Maryland | 26-4273474 | |
(State or Other Jurisdiction of Incorporation or Organization) | (IRS Employer Identification No.) |
Large accelerated filer ☒ | Accelerated filer ☐ | |
Non-accelerated filer ☐ | Smaller reporting company ☐ | |
(Do not check if a smaller reporting company) | ||
Emerging growth company ☐ |
March 31, | December 31, | |||||||
2017 | 2016 | |||||||
ASSETS | ||||||||
Real estate properties: | ||||||||
Land | $ | 269,410 | $ | 267,855 | ||||
Buildings and improvements | 1,640,096 | 1,620,905 | ||||||
Total real estate properties, gross | 1,909,506 | 1,888,760 | ||||||
Accumulated depreciation | (308,241 | ) | (296,804 | ) | ||||
Total real estate properties, net | 1,601,265 | 1,591,956 | ||||||
Equity investment in Select Income REIT | 482,103 | 487,708 | ||||||
Assets of discontinued operations | 12,538 | 12,541 | ||||||
Acquired real estate leases, net | 118,065 | 124,848 | ||||||
Cash and cash equivalents | 12,808 | 29,941 | ||||||
Restricted cash | 703 | 530 | ||||||
Rents receivable, net | 50,459 | 48,458 | ||||||
Deferred leasing costs, net | 21,232 | 21,079 | ||||||
Other assets, net | 77,877 | 68,005 | ||||||
Total assets | $ | 2,377,050 | $ | 2,385,066 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Unsecured revolving credit facility | $ | 160,000 | $ | 160,000 | ||||
Unsecured term loans, net | 547,341 | 547,171 | ||||||
Senior unsecured notes, net | 647,213 | 646,844 | ||||||
Mortgage notes payable, net | 27,415 | 27,837 | ||||||
Liabilities of discontinued operations | 52 | 45 | ||||||
Accounts payable and other liabilities | 52,762 | 54,019 | ||||||
Due to related persons | 3,672 | 3,520 | ||||||
Assumed real estate lease obligations, net | 10,025 | 10,626 | ||||||
Total liabilities | 1,448,480 | 1,450,062 | ||||||
Commitments and contingencies | ||||||||
Shareholders’ equity: | ||||||||
Common shares of beneficial interest, $.01 par value: 100,000,000 shares | ||||||||
authorized, 71,177,906 shares issued and outstanding | 712 | 712 | ||||||
Additional paid in capital | 1,473,533 | 1,473,533 | ||||||
Cumulative net income | 103,744 | 96,329 | ||||||
Cumulative other comprehensive income | 43,714 | 26,957 | ||||||
Cumulative common distributions | (693,133 | ) | (662,527 | ) | ||||
Total shareholders’ equity | 928,570 | 935,004 | ||||||
Total liabilities and shareholders’ equity | $ | 2,377,050 | $ | 2,385,066 |
Three Months Ended March 31, | ||||||||
2017 | 2016 | |||||||
Rental income | $ | 69,296 | $ | 63,611 | ||||
Expenses: | ||||||||
Real estate taxes | 8,177 | 7,653 | ||||||
Utility expenses | 4,606 | 4,174 | ||||||
Other operating expenses | 13,992 | 12,911 | ||||||
Depreciation and amortization | 20,505 | 18,324 | ||||||
Acquisition related costs | — | 152 | ||||||
General and administrative | 3,962 | 3,526 | ||||||
Total expenses | 51,242 | 46,740 | ||||||
Operating income | 18,054 | 16,871 | ||||||
Dividend income | 304 | — | ||||||
Interest income | 61 | 6 | ||||||
Interest expense (including net amortization of debt premiums and discounts | ||||||||
and debt issuance costs of $807 and $471, respectively) | (13,581 | ) | (9,364 | ) | ||||
Gain on early extinguishment of debt | — | 104 | ||||||
Income from continuing operations before income taxes | ||||||||
and equity in earnings of investees | 4,838 | 7,617 | ||||||
Income tax expense | (18 | ) | (15 | ) | ||||
Equity in earnings of investees | 2,739 | 9,934 | ||||||
Income from continuing operations | 7,559 | 17,536 | ||||||
Loss from discontinued operations | (144 | ) | (149 | ) | ||||
Net income | 7,415 | 17,387 | ||||||
Other comprehensive income | ||||||||
Unrealized gain on investment in available for sale securities | 12,142 | 12,871 | ||||||
Equity in unrealized gain of investees | 4,615 | 4,544 | ||||||
Other comprehensive income | 16,757 | 17,415 | ||||||
Comprehensive income | $ | 24,172 | $ | 34,802 | ||||
Weighted average common shares outstanding (basic) | 71,079 | 71,031 | ||||||
Weighted average common shares outstanding (diluted) | 71,094 | 71,031 | ||||||
Per common share amounts (basic and diluted): | ||||||||
Income from continuing operations | $ | 0.11 | $ | 0.25 | ||||
Loss from discontinued operations | $ | — | $ | — | ||||
Net income | $ | 0.10 | $ | 0.24 |
Three Months Ended March 31, | ||||||||
2017 | 2016 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net income | $ | 7,415 | $ | 17,387 | ||||
Adjustments to reconcile net income to cash provided by operating activities: | ||||||||
Depreciation | 11,576 | 10,237 | ||||||
Net amortization of debt premiums and discounts and debt issuance costs | 807 | 471 | ||||||
Gain on early extinguishment of debt | — | (104 | ) | |||||
Straight line rental income | (1,300 | ) | (149 | ) | ||||
Amortization of acquired real estate leases | 8,672 | 7,712 | ||||||
Amortization of deferred leasing costs | 849 | 709 | ||||||
Other non-cash expenses (income), net | 5 | (105 | ) | |||||
Equity in earnings of investees | (2,739 | ) | (9,934 | ) | ||||
Distributions of earnings from Select Income REIT | 1,875 | 9,117 | ||||||
Change in assets and liabilities: | ||||||||
Restricted cash | (173 | ) | 309 | |||||
Deferred leasing costs | (1,075 | ) | (1,989 | ) | ||||
Rents receivable | (974 | ) | (1,215 | ) | ||||
Other assets | 2,215 | 1,849 | ||||||
Accounts payable and accrued expenses | (1,989 | ) | (4,577 | ) | ||||
Due to related persons | 152 | 1,494 | ||||||
Net cash provided by operating activities | 25,316 | 31,212 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Real estate acquisitions and deposits | (12,641 | ) | (79,244 | ) | ||||
Real estate improvements | (9,656 | ) | (4,964 | ) | ||||
Distributions in excess of earnings from Select Income REIT | 10,833 | 3,342 | ||||||
Net cash used in investing activities | (11,464 | ) | (80,866 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Repayment of mortgage notes payable | (379 | ) | (106,849 | ) | ||||
Borrowings on unsecured revolving credit facility | 30,000 | 204,000 | ||||||
Repayments on unsecured revolving credit facility | (30,000 | ) | (10,000 | ) | ||||
Distributions to common shareholders | (30,606 | ) | (30,584 | ) | ||||
Net cash (used in) provided by financing activities | (30,985 | ) | 56,567 | |||||
Increase (decrease) in cash and cash equivalents | (17,133 | ) | 6,913 | |||||
Cash and cash equivalents at beginning of period | 29,941 | 8,785 | ||||||
Cash and cash equivalents at end of period | $ | 12,808 | $ | 15,698 |
Supplemental cash flow information: | ||||||||
Interest paid | $ | 15,854 | $ | 12,319 | ||||
Income taxes paid | $ | — | $ | 44 |
For the Three Months | ||||||
Ended March 31, | ||||||
2017 | 2016 | |||||
Weighted average common shares for basic earnings per share | 71,079 | 71,031 | ||||
Effect of dilutive securities: unvested share awards | 15 | — | ||||
Weighted average common shares for diluted earnings per share | 71,094 | 71,031 |
Number | |||||||||||||||||||||||||
of | Buildings | Other | |||||||||||||||||||||||
Acquisition | Properties/ | Square | Purchase | and | Assumed | ||||||||||||||||||||
Date | Location | Type | Buildings | Feet | Price | Land | Improvements | Assets | |||||||||||||||||
January 2017 | Manassas, VA | Office | 1/1 | 69,374 | $ | 12,641 | $ | 1,562 | $ | 8,237 | $ | 2,842 |
March 31, | December 31, | |||||||
2017 | 2016 | |||||||
Real estate properties, net | $ | 12,260 | $ | 12,260 | ||||
Other assets | 278 | 281 | ||||||
Assets of discontinued operations | $ | 12,538 | $ | 12,541 | ||||
Other liabilities | $ | 52 | $ | 45 | ||||
Liabilities of discontinued operations | $ | 52 | $ | 45 |
Three Months Ended March 31, | ||||||||
2017 | 2016 | |||||||
Rental income | $ | 7 | $ | 28 | ||||
Real estate taxes | (24 | ) | (23 | ) | ||||
Utility expenses | (46 | ) | (50 | ) | ||||
Other operating expenses | (53 | ) | (76 | ) | ||||
General and administrative | (28 | ) | (28 | ) | ||||
Loss from discontinued operations | $ | (144 | ) | $ | (149 | ) |
Fair Value at Reporting Date Using | ||||||||||||||||
Quoted Prices in | Significant | |||||||||||||||
Estimated | Active Markets for | Significant Other | Unobservable | |||||||||||||
Fair | Identical Assets | Observable Inputs | Inputs | |||||||||||||
Description | Value | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
Recurring Fair Value Measurements Assets: | ||||||||||||||||
Investment in RMR Inc. (1) | $ | 60,104 | $ | 60,104 | $ | — | $ | — | ||||||||
Non-Recurring Fair Value Measurements Assets: | ||||||||||||||||
Property held for sale and classified as discontinued operations (2) | $ | 12,260 | $ | — | $ | — | $ | 12,260 |
(1) | Our 1,214,225 shares of class A common stock of The RMR Group Inc., or RMR Inc., which are included in other assets in our condensed consolidated balance sheets, are reported at fair value which is based on quoted market prices (Level 1 inputs). Our historical cost basis for these shares is $26,888 as of March 31, 2017. The net unrealized gain of $33,216 for these shares as of March 31, 2017 is included in cumulative other comprehensive income in our condensed consolidated balance sheets. |
(2) | We estimated the fair value of this property at March 31, 2017 based upon broker estimates of value less estimated sale costs (Level 3 inputs as defined in the fair value hierarchy under GAAP). |
As of March 31, 2017 | As of December 31, 2016 | |||||||||||||||
Carrying Amount (1) | Fair Value | Carrying Amount (1) | Fair Value | |||||||||||||
Senior unsecured notes, 3.75% interest rate, due in 2019 | $ | 347,238 | $ | 355,248 | $ | 346,952 | $ | 354,078 | ||||||||
Senior unsecured notes, 5.875% interest rate, due in 2046 | 299,975 | 310,000 | 299,892 | 292,268 | ||||||||||||
Mortgage note payable, 5.88% interest rate, due in 2021 (2) | 13,784 | 14,561 | 13,841 | 14,492 | ||||||||||||
Mortgage note payable, 7.00% interest rate, due in 2019 (2) | 8,683 | 9,063 | 8,778 | 9,188 | ||||||||||||
Mortgage note payable, 8.15% interest rate, due in 2021 (2) | 4,948 | 5,286 | 5,218 | 5,575 | ||||||||||||
$ | 674,628 | $ | 694,158 | $ | 674,681 | $ | 675,601 |
(1) | Carrying amount includes certain unamortized debt issuance costs and unamortized premiums and discounts. |
(2) | We assumed these mortgages in connection with our acquisitions of the encumbered properties. The stated interest rates for these mortgage debts are the contractually stated rates. We recorded the assumed mortgages at estimated fair value on the date of acquisition and we are amortizing the fair value premiums, if any, to interest expense over the respective terms of the mortgages to reduce interest expense to the estimated market interest rates as of the date of acquisition. |
Three Months Ended March 31, 2017 | ||||||||||||
Unrealized Gain | Equity in | |||||||||||
on Investment | Unrealized Gain | |||||||||||
in Available for | of | |||||||||||
Sale Securities | Investees | Total | ||||||||||
Balance at December 31, 2016 | $ | 21,074 | $ | 5,883 | $ | 26,957 | ||||||
Other comprehensive income before reclassifications | 12,142 | 4,599 | 16,741 | |||||||||
Amounts reclassified from cumulative other comprehensive income to net income (1) | — | 16 | 16 | |||||||||
Net current period other comprehensive income | 12,142 | 4,615 | 16,757 | |||||||||
Balance at March 31, 2017 | $ | 33,216 | $ | 10,498 | $ | 43,714 |
(1) | Amounts reclassified from cumulative other comprehensive income are included in equity in earnings of investees in our condensed consolidated statements of comprehensive income. |
March 31, | December 31, | |||||||
2017 | 2016 | |||||||
Real estate properties, net | $ | 3,881,945 | $ | 3,899,792 | ||||
Acquired real estate leases, net | 486,932 | 506,298 | ||||||
Cash and cash equivalents | 18,101 | 22,127 | ||||||
Rents receivable, net | 111,688 | 124,089 | ||||||
Other assets, net | 115,399 | 87,376 | ||||||
Total assets | $ | 4,614,065 | $ | 4,639,682 | ||||
Unsecured revolving credit facility | $ | 342,000 | $ | 327,000 | ||||
Unsecured term loan, net | 348,497 | 348,373 | ||||||
Senior unsecured notes, net | 1,431,368 | 1,430,300 | ||||||
Mortgage notes payable, net | 245,418 | 245,643 | ||||||
