EX-99.1 2 sir_exhibit991x63017.htm EXHIBIT 99.1 Exhibit
Exhibit 99.1

 ergraphica01.jpg

FOR IMMEDIATE RELEASE

 
Contact:
 
Christopher Ranjitkar, Director, Investor Relations
 
(617) 796-8320

Select Income REIT Announces Second Quarter 2017 Results
Second Quarter Net Income of $0.30 Per Share
Second Quarter Normalized FFO of $0.70 Per Share
 
 
 
 
 
Newton, MA (July 25, 2017): Select Income REIT (Nasdaq: SIR) today announced financial results for the quarter and six months ended June 30, 2017.

David Blackman, President and Chief Operating Officer of SIR, made the following statement:

"During the second quarter of 2017, Select Income REIT entered into new and renewal leases for approximately 202,000 square feet and executed one rent reset in Hawaii on a 79,000 square foot lease. We also issued $350 million of seven year senior unsecured notes, which we used to pay down our revolving credit facility and for general business purposes."

Results for the Quarter Ended June 30, 2017:
 
Net income attributed to SIR was $26.7 million, or $0.30 per diluted share, for the quarter ended June 30, 2017, compared to $30.8 million, or $0.34 per diluted share, for the same quarter last year.

Normalized funds from operations, or Normalized FFO, attributed to SIR for the quarter ended June 30, 2017 were $62.1 million, or $0.70 per diluted share, compared to $64.2 million, or $0.72 per diluted share, for the same quarter last year.

Reconciliations of net income attributed to SIR determined in accordance with U.S. generally accepted accounting principles, or GAAP, to funds from operations, or FFO, attributed to SIR and to Normalized FFO attributed to SIR for the quarters ended June 30, 2017 and 2016 appear later in this press release.

Results for the Six Months Ended June 30, 2017:

Net income attributed to SIR was $33.4 million, or $0.37 per diluted share, for the six months ended June 30, 2017, compared to $63.5 million, or $0.71 per diluted share, for the same period last year. Net income attributed to SIR per diluted share for the six months ended June 30, 2017 includes a write-off of straight line rents receivable of $12.5 million, or $0.14 per diluted share, and a loss on asset impairment of $4.0 million, or $0.05 per diluted share, both of which resulted from a tenant bankruptcy, as well as estimated business management incentive fees of $8.8

A Maryland Real Estate Investment Trust with transferable shares of beneficial interest listed on the Nasdaq.
No shareholder, Trustee or officer is personally liable for any act or obligation of the Trust.



million, or $0.10 per diluted share. The bankrupt tenant formerly leased two properties from SIR, one of which is substantially vacant and the second of which is occupied by a subtenant with whom SIR is negotiating for a direct lease.

Normalized FFO attributed to SIR for the six months ended June 30, 2017 were $114.5 million, or $1.28 per diluted share, compared to $130.4 million, or $1.46 per diluted share, for the same period last year. Normalized FFO for the six months ended June 30, 2017 include a write-off of straight line rents receivable of $12.5 million, or $0.14 per diluted share, related to leases associated with the tenant bankruptcy discussed above.

Reconciliations of net income attributed to SIR determined in accordance with GAAP to FFO attributed to SIR and to Normalized FFO attributed to SIR for the six months ended June 30, 2017 and 2016 appear later in this press release.

Leasing, Occupancy and Same Property Results:

SIR entered into lease renewals for approximately 161,000 square feet and new leases for approximately 41,000 square feet during the quarter ended June 30, 2017, which resulted in combined weighted average (by square feet) rental rates that were approximately 2.6% lower than prior rents for the same space. The weighted average (by square feet) lease term for these leases was 31.1 years. Commitments for tenant improvements, leasing costs and concessions for these leases totaled approximately $2.5 million, or approximately $0.40 per square foot per weighted average lease year. During the quarter ended June 30, 2017, SIR also completed one rent reset for a Hawaii lease of approximately 79,000 square feet of land at a rental rate that was approximately 48.9% higher than the prior rental rate.

