Completed Merger with Select Income REIT on December 31, 2018
Completed FPO Disposition Plan of $520.8 Million in Asset Sales
since Acquiring FPO in 2017
Fourth Quarter Net Loss Available for Common Shareholders of $57.7
Million
Fourth Quarter Normalized FFO Available for Common Shareholders of
$39.1 Million, or
$1.56 Per Share
NEWTON, Mass.--(BUSINESS WIRE)--
Office
Properties Income Trust (Nasdaq: OPI) today announced its financial
results for the quarter and year ended December 31, 2018. On December
31, 2018, OPI (formerly Government Properties Income Trust, or GOV)
completed its previously announced merger with Select Income REIT, or
SIR, whereby SIR merged with and into a wholly owned subsidiary of GOV,
or the Merger. Upon the closing of the Merger, GOV changed its name to
Office Properties Income Trust and effected a reverse share split of OPI
common shares pursuant to which every four common shares of OPI were
converted into one common share of OPI, or the Reverse Share Split.
David Blackman, President and Chief Executive Officer of OPI, made the
following statement:
"We are pleased to have successfully completed the merger with Select
Income REIT to create Office Properties Income Trust, a leading national
office REIT with increased scale, enhanced tenant and geographic
diversification, a more laddered lease expiration schedule, a broader
investment strategy and one of the highest percentages of rent paid by
investment-grade rated tenants in the office sector.
We completed our disposition plan with respect to our long term
financing of our acquisition of First Potomac Realty Trust, having
closed approximately $520.8 million of asset sales since acquiring FPO
in 2017. We have also made progress with our disposition program
associated with the SIR merger, having hired brokers to market for sale
34 buildings containing approximately 5.3 million square feet, which we
expect will generate more than $700 million of total gross proceeds. Our
goal is to substantially complete this disposition program by mid-year
2019 and turn our attention to accretively growing OPI. We are energized
by the opportunities available to OPI and we look forward to executing
on our business plan."
The Merger was effective after the close of trading on December 31,
2018. Accordingly, the assets acquired and liabilities assumed from SIR
in the Merger are included in OPI's consolidated balance sheet as of
December 31, 2018; however, SIR's results of operations are excluded
from OPI's consolidated statements of income (loss) for all periods
presented. As required under U.S. generally accepted accounting
principles, or GAAP, all impacted amounts and share information included
in this press release have been retroactively adjusted for the Reverse
Share Split, as if the Reverse Share Split occurred on the first day of
the first period presented. Certain adjusted amounts may not agree with
previously reported amounts due to rounding of fractional shares.
Results for the Quarter Ended December 31, 2018:
Net loss available for common shareholders for the quarter ended
December 31, 2018 was $57.7 million, or $2.31 per diluted share,
compared to net loss available for common shareholders of $18.3 million,
or $0.74 per diluted share, for the quarter ended December 31, 2017. Net
loss available for common shareholders for the quarter ended
December 31, 2018 includes: (1) a $48.2 million, or $1.93 per diluted
share, unrealized loss on equity securities related to OPI's investment
in The RMR Group Inc., or RMR Inc.; (2) an $18.7 million, or $0.75 per
diluted share, loss on the sale of SIR shares sold on October 9, 2018;
(3) $10.7 million, or $0.43 per diluted share, of transaction costs
related to the Merger; and (4) a $17.0 million, or $0.68 per diluted
share, reversal of previously accrued estimated business management
incentive fee expense. Net loss available for common shareholders for
the quarter ended December 31, 2017 includes a $9.3 million, or $0.37
per diluted share, loss on impairment of real estate. The weighted
average number of diluted common shares outstanding was 25.0 million for
the quarter ended December 31, 2018 and 24.8 million for the quarter
ended December 31, 2017.
Normalized funds from operations, or Normalized FFO, available for
common shareholders for the quarter ended December 31, 2018 were $39.1
million, or $1.56 per diluted share, compared to Normalized FFO
available for common shareholders for the quarter ended December 31,
2017 of $49.2 million, or $1.99 per diluted share. Pro forma as if the
Merger had occurred on October 1, 2018, Normalized FFO attributable to
the company for the quarter ended December 31, 2018 was $49.6 million,
or $1.03 per diluted share, and includes $25.8 million, or $0.54 per
diluted share, of SIR's incentive management fee for 2018 which was
assumed by OPI and paid in January 2019.
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 December 31, 2018 and 2017
appear later in this press release. The pro forma consolidated statement
of income (loss) as if the Merger had occurred on October 1, 2018 for
the quarter ended December 31, 2018 and a reconciliation of pro forma
net loss attributable to the company to pro forma FFO attributable to
the company and pro forma Normalized FFO attributable to the company for
the quarter ended December 31, 2018 also appear later in this press
release.
Results for the Year Ended December 31, 2018:
Net loss available for common shareholders was $22.3 million, or $0.90
per diluted share, for the year ended December 31, 2018, compared to net
income available for common shareholders of $11.8 million, or $0.56 per
diluted share, for the year ended December 31, 2017. Net loss available
for common shareholders for the year ended December 31, 2018 includes:
(1) an $18.7 million, or $0.75 per diluted share, loss on the sale of
SIR shares sold on October 9, 2018; (2) $14.5 million, or $0.58 per
diluted share, of transaction costs related to the Merger; (3) an $8.6
million, or $0.35 per diluted share, loss on impairment of real estate;
(4) a $7.6 million, or $0.30 per diluted share, unrealized loss on
equity securities related to OPI's investment in RMR Inc.; and (5) a
$20.7 million, or $0.83 per diluted share, gain on sale of real estate.
Net income available for common shareholders for the year ended December
31, 2017 includes a $9.5 million, or $0.45 per diluted share, loss on
impairment of real estate. The weighted average number of diluted common
shares outstanding was 24.8 million for the year ended December 31, 2018
and 21.2 million for the year ended December 31, 2017.
Normalized FFO available for common shareholders for the year ended
December 31, 2018 were $197.5 million, or $7.95 per diluted share,
compared to Normalized FFO available for common shareholders for the
year ended December 31, 2017 of $171.1 million, or $8.09 per diluted
share.
Reconciliations of net income (loss) available for common shareholders
determined in accordance with GAAP to FFO available for common
shareholders and Normalized FFO available for common shareholders for
the years ended December 31, 2018 and 2017 appear later in this press
release.
Pro Forma Leasing, Occupancy and Same Property Results:
Pro forma results combine the results of OPI and SIR for the three
months ended December 31, 2018 and 2017 as if the Merger had occurred on
October 1, 2017.
Pro forma for the quarter ended December 31, 2018, OPI entered new and
renewal leases for an aggregate of 548,025 rentable square feet at
weighted (by rentable square feet) average rents that were 7.8% below
prior rents for the same space. The weighted (by rentable square feet)
average lease term for these leases was 7.5 years and leasing
concessions and capital commitments for these leases were $16.4 million,
or $3.97 per square foot, per lease year.
As of December 31, 2018, 91.0% of OPI’s total rentable square feet
(including SIR properties) was leased. Pro forma same property occupancy
was 91.2% as of December 31, 2018, compared to 93.3% as of December 31,
2017. Pro forma same property Cash Basis NOI was $97.1 million for the
quarter ended December 31, 2018 which was a 0.5% increase compared to
the same period in 2017.
Reconciliations of pro forma net loss attributable to the company to pro
forma Consolidated Property NOI and pro forma Consolidated Property Cash
Basis NOI for the three months ended December 31, 2018 as if the Merger
had occurred on October 1, 2018 appear later in this press release.
Merger with Select Income REIT:
On December 31, 2018, OPI completed the previously announced Merger and
acquired SIR's property portfolio of 99 buildings with approximately
16.5 million rentable square feet. The aggregate transaction value,
based on the closing price of OPI's common shares on December 31, 2018
of $27.48, was approximately $2.4 billion, excluding closing costs and
including the repayment or assumption of approximately $1.7 billion of
SIR debt. As consideration, SIR’s shareholders received 1.04 newly
issued common shares of OPI for each common share of SIR they held, with
cash paid in lieu of fractional shares.