Assumed real estate lease obligations, net | 75,411 | 77,622 | ||||||
Other liabilities | 120,168 | 136,782 | ||||||
Shareholders' equity | 2,051,203 | 2,073,962 | ||||||
Total liabilities and shareholders' equity | $ | 4,614,065 | $ | 4,639,682 |
Three Months Ended March 31, | ||||||||
2017 | 2016 | |||||||
Rental income | $ | 97,344 | $ | 97,860 | ||||
Tenant reimbursements and other income | 18,950 | 19,372 | ||||||
Total revenues | 116,294 | 117,232 | ||||||
Real estate taxes | 10,843 | 10,288 | ||||||
Other operating expenses | 12,867 | 12,958 | ||||||
Depreciation and amortization | 33,740 | 33,469 | ||||||
Acquisition related costs | — | 58 | ||||||
General and administrative | 14,888 | 6,976 | ||||||
Reserve for straight line rent receivable, net | 12,517 | — | ||||||
Loss on asset impairment | 4,047 | — | ||||||
Total expenses | 88,902 | 63,749 | ||||||
Operating income | 27,392 | 53,483 | ||||||
Dividend income | 397 | — | ||||||
Interest expense | (21,087 | ) | (20,609 | ) | ||||
Income before income tax expense and equity in earnings of an investee | 6,702 | 32,874 | ||||||
Income tax expense | (102 | ) | (139 | ) | ||||
Equity in earnings of an investee | 128 | 77 | ||||||
Net income | 6,728 | 32,812 | ||||||
Net income allocated to noncontrolling interest | — | (33 | ) | |||||
Net income attributed to SIR | $ | 6,728 | $ | 32,779 | ||||
Weighted average common shares outstanding (basic) | 89,331 | 89,286 | ||||||
Weighted average common shares outstanding (diluted) | $ | 89,348 | $ | 89,295 | ||||
Net income attributed to SIR per common share (basic and diluted) | $ | 0.08 | $ | 0.37 |
Three Months Ended March 31, 2017 | ||||||||||||||||
Investment | Investment | |||||||||||||||
in Real Estate | in SIR | Corporate | Consolidated | |||||||||||||
Rental income | $ | 69,296 | $ | — | $ | — | $ | 69,296 | ||||||||
Expenses: | ||||||||||||||||
Real estate taxes | 8,177 | — | — | 8,177 | ||||||||||||
Utility expenses | 4,606 | — | — | 4,606 | ||||||||||||
Other operating expenses | 13,992 | — | — | 13,992 | ||||||||||||
Depreciation and amortization | 20,505 | — | — | 20,505 | ||||||||||||
General and administrative | — | — | 3,962 | 3,962 | ||||||||||||
Total expenses | 47,280 | — | 3,962 | 51,242 | ||||||||||||
Operating income (loss) | 22,016 | — | (3,962 | ) | 18,054 | |||||||||||
Dividend income | — | — | 304 | 304 | ||||||||||||
Interest income | 46 | — | 15 | 61 | ||||||||||||
Interest expense | (432 | ) | — | (13,149 | ) | (13,581 | ) | |||||||||
Income (loss) from continuing operations before | ||||||||||||||||
income taxes and equity in earnings of investees | 21,630 | — | (16,792 | ) | 4,838 | |||||||||||
Income tax expense | — | — | (18 | ) | (18 | ) | ||||||||||
Equity in earnings of investees | — | 2,611 | 128 | 2,739 | ||||||||||||
Income (loss) from continuing operations | 21,630 | 2,611 | (16,682 | ) | 7,559 | |||||||||||
Loss from discontinued operations | (144 | ) | — | — | (144 | ) | ||||||||||
Net income (loss) | $ | 21,486 | $ | 2,611 | $ | (16,682 | ) | $ | 7,415 |
As of March 31, 2017 | ||||||||||||||||
Investment | Investment | |||||||||||||||
in Real Estate | in SIR | Corporate | Consolidated | |||||||||||||
Total Assets | $ | 1,811,545 | $ | 482,103 | $ | 83,402 | $ | 2,377,050 |
Three Months Ended March 31, 2016 | ||||||||||||||||
Investment | Investment | |||||||||||||||
in Real Estate | in SIR | Corporate | Consolidated | |||||||||||||
Rental income | $ | 63,611 | $ | — | $ | — | $ | 63,611 | ||||||||
Expenses: | ||||||||||||||||
Real estate taxes | 7,653 | — | — | 7,653 | ||||||||||||
Utility expenses | 4,174 | — | — | 4,174 | ||||||||||||
Other operating expenses | 12,911 | — | — | 12,911 | ||||||||||||
Depreciation and amortization | 18,324 | — | — | 18,324 | ||||||||||||
Acquisition related costs | 152 | — | — | 152 | ||||||||||||
General and administrative | — | — | 3,526 | 3,526 | ||||||||||||
Total expenses | 43,214 | — | 3,526 | 46,740 | ||||||||||||
Operating income (loss) | 20,397 | — | (3,526 | ) | 16,871 | |||||||||||
Interest income | — | — | 6 | 6 | ||||||||||||
Interest expense | (1,095 | ) | — | (8,269 | ) | (9,364 | ) | |||||||||
Gain on early extinguishment of debt | 104 | — | — | 104 | ||||||||||||
Income (loss) from continuing operations before income | ||||||||||||||||
income taxes and equity in earnings of investees | 19,406 | — | (11,789 | ) | 7,617 | |||||||||||
Income tax expense | — | — | (15 | ) | (15 | ) | ||||||||||
Equity in earnings of investees | — | 9,857 | 77 | 9,934 | ||||||||||||
Income (loss) from continuing operations | 19,406 | 9,857 | (11,727 | ) | 17,536 | |||||||||||
Loss from discontinued operations | (149 | ) | — | — | (149 | ) | ||||||||||
Net income (loss) | $ | 19,257 | $ | 9,857 | $ | (11,727 | ) | $ | 17,387 |
As of December 31, 2016 | ||||||||||||||||
Investment | Investment | |||||||||||||||
in Real Estate | in SIR | Corporate | Consolidated | |||||||||||||
Total Assets | $ | 1,807,560 | $ | 487,708 | $ | 89,798 | $ | 2,385,066 |
Comparable | ||||||||||||
All Properties (1) | Properties (2) | |||||||||||
March 31, | March 31, | |||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||
Total properties | 74 | 72 | 70 | 70 | ||||||||
Total buildings | 96 | 92 | 90 | 90 | ||||||||
Total square feet (3) | 11,512 | 10,985 | 10,612 | 10,612 | ||||||||
Percent leased (4) | 95.1 | % | 94.9 | % | 95.1 | % | 95.4 | % |
(1) | Based on properties we owned on March 31, 2017 and 2016, respectively, and excludes one property (one building) classified as discontinued operations. |
(2) | Based on properties we owned on March 31, 2017 and which we owned continuously since January 1, 2016, and excludes one property (one building) classified as discontinued operations. Our comparable properties decreased from 71 properties (91 buildings) at March 31, 2016 as a result of the sale of one property (one building) during the year ended December 31, 2016. |
(3) | Subject to changes when space is re-measured or re-configured for tenants. |
(4) | Percent leased includes (i) space being fitted out for tenant occupancy pursuant to our lease agreements, if any, and (ii) space which is leased, but is not occupied or is being offered for sublease by tenants, if any, as of the measurement date. |
Three Months Ended March 31, | ||||||||
2017 | 2016 | |||||||
Average annualized effective rental rate per square foot (1): | ||||||||
All properties (2) | $ | 25.55 | $ | 25.04 | ||||
Comparable properties (3) | $ | 25.14 | $ | 24.88 |
(1) | Average annualized effective rental rate per square foot represents annualized total rental income during the period specified divided by the average rentable square feet leased during the period specified. Excludes one property (one building) classified as discontinued operations. |
(2) | Based on properties we owned on March 31, 2017 and 2016, respectively, and excludes one property (one building) classified as discontinued operations. |
(3) | Based on properties we owned on March 31, 2017 and which we owned continuously since January 1, 2016 and excludes one property (one building) classified as discontinued operations. |
Three Months Ended March 31, 2017 | |||||||||
Available | |||||||||
Leased | for Lease | Total | |||||||
Beginning of period | 10,881,289 | 561,224 | 11,442,513 | ||||||
Changes resulting from: | |||||||||
Acquisition of properties | 69,374 | — | 69,374 | ||||||
Lease expirations | (360,147 | ) | 360,147 | — | |||||
Lease renewals (1) | 345,541 | (345,541 | ) | — | |||||
New leases (1) | 14,562 | (14,562 | ) | — | |||||
End of period | 10,950,619 | 561,268 | 11,511,887 |
(1) | Based on leases entered into during the three months ended March 31, 2017. |
Three Months Ended March 31, 2017 | ||||||||||||
Old Effective | New Effective | |||||||||||
Rent Per | Rent Per | Rentable | ||||||||||
Square Foot (1) | Square Foot (1) | Square Feet | ||||||||||
New leases | $ | 24.24 | $ | 21.64 | $ | 45,114 | ||||||
Lease renewals | $ | 7.76 | $ | 8.12 | $ | 331,465 | ||||||
Total leasing activity | $ | 9.74 | $ | 9.74 | $ | 376,579 |
(1) | Effective rental rate includes contractual base rents from our tenants pursuant to our lease agreements, plus straight line rent adjustments and estimated expense reimbursements to be paid to us, and excluding lease value amortization. |
Government | Non-Government | |||||||||||
Three Months Ended March 31, 2017 | Leases | Leases | Total | |||||||||
Rentable square feet leased during the period | 324,127 | 35,976 | 360,103 | |||||||||
Tenant leasing costs and concession commitments (1) (in thousands) | $ | 879 | $ | 1,362 | $ | 2,241 | ||||||
Tenant leasing costs and concession commitments per rentable square foot (1) | $ | 2.71 | $ | 37.87 | $ | 6.22 | ||||||
Weighted (by square feet) average lease term (years) | 10.9 | 7.1 | 10.6 | |||||||||
Total leasing costs and concession commitments per rentable square foot per year (1) | $ | 0.25 | $ | 5.36 | $ | 0.59 |
(1) | Includes commitments made for leasing expenditures and concessions, such as tenant improvements, leasing commissions, tenant reimbursements and free rent. |
Three Months Ended | ||||||||
March 31, | ||||||||
2017 | 2016 | |||||||
Tenant improvements (1) | $ | 2,403 | $ | 1,989 | ||||
Leasing costs (2) | $ | 1,087 | $ | 4,312 | ||||
Building improvements (3) | $ | 1,778 | $ | 3,033 | ||||
Development, redevelopment and other activities (4) | $ | 6,281 | $ | 768 |
(1) | Tenant improvements include capital expenditures used to improve tenants’ space or amounts paid directly to tenants to improve their space. |
(2) | Leasing costs include leasing related costs, such as brokerage commissions and other tenant inducements. |
(3) | Building improvements generally include expenditures to replace obsolete building components and expenditures that extend the useful life of existing assets. |
(4) | Development, redevelopment and other activities generally include (i) capital expenditures that are identified at the time of a property acquisition and incurred within a short time period after acquiring the property, and (ii) capital expenditure projects that reposition a property or result in new sources of revenue. |
Number | Expirations | Annualized | ||||||||||||||||||||||
of | of Leased | Cumulative | Rental | Cumulative | ||||||||||||||||||||
Tenants | Square | Percent | Percent | Income | Percent | Percent | ||||||||||||||||||
Year (1) | Expiring | Feet (2) | of Total | of Total | Expiring | of Total | of Total | |||||||||||||||||
2017 | 34 | 865,354 | 7.9 | % | 7.9 | % | $ | 19,397 | 7.1 | % | 7.1 | % | ||||||||||||
2018 | 40 | 904,342 | 8.3 | % | 16.2 | % | 34,221 | 12.5 | % | 19.6 | % | |||||||||||||
2019 | 42 | 1,908,746 | 17.4 | % | 33.6 | % | 57,922 | 21.1 | % | 40.7 | % | |||||||||||||
2020 | 34 | 1,309,087 | 12.0 | % | 45.6 | % | 31,038 | 11.3 | % | 52.0 | % | |||||||||||||
2021 | 35 | 1,059,534 | 9.7 | % | 55.3 | % | 20,648 | 7.5 | % | 59.5 | % | |||||||||||||
2022 | 24 | 913,979 | 8.3 | % | 63.6 | % | 21,894 | 8.0 | % | 67.5 | % | |||||||||||||
2023 | 16 | 600,877 | 5.5 | % | 69.1 | % | 13,789 | 5.0 | % | 72.5 | % | |||||||||||||
2024 | 15 | 991,572 | 9.1 | % | 78.2 | % | 22,636 | 8.2 | % | 80.7 | % | |||||||||||||
2025 | 12 | 601,162 | 5.5 | % | 83.7 | % | 11,539 | 4.2 | % | 84.9 | % | |||||||||||||
2026 and thereafter | 26 | 1,795,966 | (3) | 16.3 | % | 100.0 | % | 41,639 | 15.1 | % | 100.0 | % | ||||||||||||
Total | 278 | 10,950,619 | 100.0 | % | $ | 274,723 | 100.0 | % | ||||||||||||||||
Weighted average remaining lease term (in years) | 5.1 | 4.7 |