As of June 30, 2017, 95.9% of SIR’s total rentable square feet was leased, compared to 95.9% as of March 31, 2017 and 96.8% as of June 30, 2016. Occupancy for properties owned continuously since April 1, 2016 also decreased to 95.9% at June 30, 2017 from 96.8% at June 30, 2016. Same property cash basis net operating income, or Cash Basis NOI, decreased 0.5% for the quarter ended June 30, 2017 compared to the quarter ended June 30, 2016, primarily as a result of the decline in occupancy during 2017, partially offset by contractual rent increases for certain properties since April 1, 2016.

Reconciliations of net income determined in accordance with GAAP to net operating income, or NOI, and Cash Basis NOI for the quarters and six months ended June 30, 2017 and 2016 appear later in this press release.

Recent Investment Activities:

As previously disclosed, on April 28, 2017, SIR acquired a single tenant office property located in Norfolk, VA with 288,662 rentable square feet for a purchase price of $55.1 million, excluding acquisition related costs. This property is 100% leased and had a remaining lease term as of the acquisition date of approximately 10.2 years.

As previously disclosed, on May 12, 2017, SIR acquired a single tenant, net leased office property located in Houston, TX with 84,150 rentable square feet for a purchase price of $20.3 million, excluding acquisition related costs. This property is 100% leased and had a remaining lease term as of the acquisition date of approximately 10.6 years.

On July 19, 2017, SIR acquired a single tenant, net leased office property located in Indianapolis, IN with approximately 275,000 rentable square feet for a purchase price of $41.1 million, excluding acquisition related costs. This property is 100% leased and had a remaining lease term as of the acquisition date of approximately 10.0 years.


2


Recent Disposition Activities:

On April 26, 2017, SIR entered an agreement to sell one mainland office property with 287,037 rentable square feet for $18.0 million, excluding closing costs. This sale is currently expected to occur by year end.

Recent Financing Activities:

On May 15, 2017, SIR issued $350.0 million aggregate principal amount of 4.250% senior unsecured notes due 2024 in an underwritten public offering. The net proceeds from this offering of $342.2 million after discounts and offering expenses were used to repay amounts outstanding under SIR's revolving credit facility and for general business purposes.

On July 3, 2017, SIR repaid at par, a $17.4 million 5.95% mortgage note which was secured by two buildings located in Carlsbad, CA. This mortgage was scheduled to mature on September 1, 2017.

Conference Call:

At 10:00 a.m. Eastern Time this morning, President and Chief Operating Officer, David Blackman, and Chief Financial Officer and Treasurer, John Popeo, will host a conference call to discuss SIR’s second quarter 2017 financial results.

The conference call telephone number is (877) 328-4494. Participants calling from outside the United States and Canada should dial (412) 317-5433. No pass code is necessary to access the call from either number. Participants should dial in about 15 minutes prior to the scheduled start of the call. A replay of the conference call will be available through 11:59 p.m. on Tuesday, August 1, 2017. To access the replay, dial (412) 317-0088. The replay pass code is 10110419.

A live audio webcast of the conference call will also be available in a listen-only mode on SIR's website, which is located at www.sirreit.com. Participants wanting to access the webcast should visit SIR's website about five minutes before the call. The archived webcast will be available for replay on SIR's website following the call for about one week. The transcription, recording and retransmission in any way of SIR’s second quarter conference call are strictly prohibited without the prior written consent of SIR.

Supplemental Data:

A copy of SIR’s Second Quarter 2017 Supplemental Operating and Financial Data is available for download at SIR’s website, www.sirreit.com.  SIR’s website is not incorporated as part of this press release.

Select Income REIT is a real estate investment trust, or REIT, which owns properties that are primarily net leased to single tenants. SIR is managed by the operating subsidiary of The RMR Group Inc. (Nasdaq: RMR), an alternative asset management company that is headquartered in Newton, MA.

Please see the pages attached hereto for a more detailed statement of SIR’s operating results and financial condition and for an explanation of SIR’s calculation of NOI, Cash Basis NOI, FFO attributed to SIR and Normalized FFO attributed to SIR and a reconciliation of those amounts to amounts determined according to GAAP.

