Select Income REIT Announces 2012 Third Quarter Results

  Select Income REIT Announces 2012 Third Quarter Results

Business Wire

NEWTON, Mass. -- November 01, 2012

Select Income REIT (NYSE: SIR) today announced financial results for the
quarter ended September 30, 2012. SIR was formed on December 19, 2011 as a
wholly owned subsidiary of CommonWealth REIT (NYSE: CWH), and SIR sold
approximately 29.5% of its common shares in an initial public offering, or
IPO, on March 12, 2012. Accordingly, SIR’s historical results of operations
are not comparable to results which may be expected in future periods.

Results for the Quarter Ended September 30, 2012:

Normalized funds from operations, or Normalized FFO, for the quarter ended
September 30, 2012 were $20.2 million, compared to Normalized FFO for the
quarter ended September 30, 2011 of $19.4 million. Normalized FFO per share
for the quarter ended September 30, 2012 were $0.65 per share.

Net income was $15.7 million for the quarter ended September 30, 2012,
compared to $16.5 million for the same quarter last year. Net income per share
for the quarter ended September 30, 2012 was $0.50 per share.

The weighted average number of common shares outstanding was 31,206,022 for
the quarter ended September 30, 2012. For the quarter ended September 30,
2011, SIR did not have any outstanding shares.

A reconciliation of net income determined according to U.S. generally accepted
accounting principles, or GAAP, to funds from operations, or FFO, and
Normalized FFO for the quarters ended September 30, 2012 and 2011 appears
later in this press release.

Results for the Nine Months Ended September 30, 2012:

Normalized FFO for the nine months ended September 30, 2012 were $59.6
million, compared to Normalized FFO for the nine months ended September 30,
2011 of $60.1 million. Normalized FFO per share for the nine months ended
September 30, 2012 were $2.36 per share.

Net income was $48.7 million for the nine  months ended September 30, 2012,
compared to $51.7 million for the nine months ended September 30, 2011. Net
income per share for the nine months ended September 30, 2012 was $1.93 per
share.

The weighted average number of common shares outstanding was 25,225,548 for
the nine months ended September 30, 2012. For the nine months ended September
30, 2011, SIR did not have any outstanding shares.

SIR issued 22,000,000 common shares to CWH on February 16, 2012 (including
1,000 shares issued to CWH in connection with SIR’s formation in December
2011) and issued 9,200,000 common shares in connection with its IPO on March
12, 2012. If the issuance of common shares to CWH and the IPO had occurred on
January 1, 2012, then SIR’s weighted average number of common shares
outstanding would have been 31,202,022 for the nine months ended September 30,
2012.

A reconciliation of net income, determined according to GAAP, to FFO and
Normalized FFO for the three and nine months ended September 30, 2012 and 2011
appears later in this press release.

Occupancy and Leasing Results:

As of September 30, 2012, 94.9% of SIR’s total rentable square feet was
leased, compared to 95.2% as of September 30, 2011.

During the three months ended September 30, 2012, SIR executed a rent reset at
a property located in Hawaii for approximately 105,000 square feet of land,
which had a reset rate that was approximately 42.9% higher than the prior
rate. In addition, SIR entered lease renewals and new leases for approximately
134,000 square feet during the quarter ended September 30, 2012. The weighted
average lease term for lease renewals and new leases entered into during the
third quarter of 2012 was 5.6 years. Commitments for tenant improvement,
leasing commission costs and concessions for leases entered during the quarter
ended September 30, 2012 totaled approximately $252,000, or approximately
$0.34 per square foot per year of the weighted average lease term. All renewal
and new leasing activity during the quarter ended September 30, 2012 occurred
at SIR’s properties located in Hawaii.

