Equity Investment in Select Income REIT

12 Months Ended

Dec. 31, 2019

Equity Method Investments and Joint Ventures [Abstract]

Until October 9, 2018, we owned 24,918,421, or approximately 27.8%, of the then outstanding SIR common shares. As described in Note 1, we completed the Secondary Sale on that date. As a result of the Secondary Sale, we recorded a loss of $18,665 during the year ended December 31, 2018.

We accounted for our investment in SIR under the equity method and had previously reported our investment in SIR as a reportable segment. As a result of the Secondary Sale and the elimination of a reportable segment, our former equity method investment in SIR is classified as discontinued operations in our consolidated statements of comprehensive income (loss). See Note 11 for more information regarding discontinued operations.

Under the equity method, we recorded our proportionate share of SIR’s net income as equity in earnings of SIR in our consolidated statements of comprehensive income (loss). During the period from January 1, 2018 to October 9, 2018 and the year ended December 31, 2017, we recorded $24,358 and $21,584 of equity in earnings of SIR, respectively. Our other comprehensive income (loss) includes our proportionate share of SIR’s unrealized gains of $28 and $8,967 for the period from January 1, 2018 to October 9, 2018 and the year ended December 31, 2017, respectively.

The adjusted GAAP cost basis of our investment in SIR was less than our proportionate share of SIR’s total shareholders’ equity book value on the dates we acquired the shares. Prior to the Secondary Sale, we were accreting a 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 $3,233 and $2,944 for the period from January 1, 2018 to October 9, 2018 and the year ended December 31, 2017, respectively.

During the period from January 1, 2018 to October 9, 2018 and the year ended December 31, 2017, we received cash distributions from SIR totaling $38,124 and $50,832, respectively.

During the period from January 1, 2018 to October 9, 2018 and the year ended December 31, 2017, SIR issued 63,157 and 59,502 common shares, respectively. We recognized a gain on issuance of shares by SIR of $29 and $72 during the period from January 1, 2018 to October 9, 2018, and the year ended December 31, 2017, respectively, as a result of the per share issuance price of these SIR common shares being above the then average per share carrying value of our SIR common shares.

The following table presents summarized income statement data of SIR:



	Nine Months Ended September 30, 2018			Year Ended December 31, 2017
Revenues:
Rental income	$	298,003		$	392,285
Tenant reimbursements and other income	60,514			75,818
Total revenues	358,517			468,103

Expenses:
Real estate taxes	36,748			44,131
Other operating expenses	43,714			55,567
Depreciation and amortization	105,326			137,672
Acquisition and transaction related costs	3,796			1,075
General and administrative	47,353			54,909
Write-off of straight line rent receivable, net	10,626			12,517
Loss on asset impairment	—			4,047
Loss on impairment of real estate assets	9,706			229
Total expenses	257,269			310,147

Gain on sale of real estate	4,075			—
Dividend income	1,190			1,587
Unrealized gain on equity securities	53,159			—
Interest income	753			91
Interest expense	(69,446		)	(92,870		)
Loss on early extinguishment of debt	(1,192		)	—
Income before income tax expense and equity in earnings of an investee	89,787			66,764
Income tax expense	(446		)	(466		)
Equity in earnings of an investee	882			608
Net income	90,223			66,906
Net income allocated to noncontrolling interest	(15,841		)	—
Net income attributed to SIR	$	74,382		$	66,906

Weighted average common shares outstanding (basic)	89,395			89,351
Weighted average common shares outstanding (diluted)	89,411			89,370
Net income attributed to SIR per common share (basic and diluted)	$	0.83		$	0.75