3


WARNING CONCERNING FORWARD LOOKING STATEMENTS
 
THIS PRESS RELEASE CONTAINS STATEMENTS THAT CONSTITUTE FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND OTHER SECURITIES LAWS.  ALSO, WHENEVER SIR USES WORDS SUCH AS “BELIEVE”, “EXPECT”, “ANTICIPATE”, “INTEND”, “PLAN”, “ESTIMATE”, “WILL”, “MAY” AND NEGATIVES OR DERIVATIVES OF THESE OR SIMILAR EXPRESSIONS, SIR IS MAKING FORWARD LOOKING STATEMENTS.  THESE FORWARD LOOKING STATEMENTS ARE BASED UPON SIR’S PRESENT INTENT, BELIEFS OR EXPECTATIONS, BUT FORWARD LOOKING STATEMENTS ARE NOT GUARANTEED TO OCCUR AND MAY NOT OCCUR.  ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTAINED IN OR IMPLIED BY SIR’S FORWARD LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS. FOR EXAMPLE:

SIR HAS ENTERED AN AGREEMENT TO SELL ONE MAINLAND OFFICE PROPERTY FOR $18.0 MILLION, EXCLUDING CLOSING COSTS. THIS TRANSACTION IS SUBJECT TO CONDITIONS. THESE CONDITIONS MAY NOT BE MET AND THIS TRANSACTION MAY NOT OCCUR, MAY BE DELAYED OR THE TERMS MAY CHANGE.

THE INFORMATION CONTAINED IN SIR’S FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION, OR SEC, INCLUDING UNDER “RISK FACTORS” IN SIR’S PERIODIC REPORTS, OR INCORPORATED THEREIN, IDENTIFIES OTHER IMPORTANT FACTORS THAT COULD CAUSE SIR’S ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE STATED IN OR IMPLIED BY SIR’S FORWARD LOOKING STATEMENTS. SIR’S FILINGS WITH THE SEC ARE AVAILABLE ON ITS WEBSITE AT WWW.SEC.GOV.

YOU SHOULD NOT PLACE UNDUE RELIANCE UPON FORWARD LOOKING STATEMENTS.

EXCEPT AS REQUIRED BY LAW, SIR DOES NOT INTEND TO UPDATE OR CHANGE ANY FORWARD LOOKING STATEMENTS AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.

4


Select Income REIT
 
Condensed Consolidated Statements of Income
 
(amounts in thousands, except per share data)
 
(unaudited)

 
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
 
 
2017
 
2016
 
2017
 
2016
Revenues:
 
 
 
 
 
 
 
 
 
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

 
 
 
 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
 
 
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 (1)
 
8,181

 
7,374

 
23,069

 
14,350

 
Write-off of straight line rents receivable, net (2)
 

 

 
12,517

 

 
Loss on asset impairment (2)
 

 

 
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 (including net amortization of debt issuance costs, premiums and discounts of $1,568, $1,376, $2,972 and $2,750, respectively)
 
(22,808
)
 
(20,584
)
 
(43,895
)
 
(41,193
)
Income before income tax expense and equity in earnings of an investee
 
26,372

 
30,859

 
33,074

 
63,733

Income tax expense
 
(85
)
 
(124
)
 
(187
)
 
(263
)
Equity in earnings of an investee
 
374

 
17

 
502

 
94

Net income
 
26,661

 
30,752

 
33,389

 
63,564

Net income allocated to noncontrolling interest
 

 

 

 
(33
)
Net income attributed to SIR
 
$
26,661

 
$
30,752

 
$
33,389

 
$
63,531

 
 
 
 
 
 
 
 
 
 
 
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


(1)
General and administrative expenses include estimated business management incentive fee expense of $920 for the three months ended June 30, 2017 and $8,766 for the six months ended June 30, 2017.

