Select Income REIT Announces 2012 Fourth Quarter and Year End Results

  Select Income REIT Announces 2012 Fourth Quarter and Year End Results

Business Wire

NEWTON, Mass. -- February 22, 2013

Select Income REIT (NYSE: SIR) today announced financial results for the
quarter and year ended December 31, 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
for the 2011 periods are not comparable to results reported for the current
periods; similarly, SIR’s historical results for the years ended December 31,
2011 and 2012 are not comparable to the results which may be expected in
future periods.

Results for the Quarter Ended December 31, 2012:

Normalized funds from operations, or Normalized FFO, for the quarter ended
December 31, 2012 were $23.6 million, compared to Normalized FFO for the
quarter ended December 31, 2011 of $20.1 million. Normalized FFO per share for
the quarter ended December 31, 2012 were $0.71 per share.

Net income was $17.2 million for the quarter ended December 31, 2012, compared
to $17.2 million for the same quarter last year. Net income per share for the
quarter ended December 31, 2012 was $0.52 per share.

The weighted average number of common shares outstanding was 33,070,092 for
the quarter ended December 31, 2012. For the quarter ended December 31, 2011,
SIR had only a nominal number of shares outstanding.

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 December 31, 2012 and 2011 appears later
in this press release.

Results for the Year Ended December 31, 2012:

Normalized FFO for the year ended December 31, 2012 were $83.2 million,
compared to Normalized FFO for the year ended December 31, 2011 of $80.1
million. Normalized FFO per share for the year ended December 31, 2012 were
$3.07 per share.

Net income was $65.9 million for the year ended December 31, 2012, compared to
$68.9 million for the year ended December 31, 2011. Net income per share for
the year ended December 31, 2012 was $2.43 per share.

The weighted average number of common shares outstanding was 27,121,991 for
the year ended December 31, 2012. For the year ended December 31, 2011, SIR
had only a nominal number of shares outstanding.

A reconciliation of net income, determined according to GAAP, to FFO and
Normalized FFO for the years ended December 31, 2012 and 2011 appears later in
this press release.

Occupancy and Leasing Results:

As of December 31, 2012, 95.3% of SIR’s total rentable square feet was leased,
compared to 95.3% leased as of December 31, 2011, and 94.9% leased as of
September 30, 2012.

SIR entered lease renewals for 375,000 square feet and new leases for 59,000
square feet during the quarter ended December 31, 2012 which had weighted
average rental rates that were 35.2% above prior rents for the same square
feet. The weighted average lease term for leases entered during the fourth
quarter of 2012 was 9.6 years. Commitments for tenant improvement, leasing
commission costs and concessions for leases entered during the quarter ended
December 31, 2012 totaled approximately $323,000, or approximately $0.08 per
square foot per year of the weighted average lease term. All renewal and new
leasing activity during the quarter ended December 31, 2012 occurred at SIR’s
properties located in Hawaii.

During the quarter ended December 31, 2012, SIR also executed ten rent resets
at properties located in Hawaii for approximately 365,000 square feet of land
at combined weighted average reset rates that were approximately 59.4% higher
than prior rates.

Investment Activities:

Since October 1, 2012, SIR has acquired 9 properties with a combined 1,238,809
square feet for an aggregate purchase price of $282.4 million, excluding
closing costs, which are described below.

  *In November 2012, SIR acquired a single tenant, net leased office property
    located in Sunnyvale, CA with 96,415 square feet. The purchase price was
    $28.1 million, excluding closing costs.
  *Also in November 2012, SIR acquired a net leased industrial property
    located in Honolulu, HI with 49,452 square feet. The purchase price was
    $6.3 million, excluding closing costs.
  *Also in November 2012, SIR acquired three single tenant, net leased office
    properties located in Sterling, VA with a combined 337,228 square feet.
    The aggregate purchase price was $85.6 million, excluding closing costs.
  *In December 2012, SIR acquired a single tenant, net leased office property
    located in Ann Arbor, MI with 82,003 square feet. The purchase price was
    $16.9 million, excluding closing costs.
  *Also in December 2012, SIR acquired a single tenant, net leased office
    property located in Columbia, MD with 119,912 square feet. The purchase
    price was $40.5 million, excluding closing costs.
  *In January 2013, SIR acquired two single tenant, net leased office
    properties located in Addison, TX with a combined 553,799 square feet. The
    aggregate purchase price was $105.0 million, excluding closing costs.

