0001456772-19-000018.txt : 20190322 0001456772-19-000018.hdr.sgml : 20190322 20190322150706 ACCESSION NUMBER: 0001456772-19-000018 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20190322 ITEM INFORMATION: Completion of Acquisition or Disposition of Assets ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20190322 DATE AS OF CHANGE: 20190322 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OFFICE PROPERTIES INCOME TRUST CENTRAL INDEX KEY: 0001456772 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 264273474 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-34364 FILM NUMBER: 19699549 BUSINESS ADDRESS: STREET 1: C/O THE RMR GROUP STREET 2: TWO NEWTON PL., 255 WASH. ST., STE. 300 CITY: NEWTON STATE: MA ZIP: 02458 BUSINESS PHONE: (617) 219-1440 MAIL ADDRESS: STREET 1: C/O THE RMR GROUP STREET 2: TWO NEWTON PL., 255 WASH. ST., STE. 300 CITY: NEWTON STATE: MA ZIP: 02458 FORMER COMPANY: FORMER CONFORMED NAME: GOVERNMENT PROPERTIES INCOME TRUST DATE OF NAME CHANGE: 20161006 FORMER COMPANY: FORMER CONFORMED NAME: Government Properties Income Trust DATE OF NAME CHANGE: 20090220 8-K 1 opi8-kdisposition.htm 8-K Document



 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 8-K
 
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
Date of Report (Date of earliest event reported): March 18, 2019
 
OFFICE PROPERTIES INCOME TRUST
(Exact Name of Registrant as Specified in Its Charter)
 
Maryland
(State or Other Jurisdiction of Incorporation)
 
 
 
001-34364
 
26-4273474
(Commission File Number)
 
(IRS Employer Identification No.)
 
 
 
Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts
 
02458-1634
(Address of Principal Executive Offices)
 
(Zip Code)
 
617-219-1440
(Registrant’s Telephone Number, Including Area Code)
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
o             Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
o             Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
o             Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
o             Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 or Rule 12b-2 of the Securities Exchange Act of 1934.
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐





In this Current Report on Form 8-K, the term “OPI” refers to Office Properties Income Trust and its applicable subsidiaries.

Item 2.01. Completion of Acquisition or Disposition of Assets.

On March 18, 2019, OPI completed its previously announced sale of an office property located at 500 First Street, NW in Washington, D.C., or 500 First Street, with 129,035 rentable square feet for $70.0 million, excluding closing costs, to Georgetown University.

Item 9.01. Financial Statements and Exhibits.
 
(b)    Pro forma financial information

OPI’s unaudited pro forma condensed consolidated balance sheet as of December 31, 2018 and OPI’s unaudited pro forma condensed consolidated statement of income (loss) for the year ended December 31, 2018 and the notes related thereto are filed as Exhibit 99.1 to this Current Report on Form 8-K. The unaudited pro forma condensed consolidated financial statements reflect OPI’s financial position as if the sale of 500 First Street was completed as of December 31, 2018 and results of operations as if the sale of 500 First Street was completed as of January 1, 2018. The unaudited pro forma condensed consolidated statement of income (loss) for the year ended December 31, 2018 also includes adjustments to reflect the effects of OPI’s merger with Select Income REIT and the related transactions as described in the notes to these unaudited pro forma condensed consolidated financial statements as if such transactions were completed on January 1, 2018. These unaudited pro forma condensed consolidated financial statements are not necessarily indicative of OPI’s expected financial position or results of operations for any future period. Differences could result from numerous factors, including future changes in OPI’s portfolio of investments, capital structure, property level operating expenses and revenues, including rents expected to be received on OPI’s existing leases or leases OPI may enter into, changes in interest rates and other reasons. Actual future results are likely to be different from amounts presented in the unaudited pro forma condensed consolidated financial statements and such differences could be significant.