(2)
In March 2017, one of SIR's tenants filed for bankruptcy and rejected two leases with SIR; one for a property located in Huntsville, AL with approximately 1,400 rentable square feet and an original lease term until August 2032; and one for a property in Hanover, PA with approximately 502 rentable square feet and an original lease term until September 2028. The Huntsville, AL property is occupied by a subtenant that continues to pay rent to SIR in an amount equal to the rent under the rejected lease. The sublease term runs concurrently with the former tenant’s original lease term, subject to certain termination rights by the subtenant. SIR expects that the lost rents plus carrying costs, such as real estate taxes, insurance, security and other operating costs, from a fully vacant Hanover, PA property may total approximately $3,800 per year. SIR is holding a security deposit of $3,739 from the tenant with respect to the Hanover, PA property, which SIR expects to retain and, therefore, has offset the amount of the security deposit against its lease rejection damages. During the three months ended March 31, 2017, SIR recorded a non-cash charge of $12,517 to write off straight line rents receivable (net of the $3,739 security deposit) related to leases with the former tenant at both properties plus an impairment charge of $4,047 related to the write off of lease intangibles related to the property located in Hanover, PA.

5


Select Income REIT
 
Funds from Operations Attributed to SIR and Normalized Funds from Operations Attributed to SIR (1) 
 
(amounts in thousands, except per share data)
(unaudited)
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
 
 
Net income attributed to SIR
 
$
26,661

 
$
30,752

 
$
33,389

 
$
63,531

Plus:
depreciation and amortization
 
34,317

 
33,405

 
68,057

 
66,874

Plus:
loss on impairment of real estate assets
 
229

 

 
229

 

Plus:
net income allocated to noncontrolling interest
 

 

 

 
33

Less:
FFO allocated to noncontrolling interest
 

 

 

 
(77
)
FFO attributed to SIR
 
61,207

 
64,157

 
101,675

 
130,361

Plus:
acquisition related costs
 

 

 

 
58

Plus:
estimated business management incentive fees (2)
 
920

 

 
8,766

 

Plus:
loss on asset impairment (3)
 

 

 
4,047

 

Normalized FFO attributed to SIR
 
$
62,127

 
$
64,157

 
$
114,488

 
$
130,419

 
 
 
 
 
 
 
 
 
 
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

 
 
 
 
 
 
 
 
 
 
FFO attributed to SIR per common share - basic
 
$
0.69

 
$
0.72

 
$
1.14

 
$
1.46

FFO attributed to SIR per common share - diluted
 
$
0.68

 
$
0.72

 
$
1.14

 
$
1.46

Normalized FFO attributed to SIR per common share - basic and diluted
 
$
0.70

 
$
0.72

 
$
1.28

 
$
1.46

Distributions declared per common share
 
$
0.51

 
$
0.50

 
$
1.02

 
$
1.00


(1)       SIR calculates FFO attributed to SIR and Normalized FFO attributed to SIR as shown above. FFO attributed to SIR is calculated on the basis defined by The National Association of Real Estate Investment Trusts, or NAREIT, which is net income, calculated in accordance with GAAP, plus real estate depreciation and amortization, loss on impairment of real estate assets and the difference between net income and FFO allocated to noncontrolling interest, as well as certain other adjustments currently not applicable to SIR. SIR’s calculation of Normalized FFO attributed to SIR differs from NAREIT’s definition of FFO because SIR includes 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 SIR’s 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 SIR excludes acquisition related costs expensed under GAAP, loss on asset impairment and Normalized FFO from noncontrolling interest, net of FFO, if any. SIR considers FFO attributed to SIR and Normalized FFO attributed to SIR to be appropriate supplemental measures of operating performance for a REIT, along with net income, net income attributed to a REIT and operating income. SIR believes that FFO attributed to SIR and Normalized FFO attributed to SIR provide useful information to investors because by excluding the effects of certain historical amounts, such as depreciation expense, FFO attributed to SIR and Normalized FFO attributed to SIR may facilitate a comparison of its operating performance between periods and with other REITs. FFO attributed to SIR and Normalized FFO attributed to SIR are among the factors considered by SIR’s Board of Trustees when determining the amount of distributions to SIR’s shareholders. Other factors include, but are not limited to, requirements to maintain SIR’s qualification for taxation as a REIT, limitations in SIR’s credit agreement and public debt covenants, the availability to SIR of debt and equity capital, SIR’s expectation of its future capital requirements and operating performance and SIR’s expected needs and availability of cash to pay its obligations. FFO attributed to SIR and Normalized FFO attributed to SIR do not represent cash generated by operating activities in accordance with GAAP and should not be considered as alternatives to net income, net income attributed to SIR or operating income as an indicator of SIR’s operating performance or as a measure of SIR’s liquidity. These measures should be considered in conjunction with net income, net income attributed to SIR and operating income as presented in SIR’s condensed consolidated statements of income. Other real estate companies and REITs may calculate FFO and Normalized FFO differently than SIR does.

