiums and discounts. |
(2) | We assumed these mortgages in connection with our acquisitions of the encumbered properties. The stated interest rates for these mortgage debts are the contractually stated rates. We recorded the assumed mortgages at estimated fair value on the date of acquisition and we are amortizing the fair value premiums, if any, to interest expense over the respective terms of the mortgages to reduce interest expense to the estimated market interest rates as of the date of acquisition. |
Three Months Ended June 30, 2017 | ||||||||||||
Unrealized Gain | Equity in | |||||||||||
(Loss) on Investment | Unrealized Gain | |||||||||||
in Available for | (Loss) of | |||||||||||
Sale Securities | Investees | Total | ||||||||||
Balance at March 31, 2017 | $ | 33,216 | $ | 10,498 | $ | 43,714 | ||||||
Other comprehensive loss before reclassifications | (1,032 | ) | (328 | ) | (1,360 | ) | ||||||
Amounts reclassified from cumulative other comprehensive loss to net income (1) | — | (4 | ) | (4 | ) | |||||||
Net current period other comprehensive loss | (1,032 | ) | (332 | ) | (1,364 | ) | ||||||
Balance at June 30, 2017 | $ | 32,184 | $ | 10,166 | $ | 42,350 |
Six Months Ended June 30, 2017 | ||||||||||||
Unrealized Gain | Equity in | |||||||||||
on Investment | Unrealized Gain | |||||||||||
in Available for | of | |||||||||||
Sale Securities | Investees | Total | ||||||||||
December 31, 2016 | $ | 21,074 | $ | 5,883 | $ | 26,957 | ||||||
Other comprehensive income before reclassifications | 11,110 | 4,271 | 15,381 | |||||||||
Amounts reclassified from cumulative other comprehensive income to net income (1) | — | 12 | 12 | |||||||||
Net current period other comprehensive income | 11,110 | 4,283 | 15,393 | |||||||||
Balance at June 30, 2017 | $ | 32,184 | $ | 10,166 | $ | 42,350 |
(1) | Amounts reclassified from cumulative other comprehensive income (loss) are included in equity in earnings of investees in our condensed consolidated statements of comprehensive income. |
June 30, | December 31, | |||||||
2017 | 2016 | |||||||
Real estate properties, net | $ | 3,892,729 | $ | 3,899,792 | ||||
Acquired real estate leases, net | 496,792 | 506,298 | ||||||
Properties held for sale | 23,089 | — | ||||||
Cash and cash equivalents | 21,683 | 22,127 | ||||||
Rents receivable, net | 114,430 | 124,089 | ||||||
Other assets, net | 124,867 | 87,376 | ||||||
Total assets | $ | 4,673,590 | $ | 4,639,682 | ||||
Unsecured revolving credit facility | $ | 67,000 | $ | 327,000 | ||||
Unsecured term loan, net | 348,622 | 348,373 | ||||||
Senior unsecured notes, net | 1,774,769 | 1,430,300 | ||||||
Mortgage notes payable, net | 245,235 | 245,643 | ||||||
Assumed real estate lease obligations, net | 73,200 | 77,622 | ||||||
Other liabilities | 133,510 | 136,782 | ||||||
Shareholders' equity | 2,031,254 | 2,073,962 | ||||||
Total liabilities and shareholders' equity | $ | 4,673,590 | $ | 4,639,682 |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Rental income | $ | 97,041 | $ | 96,615 | $ | 194,385 | $ | 194,475 | ||||||||
Tenant reimbursements and other income | 18,829 | 18,289 | 37,779 | 37,661 | ||||||||||||
Total revenues | 115,870 | 114,904 | 232,164 | 232,136 | ||||||||||||
Real estate taxes | 10,836 | 10,522 | 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 real estate assets | 229 | — | 229 | — | ||||||||||||
Total expenses | 67,086 | 63,936 | 155,988 | 127,685 | ||||||||||||
Operating income | 48,784 | 50,968 | 76,176 | 104,451 | ||||||||||||
Dividend income | 396 | 475 | 793 | 475 | ||||||||||||
Interest expense | (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 | ||||||||
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 |
Three Months Ended June 30, 2017 | ||||||||||||||||
Investment | Investment | |||||||||||||||
in Real Estate | in SIR | Corporate | Consolidated | |||||||||||||
Rental income | $ | 69,887 | $ | — | $ | — | $ | 69,887 | ||||||||
Expenses: | ||||||||||||||||
Real estate taxes | 7,941 | — | — | 7,941 | ||||||||||||
Utility expenses | 4,172 | — | — | 4,172 | ||||||||||||
Other operating expenses | 15,187 | — | — | 15,187 | ||||||||||||
Depreciation and amortization | 20,663 | — | — | 20,663 | ||||||||||||
General and administrative | — | — | 5,086 | 5,086 | ||||||||||||
Total expenses | 47,963 | — | 5,086 | 53,049 | ||||||||||||
Operating income (loss) | 21,924 | — | (5,086 | ) | 16,838 | |||||||||||
Dividend income | — | — | 303 | 303 | ||||||||||||
Interest income | 48 | — | 19 | 67 | ||||||||||||
Interest expense | (405 | ) | — | (13,558 | ) | (13,963 | ) | |||||||||
Gain on issuance of shares by Select Income REIT | — | 21 | — | 21 | ||||||||||||
Income (loss) from continuing operations before | ||||||||||||||||
income taxes and equity in earnings of investees | 21,567 | 21 | (18,322 | ) | 3,266 | |||||||||||
Income tax expense | — | — | (25 | ) | (25 | ) | ||||||||||
Equity in earnings of investees | — | 8,207 | 374 | 8,581 | ||||||||||||
Income (loss) from continuing operations | 21,567 | 8,228 | (17,973 | ) | 11,822 | |||||||||||
Loss from discontinued operations | (145 | ) | — | — | (145 | ) | ||||||||||
Net income (loss) | $ | 21,422 | $ | 8,228 | $ | (17,973 | ) | $ | 11,677 |
Six Months Ended June 30, 2017 | ||||||||||||||||
Investment | Investment | |||||||||||||||
in Real Estate | in SIR | Corporate | Consolidated | |||||||||||||
Rental income | $ | 139,183 | $ | — | $ | — | $ | 139,183 | ||||||||
Expenses: | ||||||||||||||||
Real estate taxes | 16,118 | — | — | 16,118 | ||||||||||||
Utility expenses | 8,778 | — | — | 8,778 | ||||||||||||
Other operating expenses | 29,179 | — | — | 29,179 | ||||||||||||
Depreciation and amortization | 41,168 | — | — | 41,168 | ||||||||||||
General and administrative | — | — | 9,048 | 9,048 | ||||||||||||
Total expenses | 95,243 | — | 9,048 | 104,291 | ||||||||||||
Operating income (loss) | 43,940 | — | (9,048 | ) | 34,892 | |||||||||||
Dividend income | — | — | 607 | 607 | ||||||||||||
Interest income | 94 | — | 34 | 128 | ||||||||||||
Interest expense | (837 | ) | — | (26,707 | ) | (27,544 | ) | |||||||||
Gain on issuance of shares by Select Income REIT | — | 21 | — | 21 | ||||||||||||
Income (loss) from continuing operations before income taxes and | ||||||||||||||||
equity in earnings of investees | 43,197 | 21 | (35,114 | ) | 8,104 | |||||||||||
Income tax expense | — | — | (43 | ) | (43 | ) | ||||||||||
Equity in earnings of investees | — | 10,818 | 502 | 11,320 | ||||||||||||
Income (loss) from continuing operations | 43,197 | 10,839 | (34,655 | ) | 19,381 | |||||||||||
Loss from discontinued operations | (289 | ) | — | — | (289 | ) | ||||||||||
Net income (loss) | $ | 42,908 | $ | 10,839 | $ | (34,655 | ) | $ | 19,092 |
As of June 30, 2017 | ||||||||||||||||
Investment | Investment | |||||||||||||||
in Real Estate | in SIR | Corporate | Consolidated | |||||||||||||
Total Assets | $ | 1,800,454 | $ | 477,233 | $ | 87,422 | $ | 2,365,109 |
Three Months Ended June 30, 2016 | ||||||||||||||||
Investment | Investment | |||||||||||||||
in Real Estate | in SIR | Corporate | Consolidated | |||||||||||||
Rental income | $ | 64,061 | $ | — | $ | — | $ | 64,061 | ||||||||
Expenses: | ||||||||||||||||
Real estate taxes | 7,566 | — | — | 7,566 | ||||||||||||
Utility expenses | 3,673 | — | — | 3,673 | ||||||||||||
Other operating expenses | 13,266 | — | — | 13,266 | ||||||||||||
Depreciation and amortization | 17,985 | — | — | 17,985 | ||||||||||||
Acquisition related costs | 64 | — | — | 64 | ||||||||||||
General and administrative | — | — | 4,008 | 4,008 | ||||||||||||
Total expenses | 42,554 | — | 4,008 | 46,562 | ||||||||||||
Operating income (loss) | 21,507 | — | (4,008 | ) | 17,499 | |||||||||||
Dividend income | — | — | 363 | 363 | ||||||||||||
Interest income | — | — | 10 | 10 | ||||||||||||
Interest expense | (429 | ) | — | (9,885 | ) | (10,314 | ) | |||||||||
Gain on issuance of shares by Select Income REIT | — | 16 | — | 16 | ||||||||||||
Income (loss) from continuing operations before income taxes and | ||||||||||||||||
equity in earnings of investees | 21,078 | 16 | (13,520 | ) | 7,574 | |||||||||||
Income tax expense | — | — | (35 | ) | (35 | ) | ||||||||||
Equity in earnings of investees | — | 9,383 | 17 | 9,400 | ||||||||||||
Income (loss) from continuing operations | 21,078 | 9,399 | (13,538 | ) | 16,939 | |||||||||||
Loss from discontinued operations | (126 | ) | — | — | (126 | ) | ||||||||||
Net income (loss) | $ | 20,952 | $ | 9,399 | $ | (13,538 | ) | $ | 16,813 |
Six Months Ended June 30, 2016 | ||||||||||||||||
Investment | Investment | |||||||||||||||
in Real Estate | in SIR | Corporate | Consolidated | |||||||||||||
Rental income | $ | 127,672 | $ | — | $ | — | $ | 127,672 | ||||||||
Expenses: | ||||||||||||||||
Real estate taxes | 15,219 | — | — | 15,219 | ||||||||||||
Utility expenses | 7,847 | — | — | 7,847 | ||||||||||||
Other operating expenses | 26,177 | — | — | 26,177 | ||||||||||||
Depreciation and amortization | 36,309 | — | — | 36,309 | ||||||||||||
Acquisition related costs | 216 | — | — | 216 | ||||||||||||
General and administrative | — | — | 7,534 | 7,534 | ||||||||||||
Total expenses | 85,768 | — | 7,534 | 93,302 | ||||||||||||
Operating income (loss) | 41,904 | — | (7,534 | ) | 34,370 | |||||||||||
Dividend income | — | — | 363 | 363 | ||||||||||||
Interest income | — | — | 16 | 16 | ||||||||||||
Interest expense | (1,524 | ) | — | (18,154 | ) | (19,678 | ) | |||||||||
Gain on early extinguishment of debt | 104 | — | — | 104 | ||||||||||||
Gain on issuance of shares by Select Income REIT | — | 16 | — | 16 | ||||||||||||
Income (loss) from continuing operations before income taxes and | ||||||||||||||||
equity in earnings of investees | 40,484 | 16 | (25,309 | ) | 15,191 | |||||||||||
Income tax expense | — | — | (50 | ) | (50 | ) | ||||||||||
Equity in earnings of investees | — | 19,240 | 94 | 19,334 | ||||||||||||
Income (loss) from continuing operations | 40,484 | 19,256 | (25,265 | ) | 34,475 | |||||||||||
Loss from discontinued operations | (275 | ) | — | — | (275 | ) | ||||||||||
Net income (loss) | $ | 40,209 | $ | 19,256 | $ | (25,265 | ) | $ | 34,200 |
As of December 31, 2016 | ||||||||||||||||
Investment | Investment | |||||||||||||||
in Real Estate | in SIR | Corporate | Consolidated | |||||||||||||
Total Assets | $ | 1,807,560 | $ | 487,708 | $ | 89,798 | $ | 2,385,066 |
Comparable | ||||||||||||
All Properties (1) | Properties (2) | |||||||||||
June 30, | June 30, | |||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||
Total properties | 74 | 72 | 70 | 70 | ||||||||
Total buildings | 96 | 92 | 90 | 90 | ||||||||
Total square feet (3) | 11,516 | 10,985 | 10,616 | 10,612 | ||||||||
Percent leased (4) | 95.0 | % | 94.2 | % | 94.9 | % | 94.7 | % |
(1) | Based on properties we owned on June 30, 2017 and 2016, respectively, and excludes one property (one building) classified as discontinued operations. |
(2) | Based on properties we owned on June 30, 2017 and which we owned continuously since January 1, 2016, and excludes one property (one building) classified as discontinued operations. Our comparable properties decreased from 71 properties (91 buildings) at June 30, 2016 as a result of the sale of one property (one building) during the year ended December 31, 2016. |
(3) | Subject to changes when space is re-measured or re-configured for tenants. |
(4) | 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, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Average annualized effective rental rate per square foot (1): | ||||||||||||||||
All properties (2) | $ | 25.75 | $ | 25.08 | $ | 25.67 | $ | 25.06 | ||||||||
Comparable properties (3) | $ | 25.60 | $ | 25.08 | $ | 25.25 | $ | 24.87 |
(1) | Average annualized 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. Excludes one property (one building) classified as discontinued operations. |
(2) | Based on properties we owned on June 30, 2017 and 2016, respectively, and excludes one property (one building) classified as discontinued operations. |
(3) | Based on properties we owned on June 30, 2017 and which we owned continuously since April 1, 2016 and January 1, 2016, respectively, and excludes one property (one building) classified as discontinued operations. |
Three Months Ended June 30, 2017 | Six Months Ended June 30, 2017 | |||||||||||||||||
Available | Available | |||||||||||||||||
Leased | for Lease | Total | Leased | for Lease | Total | |||||||||||||
Beginning of period | 10,950,619 | 561,268 | 11,511,887 | 10,881,289 | 561,224 | 11,442,513 | ||||||||||||
Changes resulting from: | ||||||||||||||||||
Acquisition of properties | — | — | — | 69,374 | — | 69,374 | ||||||||||||
Lease expirations | (302,001 | ) | 302,001 | — | (662,148 | ) | 662,148 | — | ||||||||||
Lease renewals (1) | 238,677 | (238,677 | ) | — | 584,218 | (584,218 | ) | — | ||||||||||
New leases (1) | 49,751 | (49,751 | ) | — | 64,313 | (64,313 | ) | — | ||||||||||
Re-measurements (2) | — | 4,100 | 4,100 | — | 4,100 | 4,100 | ||||||||||||
End of period | 10,937,046 | 578,941 | 11,515,987 | 10,937,046 | 578,941 | 11,515,987 |
(1) | Based on leases entered into during the three and six months ended June 30, 2017. |
(2) | Rentable square feet is subject to changes when space is re-measured or re-configured for tenants. |
Three Months Ended June 30, 2017 | Six Months Ended June 30, 2017 | |||||||||||||||||||||
Old Effective | New Effective | Old Effective | New Effective | |||||||||||||||||||
Rent Per | Rent Per | Rentable | Rent Per | Rent Per | Rentable | |||||||||||||||||
Square Foot (1) | Square Foot (1) | Square Feet | Square Foot (1) | Square Foot (1) | Square Feet | |||||||||||||||||
New leases | $ | 21.32 | $ | 24.12 | 52,683 | $ | 22.67 | $ | 22.98 | 97,797 | ||||||||||||
