Third Quarter Net Loss Available for Common Shareholders of $0.4 Million

Third Quarter Normalized FFO Available for Common Shareholders of $53.0 Million or $0.53 Per Share

Third Quarter Same Property Cash Basis NOI Increased 2.0%

Completed 182,220 Square Feet of Leasing in the Third Quarter

Announced Agreement to Merge with Select Income REIT

NEWTON, Mass.--(BUSINESS WIRE)-- Government Properties Income Trust (Nasdaq: GOV) today announced its financial results for the quarter and nine months ended September 30, 2018.

David Blackman, President and Chief Executive Officer of GOV, made the following statement:

“The most significant event for the third quarter was our entering an agreement to merge with Select Income REIT in a stock for stock exchange. The merger will benefit shareholders by creating a leading national office REIT with greater scale, enhanced diversification, more well laddered lease expirations, a broader investment strategy and a more sustainable dividend per share than GOV can sustain as a standalone company.

Operationally, GOV had another strong quarter as we grew same property cash basis NOI by 2.0% and executed over 182,000 square feet of new and renewal leases. We also continued to make progress on our property disposition plan by entering agreements to sell 50 buildings for $438.5 million since the end of the second quarter.”

Results for the Quarter Ended September 30, 2018:

Net loss available for common shareholders determined in accordance with U.S. generally accepted accounting principles, or GAAP, for the quarter ended September 30, 2018 was $0.4 million, or $0.00 per diluted share, compared to net income available for common shareholders of $11.0 million, or $0.11 per diluted share, for the quarter ended September 30, 2017. Net loss available for common shareholders for the quarter ended September 30, 2018 includes a $17.4 million, or $0.18 per diluted share, unrealized gain on equity securities relating to GOV's investment in The RMR Group Inc., or RMR Inc., partially offset by $16.2 million, or $0.16 per diluted share, of estimated business management incentive fee expense. The weighted average number of diluted common shares outstanding was 99.1 million for the quarter ended September 30, 2018 and 97.0 million for the quarter ended September 30, 2017.

Normalized funds from operations, or Normalized FFO, available for common shareholders for the quarter ended September 30, 2018 were $53.0 million, or $0.53 per diluted share, compared to Normalized FFO available for common shareholders for the quarter ended September 30, 2017 of $39.6 million, or $0.41 per diluted share.

Reconciliations of net income (loss) available for common shareholders determined in accordance with GAAP to funds from operations, or FFO, available for common shareholders and Normalized FFO available for common shareholders for the quarters ended September 30, 2018 and 2017 appear later in this press release.

Results for the Nine Months Ended September 30, 2018:

Net income available for common shareholders determined in accordance with GAAP was $35.4 million, or $0.36 per diluted share, for the nine months ended September 30, 2018, compared to net income available for common shareholders of $30.1 million, or $0.38 per diluted share, for the nine months ended September 30, 2017. Net income available for common shareholders for the nine months ended September 30, 2018 includes a $40.7 million, or $0.41 per diluted share, unrealized gain on equity securities relating to GOV's investment in RMR Inc. and a $17.3 million, or $0.17 per diluted share, gain on sale of real estate, partially offset by $17.0 million, or $0.17 per diluted share, of estimated business management incentive fee expense and a $5.8 million, or $0.06 per diluted share, loss on impairment of real estate. The weighted average number of diluted common shares outstanding was 99.1 million for the nine months ended September 30, 2018 and 79.9 million for the nine months ended September 30, 2017.

Normalized FFO available for common shareholders for the nine months ended September 30, 2018 were $158.4 million, or $1.60 per diluted share, compared to Normalized FFO available for common shareholders for the nine months ended September 30, 2017 of $121.9 million, or $1.53 per diluted share.

Reconciliations of net income available for common shareholders determined in accordance with GAAP to FFO available for common shareholders and Normalized FFO available for common shareholders for the nine months ended September 30, 2018 and 2017 appear later in this press release.

Leasing, Occupancy and Same Property Results:

During the quarter ended September 30, 2018, GOV entered new and renewal leases for an aggregate 182,220 rentable square feet at weighted (by rentable square feet) average rents that were 0.4% below prior rents for the same space. The weighted (by rentable square feet) average lease term for these leases was 8.1 years and leasing concessions and capital commitments for these leases were $6.5 million, or $4.41 per square foot, per lease year. These new and renewal leases include approximately 18,000 square feet with government tenants which have weighted (by rentable square feet) average rents that are 8.0% below prior rents for the same space, a weighted (by rentable square feet) average lease term of 19.7 years and leasing concessions and capital commitments of $1.2 million, or $3.32 per square foot per weighted (by square foot) average lease year.