(2)
Incentive fees under SIR’s business management agreement with The RMR Group LLC 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 expenses in SIR’s condensed consolidated statements of income. In calculating net income in accordance with GAAP, SIR recognizes estimated business management incentive fee expense, if any, in the first, second and third quarters. Although SIR recognizes this expense, if any, in the first, second and third quarters for purposes of calculating net income, SIR does not include such expense in the calculation of Normalized FFO attributed to SIR until the fourth quarter, when the amount of the business management incentive fee expense for the calendar year, if any, is determined. Normalized FFO attributed to SIR excludes estimated business management incentive fee expense of $920 for the three months ended June 30, 2017 and $8,766 for the six months ended June 30, 2017.

(3)
During the three months ended March 31, 2017, SIR recorded a $4,047 loss on asset impairment for unamortized lease intangibles related to a lease associated with a tenant bankruptcy at a property located in Hanover, PA.

6


Select Income REIT
 
Calculation and Reconciliation of Property Net Operating Income and Cash Basis Net Operating Income (1) 
 
(dollars in thousands)
 
(unaudited)

 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
 
2017
 
2016
 
2017
 
2016
Calculation of NOI and Cash Basis NOI:
 
 
 
 
 
 
 
 
Rental income
 
$
97,041

 
$
96,615

 
$
194,385

 
$
194,475

Tenant reimbursements and other income
 
18,829

 
18,289

 
37,779

 
37,661

Real estate taxes
 
(10,836
)
 
(10,522
)
 
(21,679
)
 
(20,810
)
Other operating expenses
 
(13,523
)
 
(12,635
)
 
(26,390
)
 
(25,593
)
 
NOI
 
91,511

 
91,747

 
184,095

 
185,733

Non-cash straight line rent adjustments included in rental income (2)
 
(5,389
)
 
(6,269
)
 
(10,780
)
 
(12,571
)
Lease value amortization included in rental income (2)
 
(527
)
 
(419
)
 
(961
)
 
(855
)
Lease termination fees included in rental income (2)
 
(101
)
 

 
(101
)
 

Non-cash amortization included in other operating expenses (3)
 
(213
)
 
(213
)
 
(426
)
 
(426
)
 
Cash Basis NOI
 
$
85,281

 
$
84,846

 
$
171,827

 
$
171,881

 
 
 
 
 
 
 
 
 
 
Reconciliation of Net Income to NOI and Cash Basis NOI:
 
 
 
 
 
 
 
 
Net income
 
$
26,661

 
$
30,752

 
$
33,389

 
$
63,564

Equity in earnings of an investee
 
(374
)
 
(17
)
 
$
(502
)
 
(94
)
Income tax expense
 
85

 
124

 
187

 
263

Income before income tax expense and equity in earnings of an investee
 
26,372

 
30,859

 
33,074

 
63,733

Interest expense
 
22,808

 
20,584

 
43,895

 
41,193

Dividend income
 
(396
)
 
(475
)
 
(793
)
 
(475
)
 
Operating income
 
48,784

 
50,968

 
76,176

 
104,451

 
 
 
 
 
 
 
 
 
 
Loss on impairment of real estate assets
 
229

 

 
229

 

Loss on asset impairment (4)
 

 

 
4,047

 

Write-off of straight line rents receivable, net (4)
 

 

 
12,517

 

General and administrative
 
8,181

 
7,374

 
23,069

 
14,350

Acquisition related costs
 

 

 

 
58

Depreciation and amortization
 
34,317

 
33,405

 
68,057

 
66,874

 
NOI
 
91,511

 
91,747

 
184,095

 
185,733

Non-cash straight line rent adjustments included in rental income (2)
 
(5,389
)
 
(6,269
)
 
(10,780
)
 
(12,571
)
Lease value amortization included in rental income (2)
 
