|
|
|
|
|
|
|
The accompanying condensed consolidated financial statements of Government Properties Income Trust and its subsidiaries, or the Company, we or us, are unaudited. Certain information and disclosures required by U.S. generally accepted accounting principles, or GAAP, for complete financial statements have been condensed or omitted. We believe the disclosures made are adequate to make the information presented not misleading. However, the accompanying condensed consolidated financial statements should be read in conjunction with the financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2014, or our Annual Report. In the opinion of our management, all adjustments, which include only normal recurring adjustments considered necessary for a fair presentation, have been included. All intercompany transactions and balances with or among our consolidated subsidiaries have been eliminated. Our operating results for interim periods are not necessarily indicative of the results that may be expected for the full year.
The preparation of these financial statements in conformity with GAAP requires us to make estimates and assumptions that affect reported amounts. Actual results could differ from those estimates. Significant estimates in the condensed consolidated financial statements include purchase price allocations, useful lives of fixed assets, impairment of real estate and the valuation of intangible assets and equity method investments.
|
Note 2. Recent Accounting Pronouncements
In April 2015, the Financial Accounting Standards Board issued Accounting Standards Update, or ASU, No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the associated debt liability. This update is effective for interim and annual reporting periods beginning after December 15, 2015 and requires retrospective application. The implementation of this update is not expected to cause any material changes to our consolidated financial statements other than the reclassification of debt issuance costs from assets to contra liabilities on our condensed consolidated balance sheets.
|
Note 4. Real Estate Properties
As of March 31, 2015, we owned 71 properties (91 buildings), with an undepreciated carrying value of $1,684,518, excluding one property (one building) classified as discontinued operations. We generally lease space in our properties on a gross lease or modified gross lease basis pursuant to fixed term operating leases expiring between 2015 and 2029. Certain of our government tenants have the right to terminate their leases before the lease term expires. Our leases generally require us to pay all or some property operating expenses and to provide all or most property management services. During the three months ended March 31, 2015, we entered into seven leases for 82,978 rentable square feet for a weighted (by rentable square feet) average lease term of 7.5 years and we made commitments for approximately $2,245 of leasing related costs. We have estimated unspent leasing related obligations of $7,377 as of March 31, 2015.
Disposition Activities – Continuing Operations
In February 2015, one of our U.S. Government tenants exercised its option to acquire the office property (one building) it leased from us located in Riverdale, MD with 337,500 rentable square feet. The sales price was $30,600, excluding closing costs. We recognized no gain or loss on this sale.
Disposition Activities – Discontinued Operations
In April 2014, we entered into an agreement to sell an office property (one building) located in Falls Church, VA with 164,746 rentable square feet and a net book value of $12,282 at March 31, 2015. The contract sales price exceeds this book value; however, the closing of this sale is subject to conditions, including the purchaser obtaining certain zoning entitlements, and we can provide no assurance that the sale of this property will occur. See Note 8 for further information relating to this property.
Results of operations for two properties ( two buildings) we sold in February 2014 and September 2014 and one property ( one building) held for sale at March 31, 2015, which was held for sale prior to our adoption of ASU 2014-08, are classified as discontinued operations in our condensed consolidated financial statements. Summarized balance sheet and income statement information for the properties classified as discontinued operations is as follows:
Balance Sheets:
|
|
|
|
|
|
|
|
|
|
March 31, |
|
December 31, |
|
||
|
|
2015 |
|
2014 |
|
||
Real estate properties, net |
|
$ |
12,260 |
|
$ |
12,260 |
|
Rents receivable |
|
|
10 |
|
|
782 |
|
Other assets |
|
|
151 |
|
|
123 |
|
Assets of discontinued operations |
|
$ |
12,421 |
|
$ |
13,165 |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
$ |
211 |
|
$ |
150 |
|
Liabilities of discontinued operations |
|
$ |
211 |
|
$ |
150 |
|
Statements of Operations:
|
|
|
|
|
|
|
|
|
|
Three Months ended March 31, |
|
||||
|
|
2015 |
|
2014 |
|
||
Rental income |
|
$ |
31 |
|
$ |
740 |
|
Real estate taxes |
|
|
(70) |
|
|
(149) |
|
Utility expenses |
|
|
(67) |
|
|
(102) |
|
Other operating expenses |
|
|
(71) |
|
|
(226) |
|
General and administrative |
|
|
(29) |
|
|
(59) |
|
Increase in carrying value of asset held for sale |
|
|
— |
|
|
2,344 |
|
Income (loss) from discontinued operations |
|
$ |
(206) |
|
$ |
2,548 |
|
|
Note 5. Revenue Recognition
We recognize rental income from operating leases that contain fixed contractual rent changes on a straight line basis over the term of the lease agreements. Certain of our leases with government tenants provide the tenant the right to terminate its lease if its respective legislature or other funding authority does not appropriate the funding necessary for the government tenant to meet its lease obligations. We have determined the fixed non-cancelable lease term of these leases to be the fully executed term of the lease because we believe the occurrence of termination to be a remote contingency based on both our historical experience and our assessment of the likelihood of lease cancellation.
We increased rental income to record revenue on a straight line basis by $663 and $1,142 for the three months ended March 31, 2015 and 2014, respectively. Rents receivable include $15,680 and $15,017 of straight line rent receivables at March 31, 2015 and December 31, 2014, respectively.
|
Note 6. Concentration
Tenant and Credit Concentration
We define annualized rental income as the annualized contractual base rents from our tenants pursuant to our lease agreements with them as of the measurement date, plus straight line rent adjustments and estimated recurring expense reimbursements to be paid to us, and excluding lease value amortization. The U.S. Government, 12 state governments and the United Nations combined were responsible for approximately 92.7% and 92.6% of our annualized rental income, excluding properties classified as discontinued operations, as of March 31, 2015 and 2014, respectively. The U.S. Government is our largest tenant by annualized rental income and was responsible for approximately 67.7% and 69.4% of our annualized rental income, excluding properties classified as discontinued operations, as of March 31, 2015 and 2014, respectively.