Lease renewals | $ | 21.46 | $ | 24.94 | 229,423 | $ | 13.37 | $ | 15.00 | 560,888 | ||||||||||||
Total leasing activity | $ | 21.43 | $ | 24.78 | 282,106 | $ | 14.75 | $ | 16.18 | 658,685 |
(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. |
Government | Non-Government | |||||||||||
Three Months Ended June 30, 2017 | Leases | Leases | Total | |||||||||
Rentable square feet leased during the period | 236,159 | 52,269 | 288,428 | |||||||||
Tenant leasing costs and concession commitments (1) (in thousands) | $ | 1,611 | $ | 854 | $ | 2,465 | ||||||
Tenant leasing costs and concession commitments per rentable square foot (1) | $ | 6.82 | $ | 16.33 | $ | 8.55 | ||||||
Weighted (by square feet) average lease term (years) | 8.1 | 3.2 | 7.2 | |||||||||
Total leasing costs and concession commitments per rentable square foot per year (1) | $ | 0.85 | $ | 5.09 | $ | 1.19 |
Government | Non-Government | |||||||||||
Six Months Ended June 30, 2017 | Leases | Leases | Total | |||||||||
Rentable square feet leased during the period | 560,286 | 88,245 | 648,531 | |||||||||
Tenant leasing costs and concession commitments (1) (in thousands) | $ | 2,490 | $ | 2,216 | $ | 4,706 | ||||||
Tenant leasing costs and concession commitments per rentable square foot (1) | $ | 4.45 | $ | 25.11 | $ | 7.26 | ||||||
Weighted (by square feet) average lease term (years) | 9.7 | 4.8 | 9.1 | |||||||||
Total leasing costs and concession commitments per rentable square foot per year (1) | $ | 0.46 | $ | 5.25 | $ | 0.80 |
(1) | Includes commitments made for leasing expenditures and concessions, such as tenant improvements, leasing commissions, tenant reimbursements and free rent. |
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Tenant improvements (1) | $ | 1,076 | $ | 4,681 | $ | 3,479 | $ | 6,670 | ||||||||
Leasing costs (2) | $ | 971 | $ | 3,035 | $ | 2,058 | $ | 7,347 | ||||||||
Building improvements (3) | $ | 4,465 | $ | 2,649 | $ | 6,243 | $ | 5,682 | ||||||||
Development, redevelopment and other activities (4) | $ | 6,949 | $ | 2,161 | $ | 13,230 | $ | 2,929 |
(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. |
Number | Expirations | Annualized | ||||||||||||||||||||||
of | of Leased | Cumulative | Rental | Cumulative | ||||||||||||||||||||
Tenants | Square | Percent | Percent | Income | Percent | Percent | ||||||||||||||||||
Year (1) | Expiring | Feet (2) | of Total | of Total | Expiring | of Total | of Total | |||||||||||||||||
2017 | 27 | 652,188 | 6.0 | % | 6.0 | % | $ | 14,350 | 5.2 | % | 5.2 | % | ||||||||||||
2018 | 38 | 821,007 | 7.5 | % | 13.5 | % | 32,278 | 11.8 | % | 17.0 | % | |||||||||||||
2019 | 44 | 1,940,016 | 17.7 | % | 31.2 | % | 58,639 | 21.4 | % | 38.4 | % | |||||||||||||
2020 | 37 | 1,332,524 | 12.2 | % | 43.4 | % | 31,608 | 11.5 | % | 49.9 | % | |||||||||||||
2021 | 36 | 1,064,122 | 9.7 | % | 53.1 | % | 20,746 | 7.6 | % | 57.5 | % | |||||||||||||
2022 | 26 | 922,235 | 8.4 | % | 61.5 | % | 22,060 | 8.0 | % | 65.5 | % | |||||||||||||
2023 | 17 | 601,489 | 5.5 | % | 67.0 | % | 13,815 | 5.0 | % | 70.5 | % | |||||||||||||
2024 | 16 | 993,635 | 9.1 | % | 76.1 | % | 22,678 | 8.3 | % | 78.8 | % | |||||||||||||
2025 | 15 | 801,648 | 7.3 | % | 83.4 | % | 16,444 | 6.0 | % | 84.8 | % | |||||||||||||
2026 and thereafter | 27 | 1,808,182 | (3) | 16.6 | % | 100.0 | % | 42,028 | 15.2 | % | 100.0 | % | ||||||||||||
Total | 283 | 10,937,046 | 100.0 | % | $ | 274,646 | 100.0 | % | ||||||||||||||||
Weighted average remaining lease term (in years) | 5.0 | 4.7 |
(1) | The year of lease expiration is pursuant to current contract terms. Some government tenants have the right to vacate their space before the stated expirations of their leases. As of June 30, 2017, government tenants occupying approximately 11.7% of our rentable square feet and responsible for approximately 9.2% of our annualized rental income as of June 30, 2017 have currently exercisable rights to terminate their leases before the stated terms of their leases expire. Also, in 2017, 2018, 2019, 2020, 2021, 2022, 2023, 2026 and 2027, early termination rights become exercisable by other tenants who currently occupy an additional approximately 2.3%, 2.2%, 4.9%, 8.0%, 1.5%, 3.0%, 0.6%, 0.9% and 0.6% of our rentable square feet, respectively, and contribute an additional approximately 1.8%, 2.8%, 5.1%, 8.3%, 1.4%, 2.4%, 0.7%, 1.2% and 0.6% of our annualized rental income, respectively, as of June 30, 2017. In addition, as of June 30, 2017, 24 of our government tenants have currently exercisable rights to terminate their leases if the legislature or other funding authority does not appropriate rent amounts in their respective annual budgets. These 24 tenants occupy approximately 17.3% of our rentable square feet and contribute approximately 16.8% of our annualized rental income as of June 30, 2017. |
(2) | Leased square feet is pursuant to leases existing as of June 30, 2017, 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 re-measured or re-configured for new tenants. |
(3) | Leased square footage excludes a 25,579 square foot expansion being constructed at an existing property we own prior to the commencement of the lease. |
Acquired Properties | Disposed Property | |||||||||||||||||||||||||||||||||||||||||||||
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, | |||||||||||||||||||||||||||||||||||||||||||
$ | % | $ | % | |||||||||||||||||||||||||||||||||||||||||||
2017 | 2016 | Change | Change | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | Change | Change | |||||||||||||||||||||||||||||||||||
Rental income | $ | 65,942 | $ | 64,061 | $ | 1,881 | 2.9 | % | $ | 3,935 | $ | — | $ | 10 | $ | — | $ | 69,887 | $ | 64,061 | $ | 5,826 | 9.1 | % | ||||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||||||||||||||||||
Real estate taxes | 7,518 | 7,548 | (30 | ) | (0.4 | %) | 423 | — | — | 18 | 7,941 | 7,566 | 375 | 5.0 | % | |||||||||||||||||||||||||||||||
Utility expenses | 3,926 | 3,663 | 263 | 7.2 | % | 246 | — | — | 10 | 4,172 | 3,673 | 499 | 13.6 | % | ||||||||||||||||||||||||||||||||
Other operating expenses | 14,546 | 13,240 | 1,306 | 9.9 | % | 638 | — | 3 | 26 | 15,187 | 13,266 | 1,921 | 14.5 | % | ||||||||||||||||||||||||||||||||
Total operating expenses | 25,990 | 24,451 | 1,539 | 6.3 | % | 1,307 | — | 3 | 54 | 27,300 | 24,505 | 2,795 | 11.4 | % | ||||||||||||||||||||||||||||||||
Net operating income (4) | $ | 39,952 | $ | 39,610 | $ | 342 | 0.9 | % | $ | 2,628 | $ | — | $ | 7 | $ | (54 | ) | 42,587 | 39,556 | 3,031 | 7.7 | % | ||||||||||||||||||||||||
Other expenses: | ||||||||||||||||||||||||||||||||||||||||||||||
Depreciation and amortization | 20,663 | 17,985 | 2,678 | 14.9 | % | |||||||||||||||||||||||||||||||||||||||||
Acquisition related costs | — | 64 | (64 | ) | (100.0 | %) | ||||||||||||||||||||||||||||||||||||||||
General and administrative | 5,086 | 4,008 | 1,078 | 26.9 | % | |||||||||||||||||||||||||||||||||||||||||
Total other expenses | 25,749 | 22,057 | 3,692 | 16.7 | % | |||||||||||||||||||||||||||||||||||||||||
Operating income | 16,838 | 17,499 | (661 | ) | (3.8 | %) | ||||||||||||||||||||||||||||||||||||||||
Dividend income | 303 | 363 | (60 | ) | (16.5 | %) | ||||||||||||||||||||||||||||||||||||||||
Interest income | 67 | 10 | 57 | nm | ||||||||||||||||||||||||||||||||||||||||||
Interest expense (including net amortization of debt premiums and discounts and debt issuance costs of $808 and $747, respectively) | (13,963 | ) | (10,314 | ) | (3,649 | ) | 35.4 | % | ||||||||||||||||||||||||||||||||||||||
Gain on issuance of shares by Select Income REIT | 21 | 16 | 5 | 31.3 | % | |||||||||||||||||||||||||||||||||||||||||
Income from continuing operations before income taxes and equity in earnings of investees | 3,266 | 7,574 | (4,308 | ) | (56.9 | %) | ||||||||||||||||||||||||||||||||||||||||
Income tax expense | (25 | ) | (35 | ) | 10 | (28.6 | %) | |||||||||||||||||||||||||||||||||||||||
Equity in earnings of investees | 8,581 | 9,400 | (819 | ) | (8.7 | %) | ||||||||||||||||||||||||||||||||||||||||
Income from continuing operations | 11,822 | 16,939 | (5,117 | ) | (30.2 | %) | ||||||||||||||||||||||||||||||||||||||||
Loss from discontinued operations | (145 | ) | (126 | ) | (19 | ) | 15.1 | % | ||||||||||||||||||||||||||||||||||||||
Net income | $ | 11,677 | $ | 16,813 | $ | (5,136 | ) | (30.5 | %) | |||||||||||||||||||||||||||||||||||||
Weighted average common shares outstanding (basic) | 71,088 | 71,038 | 50 | 0.1 | % | |||||||||||||||||||||||||||||||||||||||||
Weighted average common shares outstanding (diluted) | 71,119 | 71,061 | 58 | 0.1 | % | |||||||||||||||||||||||||||||||||||||||||
Per common share amounts (basic and diluted): | ||||||||||||||||||||||||||||||||||||||||||||||
Income from continuing operations | $ | 0.17 | $ | 0.24 | $ | (0.07 | ) | (29.2 | %) | |||||||||||||||||||||||||||||||||||||
Loss from discontinued operations | $ | — | $ | — | $ | — | — | % | ||||||||||||||||||||||||||||||||||||||
Net income | $ | 0.16 | $ | 0.24 | $ | (0.08 | ) | (33.3 | %) | |||||||||||||||||||||||||||||||||||||
Reconciliation of Net Income to NOI: (4) | ||||||||||||||||||||||||||||||||||||||||||||||
Net income | $ | 11,677 | $ | 16,813 | ||||||||||||||||||||||||||||||||||||||||||
Loss from discontinued operations | 145 | 126 | ||||||||||||||||||||||||||||||||||||||||||||
Income from continuing operations | 11,822 | 16,939 | ||||||||||||||||||||||||||||||||||||||||||||
Equity in earnings of investees | (8,581) | (9,400) | ||||||||||||||||||||||||||||||||||||||||||||
Income tax expense | 25 | 35 | ||||||||||||||||||||||||||||||||||||||||||||
Gain on issuance of shares by SIR | (21) | (16) | ||||||||||||||||||||||||||||||||||||||||||||
Interest expense | 13,963 | 10,314 | ||||||||||||||||||||||||||||||||||||||||||||
Interest income | (67) | (10) | ||||||||||||||||||||||||||||||||||||||||||||
Dividend income | (303) | (363 | ) | |||||||||||||||||||||||||||||||||||||||||||
Operating income | 16,838 | 17,499 | ||||||||||||||||||||||||||||||||||||||||||||
General and administrative | 5,086 | 4,008 | ||||||||||||||||||||||||||||||||||||||||||||
Acquisition related costs | — | 64 | ||||||||||||||||||||||||||||||||||||||||||||
Depreciation and amortization | 20,663 | 17,985 | ||||||||||||||||||||||||||||||||||||||||||||
NOI | $ | 42,587 | $ | 39,556 |
Reconciliation of Net Income to Funds From Operations and Normalized Funds From Operations (5) | ||||||||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||||||||
Net income | $ | 11,677 | $ | 16,813 | ||||||||||||||||||||||||
Plus: Depreciation and amortization | 20,663 | 17,985 | ||||||||||||||||||||||||||
Plus: FFO attributable to Select Income REIT investment | 17,149 | 17,887 | ||||||||||||||||||||||||||
Less: Equity in earnings from Select Income REIT | (8,207 | ) | (9,383 | ) | ||||||||||||||||||||||||
Funds from operations | 41,282 | 43,302 | ||||||||||||||||||||||||||
Plus: Acquisition related costs | — | 64 | ||||||||||||||||||||||||||
Plus: Estimated business management incentive fee (6) | 893 | — | ||||||||||||||||||||||||||
Plus: Normalized FFO attributable to Select Income REIT investment | 17,407 | 17,887 | ||||||||||||||||||||||||||
Less: FFO attributable to Select Income REIT investment | (17,149 | ) | (17,887 | ) | ||||||||||||||||||||||||
Less: Gain on issuance of shares by Select Income REIT | (21 | ) | (16 | ) | ||||||||||||||||||||||||
Normalized funds from operations | $ | 42,412 | $ | 43,350 | ||||||||||||||||||||||||
Funds from operations per common share (basic and diluted) | $ | 0.58 | $ | 0.61 | ||||||||||||||||||||||||
Normalized funds from operations per common share (basic and diluted) | $ | 0.60 | $ | 0.61 |
(1) | Comparable properties consist of 71 properties (91 buildings) we owned on June 30, 2017 and which we owned continuously since April 1, 2016, and excludes one property (one building) classified as discontinued operations. |
(2) | Acquired properties consist of three properties (five buildings) we acquired since April 1, 2016. |
(3) | Disposed property consists of one property (one building) we sold in July 2016. |
(4) | 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 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 U.S. generally accepted accounting principles, or GAAP, and should not be considered as an alternative to net income 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 and operating income as presented in our Condensed Consolidated Statements of Comprehensive Income. Other REITs and real estate companies may calculate NOI differently than we do. |
(5) | We calculate funds from operations, or FFO, and normalized funds from operations, or Normalized FFO, as shown above. FFO 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 and the difference between FFO attributable to an equity investment and equity in earnings of an equity investee but excluding impairment charges on real estate assets, any gain or loss on sale of properties, as well as certain other adjustments currently not applicable to us. Our calculation of Normalized FFO differs from NAREIT's definition of FFO because we include the difference between FFO and Normalized FFO attributable to our equity investment in SIR, 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, gains on issuance of shares by SIR and gains on early extinguishment of debt. We consider FFO and Normalized FFO to be appropriate supplemental measures of operating performance for a REIT, along with net income and operating income. We believe that FFO and Normalized FFO provide useful information to investors because by excluding the effects of certain historical amounts, such as depreciation expense, FFO and Normalized FFO may facilitate a comparison of our operating performance between periods and with other REITs. FFO and Normalized FFO 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, our receipt of distributions from SIR and our expected needs and availability of cash to pay our obligations. FFO and Normalized FFO do not represent cash generated by operating activities in accordance with GAAP and should not be considered as alternatives to net income 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 and operating income as presented in our Condensed Consolidated Statements of Comprehensive Income. Other REITs and real estate companies may calculate FFO and Normalized FFO differently than we do. |
