Third Quarter Net Income of $0.11 Per Share
Third Quarter Normalized FFO of $0.41 Per Share
Completed 436,102 Square Feet of Leasing in the Third Quarter
Third Quarter Same Property Cash Basis NOI increased 4.5%
Acquired First Potomac Realty Trust for Approximately $1.4 Billion
After Quarter End
NEWTON, Mass.--(BUSINESS WIRE)--
Government Properties Income Trust (Nasdaq: GOV) today announced its
financial results for the quarter and nine months ended September 30,
2017.
David Blackman, President and Chief Operating Officer of GOV, made the
following statement:
“Government Properties Income Trust remained active in its leasing
during the third quarter of 2017, entering into new and renewal leases
for over 436,000 square feet of space. We also had solid property level
operating results with third quarter Same Property NOI and Cash Basis
NOI up 2.6% and 4.5%, respectively, as compared to the third quarter of
2016. In addition, we completed our acquisition of First Potomac Realty
Trust just after quarter end, expanding our business strategy and
providing increased scale, which we expect will have enduring benefits
for us and our shareholders. However, despite the foregoing positive
activities, the $789 million in capital we raised at the beginning of
the quarter negatively impacted our consolidated results as those
proceeds were substantially unutilized until the closing of the FPO
acquisition on October 2nd.”
Results for the Quarter Ended September 30, 2017:
Net income determined in accordance with U.S. generally accepted
accounting principles, or GAAP, was $11.0 million, or $0.11 per diluted
share, for the quarter ended September 30, 2017, compared to net income
of $11.6 million, or $0.16 per diluted share, for the quarter ended
September 30, 2016. The weighted average number of diluted common shares
outstanding was 97.0 million for the quarter ended September 30, 2017
and 71.1 million for the quarter ended September 30, 2016.
Normalized funds from operations, or Normalized FFO, for the quarter
ended September 30, 2017 were $39.6 million, or $0.41 per diluted share,
compared to Normalized FFO for the quarter ended September 30, 2016 of
$38.6 million, or $0.54 per diluted share.
Reconciliations of net income determined in accordance with GAAP to
funds from operations, or FFO, and Normalized FFO for the quarters ended
September 30, 2017 and 2016 appear later in this press release.
Results for the Nine Months Ended September 30, 2017:
Net income determined in accordance with GAAP was $30.1 million, or
$0.38 per diluted share, for the nine months ended September 30, 2017,
compared to net income of $45.8 million, or $0.64 per diluted share, for
the nine months ended September 30, 2016. The weighted average number of
diluted common shares outstanding was 79.9 million for the nine months
ended September 30, 2017 and 71.1 million for the nine months ended
September 30, 2016.
Normalized FFO for the nine months ended September 30, 2017 were $121.9
million, or $1.53 per diluted share, compared to Normalized FFO for the
nine months ended September 30, 2016 of $126.3 million, or $1.78 per
diluted share.
Reconciliations of net income determined in accordance with GAAP to FFO
and Normalized FFO for the nine months ended September 30, 2017 and 2016
appear later in this press release.
Leasing, Occupancy and Same Property Results:
During the quarter ended September 30, 2017, GOV entered into aggregate
new and renewal leases for 436,102 rentable square feet at weighted (by
rentable square feet) average rents that were 0.6% below prior rents for
the same space. The weighted average (by rentable square feet) lease
term for leases entered into during the quarter ended September 30, 2017
was 8.4 years. Leasing concessions and capital commitments for new and
renewal leases entered into during the quarter ended September 30, 2017
were $7.9 million, or $2.16 per square foot, per lease year. GOV's
leasing during the quarter ended September 30, 2017 included
approximately 393,000 square feet executed with government tenants for a
weighted average (by rentable square feet) lease term of 8.5 years,
weighted average (by rentable square feet) rents that were 0.2% higher
than prior rents for the same space and leasing concessions and capital
commitments of $1.98 per square foot per weighted average lease year.
As of each of September 30, 2017 and September 30, 2016, 95.0% of GOV’s
rentable square feet at properties classified as continuing operations
was leased. Occupancy for properties classified as continuing operations
and owned continuously since July 1, 2016, or same properties, was 94.8%
as of September 30, 2017, which compares with 95.0% as of September 30,
2016. Same properties net operating income, or NOI, increased 2.6% and
same properties cash basis NOI, or Cash Basis NOI, increased 4.5% for
the quarter ended September 30, 2017 compared to the same period in 2016.
Reconciliations of net income determined in accordance with GAAP to NOI
and to Cash Basis NOI for the quarters ended September 30, 2017 and 2016
appear later in this press release.