Geographic Concentration
At March 31, 2015, our 71 properties (91 buildings), excluding one property classified as discontinued operations, were located in 31 states and the District of Columbia. Properties located in California, the District of Columbia, Virginia, Georgia, New York, Maryland and Massachusetts were responsible for approximately 11.5%, 10.3%, 10.2%, 9.0%, 8.5%, 7.8% and 5.6% of our annualized rental income as of March 31, 2015, respectively.
|
Note 7. Indebtedness
At March 31, 2015 and December 31, 2014, our outstanding indebtedness consisted of the following:
|
|
|
|
|
|
|
|
|
|
March 31, |
|
December 31, |
|
||
|
|
2015 |
|
2014 |
|
||
|
|
|
|
|
|
|
|
Unsecured revolving credit facility |
|
$ |
55,000 |
|
$ |
— |
|
Unsecured term loan, due in 2020 |
|
|
300,000 |
|
|
300,000 |
|
Unsecured term loan, due in 2022 |
|
|
250,000 |
|
|
250,000 |
|
Senior unsecured notes, 3.75% interest rate, including unamortized discounts of $2,437 and $2,577, respectively, due in 2019 |
|
|
347,563 |
|
|
347,423 |
|
Mortgage note payable, 5.55% interest rate, including unamortized premiums of $1,741 and $2,167, respectively, due in 2016(1) |
|
|
84,741 |
|
|
85,167 |
|
Mortgage note payable, 5.73% interest rate, including unamortized premiums of $121 and $177, respectively, due in 2015(1) |
|
|
47,165 |
|
|
47,418 |
|
Mortgage note payable, 6.21% interest rate, due in 2016(1) |
|
|
23,747 |
|
|
23,833 |
|
Mortgage note payable, 5.88% interest rate, due in 2021(1) |
|
|
14,319 |
|
|
14,374 |
|
Mortgage note payable, 7.00% interest rate, including unamortized premiums of $572 and $605, respectively, due in 2019(1) |
|
|
9,473 |
|
|
9,563 |
|
Mortgage note payable, 8.15% interest rate, including unamortized premiums of $371 and $398, respectively, due in 2021(1) |
|
|
7,096 |
|
|
7,339 |
|
|
|
$ |
1,139,104 |
|
$ |
1,085,117 |
|
(1)We assumed these mortgages in connection with our acquisitions of certain properties. The stated interest rates for these mortgage debts are the contractually stated rates. We recorded the assumed mortgages at estimated fair value on the date of acquisition and we are amortizing the fair value premiums, if any, to interest expense over the respective terms of the mortgages to reduce interest expense to the estimated market interest rates as of the date of acquisition.
Our $750,000 unsecured revolving credit facility is available for general business purposes, including acquisitions. The maturity date of our revolving credit facility is January 31, 2019 and, subject to the payment of an extension fee and meeting certain other conditions, includes an option for us to extend the stated maturity date of our revolving credit facility by one year to January 31, 2020. Borrowings under our revolving credit facility bear interest at a rate of LIBOR plus a premium, which was 125 basis points at March 31, 2015. We also pay a facility fee on the total amount of lending commitments under our revolving credit facility, which was 25 basis points per annum at March 31, 2015. Both the interest rate premium and the facility fee are subject to adjustment based upon changes to our credit ratings. As of March 31, 2015, the interest rate payable on borrowings under our revolving credit facility was 1.4% and the weighted average annual interest rate for borrowings under our revolving credit facility was 2.0% and 1.7% for the three months ended March 31, 2015 and 2014, respectively. As of March 31, 2015 and April 29, 2015, we had $55,000 and $45,000 outstanding under our revolving credit facility, respectively.
Our $300,000 unsecured term loan, which matures on March 31, 2020, is prepayable without penalty at any time. The amount outstanding under our $300,000 term loan bears interest at LIBOR plus a premium, which was 140 basis points at March 31, 2015. The interest rate premium is subject to adjustment based upon changes to our credit ratings. As of March 31, 2015, the interest rate for the amount outstanding under our $300,000 term loan was 1.6%. The weighted average interest rate under our $300,000 term loan was 1.6% for the three months ended March 31, 2015.
Our $250,000 unsecured term loan, which matures on March 31, 2022, is prepayable at any time. If our $250,000 term loan is repaid prior to November 22, 2015, a prepayment premium of 2.0% of the amount repaid would be incurred. If our $250,000 term loan is repaid during the period from November 22, 2015 to November 21, 2016, a prepayment premium of 1.0% of the amount repaid would be incurred. Subsequent to November 21, 2016, no prepayment premiums would be incurred. The amount outstanding under our $250,000 term loan bears interest at LIBOR plus a premium, which was 180 basis points at March 31, 2015. The interest rate premium is subject to adjustment based upon changes to our credit ratings. As of March 31, 2015, the interest rate for the amount outstanding under our $250,000 term loan was 2.0%. The weighted average interest rate under our $250,000 term loan was 2.0% for the three months ended March 31, 2015.
Our $750,000 revolving credit facility, our $300,000 unsecured term loan and our $250,000 unsecured term loan are governed by a credit agreement with a syndicate of institutional lenders that includes a number of features common to all of these credit arrangements. This credit agreement also includes a feature under which the maximum borrowing availability may be increased to up to $2,500,000 on a combined basis in certain circumstances.