(6) | 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 until the fourth quarter, when the amount of the business management incentive fee expense for the calendar year, if any, is determined. |
Acquired Properties | Disposed Property | |||||||||||||||||||||||||||||||||||||||||||||
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, | |||||||||||||||||||||||||||||||||||||||||||
$ | % | $ | % | |||||||||||||||||||||||||||||||||||||||||||
2017 | 2016 | Change | Change | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | Change | Change | |||||||||||||||||||||||||||||||||||
Rental income | $ | 126,119 | $ | 124,000 | $ | 2,119 | 1.7 | % | $ | 13,055 | $ | 3,672 | $ | 9 | $ | — | $ | 139,183 | $ | 127,672 | $ | 11,511 | 9.0 | % | ||||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||||||||||||||||||
Real estate taxes | 14,811 | 14,868 | (57 | ) | (0.4 | %) | 1,308 | 318 | (1 | ) | 33 | 16,118 | 15,219 | 899 | 5.9 | % | ||||||||||||||||||||||||||||||
Utility expenses | 7,943 | 7,621 | 322 | 4.2 | % | 835 | 204 | — | 22 | 8,778 | 7,847 | 931 | 11.9 | % | ||||||||||||||||||||||||||||||||
Other operating expenses | 26,950 | 25,264 | 1,686 | 6.7 | % | 2,226 | 859 | 3 | 54 | 29,179 | 26,177 | 3,002 | 11.5 | % | ||||||||||||||||||||||||||||||||
Total operating expenses | 49,704 | 47,753 | 1,951 | 4.1 | % | 4,369 | 1,381 | 2 | 109 | 54,075 | 49,243 | 4,832 | 9.8 | % | ||||||||||||||||||||||||||||||||
Net operating income (4) | $ | 76,415 | $ | 76,247 | $ | 168 | 0.2 | % | $ | 8,686 | $ | 2,291 | $ | 7 | $ | (109 | ) | 85,108 | 78,429 | 6,679 | 8.5 | % | ||||||||||||||||||||||||
Other expenses: | ||||||||||||||||||||||||||||||||||||||||||||||
Depreciation and amortization | 41,168 | 36,309 | 4,859 | 13.4 | % | |||||||||||||||||||||||||||||||||||||||||
Acquisition related costs | — | 216 | (216 | ) | (100.0 | %) | ||||||||||||||||||||||||||||||||||||||||
General and administrative | 9,048 | 7,534 | 1,514 | 20.1 | % | |||||||||||||||||||||||||||||||||||||||||
Total other expenses | 50,216 | 44,059 | 6,157 | 14.0 | % | |||||||||||||||||||||||||||||||||||||||||
Operating income | 34,892 | 34,370 | 522 | 1.5 | % | |||||||||||||||||||||||||||||||||||||||||
Dividend income | 607 | 363 | 244 | 67.2 | % | |||||||||||||||||||||||||||||||||||||||||
Interest income | 128 | 16 | 112 | nm | ||||||||||||||||||||||||||||||||||||||||||
Interest expense (including net amortization of debt premium and discounts and debt issuance costs of $1,615 and $1,219, respectively) | (27,544 | ) | (19,678 | ) | (7,866 | ) | 40.0 | % | ||||||||||||||||||||||||||||||||||||||
Gain on early extinguishment of debt | — | 104 | (104 | ) | (100.0 | %) | ||||||||||||||||||||||||||||||||||||||||
Gain on issuance of shares by Select Income REIT | 21 | 16 | 5 | 31.3 | % | |||||||||||||||||||||||||||||||||||||||||
Income from continuing operations before income taxes and equity in earnings of investees | 8,104 | 15,191 | (7,087 | ) | nm | |||||||||||||||||||||||||||||||||||||||||
Income tax expense | (43 | ) | (50 | ) | 7 | (14.0 | %) | |||||||||||||||||||||||||||||||||||||||
Equity in earnings of investees | 11,320 | 19,334 | (8,014 | ) | (41.5 | %) | ||||||||||||||||||||||||||||||||||||||||
Income from continuing operations | 19,381 | 34,475 | (15,094 | ) | (43.8 | %) | ||||||||||||||||||||||||||||||||||||||||
Loss from discontinued operations | (289 | ) | (275 | ) | (14 | ) | 5.1 | % | ||||||||||||||||||||||||||||||||||||||
Net income | $ | 19,092 | $ | 34,200 | $ | (15,108 | ) | (44.2 | %) | |||||||||||||||||||||||||||||||||||||
Weighted average common shares outstanding (basic) | 71,083 | 71,034 | 49 | 0.1 | % | |||||||||||||||||||||||||||||||||||||||||
Weighted average common shares outstanding (diluted) | 71,109 | 71,046 | 63 | 0.1 | % | |||||||||||||||||||||||||||||||||||||||||
Per common share amounts (basic and diluted): | ||||||||||||||||||||||||||||||||||||||||||||||
Income from continuing operations | $ | 0.27 | $ | 0.49 | $ | (0.22 | ) | (44.9 | %) | |||||||||||||||||||||||||||||||||||||
Loss from discontinued operations | $ | — | $ | — | $ | — | — | % | ||||||||||||||||||||||||||||||||||||||
Net income | $ | 0.27 | $ | 0.48 | $ | (0.21 | ) | (43.8 | %) | |||||||||||||||||||||||||||||||||||||
Reconciliation of Net Income to NOI: (4) | ||||||||||||||||||||||||||||||||||||||||||||||
Net income | $ | 19,092 | $ | 34,200 | ||||||||||||||||||||||||||||||||||||||||||
Loss from discontinued operations | 289 | 275 | ||||||||||||||||||||||||||||||||||||||||||||
Income from continuing operations | 19,381 | 34,475 | ||||||||||||||||||||||||||||||||||||||||||||
Equity in earnings of investees | (11,320) | (19,334) | ||||||||||||||||||||||||||||||||||||||||||||
Income tax expense | 43 | 50 | ||||||||||||||||||||||||||||||||||||||||||||
Gain on issuance of shares by SIR | (21) | (16) | ||||||||||||||||||||||||||||||||||||||||||||
Gain on early extinguishment of debt | — | (104) | ||||||||||||||||||||||||||||||||||||||||||||
Interest expense | 27,544 | 19,678 | ||||||||||||||||||||||||||||||||||||||||||||
Interest income | (128) | (16) | ||||||||||||||||||||||||||||||||||||||||||||
Dividend income | (607) | (363) | ||||||||||||||||||||||||||||||||||||||||||||
Operating income | 34,892 | 34,370 | ||||||||||||||||||||||||||||||||||||||||||||
General and administrative | 9,048 | 7,534 | ||||||||||||||||||||||||||||||||||||||||||||
Acquisition related costs | — | 216 | ||||||||||||||||||||||||||||||||||||||||||||
Depreciation and amortization | 41,168 | 36,309 | ||||||||||||||||||||||||||||||||||||||||||||
NOI | $ | 85,108 | $ | 78,429 |
Calculation of Funds From Operations and Normalized Funds From Operations (5) | ||||||||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||||||||
Net income | $ | 19,092 | $ | 34,200 | ||||||||||||||||||||||||
Plus: Depreciation and amortization | 41,168 | 36,309 | ||||||||||||||||||||||||||
Plus: FFO attributable to Select Income REIT investment | 29,553 | 36,345 | ||||||||||||||||||||||||||
Less: Equity in earnings from Select Income REIT | (10,818 | ) | (19,240 | ) | ||||||||||||||||||||||||
Funds from operations | 78,995 | 87,614 | ||||||||||||||||||||||||||
Plus: Acquisition related costs | — | 216 | ||||||||||||||||||||||||||
Plus: Estimated business management incentive fee (6) | 893 | — | ||||||||||||||||||||||||||
Plus: Normalized FFO attributable to Select Income REIT investment | 31,997 | 36,362 | ||||||||||||||||||||||||||
Less: FFO attributable to Select Income REIT investment | (29,553 | ) | (36,345 | ) | ||||||||||||||||||||||||
Less: Gain on early extinguishment of debt | — | (104 | ) | |||||||||||||||||||||||||
Less: Gain on issuance of shares by Select Income REIT | (21 | ) | (16 | ) | ||||||||||||||||||||||||
Normalized funds from operations | $ | 82,311 | $ | 87,727 | ||||||||||||||||||||||||
Funds from operations per common share (basic and diluted) | $ | 1.11 | $ | 1.23 | ||||||||||||||||||||||||
Normalized funds from operations per common share (basic) | $ | 1.16 | $ | 1.24 | ||||||||||||||||||||||||
Normalized funds from operations per common share (diluted) | $ | 1.16 | $ | 1.23 |
(1) | Comparable properties consist of 70 properties (90 buildings) we owned on June 30, 2017 and which we owned continuously since January 1, 2016, and excludes one property (one building) classified as discontinued operations. |
(2) | Acquired properties consist of four properties (six buildings) we acquired since January 1, 2016. |
(3) | Disposed property consists of one property (one building) in July 2016. |
(4) | See footnote (4) on page 28 for a definition of NOI. |
(5) | See footnote (5) on page 28 for a definition of FFO and Normalized FFO. |
• | our ability to maintain or increase the occupancy of, and the rental rates at, our properties; |
• | our ability to control operating expenses at our properties; |
• | 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 |
• | our receipt of distributions from our investments in SIR and RMR Inc. |
• | Our $300,000 term loan, which matures on March 31, 2020, is prepayable without penalty at any time. We are required to pay interest at LIBOR plus a premium, which was 140 basis points per annum at June 30, 2017, on the amount outstanding under our $300,000 term loan. The interest rate premium is subject to adjustment based upon changes to our credit ratings. As of June 30, 2017, the annual interest rate for the amount outstanding under our $300,000 term loan was 2.6%. |
• | Our $250,000 term loan, which matures on March 31, 2022, is prepayable without penalty at any time. We are required to pay interest at LIBOR plus a premium, which was 180 basis points per annum at June 30, 2017, on the amount outstanding under our $250,000 term loan. The interest rate premium is subject to adjustment based upon changes to our credit ratings. As of June 30, 2017, the annual interest rate for the amount outstanding under our $250,000 term loan was 3.0%. |
Annual | Annual | Interest | |||||||||||||
Principal | Interest | Interest | Payments | ||||||||||||
Debt | Balance (1) | Rate (1) | Expense (1) | Maturity | Due | ||||||||||
Senior unsecured notes | $ | 350,000 | 3.750 | % | $ | 13,125 | 2019 | Semi-annually | |||||||
Senior unsecured notes | 310,000 | 5.875 | % | 18,213 | 2046 | Quarterly | |||||||||
Mortgage note | 13,815 | 5.877 | % | 823 | 2021 | Monthly | |||||||||
Mortgage note | 8,354 | 7.000 | % | 593 | 2019 | Monthly | |||||||||
Mortgage note | 4,578 | 8.150 | % | 378 | 2021 | Monthly | |||||||||
$ | 686,747 | $ | 33,132 |
(1) | The principal balances and interest rates are the amounts determined pursuant to the contracts. In accordance with GAAP, our carrying values and recorded interest expense may differ from these amounts because of market conditions at the time we issued or assumed these debts. For more information, see Notes 7 and 8 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. |
Impact of Changes in Interest Rates | |||||||||||||||
Annual | Outstanding | Total Interest | Annual Earnings | ||||||||||||
Interest Rate (1) | Debt | Expense Per Year | Per Share Impact (2) | ||||||||||||
At June 30, 2017 | 2.7 | % | $ | 705,000 | $ | 19,299 | $ | 0.27 | |||||||
100 bps increase | 3.7 | % | $ | 705,000 | $ | 26,447 | $ | 0.37 |
(1) | Weighted based on the respective interest rates and outstanding borrowings under our revolving credit facility and term loans as of June 30, 2017. |
(2) | Based on the weighted average shares outstanding (diluted) for the six months ended June 30, 2017. |
Impact of Changes in Interest Rates | |||||||||||||||
Annual | Outstanding | Total Interest | Annual Earnings | ||||||||||||
Interest Rate (1) | Debt | Expense Per Year | Per Share Impact (2) | ||||||||||||
At June 30, 2017 | 2.6 | % | $ | 1,300,000 | $ | 34,269 | $ | 0.48 | |||||||
100 bps increase | 3.6 | % | $ | 1,300,000 | $ | 47,450 | $ | 0.67 |
(1) | Weighted based on the respective interest rates and outstanding borrowings under our revolving credit facility (assuming fully drawn) and our term loans as of June 30, 2017. |
(2) | Based on the weighted average shares outstanding (diluted) for the six months ended June 30, 2017. |
• | OUR ACQUISITIONS AND SALES 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, |
• | OUR ABILITY TO PAY DISTRIBUTIONS TO OUR SHAREHOLDERS AND THE AMOUNT OF SUCH DISTRIBUTIONS, |
• | OUR EXPECTATION THAT WE BENEFIT FINANCIALLY FROM OUR OWNERSHIP INTEREST IN SIR, |
• | 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 IN THE METROPOLITAN WASHINGTON D.C. MARKET AREA OR ELSEWHERE THAT ARE MAJORITY LEASED TO GOVERNMENT TENANTS OR GOVERNMENT CONTRACTOR TENANTS, |
• | OUR EXPECTATIONS REGARDING DEMAND FOR LEASED SPACE BY THE U.S. GOVERNMENT AND STATE AND LOCAL GOVERNMENTS, |
• | 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, |
• | THE CREDIT QUALITIES OF OUR TENANTS, |
• | OUR QUALIFICATION FOR TAXATION AS A REIT, 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 WITH RESPECT TO THOSE MARKETS IN WHICH OUR PROPERTIES ARE LOCATED AND WITH RESPECT TO GOVERNMENT TENANCIES, |
• | THE IMPACT OF CHANGES IN THE REAL ESTATE NEEDS AND FINANCIAL CONDITIONS OF THE U.S. GOVERNMENT AND STATE AND LOCAL GOVERNMENTS, |
• | 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., SIR, AIC AND OTHERS AFFILIATED WITH THEM, |
• | 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, 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, OUR WORKING CAPITAL REQUIREMENTS AND OUR RECEIPT OF DISTRIBUTIONS FROM SIR. 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 DISTRIBUTIONS TO OUR SHAREHOLDERS DEPENDS IN LARGE PART UPON OUR ABILITY TO BUY PROPERTIES AND LEASE THEM FOR RENTS, LESS OUR PROPERTY OPERATING EXPENSES, 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, |
• | 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 EXPIRATION 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 BECAUSE OF CHANGING MARKET CONDITIONS OR OTHERWISE, |
• | 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, |
• | 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, |
• | THE INTEREST RATES PAYABLE UNDER OUR FLOATING RATE DEBT OBLIGATIONS DEPEND UPON OUR CREDIT RATINGS. BOTH MOODY'S AND S&P HAVE RECENTLY UPDATED OUR RATING OUTLOOK TO NEGATIVE WHICH MAY IMPLY THAT OUR CREDIT RATINGS MAY BE DOWNGRADED. IF OUR CREDIT RATINGS ARE DOWNGRADED, OUR BORROWING COSTS WILL INCREASE, |