Recent Acquisition Activities:
In September 2017, GOV acquired transferable development rights that
will allow GOV to expand a property it owns in Washington, D.C. for a
purchase price of $2.0 million, excluding acquisition costs.
On October 2, 2017, GOV completed its previously announced acquisition
of First Potomac Realty Trust (NYSE: FPO), or FPO, including 39 office
properties (74 buildings) with approximately 6.5 million rentable square
feet that were 93.3% occupied as of September 30, 2017 (including two
properties owned by joint ventures in which GOV acquired FPO's 50% and
51% interests). GOV acquired FPO for an aggregate transaction value of
approximately $1.4 billion.
Recent Disposition Activities:
In August 2017, GOV sold a vacant office property (one building) located
in Falls Church, VA with 164,746 rentable square feet for $13.5 million,
excluding closing costs.
In October 2017, GOV sold a vacant office property (one building)
located in Albuquerque, NM with 29,045 rentable square feet for $2.0
million, excluding closing costs.
Recent Financing Activities:
In July and August 2017, GOV sold an aggregate of 27,907,029 of its
common shares in an underwritten public offering at a price to the
public of $18.50 per share. The aggregate net proceeds from these sales
were $493.9 million, after payment of the underwriters' discount and
other offering expenses. GOV used part of the proceeds from these sales
to repay amounts outstanding under its revolving credit facility and
used the remaining proceeds to finance, in part, the acquisition of FPO.
In July 2017, GOV issued $300.0 million of 4.000% senior unsecured notes
due 2022 in an underwritten public offering. GOV used the approximately
$295.4 million of net proceeds from this offering after payment of the
underwriters' discount and other offering expenses, to finance, in part,
the acquisition of FPO.
Conference Call:
On Tuesday, October 31, 2017, at 11:00 a.m. Eastern Time, President and
Chief Operating Officer, David Blackman, and Chief Financial Officer and
Treasurer, Mark Kleifges, will host a conference call to discuss GOV’s
third quarter 2017 results.
The conference call telephone number is (877) 328-1172. Participants
calling from outside the United States and Canada should dial (412)
317-5418. 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 Tuesday, November 7, 2017. To hear the replay, dial
(412) 317-0088. The replay pass code is 10113394. A live audio webcast
of the conference call will also be available in a listen only mode on
GOV’s website, at www.govreit.com.
Participants wanting to access the webcast should visit GOV’s website
about five minutes before the call. The archived webcast will be
available for replay on GOV’s website following the call for about one
week. The transcription, recording and retransmission in any way of
GOV’s third quarter conference call are strictly prohibited without the
prior written consent of GOV.
Supplemental Data:
A copy of GOV’s Third Quarter 2017 Supplemental Operating and Financial
Data is available for download at GOV’s website, www.govreit.com. GOV’s
website is not incorporated as part of this press release.
GOV is a real estate investment trust, or REIT, which owns properties
leased primarily to the U.S. Government and state governments located
throughout the United States. GOV is managed by the operating subsidiary
of The RMR Group Inc. (Nasdaq: RMR), an alternative asset management
company that is headquartered in Newton, Massachusetts.
Please see the pages attached to this news release for a more detailed
statement of GOV’s operating results and financial condition and for an
explanation of GOV’s calculation of FFO, Normalized FFO, NOI and Cash
Basis NOI and a reconciliation of those amounts to amounts determined
according to GAAP.
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 GOV USES
WORDS SUCH AS “BELIEVE”, “EXPECT”, “ANTICIPATE”, “INTEND”, “PLAN”,
“ESTIMATE”, “WILL”, “MAY” AND NEGATIVES OR DERIVATIVES OF THESE OR
SIMILAR EXPRESSIONS, GOV IS MAKING FORWARD LOOKING STATEMENTS. THESE
FORWARD LOOKING STATEMENTS ARE BASED UPON GOV’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 GOV’S FORWARD LOOKING STATEMENTS AS A RESULT
OF VARIOUS FACTORS. FOR EXAMPLE:
-
MR. BLACKMAN'S STATEMENTS REGARDING GOV'S QUARTERLY LEASING ACTIVITIES
AND OPERATING RESULTS MAY IMPLY THAT SIMILAR RESULTS WILL BE ACHIEVED
IN THE FUTURE. HOWEVER, GOV CANNOT BE SURE THAT IT WILL REALIZE
SIMILAR OR IMPROVED LEASING OR OPERATING RESULTS IN THE FUTURE.