Our $350,000 of 3.75% senior unsecured notes due in 2019 are governed by an indenture and a supplement to the indenture, and require semi-annual payments of interest only through maturity. The outstanding amount of these notes may be prepaid at par (plus accrued and unpaid interest) on or after July 15, 2019 or before that date together with a make whole premium.
Our credit agreement provides for acceleration of payment of all amounts due thereunder upon the occurrence and continuation of certain events of default, such as a change of control of us, which includes RMR ceasing to act as our business manager and property manager. Our senior unsecured notes indenture and its supplement and our credit agreement also contain a number of covenants, including covenants that restrict our ability to incur debts or to make distributions under certain circumstances and require us to maintain certain financial ratios. We believe we were in compliance with the terms and conditions of the respective covenants under our senior unsecured notes indenture and its supplement and our credit agreement at March 31, 2015.
At March 31, 2015, six of our properties ( eight buildings) with an aggregate net book value of $256,629 secured six mortgage notes that were assumed in connection with the acquisition of such properties. Our mortgage notes are non-recourse and do not contain any material financial covenants.
|
Note 8. Fair Value of Assets and Liabilities
Our financial instruments include cash and cash equivalents, restricted cash, rents receivable, mortgage notes payable, accounts payable, senior unsecured notes, an unsecured revolving credit facility, unsecured term loans, amounts due to related persons, other accrued expenses and security deposits. At March 31, 2015 and December 31, 2014, the fair values of our financial instruments approximated their carrying values in our condensed consolidated financial statements due to their short term nature or variable interest rates, except as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2015 |
|
As of December 31, 2014 |
||||||||
|
|
Carrying Amount |
|
Fair Value |
|
Carrying Amount |
|
Fair Value |
||||
Senior unsecured notes, 3.75% interest rate, due in 2019 |
|
$ |
347,563 |
|
$ |
362,103 |
|
$ |
347,423 |
|
$ |
356,129 |
Mortgage note payable, 5.55% interest rate, due in 2016(1) |
|
|
84,741 |
|
|
84,769 |
|
|
85,167 |
|
|
85,171 |
Mortgage note payable, 5.73% interest rate, due in 2015(1) |
|
|
47,165 |
|
|
47,757 |
|
|
47,418 |
|
|
48,233 |
Mortgage note payable, 6.21% interest rate, due in 2016(1) |
|
|
23,747 |
|
|
25,108 |
|
|
23,833 |
|
|
25,394 |
Mortgage note payable, 5.88% interest rate, due in 2021(1) |
|
|
14,319 |
|
|
15,312 |
|
|
14,374 |
|
|
15,249 |
Mortgage note payable, 7.00% interest rate, due in 2019(1) |
|
|
9,473 |
|
|
10,243 |
|
|
9,563 |
|
|
10,275 |
Mortgage note payable, 8.15% interest rate, due in 2021(1) |
|
|
7,096 |
|
|
7,706 |
|
|
7,339 |
|
|
7,956 |
|
|
$ |
534,104 |
|
$ |
552,998 |
|
$ |
535,117 |
|
$ |
548,407 |
(1)We assumed these mortgages in connection with our acquisitions of certain properties. The stated interest rates for these mortgage debts are the contractually stated rates. We recorded the assumed mortgages at estimated fair value on the date of acquisition and we are amortizing the fair value premiums, if any, to interest expense over the respective terms of the mortgages to reduce interest expense to the estimated market interest rates as of the date of acquisition.
We estimate the fair value of our senior unsecured notes using an average of the bid and ask price of the notes as of the measurement date (Level 1 inputs as defined in the fair value hierarchy under GAAP). We estimate the fair values of our mortgage notes payable by using discounted cash flow analyses and currently prevailing market terms as of the measurement date (Level 3 inputs as defined in the fair value hierarchy under GAAP). Because Level 3 inputs are unobservable, our estimated fair value may differ materially from the actual fair value.
The table below presents one of our assets measured on a non-recurring basis at fair value at March 31, 2015, categorized by the level of input used in the valuation of this asset:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in |
|
|
|
|
Significant |
|
||
|
|
|
|
|
Active Markets for |
|
Significant Other |
|
Unobservable |
|
|||
|
|
|
|
|
Identical Assets |
|
Observable Inputs |
|
Inputs |
|
|||
Description |
|
Total |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property held for sale and classified as discontinued operations(1) |
|
$ |
12,260 |
|
$ |
— |
|
$ |
— |
|
$ |
12,260 |
|
|
|
$ |
12,260 |
|
$ |
— |
|
$ |
— |
|
$ |
12,260 |
|
(1)The estimated fair value at March 31, 2015 of this property is based upon broker estimates of value less estimated sales costs (Level 3 inputs as defined in the fair value hierarchy under GAAP).
|
Note 10. Related Person Transactions
We have relationships and historical and continuing transactions with RMR and others affiliated with RMR. We also have relationships and historical and continuing transactions with other companies to which RMR provides management services and which have trustees, directors and officers who are also trustees, directors or officers of us or RMR. For further information about these and other such relationships and certain other related person transactions, please refer to our Annual Report.
RMR: Pursuant to our business management agreement with RMR, we recognized business management fees of $2,561 and $2,401 for the three months ended March 31, 2015 and 2014, respectively. The business management fees we recognized for the 2014 and 2015 periods are included in general and administrative expenses in our condensed consolidated financial statements. In accordance with the terms of our business management agreement, we issued 11,157 of our common shares to RMR for the three months ended March 31, 2015, as payment for a portion of the base business management fee we recognized for that period.
Pursuant to our property management agreement with RMR, the aggregate property management and construction supervision fees we recognized were $2,016 and $1,954 for the three months ended March 31, 2015 and 2014, respectively. These amounts are included in operating expenses or have been capitalized, as appropriate, in our condensed consolidated financial statements.