(527
)
 
(419
)
 
(961
)
 
(855
)
Lease termination fees included in rental income (2)
 
(101
)
 

 
(101
)
 

Non-cash amortization included in other operating expenses (3)
 
(213
)
 
(213
)
 
(426
)
 
(426
)
 
Cash Basis NOI
 
$
85,281

 
$
84,846

 
$
171,827

 
$
171,881

(1)
The calculations of NOI and Cash Basis NOI exclude certain components of net income in order to provide results that are more closely related to SIR’s property level results of operations. SIR calculates NOI and Cash Basis NOI as shown above. SIR defines NOI as income from its rental of real estate less its property operating expenses. NOI excludes amortization of capitalized tenant improvement costs and leasing commissions because SIR records those amounts as depreciation and amortization. SIR defines Cash Basis NOI as NOI excluding non-cash straight line rent adjustments, lease value amortization, lease termination fees, if any, and non-cash amortization included in other operating expenses. SIR considers NOI and Cash Basis NOI to be appropriate supplemental measures to net income because they may help both investors and management to understand the operations of SIR’s properties. SIR uses NOI and Cash Basis NOI to evaluate individual and company wide property level performance, and SIR believes that NOI and Cash Basis NOI provide useful information to investors regarding its results of operations because they reflect only those income and expense items that are generated and incurred at the property level and may facilitate comparisons of SIR’s operating performance between periods and with other REITs. NOI and Cash Basis NOI do not represent cash generated by operating activities in accordance with GAAP and should not be considered as an alternative to net income, net income attributed to SIR or operating income as an indicator of SIR’s operating performance or as a measure of SIR’s liquidity. These measures should be considered in conjunction with net income, net income attributed to SIR and operating income as presented in SIR’s condensed consolidated statements of income.  Other real estate companies and REITs may calculate NOI and Cash Basis NOI differently than SIR does.

(2)   
SIR reports rental income on a straight line basis over the terms of the respective leases; accordingly, rental income includes non-cash straight line rent adjustments. Rental income also includes non-cash amortization of intangible lease assets and liabilities and lease termination fees, if any.

(3) 
SIR recorded a liability for the amount by which the estimated fair value for accounting purposes exceeded the price SIR paid for its investment in RMR common stock in June 2015. A portion of this liability is being amortized on a straight line basis through December 31, 2035 as a reduction to property management fees, which are included in other operating expenses.

(4)
During the three months ended March 31, 2017, SIR recorded a $12,517 non-cash write-off of straight line rents receivable related to leases associated with a tenant bankruptcy at two properties located in Huntsville, AL and Hanover, PA and a $4,047 loss on asset impairment for unamortized lease intangibles related to a lease associated with this tenant bankruptcy at the property located in Hanover, PA.

7


Select Income REIT
 
Reconciliation of Net Operating Income to Same Property Net Operating Income and Calculation of Same Property Cash Basis Net Operating Income (1) 
 
(amounts in thousands)
 
(unaudited)
 
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
 
2017
 
2016
 
2017
 
2016
Reconciliation of NOI to Same Property NOI (2)(3):
 
 
 
 
 
 
 
 
Rental income
 
$
97,041

 
$
96,615

 
$
194,385

 
$
194,475

Tenant reimbursements and other income
 
18,829

 
18,289

 
37,779

 
37,661

Real estate taxes
 
(10,836
)
 
(10,522
)
 
(21,679
)
 
(20,810
)
Other operating expenses
 
(13,523
)
 
(12,635
)
 
(26,390
)
 
(25,593
)
 
NOI
 
91,511

 
91,747

 
184,095

 
185,733

Less:
 
 
 
 
 
 
 
 
 
NOI of properties not included in same property results
 
(1,739
)
 

 
(2,121
)
 

 
Same property NOI
 
$
89,772

 
$
91,747

 
$
181,974

 
$
185,733

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Calculation of Same Property Cash Basis NOI (2)(3):
 
 
 
 
 
 
 
 
Same property NOI
 
$
89,772

 
$
91,747

 
$
181,974

 
$
185,733

Less:
 
 
 
 
 
 
 
 
 