FURTHER, MR. BLACKMAN STATES THAT THE FPO ACQUISITION EXPANDS GOV’S
BUSINESS STRATEGY AND PROVIDES INCREASED SCALE, WHICH GOV EXPECTS WILL
HAVE ENDURING BENEFITS FOR IT AND ITS SHAREHOLDERS. HOWEVER, GOV MAY
FAIL TO EXECUTE SUCCESSFULLY ON ITS EXPANDED BUSINESS STRATEGY OR THAT
STRATEGY MAY NOT OTHERWISE BENEFIT GOV AND GOV’S INCREASED SCALE MAY
NOT BENEFIT GOV; AS A RESULT, GOV AND ITS SHAREHOLDERS MAY NOT REALIZE
ENDURING OR ANY BENEFITS FROM THE FPO ACQUISITION.
THE INFORMATION CONTAINED IN GOV’S FILINGS WITH THE SECURITIES AND
EXCHANGE COMMISSION, OR SEC, INCLUDING UNDER “RISK FACTORS” IN GOV’S
PERIODIC REPORTS, OR INCORPORATED THEREIN, IDENTIFIES OTHER IMPORTANT
FACTORS THAT COULD CAUSE GOV’S ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THOSE STATED IN OR IMPLIED BY GOV’S FORWARD LOOKING STATEMENTS. GOV’S
FILINGS WITH THE SEC ARE AVAILABLE ON THE SEC’S WEBSITE AT WWW.SEC.GOV.
YOU SHOULD NOT PLACE UNDUE RELIANCE UPON FORWARD LOOKING STATEMENTS.
EXCEPT AS REQUIRED BY LAW, GOV DOES NOT INTEND TO UPDATE OR CHANGE ANY
FORWARD LOOKING STATEMENTS AS A RESULT OF NEW INFORMATION, FUTURE EVENTS
OR OTHERWISE.
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|
|
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|
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Government Properties Income Trust
Condensed Consolidated Statements of Income
(amounts in thousands, except per share data)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Three Months Ended September 30,
|
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|
|
Nine Months Ended September 30,
|
|
|
|
|
|
2017
|
|
|
|
2016
|
|
|
|
2017
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income
|
|
|
|
$
|
70,179
|
|
|
|
|
$
|
64,478
|
|
|
|
|
$
|
209,362
|
|
|
|
|
$
|
192,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate taxes
|
|
|
|
8,862
|
|
|
|
|
7,591
|
|
|
|
|
24,980
|
|
|
|
|
22,810
|
|
|
Utility expenses
|
|
|
|
5,408
|
|
|
|
|
5,483
|
|
|
|
|
14,186
|
|
|
|
|
13,330
|
|
|
Other operating expenses
|
|
|
|
14,867
|
|
|
|
|
13,854
|
|
|
|
|
44,046
|
|
|
|
|
40,031
|
|
|
Depreciation and amortization
|
|
|
|
20,781
|
|
|
|
|
18,404
|
|
|
|
|
61,949
|
|
|
|
|
54,713
|
|
|
Loss on impairment of real estate
|
|
|
|
230
|
|
|
|
|
—
|
|
|
|
|
230
|
|
|
|
|
—
|
|
|
Acquisition related costs
|
|
|
|
—
|
|
|
|
|
147
|
|
|
|
|
—
|
|
|
|
|
363
|
|
|
General and administrative (1)
|
|
|
|
3,266
|
|
|
|
|
3,816
|
|
|
|
|
12,314
|
|
|
|
|
11,350
|
|
|
Total expenses
|
|
|
|
53,414
|
|
|
|
|
49,295
|
|
|
|
|
157,705
|
|
|
|
|
142,597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
|
16,765
|
|
|
|
|
15,183
|
|
|
|
|
51,657
|
|
|
|
|
49,553
|
|
|
Dividend income
|
|
|
|
304
|
|
|
|
|
304
|
|
|
|
|
911
|
|
|
|
|
667
|
|
|
Interest income
|
|
|
|
1,715
|
|
|
|
|
47
|
|
|
|
|
1,843
|
|
|
|
|
63
|
|
|
Interest expense (including net amortization of debt premiums and
discounts and debt issuance costs of $990, $805, $2,605 and $2,024,
respectively)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,055
|
)
|
|
|
|
(12,608
|
)
|
|
|
|
(43,599
|
)
|
|
|
|
(32,286
|
)
|
|
(Loss) gain on early extinguishment of debt
|
|
|
|
(1,715
|
)
|
|
|
|
—
|
|
|
|
|
(1,715
|
)
|
|
|
|
104
|
|
|
Gain on issuance of shares by Select Income REIT
|
|
|
|
51
|
|
|
|
|
72
|
|
|
|
|
72
|
|
|
|
|
88
|
|
|
Income from continuing operations before income taxes and equity in
earnings of investees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,065