Pursuant to our lease agreements with RMR, we earned approximately $15 and $19 in rental income from RMR for leased office space for the three months ended March 31, 2015 and 2014, respectively.
SIR: On February 28, 2015, we entered into a share purchase agreement, or the GOV Purchase Agreement, with Lakewood Capital Partners, LP, or Lakewood, the other persons who are members of a group with Lakewood, or, together with Lakewood, the Lakewood Parties, and, for the purpose of specified sections, Select Income REIT, or SIR, pursuant to which, on March 4, 2015, we acquired 3,418,421 common shares of SIR from Lakewood for a cash purchase price equal to approximately $95,203, or $27.85 per share. On February 28, 2015, the SIR common shares that we acquired pursuant to the GOV Purchase Agreement represented approximately 3.9% of SIR’s outstanding common shares. We funded our acquisition of these SIR common shares with cash on hand and borrowings under our revolving credit facility. As a result of this purchase, our ownership of outstanding SIR common shares increased to approximately 28.2% as of March 31, 2015.
The GOV Purchase Agreement contains (i) standstill provisions, pursuant to which the Lakewood Parties agreed not to take certain actions with respect to our securities, or those of SIR, for a 50-year period and (ii) voting provisions, pursuant to which the Lakewood Parties agreed to cause our securities, or those of SIR, that they or any of their affiliates own as of a record date for a meeting of our or SIR’s shareholders to be present and voted at such meeting in favor of all actions recommended by the board of trustees of such company.
On February 28, 2015, our Managing Trustees, Messrs. Barry Portnoy and Adam Portnoy, entered into separate share purchase agreements with the Lakewood Parties, with provisions similar to the GOV Purchase Agreement, including the per share purchase price, pursuant to which, on March 4, 2015, Messrs. Barry Portnoy and Adam Portnoy acquired 107,606 and 87,606 SIR common shares, respectively, from Lakewood and, on March 5, 2015, Messrs. Barry Portnoy and Adam Portnoy acquired 2,429 and 2,429 SIR common shares, respectively, from Mr. William H. Lenehan, one of the Lakewood Parties. Concurrently with entering into the agreements among GOV, Messrs. Barry Portnoy and Adam Portnoy and the Lakewood Parties, Lakewood withdrew its nomination of Mr. Lenehan for election to SIR’s board of trustees at SIR’s 2015 annual meeting of shareholders.
AIC: As of March 31, 2015, our investment in Affiliates Insurance Company, or AIC, an Indiana insurance company, had a carrying value of $7,064, which amount is included in other assets on our condensed consolidated balance sheet. We recognized income (loss) of $72 and $(97) related to our investment in AIC for the three months ended March 31, 2015 and 2014, respectively.
|
Note 11. Equity Investment in Select Income REIT
As described in Note 10, on March 4, 2015, we purchased 3,418,421 SIR common shares for approximately $95,203, before acquisition related costs. As of March 31, 2015, we owned 24,918,421, or approximately 28.2%, of the then outstanding SIR common shares. SIR is a real estate investment trust that is primarily focused on owning and investing in net leased, single tenant properties.
As of March 31, 2015, our investment in SIR had a carrying value of $721,281, including $1,792 of acquisition related costs, and a market value, based on the closing price of SIR common shares on the New York Stock Exchange on that day, of $622,711. We periodically evaluate our equity investment in SIR for possible indicators of other than temporary impairment whenever events or changes in circumstances indicate the carrying amount of the investment might not be recoverable. These indicators may include the length of time the market value of our investment is below our cost basis, the financial condition of SIR, our intent and ability to be a long term holder of the investment and other considerations. If the decline in fair value is judged to be other than temporary, we may record an impairment charge to adjust the basis of the investment to its fair value.
We account for our investment in SIR under the equity method. Under the equity method, we record our proportionate share of the net income of SIR as equity in earnings of an investee in our condensed consolidated statement of income and comprehensive income. For the three months ended March 31, 2015, we recorded $2,176 of equity in the earnings of SIR. The cost of our investments in SIR exceeded our proportionate share of SIR’s total shareholders’ equity book value on the respective dates of acquisition by an aggregate of $166,272. As required under GAAP, we are amortizing this difference to equity in earnings (losses) of investees over the average remaining useful lives of the real estate assets and intangible assets and liabilities owned by SIR as of the respective dates of our acquisition. This amortization decreased our equity in the earnings of SIR by $2,564 for the three months ended March 31, 2015. The amortization relating to our March 4, 2015 acquisition is based upon preliminary estimates and may change based upon the completion of our analysis of the remaining useful lives of the real estate assets and intangible assets and liabilities owned by SIR.
During the three months ended March 31, 2015, SIR issued 28,453,447 common shares, including 28,439,111 common shares issued in connection with SIR’s acquisition of Cole Corporate Income Trust, or CCIT, on January 29, 2015. We recognized a loss on issuance of shares by an equity investee of $40,771 during the three months ended March 31, 2015 as a result of the per share issuance price of these SIR common shares being below the average per share carrying value of our SIR common shares.
During the three months ended March 31, 2015, we received cash distributions from SIR totaling $13,530.
The following summarized financial data of SIR as reported in SIR’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, or the SIR Quarterly Report, includes the results of operations for periods prior to July 9, 2014 (the date on which we acquired our initial interest in SIR). References in our financial statements to the SIR Quarterly Report are included as references to the source of the data only, and the information in the SIR Quarterly Report is not incorporated by reference into our financial statements.