Investment Activities:

Since July 1, 2012, SIR has acquired seven properties with a combined
1,989,118 square feet for an aggregate purchase price of $156.3 million,
including the assumption of $26.0 million of mortgage debt and excluding
closing costs. Details of these acquisitions are as follows:

  *In July 2012, SIR acquired two previously disclosed single tenant, net
    leased office and industrial properties located in Windsor, CT with a
    combined 268,328 square feet. The aggregate purchase price was $27.2
    million, excluding closing costs.
  *Also in July 2012, SIR acquired a previously disclosed single tenant, net
    leased office property located in Topeka, KS with 143,934 square feet. The
    purchase price was $19.4 million, excluding closing costs.
  *In August 2012, SIR acquired a single tenant, net leased industrial
    property located in Huntsville, AL with 1,370,974 square feet. The
    purchase price was $72.8 million, excluding closing costs.
  *In September 2012, SIR acquired two single tenant, net leased office
    properties located in Carlsbad, CA with a combined 95,000 square feet. The
    aggregate purchase price was $24.7 million, including the assumption of
    $18.5 million of mortgage debt and excluding closing costs.
  *Also in September 2012, SIR acquired a single tenant, net leased office
    property located in Chelmsford, MA with 110,882 square feet. The purchase
    price was $12.2 million, including the assumption of $7.5 million of
    mortgage debt and excluding closing costs.

Dividend Increase:

On October 9, 2012, SIR announced that its regular quarterly distribution rate
will be increased from $0.40 per common share ($1.60 per common share per
year) to $0.42 per common share ($1.68 per common share per year). The next
quarterly distribution will be paid to shareholders of record as of the close
of business on October 22, 2012.

Conference Call:

Later today, November 1, 2012, at 1:00 p.m. Eastern Time, David Blackman,
President and Chief Operating Officer, and John Popeo, Treasurer and Chief
Financial Officer, will host a conference call to discuss the financial
results for the quarter ended September 30, 2012.

The conference call telephone number is (800) 230-1074. Participants calling
from outside the United States and Canada should dial (612) 234-9959. No pass
code is necessary to access either call. Participants should dial in about 15
minutes prior to the scheduled start of the call. A replay of the conference
call will be available through 11:59 p.m. Eastern Time on Thursday, November
8, 2012. To hear the replay, dial (320) 365-3844. The replay pass code is
260115.

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

Supplemental Data:

A copy of SIR’s Third Quarter 2012 Supplemental Operating and Financial Data
is available for download at SIR’s website, www.sirreit.com. SIR’s website is
not incorporated as part of this press release.

Select Income REIT is a real estate investment trust, or REIT, which owns
properties that are primarily net leased to single tenants. As of September
30, 2012, SIR owned 260 properties with a total of approximately 23.9 million
square feet located in 17 states, including 228 properties with approximately
17.7 million square feet which are primarily leasable industrial and
commercial land located on the island of Oahu, HI. SIR is headquartered in
Newton, MA.

Please see the pages attached hereto for a more detailed statement of SIR’s
operating results and financial condition and for an explanation of SIR’s
calculation of FFO and Normalized FFO.

                WARNING CONCERNING FORWARD LOOKING STATEMENTS

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

  *THIS PRESS RELEASE STATES THAT SIR’S REGULAR QUARTERLY DIVIDEND RATE WILL
    BE $0.42 PER COMMON SHARE PER QUARTER OR $1.68 PER COMMON SHARE PER YEAR.
    A POSSIBLE IMPLICATION OF THIS STATEMENT IS THAT SIR WILL CONTINUOUSLY PAY
    QUARTERLY DIVIDENDS OF $0.42 PER COMMON SHARE PER QUARTER OR $1.68 PER
    COMMON SHARE PER YEAR IN THE FUTURE. SIR’S DIVIDEND RATES ARE SET AND
    RESET FROM TIME TO TIME BY SIR’S BOARD OF TRUSTEES. THE SIR BOARD
    CONSIDERS MANY FACTORS WHEN SETTING DIVIDEND RATES INCLUDING SIR’S
    HISTORICAL AND PROJECTED INCOME, NORMALIZED FUNDS FROM OPERATIONS, THE
    THEN CURRENT AND EXPECTED NEEDS AND AVAILABILITY OF CASH TO PAY SIR’S
    OBLIGATIONS, DISTRIBUTIONS WHICH MAY BE REQUIRED TO BE PAID TO MAINTAIN
    SIR’S TAX STATUS AS A REAL ESTATE INVESTMENT TRUST AND OTHER FACTORS
    DEEMED RELEVANT BY SIR’S BOARD OF TRUSTEES IN THEIR DISCRETION. DIVIDEND
    RATES MAY BE INCREASED OR DECREASED AND THERE IS NO ASSURANCE AS TO THE
    RATE AT WHICH FUTURE DIVIDENDS WILL BE PAID.

