Select Income REIT Announces 2013 Third Quarter Results

  Select Income REIT Announces 2013 Third Quarter Results

Business Wire

NEWTON, Mass. -- October 31, 2013

Select Income REIT (NYSE: SIR) today announced financial results for the
quarter and nine months ended September 30, 2013. SIR completed its initial
public offering, or IPO, on March 12, 2012. Accordingly, SIR’s historical
results of operations for the nine months ended September 30, 2013 are not
comparable to results for the nine months ended September 30, 2012.

Results for the Quarter Ended September 30, 2013:

Normalized funds from operations, or Normalized FFO, for the quarter ended
September 30, 2013 were $32.9 million, or $0.66 per share, compared to
Normalized FFO for the quarter ended September 30, 2012 of $20.2 million, or
$0.65 per share.

Net income was $23.6 million, or $0.47 per share, for the quarter ended
September 30, 2013, compared to $15.7 million, or $0.50 per share, for the
same quarter last year.

SIR’s weighted average number of common shares outstanding was 49,685,740 and
31,206,022 for the quarters ended September 30, 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 September 30, 2013 and 2012 appears
later in this press release.

Results for the Nine Months Ended September 30, 2013:

Normalized FFO for the nine months ended September 30, 2013 were $92.9
million, or $2.17 per share, compared to Normalized FFO for the nine months
ended September 30, 2012 of $59.6 million, or $2.36 per share.

Net income was $69.0 million, or $1.61 per share, for the nine  months ended
September 30, 2013, compared to $48.7 million, or $1.93 per share, for the
nine months ended September 30, 2012.

SIR’s weighted average number of common shares outstanding was 42,790,210 and
25,225,548 for the nine months ended September 30, 2013 and 2012,
respectively.

A reconciliation of net income, determined according to GAAP, to FFO and
Normalized FFO for the nine months ended September 30, 2013 and 2012 appears
later in this press release.

Operating Results:

As of September 30, 2013, 95.6% of SIR’s total rentable square feet was
leased, compared to 94.9% leased as of September 30, 2012, and 95.5% leased as
of June 30, 2013.

SIR entered into lease renewals for approximately 72,000 square feet during
the quarter ended September 30, 2013, which had combined weighted average
rental rates that were approximately 12.8% lower than prior rents for the same
leasable space. The weighted average lease term for leases entered into during
the third quarter of 2013 was 10.4 years. Commitments for tenant improvements,
leasing commission costs and concessions for leases entered into during the
quarter ended September 30, 2013 totaled approximately $32,000, or
approximately $0.04 per square foot per year of the weighted average lease
term. All leasing activity during the quarter ended September 30, 2013
occurred at SIR’s properties located in Hawaii.

During the quarter ended September 30, 2013, SIR also executed two rent resets
at properties located in Hawaii for approximately 77,000 square feet of land
at combined weighted average reset rates that were approximately 29.4% higher
than prior rates.

Same property occupancy for properties owned continuously since July 1, 2012
increased 0.4 percentage points from 94.4% to 94.8% and same property net
operating income, or NOI, increased 7.1% during the third quarter of 2013,
largely because of the occupancy and rent increases in Oahu, Hawaii.

A reconciliation of NOI to net income determined according to GAAP for the
three and nine months ended September 30, 2013 and 2012 appears later in this
press release.

Investment Activities:

As previously disclosed, in July 2013, SIR acquired a single tenant, net
leased office property located in Richmond, VA with 310,950 rentable square
feet. This property is 100% leased to MeadWestvaco Corporation for a remaining
lease term of 10.0 years. The purchase price was $143.6 million, excluding
closing costs.

In October 2013, SIR acquired a single tenant, net leased office property
located in Vernon Hills, IL with 99,579 rentable square feet. This property is
100% leased to Baxter Healthcare Corporation for a remaining lease term of
10.2 years. The purchase price was $18.0 million, excluding closing costs.

Also in October 2013, SIR entered an agreement to acquire four single tenant,
net leased properties with a combined 250,731 rentable square feet for an
aggregate purchase price of $64.9 million, excluding closing costs.

Financing Activities:

As previously reported, in July 2013, SIR sold 10,500,000 common shares in a
public offering at a price of $28.25 per share for net proceeds of
approximately $283.6 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.

On October 9, 2013, SIR announced that its regular quarterly distribution rate
will be increased from $0.44 per common share ($1.76 per common share per
year) to $0.46 per common share ($1.84 per common share per year). The next
quarterly distribution will be paid to shareholders of record as of the close
of business on October 24, 2013, and distributed on or about November 20,
2013.