• | OUR ABILITY TO ACCESS DEBT CAPITAL AND THE COST OF OUR DEBT CAPITAL WILL DEPEND IN PART ON OUR CREDIT RATINGS. BOTH MOODY'S AND S&P HAVE RECENTLY UPDATED OUR RATING OUTLOOK TO NEGATIVE, WHICH MAY IMPLY THAT OUR CREDIT RATINGS MAY BE DOWNGRADED. 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 LOANS MAY BE INCREASED TO UP TO $2.5 BILLION ON A COMBINED BASIS IN CERTAIN CIRCUMSTANCES; HOWEVER, INCREASING THE MAXIMUM BORROWING AVAILABILITY UNDER OUR REVOLVING CREDIT FACILITY AND TERM LOANS 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, |
• | 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., SIR, 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, |
• | SIR MAY REDUCE THE AMOUNT OF ITS DISTRIBUTIONS TO ITS SHAREHOLDERS, INCLUDING US, |
• | RMR INC. MAY REDUCE THE AMOUNT OF ITS DISTRIBUTION TO ITS SHAREHOLDERS, INCLUDING US, |
• | WE MAY BE UNABLE TO SELL OUR SIR COMMON SHARES FOR AN AMOUNT EQUAL TO OUR CARRYING VALUE OF THOSE SHARES AND ANY SUCH SALE MAY BE AT A DISCOUNT TO MARKET PRICE BECAUSE OF THE LARGE SIZE OF OUR SIR HOLDINGS OR OTHERWISE; WE MAY REALIZE A LOSS ON OUR INVESTMENT IN OUR SIR SHARES, |
• | WE CURRENTLY EXPECT TO SPEND, AS OF JUNE 30, 2017, AN ADDITIONAL $5.5 MILLION TO COMPLETE THE REDEVELOPMENT AND EXPANSION OF A PROPERTY WE OWN PRIOR TO THE COMMENCEMENT OF THE LEASE FOR THAT PROPERTY. IN ADDITION, AS OF JUNE 30 2017, WE HAVE ESTIMATED UNSPENT LEASING RELATED OBLIGATIONS OF $24.9 MILLION, EXCLUDING THE ESTIMATED DEVELOPMENT COSTS NOTED IN THE PRECEDING SENTENCE. IT IS DIFFICULT TO ACCURATELY ESTIMATE DEVELOPMENT AND TENANT SPACE PREPARATION 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, |
• | WE HAVE AGREED TO ACQUIRE FPO AND EXPECT THE FPO TRANSACTION TO BE CONSUMMATED PRIOR TO DECEMBER 31, 2017. THE CONSUMMATION OF THE FPO TRANSACTION IS SUBJECT TO |
• | THE APPROVAL OF THE FPO TRANSACTION BY THE HOLDERS OF AT LEAST A MAJORITY OF FPO’S OUTSTANDING COMMON SHARES MAY BE SOLICITED BY A PROXY STATEMENT WHICH MUST BE FILED WITH THE SEC. THE PROCESS OF PREPARING THE PROXY STATEMENT IS TIME CONSUMING. ACCORDINGLY, WE CANNOT BE SURE THAT THE FPO TRANSACTION WILL BE CONSUMMATED WITHIN A SPECIFIED TIME PERIOD OR AT ALL, |
• | THE UNDERWRITERS HAVE PARTIALLY EXERCISED THEIR PURCHASE OPTION FOR 2,907,029 OF OUR COMMON SHARES AND THIS PURCHASE IS EXPECTED TO BE COMPLETED ON AUGUST 3, 2017. HOWEVER, THIS PURCHASE IS SUBJECT TO CONDITIONS CUSTOMARY IN TRANSACTIONS OF THIS TYPE AND THE PURCHASE MAY BE DELAYED OR MAY NOT OCCUR, |
• | WE CURRENTLY EXPECT THE PROCEEDS FROM OUR RECENT COMMON SHARE AND SENIOR NOTES OFFERING TO BE USED (DIRECTLY OR INDIRECTLY BY REPAYMENTS AND DRAWINGS UNDER OUR REVOLVING CREDIT FACILITY) TO PARTIALLY FINANCE THE FPO TRANSACTION. IN THE EVENT THE FPO TRANSACTION IS NOT CONSUMMATED, WE EXPECT TO USE THE NET PROCEEDS FROM THE COMMON SHARE OFFERING FOR GENERAL BUSINESS PURPOSES. IF THE FPO TRANSACTION IS NOT CONSUMMATED ON OR PRIOR TO DECEMBER 31, 2017, OR THE MERGER AGREEMENT IS TERMINATED ON OR AT ANY TIME PRIOR TO THAT DATE, WE WILL BE REQUIRED TO REDEEM THE NOTES ISSUED PURSUANT TO OUR RECENT NOTES OFFERING AT 101% OF THE PRINCIPAL AMOUNT OUTSTANDING PLUS ACCRUED AND UNPAID INTEREST, AND |
• | 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-RELATED CRIMINAL ACTIVITIES CONTINUE TO EVOLVE AND INCREASE IN SOPHISTICATION, FREQUENCY AND SEVERITY. AS A RESULT, THE CONTROL ENHANCEMENTS THAT HAVE BEEN MADE, AND ANY ADDITIONAL ENHANCEMENTS THAT MAY BE MADE IN THE FUTURE, TO OUR CONTROLS MAY NOT BE SUCCESSFUL IN AVOIDING OUR BECOMING A VICTIM TO FUTURE CYBER-RELATED CRIMES. |
• | we will be required to pay some or all of our costs relating to the FPO Transaction, such as legal, accounting and financial advisory fees, whether or not the FPO Transaction is completed; |
• | our shareholders could suffer substantial dilution from the common shares we issued pursuant to the Equity Offering or may otherwise issue in anticipation of financing a portion of the FPO Transaction’s purchase price if the FPO Transaction’s consummation is delayed or ultimately not completed, because we will be unable to realize the expected benefits of the FPO Transaction; |
• | the market price of our common shares could decline to the extent that the then current market price is positively affected by a market assumption that the FPO Transaction will be completed; |
• | if the FPO Transaction is not completed on or prior to December 31, 2017, or the Merger Agreement is terminated on or at any time prior to that date, we will be required to redeem any notes issued pursuant to the Notes Offering then outstanding at 101% of the principal amount thereof plus interest; and |
• | the time and attention committed by our management to matters relating to the FPO Transaction could otherwise have been devoted to pursuing other opportunities. |
• | increasing our vulnerability to general adverse economic and business conditions; |
• | limiting our ability to obtain additional financing to fund future acquisitions, working capital, capital expenditures and other general business requirements; |
• | requiring the use of a substantial portion of our cash flow from operations for the payment of principal and interest on our indebtedness, thereby reducing our ability to use our cash flow to fund working capital, acquisitions, capital expenditures, distributions to our shareholders and general operating requirements; and |
• | limiting our flexibility in planning for, or reacting to, changes in our business. |
• | our joint venture partners may have economic or other business interests or goals that are inconsistent with our business interests or goals and that could affect our ability to lease the joint venture owned properties, operate the properties or maintain our qualification for taxation as a REIT; |
• | our joint venture partners may be subject to different laws or regulations than us, or may be structured differently than us for tax purposes, which may create conflicts of interest and disputes between us and these partners or affect our ability to maintain our qualification for taxation as a REIT; |
• | we may be required to contribute additional capital if our joint venture partners fail to fund their share of any required capital contributions; |
• | our ability to sell our joint venture interests on advantageous terms when we desire to do so may be limited under the terms of the applicable joint venture agreements; and |
• | disagreements with our joint venture partners could result in litigation or arbitration that could be expensive and distracting to management and could delay important decisions affecting the joint venture owned properties. |
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 | Announced Plans | Under the Plans or | ||||||||
Calendar Month | Purchased (1) | Paid per Share | or Programs | Programs | |||||||
May 2017 | 450 | $ | 21.75 | $ | $ | ||||||
June 2017 | 278 | 18.31 | — | — | |||||||
Total | 728 | $ | 20.44 | $ | — | $ | — |
(1) | These common share withholdings and purchases were made to satisfy tax withholding and payment obligations of one of our trustees and of a former RMR LLC employee in connection with the vesting of awards of our common shares. We withheld and purchased these shares at their fair market value based upon the trading price of our common shares at the close of trading on Nasdaq on the purchase date. |
Exhibit Number | Description |
Exhibit Number | Description |
2.1 | Agreement and Plan of Merger, dated as of June 27, 2017, among the Company, GOV NEW OPPTY REIT, GOV NEW OPPTY LP, First Potomac Realty Trust and First Potomac Realty Investment Limited Partnership. (Incorporated by reference to the Company’s Current Report on Form 8-K dated June 27, 2017.) |
3.1 | Composite Copy of Amended and Restated Declaration of Trust, dated June 8, 2009, as amended to date. (Filed herewith.) |
3.2 | Composite Copy of Amended and Restated Declaration of Trust, dated June 8, 2009, as amended to date. (marked copy) (Filed herewith.) |
3.3 | 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 Amendment No. 2 to the Company’s Registration Statement on Form S-11/A, File No. 333-157455.) |
4.2 | Indenture, dated as of August 18, 2014, between the Company and U.S. Bank National Association. (Incorporated by reference to the Company’s Current Report on Form 8-K dated August 18, 2014.) |
4.3 | Supplemental Indenture No. 1, dated as of August 18, 2014, between the Company and U.S. Bank National Association, relating to the Company’s 3.75% Senior Notes due 2019, including form thereof. (Incorporated by reference to the Company’s Current Report on Form 8-K dated August 18, 2014.) |
4.4 | Supplemental Indenture No. 2, dated as of May 26, 2016, between the Company and U.S. Bank National Association, relating to the Company’s 5.875% Senior Notes due 2046, including form thereof. (Incorporated by reference to the Company’s Current Report on Form 8-K dated May 26, 2016.) |
4.5 | Authentication Order, dated as of June 22, 2016, from the Company to U.S. Bank National Association, relating to the Company’s 5.875% Senior Notes due 2046. (Incorporated by reference to the Company’s Registration Statement on Form 8-A dated June 30, 2016.) |
4.6 | Indenture, dated as of July 20, 2017, between the Company and U.S. Bank National Association. (Incorporated by reference to the Company’s Current Report on Form 8-K dated July 20, 2017.) |
4.7 | Supplemental Indenture No. 1, dated as of July 20, 2017, between the Company and U.S. Bank National Association, relating to the Company’s 4.000% Senior Notes due 2022, including form thereof. (Incorporated by reference to the Company’s Current Report on Form 8-K dated July 20, 2017.) |
4.8 | Registration Rights and Lock-Up Agreement, dated as of June 5, 2015, among the Company, ABP 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 | Commitment Letter, dated as of June 27, 2017, by and among the Company, Citigroup Global Markets Inc., Bank of America, N.A., Morgan Stanley Bank, N.A and UBS AG, Stamford Branch. (Incorporated by reference to the Company’s Current Report on Form 8-K dated June 27, 2017.) |
10.2 | Summary of Trustee Compensation. (Incorporated by reference to the Company’s Current Report on Form 8-K dated May 17, 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 (Loss), (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.) |
GOVERNMENT PROPERTIES INCOME TRUST | ||
By: | /s/ David M. Blackman | |
David M. Blackman President and Chief Operating Officer | ||
Dated: August 1, 2017 | ||
By: | /s/ Mark L. Kleifges | |
Mark L. Kleifges Chief Financial Officer and Treasurer (principal financial and accounting officer) | ||
Dated: August 1, 2017 |
1 This provision has been revised to reflect the Resident Agent’s Notice of Change of Address filed December 4, 2014. |
2 This provision has been revised to reflect changes effectuated by the following Articles of Amendment, each of which supersede the immediately preceding Articles of Amendment: (i) Articles of Amendment filed December 30, 2009; (ii) Articles of Amendment filed July 20, 2011; (iii) Articles of Amendment filed July 24, 2014, as corrected by the Articles of Correction filed August 1, 2014; and (iv) Articles of Amendment filed June 28, 2017. |
1 This provision has been revised to reflect the Resident Agent’s Notice of Change of Address filed December 4, 2014. |
2 This provision has been revised to reflect changes effectuated by the following Articles of Amendment, each of which supersede the immediately preceding Articles of Amendment: (i) Articles of Amendment filed December 30, 2009; (ii) Articles of Amendment filed July 20, 2011; (iii) Articles of Amendment filed July 24, 2014, as corrected by the Articles of Correction filed August 1, 2014; and (iv) Articles of Amendment filed June 28, 2017. |
Six Months Ended June 30, | Year Ended December 31, | |||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||
Earnings: | ||||||||||||||||||||
Add: | ||||||||||||||||||||
Income (loss) from continuing operations (including gain on sale of properties, if any) before income tax expense and equity in earnings (losses) of investees | $ | 8,104 | $ | 22,936 | $ | (227,990 | ) | $ | 42,190 | $ | 55,308 | |||||||||
Distributions of earnings from equity investees | 9,345 | 32,425 | 21,882 | 17,046 | — | |||||||||||||||
Fixed charges | 27,716 | 45,164 | 37,008 | 28,048 | 16,831 | |||||||||||||||
Subtract: | ||||||||||||||||||||
Interest capitalized | (172 | ) | (52 | ) | — | — | — | |||||||||||||
Total earnings (loss) | $ | 44,993 | $ | 100,473 | $ | (169,100 | ) | $ | 87,284 | $ | 72,139 | |||||||||
Fixed Charges: | ||||||||||||||||||||
Interest on indebtedness and net amortization of debt issuance costs and debt premiums and discounts | $ | 27,544 | $ | 45,112 | $ | 37,008 | 28,048 | 16,831 | ||||||||||||
Interest capitalized | 172 | 52 | — | — | — | |||||||||||||||
Total fixed charges | $ | 27,716 | $ | 45,164 | $ | 37,008 | $ | 28,048 | $ | 16,831 | ||||||||||
Ratio of adjusted earnings (loss) to fixed charges | 1.6x | 2.2x | (4.6x) | (1) | 3.1x | 4.3x |
1. | I have reviewed this Quarterly Report on Form 10-Q of Government 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 1, 2017 | /s/ Barry M. Portnoy |
Barry M. Portnoy Managing Trustee |
1. | I have reviewed this Quarterly Report on Form 10-Q of Government 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 1, 2017 | /s/ Adam D. Portnoy |
Adam D. Portnoy Managing Trustee |
1. | I have reviewed this Quarterly Report on Form 10-Q of Government 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 1, 2017 | /s/ David M. Blackman |