Recent Property Disposition Activities:
In November 2018, OPI sold an office building located in Golden, CO with
43,231 rentable square feet for $4.0 million, excluding closing costs.
In November 2018, prior to the Merger, SIR entered into an agreement to
sell a land parcel located in Hawaii containing 416,956 rentable square
feet for $7.1 million, excluding closing costs.
In December 2018, OPI sold a property portfolio of 15 office buildings
located in southern Virginia containing 1,640,252 rentable square feet
for $167.0 million, excluding closing costs.
In February 2019, OPI sold a property portfolio of 34 office buildings
located in northern Virginia and Maryland containing 1,635,868 rentable
square feet for $198.5 million, excluding closing costs.
Recent Financing Activities:
As previously announced, on October 9, 2018, OPI sold all of the 24.9
million common shares of SIR it owned in an underwritten public offering
at a price of $18.25 per share, raising net proceeds of $435.1 million
after deducting underwriters' discounts and offering expenses. OPI used
the net proceeds from the offering to repay amounts outstanding under
its unsecured revolving credit facility. OPI recorded a loss on the sale
of the SIR shares of $18.7 million for the quarter and year ended
December 31, 2018.
In December 2018, OPI amended and restated the credit agreement
governing its $750.0 million unsecured revolving credit facility and
$300.0 million and $250.0 million unsecured term loans. As a result of
the amendments, the stated maturity date of OPI's revolving credit
facility was extended from January 31, 2019 to January 31, 2023. Subject
to the payment of an extension fee and meeting certain other conditions,
OPI also has an option to further extend the stated maturity date of its
revolving credit facility by two additional six month periods. Also, as
a result of the amendments, the interest rate payable on borrowings
under OPI's revolving credit facility was reduced from a rate of LIBOR
plus a premium of 125 basis points per annum to a rate of LIBOR plus a
premium of 110 basis points per annum. The facility fee remained
unchanged at 25 basis points per annum on the total amount of lending
commitments under the facility. Both the interest rate premium and
facility fee are subject to change based upon changes to OPI's credit
ratings.
Also in December 2018, OPI repaid $162.0 million of the principal
balance outstanding under its $250.0 million unsecured term loan due
2022 with proceeds from its disposition program.
In February 2019, OPI repaid the remaining principal balance outstanding
of $88.0 million under its $250.0 million unsecured term loan due 2022
and repaid amounts outstanding under its revolving credit facility with
proceeds from its disposition program.
Conference Call:
At 10:00 a.m. Eastern Time this morning, President and Chief Executive
Officer, David Blackman, and Chief Financial Officer and Treasurer, Jeff
Leer, will host a conference call to discuss OPI’s fourth quarter and
full year 2018 financial 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 11:59 p.m. on Thursday, March 7, 2019. To access the
replay, dial (412) 317-0088. The replay pass code is 10127659.
A live audio webcast of the conference call will also be available in a
listen only mode on OPI’s website, at www.opireit.com.
Participants wanting to access the webcast should visit OPI’s website
about five minutes before the call. The archived webcast will be
available for replay on OPI’s website following the call for about one
week. The transcription, recording and retransmission in any way of
OPI’s fourth quarter conference call are strictly prohibited without the
prior written consent of OPI.
Supplemental Data:
A copy of OPI’s Fourth Quarter 2018 Supplemental Operating and Financial
Data is available for download at OPI’s website, which is located at www.opireit.com. OPI’s
website is not incorporated as part of this press release.
OPI is a real estate investment trust, or REIT, focused on owning,
operating and leasing buildings primarily leased to single tenants and
those with high credit quality characteristics such as government
entities. OPI 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
OPI’s operating results and financial condition and for an explanation
of OPI’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. OPI’s pro forma operating results and financial
condition and pro forma FFO attributable to the company, pro forma
Normalized FFO attributable to the company, pro forma Consolidated
Property NOI and pro forma Consolidated Property Cash Basis NOI as if
the Merger had occurred on October 1, 2018 also appear in the pages
attached hereto. Such pro forma financial information is 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, OPI’s
capital structure, OPI’s 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 pro forma financial information and such differences could be
significant.
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 OPI USES
WORDS SUCH AS “BELIEVE”, “EXPECT”, “ANTICIPATE”, “INTEND”, “PLAN”,
“ESTIMATE”, “WILL”, “MAY” AND NEGATIVES OR DERIVATIVES OF THESE OR
SIMILAR EXPRESSIONS, OPI IS MAKING FORWARD LOOKING STATEMENTS. THESE
FORWARD LOOKING STATEMENTS ARE BASED UPON OPI’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 OPI’S FORWARD LOOKING STATEMENTS AS A RESULT
OF VARIOUS FACTORS. FOR EXAMPLE:
-
MR. BLACKMAN'S STATEMENTS CITE SEVERAL BENEFITS OF THE MERGER THAT ARE
EXPECTED TO BE REALIZED BY OPI, INCLUDING INCREASED SCALE, ENHANCED
TENANT AND GEOGRAPHIC DIVERSIFICATION, A MORE LADDERED LEASE
EXPIRATION SCHEDULE, A BROADER INVESTMENT STRATEGY AND A COMPANY WITH
ONE OF THE HIGHEST PERCENTAGES OF RENT PAID BY INVESTMENT GRADE RATED
TENANTS IN THE OFFICE SECTOR. THERE CAN BE NO ASSURANCE THAT ANY OR
ALL OF THESE BENEFITS WILL BE SUSTAINED IN THE FUTURE,
-
MR. BLACKMAN'S STATEMENTS REGARDING OPI'S PROGRESS ON ITS DISPOSITION
PROGRAM ASSOCIATED WITH THE MERGER MAY IMPLY THAT OPI WILL SELL THE
ASSETS IT IS MARKETING FOR SALE AND THAT IT WILL REALIZE PROCEEDS FROM
THOSE SALES EQUAL TO OR GREATER THAN THE AMOUNT IT EXPECTS. HOWEVER,
OPI MAY NOT COMPLETE THE SALES OF ANY OR ALL OF THE ASSETS IT IS
MARKETING FOR SALE AND IT MAY NOT SUCCESSFULLY SELL ADDITIONAL ASSETS
IT MAY DECIDE TO SELL IN THE FUTURE. ALSO, OPI MAY SELL ASSETS AT
PRICES THAT ARE LESS THAN IT EXPECTS AND LESS THAN THEIR CARRYING
VALUES AND OPI MAY INCUR LOSSES ON THOSE SALES AS A RESULT,
-
CONTINUED AVAILABILITY OF BORROWINGS UNDER OPI’S REVOLVING CREDIT
FACILITY IS SUBJECT TO IT SATISFYING CERTAIN FINANCIAL COVENANTS AND
OTHER CREDIT FACILITY CONDITIONS THAT IT MAY BE UNABLE TO SATISFY,
-
ACTUAL COSTS UNDER OPI’S REVOLVING CREDIT FACILITY AND TERM LOANS WILL
BE HIGHER THAN LIBOR PLUS A PREMIUM BECAUSE OF FEES AND EXPENSES
ASSOCIATED WITH THE FACILITY,
-
OPI HAS THE OPTION TO EXTEND THE STATED MATURITY DATE OF ITS REVOLVING
CREDIT FACILITY UPON PAYMENT OF A FEE AND MEETING OTHER CONDITIONS;
HOWEVER, THE APPLICABLE CONDITIONS MAY NOT BE MET, AND
-
THE PREMIUMS USED TO DETERMINE THE INTEREST RATE PAYABLE ON OPI’S
REVOLVING CREDIT FACILITY AND TERM LOANS AND THE FACILITY FEE PAYABLE
ON ITS REVOLVING CREDIT FACILITY ARE BASED ON OPI’S CREDIT RATINGS.
