GOVERNMENT PROPERTIES INCOME TRUST, 10-Q filed on 4/30/2015
Quarterly Report
Document and Entity Information
3 Months Ended
Mar. 31, 2015
Apr. 29, 2015
Document and Entity Information
 
 
Entity Registrant Name
Government Properties Income Trust 
 
Entity Central Index Key
0001456772 
 
Document Type
10-Q 
 
Document Period End Date
Mar. 31, 2015 
 
Amendment Flag
false 
 
Current Fiscal Year End Date
--12-31 
 
Entity Current Reporting Status
Yes 
 
Entity Filer Category
Large Accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
70,363,667 
Document Fiscal Year Focus
2015 
 
Document Fiscal Period Focus
Q1 
 
CONDENSED CONSOLIDATED BALANCE SHEETS (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2015
Dec. 31, 2014
Real estate properties:
 
 
Land
$ 254,008 
$ 254,008 
Buildings and improvements
1,430,510 
1,428,472 
Total real estate properties, gross
1,684,518 
1,682,480 
Accumulated depreciation
(229,387)
(219,791)
Total real estate properties, net
1,455,131 
1,462,689 
Equity investment in Select Income REIT
721,281 
680,137 
Assets of discontinued operations
12,421 
13,165 
Assets of property held for sale
 
32,797 
Acquired real estate leases, net
141,920 
150,080 
Cash and cash equivalents
9,537 
13,791 
Restricted cash
3,042 
2,280 
Rents receivable, net
37,629 
36,239 
Deferred leasing costs, net
11,553 
11,450 
Deferred financing costs, net
12,063 
12,782 
Other assets, net
10,350 
12,205 
Total assets
2,414,927 
2,427,615 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
Unsecured revolving credit facility
55,000 
 
Unsecured term loans
550,000 
550,000 
Senior unsecured notes, net of discount
347,563 
347,423 
Mortgage notes payable, including premiums
186,541 
187,694 
Liabilities of discontinued operations
211 
150 
Liabilities of property held for sale
 
343 
Accounts payable and accrued expenses
23,944 
26,471 
Due to related persons
2,362 
2,161 
Assumed real estate lease obligations, net
15,104 
15,924 
Total liabilities
1,180,725 
1,130,166 
Commitments and contingencies
   
   
Shareholders' equity:
 
 
Common shares of beneficial interest, $.01 par value: 100,000,000 shares authorized, 70,359,837 and 70,349,227 shares issued and outstanding, respectively
704 
703 
Additional paid in capital
1,457,947 
1,457,631 
Cumulative net income
215,077 
248,447 
Cumulative other comprehensive income
95 
37 
Cumulative common distributions
(439,621)
(409,369)
Total shareholders' equity
1,234,202 
1,297,449 
Total liabilities and shareholders' equity
$ 2,414,927 
$ 2,427,615 
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
Mar. 31, 2015
Dec. 31, 2014
CONDENSED CONSOLIDATED BALANCE SHEETS
 
 
Common shares of beneficial interest, par value (in dollars per share)
$ 0.01 
$ 0.01 
Common shares of beneficial interest, shares authorized
100,000,000 
100,000,000 
Common shares of beneficial interest, shares issued
70,359,837 
70,349,227 
Common shares of beneficial interest, shares outstanding
70,359,837 
70,349,227 
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2015
Mar. 31, 2014
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
 
 
Rental income
$ 62,659 
$ 59,820 
Expenses:
 
 
Real estate taxes
7,410 
6,812 
Utility expenses
4,571 
5,696 
Other operating expenses
12,210 
11,041 
Depreciation and amortization
17,215 
15,427 
Acquisition related costs
509 
General and administrative
4,004 
3,097 
Total expenses
45,416 
42,582 
Operating income
17,243 
17,238 
Interest and other income
12 
50 
Interest expense (including net amortization of debt premiums and discounts and deferred financing fees of $332 and $330, respectively)
(9,302)
(4,527)
Income from continuing operations before income tax expense and equity in earnings (losses) of investees
7,953 
12,761 
Income tax expense
(30)
(22)
Loss on issuance of shares by an equity investee
(40,771)
 
Equity in earnings (losses) of investees
(316)
(97)
Income(loss) from continuing operations
(33,164)
12,642 
Income (loss) from discontinued operations
(206)
2,548 
Net income (loss)
(33,370)
15,190 
Other comprehensive income:
 
 
Equity in unrealized gain of investees
58 
19 
Other comprehensive income
58 
19 
Comprehensive income (loss)
$ (33,312)
$ 15,209 
Weighted average common shares outstanding (basic) (in shares)
70,266 
54,639 
Weighted average common shares outstanding (diluted) (in shares)
70,266 
54,725 
Per common share amounts (basic and diluted):
 