(1) | The year of lease expiration is pursuant to current contract terms. Some government tenants have the right to vacate their space before the stated expirations of their leases. As of March 31, 2017, government tenants occupying approximately 11.7% of our rentable square feet and responsible for approximately 9.2% of our annualized rental income as of March 31, 2017 have currently exercisable rights to terminate their leases before the stated terms of their leases expire. Also, in 2017, 2018, 2019, 2020, 2021, 2022, 2023, 2026 and 2027, early termination rights become exercisable by other tenants who currently occupy an additional approximately 2.3%, 2.2%, 4.9%, 7.0%, 0.7%, 2.9%, 1.9%, 0.9% and 0.6% of our rentable square feet, respectively, and contribute an additional approximately 1.7%, 2.8%, 5.1%, 7.4%, 0.6%, 2.3%, 1.7%, 1.2% and 0.6% of our annualized rental income, respectively, as of March 31, 2017. In addition, as of March 31, 2017, 15 of our government tenants have currently exercisable rights to terminate their leases if the legislature or other funding authority does not appropriate rent amounts in their respective annual budgets. These 15 tenants occupy approximately 17.2% of our rentable square feet and contribute approximately 16.8% of our annualized rental income as of March 31, 2017. |
(2) | Leased square feet is pursuant to leases existing as of March 31, 2017, and includes (i) space being fitted out for tenant occupancy pursuant to our lease agreements, if any, and (ii) space which is leased, but is not occupied or is being offered for sublease by tenants, if any. Square feet measurements are subject to changes when space is re-measured or re-configured for new tenants. |
(3) | Leased square footage excludes a 25,579 square foot expansion to be constructed at an existing property prior to the commencement of the lease. |
Acquired Properties | Disposed Property | |||||||||||||||||||||||||||||||||||||||||||||
Results (2) | Results (3) | |||||||||||||||||||||||||||||||||||||||||||||
Comparable Properties Results (1) | Three Months Ended | Three Months Ended | Consolidated Results | |||||||||||||||||||||||||||||||||||||||||||
Three Months Ended March 31, | March 31, | March 31, | Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||||||||||
$ | % | $ | % | |||||||||||||||||||||||||||||||||||||||||||
2017 | 2016 | Change | Change | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | Change | Change | |||||||||||||||||||||||||||||||||||
Rental income | $ | 62,872 | $ | 62,079 | $ | 793 | 1.3 | % | $ | 6,424 | $ | 1,532 | $ | — | $ | — | $ | 69,296 | $ | 63,611 | $ | 5,685 | 8.9 | % | ||||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||||||||||||||||||
Real estate taxes | 7,540 | 7,511 | 29 | 0.4 | % | 637 | 127 | — | 15 | 8,177 | 7,653 | 524 | 6.8 | % | ||||||||||||||||||||||||||||||||
Utility expenses | 4,153 | 4,065 | 88 | 2.2 | % | 453 | 98 | — | 11 | 4,606 | 4,174 | 432 | 10.3 | % | ||||||||||||||||||||||||||||||||
Other operating expenses | 12,929 | 12,538 | 391 | 3.1 | % | 1,063 | 346 | — | 27 | 13,992 | 12,911 | 1,081 | 8.4 | % | ||||||||||||||||||||||||||||||||
Total operating expenses | 24,622 | 24,114 | 508 | 2.1 | % | 2,153 | 571 | — | 53 | 26,775 | 24,738 | 2,037 | 8.2 | % | ||||||||||||||||||||||||||||||||
Net operating income (4) | $ | 38,250 | $ | 37,965 | $ | 285 | 0.8 | % | $ | 4,271 | $ | 961 | $ | — | $ | (53 | ) | 42,521 | 38,873 | 3,648 | 9.4 | % | ||||||||||||||||||||||||
Other expenses: | ||||||||||||||||||||||||||||||||||||||||||||||
Depreciation and amortization | 20,505 | 18,324 | 2,181 | 11.9 | % | |||||||||||||||||||||||||||||||||||||||||
Acquisition related costs | — | 152 | (152 | ) | (100.0 | %) | ||||||||||||||||||||||||||||||||||||||||
General and administrative | 3,962 | 3,526 | 436 | 12.4 | % | |||||||||||||||||||||||||||||||||||||||||
Total other expenses | 24,467 | 22,002 | 2,465 | 11.2 | % | |||||||||||||||||||||||||||||||||||||||||
Operating income | 18,054 | 16,871 | 1,183 | 7.0 | % | |||||||||||||||||||||||||||||||||||||||||
Dividend income | 304 | — | 304 | nm | ||||||||||||||||||||||||||||||||||||||||||
Interest income | 61 | 6 | 55 | nm | ||||||||||||||||||||||||||||||||||||||||||
Interest expense (including net amortization of debt premiums and discounts and debt issuance costs of $807 and $471, respectively) | (13,581 | ) | (9,364 | ) | (4,217 | ) | 45.0 | % | ||||||||||||||||||||||||||||||||||||||
Gain on early extinguishment of debt | — | 104 | (104 | ) | (100.0 | %) | ||||||||||||||||||||||||||||||||||||||||
Income from continuing operations before income taxes and equity in earnings of investees | 4,838 | 7,617 | (2,779 | ) | (36.5 | %) | ||||||||||||||||||||||||||||||||||||||||
Income tax expense | (18 | ) | (15 | ) | (3 | ) | 20.0 | % | ||||||||||||||||||||||||||||||||||||||
Equity in earnings of investees | 2,739 | 9,934 | (7,195 | ) | (72.4 | %) | ||||||||||||||||||||||||||||||||||||||||
Income from continuing operations | 7,559 | 17,536 | (9,977 | ) | (56.9 | %) | ||||||||||||||||||||||||||||||||||||||||
Loss from discontinued operations | (144 | ) | (149 | ) | 5 | (3.4 | %) | |||||||||||||||||||||||||||||||||||||||
Net income | $ | 7,415 | $ | 17,387 | $ | (9,972 | ) | (57.4 | %) | |||||||||||||||||||||||||||||||||||||
Weighted average common shares outstanding (basic) | 71,079 | 71,031 | 48 | 0.1 | % | |||||||||||||||||||||||||||||||||||||||||
Weighted average common shares outstanding (diluted) | 71,094 | 71,031 | 63 | 0.1 | % | |||||||||||||||||||||||||||||||||||||||||
Per common share amounts (basic and diluted): | ||||||||||||||||||||||||||||||||||||||||||||||
Income from continuing operations | $ | 0.11 | $ | 0.25 | $ | (0.14 | ) | (56.0 | %) | |||||||||||||||||||||||||||||||||||||
Loss from discontinued operations | $ | — | $ | — | $ | — | — | % | ||||||||||||||||||||||||||||||||||||||
Net income | $ | 0.10 | $ | 0.24 | $ | (0.14 | ) | (58.3 | %) | |||||||||||||||||||||||||||||||||||||
Reconciliation of Net Income to NOI: (4) | ||||||||||||||||||||||||||||||||||||||||||||||
Net income | $ | 7,415 | $ | 17,387 | ||||||||||||||||||||||||||||||||||||||||||
Loss from discontinued operations | 144 | 149 | ||||||||||||||||||||||||||||||||||||||||||||
Income from continuing operations | 7,559 | 17,536 | ||||||||||||||||||||||||||||||||||||||||||||
Equity in earnings of investees | (2,739) | (9,934) | ||||||||||||||||||||||||||||||||||||||||||||
Income tax expense | 18 | 15 | ||||||||||||||||||||||||||||||||||||||||||||
Gain on early extinguishment of debt | — | (104 | ) | |||||||||||||||||||||||||||||||||||||||||||
Interest expense | 13,581 | 9,364 | ||||||||||||||||||||||||||||||||||||||||||||
Interest income | (61) | (6) | ||||||||||||||||||||||||||||||||||||||||||||
Dividend income | (304) | — | ||||||||||||||||||||||||||||||||||||||||||||
Operating income | 18,054 | 16,871 | ||||||||||||||||||||||||||||||||||||||||||||
General and administrative | 3,962 | 3,526 | ||||||||||||||||||||||||||||||||||||||||||||
Acquisition related costs | — | 152 | ||||||||||||||||||||||||||||||||||||||||||||
Depreciation and amortization | 20,505 | 18,324 | ||||||||||||||||||||||||||||||||||||||||||||
NOI | $ | 42,521 | $ | 38,873 |
Reconciliation of Net Income to Funds From Operations and Normalized Funds From Operations (5) | ||||||||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||||||||
Net income | $ | 7,415 | $ | 17,387 | ||||||||||||||||||||||||
Plus: Depreciation and amortization | 20,505 | 18,324 | ||||||||||||||||||||||||||
Plus: FFO attributable to Select Income REIT investment | 12,404 | 18,458 | ||||||||||||||||||||||||||
Less: Equity in earnings from Select Income REIT | (2,611 | ) | (9,857 | ) | ||||||||||||||||||||||||
Funds from operations | 37,713 | 44,312 | ||||||||||||||||||||||||||
Plus: Acquisition related costs | — | 152 | ||||||||||||||||||||||||||
Plus: Normalized FFO attributable to Select Income REIT investment | 14,590 | 18,475 | ||||||||||||||||||||||||||
Less: FFO attributable to Select Income REIT investment | (12,404 | ) | (18,458 | ) | ||||||||||||||||||||||||
Less: Gain on early extinguishment of debt | — | (104 | ) | |||||||||||||||||||||||||
Normalized funds from operations | $ | 39,899 | $ | 44,377 | ||||||||||||||||||||||||
Funds from operations per common share (basic and diluted) | $ | 0.53 | $ | 0.62 | ||||||||||||||||||||||||
Normalized funds from operations per common share (basic and diluted) | $ | 0.56 | $ | 0.62 |
(1) | Comparable properties consist of 70 properties (90 buildings) we owned on March 31, 2017 and which we owned continuously since January 1, 2016, and excludes one property (one building) classified as discontinued operations. |
(2) | Acquired properties consist of four properties (six buildings) we acquired since January 1, 2016. |
(3) | Disposed property consists of one property (one building) we sold in July 2016. |
(4) | The calculation of net operating income, or NOI, excludes certain components of net income in order to provide results that are more closely related to our property level results of operations. We define NOI as income from our rental of real estate less our property operating expenses. NOI excludes amortization of capitalized tenant improvement costs and leasing commissions because we record those amounts as depreciation and amortization. We consider NOI to be an appropriate supplemental measure to net income because it may help both investors and management to understand the operations of our properties. We use NOI to evaluate individual and company wide property level performance, and we believe that NOI provides useful information to investors regarding our results of operations because it reflects only those income and expense items that are generated and incurred at the property level and may facilitate comparisons of our operating performance between periods and with other REITs. NOI does not represent cash generated by operating activities in accordance with U.S. generally accepted accounting principles, or GAAP, and should not be considered as an alternative to net income or operating income as an indicator of our operating performance or as a measure of our liquidity. This measure should be considered in conjunction with net income and operating income as presented in our Condensed Consolidated Statements of Comprehensive Income. Other REITs and real estate companies may calculate NOI differently than we do. |
(5) | We calculate funds from operations, or FFO, and normalized funds from operations, or 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 real estate assets, any gain or loss on sale of properties, as well as certain other adjustments currently not applicable to us. Our calculation of Normalized FFO differs from NAREIT's definition of FFO because we include the difference between FFO and Normalized FFO attributable to our equity investment in SIR, we include 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 our 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 determined at the end of the calendar year, and we exclude acquisition related costs and gains on early extinguishment of debt . We consider FFO and Normalized FFO to be appropriate supplemental measures of operating performance for a REIT, along with net income and operating income. We believe 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 our operating performance between periods and with other REITs. FFO and Normalized FFO are among the factors considered by our Board of Trustees when determining the amount of distributions to our shareholders. Other factors include, but are not limited to, requirements to maintain our qualification for taxation as a REIT, limitations in our credit agreement and public debt covenants, the availability to us of debt and equity capital, our expectation of our future capital requirements and operating performance, our receipt of distributions from SIR and our expected needs and availability of cash to pay our obligations. FFO and Normalized FFO do not represent cash generated by operating activities in accordance with GAAP and should not be considered as alternatives to net income or operating income as an indicator of our operating performance or as a measure of our liquidity. These measures should be considered in conjunction with net income and operating income as presented in our Condensed Consolidated Statements of Comprehensive Income. Other REITs and real estate companies may calculate FFO and Normalized FFO differently than we do. |
• | our ability to maintain or increase the occupancy of, and the rental rates at, our properties; |