|
|
|
|
|
2,998
|
|
|
|
|
9,169
|
|
|
|
|
18,189
|
|
|
Income tax expense
|
|
|
|
(22
|
)
|
|
|
|
(13
|
)
|
|
|
|
(65
|
)
|
|
|
|
(63
|
)
|
|
Equity in earnings of investees
|
|
|
|
9,484
|
|
|
|
|
8,668
|
|
|
|
|
20,804
|
|
|
|
|
28,002
|
|
|
Income from continuing operations
|
|
|
|
10,527
|
|
|
|
|
11,653
|
|
|
|
|
29,908
|
|
|
|
|
46,128
|
|
|
Income (loss) from discontinued operations
|
|
|
|
462
|
|
|
|
|
(154
|
)
|
|
|
|
173
|
|
|
|
|
(429
|
)
|
|
Income before gain on sale of property
|
|
|
|
10,989
|
|
|
|
|
11,499
|
|
|
|
|
30,081
|
|
|
|
|
45,699
|
|
|
Gain on sale of property
|
|
|
|
—
|
|
|
|
|
79
|
|
|
|
|
—
|
|
|
|
|
79
|
|
|
Net income
|
|
|
|
$
|
10,989
|
|
|
|
|
$
|
11,578
|
|
|
|
|
$
|
30,081
|
|
|
|
|
$
|
45,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding (basic)
|
|
|
|
96,883
|
|
|
|
|
71,054
|
|
|
|
|
79,778
|
|
|
|
|
71,041
|
|
|
Weighted average common shares outstanding (diluted)
|
|
|
|
96,958
|
|
|
|
|
71,084
|
|
|
|
|
79,852
|
|
|
|
|
71,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per common share amounts (basic and diluted):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
|
$
|
0.11
|
|
|
|
|
$
|
0.16
|
|
|
|
|
$
|
0.37
|
|
|
|
|
$
|
0.65
|
|
|
Income (loss) from discontinued operations
|
|
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
(0.01
|
)
|
|
Net income
|
|
|
|
$
|
0.11
|
|
|
|
|
$
|
0.16
|
|
|
|
|
$
|
0.38
|
|
|
|
|
$
|
0.64
|
|
(1) General and administrative expenses for the three months
ended September 30, 2017 include the reversal of $893 of previously
accrued estimated business management incentive fees.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government Properties Income Trust
Funds from Operations and Normalized Funds from Operations (1)
(amounts in thousands, except per share data)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
2017
|
|
|
|
2016
|
|
|
|
2017
|
|
|
|
2016
|
|
Calculation of Funds from Operations (FFO) and Normalized FFO:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
$
|
10,989
|
|
|
|
|
$
|
11,578
|
|
|
|
|
$
|
30,081
|
|
|
|
|
$
|
45,778
|
|
|
Add: Depreciation and amortization
|
|
|
|
20,781
|
|
|
|
|
18,404
|
|
|
|
|
61,949
|
|
|
|
|
54,713
|
|
|
FFO attributable to SIR investment
|
|
|
|
18,429
|
|
|
|
|
17,264
|
|
|
|
|
47,982
|
|
|
|
|
53,609
|
|
|
Loss on impairment of real estate
|
|
|
230
|
|
|
|
|
—
|
|
|
|
|
230
|
|
|
|
|
—
|
|
|
Less: Equity in earnings of SIR
|
|
|
|
(9,453
|
)
|
|
|
|
(8,655
|
)
|
|
|
|
(20,271
|
)
|
|
|
|
(27,895
|
)
|
|
Increase in carrying value of property included in discontinued
operations
|
|
|
|
(619
|
)
|
|
|
|
—
|
|
|
|
|
(619
|
)
|
|
|
|
—
|
|
|
Gain on sale of property
|
|
|
|
—
|
|
|
|
|
(79
|
)
|
|
|
|
—
|
|
|
|
|
(79
|
)
|
|
FFO
|
|
|
|
40,357
|
|
|
|
|
38,512
|
|
|
|
|
119,352
|
|
|
|
|
126,126
|
|
|
Add (less): Acquisition related costs
|
|
|
|
—
|
|
|
|
|
147
|
|
|
|
|
—
|
|
|
|
|
363
|
|
|
Loss (gain) on early extinguishment of debt
|
|
|
|
1,715
|
|
|
|
|
—
|
|
|
|
|
1,715
|
|
|
|
|
(104
|
)
|
|
Normalized FFO attributable to SIR investment
|
|
|
|
16,903
|
|
|
|
|
17,267
|
|
|
|
|
48,900
|
|
|
|
|
53,629
|
|
|
FFO attributable to SIR investment
|
|
|
|
(18,429
|
)
|
|
|
|
(17,264
|
)
|
|
|
|
(47,982
|
)
|
|
|
|
(53,609
|
)
|
|
Gain on issuance of shares by SIR
|
|
|
|
(51
|
)
|
|
|
|
(72
|
)
|
|
|
|
(72
|
)
|
|
|
|
(88
|
)
|
|
Estimated business management incentive fees (2)
|
|
|
|
(893
|
)