(d) Exhibits





SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
OFFICE PROPERTIES INCOME TRUST
 
 
 
 
 
 
 
By:
/s/ Jeffrey C. Leer
 
Name:
Jeffrey C. Leer
 
Title:
Chief Financial Officer and Treasurer
 
Dated:  March 22, 2019




 EX-99.1 2 exhibit991.htm EXHIBIT 99.1 Exhibit

Exhibit 99.1
Unaudited Pro Forma Condensed Consolidated Financial Statements

Introduction to Unaudited Pro Forma Condensed Consolidated Financial Statements

On March 18, 2019, Office Properties Income Trust, or OPI, completed its previously announced sale of an office property located at 500 First Street, NW in Washington, D.C., or 500 First Street, with 129,035 rentable square feet for $70.0 million, excluding closing costs, to Georgetown University.

The following unaudited pro forma condensed consolidated balance sheet as of December 31, 2018 reflects OPI’s financial position as if the sale of 500 First Street was completed as of December 31, 2018. The unaudited pro forma condensed consolidated statement of income (loss) for the year ended December 31, 2018 reflects OPI’s results of operations as if the sale of 500 First Street was completed as of January 1, 2018. The unaudited pro forma condensed consolidated statement of income (loss) for the year ended December 31, 2018 also includes adjustments to reflect the effects of OPI’s merger with Select Income REIT, or SIR, and the related transactions as described in the notes to these unaudited pro forma condensed consolidated financial statements as if such transactions were completed on January 1, 2018. These unaudited pro forma condensed consolidated financial statements should be read in conjunction with the historical consolidated financial statements and notes thereto included in OPI’s Annual Report on Form 10-K for the year ended December 31, 2018.

These unaudited pro forma condensed consolidated financial statements are not necessarily indicative of OPI’s expected financial position or results of operations for any future period. Differences could result from numerous factors, including future changes in OPI’s portfolio of investments, capital structure, property level operating expenses and revenues, including rents expected to be received under OPI’s existing leases or leases OPI may later enter into, changes in interest rates and for other reasons. Actual future results are likely to be different from amounts presented in the unaudited pro forma condensed consolidated financial statements and such differences could be significant.





F- 1

Office Properties Income Trust
Unaudited Pro Forma Condensed Consolidated Balance Sheet
As of December 31, 2018
(dollars in thousands, except per share data)
 
 
 
 
 
 
 
Sale of
 
 
 
 
 
 
 
Historical
 
 500 First Street (A)
 
Pro Forma
ASSETS
 
 
 
 
 
 
Real estate properties:
 
 
 
 
 
 
 
Land
$
924,164

 
$
—

 
$
924,164

 
 
Buildings and improvements
3,020,472

 
—

 
3,020,472

 
 
 
Total real estate properties, gross
3,944,636

 
—

 
3,944,636

 
 
Accumulated depreciation
(375,147
)
 
—

 
(375,147
)
 
 
 
Total real estate properties, net
3,569,489

 
—

 
3,569,489

 
 
 
 
 
   
 
   
 
 
 
Assets of properties held for sale
253,501

 
(45,734
)
 
207,767

 
Investment in unconsolidated joint ventures
43,665

 
—

 
43,665

 
Acquired real estate leases, net
1,056,558

 
—

 
1,056,558

 
Cash and cash equivalents
35,349

 
—

 
35,349

 
Restricted cash
3,594

 
—

 
3,594

 
Rents receivable, net
72,051

 
—

 
72,051

 
Deferred leasing costs, net
25,672

 
—

 
25,672

 
Other assets, net
178,704

 
—

 
178,704

 
Total assets
$
5,238,583

 
$
(45,734
)
 
$
5,192,849

 
 
 
 
 
   
 
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
   
 
   
 
 
 
Unsecured revolving credit facility
$
175,000

 
$
—

 
$
175,000

 
Unsecured term loans, net
387,152

 
(69,800
)
 