Condensed Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
March 31, |
|
December 31, |
||
|
|
2015 |
|
2014 |
||
Real estate properties, net |
|
$ |
3,885,484 |
|
$ |
1,772,510 |
Acquired real estate leases, net |
|
|
514,161 |
|
|
120,700 |
Cash and cash equivalents |
|
|
33,915 |
|
|
13,504 |
Rents receivable, net |
|
|
79,441 |
|
|
68,385 |
Other assets, net |
|
|
44,926 |
|
|
18,132 |
Total assets |
|
$ |
4,557,927 |
|
$ |
1,993,231 |
|
|
|
|
|
|
|
Revolving credit facility |
|
$ |
141,000 |
|
$ |
77,000 |
Term loan |
|
|
350,000 |
|
|
350,000 |
Senior unsecured notes, net |
|
|
1,434,034 |
|
|
- |
Mortgage notes payable, net |
|
|
287,326 |
|
|
18,816 |
Assumed real estate lease obligations, net |
|
|
92,105 |
|
|
26,475 |
Other liabilities |
|
|
86,078 |
|
|
40,493 |
Noncontrolling interest |
|
|
3,388 |
|
|
- |
Shareholders' equity |
|
|
2,163,996 |
|
|
1,480,447 |
Total liabilities and shareholders' equity |
|
$ |
4,557,927 |
|
$ |
1,993,231 |
Condensed Consolidated Statements of Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
||||
|
|
2015 |
|
2014 |
||
Rental income |
|
$ |
80,478 |
|
$ |
45,063 |
Tenant reimbursements and other income |
|
|
13,937 |
|
|
7,965 |
Total revenues |
|
|
94,415 |
|
|
53,028 |
|
|
|
|
|
|
|
Operating expenses |
|
|
17,364 |
|
|
9,979 |
Depreciation and amortization |
|
|
24,719 |
|
|
9,294 |
Acquisition related costs |
|
|
20,539 |
|
|
238 |
General and administrative |
|
|
6,792 |
|
|
5,176 |
Total expenses |
|
|
69,414 |
|
|
24,687 |
Operating income |
|
|
25,001 |
|
|
28,341 |
|
|
|
|
|
|
|
Interest expense |
|
|
(14,179) |
|
|
(3,358) |
(Loss) gain on early extinguishment of debt |
|
|
(6,845) |
|
|
243 |
Income before income tax expense and equity in earnings (loss) of an investee |
|
|
3,977 |
|
|
25,226 |
Income tax expense |
|
|
(31) |
|
|
(71) |
Equity in earnings (loss) of an investee |
|
|
72 |
|
|
(97) |
Net income |
|
|
4,018 |
|
|
25,058 |
Net income allocated to noncontrolling interest |
|
|
(41) |
|
|
— |
Net income attributed to SIR |
|
$ |
3,977 |
|
$ |
25,058 |
|
|
|
|
|
|
|
Weighted average common shares outstanding (basic) |
|
|
79,489 |
|
|
49,822 |
Weighted average common shares outstanding (diluted) |
|
|
79,498 |
|
|
49,930 |
Basic and diluted net income attributed to SIR per common share |
|
$ |
0.05 |
|
$ |
0.50 |
|
Note 12. Segment Information
We operate in two business segments: ownership of properties that are primarily leased to government tenants and our equity method investment in SIR.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2015 |
||||||||||
|
|
Investment |
|
Investment |
|
|
|
|
|
|
||
|
|
in Real Estate |
|
in SIR |
|
Corporate |
|
Consolidated |
||||
Rental income |
|
$ |
62,659 |
|
$ |
— |
|
$ |
— |
|
$ |
62,659 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Real estate taxes |
|
|
7,410 |
|
|
— |
|
|
— |
|
|
7,410 |
Utility expenses |
|
|
4,571 |
|
|
— |
|
|
— |
|
|
4,571 |
Other operating expenses |
|
|
12,210 |
|
|
— |
|
|
— |
|
|
12,210 |
Depreciation and amortization |
|
|
17,215 |
|
|
— |
|
|
— |
|
|
17,215 |
Acquisition related costs |
|
|
6 |
|
|
— |
|
|
— |
|
|
6 |
General and administrative |
|
|
— |
|
|
— |
|
|
4,004 |
|
|
4,004 |
Total expenses |
|
|
41,412 |
|
|
— |
|
|
4,004 |
|
|
45,416 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
21,247 |
|
|
— |
|
|
(4,004) |
|
|
17,243 |
Interest and other income |
|
|
— |
|
|
— |
|
|
12 |
|
|
12 |
Interest expense |
|
|
(2,267) |
|
|
— |
|
|
(7,035) |
|
|
(9,302) |
Income (loss) from continuing operations before income taxes and |
|
|
|
|
|
|
|
|
|
|
|
|
equity in earnings (losses) of investees |
|
|
18,980 |
|
|
— |
|
|
(11,027) |
|
|
7,953 |
Income tax expense |
|
|
— |
|
|
— |
|
|
(30) |
|
|
(30) |
Loss on issuance of shares by an equity investee |
|
|
— |
|
|
(40,771) |
|
|
— |
|
|
(40,771) |
Equity in earnings (losses) of investees |
|
|
— |
|
|
(388) |
|
|
72 |
|
|
(316) |
Income from continuing operations |
|
|
18,980 |
|
|
(41,159) |
|
|
(10,985) |
|
|
(33,164) |
Loss from discontinued operations |
|
|
(206) |
|
|
— |
|
|
— |
|
|
(206) |
Net income (loss) |
|
$ |
18,774 |
|
$ |
(41,159) |
|
$ |
(10,985) |
|
$ |
(33,370) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31 , 2015 |
||||||||||
|
|
Investment |
|
Investment |
|
