Select Income REIT Announces 2013 First Quarter Results

  Select Income REIT Announces 2013 First Quarter Results

Business Wire

NEWTON, Mass. -- May 02, 2013

Select Income REIT (NYSE: SIR) today announced financial results for the
quarter ended March 31, 2013. SIR completed its initial public offering, or
IPO, on March 12, 2012. Prior to completing its IPO, SIR and its properties
were wholly owned by CommonWealth REIT (NYSE: CWH); accordingly, SIR’s
historical results of operations for the first quarter of 2012 are not
comparable to results for the first quarter of 2013.

Results for the Quarter Ended March 31, 2013:

Normalized funds from operations, or Normalized FFO, for the quarter ended
March 31, 2013 were $29.8 million, or $0.76 per share, compared to Normalized
FFO for the quarter ended March 31, 2012 of $20.4 million, or $1.55 per share.

Net income was $22.6 million, or $0.58 per share, for the quarter ended March
31, 2013, compared to $17.7 million, or $1.34 per share, for the same quarter
last year.

SIR’s weighted average number of common shares outstanding was 39,282,592 and
13,204,901 for the quarters ended March 31, 2013 and 2012, respectively.

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 March 31, 2013 and 2012 appears later in
this press release.

Occupancy and Leasing Results:

As of March 31, 2013, 95.8% of SIR’s total rentable square feet was leased,
compared to 95.2% leased as of March 31, 2012, and 95.3% leased as of December
31, 2012.

SIR entered into new leases for approximately 113,000 square feet and lease
renewals for approximately 3,000 square feet during the quarter ended March
31, 2013, which had combined weighted average rental rates that were
approximately 53.0% above prior rents for the same leasable space. The
weighted average lease term for leases entered into during the first quarter
of 2013 was 6.8 years. Commitments for tenant improvements, leasing commission
costs and concessions for leases entered into during the quarter ended March
31, 2013 totaled approximately $547,000, or approximately $0.69 per square
foot per year of the weighted average lease term. All leasing activity during
the quarter ended March 31, 2013 occurred at SIR’s properties located in
Hawaii.

During the quarter ended March 31, 2013, SIR also executed 17 rent resets for
13 separate tenants at properties located in Hawaii for approximately 704,000
square feet of land at combined weighted average reset rates that were
approximately 50.1% higher than prior rates.

Investment Activities:

Since January 1, 2013, SIR has acquired five properties with a combined
779,010 square feet for an aggregate purchase price of $158.3 million,
excluding closing costs, which are described below.

  *In January 2013, SIR acquired two single tenant, net leased office
    properties located in Addison, TX with a combined 553,799 square feet.
    These two properties are leased to Bank of America, N.A. for 13.0 years.
    The aggregate purchase price was $105.0 million, excluding closing costs.
  *In February 2013, SIR acquired two single tenant, net leased office
    properties located in Provo, UT with a combined 125,225 square feet. These
    two properties are leased to Vivint, Inc. for 11.8 years. The aggregate
    purchase price was approximately $34.7 million, excluding closing costs.
  *In March 2013, SIR acquired a single tenant, net leased office property
    located in San Antonio, TX with 99,986 square feet. This property is
    leased to Hartford Fire Insurance Company for 8.3 years. The purchase
    price was $18.6 million, excluding closing costs.

Financing Activities:

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.

Dividend Increase:

On April 8, 2013, SIR announced that its regular quarterly distribution rate
will be increased from $0.42 per common share ($1.68 per common share per
year) to $0.44 per common share ($1.76 per common share per year). The next
quarterly distribution will be paid to shareholders of record as of the close
of business on April 23, 2013.

Conference Call:

On Thursday, May 2, 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 first quarter 2013
financial results.

The conference call telephone number is (800) 230-1951. Participants calling
from outside the United States and Canada should dial (612) 332-0342. 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 a.m. Eastern Time on Thursday, May 9,
2013. To hear the replay, dial (800) 475-6701 or, if calling from outside the
United States, dial (320) 365-3844. The replay pass code is 290595.

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 first quarter conference call is strictly
prohibited without the prior written consent of SIR.