Conference Call:

On Thursday, October 31, 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 third quarter
2013 financial results.

The conference call telephone number is (888) 276-0010. Participants calling
from outside the United States and Canada should dial (612) 332-0820. 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 November 7, 2013. To
hear the replay, dial (320) 365-3844. The replay pass code is 305213.

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 third quarter conference call are strictly
prohibited without the prior written consent of SIR.

Supplemental Data:

A copy of SIR’s Third 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.

SIR is a real estate investment trust, or REIT, which owns properties that are
primarily net leased to single tenants. As of September 30, 2013, SIR owned
273 properties with a total of approximately 25.7 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 NOI, 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 WE HAVE ENTERED INTO AN AGREEMENT TO
    PURCHASE FOUR PROPERTIES FOR $64.9 MILLION, EXCLUDING CLOSING COSTS. THIS
    TRANSACTION IS SUBJECT TO VARIOUS TERMS AND CONDITIONS TYPICAL OF
    COMMERCIAL REAL ESTATE TRANSACTIONS. THESE TERMS AND CONDITIONS MAY NOT BE
    MET. AS A RESULT, THIS TRANSACTION MAY NOT OCCUR, MAY BE DELAYED OR THE
    PURCHASE PRICE AND OTHER TERMS MAY CHANGE.
  *THIS PRESS RELEASE STATES THAT SIR RECENTLY INCREASED ITS QUARTERLY
    DISTRIBUTION RATE TO $0.46 PER COMMON SHARE PER QUARTER OR $1.84 PER
    COMMON SHARE PER YEAR. A POSSIBLE IMPLICATION OF THIS STATEMENT IS THAT
    SIR WILL CONTINUOUSLY PAY QUARTERLY DISTRIBUTIONS OF $0.46 PER COMMON
    SHARE PER QUARTER OR $1.84 PER COMMON SHARE PER YEAR IN THE FUTURE. SIR’S
    DISTRIBUTION 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 DISTRIBUTION 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. DISTRIBUTION RATES MAY BE INCREASED OR DECREASED
    AND THERE IS NO ASSURANCE AS TO THE RATE AT WHICH FUTURE DISTRIBUTIONS
    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           Nine Months Ended
                      September 30,                  September 30,
                      2013          2012            2013           2012
                                                                       
Revenues:
Rental income         $  41,169      $  26,444       $  117,333      $ 74,272
Tenant
reimbursements          7,415         4,434          21,057        12,113
and other
income
Total revenues           48,584         30,878          138,390        86,385
                                                                       
Expenses:
Real estate              5,020          3,895           14,805         11,213
taxes
Other operating          4,267          1,815           11,367         5,615
expenses
Depreciation
and                      8,485          3,888           22,445         9,682
amortization
Acquisition              790            583             1,479          1,258
related costs
General and             3,208         2,626          8,884         5,664
administrative
Total expenses          21,770        12,807         58,980        33,432
                                                                       
Operating                26,814         18,071          79,410         52,953
income
                                                                       
Interest
expense
(including
amortization of
debt premiums
and
deferred
financing fees
of $369, $358,           (3,232)        (2,467)         (10,484)       (4,436)
$1,090 and
$669,
respectively)
Equity in
earnings of an          64            115            219           189
investee
Income before
income tax               23,646         15,719          69,145         48,706
expense
Income tax              (52)          -              (132)         -
expense
Net income            $  23,594      $  15,719       $  69,013       $ 48,706
                                                                       
Weighted
average common          49,686        31,206         42,790        25,226
shares
outstanding
                                                                       
Net income per        $  0.47        $  0.50         $  1.61         $ 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,
                           2013         2012           2013         2012
                                                                      
Net income                 $  23,594     $  15,719      $  69,013     $ 48,706
       depreciation
Plus:  and                   8,485        3,888         22,445      9,682
       amortization
FFO                           32,079        19,607         91,458       58,388
Plus:  acquisition           790          583           1,479       1,258
       costs
Normalized FFO             $  32,869     $  20,190      $  92,937     $ 59,646
                                                                      
Weighted average
common shares                49,686       31,206        42,790      25,226
outstanding
                                                                      
Per common share
       FFO                 $  0.65       $  0.63        $  2.14       $ 2.31
       Normalized          $  0.66       $  0.65        $  2.17       $ 2.36
       FFO
                                                                      

(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 certain 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

Calculation and Reconciliation of Net Operating Income(1)

(amounts in thousands)

(unaudited)
                                                         