As of September 30, 2018, 93.3% of GOV’s total rentable square feet was leased, compared to 94.0% as of June 30, 2018 and 95.0% as of September 30, 2017. Occupancy for properties owned continuously since July 1, 2017, or same properties, was 94.6% as of both September 30, 2018 and June 30, 2018, and 95.4% as of September 30, 2017. Same properties net operating income, or NOI, increased 0.6% and same properties cash basis NOI, or Cash Basis NOI, increased 2.0% for the quarter ended September 30, 2018 compared to the same period in 2017.

Reconciliations of net income (loss) available for common shareholders determined in accordance with GAAP to Consolidated Property NOI and to Consolidated Property Cash Basis NOI for the quarters ended September 30, 2018 and 2017 appear later in this press release.

Merger with Select Income REIT:

As previously announced, on September 14, 2018, GOV, a wholly owned subsidiary of GOV and Select Income REIT (Nasdaq: SIR), or SIR, entered into an agreement and plan of merger, dated as of September 14, 2018, or the Merger Agreement, whereby SIR will merge with and into GOV’s wholly owned subsidiary, or the Merger. The aggregate transaction value, based on the closing price of GOV’s common shares on September 30, 2018 of $11.29, is approximately $2.7 billion, excluding closing costs and including the repayment or assumption of approximately $1.7 billion of SIR debt. Pursuant to the terms of the Merger Agreement, SIR’s shareholders will receive 1.04 newly issued common shares of GOV for each common share of SIR they hold, with cash paid in lieu of fractional shares. Pursuant to the terms and subject to certain conditions of the Merger Agreement, SIR will declare and, at least one business day prior to the completion of the Merger, pay a pro rata distribution to SIR’s shareholders of all 45,000,000 common shares of Industrial Logistics Properties Trust (Nasdaq: ILPT), or ILPT, that SIR owns. GOV will acquire SIR's remaining property portfolio (following SIR’s distribution of its ILPT common shares) of 99 properties with approximately 17.0 million rentable square feet. Completion of the Merger will require certain approvals of GOV’s and SIR’s shareholders and the satisfaction or waiver of other conditions and GOV and SIR expect to consummate the Merger by December 31, 2018. Upon the closing of the Merger, GOV will change its name to Office Properties Income Trust and remain listed on the Nasdaq under the ticker symbol “OPI”. GOV also expects that immediately following the merger, it will effect a reverse stock split of GOV common shares pursuant to which every four common shares of OPI will be converted into one common share of OPI.

On October 9, 2018, as required by the Merger Agreement, GOV sold all 24.9 million common shares it owned in SIR in an underwritten public offering at a price of $18.25 per share, raising net proceeds of approximately $434.7 million after deducting underwriters' discounts and estimated offering expenses. GOV used the net proceeds from the offering to repay amounts outstanding under its unsecured revolving credit facility. GOV expects to record a loss on the sale of the SIR shares of approximately $19.4 million in the fourth quarter of 2018.

Recent Property Disposition Activities:

In August 2018, GOV entered into an agreement to sell an office property (one building) located in Washington, DC with 129,035 rentable square feet for $70.0 million, excluding closing costs.

In September 2018, GOV entered an agreement to sell a portfolio of eight properties (34 buildings) located in northern Virginia and Maryland containing 1,635,868 rentable square feet for $201.5 million, excluding closing costs.

In October 2018, GOV entered an agreement to sell a portfolio of 11 properties (15 buildings) located in southern Virginia containing 1,641,109 rentable square feet for $167.0 million, excluding closing costs.

Conference Call:

At 11:00 a.m. Eastern Time this morning, President and Chief Executive Officer, David Blackman, and Chief Financial Officer and Treasurer, Mark Kleifges, will host a conference call to discuss GOV’s third quarter 2018 financial results. They will be joined by Jeff Leer, who will assume his role as Chief Financial Officer and Treasurer of the Company effective January 1, 2019.

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 11:59 p.m. on Thursday, November 8, 2018. To access the replay, dial (412) 317-0088. The replay pass code is 10123761.