THE INFORMATION CONTAINED IN SIR’S FILINGS WITH THE SECURITIES AND EXCHANGE
COMMISSION, OR THE SEC, INCLUDING UNDER "RISK FACTORS" IN SIR’S PROSPECTUS
DATED MARCH 6, 2012 AND SIR’S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER
ENDED JUNE 30, 2012, IDENTIFIES OTHER IMPORTANT FACTORS THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE STATED IN OR IMPLIED BY SIR’S
FORWARD LOOKING STATEMENTS. SIR’S FILINGS WITH THE SEC ARE AVAILABLE ON THE
SEC’S WEBSITE AT WWW.SEC.GOV.

YOU SHOULD NOT PLACE UNDUE RELIANCE UPON FORWARD LOOKING STATEMENTS.

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

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


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


                   Three Months Ended           Nine Months Ended
                      September 30,                 September 30,
                      2012           2011         2012           2011
                                                                        
Revenues:
  Rental income       $  26,444        $  22,338    $  74,272        $  69,186
  Tenant
  reimbursements        4,434          4,583       12,113         12,744
  and other income
        Total            30,878           26,921       86,385           81,930
        revenues
                                                                        
Expenses:
  Real estate taxes      3,895            3,912        11,213           11,063
  Other operating        1,815            2,223        5,615            6,522
  expenses
  Depreciation and       3,888            2,884        9,682            8,360
  amortization
  Acquisition            583              -            1,258            -
  related costs
  General and           2,626          1,405       5,664          4,288
  administrative
        Total           12,807         10,424      33,432         30,233
        expenses
                                                                        
Operating income         18,071           16,497       52,953           51,697
                                                                        
Interest expense
(including
amortization of
deferred
  financing fees of
  $358, $0, $669         (2,467  )        -            (4,436  )        -
  and $0,
  respectively)
Equity in earnings      115            -           189            -
of an investee
Net income              15,719         16,497      48,706         51,697
                                                                        
Weighted average
common shares           31,206         -           25,226         -
outstanding
                                                                        
Net income per        $  0.50         $  -         $  1.93         $  -
common share
                                                                        


Select Income REIT
Funds from Operations and Normalized Funds from Operations^(1)
(amounts in thousands, except per share data)
(unaudited)


                          Three Months Ended        Nine Months Ended
                           September 30,              September 30,
                           2012         2011         2012         2011
                                                                       
Net income                 $  15,719     $  16,497    $  48,706     $  51,697
Plus:   depreciation and     3,888        2,884       9,682        8,360
        amortization
FFO                           19,607        19,381       58,388        60,057
Plus:   acquisition          583          -           1,258        -
        costs
Normalized FFO             $  20,190     $  19,381    $  59,646     $  60,057
                                                                       
Weighted average common      31,206       -           25,226       -
shares outstanding
                                                                       
Per common share
        FFO                $  0.63                    $  2.31
        Normalized FFO     $  0.65                    $  2.36
                                                                       