• | our ability to control operating expenses at our properties; |
• | our ability to purchase additional properties which produce cash flows from operations in excess of our cost of acquisition capital and property operating expenses; and |
• | our receipt of distributions from our investments in SIR and RMR Inc. |
• | Our $300,000 term loan, which matures on March 31, 2020, is prepayable without penalty at any time. We are required to pay interest at LIBOR plus a premium, which was 140 basis points per annum at March 31, 2017, on the amount outstanding under our $300,000 term loan. The interest rate premium is subject to adjustment based upon changes to our credit ratings. As of March 31, 2017, the annual interest rate for the amount outstanding under our $300,000 term loan was 2.4%. |
• | Our $250,000 term loan, which matures on March 31, 2022, is prepayable without penalty at any time. We are required to pay interest at LIBOR plus a premium, which was 180 basis points per annum at March 31, 2017, on the amount outstanding under our $250,000 term loan. The interest rate premium is subject to adjustment based upon changes to our credit ratings. As of March 31, 2017, the annual interest rate for the amount outstanding under our $250,000 term loan was 2.8%. |
Annual | Annual | Interest | |||||||||||||
Principal | Interest | Interest | Payments | ||||||||||||
Debt | Balance (1) | Rate (1) | Expense (1) | Maturity | Due | ||||||||||
Senior unsecured notes | $ | 350,000 | 3.750 | % | $ | 13,125 | 2019 | Semi-annually | |||||||
Senior unsecured notes | 310,000 | 5.875 | % | 18,213 | 2046 | Quarterly | |||||||||
Mortgage note | 13,873 | 5.877 | % | 827 | 2021 | Monthly | |||||||||
Mortgage note | 8,420 | 7.000 | % | 598 | 2019 | Monthly | |||||||||
Mortgage note | 4,836 | 8.150 | % | 400 | 2021 | Monthly | |||||||||
$ | 687,129 | $ | 33,163 |
(1) | The principal balances and interest rates are the amounts determined pursuant to the contracts. In accordance with GAAP, our carrying values and recorded interest expense may differ from these amounts because of market conditions at the time we issued or assumed these debts. For more information, see Notes 7 and 8 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. |
Impact of Changes in Interest Rates | |||||||||||||||
Annual | Outstanding | Total Interest | Annual Earnings | ||||||||||||
Interest Rate (1) | Debt | Expense Per Year | Per Share Impact (2) | ||||||||||||
At March 31, 2017 | 2.5 | % | $ | 710,000 | $ | 17,997 | $ | 0.25 | |||||||
100 bps increase | 3.5 | % | $ | 710,000 | $ | 25,195 | $ | 0.35 |
(1) | Weighted based on the respective interest rates and outstanding borrowings under our revolving credit facility and term loans as of March 31, 2017. |
(2) | Based on the weighted average shares outstanding (diluted) for the three months ended March 31, 2017. |
Impact of Changes in Interest Rates | |||||||||||||||
Annual | Outstanding | Total Interest | Annual Earnings | ||||||||||||
Interest Rate (1) | Debt | Expense Per Year | Per Share Impact (2) | ||||||||||||
At March 31, 2017 | 2.4 | % | $ | 1,300,000 | $ | 31,633 | $ | 0.44 | |||||||
100 bps increase | 3.4 | % | $ | 1,300,000 | $ | 44,814 | $ | 0.63 |
(1) | Weighted based on the respective interest rates and outstanding borrowings under our revolving credit facility (assuming fully drawn) and our term loans as of March 31, 2017. |
(2) | Based on the weighted average shares outstanding (diluted) for the three months ended March 31, 2017. |
• | OUR ACQUISITIONS AND SALES OF PROPERTIES, |
• | OUR ABILITY TO COMPETE FOR ACQUISITIONS AND TENANCIES EFFECTIVELY, |
• | THE LIKELIHOOD THAT OUR TENANTS WILL PAY RENT OR BE NEGATIVELY AFFECTED BY CYCLICAL ECONOMIC CONDITIONS OR GOVERNMENT BUDGET CONSTRAINTS, |
• | THE LIKELIHOOD THAT OUR TENANTS WILL RENEW OR EXTEND THEIR LEASES AND NOT EXERCISE EARLY TERMINATION OPTIONS PURSUANT TO THEIR LEASES OR THAT WE WILL OBTAIN REPLACEMENT TENANTS, |
• | OUR ABILITY TO PAY DISTRIBUTIONS TO OUR SHAREHOLDERS AND THE AMOUNT OF SUCH DISTRIBUTIONS, |
• | OUR EXPECTATION THAT WE BENEFIT FINANCIALLY FROM OUR OWNERSHIP INTEREST IN SIR, |
• | OUR POLICIES AND PLANS REGARDING INVESTMENTS, FINANCINGS AND DISPOSITIONS, |
• | THE FUTURE AVAILABILITY OF BORROWINGS UNDER OUR REVOLVING CREDIT FACILITY, |
• | OUR EXPECTATION THAT THERE WILL BE OPPORTUNITIES FOR US TO ACQUIRE, AND THAT WE WILL ACQUIRE, ADDITIONAL PROPERTIES THAT ARE MAJORITY LEASED TO GOVERNMENT TENANTS OR GOVERNMENT CONTRACTOR TENANTS, |
• | OUR EXPECTATIONS REGARDING DEMAND FOR LEASED SPACE BY THE U.S. GOVERNMENT AND STATE AND LOCAL GOVERNMENTS, |
• | OUR ABILITY TO RAISE EQUITY OR DEBT CAPITAL, |
• | OUR ABILITY TO PAY INTEREST ON AND PRINCIPAL OF OUR DEBT, |
• | OUR ABILITY TO APPROPRIATELY BALANCE OUR USE OF DEBT AND EQUITY CAPITAL, |
• | OUR CREDIT RATINGS, |
• | OUR EXPECTATION THAT WE BENEFIT FROM OUR OWNERSHIP OF RMR INC., |
• | OUR EXPECTATION THAT WE BENEFIT FROM OUR OWNERSHIP OF AIC AND FROM OUR PARTICIPATION IN INSURANCE PROGRAMS ARRANGED BY AIC, |
• | THE CREDIT QUALITIES OF OUR TENANTS, |
• | OUR QUALIFICATION FOR TAXATION AS A REIT, AND |
• | OTHER MATTERS. |
• | THE IMPACT OF CHANGES IN THE ECONOMY AND THE CAPITAL MARKETS ON US AND OUR TENANTS, |
• | COMPETITION WITHIN THE REAL ESTATE INDUSTRY, PARTICULARLY WITH RESPECT TO THOSE MARKETS IN WHICH OUR PROPERTIES ARE LOCATED AND WITH RESPECT TO GOVERNMENT TENANCIES, |
• | THE IMPACT OF CHANGES IN THE REAL ESTATE NEEDS AND FINANCIAL CONDITIONS OF THE U.S. GOVERNMENT AND STATE AND LOCAL GOVERNMENTS, |
• | COMPLIANCE WITH, AND CHANGES TO, FEDERAL, STATE AND LOCAL LAWS AND REGULATIONS, ACCOUNTING RULES, TAX LAWS AND SIMILAR MATTERS, |
• | ACTUAL AND POTENTIAL CONFLICTS OF INTEREST WITH OUR RELATED PARTIES, INCLUDING OUR MANAGING TRUSTEES, RMR LLC, RMR INC., SIR, AIC AND OTHERS AFFILIATED WITH THEM, |
• | LIMITATIONS IMPOSED ON OUR BUSINESS AND OUR ABILITY TO SATISFY COMPLEX RULES IN ORDER FOR US TO QUALIFY FOR TAXATION AS A REIT FOR U.S. FEDERAL INCOME TAX PURPOSES, AND |
• | ACTS OF TERRORISM, OUTBREAKS OF SO CALLED PANDEMICS OR OTHER MANMADE OR NATURAL DISASTERS BEYOND OUR CONTROL. |
• | OUR ABILITY TO MAKE FUTURE DISTRIBUTIONS TO OUR SHAREHOLDERS AND TO MAKE PAYMENTS OF PRINCIPAL AND INTEREST ON OUR INDEBTEDNESS DEPENDS UPON A NUMBER OF FACTORS, INCLUDING OUR FUTURE EARNINGS, THE CAPITAL COSTS WE INCUR TO LEASE OUR PROPERTIES, OUR WORKING CAPITAL REQUIREMENTS AND OUR RECEIPT OF DISTRIBUTIONS FROM SIR. WE MAY BE UNABLE TO PAY OUR DEBT OBLIGATIONS OR TO MAINTAIN OUR CURRENT RATE OF DISTRIBUTIONS ON OUR COMMON SHARES AND FUTURE DISTRIBUTIONS MAY BE REDUCED OR ELIMINATED, |
• | OUR ABILITY TO GROW OUR BUSINESS AND INCREASE DISTRIBUTIONS TO OUR SHAREHOLDERS DEPENDS IN LARGE PART UPON OUR ABILITY TO BUY PROPERTIES AND LEASE THEM FOR RENTS, LESS PROPERTY OPERATING EXPENSES, THAT EXCEED OUR CAPITAL COSTS. WE MAY BE UNABLE TO IDENTIFY PROPERTIES THAT WE WANT TO ACQUIRE OR TO NEGOTIATE ACCEPTABLE PURCHASE PRICES, ACQUISITION FINANCING OR LEASE TERMS FOR NEW PROPERTIES, |
• | SOME OF OUR TENANTS MAY NOT RENEW EXPIRING LEASES, AND WE MAY BE UNABLE TO OBTAIN NEW TENANTS TO MAINTAIN OR INCREASE THE HISTORICAL OCCUPANCY RATES OF, OR RENTS FROM, OUR PROPERTIES, |
• | SOME GOVERNMENT TENANTS MAY EXERCISE THEIR RIGHTS TO VACATE THEIR SPACE BEFORE THE STATED EXPIRATION OF THEIR LEASES, AND WE MAY BE UNABLE TO OBTAIN NEW TENANTS TO MAINTAIN THE HISTORICAL OCCUPANCY RATES OF, OR RENTS FROM, OUR PROPERTIES, |
• | RENTS THAT WE CAN CHARGE AT OUR PROPERTIES MAY DECLINE BECAUSE OF CHANGING MARKET CONDITIONS OR OTHERWISE, |
• | CONTINGENCIES IN OUR ACQUISITION AND SALE AGREEMENTS MAY NOT BE SATISFIED AND OUR PENDING ACQUISITIONS AND SALES MAY NOT OCCUR, MAY BE DELAYED OR THE TERMS OF SUCH TRANSACTIONS MAY CHANGE, |
• | CONTINUED AVAILABILITY OF BORROWINGS UNDER OUR REVOLVING CREDIT FACILITY IS SUBJECT TO OUR SATISFYING CERTAIN FINANCIAL COVENANTS AND OTHER CUSTOMARY CREDIT FACILITY CONDITIONS THAT WE MAY BE UNABLE TO SATISFY, |
• | ACTUAL COSTS UNDER OUR REVOLVING CREDIT FACILITY OR OTHER FLOATING RATE CREDIT FACILITIES WILL BE HIGHER THAN LIBOR PLUS A PREMIUM BECAUSE OF FEES AND EXPENSES ASSOCIATED WITH SUCH FACILITIES, |
• | WE MAY BE UNABLE TO REPAY OUR DEBT OBLIGATIONS WHEN THEY BECOME DUE, |
• | THE MAXIMUM BORROWING AVAILABILITY UNDER OUR REVOLVING CREDIT FACILITY AND TERM LOANS MAY BE INCREASED TO UP TO $2.5 BILLION ON A COMBINED BASIS IN CERTAIN CIRCUMSTANCES; HOWEVER, INCREASING THE MAXIMUM BORROWING AVAILABILITY UNDER OUR REVOLVING CREDIT FACILITY AND TERM LOANS IS SUBJECT TO OUR OBTAINING ADDITIONAL COMMITMENTS FROM LENDERS, WHICH MAY NOT OCCUR, |
• | WE HAVE THE OPTION TO EXTEND THE MATURITY DATE OF OUR REVOLVING CREDIT FACILITY UPON PAYMENT OF A FEE AND MEETING OTHER CONDITIONS, HOWEVER, THE APPLICABLE CONDITIONS MAY NOT BE MET, |
• | THE BUSINESS AND PROPERTY MANAGEMENT AGREEMENTS BETWEEN US AND RMR LLC HAVE CONTINUING 20 YEAR TERMS. HOWEVER, THOSE AGREEMENTS INCLUDE TERMS WHICH PERMIT EARLY TERMINATION IN CERTAIN CIRCUMSTANCES. ACCORDINGLY, WE CANNOT BE SURE THAT THESE AGREEMENTS WILL REMAIN IN EFFECT FOR CONTINUING 20 YEAR TERMS OR FOR SHORTER TERMS, |
• | WE BELIEVE THAT OUR RELATIONSHIPS WITH OUR RELATED PARTIES, INCLUDING RMR LLC, RMR INC., SIR, AIC AND OTHERS AFFILIATED WITH THEM MAY BENEFIT US AND PROVIDE US WITH COMPETITIVE ADVANTAGES IN OPERATING AND GROWING OUR BUSINESS. HOWEVER, THE ADVANTAGES WE BELIEVE WE MAY REALIZE FROM THESE RELATIONSHIPS MAY NOT MATERIALIZE, |
• | THE PREMIUMS USED TO DETERMINE THE INTEREST RATE PAYABLE ON OUR REVOLVING CREDIT FACILITY AND TERM LOANS AND THE FACILITY FEE PAYABLE ON OUR REVOLVING CREDIT FACILITY ARE BASED ON OUR CREDIT RATINGS. FUTURE CHANGES IN OUR CREDIT RATINGS MAY CAUSE THE INTEREST AND FEES WE PAY TO INCREASE, |
• | SIR MAY REDUCE THE AMOUNT OF ITS DISTRIBUTIONS TO ITS SHAREHOLDERS, INCLUDING US, |
• | WE MAY BE UNABLE TO SELL OUR SIR COMMON SHARES FOR AN AMOUNT EQUAL TO OUR CARRYING VALUE OF THOSE SHARES AND ANY SUCH SALE MAY BE AT A DISCOUNT TO MARKET PRICE BECAUSE OF THE LARGE SIZE OF OUR SIR HOLDINGS OR OTHERWISE; WE MAY REALIZE A LOSS ON OUR INVESTMENT IN OUR SIR SHARES, AND |
• | WE CURRENTLY EXPECT TO SPEND, AS OF MARCH 31, 2017, AN ADDITIONAL $10.1 MILLION TO COMPLETE THE REDEVELOPMENT AND EXPANSION OF A PROPERTY WE OWN PRIOR TO THE COMMENCEMENT OF THE LEASE FOR THAT PROPERTY. IN ADDITION, AS OF MARCH 31 2017, WE HAVE ESTIMATED UNSPENT LEASING RELATED OBLIGATIONS OF $24.8 MILLION, EXCLUDING THE ESTIMATED DEVELOPMENT COSTS NOTED IN THE PRECEDING SENTENCE. IT IS DIFFICULT TO ACCURATELY ESTIMATE DEVELOPMENT COSTS. THIS DEVELOPMENT PROJECT AND OUR UNSPENT LEASING RELATED OBLIGATIONS MAY COST MORE OR LESS AND MAY TAKE LONGER TO COMPLETE THAN WE CURRENTLY EXPECT, AND WE MAY INCUR INCREASING AMOUNTS FOR THESE AND SIMILAR PURPOSES IN THE FUTURE. |
Exhibit Number | Description |
3.1 | Composite Copy of Amended and Restated Declaration of Trust, dated June 8, 2009, as amended to date. (Incorporated by reference to the Company’s Current Report on Form 8-K dated July 28, 2014.) |
3.2 | Amended and Restated Bylaws of the Company, adopted September 7, 2016. (Incorporated by reference to the Company’s Current Report on Form 8-K dated September 7, 2016.) |
4.1 | Form of Common Share Certificate. (Incorporated by reference to Amendment No. 2 to the Company’s Registration Statement on Form S-11/A, File No. 333-157455.) |
4.2 | Indenture, dated as of August 18, 2014, between the Company and U.S. Bank National Association. (Incorporated by reference to the Company’s Current Report on Form 8-K dated August 18, 2014.) |
4.3 | Supplemental Indenture No. 1, dated as of August 18, 2014, between the Company and U.S. Bank National Association, relating to the Company’s 3.75% Senior Notes due 2019, including form thereof. (Incorporated by reference to the Company’s Current Report on Form 8-K dated August 18, 2014.) |
4.4 | Supplemental Indenture No. 2, dated as of May 26, 2016, between the Company and U.S. Bank National Association, relating to the Company’s 5.875% Senior Notes due 2046, including form thereof. (Incorporated by reference to the Company’s Current Report on Form 8-K dated May 26, 2016.) |