317,352

 
Senior unsecured notes, net
2,357,497

 
—

 
2,357,497

 
Mortgage notes payable, net
335,241

 
—

 
335,241

 
Liabilities of properties held for sale
4,271

 
—

 
4,271

 
Accounts payable and other liabilities
145,536

 
—

 
145,536

 
Due to related persons
34,887

 
—

 
34,887

 
Assumed real estate lease obligations, net
20,031

 
—

 
20,031

 
Total liabilities
3,459,615

 
(69,800
)
 
3,389,815

 
 
 
 
 
 
 
 
 
 
 
Commitments and contingencies
   
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
Shareholders' equity:
   
 
   
 
 
 
 
Common shares of beneficial interest, $.01 par value:
 
 
 
 
 
 
 
200,000,000 shares authorized, 48,082,903 shares issued and outstanding
481

 
—

 
481

 
 
Additional paid in capital
2,609,801

 
—

 
2,609,801

 
 
Cumulative net income
146,882

 
24,066

 
170,948

 
 
Cumulative other comprehensive income
106

 
—

 
106

 
 
Cumulative common distributions
(978,302
)
 
—

 
(978,302
)
 
Total shareholders' equity
1,778,968

 
24,066

 
1,803,034

 
Total liabilities and shareholders' equity
$
5,238,583

 
$
(45,734
)
 
$
5,192,849

 
 
 
 
 
 
 
 
 
 









See accompanying notes.

F- 2

Office Properties Income Trust
Unaudited Pro Forma Condensed Consolidated Statement of Income (Loss)
For the Year Ended December 31, 2018
(amounts in thousands, except per share data)
 
 
 
 
Sale of
 
 
 
Sale of
 
 
 
 
 
 
SIR
 
Merger
 
500 First
 
 
 
 
Historical
 
Shares (B)
 
Transactions (C)
 
Street (E)
 
Pro Forma
 
 
 
 
 
 
 
 
 
 
 
Rental income
$
426,560

 
$
—

 
$
332,036

 
$
(10,507
)
 
$
748,089

 
 
 
 
 
 
 
 
 
 
 
EXPENSES:
 
 
 
 
 
 
 
 
 
 
Real estate taxes
 
49,708

 
—

 
30,696

 
(1,000
)
 
79,404

Utility expenses
26,425

 
—

 
10,400

 
(272
)
 
36,553

Other operating expenses
89,610

 
—

 
38,787

 
(948
)
 
127,449

Depreciation and amortization
 
162,488

 
—

 
138,700

 
(336
)
 
300,852

Loss on impairment of real estate
 
8,630

 
—

 
9,706

 
—

 
18,336

Acquisition and transaction related costs
 
14,508

 
—

 
12,989

 
—

 
27,497

General and administrative
 
24,922

 
—

 
49,079

 
(242
)
 
73,759

Write-off of straight line rents receivable, net
 
—

 
—

 
10,626

 
—

 
10,626

Total expenses
 
376,291

 
—

 
300,983

 
(2,798
)
 
674,476

 
 
 
 
 
 
 
 
 
 
 
Gain on sale of real estate
20,661

 
—

 
4,075

 
—

 
24,736

Dividend income
1,337

 
—

 
1,745

 
—

 
3,082

Unrealized loss on equity securities
(7,552
)
 
—

 
(9,870
)
 
—

 
(17,422
)
Interest income
639

 
—

 
701

 
—

 
1,340

Interest expense
 
(89,865
)
 
10,085

 
(78,220
)
 
2,373

 
(155,627
)
Loss on early extinguishment of debt
 
(709
)
 
—

 
(1,192
)
 
—

 
(1,901
)
 
 
 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations before income tax expense and equity in net earnings (losses) of investees
 
(25,220
)
 
10,085

 
(51,708
)
 
(5,336
)
 
(72,179
)
Income tax expense
(117
)
 
—

 
(424
)
 
—

 
(541
)
Equity in net earnings (losses) of investees
(2,269
)
 
—

 
516

 
—

 
(1,753
)
Income (loss) from continuing operations
$
(27,606
)
 
$
10,085

 
$
(51,616
)
 
$
(5,336
)
 
$
(74,473
)
 
 
 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding (basic and diluted)
24,830

 
 
 
23,219

(D) 
 
 
48,049

 
 
 
 
 
 
 
 
 
 
 
Loss from continuing operations per common share (basic and diluted)
$
(1.13
)
 
 
 
 
 
 
 
$
(1.56
)
















See accompanying notes.