FUTURE CHANGES IN OPI’S CREDIT RATINGS MAY CAUSE THE INTEREST AND FEES
IT PAYS TO INCREASE.
THE INFORMATION CONTAINED IN OPI’S FILINGS WITH THE SECURITIES AND
EXCHANGE COMMISSION, OR SEC, INCLUDING UNDER “RISK FACTORS” IN OPI’S
PERIODIC REPORTS, OR INCORPORATED THEREIN, IDENTIFIES OTHER IMPORTANT
FACTORS THAT COULD CAUSE OPI’S ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THOSE STATED IN OR IMPLIED BY OPI’S FORWARD LOOKING STATEMENTS. OPI’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, OPI DOES NOT INTEND TO UPDATE OR CHANGE ANY
FORWARD LOOKING STATEMENTS AS A RESULT OF NEW INFORMATION, FUTURE EVENTS
OR OTHERWISE.
|
|
|
Office Properties Income Trust
Consolidated
Statements of Income (Loss)
(amounts in thousands,
except per share data)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
|
Year Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income
|
|
|
$
|
103,656
|
|
|
|
$
|
107,170
|
|
|
|
$
|
426,560
|
|
|
|
$
|
316,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate taxes
|
|
|
12,306
|
|
|
|
12,962
|
|
|
|
49,708
|
|
|
|
37,942
|
|
|
Utility expenses
|
|
|
5,935
|
|
|
|
6,812
|
|
|
|
26,425
|
|
|
|
20,998
|
|
|
Other operating expenses
|
|
|
23,389
|
|
|
|
21,303
|
|
|
|
89,610
|
|
|
|
65,349
|
|
|
Depreciation and amortization
|
|
|
33,044
|
|
|
|
47,639
|
|
|
|
162,488
|
|
|
|
109,588
|
|
|
Loss on impairment of real estate (1) |
|
|
2,830
|
|
|
|
9,260
|
|
|
|
8,630
|
|
|
|
9,490
|
|
|
Acquisition and transaction related costs (2) |
|
|
10,695
|
|
|
|
—
|
|
|
|
14,508
|
|
|
|
—
|
|
|
General and administrative (3) |
|
|
(11,516
|
)
|
|
|
6,532
|
|
|
|
24,922
|
|
|
|
18,847
|
|
|
Total expenses
|
|
|
76,683
|
|
|
|
104,508
|
|
|
|
376,291
|
|
|
|
262,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of real estate (4) |
|
|
3,332
|
|
|
|
—
|
|
|
|
20,661
|
|
|
|
—
|
|
|
Dividend income
|
|
|
425
|
|
|
|
304
|
|
|
|
1,337
|
|
|
|
1,216
|
|
|
Unrealized loss on equity securities (5) |
|
|
(48,229
|
)
|
|
|
—
|
|
|
|
(7,552
|
)
|
|
|
—
|
|
|
Interest income
|
|
|
234
|
|
|
|
119
|
|
|
|
639
|
|
|
|
1,962
|
|
|
Interest expense (including net amortization of debt premiums,
discounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and issuance costs of $877, $814, $3,626 and $3,420, respectively)
|
|
|
(20,421
|
)
|
|
|
(21,807
|
)
|
|
|
(89,865
|
)
|
|
|
(65,406
|
)
|
|
Loss on early extinguishment of debt
|
|
|
(709
|
)
|
|
|
—
|
|
|
|
(709
|
)
|
|
|
(1,715
|
)
|
|
Loss from continuing operations before income taxes and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
equity in net losses of investees
|
|
|
(38,395
|
)
|
|
|
(18,722
|
)
|
|
|
(25,220
|
)
|
|
|
(9,625
|
)
|
|
Income tax benefit (expense)
|
|
|
7
|
|
|
|
(36
|
)
|
|
|
(117
|
)
|
|
|
(101
|
)
|
|
Equity in net losses of investees
|
|
|
(1,157
|
)
|
|
|
(546
|
)
|
|
|
(2,269
|
)
|
|
|
(13
|
)
|
|
Loss from continuing operations
|
|
|
(39,545
|
)
|
|
|
(19,304
|
)
|
|
|
(27,606
|
)
|
|
|
(9,739
|
)
|
|
Income (loss) from discontinued operations (6) |
|
|
(18,150
|
)
|
|
|
1,313
|
|
|
|
5,722
|
|
|
|
21,829
|
|
|
Net income (loss)
|
|
|
(57,695
|
)
|
|
|
(17,991
|
)
|
|
|
(21,884
|
)
|
|
|
12,090
|
|
|
Preferred units of limited partnership distributions
|
|
|
—
|
|
|
|
(275
|
)
|
|
|
(371
|
)
|
|
|
(275
|
)
|
|
Net income (loss) available for common shareholders
|
|
|
$
|
(57,695
|
)
|
|
|
$
|
(18,266
|
)
|
|
|
$
|
(22,255
|
)
|
|
|
$
|
11,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding (basic and diluted)
|
|
|
25,027
|
|
|
|
24,760
|
|
|
|
24,830
|
|
|
|
21,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per common share amounts (basic and diluted):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
$
|
(1.58
|
)
|
|
|
$
|
(0.79
|
)
|
|
|
$
|
(1.13
|
)
|
|
|
$
|
(0.47
|
)
|
|
Income (loss) from discontinued operations
|
|
|
$
|
(0.73
|
)
|
|
|
$
|
0.05
|
|
|
|
$
|
0.23
|
|
|
|
$
|
1.03
|
|
|
Net income (loss) available for common shareholders
|
|
|
$
|
(2.31
|
)
|
|
|
$
|
(0.74
|
)
|
|
|
$
|
(0.90
|
)
|
|
|
$
|
0.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes on pages 7 and 8.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office Properties Income Trust
Funds from
Operations and Normalized Funds from Operations
(amounts
in thousands, except per share data)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
|
Year Ended December 31,
|
|
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Calculation of Funds from Operations (FFO) and Normalized FFO
available for common shareholders (7):
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available for common shareholders
|
|
|
$
|
(57,695
|
)
|
|
|
$
|
(18,266
|
)
|
|
|
$
|
(22,255
|
)
|
|
|
$
|
11,815
|
|
|
Add (less):
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated properties
|
|
|
33,044
|
|
|
|
47,639
|
|
|
|
162,488
|
|
|
|
109,588
|
|
|
|
Unconsolidated joint venture properties
|
|
|
1,920
|
|
|
|
2,185
|
|
|
|
8,203
|
|
|
|
2,185
|
|
|
|
FFO attributable to SIR investment
|
|
|
1,859
|
|
|
|
10,297
|
|
|
|
51,773
|
|
|
|
58,279
|
|
|
|
Loss on impairment of real estate (1) |
|
|
2,830
|
|
|
|
9,260
|
|
|
|
8,630
|
|
|
|
9,490
|
|
|
|
Equity in earnings of SIR included in discontinued operations
|
|
|
(515
|
)
|
|
|
(1,313
|
)
|
|
|
(24,358
|
)
|
|
|
(21,584
|
)
|
|
|
Increase in carrying value of property included in discontinued
operations
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(619
|
)
|
|
|
Gain on sale of real estate (4) |
|
|
(3,332
|
)
|
|
|
—
|
|
|
|
(20,661
|
)
|
|
|
—
|
|
|
FFO available for common shareholders
|
|
|
(21,889
|
)
|
|
|
49,802
|
|
|
|
163,820
|
|
|
|
169,154
|
|
|
Add (less):
|
|
Acquisition and transaction related costs (2)
|
|
|
10,695
|
|
|
|
—
|
|
|
|
14,508
|
|
|
|
—
|
|
|
|
Loss on early extinguishment of debt
|
|
|
709
|
|
|
|
—
|
|
|
|
709
|
|
|
|
1,715
|
|
|
|
Normalized FFO attributable to SIR investment
|
|
|
1,524
|
|
|
|
9,680
|
|
|
|
44,006
|
|
|
|
58,580
|
|
|
|
FFO attributable to SIR investment
|
|
|
(1,859
|
)
|
|
|
(10,297
|
)
|
|
|
(51,773
|
)
|
|
|
(58,279
|
)
|
|
|
Net gain on issuance of shares by SIR included in discontinued
operations
|
|
|
—
|
|
|
|
—
|
|
|
|
(29
|
)
|
|
|
(72
|
)
|
|
|
Estimated business management incentive fees (3) |
|
|
(16,973
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Unrealized loss on equity securities (5) |
|
|
48,229
|
|
|
|
—
|
|
|
|
7,552
|
|
|
|
—
|
|
|
|
Loss on sale of SIR shares included in discontinued operations (6) |
|
|
18,665
|
|
|
|
—
|
|
|
|
18,665
|
|
|
|
—
|
|
|
Normalized FFO available for common shareholders
|
|
|
$
|
39,101
|
|
|
|
$
|
49,185
|
|
|
|
$
|
197,458
|
|
|
|
$
|
171,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding (basic and diluted)
|
|
|
25,027
|
|
|
24,760
|
|
|
24,830
|
|
|
21,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per common share amounts (basic and diluted):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available for common shareholders
|
|
|
$
|
(2.31
|
)
|
|
|
$
|
(0.74
|
)
|
|
|
$
|
(0.90
|
)
|
|
|
$
|
0.56
|
|
|
FFO available for common shareholders
|
|
|
$
|
(0.87
|
)
|
|
|
$
|
2.01
|
|
|
|
$
|
6.60
|
|
|
|
$
|
7.99