4.5 | Authentication Order, dated as of June 22, 2016, from the Company to U.S. Bank National Association, relating to the Company’s 5.875% Senior Notes due 2046. (Incorporated by reference to the Company’s Registration Statement on Form 8-A dated June 30, 2016.) |
4.6 | Registration Rights and Lock-Up Agreement, dated as of June 5, 2015, among the Company, ABP Trust (f/k/a Reit Management & Research Trust), Barry M. Portnoy and Adam D. Portnoy. (Incorporated by reference to the Company’s Current Report on Form 8-K dated June 5, 2015.) |
12.1 | Computation of Ratio of Earnings to Fixed Charges. (Filed herewith.) |
31.1 | Rule 13a-14(a) Certification. (Filed herewith.) |
31.2 | Rule 13a-14(a) Certification. (Filed herewith.) |
31.3 | Rule 13a-14(a) Certification. (Filed herewith.) |
31.4 | Rule 13a-14(a) Certification. (Filed herewith.) |
32.1 | Section 1350 Certification. (Furnished herewith.) |
101.1 | The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Comprehensive Income (Loss), (iii) the Condensed Consolidated Statements of Cash Flows, and (iv) related notes to these financial statements, tagged as blocks of text and in detail. (Filed herewith.) |
GOVERNMENT PROPERTIES INCOME TRUST | ||
By: | /s/ David M. Blackman | |
David M. Blackman President and Chief Operating Officer | ||
Dated: April 27, 2017 | ||
By: | /s/ Mark L. Kleifges | |
Mark L. Kleifges Chief Financial Officer and Treasurer (principal financial and accounting officer) | ||
Dated: April 27, 2017 |
Three Months Ended March 31, | Year Ended December 31, | |||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||
Earnings: | ||||||||||||||||||||
Add: | ||||||||||||||||||||
Income (loss) from continuing operations (including gain on sale of properties, if any) before income tax expense and equity in earnings (losses) of investees | $ | 4,838 | $ | 22,936 | $ | (227,990 | ) | $ | 42,190 | $ | 55,308 | |||||||||
Distributions of earnings from equity investees | 1,875 | 32,425 | 21,882 | 17,046 | — | |||||||||||||||
Fixed charges | 13,642 | 45,164 | 37,008 | 28,048 | 16,831 | |||||||||||||||
Subtract: | ||||||||||||||||||||
Interest capitalized | (61 | ) | (52 | ) | — | — | — | |||||||||||||
Total earnings (loss) | $ | 20,294 | $ | 100,473 | $ | (169,100 | ) | $ | 87,284 | $ | 72,139 | |||||||||
Fixed Charges: | ||||||||||||||||||||
Interest on indebtedness and net amortization of debt issuance costs and debt premiums and discounts | $ | 13,581 | $ | 45,112 | $ | 37,008 | 28,048 | 16,831 | ||||||||||||
Interest capitalized | 61 | 52 | — | — | — | |||||||||||||||
Total fixed charges | $ | 13,642 | $ | 45,164 | $ | 37,008 | $ | 28,048 | $ | 16,831 | ||||||||||
Ratio of adjusted earnings (loss) to fixed charges | 1.5x | 2.2x | (4.6x) | (1) | 3.1x | 4.3x |
1. | I have reviewed this Quarterly Report on Form 10-Q of Government Properties Income Trust; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: April 27, 2017 | /s/ Barry M. Portnoy |
Barry M. Portnoy Managing Trustee |
1. | I have reviewed this Quarterly Report on Form 10-Q of Government Properties Income Trust; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: April 27, 2017 | /s/ Adam D. Portnoy |
Adam D. Portnoy Managing Trustee |
1. | I have reviewed this Quarterly Report on Form 10-Q of Government Properties Income Trust; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: April 27, 2017 | /s/ David M. Blackman |
David M. Blackman President and Chief Operating Officer |
1. | I have reviewed this Quarterly Report on Form 10-Q of Government Properties Income Trust; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: April 27, 2017 | /s/ Mark L. Kleifges |
Mark L. Kleifges Chief Financial Officer and Treasurer |
/s/ Barry M. Portnoy | /s/ David M. Blackman | |
Barry M. Portnoy Managing Trustee | David M. Blackman President and Chief Operating Officer | |
/s/ Adam D. Portnoy | /s/ Mark L. Kleifges | |
Adam D. Portnoy Managing Trustee | Mark L. Kleifges Chief Financial Officer and Treasurer |
Document and Entity Information - shares |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
Apr. 25, 2017 |
|
Document and Entity Information | ||
Entity Registrant Name | Government Properties Income Trust | |
Entity Central Index Key | 0001456772 | |
Document Type | 10-Q | |
Document Period End Date | Mar. 31, 2017 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Large Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 71,177,906 | |
Document Fiscal Year Focus | 2017 | |
Document Fiscal Period Focus | Q1 |
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares |
Mar. 31, 2017 |
Dec. 31, 2016 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Common shares of beneficial interest, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common shares of beneficial interest, shares authorized (in shares) | 100,000,000 | 100,000,000 |
Common shares of beneficial interest, shares issued (in shares) | 71,177,906 | 71,177,906 |
Common shares of beneficial interest, shares outstanding (in shares) | 71,177,906 | 71,177,906 |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Parenthetical) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
|
Income Statement [Abstract] | ||
Net amortization of debt premiums and discounts and deferred financing fees | $ 807 | $ 471 |
Basis of Presentation |
3 Months Ended |
---|---|
Mar. 31, 2017 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Basis of Presentation | Basis of Presentation The accompanying condensed consolidated financial statements of Government Properties Income Trust and its subsidiaries, or GOV, we, us or our, are unaudited. Certain information and disclosures required by U.S. generally accepted accounting principles, or GAAP, for complete financial statements have been condensed or omitted. We believe the disclosures made are adequate to make the information presented not misleading. However, the accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2016, or our Annual Report. In the opinion of our management, all adjustments, which include only normal recurring adjustments considered necessary for a fair presentation, have been included. All intercompany transactions and balances with or among our consolidated subsidiaries have been eliminated. Our operating results for interim periods are not necessarily indicative of the results that may be expected for the full year. Reclassifications have been made to the prior years’ condensed consolidated financial statements to conform to the current year’s presentation. The preparation of these financial statements in conformity with GAAP requires us to make estimates and assumptions that affect reported amounts. Actual results could differ from those estimates. Significant estimates in the condensed consolidated financial statements include purchase price allocations, useful lives of fixed assets, impairment of real estate and equity method investments and the valuation of intangible assets. |
Recent Accounting Pronouncements |
3 Months Ended |
---|---|
Mar. 31, 2017 | |
Accounting Policies [Abstract] | |
Recent Accounting Pronouncements | Recent Accounting Pronouncements On January 1, 2017, we adopted the Financial Accounting Standards Board, or FASB, Accounting Standards Update, or ASU, No. 2017-01, Clarifying the Definition of a Business, which provides additional guidance on evaluating whether a transaction should be accounted for as an acquisition (or disposal) of assets or of a business. This update defines three requirements for a set of assets and activities (collectively referred to as a “set”) to be considered a business: inputs, processes and outputs. As a result of the implementation of this update, certain property acquisitions, which under previous guidance were accounted for as business combinations, are now accounted for as acquisitions of assets. In an acquisition of assets, certain acquisition costs are capitalized as opposed to expensed under the previous guidance. On January 1, 2017, we adopted FASB ASU No. 2016-09, Compensation - Stock Compensation, which identifies areas for simplification involving several aspects of accounting for share based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the condensed statement of cash flows. The adoption of ASU No. 2016-09 did not have a material impact in our condensed consolidated financial statements. In May 2014, the FASB issued ASU No. 2014-09, Revenue From Contracts With Customers, which outlines a comprehensive model for entities to use in accounting for revenue arising from contracts with customers. ASU No. 2014-09 states that “an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” While ASU No. 2014-09 specifically references contracts with customers, it may apply to certain other transactions such as the sale of real estate or equipment. In August 2015, the FASB provided for a one-year deferral of the effective date for ASU No. 2014-09, which is now effective for us beginning January 1, 2018. A substantial portion of our revenue consists of rental income from leasing arrangements, which is specifically excluded from ASU No. 2014-09. We are continuing to evaluate ASU No. 2014-09 (and related clarifying guidance issued by the FASB); however, we do not expect its adoption to have a significant impact on the timing of our revenue recognition in the consolidated financial statements with the exception of profit recognition on real estate sales. We currently have a deferred gain on sale of real estate of $712 that under current guidance would be recognized upon repayment of a promissory note we received in connection with the sale but will be recognized in its entirety upon adoption of ASU No. 2014-09. We currently expect to adopt the standard using the modified retrospective approach. In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which changes how entities measure certain equity investments and present changes in the fair value of financial liabilities measured under the fair value option that are attributable to their own credit. This update is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted subject to certain conditions. Currently, changes in fair value of these investments are recorded through other comprehensive income. ASU No. 2016-01 states that these changes will be recorded through earnings. We are continuing to evaluate this guidance, but the implementation of this guidance will affect how changes in the fair value of available for sale securities we hold are presented in our condensed consolidated financial statements. In February 2016, the FASB issued ASU No. 2016-02, Leases, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). ASU No. 2016-02 requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase of the leased asset by the lessee. This classification will determine whether the lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease. A lessee is also required to record a right of use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales type leases, direct financing leases and operating leases. ASU No. 2016-02 is effective for reporting periods beginning after December 15, 2018, with early adoption permitted. We are currently assessing the potential impact the adoption of ASU No. 2016-02 will have in our condensed consolidated financial statements. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires that entities use a new forward looking “expected loss” model that generally will result in the earlier recognition of allowance for credit losses. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. ASU No. 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. We are currently assessing the potential impact the adoption of ASU No. 2016-13 will have in our condensed consolidated financial statements. In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which clarifies how companies present and classify certain cash receipts and cash payments in the statement of cash flows. ASU No. 2016-15 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We are currently assessing the potential impact the adoption of ASU No. 2016-15 will have in our condensed consolidated financial statements. In November 2016, the FASB issued ASU No. 2016-18, Restricted Cash, which clarifies how companies should present restricted cash and restricted cash equivalents. Companies will show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the condensed statement of cash flows. The new standard requires a reconciliation of the totals in the condensed statement of cash flows to the related captions in the balance sheets. ASU No. 2016-18 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We are currently assessing the potential impact the adoption of ASU No. 2016-18 will have in our condensed consolidated financial statements. |