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 2018 Supplemental Operating and Financial Data is available for download at GOV’s website, which is located at 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 primarily owns properties located throughout the United States that are majority leased to government tenants and office properties in the metropolitan Washington, D.C. market area that are leased to government and private sector tenants. 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 hereto for a more detailed statement of GOV’s operating results and financial condition and for an explanation of GOV’s calculation of FFO available for common shareholders, Normalized FFO available for common shareholders, NOI and Cash Basis NOI and a reconciliation of those amounts to amounts determined in accordance with 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 OPERATING AND LEASING RESULTS MAY IMPLY THAT SIMILAR OR BETTER RESULTS WILL BE ACHIEVED IN THE FUTURE. HOWEVER, GOV CANNOT BE SURE THAT IT WILL REALIZE SIMILAR OR BETTER OPERATING OR LEASING RESULTS IN THE FUTURE.
• MR. BLACKMAN'S STATEMENTS THAT GOV CONTINUED TO MAKE PROGRESS ON ITS PROPERTY DISPOSITION PLAN MAY IMPLY THAT GOV WILL COMPLETE THE SALE OF PROPERTIES IT HAS AGREED TO SELL AND THAT IT WILL CONTINUE TO SELL ADDITIONAL PROPERTIES IN THE FUTURE. HOWEVER, GOV MAY NOT BE ABLE TO COMPLETE THE SALES OF PROPERTIES IT HAS AGREED TO SELL OR THAT IT WILL SUCCESSFULLY SELL ADDITIONAL PROPERTIES IN THE FUTURE. ALSO, GOV MAY SELL PROPERTIES AT PRICES THAT ARE LESS THAN THEIR CARRYING VALUES AND GOV MAY INCUR FUTURE LOSSES AS A RESULT.
• THIS PRESS RELEASE STATES THAT GOV, A WHOLLY OWNED SUBSIDIARY OF GOV AND SIR HAVE ENTERED INTO THE MERGER AGREEMENT. THE CLOSING OF THE MERGER IS SUBJECT TO THE SATISFACTION OR WAIVER OF CONDITIONS, INCLUDING THE RECEIPT OF REQUISITE APPROVALS BY GOV’S AND SIR’S SHAREHOLDERS. GOV CANNOT BE SURE THAT ANY OR ALL OF SUCH CONDITIONS WILL BE SATISFIED OR WAIVED. ACCORDINGLY, THE MERGER MAY NOT CLOSE WHEN EXPECTED OR AT ALL, OR THE TERMS OF THE MERGER AND THE OTHER TRANSACTIONS MAY CHANGE.
• THE MERGER REQUIRES APPROVAL OF SIR’S SHAREHOLDERS AND THE ISSUANCE OF GOV COMMON SHARES IN THE MERGER REQUIRES THE APPROVAL OF GOV’S SHAREHOLDERS. SUCH APPROVALS WILL BE SOLICITED BY A JOINT PROXY STATEMENT/PROSPECTUS, A PRELIMINARY VERSION OF WHICH WAS INCLUDED AS PART OF THE REGISTRATION STATEMENT ON FORM S-4, AS AMENDED, OR THE FORM S-4, THAT GOV FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, OR SEC. THE FORM S-4 MUST BE DECLARED EFFECTIVE BY THE SEC BEFORE THE DEFINITIVE JOINT PROXY STATEMENT/PROSPECTUS CAN BE MAILED TO GOV’S SHAREHOLDERS AND SIR’S SHAREHOLDERS. THE AMOUNT OF TIME IT TAKES FOR THE SEC TO DECLARE THE FORM S-4 EFFECTIVE IS BEYOND GOV’S AND SIR’S CONTROL. ACCORDINGLY, GOV CANNOT BE SURE THAT THE MERGER AND THE OTHER TRANSACTIONS WILL BE CONSUMMATED WITHIN A SPECIFIED TIME PERIOD OR AT ALL OR THAT THE TERMS OF THE MERGER AND THE OTHER TRANSACTIONS WILL NOT CHANGE. FURTHER, THIS PRESS RELEASE STATES THE AGGREGATE TRANSACTION VALUE IS BASED ON THE CLOSING PRICE OF GOV'S COMMON SHARES ON SEPTEMBER 30, 2018 OF $11.29 PER SHARE, OR APPROXIMATELY $2.7 BILLION, AND INCLUDES THE REPAYMENT OR ASSUMPTION OF APPROXIMATELY $1.7 BILLION OF SIR'S DEBT. THESE VALUES ARE BASED ON THE MARKET PRICE OF GOV'S COMMON SHARES AND SIR'S DEBT BALANCES AS OF SEPTEMBER 30, 2018. THESE ESTIMATES ARE SUBJECT TO CHANGES BEYOND GOV’S CONTROL, INCLUDING VOLATILITY IN THE MARKET PRICE OF GOV’S COMMON SHARES AND SIR’S ACTUAL DEBT BALANCES UPON CONSUMMATION OF THE MERGER. FURTHER MR. BLACKMAN STATES THAT THE MERGER WILL BENEFIT GOV’S SHAREHOLDERS BY CREATING A LEADING NATIONAL OFFICE REIT WITH GREATER SCALE, ENHANCED DIVERSIFICATION, MORE WELL LADDERED LEASE EXPIRATIONS, A BROADER INVESTMENT STRATEGY AND AN EXPECTED PER SHARE DIVIDEND THAT IS MORE SUSTAINABLE THAN GOV CAN SUSTAIN AS A STANDALONE COMPANY. GOV AND ITS SHAREHOLDERS MAY NOT REALIZE THESE BENEFITS.
• PURSUANT TO THE MERGER AGREEMENT, SIR HAS AGREED TO DISTRIBUTE ALL 45,000,000 COMMON SHARES OF ILPT THAT SIR OWNS TO SIR’S SHAREHOLDERS, SUBJECT TO THE SATISFACTION OR WAIVER OF CERTAIN CONDITIONS, INCLUDING, AMONG OTHER THINGS, OBTAINING THE REQUISITE SHAREHOLDER APPROVALS WITH RESPECT TO THE MERGER. SIR CANNOT BE SURE WHEN OR IF THOSE CONDITIONS WILL BE SATISFIED OR WAIVED OR THAT SUCH DISTRIBUTION WILL OCCUR.
• GOV HAS ENTERED INTO AGREEMENTS TO SELL AN AGGREGATE OF 20 PROPERTIES (50 BUILDINGS). THESE TRANSACTIONS ARE SUBJECT TO CONDITIONS. THESE CONDITIONS MAY NOT BE MET AND THESE TRANSACTIONS MAY NOT OCCUR, MAY BE DELAYED OR THE TERMS MAY CHANGE.