|
|
|
Normalized FFO available for common shareholders
|
|
|
$
|
1.56
|
|
|
|
$
|
1.99
|
|
|
|
$
|
7.95
|
|
|
|
$
|
8.09
|
|
|
Distributions declared per share
|
|
|
$
|
1.72
|
|
|
|
$
|
1.72
|
|
|
|
$
|
6.88
|
|
|
|
$
|
6.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
OPI recorded an adjustment of $2,830 to reduce the carrying
value of an office property portfolio consisting of 34 buildings
to its estimated fair value less costs to sell in the three months
ended December 31, 2018, and an adjustment of $3,669 to reduce the
carrying value of two buildings to its estimated fair value less
costs to sell and an adjustment of $2,131 to reduce the carrying
value of one building to its estimated fair value during the nine
months ended September 30, 2018. OPI recorded an adjustment of
$9,260 to reduce the carrying value of one building to its
estimated fair value in the three months ended December 31, 2017
and an adjustment of $230 to reduce the carrying value of one
building to its estimated fair value in the three months ended
September 30, 2017.
|
|
|
|
|
(2)
|
|
Acquisition and transaction related costs for the three months
and year ended December 31, 2018 include costs incurred in
connection with the Merger.
|
|
|
|
|
(3)
|
|
Incentive fees under OPI’s business management agreement with
RMR 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 OPI’s
consolidated statements of income (loss). In calculating net
income (loss) in accordance with GAAP, OPI recognizes estimated
business management incentive fee expense, if any, in the first,
second and third quarters. Although OPI recognizes this expense,
if any, in the first, second and third quarters for purposes of
calculating net income (loss), OPI 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 loss for the
three months ended December 31, 2018, includes the reversal of
$16,973 of previously accrued estimated business management
incentive fee expense. No incentive management fee was payable
under OPI's business management agreement for the years ended
December 31, 2018 and 2017. As successor to SIR as a result of the
Merger, OPI assumed the obligation to pay SIR's business
management incentive fee for 2018. SIR's business management
incentive fee for 2018 of $25,817 was paid by OPI in January 2019.
Pursuant to GAAP, the business management incentive fee that SIR
incurred for 2018 was not recorded in OPI's consolidated statement
of income (loss) for the year ended December 31, 2018, but that
amount was included in OPI's consolidated balance sheet as of
December 31, 2018 within due to related persons.
|
|
|
|
|
(4)
|
|
During the quarter ended December 31, 2018, OPI recorded a
$3,332 gain on the sale of one building in November 2018 and the
sale of an office property portfolio consisting of 15 buildings in
December 2018. OPI recorded a $17,329 gain on the sale of real
estate in the nine months ended September 30, 2018 in connection
with the sale of one building in May 2018.
|
|
|
|
|
(5)
|
|
Unrealized loss on equity securities represents the adjustment
required to adjust the carrying value of OPI's investment in RMR
Inc. common stock to its fair value as of December 31, 2018 in
accordance with new GAAP standards effective January 1, 2018.
|
|
|
|
|
(6)
|
|
Income (loss) from discontinued operations includes operating
results related to OPI's equity method investment in SIR. On
October 9, 2018, OPI sold its entire investment in SIR. OPI has
included the related operating results of this equity method
investment in discontinued operations for all periods presented.
OPI recorded a loss of $18,665 on the sale of SIR shares. Income
from discontinued operations for the year ended December 31, 2017
also includes operating results of one building OPI sold in August
2017.
|
|
|
|
|
(7)
|
|
OPI calculates FFO available for common shareholders and
Normalized FFO available for common shareholders as shown above.
FFO available for common shareholders is calculated on the basis
defined by The National Association of Real Estate Investment
Trusts, or Nareit, which is net income (loss) available for common
shareholders calculated in accordance with GAAP, plus real estate
depreciation and amortization of consolidated properties and its
proportionate share of the real estate depreciation and
amortization of unconsolidated joint venture properties and the
difference between FFO attributable to an equity investment and
equity in earnings of SIR included in discontinued operations, but
excluding impairment charges on and increases in the carrying
value of real estate assets, any gain or loss on sale of real
estate, as well as certain other adjustments currently not
applicable to OPI. OPI's calculation of Normalized FFO available
for common shareholders differs from Nareit's definition of FFO
available for common shareholders because OPI includes Normalized
FFO attributable to OPI's equity investment in SIR (net of FFO
attributable to OPI's equity investment in SIR) included in
discontinued operations, OPI 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 OPI'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 OPI excludes acquisition and
transaction related costs, loss on early extinguishment of debt,
gains on issuance of shares by SIR included in discontinued
operations, unrealized gains and losses on equity securities and
losses on sale of SIR shares included in discontinued operations.
OPI considers FFO available for common shareholders and Normalized
FFO available for common shareholders to be appropriate
supplemental measures of operating performance for a REIT, along
with net income (loss) and net income (loss) available for OPI's
common shareholders. OPI believes that FFO available for common
shareholders and Normalized FFO available for common shareholders
provide useful information to investors because by excluding the
effects of certain historical amounts, such as depreciation
expense, FFO available for common shareholders and Normalized FFO
available for common shareholders may facilitate a comparison of
OPI's operating performance between periods and with other REITs.
FFO available for common shareholders and Normalized FFO available
for common shareholders are among the factors considered by OPI's
Board of Trustees when determining the amount of distributions to
OPI's shareholders. Other factors include, but are not limited to,
requirements to maintain OPI's qualification for taxation as a
REIT, limitations in OPI's credit agreement and public debt
covenants, the availability to OPI of debt and equity capital,
OPI's expectation of its future capital requirements and operating
performance and OPI's expected needs for and availability of cash
to pay its obligations. FFO available for common shareholders and
Normalized FFO available for common shareholders do not represent
cash generated by operating activities in accordance with GAAP and
should not be considered alternatives to net income (loss) or net
income (loss) available for common shareholders as indicators of
OPI's operating performance or as measures of OPI's liquidity.