David M. Blackman President and Chief Operating Officer |
1. | I have reviewed this Quarterly Report on Form 10-Q of Government 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 1, 2017 | /s/ Mark L. Kleifges |
Mark L. Kleifges Chief Financial Officer and Treasurer |
/s/ Barry M. Portnoy | /s/ David M. Blackman | |
Barry M. Portnoy Managing Trustee | David M. Blackman President and Chief Operating Officer | |
/s/ Adam D. Portnoy | /s/ Mark L. Kleifges | |
Adam D. Portnoy Managing Trustee | Mark L. Kleifges Chief Financial Officer and Treasurer |
Document and Entity Information - shares |
6 Months Ended | |
---|---|---|
Jun. 30, 2017 |
Jul. 31, 2017 |
|
Document and Entity Information | ||
Entity Registrant Name | Government Properties Income Trust | |
Entity Central Index Key | 0001456772 | |
Document Type | 10-Q | |
Document Period End Date | Jun. 30, 2017 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Large Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 96,195,178 | |
Document Fiscal Year Focus | 2017 | |
Document Fiscal Period Focus | Q2 |
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares |
Jun. 30, 2017 |
Dec. 31, 2016 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Common shares of beneficial interest, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common shares of beneficial interest, shares authorized (in shares) | 150,000,000 | 100,000,000 |
Common shares of beneficial interest, shares issued (in shares) | 71,195,178 | 71,177,906 |
Common shares of beneficial interest, shares outstanding (in shares) | 71,195,178 | 71,177,906 |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Parenthetical) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
|
Income Statement [Abstract] | ||||
Net amortization of debt premiums and discounts and deferred financing fees | $ 808 | $ 747 | $ 1,615 | $ 1,219 |
Basis of Presentation |
6 Months Ended |
---|---|
Jun. 30, 2017 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Basis of Presentation | Basis of Presentation The accompanying condensed consolidated financial statements of Government Properties Income Trust and its subsidiaries, or GOV, we, us or our, are unaudited. Certain information and disclosures required by U.S. generally accepted accounting principles, or GAAP, for complete financial statements have been condensed or omitted. We believe the disclosures made are adequate to make the information presented not misleading. However, the accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2016, or our Annual Report. In the opinion of our management, all adjustments, which include only normal recurring adjustments considered necessary for a fair presentation, have been included. All intercompany transactions and balances with or among our consolidated subsidiaries have been eliminated. Our operating results for interim periods are not necessarily indicative of the results that may be expected for the full year. Reclassifications have been made to the prior years’ condensed consolidated financial statements to conform to the current year’s presentation. The preparation of these financial statements in conformity with GAAP requires us to make estimates and assumptions that affect reported amounts. Actual results could differ from those estimates. Significant estimates in the condensed consolidated financial statements include purchase price allocations, useful lives of fixed assets, impairment of real estate and equity method investments and the valuation of intangible assets. |
Recent Accounting Pronouncements |
6 Months Ended |
---|---|
Jun. 30, 2017 | |
Accounting Policies [Abstract] | |
Recent Accounting Pronouncements | Recent Accounting Pronouncements On January 1, 2017, we adopted the Financial Accounting Standards Board, or FASB, Accounting Standards Update, or ASU, No. 2017-01, Clarifying the Definition of a Business, which provides additional guidance on evaluating whether a transaction should be accounted for as an acquisition (or disposal) of assets or of a business. This update defines three requirements for a set of assets and activities (collectively referred to as a “set”) to be considered a business: inputs, processes and outputs. As a result of the implementation of this update, certain property acquisitions, which under previous guidance were accounted for as business combinations, are now accounted for as acquisitions of assets. In an acquisition of assets, certain acquisition costs are capitalized as opposed to expensed under the previous guidance. On January 1, 2017, we adopted FASB ASU No. 2016-09, Compensation - Stock Compensation, which identifies areas for simplification involving several aspects of accounting for share based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the condensed statement of cash flows. The adoption of ASU No. 2016-09 did not have a material impact in our condensed consolidated financial statements. In May 2014, the FASB issued ASU No. 2014-09, Revenue From Contracts With Customers, which outlines a comprehensive model for entities to use in accounting for revenue arising from contracts with customers. ASU No. 2014-09 states that “an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” While ASU No. 2014-09 specifically references contracts with customers, it may apply to certain other transactions such as the sale of real estate or equipment. In August 2015, the FASB provided for a one-year deferral of the effective date for ASU No. 2014-09, which is now effective for us beginning January 1, 2018. A substantial portion of our revenue consists of rental income from leasing arrangements, which is specifically excluded from ASU No. 2014-09. We are continuing to evaluate ASU No. 2014-09 (and related clarifying guidance issued by the FASB); however, we do not expect its adoption to have a significant impact on the amount or timing of our revenue recognition in our consolidated financial statements with the exception of profit recognition on real estate sales. We currently have recorded a deferred gain on sale of real estate of $712 that under current guidance would be recognized upon repayment of a promissory note we received in connection with the sale but will be recognized in its entirety upon adoption of ASU No. 2014-09. We currently expect to adopt the standard using the modified retrospective approach. In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which changes how entities measure certain equity investments and present changes in the fair value of financial liabilities measured under the fair value option that are attributable to their own credit. This update is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted subject to certain conditions. Currently, changes in fair value of these investments are recorded through other comprehensive income. ASU No. 2016-01 states that these changes will be recorded through earnings. We are continuing to evaluate this guidance, but we expect the implementation of this guidance will affect how changes in the fair value of available for sale securities we hold are presented in our condensed consolidated financial statements. In February 2016, the FASB issued ASU No. 2016-02, Leases, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). ASU No. 2016-02 requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase of the leased asset by the lessee. This classification will determine whether the lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease. A lessee is also required to record a right of use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales type leases, direct financing leases and operating leases. ASU No. 2016-02 is effective for reporting periods beginning after December 15, 2018, with early adoption permitted. We are currently assessing the potential impact the adoption of ASU No. 2016-02 will have in our condensed consolidated financial statements. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires that entities use a new forward looking “expected loss” model that generally will result in the earlier recognition of allowance for credit losses. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. ASU No. 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. We are currently assessing the potential impact the adoption of ASU No. 2016-13 will have in our condensed consolidated financial statements. In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which clarifies how companies present and classify certain cash receipts and cash payments in the statement of cash flows. ASU No. 2016-15 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We are currently assessing the potential impact the adoption of ASU No. 2016-15 will have in our condensed consolidated financial statements. In November 2016, the FASB issued ASU No. 2016-18, Restricted Cash, which clarifies how companies should present restricted cash and restricted cash equivalents. Companies will show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. The new standard requires a reconciliation of the totals in the statement of cash flows to the related captions in the balance sheets. ASU No. 2016-18 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Upon the adoption of ASU No. 2016-18, we will reconcile both cash and cash equivalents and restricted cash and restricted cash equivalents, whereas under the current guidance we explain the changes during the period for cash and cash equivalents only. In May 2017, the FASB issued ASU No. 2017-09, Scope of Modification Accounting, which clarifies which changes to the terms or conditions of a share-based payment award are subject to the guidance on modification accounting under ASC 718. Entities would apply the modification accounting guidance unless the value, vesting requirements and classification of a share-based payment award are the same immediately before and after a change to the terms or conditions of the award. ASU No. 2017-09 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We are continuing to evaluate ASU No. 2017-09; however, we do not expect its adoption to have a material impact in our condensed consolidated financial statements. |
Weighted Average Common Shares |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share, Basic and Diluted [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Weighted Average Common Shares | Weighted Average Common Shares The following table provides a reconciliation of the weighted average number of common shares used in the calculation of basic and diluted earnings per share (in thousands):
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Real Estate Properties |
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Real Estate [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Real Estate Properties | Real Estate Properties As of June 30, 2017, we owned 74 properties (96 buildings), with an undepreciated carrying value of $1,921,945, excluding one property (one building) classified as discontinued operations with an undepreciated carrying value of $12,259. We generally lease space at our properties on a gross lease or modified gross lease basis pursuant to fixed term contracts expiring between 2017 and 2032. Our leases generally require us to pay all or some property operating expenses and to provide all or most property management services. During the three months ended June 30, 2017, we entered into 16 leases for 288,428 rentable square feet, for a weighted (by rentable square feet) average lease term of 7.2 years and we made commitments for $2,465 of leasing related costs. During the six months ended June 30, 2017, we entered into 28 leases for 648,531 rentable square feet, for a weighted (by rentable square feet) average lease term of 9.1 years and we made commitments for $4,706 of leasing related costs. As of June 30, 2017, we have estimated unspent leasing related obligations of $24,873, and we have committed to redevelop and expand an existing property prior to commencement of the lease with an estimated remaining cost to complete as of June 30, 2017 of $5,503. During the six months ended June 30, 2017, we capitalized $172 of interest expense related to the redevelopment and expansion of that existing property. Acquisition Activities During the six months ended June 30, 2017, we acquired an office property (one building) located in Manassas, VA with 69,374 rentable square feet. This property was 100% leased to Prince William County on the date of acquisition. This transaction was accounted for as an acquisition of assets. The purchase price was $12,648, including capitalized acquisition costs of $28. Our allocation of the purchase price of this acquisition based on the estimated fair values of the acquired assets and assumed liabilities is presented in the table below.