Weighted Average Common Shares |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Earnings Per Share, Basic and Diluted [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Weighted Average Common Shares | Weighted Average Common Shares The following table provides a reconciliation of the weighted average number of common shares used in the calculation of basic and diluted earnings per share (in thousands):
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Real Estate Properties |
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Real Estate [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Real Estate Properties | Real Estate Properties As of March 31, 2017, we owned 74 properties (96 buildings), with an undepreciated carrying value of $1,909,506, excluding one property (one building) classified as discontinued operations with an undepreciated carrying value of $12,260. We generally lease space at our properties on a gross lease or modified gross lease basis pursuant to fixed term contracts expiring between 2017 and 2032. Our leases generally require us to pay all or some property operating expenses and to provide all or most property management services. During the three months ended March 31, 2017, we entered into 12 leases for 360,103 rentable square feet, for a weighted (by rentable square feet) average lease term of 10.6 years and we made commitments for $2,241 of leasing related costs. As of March 31, 2017, we have estimated unspent leasing related obligations of $24,800, and we have committed to redevelop and expand an existing property prior to commencement of the lease with an estimated remaining cost to complete as of March 31, 2017 of $10,138. During the three months ended March 31, 2017, we capitalized $61 of interest expense related to the redevelopment and expansion of that existing property. Acquisition Activities During the three months ended March 31, 2017, we acquired an office property (one building) located in Manassas, VA with 69,374 rentable square feet. This property was 100% leased to Prince William County on the date of acquisition. This transaction was accounted for as an acquisition of assets. The purchase price was $12,641, including capitalized acquisition costs of $21. Our allocation of the purchase price of this acquisition based on the estimated fair values of the acquired assets and assumed liabilities is presented in the table below.
In August 2016, we entered an agreement to acquire transferable development rights that would allow us to expand a property we own in Washington, D.C. for a purchase price of $2,030, excluding acquisition costs. This acquisition is subject to conditions; accordingly, we cannot be sure that we will complete this acquisition, that this acquisition will not be delayed or that its terms will not change. We regularly evaluate whether events or changes in circumstances have occurred that could indicate an impairment in the value of our long lived assets. If there is an indication that the carrying value of an asset is not recoverable, we estimate the projected undiscounted cash flows to determine if an impairment loss should be recognized. We determine the amount of any impairment loss by comparing the historical carrying value to estimated fair value. We estimate fair value through an evaluation of recent financial performance and projected discounted cash flows using standard industry valuation techniques. In addition to consideration of impairment upon the events or changes in circumstances described above, we regularly evaluate the remaining lives of our long lived assets. If we change our estimate of the remaining lives, we allocate the carrying value of the affected assets over their revised remaining lives. Disposition Activities – Discontinued Operations In March 2016, we entered an agreement to sell an office property (one building) in Falls Church, VA with 164,746 rentable square feet and a net book value of $12,282 at March 31, 2017. In March 2017, we agreed to extend the closing date for this sale to June 1, 2017 and increased the sales price by $150, which we received as a non-refundable deposit. The contract sales price is now $13,298, excluding closing costs. This sale is subject to conditions; accordingly, we cannot be sure that the sale of this property will be completed, that the sale will not be delayed or that its terms will not change. Results of operations for this property, which qualified as held for sale prior to our adoption in 2014 of ASU No. 2014-8, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, are classified as discontinued operations in our condensed consolidated financial statements. Summarized balance sheet and income statement information for this property is as follows: Balance Sheets
Statements of Operations
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Revenue Recognition |
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Mar. 31, 2017 | |
Revenue Recognition [Abstract] | |
Revenue Recognition | Revenue Recognition We recognize rental income from operating leases that contain fixed contractual rent changes on a straight line basis over the term of the lease agreements. Certain of our leases with government tenants provide the tenant the right to terminate before the lease expiration date if the legislature or other funding authority does not appropriate the funding necessary for the government tenant to meet its lease obligations; we have determined the fixed non-cancelable lease term of these leases to be the fully executed term of the lease because we believe the occurrence of early terminations to be remote contingencies based on both our historical experience and our assessments of the likelihood of lease cancellation on a separate lease basis. We increased rental income to record revenue on a straight line basis by $1,300 and $149 for the three months ended March 31, 2017 and 2016, respectively. Rents receivable include $22,986 and $21,686 of straight line rent receivables, net of allowance for doubtful accounts of $156 and $155, at March 31, 2017 and December 31, 2016, respectively. |
Concentration |
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Mar. 31, 2017 | |
Risks and Uncertainties [Abstract] | |
Concentration | Concentration Tenant and Credit Concentration We define annualized rental income as the annualized contractual base rents from our tenants pursuant to our lease agreements as of the measurement date, plus straight line rent adjustments and estimated recurring expense reimbursements to be paid to us, and excluding lease value amortization. The U.S. Government, 13 state governments, and four other government tenants combined were responsible for 87.9% and 92.8% of our annualized rental income, excluding one property (one building) classified as discontinued operations, as of March 31, 2017 and 2016, respectively. The U.S. Government is our largest tenant by annualized rental income and was responsible for 60.1% and 64.6% of our annualized rental income, excluding one property classified as discontinued operations, as of March 31, 2017 and 2016, respectively. Geographic Concentration At March 31, 2017, our 74 properties (96 buildings), excluding one property (one building) classified as discontinued operations, were located in 31 states and the District of Columbia. Properties located in Virginia, California, the District of Columbia, Georgia, New York, Maryland and Massachusetts were responsible for 14.8%, 14.4%, 9.5%, 8.6%, 7.6%, 7.1% and 4.9% of our annualized rental income as of March 31, 2017, respectively. |
Indebtedness |
3 Months Ended |
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Mar. 31, 2017 | |
Debt Disclosure [Abstract] | |
Indebtedness | Indebtedness Our principal debt obligations at March 31, 2017 were: (1) $160,000 of outstanding borrowings under our $750,000 unsecured revolving credit facility; (2) an aggregate outstanding principal amount of $550,000 of unsecured term loans; (3) an aggregate outstanding principal amount of $660,000 of public issuances of senior unsecured notes; and (4) $27,129 aggregate principal amount of mortgage notes. Our $750,000 revolving credit facility, our $300,000 term loan and our $250,000 term loan are governed by a credit agreement with a syndicate of institutional lenders that includes a number of features common to all of these credit arrangements. This credit agreement also includes a feature under which the maximum aggregate borrowing availability may be increased to up to $2,500,000 on a combined basis in certain circumstances. Our $750,000 revolving credit facility is available for general business purposes, including acquisitions. The maturity date of our revolving credit facility is January 31, 2019 and, subject to the payment of an extension fee and meeting other conditions, we have an option to extend the stated maturity date of our revolving credit facility by one year to January 31, 2020. We can borrow, repay and reborrow funds available under our revolving credit facility until maturity and no principal repayment is due until maturity. We are required to pay interest at a rate of LIBOR plus a premium, which was 125 basis points per annum at March 31, 2017, on borrowings under our revolving credit facility. We also pay a facility fee on the total amount of lending commitments under our revolving credit facility, which was 25 basis points per annum at March 31, 2017. Both the interest rate premium and the facility fee are subject to adjustment based upon changes to our credit ratings. As of March 31, 2017, the annual interest rate payable on borrowings under our revolving credit facility was 2.2% and the weighted average annual interest rate for borrowings under our revolving credit facility was 2.0% and 1.6%, respectively, for the three months ended March 31, 2017 and 2016. As of both March 31, 2017 and April 25, 2017, we had $160,000 outstanding under our revolving credit facility. Our $300,000 term loan, which matures on March 31, 2020, is prepayable without penalty at any time. We are required to pay interest at a rate of LIBOR plus a premium, which was 140 basis points per annum at March 31, 2017, on the amount outstanding under our $300,000 term loan. The interest rate premium is subject to adjustment based upon changes to our credit ratings. As of March 31, 2017, the annual interest rate for the amount outstanding under our $300,000 term loan was 2.4%. The weighted average annual interest rate under our $300,000 term loan was 2.2% and 1.8%, respectively, for the three months ended March 31, 2017 and 2016. Our $250,000 term loan, which matures on March 31, 2022, is prepayable without penalty at any time. We are required to pay interest at a rate of LIBOR plus a premium, which was 180 basis points per annum as of March 31, 2017, on the amount outstanding under our $250,000 term loan. The interest rate premium is subject to adjustment based upon changes to our credit ratings. As of March 31, 2017, the annual interest rate for the amount outstanding under our $250,000 term loan was 2.8%. The weighted average annual interest rate under our $250,000 term loan was 2.6% and 2.2%, respectively, for the three months ended March 31, 2017 and 2016. Our credit agreement and senior notes indenture and its supplements provide for acceleration of payment of all amounts due thereunder upon the occurrence and continuation of certain events of default, such as, in the case of our credit agreement, a change of control of us, which includes The RMR Group LLC, or RMR LLC, ceasing to act as our business and property manager. Our credit agreement and our senior notes indenture and its supplements also contain a number of covenants, including covenants that restrict our ability to incur debts, require us to maintain certain financial ratios and, in the case of our credit agreement, restrict our ability to make distributions under certain circumstances. We believe we were in compliance with the terms and conditions of the respective covenants under our credit agreement and senior notes indenture and its supplements at March 31, 2017. At March 31, 2017, three of our properties (three buildings) with an aggregate net book value of $51,600 are encumbered by three mortgages for an aggregate principal amount of $27,129. Our mortgage notes are non-recourse, subject to certain limited exceptions and do not contain any material financial covenants. |