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
Normalized FFO
|
|
|
|
$
|
39,602
|
|
|
|
|
$
|
38,590
|
|
|
|
|
$
|
121,913
|
|
|
|
|
$
|
126,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding (basic)
|
|
|
|
96,883
|
|
|
|
71,054
|
|
|
|
79,778
|
|
|
|
71,041
|
|
Weighted average common shares outstanding (diluted)
|
|
|
|
96,958
|
|
|
|
71,084
|
|
|
|
79,852
|
|
|
|
71,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per common share amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (basic and diluted)
|
|
|
|
$
|
0.11
|
|
|
|
|
$
|
0.16
|
|
|
|
|
$
|
0.38
|
|
|
|
|
$
|
0.64
|
|
|
FFO (basic)
|
|
|
|
$
|
0.42
|
|
|
|
|
$
|
0.54
|
|
|
|
|
$
|
1.50
|
|
|
|
|
$
|
1.78
|
|
|
FFO (diluted)
|
|
|
|
$
|
0.42
|
|
|
|
|
$
|
0.54
|
|
|
|
|
$
|
1.49
|
|
|
|
|
$
|
1.77
|
|
|
Normalized FFO (basic and diluted)
|
|
|
|
$
|
0.41
|
|
|
|
|
$
|
0.54
|
|
|
|
|
$
|
1.53
|
|
|
|
|
$
|
1.78
|
|
|
Distributions declared per share
|
|
|
|
$
|
0.43
|
|
|
|
|
$
|
0.43
|
|
|
|
|
$
|
1.29
|
|
|
|
|
$
|
1.29
|
|
(1) GOV calculates FFO and 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 and increases in the carrying value of real estate assets,
any gain or loss on sale of properties, as well as certain other
adjustments currently not applicable to GOV. GOV's calculation of
Normalized FFO differs from NAREIT's definition of FFO because GOV
includes Select Income REIT's, or SIR's, Normalized FFO attributable to
GOV's equity investment in SIR (net of FFO attributable to GOV's equity
investment in 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 GOV’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 GOV excludes acquisition
related costs expensed under GAAP, gains and losses on issuance of
shares by SIR and gains and losses on early extinguishment of debt. GOV
considers FFO and Normalized FFO to be appropriate supplemental measures
of operating performance for a REIT, along with net income and operating
income. GOV believes 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 GOV's operating performance between
periods and with other REITs. FFO and Normalized FFO are among the
factors considered by GOV's Board of Trustees when determining the
amount of distributions to its shareholders. Other factors include, but
are not limited to, requirements to maintain GOV's qualification for
taxation as a REIT, limitations in GOV’s credit agreement and public
debt covenants, the availability to GOV of debt and equity capital,
GOV's expectation of its future capital requirements and operating
performance, GOV’s receipt of distributions from SIR and GOV’s expected
needs and availability of cash to pay its obligations. FFO and
Normalized FFO do not represent cash generated by operating activities
in accordance with GAAP and should not be considered alternatives to net
income or operating income as indicators of GOV's operating performance
or as measures of GOV’s liquidity. These measures should be considered
in conjunction with net income and operating income as presented in
GOV's Condensed Consolidated Statements of Income. Other REITs and real
estate companies may calculate FFO and Normalized FFO differently than
GOV does.
(2) Incentive fees under GOV’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 GOV’s
condensed consolidated statements of income. In calculating net income
in accordance with GAAP, GOV recognizes estimated business management
incentive fee expense, if any, in the first, second and third quarters.