Supplemental Data:

A copy of SIR’s First Quarter 2013 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 March 31,
2013, SIR owned 272 properties with a total of approximately 25.4 million
square feet located in 19 states, including 229 properties with approximately
17.8 million square feet which are primarily leasable industrial and
commercial lands 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 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 SIR RECENTLY INCREASED ITS QUARTERLY
    DIVIDEND RATE TO $0.44 PER COMMON SHARE PER QUARTER OR $1.76 PER COMMON
    SHARE PER YEAR. A POSSIBLE IMPLICATION OF THIS STATEMENT IS THAT SIR WILL
    CONTINUOUSLY PAY QUARTERLY DIVIDENDS OF $0.44 PER COMMON SHARE PER QUARTER
    OR $1.76 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. 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.
    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 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.

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 March 31,
                                                  2013           2012      
                                                                      
Revenues:
   Rental income                                  $  37,458        $  24,074
   Tenant reimbursements and other income           6,402          3,513  
                  Total revenues                     43,860           27,587
                                                                      
Expenses:
   Real estate taxes                                 4,626            3,641
   Other operating expenses                          3,248            1,777
   Depreciation and amortization                     6,665            2,773
   Acquisition related costs                         533              -
   General and administrative                       2,719          1,404  
                  Total expenses                    17,791         9,595  
                                                                      
Operating income                                     26,069           17,992
                                                                      
Interest expense (including amortization of
debt premiums and
   deferred financing fees of $336 and $53,          (3,473  )        (337   )
   respectively)
Equity in earnings of an investee                   76             -      
Income before income tax expense                     22,672           17,655
Income tax expense                                  (40     )       -      
Net income                                          22,632         17,655 
                                                                      
Weighted average common shares outstanding          39,283         13,205 
                                                                      
Net income per common share                       $  0.58         $  1.34   
                                                                             


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

                                           Three Months Ended March 31,
                                                2013           2012
                                                                  
Net income                                   $   22,632       $   17,655
Plus:       depreciation and amortization       6,665           2,773
FFO                                              29,297           20,428
Plus:       acquisition costs                   533             -
Normalized FFO                               $   29,830       $   20,428
                                                                  
Weighted average common shares outstanding      39,283          13,205
                                                                  
Per common share
            FFO                              $   0.75             1.55
            Normalized FFO                   $   0.76             1.55
                                                                  

^(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
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
and between SIR and other REITs. 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 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)

                                              March 31,      December 31,
                                                  2013           2012       
ASSETS
  Real estate properties:
     Land                                       $ 691,813       $ 675,092
     Buildings and improvements                  753,876       620,686    
                                                  1,445,689       1,295,778
     Accumulated depreciation                    (51,162   )    (46,697    )
                                                  1,394,527       1,249,081
                                                                  
  Acquired real estate leases, net                101,372         95,248
  Cash and cash equivalents                       16,589          20,373
  Restricted cash                                 42              42
  Rents receivable, net of allowance for
  doubtful
     accounts of $642 and $644, respectively      44,633          38,885
  Deferred leasing costs, net                     4,866           4,816
  Deferred financing costs, net                   6,268           5,517
  Due from related persons                        634             585
  Other assets                                   9,344         16,105     
  Total assets                                  $ 1,578,275    $ 1,430,652  
                                                                  
LIABILITIES AND SHAREHOLDERS' EQUITY
  Revolving credit facility                     $ 238,000       $ 95,000
  Term loan                                       350,000         350,000
  Mortgage notes payable                          27,616          27,778
  Accounts payable and accrued expenses           18,453          19,703
  Assumed real estate lease obligations, net      20,263          20,434
  Rents collected in advance                      6,398           6,518
  Security deposits                               9,589           9,335
  Due to related persons                         1,731         1,701      
  Total liabilities                              672,050       530,469    
                                                                  
  Commitments and contingencies
                                                                  
  Shareholders' equity:
     Common shares of beneficial interest,
     $0.01 par value:
           50,000,000 shares authorized,
           39,282,592 shares
           issued and outstanding                 393             393
     Additional paid in capital                   876,836         876,920
     Cumulative net income                        73,883          51,251
     Cumulative other comprehensive income        17              25
     Cumulative common distributions             (44,904   )    (28,406    )
  Total shareholders' equity                     906,225       900,183    
                                                                  
  Total liabilities and shareholders' equity    $ 1,578,275    $ 1,430,652  

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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