In January 2013, SIR entered agreements to acquire three properties with a
combined 225,211 square feet for an aggregate purchase price of $53.3 million,
excluding closing costs, which are described below.

  *In January 2013, SIR entered an agreement to acquire two single tenant,
    net leased office properties located in Provo, UT with a combined 125,225
    square feet. The aggregate purchase price is $34.7 million, excluding
    closing costs. This acquisition is subject to SIR's satisfactory
    completion of diligence and other customary closing conditions;
    accordingly, SIR can provide no assurance that it will acquire these
    properties for the stated aggregate purchase price or at all.
  *Also in January 2013, SIR entered an agreement to acquire a single tenant,
    net leased office property located in San Antonio, TX with 99,986 square
    feet. The purchase price is $18.6 million, excluding closing costs. This
    acquisition is subject to SIR's satisfactory completion of diligence and
    other customary closing conditions; accordingly, SIR can provide no
    assurance that it will acquire this property for the stated purchase price
    or at all.

Financing Activities:

Since October 1, 2012, SIR has completed the following financing activities:

On December 11, 2012, SIR sold 8,050,000 common shares, including 1,050,000
common shares sold when the underwriters exercised in full their option to
purchase additional shares, in a public offering at a price of $24.00 per
share and raised net proceeds of approximately $182.8 million. The net
proceeds from this offering were used to partially repay amounts outstanding
under SIR’s revolving credit facility and for general business activities,
including the acquisitions described above.

In February 2013, SIR increased the available borrowing amount under its
revolving credit facility from $500.0 million to $750.0 million. All other
terms and conditions of the revolving credit facility remain unchanged.

Conference Call:

On Friday, February 22, 2013, 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 fourth quarter
and year end 2012 financial results.

The conference call telephone number is (800) 553-0288. Participants calling
from outside the United States and Canada should dial (612) 332-0530. 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 Friday, March 1,
2013. To hear the replay, dial (320) 365-3844. The replay pass code is 279894.

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 transcription, recording and
retransmission in any way of SIR’s fourth quarter conference call is strictly
prohibited without the prior written consent of SIR.

Supplemental Data:

A copy of SIR’s Fourth 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 December 31,
2012, SIR owned 267 properties with a total of approximately 24.6 million
square feet located in 19 states, including 229 properties with approximately
17.8 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.

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 December      Year Ended December 31,
                    31,
                    2012               2011         2012           2011
                                                                       
Revenues:
Rental income       $  31,287           $ 22,588     $ 105,559       $ 91,775
Tenant
reimbursements        5,118            4,104       17,231        16,847
and other
income
Total revenues         36,405             26,692       122,790         108,622
                                                                       
Expenses:
Real estate            4,157              3,646        15,370          14,709
taxes
Other operating        2,811              1,716        8,426           8,237
expenses
Depreciation
and                    5,178              2,844        14,860          11,205
amortization
Acquisition            1,212              -            2,470           -
related costs
General and           2,539            1,240       8,203         5,528
administrative
Total expenses        15,897           9,446       49,329        39,679
                                                                       
Operating              20,508             17,246       73,461          68,943
income
                                                                       
Interest
expense
(including
amortization of
deferred
financing fees
of $382, $0,           (3,129  )          -            (7,565  )       -
$1,050 and $0,
respectively)
Equity in
earnings of an        80               -           269           -
investee
Income before
income tax             17,459             17,246       66,165          68,943
expense
Income tax            (290    )         -           (290    )      -
expense
Net income            17,169           17,246      65,875        68,943
                                                                       
Weighted
average common        33,070           -           27,122        -
shares
outstanding
                                                                       
Net income per      $  0.52            $ -          $ 2.43         $ -
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            Year Ended December
                           December 31,                  31,
                             2012         2011        2012      2011
                                                                        
Net income                 $  17,169        $ 17,246     $ 65,875     $ 68,943
Plus:depreciation        5,178          2,844       14,860      11,205
and amortization
FFO                           22,347          20,090       80,735       80,148
Plus:acquisition         1,212          -           2,470       -
costs
Normalized FFO             $  23,559        $ 20,090     $ 83,205     $ 80,148
                                                                        
Weighted average
common shares                33,070         -           27,122      -
outstanding
                                                                        