|
|
|
|
|
||
|
|
in Real Estate |
|
in SIR |
|
Corporate |
|
Consolidated |
||||
Total Assets |
|
$ |
1,665,251 |
|
$ |
721,281 |
|
$ |
28,395 |
|
$ |
2,414,927 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2014 |
||||||||||
|
|
Investment |
|
Investment |
|
|
|
|
|
|
||
|
|
in Real Estate |
|
in SIR |
|
Corporate |
|
Consolidated |
||||
Rental income |
|
$ |
59,820 |
|
$ |
— |
|
$ |
— |
|
$ |
59,820 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Real estate taxes |
|
|
6,812 |
|
|
— |
|
|
— |
|
|
6,812 |
Utility expenses |
|
|
5,696 |
|
|
— |
|
|
— |
|
|
5,696 |
Other operating expenses |
|
|
11,041 |
|
|
— |
|
|
— |
|
|
11,041 |
Depreciation and amortization |
|
|
15,427 |
|
|
— |
|
|
— |
|
|
15,427 |
Acquisition related costs |
|
|
509 |
|
|
— |
|
|
— |
|
|
509 |
General and administrative |
|
|
— |
|
|
— |
|
|
3,097 |
|
|
3,097 |
Total expenses |
|
|
39,485 |
|
|
— |
|
|
3,097 |
|
|
42,582 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
20,335 |
|
|
— |
|
|
(3,097) |
|
|
17,238 |
Interest and other income |
|
|
— |
|
|
— |
|
|
50 |
|
|
50 |
Interest expense |
|
|
(1,326) |
|
|
— |
|
|
(3,201) |
|
|
(4,527) |
Income (loss) from continuing operations before income taxes and |
|
|
|
|
|
|
|
|
|
|
|
|
equity in losses of an investee |
|
|
19,009 |
|
|
— |
|
|
(6,248) |
|
|
12,761 |
Income tax expense |
|
|
— |
|
|
— |
|
|
(22) |
|
|
(22) |
Equity in losses of an investee |
|
|
— |
|
|
— |
|
|
(97) |
|
|
(97) |
Income from continuing operations |
|
|
19,009 |
|
|
— |
|
|
(6,367) |
|
|
12,642 |
Income from discontinued operations |
|
|
2,548 |
|
|
— |
|
|
— |
|
|
2,548 |
Net income (loss) |
|
$ |
21,557 |
|
$ |
— |
|
$ |
(6,367) |
|
$ |
15,190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2014 |
||||||||||
|
|
Investment |
|
Investment |
|
|
|
|
|
|
||
|
|
in Real Estate |
|
in SIR |
|
Corporate |
|
Consolidated |
||||
Total Assets |
|
$ |
1,714,130 |
|
$ |
680,137 |
|
$ |
33,348 |
|
$ |
2,427,615 |
|
Balance Sheets:
|
|
|
|
|
|
|
|
|
|
March 31, |
|
December 31, |
|
||
|
|
2015 |
|
2014 |
|
||
Real estate properties, net |
|
$ |
12,260 |
|
$ |
12,260 |
|
Rents receivable |
|
|
10 |
|
|
782 |
|
Other assets |
|
|
151 |
|
|
123 |
|
Assets of discontinued operations |
|
$ |
12,421 |
|
$ |
13,165 |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
$ |
211 |
|
$ |
150 |
|
Liabilities of discontinued operations |
|
$ |
211 |
|
$ |
150 |
|
Statements of Operations:
|
|
|
|
|
|
|
|
|
|
Three Months ended March 31, |
|
||||
|
|
2015 |
|
2014 |
|
||
Rental income |
|
$ |
31 |
|
$ |
740 |
|
Real estate taxes |
|
|
(70) |
|
|
(149) |
|
Utility expenses |
|
|
(67) |
|
|
(102) |
|
Other operating expenses |
|
|
(71) |
|
|
(226) |
|
General and administrative |
|
|
(29) |
|
|
(59) |
|
Increase in carrying value of asset held for sale |
|
|
— |
|
|
2,344 |
|
Income (loss) from discontinued operations |
|
$ |
(206) |
|
$ |
2,548 |
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
December 31, |
|
||
|
|
2015 |
|
2014 |
|
||
|
|
|
|
|
|
|
|
Unsecured revolving credit facility |
|
$ |
55,000 |
|
$ |
— |
|
Unsecured term loan, due in 2020 |
|
|
300,000 |
|
|
300,000 |
|
Unsecured term loan, due in 2022 |
|
|
250,000 |
|
|
250,000 |
|
Senior unsecured notes, 3.75% interest rate, including unamortized discounts of $2,437 and $2,577, respectively, due in 2019 |
|
|
347,563 |
|
|
347,423 |
|
Mortgage note payable, 5.55% interest rate, including unamortized premiums of $1,741 and $2,167, respectively, due in 2016(1) |
|
|
84,741 |
|
|
85,167 |
|
Mortgage note payable, 5.73% interest rate, including unamortized premiums of $121 and $177, respectively, due in 2015(1) |
|
|
47,165 |
|
|
47,418 |
|
Mortgage note payable, 6.21% interest rate, due in 2016(1) |
|
|
23,747 |
|
|
23,833 |
|
Mortgage note payable, 5.88% interest rate, due in 2021(1) |
|
|
14,319 |
|
|
14,374 |
|
Mortgage note payable, 7.00% interest rate, including unamortized premiums of $572 and $605, respectively, due in 2019(1) |
|
|
9,473 |
|
|
9,563 |
|
Mortgage note payable, 8.15% interest rate, including unamortized premiums of $371 and $398, respectively, due in 2021(1) |
|
|
7,096 |
|
|
7,339 |
|
|
|
$ |
1,139,104 |
|
$ |
1,085,117 |
|