Non-cash straight line rent adjustments included in rental income (4)
 
(4,495
)
 
(6,269
)
 
(9,743
)
 
(12,571
)
 
Lease value amortization included in rental income (4)
 
(536
)
 
(419
)
 
(979
)
 
(855
)
 
Lease termination fees included in rental income (4)
 
(101
)
 

 
(101
)
 

 
Non-cash amortization included in other operating expenses (5)
 
(213
)
 
(213
)
 
(426
)
 
(426
)
 
Same property Cash Basis NOI
 
$
84,427

 
$
84,846

 
$
170,725

 
$
171,881


(1)
See footnote (1) on page 7 of this press release for the definitions of NOI and Cash Basis NOI, a description of why SIR believes they are appropriate supplemental measures and a description of how SIR uses these measures.
 
(2)
For the three months ended June 30, 2017, same property NOI and same property Cash Basis NOI are based on properties SIR owned as of June 30, 2017, and which it owned continuously since April 1, 2016.

(3)
For the six months ended June 30, 2017, same property NOI and same property Cash Basis NOI are based on properties SIR owned as of June 30, 2017, and which it owned continuously since January 1, 2016.
 
(4)
SIR reports rental income on a straight line basis over the terms of the respective leases; accordingly, rental income includes non-cash straight line rent adjustments. Rental income also includes non-cash amortization of intangible lease assets and liabilities and lease termination fees, if any.
 
(5)
SIR recorded a liability for the amount by which the estimated fair value for accounting purposes exceeded the price SIR paid for its investment in RMR common stock in June 2015. A portion of this liability is being amortized on a straight line basis through December 31, 2035 as a reduction to property management fees, which are included in other operating expenses.

8


Select Income REIT
 
Condensed Consolidated Balance Sheets
 
(amounts in thousands, except share data)
 
(unaudited) 
 
 
 
 
 
June 30,
 
December 31,
 
 
 
 
 
2017
 
2016
ASSETS
 
 
 
 
 
Real estate properties:
 
 
 
 
 
 
Land
 
$
1,035,579

 
$
1,038,686

 
 
Buildings and improvements
 
3,132,584

 
3,103,734

 
 
 
 
4,168,163

 
4,142,420

 
 
Accumulated depreciation
 
(275,434
)
 
(242,628
)
 
 
 
 
 
3,892,729

 
3,899,792

 
Properties held for sale
 
23,089

 

 
Acquired real estate leases, net
 
496,792

 
506,298

 
Cash and cash equivalents
 
21,683

 
22,127

 
Restricted cash
 
69

 
44

 
Rents receivable, including straight line rents of $111,821 and $117,008, respectively, net of allowance for doubtful accounts of $895 and $873, respectively
 
114,430

 
124,089

 
Deferred leasing costs, net
 
11,380

 
10,051

 
Other assets, net
 
113,418

 
77,281

 
Total assets
 
$
4,673,590

 
$
4,639,682

 
 
 
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
 
 
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

 
Accounts payable and other liabilities
 
95,353

 
101,605

 
Assumed real estate lease obligations, net
 
73,200

 
77,622

 
Rents collected in advance
 
16,436

 
18,815

 
Security deposits
 
8,332

 
11,887

 
Due to related persons
 
13,389

 
4,475

 
Total liabilities
 
2,642,336

 
2,565,720

 
 
 
 
 
 
 
 
Commitments and contingencies
 
 
 
 
 
 
 
 
 
 
 
 
Shareholders' equity:
 
 
 
 
 
 
Common shares of beneficial interest, $.01 par value: 125,000,000 shares authorized; 89,442,647 and 89,427,869 shares issued and outstanding, respectively
 
894

 
894

 
 
Additional paid in capital
 
2,180,054

 
2,179,669

 
 
Cumulative net income
 
474,696

 
441,307

 
 
Cumulative other comprehensive income
 
35,206

 
20,472

 
 
Cumulative common distributions
 
(659,596
)
 
(568,380
)
 
Total shareholders' equity
 
2,031,254

 
2,073,962

 
Total liabilities and shareholders' equity
 
$
4,673,590

 
$
4,639,682

(END)

9