F- 3

Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet Adjustments

(A)
The adjustments represent the effect of the sale of 500 First Street which was classified as held for sale in OPI's consolidated balance sheet as of December 31, 2018, the application of the proceeds to repay $69,800 under OPI's unsecured term loan due in 2020 and to reflect the estimated gain as a result of the sale of 500 First Street.

Notes to Unaudited Pro Forma Condensed Consolidated Statement of Income (Loss) Adjustments

(B)
The adjustments represent the effect on equity in net earnings of investees and gain on issuance of shares by SIR which is included in income from discontinued operations in OPI's condensed consolidated statement of income (loss), for OPI's sale of 24,918,421 common shares of SIR on October 9, 2018 and the reduction in interest expense related to the application of the net proceeds to repay $435,125 of borrowings outstanding under OPI's revolving credit facility as if this transaction occurred as of January 1, 2018.

(C)
On December 31, 2018, OPI completed the merger with SIR and acquired SIR's property portfolio of 99 buildings with approximately 16.5 million rentable square feet, or the Merger. As a condition of the Merger, on December 27, 2018, SIR paid a pro rata distribution to SIR's shareholders of record as of the close of business on December 20, 2018 of all 45,000,000 common shares of beneficial interest of Industrial Logistics Properties Trust, or ILPT, that SIR owned, or the ILPT Distribution. The Merger and ILPT Distribution, are collectively referred to herein as the Merger Transactions.

The adjustments in SIR's unaudited consolidated statement of income for the year ended December 31, 2018 below represent the effects of the initial public offering of ILPT, or the ILPT IPO, and the Merger Transactions as if they had occurred on January 1, 2018:
 
 
 
 
ILPT
 
ILPT
 
Pro Forma
 
Merger
 
 
SIR (1)
 
IPO (2)
 
Distribution (3)
 
Adjustments
 
Transactions
 
 
 
 
 
 
 
 
 
 
 
Rental income
 
$
481,010

 
$
—

 
$
(152,735
)
 
$
3,761

(4) 
$
332,036

 
 
 
 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
 
 
 
Real estate taxes
 
49,027

 
—

 
(18,331
)
 
—

 
30,696

Utility expenses
 
10,400

 
—

 
—

 
—

 
10,400

Other operating expenses
 
50,715

 
—

 
(11,928
)
 
—

 
38,787

Depreciation and amortization
 
141,546

 
—

 
(27,058
)
 
24,212

(5) 
138,700

Loss on impairment of real estate
 
9,706

 
—

 
—

 
—

 
9,706

Acquisition and transaction related costs
 
12,989

 
—

 
—

 
—

 
12,989

General and administrative
 
59,898

 
—

 
(10,819
)
 
—

 
49,079

Write-off of straight line rents receivable, net
 
10,626

 
—

 
—

 
—

 
10,626

Total expenses
 
344,907

 
—

 
(68,136
)
 
24,212

 
300,983

 
 
 
 
 
 
 
 
 
 
 
Gain on sale of real estate
 
4,075

 
—

 
—

 
—

 
4,075

Dividend income
 
1,745

 
—

 
—

 
—

 
1,745

Unrealized loss on equity securities
 
(9,870
)
 
—

 
—

 
—

 
(9,870
)
Interest income
 
898

 
—

 
(197)

 
—

 
701

Interest expense
 
(93,147
)
 
905

 
15,850

 
(1,828
)
(6) 
(78,220
)
Loss on early extinguishment of debt
 
(1,192
)
 