These measures should be considered in conjunction with net income
(loss) and net income (loss) available for common shareholders as
presented in OPI's Consolidated Statements of Income (Loss). Other
real estate companies and REITs may calculate FFO available for
common shareholders and Normalized FFO available for common
shareholders differently than OPI does.
|
|
|
|
|
|
|
Office Properties Income Trust
Consolidated Balance
Sheets
(amounts in thousands, except share data)
(unaudited)
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
ASSETS
|
|
|
|
|
|
|
|
Real estate properties:
|
|
|
|
|
|
|
|
Land
|
|
|
$
|
924,164
|
|
|
|
$
|
627,108
|
|
|
Buildings and improvements
|
|
|
3,020,472
|
|
|
|
2,348,613
|
|
|
Total real estate properties, gross
|
|
|
3,944,636
|
|
|
|
2,975,721
|
|
|
Accumulated depreciation
|
|
|
(375,147
|
)
|
|
|
(341,848
|
)
|
|
Total real estate properties, net
|
|
|
3,569,489
|
|
|
|
2,633,873
|
|
|
Assets of discontinued operations - Equity investment in Select
Income REIT
|
|
|
—
|
|
|
|
467,499
|
|
|
Assets of properties held for sale
|
|
|
253,501
|
|
|
|
—
|
|
|
Investment in unconsolidated joint ventures
|
|
|
43,665
|
|
|
|
50,202
|
|
|
Acquired real estate leases, net
|
|
|
1,056,558
|
|
|
|
351,872
|
|
|
Cash and cash equivalents
|
|
|
35,349
|
|
|
|
16,569
|
|
|
Restricted cash
|
|
|
3,594
|
|
|
|
3,111
|
|
|
Rents receivable, net
|
|
|
72,051
|
|
|
|
61,429
|
|
|
Deferred leasing costs, net
|
|
|
25,672
|
|
|
|
22,977
|
|
|
Other assets, net
|
|
|
178,704
|
|
|
|
96,033
|
|
|
Total assets
|
|
|
$
|
5,238,583
|
|
|
|
$
|
3,703,565
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
Unsecured revolving credit facility
|
|
|
$
|
175,000
|
|
|
|
$
|
570,000
|
|
|
Unsecured term loans, net
|
|
|
387,152
|
|
|
|
547,852
|
|
|
Senior unsecured notes, net
|
|
|
2,357,497
|
|
|
|
944,140
|
|
|
Mortgage notes payable, net
|
|
|
335,241
|
|
|
|
183,100
|
|
|
Liabilities of properties held for sale
|
|
|
4,271
|
|
|
|
—
|
|
|
Accounts payable and other liabilities
|
|
|
145,536
|
|
|
|
89,440
|
|
|
Due to related persons
|
|
|
34,887
|
|
|
|
4,859
|
|
|
Assumed real estate lease obligations, net
|
|
|
20,031
|
|
|
|
13,635
|
|
|
Total liabilities
|
|
|
3,459,615
|
|
|
|
2,353,026
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred units of limited partnership
|
|
|
—
|
|
|
|
20,496
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity:
|
|
|
|
|
|
|
|
Common shares of beneficial interest, $.01 par value: 200,000,000
shares authorized, 48,082,903 and 24,786,479 shares issued and
outstanding, respectively
|
|
|
481
|
|
|
|
248
|
|
|
Additional paid in capital
|
|
|
2,609,801
|
|
|
|
1,968,960
|
|
|
Cumulative net income
|
|
|
146,882
|
|
|
|
108,144
|
|
|
Cumulative other comprehensive income
|
|
|
106
|
|
|
|
60,427
|
|
|
Cumulative common distributions
|
|
|
(978,302
|
)
|
|
|
(807,736
|
)
|
|
Total shareholders’ equity
|
|
|
1,778,968
|
|
|
|
1,330,043
|
|
|
Total liabilities and shareholders’ equity
|
|
|
$
|
5,238,583
|
|
|
|
$
|
3,703,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office Properties Income Trust
Pro Forma
Consolidated Statement of Income (Loss) as if the Merger Had
Occurred on October 1, 2018
(amounts in thousands,
except per share data)
(unaudited)
|
|
|
|
|
|
|
|
For the Three Months Ended December 31, 2018
|
|
|
|
|
|
Sale of
|
|
OPI
|
|
|
|
ILPT
|
|
SIR
|
|
Pro Forma
|
|
|
|
|
|
OPI
|
|
SIR Shares (1) |
|
Adjusted
|
|
SIR
|
|
Distribution (2) |
|
Adjusted
|
|
Adjustments
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income
|
|
|
$
|
103,656
|
|
|
$
|
—
|
|
|
$
|
103,656
|
|
|
$
|
122,493
|
|
|
$
|
(40,245
|
)
|
|
$
|
82,248
|
|
|
$
|
1,279
|
|
|
$
|
187,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate taxes
|
|
|
12,306
|
|
|
—
|
|
|
12,306
|
|
|
12,279
|
|
|
(5,005
|
)
|
|
7,274
|
|
|
—
|
|
|
19,580
|
|
|
Utility expenses
|
|
|
5,935
|
|
|
—
|
|
|
5,935
|
|
|
2,868
|
|
|
(67
|
)
|
|
2,801
|
|
|
—
|
|
|
8,736
|
|
|
Other operating expenses
|
|
|
23,389
|
|
|
—
|
|
|
23,389
|
|
|
14,533
|
|
|
(3,142
|
)
|
|
11,391
|
|
|
—
|
|
|
34,780
|
|
|
Depreciation and amortization
|
|
|
33,044
|
|
|
—
|
|
|
33,044
|
|
|
36,220
|
|
|
(7,327
|
)
|
|
28,893
|
|
|
5,782
|
|
(3)
|
67,719
|
|
|
Loss on impairment of real estate
|
|
|
2,830
|
|
|
—
|
|
|
2,830
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,830
|
|
|
Acquisition and transaction related costs
|
|
|
10,695
|
|
|
—
|
|
|
10,695
|
|
|
9,193
|
|
|
—
|
|
|
9,193
|
|
|
—
|
|
|
19,888
|
|
|
General and administrative
|
|
|
(11,516
|
)
|
|
—
|
|
|
(11,516
|
)
|
|
12,545
|
|
|
(2,794
|
)
|
|
9,751
|
|
|
—
|
|
|
(1,765
|
)
|
|
Total expenses
|
|
|
76,683
|
|
|
—
|
|
|
76,683
|
|
|
87,638
|
|
|
(18,335
|
)
|
|
69,303
|
|
|
5,782
|
|
|
151,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of real estate
|
|
|
3,332
|
|
|
—
|
|
|
3,332
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,332
|
|
|
Dividend income
|
|
|
425
|
|
|
—
|
|
|
425
|
|
|
555
|
|
|
—
|
|
|
555
|
|
|
—
|
|
|
980
|
|
|
Unrealized loss on equity securities
|
|
|
(48,229
|
)
|
|
—
|
|
|
(48,229
|
)
|
|
(63,029
|
)
|
|
—
|
|
|
(63,029
|
)
|
|
—
|
|
|
(111,258
|
)
|
|
Interest income
|
|
|
234
|
|
|
—
|
|
|
234
|
|
|
145
|
|
|
(63
|
)
|
|
82
|
|
|
—
|
|
|
316
|
|
|
Interest expense
|
|
|
(20,421
|
)
|
|
376
|
|
|
(20,045
|
)
|
|
(23,701
|
)
|
|
4,472
|
|
|
(19,229
|
)
|
|
(241
|
)
|
(4)
|
(39,515
|
)
|
|
Loss on early extinguishment of debt
|
|
|
(709
|
)
|
|
—
|
|
|
(709
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(709
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income
tax
expense and equity in net losses of investees
|
|
|
(38,395
|
)
|
|
376
|
|
|
(38,019
|
)
|
|
(51,175
|
)
|
|
(17,501
|
)
|
|
(68,676
|
)
|
|
(4,744
|
)
|
|
(111,439
|
)
|
|
Income tax benefit (expense)
|
|
|
7
|
|
|
—
|
|
|
7
|
|
|
(10
|
)
|
|
8
|
|
|
(2
|
)
|
|
—
|
|
|
5
|
|
|
Equity in net losses of investees
|
|
|
(1,157
|
)
|
|
—
|
|
|
(1,157
|
)
|
|
(366
|
)
|
|
—
|
|
|
(366
|
)
|
|
—
|
|
|
(1,523
|
)
|
|
Income (loss) from continuing operations
|
|
|
(39,545
|
)
|
|
376
|
|
|
(39,169
|
)
|
|
(51,551
|
)
|
|
(17,493
|
)
|
|
(69,044
|
)
|
|
(4,744
|
)
|
|
(112,957
|
)
|
|
Loss from discontinued operations
|
|
|
(18,150
|
)
|
|
(515
|
)
|
|
(18,665
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(18,665
|
)
|
|
Net loss
|
|
|
(57,695
|
)
|
|
(139
|
)
|
|
(57,834
|
)
|
|
(51,551
|
)
|
|
(17,493
|
)
|
|
(69,044
|
)
|
|
(4,744
|
)
|
|
(131,622
|
)
|
|
Noncontrolling interest
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,395
|
)
|
|
5,395
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Net loss attributable to the company
|
|
|
$
|
(57,695
|
)
|
|
$
|
(139
|
)
|
|
$
|
(57,834
|
)
|
|
$
|
(56,946
|
)
|
|
$
|
(12,098
|
)
|
|
$
|
(69,044
|
)
|
|
$
|
(4,744
|
)
|
|
$
|
(131,622
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding (basic and diluted)
|
|
|
25,027
|
|
|
|
|
|
|
|
|
|
|
|
|
23,030
|
|
(5)
|
48,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to the company per common share (basic and
diluted)
|
|
|
$
|
(2.31
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(2.74
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The adjustment represents the effect on interest expense
related to the application of net proceeds from OPI's sale of
approximately 24,918 SIR common shares to repay approximately
$435,125 of borrowings outstanding under its revolving credit
facility, as if this transaction had occurred on October 1, 2018.