^(1) SIR calculates FFO and Normalized FFO as shown above. FFO is calculated
on the basis defined by The National Association of Real Estate Investment
Trusts, or NAREIT, which is net income, calculated in accordance with GAAP,
plus real estate depreciation and amortization, as well as other adjustments
currently not applicable to SIR. SIR’s calculation of Normalized FFO differs
from NAREIT’s definition of FFO because SIR excludes acquisition related
costs. SIR considers FFO and Normalized FFO to be appropriate measures of
performance for a REIT, along with net income, operating income and cash flow
from operating, investing and financing activities. SIR believes that FFO and
Normalized FFO provide useful information to investors because by excluding
the effects of certain historical amounts, such as depreciation expense, FFO
and Normalized FFO can facilitate a comparison of our operating performance
between periods. FFO and Normalized FFO are among the factors considered by
SIR’s Board of Trustees when determining the amount of distributions to SIR’s
shareholders. Other factors include, but are not limited to, requirements to
maintain SIR’s status as a REIT, limitations in SIR’s revolving credit
facility and term loan, the availability of debt and equity capital to SIR,
SIR’s expectation of its future capital requirements and operating performance
and SIR’s expected needs and availability of cash to pay its obligations. FFO
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, operating income or cash flow from operating activities, determined in
accordance with GAAP, or as indicators of SIR’s financial performance or
liquidity, nor are these measures necessarily indicative of sufficient cash
flow to fund all of SIR’s needs. SIR believes that FFO and Normalized FFO may
facilitate an understanding of SIR’s consolidated historical operating
results. These measures should be considered in conjunction with net income,
operating income and cash flow from operating activities as presented in SIR’s
Condensed Consolidated Statements of Income and Comprehensive Income and
Condensed Consolidated Statements of Cash Flows. Other REITs and real estate
companies may calculate FFO and Normalized FFO differently than SIR does.


Select Income REIT
Condensed Consolidated Balance Sheets
(amounts in thousands, except share data)
(unaudited)


                                            September 30,    December 31,
                                                2012             2011      
ASSETS
  Real estate properties:
    Land                                      $ 639,702         $ 614,702
    Buildings and improvements                 513,942         292,634   
                                                1,153,644         907,336
    Accumulated depreciation                   (43,191    )     (36,240   )
                                                1,110,453         871,096
                                                                  
  Acquired real estate leases, net              57,855            44,333
  Cash and cash equivalents                     10,690            -
  Restricted cash                               42                -
  Rents receivable, net                         36,945            35,024
  Deferred leasing costs, net                   4,098             3,418
  Deferred financing costs, net                 5,898             -
  Other assets, net                            13,951          661       
  Total assets                                $ 1,239,932      $ 954,532   
                                                                  
LIABILITIES AND SHAREHOLDERS' EQUITY
  Revolving credit facility                   $ 92,000          $ -
  Term loan                                     350,000           -
  Mortgage notes payable                        27,931            -
  Accounts payable and accrued expenses         19,266            14,217
  Assumed real estate lease obligations,        19,954            21,005
  net
  Rents collected in advance                    7,892             6,229
  Security deposits                             8,268             8,281
  Due to related persons                       1,333           -         
  Total liabilities                            526,644         49,732    
                                                                  
  Commitments and contingencies
                                                                  
  Shareholders' equity:
    Common shares of beneficial interest,
    $0.01 par value:
        50,000,000 shares authorized,
        31,232,592 and 1,000
        shares issued and outstanding,          312               -
        respectively
    Additional paid in capital                  694,148           -
    Cumulative net income                       34,082            -
    Cumulative other comprehensive income       34                -
    (loss)
    Cumulative common distributions             (15,288    )      -
    Ownership interest                         -               904,800   
  Total shareholders' equity                   713,288         904,800   
                                                                  
  Total liabilities and shareholders'         $ 1,239,932      $ 954,532   
  equity

Contact:

Select Income REIT
Timothy A. Bonang, 617-796-8320
Vice President, Investor Relations
or
Carlynn Finn, 617-796-8320
Senior Manager, Investor Relations
www.sirreit.com