Per common share
FFO                        $  0.68                       $ 2.98
Normalized FFO             $  0.71                       $ 3.07
                                                                        

^(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 us. 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
operating performance for a REIT, along with net income, operating income and
cash flow from operating 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 may facilitate a comparison of its 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
agreements, 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
Consolidated Statements of Income and Comprehensive Income and 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)

                                               December 31,       December 31,
                                               2012               2011
ASSETS
Real estate properties:
Land                                         $ 675,092          $ 614,702
Buildings and improvements                    620,686          292,634   
                                               1,295,778          907,336
Accumulated depreciation                      (46,697    )      (36,240   )
                                               1,249,081          871,096
                                                                  
Acquired real estate leases, net               95,248             44,333
Cash and cash equivalents                      20,373             -
Restricted cash                                42                 -
Rents receivable, net of allowance for
doubtful
accounts of $644 and $4,067,                   38,885             35,024
respectively
Deferred leasing costs, net                    4,816              3,418
Deferred financing costs, net                  5,517              -
Due from related persons                       585                -
Other assets                                  16,105           661       
Total assets                                 $ 1,430,652       $ 954,532   
                                                                  
LIABILITIES AND SHAREHOLDERS' EQUITY
Revolving credit facility                    $ 95,000           $ -
Term loan                                      350,000            -
Mortgage notes payable                         27,778             -
Accounts payable and accrued expenses          19,703             14,217
Assumed real estate lease obligations,         20,434             21,005
net
Rents collected in advance                     6,518              6,229
Security deposits                              9,335              8,281
Due to related persons                        1,701            -         
Total liabilities                             530,469          49,732    
                                                                  
Commitments and contingencies
                                                                  
Shareholders' equity:
Common shares of beneficial interest,
$0.01 par value:
50,000,000 shares authorized, 39,282,592
and 1,000
shares issued and outstanding,                 393                -
respectively
Additional paid in capital                     876,920            -
Cumulative net income                          51,251             -
Cumulative other comprehensive income          25                 -
Cumulative common distributions                (28,406    )       -
Ownership interest                            -                904,800   
Total shareholders' equity                    900,183          904,800   
                                                                  
Total liabilities and shareholders'          $ 1,430,652       $ 954,532   
equity
                                                                            

                WARNING CONCERNING FORWARD LOOKING STATEMENTS

THIS PRESS RELEASE CONTAINS STATEMENTS THAT CONSTITUTE FORWARD LOOKING
STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORMACT
OF 1995 AND OTHER SECURITIES LAWS. ALSO, WHENEVER WE USE WORDS SUCH AS
“BELIEVE”, “EXPECT”, “ANTICIPATE”, “INTEND”, “PLAN”, “ESTIMATE”, OR SIMILAR
EXPRESSIONS, WE ARE MAKING FORWARD LOOKING STATEMENTS. THESE FORWARD LOOKING
STATEMENTS ARE BASED UPON OUR PRESENT INTENT, BELIEFS OR EXPECTATIONS, BUT
FORWARD LOOKING STATEMENTS ARE NOT GUARANTEED TO OCCUR AND MAYNOT OCCUR.
ACTUAL RESULTS MAYDIFFER 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 WE HAVE ENTERED AGREEMENTS TO PURCHASE
    PROPERTIES. THESE TRANSACTIONS ARE SUBJECT TO VARIOUS TERMS AND CONDITIONS
    TYPICAL OF COMMERCIAL REAL ESTATE TRANSACTIONS. THESE TERMS AND CONDITIONS
    MAY NOT BE MET. AS A RESULT, THESE TRANSACTIONS MAY NOT OCCUR OR MAY BE
    DELAYED.

THE INFORMATION CONTAINED IN OUR FILINGS WITH THE SECURITIES AND EXCHANGE
COMMISSION, INCLUDING UNDER “RISK FACTORS” IN OUR PERIODIC REPORTS, OR
INCORPORATED THEREIN, IDENTIFIES OTHER IMPORTANT FACTORS THAT COULD CAUSE OUR
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE STATED IN OUR FORWARD LOOKING
STATEMENTS. OUR FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION ARE
AVAILABLE ON ITS WEBSITE AT WWW.SEC.GOV.

YOU SHOULD NOT PLACE UNDUE RELIANCE UPON OUR FORWARD LOOKING STATEMENTS.

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

Contact:

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