Select Income REIT Announces 2013 Fourth Quarter and Year End Results

  Select Income REIT Announces 2013 Fourth Quarter and Year End Results

Business Wire

NEWTON, Mass. -- February 20, 2014

Select Income REIT (NYSE: SIR) today announced financial results for the
quarter and year ended December 31, 2013. SIR completed its initial public
offering, or IPO, on March 12, 2012. Accordingly, SIR’s historical results of
operations for the year ended December 31, 2013 are not comparable to results
for the year ended December 31, 2012.

Results for the Quarter Ended December 31, 2013:

Normalized funds from operations, or Normalized FFO, for the quarter ended
December 31, 2013 were $33.2 million, or $0.67 per share, compared to
Normalized FFO for the quarter ended December 31, 2012 of $23.6 million, or
$0.71 per share.

Net income was $24.1 million, or $0.48 per share, for the quarter ended
December 31, 2013, compared to $17.2 million, or $0.52 per share, for the same
quarter last year.

SIR’s weighted average number of common shares outstanding was 49.8 million
and 33.1 million for the quarters ended December 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 December 31, 2013 and 2012 appears later
in this press release.

Results for the Year Ended December 31, 2013:

Normalized FFO for the year ended December 31, 2013 were $126.2 million, or
$2.83 per share, compared to Normalized FFO for the year ended December 31,
2012 of $83.2 million, or $3.07 per share.

Net income was $93.1 million, or $2.09 per share, for the year  ended December
31, 2013, compared to $65.9 million, or $2.43 per share, for the year ended
December 31, 2012.

SIR’s weighted average number of common shares outstanding was 44.6 million
and 27.1 million for the years ended December 31, 2013 and 2012, respectively.

A reconciliation of net income, determined according to GAAP, to FFO and
Normalized FFO for the years ended December 31, 2013 and 2012 appears later in
this press release.

Operating Results:

As of December 31, 2013, 95.5% of SIR’s total rentable square feet was leased,
compared to 95.3% leased as of December 31, 2012, and 95.6% leased as of
September 30, 2013.

SIR entered into new leases for approximately 345,000 square feet and lease
renewals for approximately 299,000 square feet during the quarter ended
December 31, 2013, which had combined weighted average rental rates that were
approximately 18.2% higher than prior rents for the same space. The weighted
average lease term for leases entered into during the fourth quarter of 2013
was 14.3 years. Commitments for tenant improvements, leasing commission costs
and concessions for leases entered into during the quarter ended December 31,
2013 totaled approximately $510,000, or approximately $0.06 per square foot
per year of the weighted average lease term. Substantially all leasing
activity during the quarter ended December 31, 2013 occurred at SIR’s
properties located in Hawaii.

During the quarter ended December 31, 2013, SIR also executed five rent resets
at properties located in Hawaii for approximately 254,000 square feet of land
at combined weighted average reset rates that were approximately 43.3% higher
than prior rates.

Same property occupancy for properties owned continuously since October 1,
2012 remained constant at 95.1% and same property net operating income, or
NOI, increased 3.4% during the fourth quarter of 2013, largely as a result of
rent resets and leasing activity in Oahu, HI.

A reconciliation of NOI to net income determined according to GAAP for the
quarters and years ended December 31, 2013 and 2012 appears later in this
press release.

Investment Activities:

Since October 1, 2013, SIR has acquired three properties with a combined
350,310 square feet for an aggregate purchase price of $82.9 million,
excluding closing costs, as follows:

  *As previously disclosed, 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.
  *In December 2013, SIR acquired two net leased office properties located in
    San Jose, CA with a combined 250,731 rentable square feet for an aggregate
    purchase price of $64.9 million, excluding closing costs. These properties
    are 100% leased to three tenants, for a weighted average remaining lease
    term of 8.5 years.

Financing Activities:

In January 2014, SIR repaid, at par, a $7.5 million, 5.69% mortgage note which
was secured by a building located in Chelmsford, MA. This mortgage was
scheduled to mature in 2016.

Conference Call:

On Thursday, February 20, 2014 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
2013 financial results.

The conference call telephone number is (877) 531-2986. Participants calling
from outside the United States and Canada should dial (612) 332-7516. 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 February 27, 2014.
To hear the replay, dial (320) 365-3844. The replay pass code is 318031.

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 are strictly prohibited without the prior written consent of SIR.

Supplemental Data:

A copy of SIR’s Fourth 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 December 31, 2013, SIR owned 48
properties (278 buildings, leasable lands and easements) with a total of
approximately 26.1 million square feet located in 20 states, including 11
properties (229 buildings, leasable lands and easements) 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.