In June 2017, we and two of our wholly owned subsidiaries entered a definitive Agreement and Plan of Merger, or the Merger Agreement, to acquire First Potomac Realty Trust, a Maryland REIT, or FPO, and its operating partnership First Potomac Realty Investment Limited Partnership, or FPO LP. The transactions contemplated by the Merger Agreement are collectively referred to herein as the FPO Transaction. Pursuant to the terms and subject to the conditions and limitations set forth in the Merger Agreement: (i) at the effective time of the REIT Merger, or the REIT Merger Effective Time, each of the common shares of beneficial interest of FPO, par value $0.001 per share, or FPO Common Shares, issued and outstanding immediately prior to the REIT Merger Effective Time will be converted into the right to receive an amount equal to $11.15 in cash, without interest, or the REIT Per Share Merger Consideration; and (ii) at the effective time of the Partnership Merger, or the Partnership Merger Effective Time, each unit of limited partnership interests in FPO LP issued and outstanding immediately prior to the Partnership Merger Effective Time will be converted into the right to receive an amount in cash equal to the REIT Per Share Merger Consideration, without interest, or the Partnership Per Unit Merger Consideration, except that each holder of FPO LP limited partnership interests may elect, in lieu of the Partnership Per Unit Merger Consideration, to have such holder’s units of limited partnership interests in FPO LP converted into an equal number of units of preferred limited partnership interests in the surviving limited partnership. The FPO Transaction is subject to approval by the holders of at least a majority of the outstanding FPO Common Shares, and each party’s obligation to consummate the FPO Transaction is subject to certain other customary conditions provided for in the Merger Agreement. We currently expect the FPO Transaction to close prior to December 31, 2017; however, some of the closing conditions may be delayed or may not be satisfied, accordingly, the FPO Transaction may not close by year end December 31, 2017 or at all, or the terms of the FPO Transaction may change. As part of the FPO Transaction, we will acquire FPO's full property portfolio, which includes 39 office and industrial properties (74 buildings) with 6,454,382 rentable square feet, including two joint venture properties which are 50% and 51% owned by FPO. The estimated total consideration for the FPO Transaction is approximately $1,387,265, including the expected payment of $11.15 per FPO common share outstanding, or approximately $683,372, the expected repayment of approximately $417,800 of FPO debt, the expected assumption of approximately $231,360 of FPO mortgage debt and the payment of estimated transaction fees and expenses. In August 2016, we entered an agreement to acquire transferable development rights that would allow us to expand a property we own in Washington, D.C. for a purchase price of $2,030, excluding acquisition costs. This acquisition is subject to conditions; accordingly, this acquisition may be delayed, its terms may change or it may not be consummated. We regularly evaluate whether events or changes in circumstances have occurred that could indicate an impairment in the value of our long lived assets. If there is an indication that the carrying value of an asset is not recoverable, we estimate the projected undiscounted cash flows to determine if an impairment loss should be recognized. We determine the amount of any impairment loss by comparing the historical carrying value to estimated fair value. We estimate fair value through an evaluation of recent financial performance and projected discounted cash flows using standard industry valuation techniques. In addition to consideration of impairment upon the events or changes in circumstances described above, we regularly evaluate the remaining lives of our long lived assets. If we change our estimate of the remaining lives, we allocate the carrying value of the affected assets over their revised remaining lives. Disposition Activities – Discontinued Operations In March 2016, we entered an agreement to sell an office property (one building) in Falls Church, VA with 164,746 rentable square feet and a net book value of $12,282 at June 30, 2017. We agreed to extend the closing date for this sale and increased the sale price by $225, which we received as a non-refundable deposit. The contract sale price is now $13,523, excluding closing costs and we expect this transaction to close in the third quarter of 2017. This sale is subject to conditions; accordingly, this sale may be delayed, its terms may change or it may not be consummated. Results of operations for this property, which qualified as held for sale prior to our adoption in 2014 of ASU No. 2014-8, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, are classified as discontinued operations in our condensed consolidated financial statements. Summarized balance sheet and income statement information for this property is as follows: Balance Sheets
Statements of Operations
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Revenue Recognition |
6 Months Ended |
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Jun. 30, 2017 | |
Revenue Recognition [Abstract] | |
Revenue Recognition | Revenue Recognition We recognize rental income from operating leases that contain fixed contractual rent changes on a straight line basis over the term of the lease agreements. Certain of our leases with government tenants provide the tenant the right to terminate before the lease expiration date if the legislature or other funding authority does not appropriate the funding necessary for the government tenant to meet its lease obligations; we have determined the fixed non-cancelable lease term of these leases to be the fully executed term of the lease because we believe the occurrence of early terminations to be remote contingencies based on both our historical experience and our assessments of the likelihood of lease cancellation on a separate lease basis. We increased rental income to record revenue on a straight line basis by $1,104 and $435 for the three months ended June 30, 2017 and 2016, respectively, and $2,404 and $584 for the six months ended June 30, 2017 and 2016, respectively. Rents receivable include $24,090 and $21,686 of straight line rent receivables, net of allowance for doubtful accounts of $148 and $155, at June 30, 2017 and December 31, 2016, respectively. |
Concentration |
6 Months Ended |
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Jun. 30, 2017 | |
Risks and Uncertainties [Abstract] | |
Concentration | Concentration Tenant and Credit Concentration We define annualized rental income as the annualized contractual base rents from our tenants pursuant to our lease agreements as of the measurement date, plus straight line rent adjustments and estimated recurring expense reimbursements to be paid to us, and excluding lease value amortization. The U.S. Government, 13 state governments, and four other government tenants combined were responsible for 87.6% and 92.7% of our annualized rental income, excluding one property (one building) classified as discontinued operations, as of June 30, 2017 and 2016, respectively. The U.S. Government is our largest tenant by annualized rental income and was responsible for 59.6% and 64.1% of our annualized rental income, excluding one property classified as discontinued operations, as of June 30, 2017 and 2016, respectively. Geographic Concentration At June 30, 2017, our 74 properties (96 buildings), excluding one property (one building) classified as discontinued operations, were located in 31 states and the District of Columbia. Properties located in Virginia, California, the District of Columbia, Georgia, New York, Maryland and Massachusetts were responsible for 14.8%, 14.8%, 9.5%, 8.6%, 7.2%, 7.0% and 4.9% of our annualized rental income as of June 30, 2017, respectively. |
Indebtedness |
6 Months Ended |
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Jun. 30, 2017 | |
Debt Disclosure [Abstract] | |
Indebtedness | Indebtedness Our principal debt obligations at June 30, 2017 were: (1) $155,000 of outstanding borrowings under our $750,000 unsecured revolving credit facility; (2) an aggregate outstanding principal amount of $550,000 of unsecured term loans; (3) an aggregate outstanding principal amount of $660,000 of public issuances of senior unsecured notes; and (4) $26,747 aggregate principal amount of mortgage notes. Our $750,000 revolving credit facility, our $300,000 term loan and our $250,000 term loan are governed by a credit agreement with a syndicate of institutional lenders that includes a number of features common to all of these credit arrangements. This credit agreement also includes a feature under which the maximum aggregate borrowing availability may be increased to up to $2,500,000 on a combined basis in certain circumstances. Our $750,000 revolving credit facility is available for general business purposes, including acquisitions. The maturity date of our revolving credit facility is January 31, 2019 and, subject to the payment of an extension fee and meeting other conditions, we have an option to extend the stated maturity date of our revolving credit facility by one year to January 31, 2020. We can borrow, repay and reborrow funds available under our revolving credit facility until maturity and no principal repayment is due until maturity. We are required to pay interest at a rate of LIBOR plus a premium, which was 125 basis points per annum at June 30, 2017, on borrowings under our revolving credit facility. We also pay a facility fee on the total amount of lending commitments under our revolving credit facility, which was 25 basis points per annum at June 30, 2017. Both the interest rate premium and the facility fee are subject to adjustment based upon changes to our credit ratings. As of June 30, 2017, the annual interest rate payable on borrowings under our revolving credit facility was 2.4% and the weighted average annual interest rate for borrowings under our revolving credit facility was 2.2% and 1.7% for the three months ended June 30, 2017 and 2016, respectively, and 2.1% and 1.7% for the six months ended June 30, 2017 and 2016, respectively. As of June 30, 2017 and July 31, 2017, we had $155,000 and zero outstanding under our revolving credit facility, respectively. Our $300,000 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, 2017, on the amount outstanding under our $300,000 term loan. The interest rate premium is subject to adjustment based upon changes to our credit ratings. As of June 30, 2017, the annual interest rate for the amount outstanding under our $300,000 term loan was 2.6%. The weighted average annual interest rate under our $300,000 term loan was 2.4% and 1.8% for the three months ended June 30, 2017 and 2016, respectively, and 2.3% and 1.8% for the six months ended June 30, 2017 and 2016, respectively. Our $250,000 term loan, which matures on March 31, 2022, is prepayable without penalty at any time. We are required to pay interest at a rate of LIBOR plus a premium, which was 180 basis points per annum as of June 30, 2017, on the amount outstanding under our $250,000 term loan. The interest rate premium is subject to adjustment based upon changes to our credit ratings. As of June 30, 2017, the annual interest rate for the amount outstanding under our $250,000 term loan was 3.0%. The weighted average annual interest rate under our $250,000 term loan was 2.8% and 2.2%, respectively, for the three months ended June 30, 2017 and 2016 and 2.7% and 2.2% for the six months ended June 30, 2017 and 2016, respectively. Our credit agreement and senior notes indentures and their supplements provide for acceleration of payment of all amounts due thereunder upon the occurrence and continuation of certain events of default, such as, in the case of our credit agreement, a change of control of us, which includes The RMR Group LLC, or RMR LLC, ceasing to act as our business and property manager. Our credit agreement and our senior notes indentures and their supplements also contain a number of covenants, including covenants that restrict our ability to incur debts, require us to maintain certain financial ratios and, in the case of our credit agreement, restrict our ability to make distributions under certain circumstances. We believe we were in compliance with the terms and conditions of the respective covenants under our credit agreement and senior notes indentures and their supplements at June 30, 2017. At June 30, 2017, three of our properties (three buildings) with an aggregate net book value of $50,825 are encumbered by three mortgages for an aggregate principal amount of $26,747. Our mortgage notes are non-recourse, subject to certain limited exceptions and do not contain any material financial covenants. On July 20, 2017, we issued $300,000 of 4.000% senior unsecured notes due 2022 in an underwritten public offering. The net proceeds from this offering of $295,404, after payment of the underwriters' discount and other offering expenses, are expected to finance, in part, the FPO Transaction. In the event the FPO Transaction is not consummated on or prior to December 31, 2017, or the Merger Agreement is terminated on or at any time prior to that date, we will be required to redeem these notes at 101% of the principal amount of such notes plus accrued and unpaid interest. Concurrently with the execution of the Merger Agreement, we entered a commitment letter, or the Commitment Letter, with a group of institutional lenders for a 364-day senior unsecured bridge loan facility in an initial aggregate principal amount of up to $750,000, or the Bridge Loan Facility. On July 20, 2017, we and the lenders terminated the Commitment Letter and the Bridge Loan Facility as a result of our issuance of senior unsecured notes described above and proceeds from the sale of our common shares in July 2017 (see Note 9 for more information regarding this sale) and we recognized a loss on extinguishment of debt of $1,655 at that time which will be reported in the third quarter of 2017 in connection with that termination. |
Fair Value of Assets and Liabilities |
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Fair Value Disclosures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value of Assets and Liabilities | Fair Value of Assets and Liabilities The table below presents certain of our assets measured at fair value at June 30, 2017, categorized by the level of inputs, as defined in the fair value hierarchy under GAAP, used in the valuation of each asset:
In addition to the assets described in the table above, our financial instruments include cash and cash equivalents, restricted cash, rents receivable, mortgage notes receivable, accounts payable, a revolving credit facility, term loans, senior unsecured notes, mortgage notes payable, amounts due to related persons, other accrued expenses and security deposits. At June 30, 2017 and December 31, 2016, the fair values of our financial instruments approximated their carrying values in our condensed consolidated financial statements due to their short term nature or variable interest rates, except as follows:
We estimated the fair value of our senior unsecured notes due 2019 using an average of the bid and ask price of the notes as of the measurement date (Level 2 inputs as defined in the fair value hierarchy under GAAP). We estimated the fair value of our senior unsecured notes due 2046 based on the closing price on The NASDAQ Stock Market LLC, or Nasdaq, (Level 1 inputs as defined in the fair value hierarchy under GAAP) as of the measurement date. We estimated the fair values of our mortgage notes payable by using discounted cash flow analyses and currently prevailing market terms as of the measurement date (Level 3 inputs as defined in the fair value hierarchy under GAAP). Because Level 3 inputs are unobservable, our estimated fair value may differ materially from the actual fair value. |
Shareholders' Equity |
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Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shareholders' Equity | Shareholders’ Equity Distributions On February 23, 2017, we paid a regular quarterly distribution to common shareholders of record on January 23, 2017 of $0.43 per share, or $30,606. On May 22, 2017, we paid a regular quarterly distribution to common shareholders of record on April 21, 2017 of $0.43 per share, or $30,606. On July 12, 2017, we declared a regular quarterly distribution payable to common shareholders of record on July 24, 2017 of $0.43 per share, or $41,364. We expect to pay this distribution on or about August 21, 2017 using cash on hand. Sale of Shares On July 5, 2017, we sold 25,000,000 of our common shares at a price of $18.50 per share in an underwritten public offering. In connection with this offering, we granted the underwriters a 30 day option to purchase up to an additional 3,750,000 of our common shares at a price of $18.50 per share. On July 28, 2017, the underwriters partially exercised this purchase option for 2,907,029 of our common shares. This purchase is expected to be completed on August 3, 2017. The aggregate net proceeds from these sales will be $493,838, after payment of the underwriters' discount and other offering expenses. Share Grants and Purchases On May 17, 2017, we granted 3,000 of our common shares, valued at $21.75 per share, the closing price of our common shares on the Nasdaq on that day, to each of our six Trustees as part of their annual compensation. On May 17, 2017, we withheld 450 of our common shares awarded to one of our Trustees to fund that Trustee's resulting minimum required tax withholding obligation. The aggregate value of the withheld shares was $10, which is reflected as a decrease to shareholders equity in our condensed consolidated balance sheets. On June 30, 2017, we purchased 278 of our common shares valued at $18.31 per common share, the closing price of our common shares on the Nasdaq on that day, from a former employee of RMR LLC in satisfaction of tax withholding and payment obligations in connection with vesting of awards of common shares. Cumulative Other Comprehensive Income Cumulative other comprehensive income (loss) represents the unrealized gain on the RMR Inc. shares we own and our share of the comprehensive income of our equity method investees, Select Income REIT, or SIR, and Affiliates Insurance Company, or AIC. The following table presents changes in the amounts we recognized in cumulative other comprehensive income (loss) by component for the three and six months ended June 30, 2017:
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Business and Property Management Agreements with RMR LLC |
6 Months Ended |
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Jun. 30, 2017 | |
Property Management Fee [Abstract] | |
Business and Property Management Agreements with RMR LLC | Business and Property Management Agreements with RMR LLC We have no employees. The personnel and various services we require to operate our business are provided to us by RMR LLC. We have two agreements with RMR LLC to provide management services to us: (1) a business management agreement, which relates to our business generally; and (2) a property management agreement, which relates to our property level operations. Pursuant to our business management agreement with RMR LLC, we recognized net business management fees of $3,646 and $2,534 for the three months ended June 30, 2017 and 2016, respectively, and $6,350 and $5,042 for the six months ended June 30, 2017 and 2016, respectively. The business management fees for the three and six months ended June 30, 2017 include estimated 2017 incentive fees of $893 based on our common share total return, as defined, as of June 30, 2017. Although we recognized estimated incentive fees in accordance with GAAP, the actual amount of incentive fees payable to RMR LLC for 2017, if any, will be based on our common share total return, as defined, for the three year period ending December 31, 2017, and will be payable in 2018. The net business management fees we recognized are included in general and administrative expenses in our condensed consolidated statements of comprehensive income. Pursuant to our property management agreement with RMR LLC, we recognized aggregate net property management and construction supervision fees of $2,567 and $2,277 for the three months ended June 30, 2017 and 2016, respectively, and $5,033 and $4,386 for the six months ended June 30, 2017 and 2016, respectively. These amounts are included in other operating expenses or have been capitalized, as appropriate, in our condensed consolidated financial statements. We are generally responsible for all of our operating expenses, including certain expenses incurred by RMR LLC on our behalf. Our property level operating expenses, including certain payroll and related costs incurred by RMR LLC, are generally incorporated into rents charged to our tenants. We reimbursed RMR LLC $3,655 and $2,966 for property management related expenses for the three months ended June 30, 2017 and 2016, respectively, and $7,046 and $5,910 for the six months ended June 30, 2017 and 2016, respectively, which amounts are included in other operating expenses in our condensed consolidated statements of comprehensive income. In addition, we are responsible for our share of RMR LLC’s costs for providing our internal audit function. The amount recognized as expense for internal audit costs was $67 for both the three months ended June 30, 2017 and 2016, respectively, and $135 and $134 for the six months ended June 30, 2017 and 2016, respectively. These amounts are included in general and administrative expenses in our condensed consolidated statements of comprehensive income. |
Related Person Transactions |
6 Months Ended |
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Jun. 30, 2017 | |
Related Party Transactions [Abstract] | |
Related Person Transactions | Related Person Transactions We have relationships and historical and continuing transactions with RMR LLC, RMR Inc., SIR, AIC and others related to them, including other companies to which RMR LLC provides management services and which have trustees, directors and officers who are also our Trustees or officers. Our Manager, RMR LLC. See Note 10 for further information regarding our management agreements with RMR LLC. RMR Inc. RMR LLC is a subsidiary of RMR Inc. and RMR Inc. is the managing member of RMR LLC. The controlling shareholder of RMR Inc., ABP Trust, is owned by our Managing Trustees. As of June 30, 2017, we owned 1,214,225 shares of class A common stock of RMR Inc. See Note 8 for further information regarding our investment in RMR Inc. SIR. As of June 30, 2017, we owned 24,918,421 of SIR's common shares, or approximately 27.9% of its outstanding common shares. Our Managing Trustees also serve as managing trustees of SIR, and our President and Chief Operating Officer also serves as the president and chief operating officer of SIR. RMR LLC provides management services to SIR and us. See Note 12 for further information regarding our investment in SIR. AIC. We, SIR, ABP Trust and four other companies to which RMR LLC provides management services currently own AIC, an Indiana insurance company, in equal amounts. We and the other AIC shareholders participate in a combined property insurance program arranged and reinsured in part by AIC. We currently expect to pay aggregate annual premiums, including taxes and fees, of approximately $757 in connection with this insurance program for the policy year ending June 30, 2018, which amount may be adjusted from time to time as we acquire and dispose of properties that are included in this insurance program. As of June 30, 2017 and December 31, 2016, our investment in AIC had a carrying value of $7,917 and $7,235, respectively. These amounts are included in other assets in our condensed consolidated balance sheets. We recognized income related to our investment in AIC, which amounts are presented as equity in earnings of investees in our condensed consolidated statements of comprehensive income. Our other comprehensive income includes our proportionate part of unrealized gains (losses) on securities which are owned and held for sale by AIC. For further information about these and other such relationships and certain other related person transactions, please refer to our Annual Report. |
Equity Investment in Select Income REIT |
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Equity Method Investments and Joint Ventures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity Investment in Select Income REIT | Equity Investment in Select Income REIT As described in Note 11, as of June 30, 2017, we owned 24,918,421, or approximately 27.9%, of the then outstanding SIR common shares. SIR is a REIT which owns properties that are primarily leased to single tenants. We account for our investment in SIR under the equity method. Under the equity method, we record our proportionate share of SIR’s net income as equity in earnings of an investee in our condensed consolidated statements of comprehensive income. We recorded $8,207 and $9,383 of equity in the earnings of SIR for the three months ended June 30, 2017 and 2016, respectively, and $10,818 and $19,240 of equity in the earnings of SIR for the six months ended June 30, 2017 and 2016, respectively. Our other comprehensive income includes our proportionate share of SIR’s unrealized gains (losses) of ($389) and $2,563 for the three months ended June 30, 2017 and 2016, respectively, and $4,103 and $7,055 for the six months ended June 30, 2017 and 2016, respectively. The adjusted GAAP cost basis of our investments in SIR was less than our proportionate share of SIR’s total shareholders’ equity book value on the dates we acquired the shares. As of June 30, 2017, our remaining basis difference was $88,713 and as required under GAAP, we are accreting this basis difference to earnings over the estimated remaining useful lives of certain real estate assets and intangible assets and liabilities owned by SIR. This accretion increased our equity in the earnings of SIR by $736 and $740 for the three months ended June 30, 2017 and 2016, respectively, and $1,472 and $1,480 for the six months ended June 30, 2017 and 2016, respectively. As of June 30, 2017, our investment in SIR had a carrying value of $477,233 and a market value, based on the closing price of SIR common shares on the Nasdaq on June 30, 2017, of $598,790. We periodically evaluate our equity investment in SIR for possible indicators of other than temporary impairment whenever events or changes in circumstances indicate the carrying amount of the investment might not be recoverable. These indicators may include the length of time the market value of our investment is below our cost basis, the financial condition of SIR, our intent and ability to be a long term holder of the investment and other considerations. If the decline in fair value is judged to be other than temporary, we may record an impairment charge to adjust the basis of the investment to its fair value. We received cash distributions from SIR totaling $12,708 and $12,459 during the three months ended June 30, 2017 and 2016, respectively, and $25,416 and $24,918 during the six months ended June 30, 2017 and 2016, respectively. The following are summarized financial data of SIR as reported in SIR’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, or the SIR Quarterly Report. References in our condensed consolidated financial statements to the SIR Quarterly Report are included as references to the source of the data only, and the information in the SIR Quarterly Report is not incorporated by reference into our condensed consolidated financial statements. Condensed Consolidated Balance Sheets
Condensed Consolidated Statements of Income
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Segment Information |
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Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Information | Segment Information We operate in two separate reportable business segments: direct ownership of real estate properties and our equity method investment in SIR.