THE INFORMATION CONTAINED IN GOV’S FILINGS WITH THE SEC, INCLUDING UNDER “RISK FACTORS” IN THE FORM S-4 AND 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.

Additional Information about the Merger and the other Transactions and Where to Find It

In connection with the Merger and the other transactions contemplated by the Merger Agreement, GOV has filed with the SEC the Form S-4, containing a preliminary joint proxy statement/prospectus and other documents with respect to the Merger and the other transactions contemplated by the Merger Agreement. This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval. INVESTORS ARE URGED TO READ THE JOINT PROXY STATEMENT/PROSPECTUS (INCLUDING ALL AMENDMENTS AND SUPPLEMENTS THERETO) AND ANY OTHER DOCUMENTS FILED OR TO BE FILED WITH THE SEC IN CONNECTION WITH THE MERGER OR INCORPORATED BY REFERENCE IN THE JOINT PROXY STATEMENT/PROSPECTUS BECAUSE THEY CONTAIN AND WILL CONTAIN IMPORTANT INFORMATION ABOUT THE MERGER AND THE OTHER TRANSACTIONS.

After the registration statement for the Merger has been declared effective by the SEC, a definitive joint proxy statement/prospectus will be mailed to GOV’s and SIR’s shareholders. Investors will be able to obtain free copies of documents filed with the SEC at the SEC’s website at www.sec.gov. In addition, investors may obtain free copies of GOV’s filings with the SEC from GOV’s website at www.govreit.com and free copies of SIR’s filings with the SEC from its website at www.sirreit.com.

Participants in the Solicitation Relating to the Merger and the other Transactions

GOV, its trustees and certain of its executive officers, SIR, its trustees and certain of its executive officers, and The RMR Group LLC, or RMR LLC, RMR Inc. and certain of their directors, officers and employees may be deemed participants in the solicitation of proxies from SIR’s shareholders in respect of the approval of the Merger and the other transactions contemplated by the Merger Agreement to which SIR is a party and from GOV’s shareholders in respect of the approval of the issuance of GOV common shares in the Merger. Information regarding the persons who may, under the rules of the SEC, be considered participants in the solicitation of GOV’s and SIR’s shareholders in connection with the Merger and the other transactions contemplated by the Merger Agreement is set forth in the preliminary joint proxy statement/prospectus for the Merger filed, and will be set forth in the definitive joint proxy statement/prospectus for the Merger to be filed, with the SEC. You can find information about GOV’s trustees and executive officers in its definitive proxy statement for its 2018 Annual Meeting of Shareholders. You can find information about SIR’s trustees and executive officers in SIR’s definitive proxy statement for its 2018 Annual Meeting of Shareholders. These documents are available free of charge on the SEC’s website and from GOV or SIR, as applicable, using the sources indicated above.

See Notes on pages 8 and 9

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: https://www.businesswire.com/news/home/20181101005172/en/

Government Properties Income Trust
Brad Shepherd, 617-219-1410
Senior Director, Investor Relations

Source: Government Properties Income Trust