                         Three Months Ended            Nine Months Ended
                         September 30,                 September 30,
                         2013          2012           2013        2012
Calculation of
NOI:
Rental Income            $  41,169      $  26,444      $ 117,333    $ 74,272
Tenant
reimbursements and          7,415          4,434         21,057       12,113
other income
Real estate taxes           (5,020)        (3,895)       (14,805)     (11,213)
Other operating            (4,267)       (1,815)      (11,367)    (5,615)
expenses
NOI                      $  39,297      $  25,168      $ 112,218    $ 69,557
                                                                      
                                                                      
                                                                      
Reconciliation of
NOI to Net Income:
NOI                      $  39,297      $  25,168      $ 112,218    $ 69,557
Depreciation and            (8,485)        (3,888)       (22,445)     (9,682)
amortization
Acquisition                 (790)          (583)         (1,479)      (1,258)
related costs
General and                (3,208)       (2,626)      (8,884)     (5,664)
administrative
Operating income         $  26,814      $  18,071      $ 79,410     $ 52,953
Interest expense            (3,232)        (2,467)       (10,484)     (4,436)
Equity in earnings          64             115           219          189
of an investee
Income tax expense         (52)          -            (132)       -
Net Income               $  23,594      $  15,719      $ 69,013     $ 48,706
                                                                      

(1) SIR calculates NOI as shown above. SIR defines NOI as income from its
rental of real estate less property operating expenses. NOI excludes
amortization of capitalized tenant improvement costs and leasing commissions.
SIR considers NOI to be an appropriate supplemental measure to net income
because it may help both investors and management to understand the operations
of SIR’s properties. SIR uses NOI internally to evaluate individual and
company wide property level performance, and SIR believes that NOI provides
useful information to investors regarding its results of operations because it
reflects only those income and expense items that are incurred at the property
level and may facilitate comparisons of SIR’s operating performance between
periods. The calculation of NOI excludes certain components of net income in
order to provide results that are more closely related to SIR’s properties’
operations. NOI does not represent cash generated by operating activities in
accordance with GAAP, and should not be considered as an alternative to net
income, operating income or cash flow from operating activities, determined in
accordance with GAAP, or as an indicator of SIR’s financial performance or
liquidity, nor is this measure necessarily indicative of sufficient cash flow
to fund all of SIR’s needs. SIR believes that NOI may facilitate an
understanding of its consolidated historical operating results. This measure
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
NOI differently than SIR does.

                                                            
Select Income REIT

Condensed Consolidated Balance Sheets

(amounts in thousands, except share data)

(unaudited)
                                                                     
                                                September 30,     December 31,
                                                2013              2012
ASSETS
Real estate properties:
Land                                            $  705,645        $  675,092
Buildings and improvements                        866,280          620,686
                                                   1,571,925         1,295,778
Accumulated depreciation                          (61,587)         (46,697)
                                                   1,510,338         1,249,081
                                                                     
Acquired real estate leases, net                   114,937           95,248
Cash and cash equivalents                          14,540            20,373
Restricted cash                                    42                42
Rents receivable, net of allowance for
doubtful
accounts of $764 and $644, respectively            52,174            38,885
Deferred leasing costs, net                        5,541             4,816
Deferred financing costs, net                      5,313             5,517
Due from related persons                           -                 585
Other assets                                      12,266           16,105
Total assets                                    $  1,715,151      $  1,430,652
                                                                     
LIABILITIES AND SHAREHOLDERS' EQUITY
Revolving credit facility                       $  80,000         $  95,000
Term loan                                          350,000           350,000
Mortgage notes payable                             27,309            27,778
Accounts payable and accrued expenses              20,023            19,703
Assumed real estate lease obligations,             19,317            20,434
net
Rents collected in advance                         9,491             6,518
Security deposits                                  9,658             9,335
Due to related persons                            1,827            1,701
Total liabilities                                 517,625          530,469
                                                                     
Commitments and contingencies
                                                                     
Shareholders' equity:
Common shares of beneficial interest,
$0.01 par value: 75,000,000
and 50,000,000 shares authorized,
respectively, 49,829,792 and
39,282,592 shares issued and outstanding,          498               393
respectively
Additional paid in capital                         1,160,904         876,920
Cumulative net income                              120,263           51,251
Cumulative other comprehensive income              (42)              25
(loss)
Cumulative common distributions                   (84,097)         (28,406)
Total shareholders' equity                        1,197,526        900,183
Total liabilities and shareholders'             $  1,715,151      $  1,430,652
equity
                                                                     

Contact:

Select Income REIT
Timothy A. Bonang, 617-796-8320
Vice President, Investor Relations
 
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