(1)We assumed these mortgages in connection with our acquisitions of certain properties. The stated interest rates for these mortgage debts are the contractually stated rates. We recorded the assumed mortgages at estimated fair value on the date of acquisition and we are amortizing the fair value premiums, if any, to interest expense over the respective terms of the mortgages to reduce interest expense to the estimated market interest rates as of the date of acquisition.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2015 |
|
As of December 31, 2014 |
||||||||
|
|
Carrying Amount |
|
Fair Value |
|
Carrying Amount |
|
Fair Value |
||||
Senior unsecured notes, 3.75% interest rate, due in 2019 |
|
$ |
347,563 |
|
$ |
362,103 |
|
$ |
347,423 |
|
$ |
356,129 |
Mortgage note payable, 5.55% interest rate, due in 2016(1) |
|
|
84,741 |
|
|
84,769 |
|
|
85,167 |
|
|
85,171 |
Mortgage note payable, 5.73% interest rate, due in 2015(1) |
|
|
47,165 |
|
|
47,757 |
|
|
47,418 |
|
|
48,233 |
Mortgage note payable, 6.21% interest rate, due in 2016(1) |
|
|
23,747 |
|
|
25,108 |
|
|
23,833 |
|
|
25,394 |
Mortgage note payable, 5.88% interest rate, due in 2021(1) |
|
|
14,319 |
|
|
15,312 |
|
|
14,374 |
|
|
15,249 |
Mortgage note payable, 7.00% interest rate, due in 2019(1) |
|
|
9,473 |
|
|
10,243 |
|
|
9,563 |
|
|
10,275 |
Mortgage note payable, 8.15% interest rate, due in 2021(1) |
|
|
7,096 |
|
|
7,706 |
|
|
7,339 |
|
|
7,956 |
|
|
$ |
534,104 |
|
$ |
552,998 |
|
$ |
535,117 |
|
$ |
548,407 |
(1)We assumed these mortgages in connection with our acquisitions of certain properties. The stated interest rates for these mortgage debts are the contractually stated rates. We recorded the assumed mortgages at estimated fair value on the date of acquisition and we are amortizing the fair value premiums, if any, to interest expense over the respective terms of the mortgages to reduce interest expense to the estimated market interest rates as of the date of acquisition.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in |
|
|
|
|
Significant |
|
||
|
|
|
|
|
Active Markets for |
|
Significant Other |
|
Unobservable |
|
|||
|
|
|
|
|
Identical Assets |
|
Observable Inputs |
|
Inputs |
|
|||
Description |
|
Total |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property held for sale and classified as discontinued operations(1) |
|
$ |
12,260 |
|
$ |
— |
|
$ |
— |
|
$ |
12,260 |
|
|
|
$ |
12,260 |
|
$ |
— |
|
$ |
— |
|
$ |
12,260 |
|
(1)The estimated fair value at March 31, 2015 of this property is based upon broker estimates of value less estimated sales costs (Level 3 inputs as defined in the fair value hierarchy under GAAP).
|
|
|
|
|
|
|
|
|
|
March 31, |
|
December 31, |
||
|
|
2015 |
|
2014 |
||
Real estate properties, net |
|
$ |
3,885,484 |
|
$ |
1,772,510 |
Acquired real estate leases, net |
|
|
514,161 |
|
|
120,700 |
Cash and cash equivalents |
|
|
33,915 |
|
|
13,504 |
Rents receivable, net |
|
|
79,441 |
|
|
68,385 |
Other assets, net |
|
|
44,926 |
|
|
18,132 |
Total assets |
|
$ |
4,557,927 |
|
$ |
1,993,231 |
|
|
|
|
|
|
|
Revolving credit facility |
|
$ |
141,000 |
|
$ |
77,000 |
Term loan |
|
|
350,000 |
|
|
350,000 |
Senior unsecured notes, net |
|
|
1,434,034 |
|
|
- |
Mortgage notes payable, net |
|
|
287,326 |
|
|
18,816 |
Assumed real estate lease obligations, net |
|
|
92,105 |
|
|
26,475 |
Other liabilities |
|
|
86,078 |
|
|
40,493 |
Noncontrolling interest |
|
|
3,388 |
|
|
- |
Shareholders' equity |
|
|
2,163,996 |
|
|
1,480,447 |
Total liabilities and shareholders' equity |
|
$ |
4,557,927 |
|
$ |
1,993,231 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
||||
|
|
2015 |
|
2014 |
||
Rental income |
|
$ |
80,478 |
|
$ |
45,063 |
Tenant reimbursements and other income |
|
|
13,937 |
|
|
7,965 |
Total revenues |
|
|
94,415 |
|
|
53,028 |
|
|
|
|
|
|
|
Operating expenses |
|
|
17,364 |
|
|
9,979 |
Depreciation and amortization |
|
|
24,719 |
|
|
9,294 |
Acquisition related costs |
|
|
20,539 |
|
|
238 |
General and administrative |
|
|
6,792 |
|
|
5,176 |
Total expenses |
|
|
69,414 |
|
|
24,687 |
Operating income |
|
|
25,001 |
|
|
28,341 |
|
|
|
|
|
|
|
Interest expense |
|
|
(14,179) |
|
|
(3,358) |
(Loss) gain on early extinguishment of debt |
|
|
(6,845) |
|
|
243 |
Income before income tax expense and equity in earnings (loss) of an investee |
|
|
3,977 |
|
|
25,226 |