Although GOV recognizes this expense, if any, in the first, second and
third quarters for purposes of calculating net income, GOV does 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. Net income for the
three months ended September 30, 2017 includes an $893 reversal of
estimated business management incentive fee expense accrued in the three
months ended June 30, 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government Properties Income Trust
Calculation and Reconciliation of Property Net Operating Income
(NOI) and Cash Basis NOI (1)
(amounts in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
2017
|
|
|
|
2016
|
|
|
|
2017
|
|
|
|
2016
|
|
Calculation of NOI and Cash Basis NOI (2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income (3)
|
|
|
|
$
|
70,179
|
|
|
|
|
$
|
64,478
|
|
|
|
|
$
|
209,362
|
|
|
|
|
$
|
192,150
|
|
|
Property operating expenses
|
|
|
|
(29,137
|
)
|
|
|
|
(26,928
|
)
|
|
|
|
(83,212
|
)
|
|
|
|
(76,171
|
)
|
|
Property net operating income (NOI)
|
|
|
|
41,042
|
|
|
|
|
37,550
|
|
|
|
|
126,150
|
|
|
|
|
115,979
|
|
|
Non-cash straight line rent adjustments included in rental income (3)
|
|
|
|
(711
|
)
|
|
|
|
(1,205
|
)
|
|
|
|
(3,115
|
)
|
|
|
|
(1,789
|
)
|
|
Lease value amortization included in rental income (3)
|
|
|
|
619
|
|
|
|
|
370
|
|
|
|
|
1,863
|
|
|
|
|
1,103
|
|
|
Non-cash amortization included in property operating expenses
(4)
|
|
|
|
(121
|
)
|
|
|
|
(121
|
)
|
|
|
|
(363
|
)
|
|
|
|
(363
|
)
|
|
Cash Basis NOI
|
|
|
|
$
|
40,829
|
|
|
|
|
$
|
36,594
|
|
|
|
|
$
|
124,535
|
|
|
|
|
$
|
114,930
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Net Income to NOI and Cash Basis NOI:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
$
|
10,989
|
|
|
|
|
$
|
11,578
|
|
|
|
|
$
|
30,081
|
|
|
|
|
$
|
45,778
|
|
|
Gain on sale of property
|
|
|
|
—
|
|
|
|
|
(79
|
)
|
|
|
|
—
|
|
|
|
|
(79
|
)
|
|
Income before gain on sale of property
|
|
|
|
10,989
|
|
|
|
|
11,499
|
|
|
|
|
30,081
|
|
|
|
|
45,699
|
|
|
(Income) loss from discontinued operations
|
|
|
|
(462
|
)
|
|
|
|
154
|
|
|
|
|
(173
|
)
|
|
|
|
429
|
|
|
Income from continuing operations
|
|
|
|
10,527
|
|
|
|
|
11,653
|
|
|
|
|
29,908
|
|
|
|
|
46,128
|
|
|
Equity in earnings of investees
|
|
|
|
(9,484
|
)
|
|
|
|
(8,668
|
)
|
|
|
|
(20,804
|
)
|
|
|
|
(28,002
|
)
|
|
Income tax expense
|
|
|
|
22
|
|
|
|
|
13
|
|
|
|
|
65
|
|
|
|
|
63
|
|
|
Gain on issuance of shares by SIR
|
|
|
|
(51
|
)
|
|
|
|
(72
|
)
|
|
|
|
(72
|
)
|
|
|
|
(88
|
)
|
|
Loss (gain) on early extinguishment of debt
|
|
|
|
1,715
|
|
|
|
|
—
|
|
|
|
|
1,715
|
|
|
|
|
(104
|
)
|
|
Interest expense
|
|
|
|
16,055
|
|
|
|
|
12,608
|
|
|
|
|
43,599
|
|
|
|
|
32,286
|
|
|
Interest income
|
|
|
|
(1,715
|
)
|
|
|
|
(47
|
)
|
|
|
|
(1,843
|
)
|
|
|
|
(63
|
)
|
|
Dividend income
|
|
|
|
(304
|
)
|
|
|
|
(304
|
)
|
|
|
|
(911
|
)
|
|
|
|
(667
|
)
|
|
Operating income
|
|
|
|
16,765
|
|
|
|
|
15,183
|
|
|
|
|
51,657
|
|
|
|
|
49,553
|
|
|
General and administrative
|
|
|
|
3,266
|
|
|
|
|
3,816
|
|
|
|
|
12,314
|
|
|
|
|
11,350
|
|
|
Acquisition related costs
|
|
|
|
—
|
|
|
|
|
147
|
|
|
|
|
—
|
|
|
|
|
363
|
|
|
Loss on impairment of real estate
|
|
|
|
230
|
|
|
|
|
—
|
|
|
|
|
230
|
|
|
|
|
—
|
|
|
Depreciation and amortization
|
|
|
|
20,781
|
|
|
|
|
18,404
|
|
|
|
|
61,949
|
|
|
|
|
54,713
|
|
|
NOI
|
|
|
|
41,042
|
|
|
|
|
37,550
|
|
|
|
|
126,150
|
|
|
|
|
115,979
|
|
|
Non-cash amortization included in property operating expenses (4)
|
|
|
|
(121
|
)
|
|
|
|
(121
|
)
|
|
|
|
(363
|
)
|
|
|
|
(363
|
)
|
|