|
|
|
|
|
(2)
|
|
The adjustments represent the deconsolidation of Industrial
Logistics Properties Trust, or ILPT, as a result of SIR's
distribution to its shareholders of its 45,000 common shares of
beneficial interest of ILPT, or the ILPT Distribution, as if the
ILPT Distribution had occurred on October 1, 2018. The amounts
being adjusted are directly attributable to revenue and expenses
of ILPT properties and ILPT debt.
|
|
|
|
|
(3)
|
|
The adjustment eliminates SIR's historical depreciation and
amortization expenses of $28,893. The adjustment also includes
estimated depreciation and amortization expenses of $34,675 based
on the estimated fair value of the acquired assets. Real estate
investments are depreciated on a straight line basis over
estimated useful lives ranging up to forty years.
|
|
|
|
|
(4)
|
|
The adjustments to interest expense represent: (i) the
elimination of SIR's 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 with the assumption that the SIR senior unsecured notes
were assumed at their fair value on October 1, 2018.
|
|
|
|
|
(5)
|
|
The adjustment represents the issuance of approximately 23,283
of OPI's common shares issued to SIR shareholders as part of the
Merger.
|
|
|
|
|
|
|
|
|
|
|
|
Office Properties Income Trust
Pro Forma
Calculation of FFO and Normalized FFO Attributable to the Company
as if the Merger Had Occurred on October 1, 2018
(1)
(amounts
in thousands, except per share data)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended December 31, 2018
|
|
|
|
|
|
|
|
Sale of
|
|
OPI
|
|
|
|
ILPT
|
|
SIR
|
|
Pro Forma
|
|
|
|
|
|
|
|
OPI
|
|
SIR Shares
|
|
Adjusted
|
|
SIR
|
|
Distribution
|
|
Adjusted
|
|
Adjustments
|
|
Pro Forma
|
|
Net loss attributable to the company
|
|
|
$
|
(57,695
|
)
|
|
$
|
(139
|
)
|
|
$
|
(57,834
|
)
|
|
$
|
(56,946
|
)
|
|
$
|
(12,098
|
)
|
|
$
|
(69,044
|
)
|
|
$
|
(4,744
|
)
|
|
$
|
(131,622
|
)
|
|
Add (less):
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated properties
|
|
|
33,044
|
|
|
—
|
|
|
33,044
|
|
|
36,220
|
|
|
(7,327
|
)
|
|
28,893
|
|
|
5,782
|
|
|
67,719
|
|
|
|
Unconsolidated joint venture properties
|
|
|
1,920
|
|
|
—
|
|
|
1,920
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,920
|
|
|
|
FFO attributable to SIR investment
|
|
|
1,859
|
|
|
(1,859
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
Loss on impairment of real estate
|
|
|
2,830
|
|
|
—
|
|
|
2,830
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,830
|
|
|
|
Equity in earnings of SIR included in discontinued operations
|
|
|
(515
|
)
|
|
515
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
Gain on sale of real estate
|
|
|
(3,332
|
)
|
|
—
|
|
|
(3,332
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,332
|
)
|
|
|
Net income allocated to noncontrolling interest
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,395
|
|
|
(5,395
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
FFO allocated to noncontrolling interest
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7,613
|
)
|
|
7,613
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
FFO attributable to the company
|
|
|
(21,889
|
)
|
|
(1,483
|
)
|
|
(23,372
|
)
|
|
(22,944
|
)
|
|
(17,207
|
)
|
|
(40,151
|
)
|
|
1,038
|
|
|
(62,485
|
)
|
|
Add (less):
|
|
Acquisition and transaction related costs (2)
|
|
|
10,695
|
|
|
—
|
|
|
10,695
|
|
|
9,193
|
|
|
—
|
|
|
9,193
|
|
|
—
|
|
|
19,888
|
|
|
|
Loss on early extinguishment of debt
|
|
|
709
|
|
|
—
|
|
|
709
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
709
|
|
|
|
Normalized FFO attributable to SIR investment
|
|
|
1,524
|
|
|
(1,524
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
FFO attributable to SIR investment
|
|
|
(1,859
|
)
|
|
1,859
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
Estimated business management incentive fees (3) |
|
|
(16,973
|
)
|
|
—
|
|
|
(16,973
|
)
|
|
(21,479
|
)
|
|
—
|
|
|
(21,479
|
)
|
|
—
|
|
|
(38,452
|
)
|
|
|
Unrealized loss on equity securities (4) |
|
|
48,229
|
|
|
—
|
|
|
48,229
|
|
|
63,029
|
|
|
—
|
|
|
63,029
|
|
|
—
|
|
|
111,258
|
|
|
|
Loss on sale of SIR common shares included in
discontinued operations (5) |
|
|
18,665
|
|
|
—
|
|
|
18,665
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
18,665
|
|
|
Normalized FFO attributable to the company
|
|
|
$
|
39,101
|
|
|
$
|
(1,148
|
)
|
|
$
|
37,953
|
|
|
$
|
27,799
|
|
|
$
|
(17,207
|
)
|
|
$
|
10,592
|
|
|
$
|
1,038
|
|
|
$
|
49,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding (basic and diluted)
|
|
|
25,027
|
|
|
|
|
|
|
|
|
|
|
|
|
23,030
|
|
|
48,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per common share amounts (basic and diluted):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to the company
|
|
|
$
|
(2.31
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(2.74
|
)
|
|
FFO attributable to the company
|
|
|
$
|
(0.87
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1.30
|
)
|
|
Normalized FFO attributable to the company
|
|
|
$
|
1.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
See page 8 for definitions of FFO available for common
shareholders and Normalized FFO available for common shareholders,
a description of why OPI believes they are appropriate
supplemental measures and a description of how OPI uses these
measures.