Income tax expense |
|
|
(31) |
|
|
(71) |
Equity in earnings (loss) of an investee |
|
|
72 |
|
|
(97) |
Net income |
|
|
4,018 |
|
|
25,058 |
Net income allocated to noncontrolling interest |
|
|
(41) |
|
|
— |
Net income attributed to SIR |
|
$ |
3,977 |
|
$ |
25,058 |
|
|
|
|
|
|
|
Weighted average common shares outstanding (basic) |
|
|
79,489 |
|
|
49,822 |
Weighted average common shares outstanding (diluted) |
|
|
79,498 |
|
|
49,930 |
Basic and diluted net income attributed to SIR per common share |
|
$ |
0.05 |
|
$ |
0.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2015 |
||||||||||
|
|
Investment |
|
Investment |
|
|
|
|
|
|
||
|
|
in Real Estate |
|
in SIR |
|
Corporate |
|
Consolidated |
||||
Rental income |
|
$ |
62,659 |
|
$ |
— |
|
$ |
— |
|
$ |
62,659 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Real estate taxes |
|
|
7,410 |
|
|
— |
|
|
— |
|
|
7,410 |
Utility expenses |
|
|
4,571 |
|
|
— |
|
|
— |
|
|
4,571 |
Other operating expenses |
|
|
12,210 |
|
|
— |
|
|
— |
|
|
12,210 |
Depreciation and amortization |
|
|
17,215 |
|
|
— |
|
|
— |
|
|
17,215 |
Acquisition related costs |
|
|
6 |
|
|
— |
|
|
— |
|
|
6 |
General and administrative |
|
|
— |
|
|
— |
|
|
4,004 |
|
|
4,004 |
Total expenses |
|
|
41,412 |
|
|
— |
|
|
4,004 |
|
|
45,416 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
21,247 |
|
|
— |
|
|
(4,004) |
|
|
17,243 |
Interest and other income |
|
|
— |
|
|
— |
|
|
12 |
|
|
12 |
Interest expense |
|
|
(2,267) |
|
|
— |
|
|
(7,035) |
|
|
(9,302) |
Income (loss) from continuing operations before income taxes and |
|
|
|
|
|
|
|
|
|
|
|
|
equity in earnings (losses) of investees |
|
|
18,980 |
|
|
— |
|
|
(11,027) |
|
|
7,953 |
Income tax expense |
|
|
— |
|
|
— |
|
|
(30) |
|
|
(30) |
Loss on issuance of shares by an equity investee |
|
|
— |
|
|
(40,771) |
|
|
— |
|
|
(40,771) |
Equity in earnings (losses) of investees |
|
|
— |
|
|
(388) |
|
|
72 |
|
|
(316) |
Income from continuing operations |
|
|
18,980 |
|
|
(41,159) |
|
|
(10,985) |
|
|
(33,164) |
Loss from discontinued operations |
|
|
(206) |
|
|
— |
|
|
— |
|
|
(206) |
Net income (loss) |
|
$ |
18,774 |
|
$ |
(41,159) |
|
$ |
(10,985) |
|
$ |
(33,370) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31 , 2015 |
||||||||||
|
|
Investment |
|
Investment |
|
|
|
|
|
|
||
|
|
in Real Estate |
|
in SIR |
|
Corporate |
|
Consolidated |
||||
Total Assets |
|
$ |
1,665,251 |
|
$ |
721,281 |
|
$ |
28,395 |
|
$ |
2,414,927 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2014 |
||||||||||
|
|
Investment |
|
Investment |
|
|
|
|
|
|
||
|
|
in Real Estate |
|
in SIR |
|
Corporate |
|
Consolidated |
||||
Rental income |
|
$ |
59,820 |
|
$ |
— |
|
$ |
— |
|
$ |
59,820 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Real estate taxes |
|
|
6,812 |
|
|
— |
|
|
— |
|
|
6,812 |
Utility expenses |
|
|
5,696 |
|
|
— |
|
|
— |
|
|
5,696 |
Other operating expenses |
|
|
11,041 |
|
|
— |
|
|
— |
|
|
11,041 |
Depreciation and amortization |
|
|
15,427 |
|
|
— |
|
|
— |
|
|
15,427 |
Acquisition related costs |
|
|
509 |
|
|
— |
|
|
— |
|
|
509 |
General and administrative |
|
|
— |
|
|
— |
|
|
3,097 |
|
|
3,097 |
Total expenses |
|
|
39,485 |
|
|
— |
|
|
3,097 |
|
|
42,582 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
20,335 |
|
|
— |
|
|
(3,097) |
|
|
17,238 |
Interest and other income |
|
|
— |
|
|
— |
|
|
50 |
|
|
50 |
Interest expense |
|
|
(1,326) |
|
|
— |
|
|
(3,201) |
|
|
(4,527) |
Income (loss) from continuing operations before income taxes and |
|
|
|
|
|
|
|
|
|
|
|
|
equity in losses of an investee |
|
|
19,009 |
|
|
— |
|
|
(6,248) |
|
|
12,761 |
Income tax expense |
|
|
— |
|
|
— |
|
|
(22) |
|
|
(22) |
Equity in losses of an investee |
|
|
— |
|
|
— |
|
|
(97) |
|
|
(97) |
Income from continuing operations |
|
|
19,009 |
|
|
— |
|
|
(6,367) |
|
|
12,642 |
Income from discontinued operations |
|
|
2,548 |
|
|
— |
|
|
— |
|
|
2,548 |
Net income (loss) |
|
$ |
21,557 |
|
$ |
— |
|
$ |
(6,367) |
|
$ |
15,190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2014 |
||||||||||
|
|
Investment |
|
Investment |
|
|
|
|
|
|
||
|
|
in Real Estate |
|
in SIR |
|
Corporate |
|
Consolidated |
||||
Total Assets |
|
$ |
1,714,130 |
|
$ |
680,137 |
|
$ |
33,348 |
|
$ |
2,427,615 |
|
|
|
|
|
|
|
|
|
|