Lease value amortization included in rental income (3)
|
|
|
|
619
|
|
|
|
|
370
|
|
|
|
|
1,863
|
|
|
|
|
1,103
|
|
|
Non-cash straight line rent adjustments included in rental income (3)
|
|
|
|
(711
|
)
|
|
|
|
(1,205
|
)
|
|
|
|
(3,115
|
)
|
|
|
|
(1,789
|
)
|
|
Cash Basis NOI
|
|
|
|
$
|
40,829
|
|
|
|
|
$
|
36,594
|
|
|
|
|
$
|
124,535
|
|
|
|
|
$
|
114,930
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of NOI to Same Property NOI (5)(6):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income
|
|
|
|
$
|
70,179
|
|
|
|
|
$
|
64,478
|
|
|
|
|
$
|
209,362
|
|
|
|
|
$
|
192,150
|
|
|
Property operating expenses
|
|
|
|
(29,137
|
)
|
|
|
|
(26,928
|
)
|
|
|
|
(83,212
|
)
|
|
|
|
(76,171
|
)
|
|
Property NOI
|
|
|
|
41,042
|
|
|
|
|
37,550
|
|
|
|
|
126,150
|
|
|
|
|
115,979
|
|
|
Less: NOI of properties not included in same property results
|
|
|
|
(2,529
|
)
|
|
|
|
—
|
|
|
|
|
(12,720
|
)
|
|
|
|
(3,364
|
)
|
|
Same property NOI
|
|
|
|
$
|
38,513
|
|
|
|
|
$
|
37,550
|
|
|
|
|
$
|
113,430
|
|
|
|
|
$
|
112,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calculation of Same Property Cash Basis NOI (5)(6):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same property NOI
|
|
|
|
$
|
38,513
|
|
|
|
|
$
|
37,550
|
|
|
|
|
$
|
113,430
|
|
|
|
|
$
|
112,615
|
|
|
Add: Lease value amortization included in rental income (3)
|
|
|
|
392
|
|
|
|
|
370
|
|
|
|
|
1,271
|
|
|
|
|
1,112
|
|
|
Less: Non-cash straight line rent adjustments included in rental
income (3)
|
|
|
|
(549
|
)
|
|
|
|
(1,205
|
)
|
|
|
|
(2,349
|
)
|
|
|
|
(1,612
|
)
|
|
Non-cash amortization included in property operating expenses (4)
|
|
|
|
(121
|
)
|
|
|
|
(121
|
)
|
|
|
|
(363
|
)
|
|
|
|
(363
|
)
|
|
Same property Cash Basis NOI
|
|
|
|
$
|
38,235
|
|
|
|
|
$
|
36,594
|
|
|
|
|
$
|
111,989
|
|
|
|
|
$
|
111,752
|
|
(1) GOV calculates NOI and Cash Basis NOI as shown above. 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
GOV’s property level results of operations. GOV 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 that GOV records as depreciation and amortization.
GOV defines Cash Basis NOI as NOI excluding non-cash straight line rent
adjustments, lease value amortization and non-cash amortization included
in other operating expenses. GOV 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 GOV’s
properties. GOV uses NOI and Cash Basis NOI to evaluate individual and
company wide property level performance, and GOV believes that NOI and
Cash Basis NOI provide useful information to investors regarding GOV’s
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 GOV’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 alternatives to net income or operating income
as indicators of our operating performance or as measures of GOV’s
liquidity. These measures should be considered in conjunction with net
income and operating income as presented in GOV’s Condensed Consolidated
Statements of Income. Other REITs and real estate companies may
calculate NOI and Cash Basis NOI differently than GOV does.
(2) Excludes one property (one building) classified as
discontinued operations which was sold on August 31, 2017.
(3) GOV reports rental income on a straight line basis over
the terms of the respective leases; as a result, rental income includes
non-cash straight line rent adjustments. Rental income also
includes expense reimbursements, tax escalations, parking revenues,
service income and other fixed and variable charges paid to GOV by its
tenants, as well as the net effect of non-cash amortization of
intangible lease assets and liabilities.