|
|
|
|
|
(2)
|
|
Acquisition and transaction related costs include costs
incurred in connection with the Merger.
|
|
|
|
|
(3)
|
|
Incentive fees under OPI's business management agreement with
RMR 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 expense in OPI's
consolidated statements of income (loss). In calculating net loss
attributable to the company in accordance with GAAP, OPI
recognizes estimated business management incentive fee expense, if
any, in the first, second and third quarters. Although OPI
recognizes this expense, if any, in the first, second and third
quarters for purposes of calculating net loss attributable to the
company, OPI does not include such expense in the calculation of
Normalized FFO attributable to the company until the fourth
quarter, when the amount of the business management incentive fee
expense for the calendar year, if any, is determined. No incentive
management fee was payable under OPI's business management
agreement for the year ended December 31, 2018. As successor to
SIR as a result of the Merger, OPI assumed the obligation to pay
SIR's business management incentive fee for 2018. SIR's business
management incentive fee for 2018 of $25,817, or $0.54 per diluted
share, was paid by OPI in January 2019 and is reflected in the pro
forma calculation of Normalized FFO attributable to the company as
shown above.
|
|
|
|
|
(4)
|
|
Unrealized loss on equity securities represents the adjustment
required to adjust the carrying value of OPI's and SIR's
investment in RMR Inc. common shares to its fair value as of the
end of the period in accordance with GAAP standards effective
January 1, 2018.
|
|
|
|
|
(5)
|
|
On October 9, 2018, OPI sold its entire investment in SIR at a
loss.
|
|
|
|
|
|
|
|
|
Office Properties Income Trust
Calculation and
Reconciliation of Pro Forma Consolidated Property NOI and Pro
Forma Consolidated Property Cash Basis NOI as if the
Merger
Had Occurred on October 1, 2018
(1)
(amounts
in thousands)
(unaudited)
|
|
|
|
|
|
|
|
For the Three Months Ended December 31, 2018
|
|
|
|
|
|
Sale of
|
|
OPI
|
|
|
|
ILPT
|
|
SIR
|
|
Pro Forma
|
|
|
|
|
|
OPI
|
|
SIR Shares
|
|
Adjusted
|
|
SIR
|
|
Distribution
|
|
Adjusted
|
|
Adjustments
|
|
Pro Forma
|
|
Calculation of Consolidated Property NOI and Consolidated
Property Cash Basis NOI:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income (2) |
|
|
$
|
103,656
|
|
|
$
|
—
|
|
|
$
|
103,656
|
|
|
$
|
122,493
|
|
|
$
|
(40,245
|
)
|
|
$
|
82,248
|
|
|
$
|
1,279
|
|
|
$
|
187,183
|
|
|
Property operating expenses
|
|
|
(41,630
|
)
|
|
—
|
|
|
(41,630
|
)
|
|
(29,680
|
)
|
|
8,214
|
|
|
(21,466
|
)
|
|
—
|
|
|
(63,096
|
)
|
|
Consolidated Property NOI
|
|
|
62,026
|
|
|
—
|
|
|
62,026
|
|
|
92,813
|
|
|
(32,031
|
)
|
|
60,782
|
|
|
1,279
|
|
|
124,087
|
|
|
Non-cash straight line rent adjustments included in rental income (2) |
|
|
(2,339
|
)
|
|
—
|
|
|
(2,339
|
)
|
|
(3,100
|
)
|
|
1,379
|
|
|
(1,721
|
)
|
|
—
|
|
|
(4,060
|
)
|
|
Lease value amortization included in rental income (2) |
|
|
542
|
|
|
—
|
|
|
542
|
|
|
(584
|
)
|
|
106
|
|
|
(478
|
)
|
|
—
|
|
|
64
|
|
|
Non-cash amortization included in property operating expenses (3) |
|
|
(121
|
)
|
|
—
|
|
|
(121
|
)
|
|
(74
|
)
|
|
—
|
|
|
(74
|
)
|
|
—
|
|
|
(195
|
)
|
|
Consolidated Property Cash Basis NOI
|
|
|
$
|
60,108
|
|
|
$
|
—
|
|
|
$
|
60,108
|
|
|
$
|
89,055
|
|
|
$
|
(30,546
|
)
|
|
$
|
58,509
|
|
|
$
|
1,279
|
|
|
$
|
119,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Net Loss Attributable
to the Company to Consolidated NOI and Consolidated Property Cash
Basis NOI:
|
|
|
|
|
|
|
|
|
|
Net loss attributable to the company
|
|
|
$
|
(57,695
|
)
|
|
$
|
(139
|
)
|
|
$
|
(57,834
|
)
|
|
$
|
(56,946
|
)
|
|
$
|
(12,098
|
)
|
|
$
|
(69,044
|
)
|
|
$
|
(4,744
|
)
|
|
$
|
(131,622
|
)
|
|
Noncontrolling interest
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,395
|
)
|
|
5,395
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Net loss
|
|
|
(57,695
|
)
|
|
(139
|
)
|
|
(57,834
|
)
|
|
(51,551
|
)
|
|
(17,493
|
)
|
|
(69,044
|
)
|
|
(4,744
|
)
|
|
(131,622
|
)
|
|
Loss from discontinued operations
|
|
|
18,150
|
|
|
515
|
|
|
18,665
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
18,665
|
|
|
Income (loss) from continuing operations
|
|
|
(39,545
|
)
|
|
376
|
|
|
(39,169
|
)
|
|
(51,551
|
)
|
|
(17,493
|
)
|
|
(69,044
|
)
|
|
(4,744
|
)
|
|
(112,957
|
)
|
|
Equity in net losses of investees
|
|
|
1,157
|
|
|
—
|
|
|
1,157
|
|
|
366
|
|
|
—
|
|
|
366
|
|
|
—
|
|
|
1,523
|
|
|
Income tax expense (benefit)
|
|
|
(7
|
)
|
|
—
|
|
|
(7
|
)
|
|
10
|
|
|
(8
|
)
|
|
2
|
|
|
—
|
|
|
(5
|
)
|
|
Loss on early extinguishment of debt
|
|
|
709
|
|
|
—
|
|
|
709
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
709
|
|
|
Interest expense
|
|
|
20,421
|
|
|
(376
|
)
|
|
20,045
|
|
|
23,701
|
|
|
(4,472
|
)
|
|
19,229
|
|
|
241
|
|
|
39,515
|
|
|
Interest income
|
|
|
(234
|
)
|
|
—
|
|
|
(234
|
)
|
|
(145
|
)
|
|
63
|
|
|
(82
|
)
|
|
—
|
|
|
(316
|
)
|
|
Unrealized loss on equity securities
|
|
|
48,229
|
|
|
—
|
|
|
48,229
|
|
|
63,029
|
|
|
—
|
|
|
63,029
|
|
|
—
|
|
|
111,258
|
|
|
Dividend income
|
|
|
(425
|
)
|
|
—
|
|
|
(425
|
)
|
|
(555
|
)
|
|
—
|
|
|
(555
|
)
|
|
—
|
|
|
(980
|
)
|
|
Gain on sale of real estate
|
|
|
(3,332
|
)
|
|
—
|
|
|
(3,332
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,332
|
)
|
|
General and administrative
|
|
|
(11,516
|
)
|
|
—
|
|
|
(11,516
|
)
|
|
12,545
|
|
|
(2,794
|
)
|
|
9,751
|
|
|
—
|
|
|
(1,765
|
)
|
|
Acquisition and transaction related costs
|
|
|
10,695
|
|
|
—
|
|
|
10,695
|
|
|
9,193
|
|
|
—
|
|
|
9,193
|
|
|
—
|
|
|
19,888
|
|
|
Loss on impairment of real estate
|
|
|
2,830
|
|
|
—
|
|
|
2,830
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,830
|
|
|
Depreciation and amortization
|
|
|
33,044
|
|
|
—
|
|
|
33,044
|
|
|
36,220
|
|
|
(7,327
|
)
|
|
28,893
|
|
|
5,782
|
|
|
67,719
|
|
|
Consolidated Property NOI
|
|
|
62,026
|
|
|
—
|
|
|
62,026
|
|
|
92,813
|
|
|
(32,031
|
)
|
|
60,782
|
|
|
1,279
|
|
|
124,087
|
|
|
Non-cash amortization included in property operating expenses (3) |
|
|
(121
|
)
|
|
—
|
|
|
(121
|
)
|
|
(74
|
)
|
|
—
|
|
|
(74
|
)
|
|
—
|
|
|
(195
|
)
|
|