Fair Value of Assets and Liabilities |
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Fair Value Disclosures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value of Assets and Liabilities | Fair Value of Assets and Liabilities The table below presents certain of our assets measured at fair value at March 31, 2017, categorized by the level of inputs, as defined in the fair value hierarchy under GAAP, used in the valuation of each asset:
In addition to the assets described in the table above, our financial instruments include cash and cash equivalents, restricted cash, rents receivable, mortgage note receivable, accounts payable, a revolving credit facility, term loans, senior unsecured notes, mortgage notes payable, amounts due to related persons, other accrued expenses and security deposits. At March 31, 2017 and December 31, 2016, the fair values of our financial instruments approximated their carrying values in our condensed consolidated financial statements due to their short term nature or variable interest rates, except as follows:
We estimated the fair value of our senior unsecured notes due in 2019 using an average of the bid and ask price of the notes as of the measurement date (Level 2 inputs as defined in the fair value hierarchy under GAAP). We estimated the fair value of our senior unsecured notes due in 2046 based on the closing price on The NASDAQ Stock Market LLC, or Nasdaq, (Level 1 inputs as defined in the fair value hierarchy under GAAP) as of the measurement date. We estimated the fair values of our mortgage notes payable by using discounted cash flow analyses and currently prevailing market terms as of the measurement date (Level 3 inputs as defined in the fair value hierarchy under GAAP). Because Level 3 inputs are unobservable, our estimated fair value may differ materially from the actual fair value. |
Shareholders' Equity |
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Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shareholders' Equity | Shareholders’ Equity Distributions On February 23, 2017, we paid a regular quarterly distribution to common shareholders of record on January 23, 2017 of $0.43 per share, or $30,606. On April 11, 2017, we declared a regular quarterly distribution payable to common shareholders of record on April 21, 2017 of $0.43 per share, or $30,606. We expect to pay this distribution on or about May 22, 2017 using cash on hand and borrowings under our revolving credit facility. Cumulative Other Comprehensive Income Cumulative other comprehensive income represents the unrealized gain on the RMR Inc. shares we own and our share of the comprehensive income of our equity method investees, Select Income REIT, or SIR, and Affiliates Insurance Company, or AIC. The following table presents changes in the amounts we recognized in cumulative other comprehensive income by component for the three months ended March 31, 2017:
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Business and Property Management Agreements with RMR LLC Business and Property Management Agreements with RMR LLC |
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Mar. 31, 2017 | |
Property Management Fee [Abstract] | |
Business and Property Management Agreements with RMR LLC | Business and Property Management Agreements with RMR LLC We have no employees. The personnel and various services we require to operate our business are provided to us by RMR LLC. We have two agreements with RMR LLC to provide management services to us: (1) a business management agreement, which relates to our business generally; and (2) a property management agreement, which relates to our property level operations. Pursuant to our business management agreement with RMR LLC, we recognized net business management fees of $2,704 and $2,508 for the three months ended March 31, 2017 and 2016, respectively. These amounts are included in general and administrative expenses in our condensed consolidated statements of comprehensive income. Pursuant to our property management agreement with RMR LLC, we recognized aggregate net property management and construction supervision fees of $2,466 and $2,109 for the three months ended March 31, 2017 and 2016, respectively. These amounts are included in other operating expenses or have been capitalized, as appropriate, in our condensed consolidated financial statements. We are generally responsible for all of our operating expenses, including certain expenses incurred by RMR LLC on our behalf. Our property level operating expenses, including certain payroll and related costs incurred by RMR LLC, are generally incorporated into rents charged to our tenants. We reimbursed RMR LLC $3,391 and $2,944 for property management related expenses for the three months ended March 31, 2017 and 2016, respectively, which amounts are included in other operating expenses in our condensed consolidated statements of comprehensive income. In addition, we are responsible for our share of RMR LLC’s costs for providing our internal audit function. The amount recognized as expense for internal audit costs was $67 for both the three months ended March 31, 2017 and 2016, which is included in general and administrative expenses in our condensed consolidated statements of comprehensive income. |
Related Person Transactions |
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Mar. 31, 2017 | |
Related Party Transactions [Abstract] | |
Related Person Transactions | Related Person Transactions We have relationships and historical and continuing transactions with RMR LLC, RMR Inc., SIR, AIC and others related to them, including other companies to which RMR LLC provides management services and which have trustees, directors and officers who are also our Trustees or officers. Our Manager, RMR LLC. We have two agreements with RMR LLC to provide management services to us. See Note 10 for further information regarding our management agreements with RMR LLC. RMR Inc. RMR LLC is a subsidiary of RMR Inc. and RMR Inc. is the managing member of RMR LLC. The controlling shareholder of RMR Inc., ABP Trust, is owned by our Managing Trustees. As of March 31, 2017, we owned 1,214,225 shares of class A common stock of RMR Inc. See Note 8 for further information regarding our investment in RMR Inc. SIR. As of March 31, 2017, we owned 24,918,421 of SIR's common shares, or approximately 27.9% of its outstanding common shares. Our Managing Trustees also serve as managing trustees of SIR, and our President and Chief Operating Officer also serves as the president and chief operating officer of SIR. RMR LLC provides management services to SIR and us. See Note 12 for further information regarding our investment in SIR. AIC. We, SIR, ABP Trust and four other companies to which RMR LLC provides management services currently own AIC, an Indiana insurance company, in equal amounts. We and the other AIC shareholders participate in a combined property insurance program arranged and reinsured in part by AIC. As of March 31, 2017 and December 31, 2016, our investment in AIC had a carrying value of $7,485 and $7,235, respectively. These amounts are included in other assets in our condensed consolidated balance sheets. We recognized income related to our investment in AIC, which is presented as equity in earnings of an investee in our condensed consolidated statements of comprehensive income. Our other comprehensive income includes our proportionate part of unrealized gains on securities which are owned by AIC. For further information about these and other such relationships and certain other related person transactions, refer to our Annual Report. |
Equity Investment in Select Income REIT |
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Equity Method Investments and Joint Ventures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity Investment in Select Income REIT | Equity Investment in Select Income REIT As described in Note 11, as of March 31, 2017, we owned 24,918,421, or approximately 27.9%, of the then outstanding SIR common shares. SIR is a real estate investment trust which owns properties that are primarily leased to single tenants. We account for our investment in SIR under the equity method. Under the equity method, we record our proportionate share of SIR’s net income as equity in earnings of an investee in our condensed consolidated statements of comprehensive income. We recorded $2,611 and $9,857 of equity in the earnings of SIR for the three months ended March 31, 2017 and 2016, respectively. Our other comprehensive income includes our proportionate share of SIR’s unrealized gains of $4,492 for both the three months ended March 31, 2017 and 2016. The adjusted GAAP cost basis of our investments in SIR was less than our proportionate share of SIR’s total shareholders’ equity book value on the dates we acquired the shares. As of March 31, 2017, our remaining basis difference was $89,449 and as required under GAAP, we are accreting this basis difference to earnings over the estimated remaining useful lives of certain real estate assets and intangible assets and liabilities owned by SIR. This accretion increased our equity in the earnings of SIR by $736 and $740 for the three months ended March 31, 2017 and 2016, respectively. As of March 31, 2017, our investment in SIR had a carrying value of $482,103 and a market value, based on the closing price of SIR common shares on the Nasdaq on March 31, 2017, of $642,646. We periodically evaluate our equity investment in SIR for possible indicators of other than temporary impairment whenever events or changes in circumstances indicate the carrying amount of the investment might not be recoverable. These indicators may include the length of time the market value of our investment is below our cost basis, the financial condition of SIR, our intent and ability to be a long term holder of the investment and other considerations. If the decline in fair value is judged to be other than temporary, we may record an impairment charge to adjust the basis of the investment to its fair value. We received cash distributions from SIR totaling $12,708 and $12,459 during the three months ended March 31, 2017 and 2016, respectively. The following are summarized financial data of SIR as reported in SIR’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, or the SIR Quarterly Report. References in our condensed consolidated financial statements to the SIR Quarterly Report are included as references to the source of the data only, and the information in the SIR Quarterly Report is not incorporated by reference into our condensed consolidated financial statements. Condensed Consolidated Balance Sheets
Condensed Consolidated Statements of Income
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Segment Information |
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Segment Information | Segment Information We operate in two separate reportable business segments: ownership of properties that are primarily leased to government tenants and our equity method investment in SIR.