(4) GOV recorded a liability for the amount by which the
estimated fair value for accounting purposes exceeded the price GOV paid
for its investment in The RMR Group Inc. 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
expense, which are included in property operating expenses.
(5) For the three months ended September 30, 2017 and 2016,
same property NOI and same property cash basis NOI are based on
properties GOV owned as of September 30, 2017 and which it owned
continuously since July 1, 2016.
(6) For the nine months ended September 30, 2017 and 2016,
same property NOI and same property cash basis NOI are based on
properties GOV owned as of September 30, 2017 and which it owned
continuously since January 1, 2016.
|
|
|
|
|
|
|
|
|
|
|
Government Properties Income Trust
Condensed Consolidated Balance Sheets
(amounts in thousands, except share data)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Real estate properties:
|
|
|
|
|
|
|
|
|
|
Land
|
|
|
|
$
|
269,332
|
|
|
|
|
$
|
267,855
|
|
|
Buildings and improvements
|
|
|
|
1,660,379
|
|
|
|
|
1,620,905
|
|
|
Total real estate properties, gross
|
|
|
|
1,929,711
|
|
|
|
|
1,888,760
|
|
|
Accumulated depreciation
|
|
|
|
(331,069
|
)
|
|
|
|
(296,804
|
)
|
|
Total real estate properties, net
|
|
|
|
1,598,642
|
|
|
|
|
1,591,956
|
|
|
Equity investment in Select Income REIT
|
|
|
|
475,265
|
|
|
|
|
487,708
|
|
|
Assets of discontinued operations
|
|
|
|
—
|
|
|
|
|
12,541
|
|
|
Acquired real estate leases, net
|
|
|
|
99,953
|
|
|
|
|
124,848
|
|
|
Deposit escrow for FPO acquisition
|
|
|
|
651,696
|
|
|
|
|
—
|
|
|
Cash and cash equivalents
|
|
|
|
551,707
|
|
|
|
|
29,941
|
|
|
Restricted cash
|
|
|
|
509
|
|
|
|
|
530
|
|
|
Rents receivable, net
|
|
|
|
47,461
|
|
|
|
|
48,458
|
|
|
Deferred leasing costs, net
|
|
|
|
22,250
|
|
|
|
|
21,079
|
|
|
Other assets, net
|
|
|
|
89,484
|
|
|
|
|
68,005
|
|
|
Total assets
|
|
|
|
$
|
3,536,967
|
|
|
|
|
$
|
2,385,066
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Unsecured revolving credit facility
|
|
|
|
$
|
565,000
|
|
|
|
|
$
|
160,000
|
|
|
Unsecured term loans, net
|
|
|
|
547,682
|
|
|
|
|
547,171
|
|
|
Senior unsecured notes, net
|
|
|
|
943,543
|
|
|
|
|
646,844
|
|
|
Mortgage notes payable, net
|
|
|
|
26,561
|
|
|
|
|
27,837
|
|
|
Liabilities of discontinued operations
|
|
|
|
—
|
|
|
|
|
45
|
|
|
Accounts payable and other liabilities
|
|
|
|
63,525
|
|
|
|
|
54,019
|
|
|
Due to related persons
|
|
|
|
4,297
|
|
|
|
|
3,520
|
|
|
Assumed real estate lease obligations, net
|
|
|
|
8,832
|
|
|
|
|
10,626
|
|
|
Total liabilities
|
|
|
|
2,159,440
|
|
|
|
|
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, 99,145,921 and
71,177,906 shares issued and outstanding, respectively
|
|
|
|
|
|
|
|
|
|
|
|
|
991
|
|
|
|
|
712
|
|
|
Additional paid in capital
|
|
|
|
1,968,249
|
|
|
|
|
1,473,533
|
|
|
Cumulative net income
|
|
|
|
126,410
|
|
|
|
|
96,329
|
|
|
Cumulative other comprehensive income
|
|
|
|
46,980
|
|
|
|
|
26,957
|
|
|
Cumulative common distributions
|
|
|
|
(765,103
|
)
|
|
|
|
(662,527
|
)
|
|
Total shareholders’ equity
|
|
|
|
1,377,527
|
|
|
|
|
935,004
|
|
|
Total liabilities and shareholders’ equity
|
|
|
|
$
|
3,536,967
|
|
|
|
|
$
|
2,385,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
View source version on businesswire.com: http://www.businesswire.com/news/home/20171031005480/en/
Source: Government Properties Income Trust