Lease value amortization included in rental income (2) |
|
|
542
|
|
|
—
|
|
|
542
|
|
|
(584
|
)
|
|
106
|
|
|
(478
|
)
|
|
—
|
|
|
64
|
|
|
Non-cash straight line rent adjustments included in rental income (2) |
|
|
(2,339
|
)
|
|
—
|
|
|
(2,339
|
)
|
|
(3,100
|
)
|
|
1,379
|
|
|
(1,721
|
)
|
|
—
|
|
|
(4,060
|
)
|
|
Consolidated Property Cash Basis NOI
|
|
|
$
|
60,108
|
|
|
$
|
—
|
|
|
$
|
60,108
|
|
|
$
|
89,055
|
|
|
$
|
(30,546
|
)
|
|
$
|
58,509
|
|
|
$
|
1,279
|
|
|
$
|
119,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Consolidated Property NOI to Same Property NOI
(4)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income
|
|
|
$
|
103,656
|
|
|
$
|
—
|
|
|
$
|
103,656
|
|
|
$
|
122,493
|
|
|
$
|
(40,245
|
)
|
|
$
|
82,248
|
|
|
$
|
1,279
|
|
|
$
|
187,183
|
|
|
Property operating expenses
|
|
|
(41,630
|
)
|
|
—
|
|
|
(41,630
|
)
|
|
(29,680
|
)
|
|
8,214
|
|
|
(21,466
|
)
|
|
—
|
|
|
(63,096
|
)
|
|
Consolidated Property NOI
|
|
|
62,026
|
|
|
—
|
|
|
62,026
|
|
|
92,813
|
|
|
(32,031
|
)
|
|
60,782
|
|
|
1,279
|
|
|
124,087
|
|
|
Less: NOI of properties not included in same property results
|
|
|
(23,154
|
)
|
|
—
|
|
|
(23,154
|
)
|
|
(32,031
|
)
|
|
32,031
|
|
|
—
|
|
|
—
|
|
|
(23,154
|
)
|
|
Same Property NOI
|
|
|
$
|
38,872
|
|
|
$
|
—
|
|
|
$
|
38,872
|
|
|
$
|
60,782
|
|
|
$
|
—
|
|
|
$
|
60,782
|
|
|
$
|
1,279
|
|
|
$
|
100,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calculation of Same Property Cash Basis NOI
(4)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Property NOI
|
|
|
$
|
38,872
|
|
|
$
|
—
|
|
|
$
|
38,872
|
|
|
$
|
60,782
|
|
|
$
|
—
|
|
|
$
|
60,782
|
|
|
$
|
1,279
|
|
|
$
|
100,933
|
|
|
Add: Lease value amortization included in rental income (3) |
|
|
497
|
|
|
—
|
|
|
497
|
|
|
(479
|
)
|
|
—
|
|
|
(479
|
)
|
|
1,403
|
|
|
1,421
|
|
|
Less: Non-cash straight line rent adjustments included in rental
income (2) |
|
|
(654
|
)
|
|
—
|
|
|
(654
|
)
|
|
(1,722
|
)
|
|
—
|
|
|
(1,722
|
)
|
|
(2,682
|
)
|
|
(5,058
|
)
|
|
Non-cash amortization included in property operating expenses (2) |
|
|
(121
|
)
|
|
—
|
|
|
(121
|
)
|
|
(75
|
)
|
|
—
|
|
|
(75
|
)
|
|
—
|
|
|
(196
|
)
|
|
Same Property Cash Basis NOI
|
|
|
$
|
38,594
|
|
|
$
|
—
|
|
|
$
|
38,594
|
|
|
$
|
58,506
|
|
|
$
|
—
|
|
|
$
|
58,506
|
|
|
$
|
—
|
|
|
$
|
97,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
OPI calculates Consolidated Property NOI, Consolidated Property
Cash Basis NOI, Same Property NOI and Same Property Cash Basis NOI
as shown above. The calculations of Consolidated Property NOI,
Consolidated Property Cash Basis NOI, Same Property NOI and Same
Property Cash Basis NOI exclude certain components of net income
(loss) available for common shareholders in order to provide
results that are more closely related to OPI's consolidated
property level results of operations. OPI defines Consolidated
Property NOI as consolidated income from its rental of real estate
less its consolidated property operating expenses. Consolidated
Property NOI excludes amortization of capitalized tenant
improvement costs and leasing commissions that OPI records as
depreciation and amortization. OPI defines Consolidated Property
Cash Basis NOI as Consolidated Property NOI excluding non-cash
straight line rent adjustments, lease value amortization and
non-cash amortization included in other operating expenses. OPI
calculates Same Property NOI and Same Property Cash Basis NOI in
the same manner that it calculates the corresponding Consolidated
Property Cash Basis NOI amounts, except that it only includes same
properties in calculating Same Property NOI and Same Property Cash
Basis NOI. OPI considers Consolidated Property NOI, Consolidated
Property Cash Basis NOI, Same Property NOI and Same Property Cash
Basis NOI to be appropriate supplemental measures to net income
(loss) available for common shareholders because they may help
both investors and management to understand the operations of
OPI's consolidated properties. OPI uses Consolidated Property NOI,
Consolidated Property Cash Basis NOI, Same Property NOI and Same
Property Cash Basis NOI to evaluate individual and company wide
consolidated property level performance, and OPI believes that
Consolidated Property NOI, Consolidated Property Cash Basis NOI,
Same Property NOI and Same Property Cash Basis NOI provide useful
information to investors regarding OPI'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 OPI's operating performance between periods and
with other REITs. Consolidated Property NOI, Consolidated Property
Cash Basis NOI, Same Property NOI and Same Property Cash Basis NOI
do not represent cash generated by operating activities in
accordance with GAAP and should not be considered alternatives to
net income (loss) or net income (loss) available for common
shareholders as indicators of OPI's operating performance or as
measures of its liquidity. These measures should be considered in
conjunction with net income (loss) and net income (loss) available
for common shareholders as presented in OPI's Consolidated
Statements of Income (Loss). Other real estate companies and REITs
may calculate Consolidated Property NOI, Consolidated Property
Cash Basis NOI, Same Property NOI and Same Property Cash Basis NOI
differently than OPI does.
|
|
|
|
|
(2)
|
|
OPI 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 expense reimbursements, tax escalations, parking
revenues, service income and other fixed and variable charges paid
to OPI by our tenants, as well as the net effect of non-cash
amortization of intangible lease assets and liabilities.
|
|
|
|
|
(3)
|
|
OPI recorded a liability for the amount by which the estimated
fair value for accounting purposes exceeded the price OPI paid for
its investment in RMR 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.
|
|
|
|
|
(4)
|
|
Same property NOI and same property Cash Basis NOI is based on
consolidated properties OPI and SIR owned as of December 31, 2018
and which OPI and SIR had owned continuously since October 1, 2017.
|
|
|
|
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/20190228005250/en/
Olivia Snyder, Manager, Investor Relations
(617) 219-1410
Source: Office Properties Income Trust