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Recent Accounting Pronouncements (Policies) |
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Mar. 31, 2017 | |
Accounting Policies [Abstract] | |
Recent Accounting Pronouncements | Recent Accounting Pronouncements On January 1, 2017, we adopted the Financial Accounting Standards Board, or FASB, Accounting Standards Update, or ASU, No. 2017-01, Clarifying the Definition of a Business, which provides additional guidance on evaluating whether a transaction should be accounted for as an acquisition (or disposal) of assets or of a business. This update defines three requirements for a set of assets and activities (collectively referred to as a “set”) to be considered a business: inputs, processes and outputs. As a result of the implementation of this update, certain property acquisitions, which under previous guidance were accounted for as business combinations, are now accounted for as acquisitions of assets. In an acquisition of assets, certain acquisition costs are capitalized as opposed to expensed under the previous guidance. On January 1, 2017, we adopted FASB ASU No. 2016-09, Compensation - Stock Compensation, which identifies areas for simplification involving several aspects of accounting for share based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the condensed statement of cash flows. The adoption of ASU No. 2016-09 did not have a material impact in our condensed consolidated financial statements. In May 2014, the FASB issued ASU No. 2014-09, Revenue From Contracts With Customers, which outlines a comprehensive model for entities to use in accounting for revenue arising from contracts with customers. ASU No. 2014-09 states that “an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” While ASU No. 2014-09 specifically references contracts with customers, it may apply to certain other transactions such as the sale of real estate or equipment. In August 2015, the FASB provided for a one-year deferral of the effective date for ASU No. 2014-09, which is now effective for us beginning January 1, 2018. A substantial portion of our revenue consists of rental income from leasing arrangements, which is specifically excluded from ASU No. 2014-09. We are continuing to evaluate ASU No. 2014-09 (and related clarifying guidance issued by the FASB); however, we do not expect its adoption to have a significant impact on the timing of our revenue recognition in the consolidated financial statements with the exception of profit recognition on real estate sales. We currently have a deferred gain on sale of real estate of $712 that under current guidance would be recognized upon repayment of a promissory note we received in connection with the sale but will be recognized in its entirety upon adoption of ASU No. 2014-09. We currently expect to adopt the standard using the modified retrospective approach. In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which changes how entities measure certain equity investments and present changes in the fair value of financial liabilities measured under the fair value option that are attributable to their own credit. This update is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted subject to certain conditions. Currently, changes in fair value of these investments are recorded through other comprehensive income. ASU No. 2016-01 states that these changes will be recorded through earnings. We are continuing to evaluate this guidance, but the implementation of this guidance will affect how changes in the fair value of available for sale securities we hold are presented in our condensed consolidated financial statements. In February 2016, the FASB issued ASU No. 2016-02, Leases, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). ASU No. 2016-02 requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase of the leased asset by the lessee. This classification will determine whether the lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease. A lessee is also required to record a right of use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales type leases, direct financing leases and operating leases. ASU No. 2016-02 is effective for reporting periods beginning after December 15, 2018, with early adoption permitted. We are currently assessing the potential impact the adoption of ASU No. 2016-02 will have in our condensed consolidated financial statements. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires that entities use a new forward looking “expected loss” model that generally will result in the earlier recognition of allowance for credit losses. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. ASU No. 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. We are currently assessing the potential impact the adoption of ASU No. 2016-13 will have in our condensed consolidated financial statements. In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which clarifies how companies present and classify certain cash receipts and cash payments in the statement of cash flows. ASU No. 2016-15 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We are currently assessing the potential impact the adoption of ASU No. 2016-15 will have in our condensed consolidated financial statements. In November 2016, the FASB issued ASU No. 2016-18, Restricted Cash, which clarifies how companies should present restricted cash and restricted cash equivalents. Companies will show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the condensed statement of cash flows. The new standard requires a reconciliation of the totals in the condensed statement of cash flows to the related captions in the balance sheets. ASU No. 2016-18 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We are currently assessing the potential impact the adoption of ASU No. 2016-18 will have in our condensed consolidated financial statements. |
Weighted Average Common Shares (Tables) |
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Earnings Per Share, Basic and Diluted [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Weighted Average Common Share Amounts | The following table provides a reconciliation of the weighted average number of common shares used in the calculation of basic and diluted earnings per share (in thousands):
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Real Estate Properties (Tables) |
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Real Estate [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of purchase prices of acquisitions allocated based on the estimated fair values of the acquired assets and assumed liabilities | Our allocation of the purchase price of this acquisition based on the estimated fair values of the acquired assets and assumed liabilities is presented in the table below.
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Summarized balance sheet and income statement information for properties classified as discontinued operations | Balance Sheets
Statements of Operations
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Fair Value of Assets and Liabilities (Tables) |
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Fair Value Disclosures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of assets measured on a recurring and non-recurring basis at fair value, categorized by the level of inputs used in the valuation assets | The table below presents certain of our assets measured at fair value at March 31, 2017, categorized by the level of inputs, as defined in the fair value hierarchy under GAAP, used in the valuation of each asset:
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Schedule of fair value and carrying value of financial instruments | At March 31, 2017 and December 31, 2016, the fair values of our financial instruments approximated their carrying values in our condensed consolidated financial statements due to their short term nature or variable interest rates, except as follows:
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Shareholders' Equity (Tables) |
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Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of changes in each component of cumulative other comprehensive income (loss) | The following table presents changes in the amounts we recognized in cumulative other comprehensive income by component for the three months ended March 31, 2017:
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Equity Investment in Select Income REIT (Tables) - SIR |
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Schedule Of Summarized Balance Sheet Information Of Equity Method Investee | Condensed Consolidated Balance Sheets
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Schedule Of Summarized Income Statement Information Of Equity Method Investee | Condensed Consolidated Statements of Income
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Segment Information (Tables) |
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Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Segment Information |
|
Recent Accounting Pronouncements (Details) $ in Thousands |
Mar. 31, 2017
USD ($)
|
---|---|
Accounting Policies [Abstract] | |
Deferred gain on sale of real estate | $ 712 |
Weighted Average Common Shares (Details) - shares shares in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
|
Earnings Per Share, Basic and Diluted [Abstract] | ||
Weighted average common shares for basic earnings per share (in shares) | 71,079 | 71,031 |
Effect of dilutive securities: unvested share awards (in shares) | 15 | 0 |
Weighted average common shares for diluted earnings per share (in shares) | 71,094 | 71,031 |
Real Estate Properties - Acquisition Activities (Details) $ in Thousands |
1 Months Ended | 3 Months Ended | ||
---|---|---|---|---|
Jan. 31, 2017
USD ($)
ft²
building
property
|
Aug. 31, 2016
USD ($)
|
Mar. 31, 2017
USD ($)
ft²
building
property
|
Mar. 31, 2016
USD ($)
|
|
Real Estate Properties [Line Items] | ||||
Purchase price | $ 12,641 | $ 79,244 | ||
Manassas, VA | ||||
Real Estate Properties [Line Items] | ||||
Number of properties | property | 1 | 1 | ||
Number of buildings acquired | building | 1 | 1 | ||
Rentable square feet of properties (in square feet) | ft² | 69,374 | 69,374 | ||
Percentage of property leased | 100.00% | |||
Purchase price | $ 12,641 | $ 12,641 | ||
Capitalized acquisition costs | $ 21 | |||
Land | 1,562 | |||
Buildings and Improvement | 8,237 | |||
Other assumed assets | $ 2,842 | |||
Transferable Development Rights | Washington D.C. | ||||
Real Estate Properties [Line Items] | ||||
Consideration transferred excluding acquisition costs | $ 2,030 |
Real Estate Properties - Disposition Activities (Details) $ in Thousands |
3 Months Ended | ||
---|---|---|---|
Mar. 31, 2017
USD ($)
building
property
|
Dec. 31, 2016
USD ($)
|
Mar. 31, 2016
ft²
building
property
|
|
Real Estate Properties [Line Items] | |||
Number of properties | property | 74 | ||
Number of buildings | building | 96 | ||
Net book value | $ 1,601,265 | $ 1,591,956 | |
Discontinued Operations, Held-for-sale | One building | Falls Church, VA | Office Building | |||
Real Estate Properties [Line Items] | |||
Number of properties | property | 1 | ||
Number of buildings | building | 1 | ||
Rentable square feet of properties (in square feet) | ft² | 164,746 | ||
Net book value | 12,282 | ||
Non-refundable deposit | 150 | ||
Aggregate sale price of properties sold, excluding closing costs | $ 13,298 |
Real Estate Properties - Balance Sheet Information for Disposal of Property (Details) - USD ($) $ in Thousands |
Mar. 31, 2017 |
Dec. 31, 2016 |
---|---|---|
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | ||
Assets of discontinued operations | $ 12,538 | $ 12,541 |
Liabilities of discontinued operations | 52 | 45 |
Discontinued Operations, Held-for-sale | Discontinued operations | ||
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | ||
Real estate properties, net | 12,260 | 12,260 |
Other assets | 278 | 281 |
Assets of discontinued operations | 12,538 | 12,541 |
Other liabilities | 52 | 45 |
Liabilities of discontinued operations | $ 52 | $ 45 |
Real Estate Properties - Income Statement Information for Disposal of Property (Details) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
|
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | ||
Loss from discontinued operations | $ (144) | $ (149) |
Discontinued operations | ||
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | ||
Rental income | 7 | 28 |
Real estate taxes | (24) | (23) |
Utility expenses | (46) | (50) |
Other operating expenses | (53) | (76) |
General and administrative | (28) | (28) |
Loss from discontinued operations | $ (144) | $ (149) |
Revenue Recognition (Details) - USD ($) $ in Thousands |
3 Months Ended | ||
---|---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
Dec. 31, 2016 |
|
Revenue Recognition [Abstract] | |||
Increase in rental income to record revenue on straight line basis | $ 1,300 | $ 149 | |
Straight line rent receivables | 22,986 | $ 21,686 | |
Allowance for doubtful accounts | $ 156 | $ 155 |
Indebtedness - Narrative (Details) $ in Thousands |
3 Months Ended |
---|---|
Mar. 31, 2017
USD ($)
building
property
loan
| |
Debt Disclosure [Abstract] | |
Number of properties secured by mortgage notes | property | 3 |
Number of buildings secured by mortgage notes | building | 3 |
Aggregate net book value of secured properties | $ 51,600 |
Number of assumed secured mortgage loans | loan | 3 |
Aggregate principal amount on secured properties | $ 27,129 |
Shareholders' Equity (Details) - USD ($) $ / shares in Units, $ in Thousands |
Apr. 11, 2017 |
Feb. 23, 2017 |
---|---|---|
Distributions | ||
Cash distribution to common shareholders (in dollars per share) | $ 0.43 | |
Distribution paid to common shareholders | $ 30,606 | |
Subsequent Event | ||
Distributions | ||
Distribution paid to common shareholders | $ 30,606 | |
Distribution payable to common shareholders (in dollars per share) | $ 0.43 |
Business and Property Management Agreements with RMR LLC (Details) - RMR LLC $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2017
USD ($)
employee
agreement
|
Mar. 31, 2016
USD ($)
|
|
Related Party Transaction [Line Items] | ||
Number of employees | employee | 0 | |
Number of agreements | agreement | 2 | |
Related party expense | $ 2,704 | $ 2,508 |
Reimbursement expense | 3,391 | 2,944 |
Internal audit costs | 67 | 67 |
Net Property Management and Construction Supervision Fees | ||
Related Party Transaction [Line Items] | ||
Related party transaction amount | $ 2,466 | $ 2,109 |
Related Person Transactions - REITs, for which RMR LLC provides Management Services (Details) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2017
USD ($)
agreement
shares
|
Dec. 31, 2016
USD ($)
|
|
SIR | ||
Related Party Transaction [Line Items] | ||
Shares holding (in shares) | 24,918,421 | |
Percentage of outstanding shares owned | 27.90% | |
RMR Inc | Class A common shares | ||
Related Party Transaction [Line Items] | ||
Shares holding (in shares) | 1,214,225 | |
RMR LLC | ||
Related Party Transaction [Line Items] | ||
Number of agreements | agreement | 2 | |
AIC | ||
Related Party Transaction [Line Items] | ||
Carrying value of equity method investments | $ | $ 7,485 | $ 7,235 |
Equity Investment in Select Income REIT (Details) - USD ($) $ in Thousands |
3 Months Ended | ||
---|---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
Dec. 31, 2016 |
|
Schedule of Equity Method Investments [Line Items] | |||
Equity in earnings of investees | $ 2,739 | $ 9,934 | |
Investment at carrying value | 482,103 | $ 487,708 | |
Cash distributions from SIR | $ 1,875 | 9,117 | |
SIR | |||
Schedule of Equity Method Investments [Line Items] | |||
Equity investments, common shares owned (in shares) | 24,918,421 | ||
Percentage of outstanding shares owned | 27.90% | ||
Equity in earnings of investees | $ 2,611 | 9,857 | |
Equity in unrealized gain (loss) of investees | 4,492 | 4,492 | |
The amount of investment in exceed the underlying equity of the investee | 89,449 | ||
Accretion in equity of earnings | 736 | 740 | |
Investment at carrying value | 482,103 | ||
Equity Investments, market value | 642,646 | ||
Cash distributions from SIR | $ 12,708 | $ 12,459 |
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