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Recent Accounting Pronouncements (Policies) |
6 Months Ended |
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Jun. 30, 2017 | |
Accounting Policies [Abstract] | |
Recent Accounting Pronouncements | Recent Accounting Pronouncements On January 1, 2017, we adopted the Financial Accounting Standards Board, or FASB, Accounting Standards Update, or ASU, No. 2017-01, Clarifying the Definition of a Business, which provides additional guidance on evaluating whether a transaction should be accounted for as an acquisition (or disposal) of assets or of a business. This update defines three requirements for a set of assets and activities (collectively referred to as a “set”) to be considered a business: inputs, processes and outputs. As a result of the implementation of this update, certain property acquisitions, which under previous guidance were accounted for as business combinations, are now accounted for as acquisitions of assets. In an acquisition of assets, certain acquisition costs are capitalized as opposed to expensed under the previous guidance. On January 1, 2017, we adopted FASB ASU No. 2016-09, Compensation - Stock Compensation, which identifies areas for simplification involving several aspects of accounting for share based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the condensed statement of cash flows. The adoption of ASU No. 2016-09 did not have a material impact in our condensed consolidated financial statements. In May 2014, the FASB issued ASU No. 2014-09, Revenue From Contracts With Customers, which outlines a comprehensive model for entities to use in accounting for revenue arising from contracts with customers. ASU No. 2014-09 states that “an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” While ASU No. 2014-09 specifically references contracts with customers, it may apply to certain other transactions such as the sale of real estate or equipment. In August 2015, the FASB provided for a one-year deferral of the effective date for ASU No. 2014-09, which is now effective for us beginning January 1, 2018. A substantial portion of our revenue consists of rental income from leasing arrangements, which is specifically excluded from ASU No. 2014-09. We are continuing to evaluate ASU No. 2014-09 (and related clarifying guidance issued by the FASB); however, we do not expect its adoption to have a significant impact on the amount or timing of our revenue recognition in our consolidated financial statements with the exception of profit recognition on real estate sales. We currently have recorded a deferred gain on sale of real estate of $712 that under current guidance would be recognized upon repayment of a promissory note we received in connection with the sale but will be recognized in its entirety upon adoption of ASU No. 2014-09. We currently expect to adopt the standard using the modified retrospective approach. In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which changes how entities measure certain equity investments and present changes in the fair value of financial liabilities measured under the fair value option that are attributable to their own credit. This update is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted subject to certain conditions. Currently, changes in fair value of these investments are recorded through other comprehensive income. ASU No. 2016-01 states that these changes will be recorded through earnings. We are continuing to evaluate this guidance, but we expect the implementation of this guidance will affect how changes in the fair value of available for sale securities we hold are presented in our condensed consolidated financial statements. In February 2016, the FASB issued ASU No. 2016-02, Leases, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). ASU No. 2016-02 requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase of the leased asset by the lessee. This classification will determine whether the lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease. A lessee is also required to record a right of use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales type leases, direct financing leases and operating leases. ASU No. 2016-02 is effective for reporting periods beginning after December 15, 2018, with early adoption permitted. We are currently assessing the potential impact the adoption of ASU No. 2016-02 will have in our condensed consolidated financial statements. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires that entities use a new forward looking “expected loss” model that generally will result in the earlier recognition of allowance for credit losses. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. ASU No. 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. We are currently assessing the potential impact the adoption of ASU No. 2016-13 will have in our condensed consolidated financial statements. In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which clarifies how companies present and classify certain cash receipts and cash payments in the statement of cash flows. ASU No. 2016-15 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We are currently assessing the potential impact the adoption of ASU No. 2016-15 will have in our condensed consolidated financial statements. In November 2016, the FASB issued ASU No. 2016-18, Restricted Cash, which clarifies how companies should present restricted cash and restricted cash equivalents. Companies will show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. The new standard requires a reconciliation of the totals in the statement of cash flows to the related captions in the balance sheets. ASU No. 2016-18 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Upon the adoption of ASU No. 2016-18, we will reconcile both cash and cash equivalents and restricted cash and restricted cash equivalents, whereas under the current guidance we explain the changes during the period for cash and cash equivalents only. In May 2017, the FASB issued ASU No. 2017-09, Scope of Modification Accounting, which clarifies which changes to the terms or conditions of a share-based payment award are subject to the guidance on modification accounting under ASC 718. Entities would apply the modification accounting guidance unless the value, vesting requirements and classification of a share-based payment award are the same immediately before and after a change to the terms or conditions of the award. ASU No. 2017-09 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We are continuing to evaluate ASU No. 2017-09; however, we do not expect its adoption to have a material impact in our condensed consolidated financial statements. |
Weighted Average Common Shares (Tables) |
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Earnings Per Share, Basic and Diluted [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Weighted Average Common Share Amounts | The following table provides a reconciliation of the weighted average number of common shares used in the calculation of basic and diluted earnings per share (in thousands):
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Real Estate Properties (Tables) |
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Jun. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Real Estate [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of purchase prices of acquisitions allocated based on the estimated fair values of the acquired assets and assumed liabilities | Our allocation of the purchase price of this acquisition based on the estimated fair values of the acquired assets and assumed liabilities is presented in the table below.
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Summarized balance sheet and income statement information for properties classified as discontinued operations | Summarized balance sheet and income statement information for this property is as follows: Balance Sheets
Statements of Operations
|
Fair Value of Assets and Liabilities (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Disclosures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of assets measured on a recurring and non-recurring basis at fair value, categorized by the level of inputs used in the valuation assets | The table below presents certain of our assets measured at fair value at June 30, 2017, categorized by the level of inputs, as defined in the fair value hierarchy under GAAP, used in the valuation of each asset:
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Schedule of fair value and carrying value of financial instruments | At June 30, 2017 and December 31, 2016, the fair values of our financial instruments approximated their carrying values in our condensed consolidated financial statements due to their short term nature or variable interest rates, except as follows:
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Shareholders' Equity (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of changes in each component of cumulative other comprehensive income (loss) | The following table presents changes in the amounts we recognized in cumulative other comprehensive income (loss) by component for the three and six months ended June 30, 2017:
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Equity Investment in Select Income REIT (Tables) - SIR |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule Of Summarized Balance Sheet Information Of Equity Method Investee | Condensed Consolidated Balance Sheets
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Schedule Of Summarized Income Statement Information Of Equity Method Investee | Condensed Consolidated Statements of Income
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Segment Information (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Segment Information |
|
Recent Accounting Pronouncements (Details) $ in Thousands |
Jun. 30, 2017
USD ($)
|
---|---|
Accounting Policies [Abstract] | |
Deferred gain on sale of real estate | $ 712 |
Weighted Average Common Shares (Details) - shares shares in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
|
Earnings Per Share, Basic and Diluted [Abstract] | ||||
Weighted average common shares for basic earnings per share (in shares) | 71,088 | 71,038 | 71,083 | 71,034 |
Effect of dilutive securities: unvested share awards (in shares) | 31 | 23 | 26 | 12 |
Weighted average common shares for diluted earnings per share (in shares) | 71,119 | 71,061 | 71,109 | 71,046 |
Real Estate Properties - Disposition Activities (Details) $ in Thousands |
1 Months Ended | ||
---|---|---|---|
Jun. 30, 2017
USD ($)
property
building
|
Dec. 31, 2016
USD ($)
|
Mar. 31, 2016
ft²
property
building
|
|
Real Estate Properties [Line Items] | |||
Number of properties | property | 74 | ||
Number of buildings | building | 96 | ||
Net book value | $ 1,601,940 | $ 1,591,956 | |
Discontinued Operations, Held-for-sale | One building | Falls Church, VA | Office Building | |||
Real Estate Properties [Line Items] | |||
Number of properties | property | 1 | ||
Number of buildings | building | 1 | ||
Rentable square feet of properties (in square feet) | ft² | 164,746 | ||
Net book value | 12,282 | ||
Non-refundable deposit | 225 | ||
Aggregate sale price of properties sold, excluding closing costs | $ 13,523 |
Real Estate Properties - Balance Sheet Information for Disposal of Property (Details) - USD ($) $ in Thousands |
Jun. 30, 2017 |
Dec. 31, 2016 |
---|---|---|
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | ||
Assets of discontinued operations | $ 12,534 | $ 12,541 |
Liabilities of discontinued operations | 81 | 45 |
Discontinued Operations, Held-for-sale | Discontinued operations | ||
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | ||
Real estate properties, net | 12,259 | 12,260 |
Other assets | 275 | 281 |
Assets of discontinued operations | 12,534 | 12,541 |
Other liabilities | 81 | 45 |
Liabilities of discontinued operations | $ 81 | $ 45 |
Real Estate Properties - Income Statement Information for Disposal of Property (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
|
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | ||||
Loss from discontinued operations | $ (145) | $ (126) | $ (289) | $ (275) |
Discontinued operations | ||||
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | ||||
Rental income | 5 | 28 | 12 | 56 |
Real estate taxes | (25) | (23) | (49) | (46) |
Utility expenses | (34) | (29) | (80) | (79) |
Other operating expenses | (62) | (73) | (115) | (149) |
General and administrative | (29) | (29) | (57) | (57) |
Loss from discontinued operations | $ (145) | $ (126) | $ (289) | $ (275) |
Revenue Recognition (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
Dec. 31, 2016 |
|
Revenue Recognition [Abstract] | |||||
Increase in rental income to record revenue on straight line basis | $ 1,104 | $ 435 | $ 2,404 | $ 584 | |
Straight line rent receivables | 24,090 | 24,090 | $ 21,686 | ||
Allowance for doubtful accounts | $ 148 | $ 148 | $ 155 |
Business and Property Management Agreements with RMR LLC (Details) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2017
USD ($)
|
Jun. 30, 2016
USD ($)
|
Jun. 30, 2017
USD ($)
employee
agreement
|
Jun. 30, 2016
USD ($)
|
|
RMR LLC | ||||
Related Party Transaction [Line Items] | ||||
Number of employees | employee | 0 | |||
Number of agreements | agreement | 2 | |||
Related party expense | $ 3,646 | $ 2,534 | $ 6,350 | $ 5,042 |
Reimbursement expense | 3,655 | 2,966 | 7,046 | 5,910 |
Internal audit costs | 67 | 67 | 135 | 134 |
Business Management Agreement, Incentive Fees | RMR LLC | ||||
Related Party Transaction [Line Items] | ||||
Related party expense | 893 | |||
Net Property Management and Construction Supervision Fees | RMR LLC | ||||
Related Party Transaction [Line Items] | ||||
Related party transaction amount | $ 2,567 | $ 2,277 | 5,033 | $ 4,386 |
RMR LLC | Business Management Agreement, Incentive Fees | Affiliated Entity | ||||
Related Party Transaction [Line Items] | ||||
Related party expense | $ 893 |
Related Person Transactions - REITs, for which RMR LLC provides Management Services (Details) - USD ($) $ in Thousands |
6 Months Ended | ||
---|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
Dec. 31, 2016 |
|
SIR | |||
Related Party Transaction [Line Items] | |||
Shares holding (in shares) | 24,918,421 | ||
Percentage of outstanding shares owned | 27.90% | ||
RMR Inc | Class A common shares | |||
Related Party Transaction [Line Items] | |||
Shares holding (in shares) | 1,214,225 | ||
AIC | |||
Related Party Transaction [Line Items] | |||
Carrying value of equity method investments | $ 7,917 | $ 7,235 | |
Forecast | AIC | |||
Related Party Transaction [Line Items] | |||
Insurance coverage amount | $ 757 |
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