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

                 Three Months Ended December    Year Ended December 31,
                    31,
                    2013            2012            2013         2012
                                                                       
Revenues:
Rental income       $  41,678         $ 31,287        $ 159,011      $ 105,559
Tenant
reimbursements        8,255           5,118          29,312        17,231
and other income
Total revenues         49,933           36,405          188,323        122,790
                                                                       
Expenses:
Real estate taxes      5,466            4,157           20,271         15,370
Other operating        4,744            2,811           16,111         8,426
expenses
Depreciation and       8,646            5,178           31,091         14,860
amortization
Acquisition            523              1,212           2,002          2,470
related costs
General and           3,539           2,539          12,423        8,203
administrative
Total expenses        22,918          15,897         81,898        49,329
                                                                       
Operating income       27,015           20,508          106,425        73,461
                                                                       
Interest expense
(including
amortization of
debt premiums and
deferred
financing fees of
$372, $282,           (3,279)         (3,129)        (13,763)      (7,565)
$1,462 and $950,
respectively)
Income before
income tax
benefit (expense)
and equity in
earnings of an         23,736           17,379          92,662         65,896
investee
Income tax             228              (290)           96             (290)
benefit (expense)
Equity in
earnings of an        115             80             334           269
investee
Net income          $  24,079         $ 17,169        $ 93,092       $ 65,875
                                                                       
Weighted average
common shares         49,830          33,070         44,565        27,122
outstanding
                                                                       
Net income per      $  0.48           $ 0.52          $ 2.09         $ 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,
                         2013        2012           2013         2012
                                                                       
Net income              $ 24,079     $  17,169        $ 93,092      $  65,875
Plus:depreciation and    8,646        5,178          31,091        14,860
amortization
FFO                       32,725        22,347          124,183        80,735
Plus:acquisition         523          1,212          2,002         2,470
costs
Normalized FFO          $ 33,248     $  23,559        $ 126,185     $  83,205
                                                                       
Weighted average
common shares            49,830       33,070         44,565        27,122
outstanding
                                                                       
Per common share
FFO                     $ 0.66       $  0.68          $ 2.79        $  2.98
Normalized FFO          $ 0.67       $  0.71          $ 2.83        $  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 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 with 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.
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
Calculation and Reconciliation of Property Net Operating Income(1)
(amounts in thousands)
(unaudited)

                  Three Months Ended          Year Ended December 31,
                       December 31,
                      2013         2012            2013         2012
Calculation of
NOI:
Rental Income        $ 41,678      $  31,287         $ 159,011      $ 105,559
Tenant
reimbursements and     8,255          5,118            29,312         17,231
other income
Real estate taxes      (5,466)        (4,157)          (20,271)       (15,370)
Other operating       (4,744)       (2,811)         (16,111)      (8,426)
expenses
NOI                  $ 39,723      $  29,437         $ 151,941      $ 98,994
                                                                      
                                                                      
                                                                      
Reconciliation of
NOI to Net Income:
NOI                  $ 39,723      $  29,437         $ 151,941      $ 98,994
Depreciation and       (8,646)        (5,178)          (31,091)       (14,860)
amortization
Acquisition            (523)          (1,212)          (2,002)        (2,470)
related costs
General and           (3,539)       (2,539)         (12,423)      (8,203)
administrative
Operating income     $ 27,015      $  20,508         $ 106,425      $ 73,461
Interest expense       (3,279)        (3,129)          (13,763)       (7,565)
Income tax benefit     228            (290)            96             (290)
(expense)
Equity in earnings    115           80              334           269
of an investee
Net Income           $ 24,079      $  17,169         $ 93,092       $ 65,875
                                                                      

(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 and with other REITs. 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. This measure 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 NOI differently than SIR does.


Select Income REIT
Consolidated Balance Sheets
(amounts in thousands, except share data)
(unaudited)
                                                            
                                               December 31,       December 31,
                                               2013               2012
ASSETS
Real estate properties:
Land                                         $ 732,509          $ 675,092
Buildings and improvements                    913,948           620,686
                                               1,646,457          1,295,778
Accumulated depreciation                      (67,223)          (46,697)
                                               1,579,234          1,249,081
                                                                  
Acquired real estate leases, net               129,426            95,248
Cash and cash equivalents                      20,025             20,373
Restricted cash                                42                 42
Rents receivable, net of allowance for
doubtful accounts of $936 and $644,            55,335             38,885
respectively
Deferred leasing costs, net                    5,599              4,816
Deferred financing costs, net                  4,834              5,517
Due from related persons                       -                  585
Other assets                                  7,364             16,105
Total assets                                 $ 1,801,859        $ 1,430,652
                                                                  
LIABILITIES AND SHAREHOLDERS' EQUITY
Revolving credit facility                    $ 159,000          $ 95,000
Term loan                                      350,000            350,000
Mortgage notes payable                         27,147             27,778
Accounts payable and accrued expenses          20,655             19,703
Assumed real estate lease obligations, net     26,966             20,434
Rents collected in advance                     8,637              6,518
Security deposits                              8,359              9,335
Due to related persons                        2,404             1,701
Total liabilities                             603,168           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,
49,829,541 and 39,282,592 shares issued        498                393
and outstanding, respectively
Additional paid in capital                     1,160,894          876,920
Cumulative net income                          144,343            51,251
Cumulative other comprehensive income          (25)               25
(loss)
Cumulative common distributions               (107,019)         (28,406)
Total shareholders' equity                    1,198,691         900,183
Total liabilities and shareholders' equity   $ 1,801,859        $ 1,430,652
                                                                  

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.

Contact:

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