—

 
—

 
—

 
(1,192
)
 
 
 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations before income tax expense and equity in earnings of investees
 
38,612

 
905

 
(68,946
)
 
(22,279
)
 
(51,708
)
Income tax expense
 
(456
)
 
—

 
32

 
—

 
(424
)
Equity in earnings of investees
 
516

 
—

 
—

 
—

 
516

Net income (loss)
 
38,672

 
905

 
(68,914
)
 
(22,279
)
 
(51,616
)
Noncontrolling interest
 
(21,237
)
 
(1,441
)
 
22,678

 
—

 
—

Net income (loss) attributable to OPI
 
$
17,435

 
$
(536
)
 
$
(46,236
)
 
$
(22,279
)
 
$
(51,616
)


F- 4

(1)
Represents the results of operations for SIR for the year ended December 31, 2018.

(2)
The adjustments represent the effect on income allocated to noncontrolling interest and interest expense assuming the redemption of $350,000 of SIR’s 2.85% senior unsecured notes due 2018 and the repayment of SIR’s $350,000 term loan from proceeds of the ILPT IPO occurred as of January 1, 2018.

(3)
The adjustments represent the deconsolidation of ILPT as a result of the ILPT Distribution as if this distribution occurred as of January 1, 2018. The amounts being adjusted are directly attributable to revenue and expenses associated with ILPT's properties and debt.

(4)
The adjustments represent estimated non-cash straight line rent and non-cash amortization of above and below market leases related to the leases acquired from SIR. The weighted average lease term for above and below market leases was 5.8 years and 5.7 years, respectively, as of December 31, 2018. The components of the rental income adjustments are as follows:
 
For the Year Ended
 
December 31, 2018
Non-cash, straight line rent adjustments
$
9,253

Non-cash, net above and below market lease amortization
(5,492
)
 
$
3,761


(5)
The adjustment eliminates SIR historical depreciation and amortization expense of $114,488 for the year ended December 31, 2018. The adjustment also includes estimated depreciation and amortization expense of $138,700 based on the fair value of the assets acquired in the Merger for the year ended December 31, 2018. Real estate investments are depreciated on a straight line basis over the estimated useful lives up to 40 years. Capitalized acquired in place leases, exclusive of the value of acquired above market and below market lease values, are amortized on a straight line basis over the 7.2 year weighted average remaining lease term as of December 31, 2018.

(6)
The adjustments to interest expense represent: (i) the elimination of SIR historical interest expense related to its revolving credit facility and historical senior unsecured note discount amortization, (ii) an increase in interest expense related to borrowings under OPI's revolving credit facility which was used to repay SIR’s outstanding revolving credit facility balance at the closing of the Merger, and (iii) an increase in senior unsecured note discount amortization due to the adjustments to reduce SIR’s senior unsecured notes to reflect changes in market interest rates as of December 31, 2018. The amortization is calculated beginning from January 1, 2018 with the assumption that the SIR senior unsecured notes were assumed by OPI at their fair value. The components of the interest expense adjustments are as follows:
 
For the Year Ended
Acquisition Borrowings on Revolving Credit Facility:
December 31, 2018
Estimated additional borrowings on revolving credit facility
$
108,000

Weighted average interest rate
3.00
%
Estimated annual interest expense
3,240

Less SIR historical revolving credit facility interest
(5,139
)
Total revolver adjustment
(1,899
)
Senior note discount pro forma adjustment
3,727

Total adjustment
$
1,828


(D)
The adjustment represents the issuance of 23,282,704 OPI common shares to SIR shareholders at the closing of the Merger.

(E)
The adjustments represent the historical revenues and expenses of 500 First Street for the year ended December 31, 2018 and the reduction in interest expense related to the application of the net proceeds to repay $69,800 under OPI's unsecured term loan due in 2020 as if these transactions had occurred on January 1, 2018.

F- 5