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
Select Income REIT Announces 2013 Fourth Quarter and Year End Results
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