 
Income from continuing operations (in dollars per share)
$ (0.47)
$ 0.23 
Income from discontinued operations (in dollars per share)
 
$ 0.05 
Net income (loss) (in dollars per share)
$ (0.47)
$ 0.28 
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Parenthetical) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2015
Mar. 31, 2014
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
 
 
Amortization of debt premiums and discounts and deferred financing fees
$ 332 
$ 330 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2015
Mar. 31, 2014
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
Net income (loss)
$ (33,370)
$ 15,190 
Adjustments to reconcile net income (loss) to cash provided by operating activities:
 
 
Depreciation
9,626 
9,156 
Net amortization of debt premiums and discount and deferred financing fees
332 
330 
Straight line rental income
(663)
(1,139)
Amortization of acquired real estate leases
7,340 
6,020 
Amortization of deferred leasing costs
556 
456 
Other non-cash expenses
507 
354 
Increase in carrying value of asset held for sale
 
(2,344)
Equity in (earnings) losses of investees
316 
97 
Loss on issuance of shares by an equity investee
40,771 
 
Distributions of earnings from equity investees
2,176 
 
Change in assets and liabilities:
 
 
Restricted cash
(762)
(655)
Deferred leasing costs
(412)
(1,179)
Rents receivable
1,587 
3,084 
Other assets
2,699 
2,041 
Accounts payable and accrued expenses
(2,656)
(210)
Due to related persons
201 
(136)
Cash provided by operating activities
28,248 
31,065 
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
Real estate acquisitions and deposits
 
(5,118)
Real estate improvements
(2,678)
(4,634)
Investment in Select Income REIT
(95,821)
 
Distributions in excess of earnings from equity investees
11,354 
 
Proceeds from sale of properties, net
30,521 
4,644 
Cash used in investing activities
(56,624)
(5,108)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
Repayment of mortgage notes payable
(610)
(520)
Borrowings on unsecured revolving credit facility
75,000 
23,500 
Repayments on unsecured revolving credit facility
(20,000)
(30,000)
Financing fees
(16)
(91)
Distributions to common shareholders
(30,252)
(23,530)
Cash provided by (used in) financing activities
24,122 
(30,641)
Decrease in cash and cash equivalents
(4,254)
(4,684)
Cash and cash equivalents at beginning of period
13,791 
7,663 
Cash and cash equivalents at end of period
9,537 
2,979 
Supplemental cash flow information:
 
 
Interest paid
12,078 
4,131 
Income taxes paid
131 
43 
Non-cash investing activities:
 
 
Real estate acquisition funded with the assumption of mortgage debt
 
(14,524)
Non-cash financing activities:
 
 
Assumption of mortgage debt
 
$ 14,524 
Basis of Presentation
Basis of Presentation

Note 1.    Basis of Presentation

 

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.

Recent Accounting Pronouncements
Recent Accounting Pronouncements

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.

Per Common Share Amounts
Per Common Share Amounts

Note 3.    Per Common Share Amounts

 

We calculate basic earnings per common share by dividing allocable net income (loss) by the weighted average number of common shares outstanding during the period. We calculate diluted earnings per common share by using the more dilutive of the two class method or the treasury stock method. Unvested share awards and other potentially dilutive common shares, including contingently issuable common shares under our business management agreement with Reit Management & Research LLC, or RMR, if any, and the related impact on earnings, are considered when calculating diluted earnings per share. The following table provides a reconciliation of the weighted average number of common shares used in the calculation of basic and diluted earnings per share (in thousands):

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended March 31,

 

 

 

 

2015

 

2014

 

Weighted average common shares for basic earnings per share

 

70,266 

 

 

54,639 

 

Effect of dilutive securities: unvested share awards

 

 -

 

 

86 

 

Weighted average common shares for diluted earnings per share

 

70,266 

 

 

54,725 

 

 

 

Real Estate Properties
Real Estate Properties

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 

 

 

Revenue Recognition
Revenue Recognition

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.

Concentration
Concentration

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.

Indebtedness
Indebtedness

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.

Fair Value of Assets and Liabilities
Fair Value of Assets and Liabilities

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).

Shareholders' Equity
Shareholders' Equity

Note 9. Shareholders’ Equity

 

Distributions

 

On February 26, 2015, we paid a distribution to common shareholders in the amount of $0.43 per share, or $30,252.

 

On April 13, 2015, we declared a distribution payable to common shareholders of record on April 24, 2015, in the amount of $0.43 per share, or $30,256.  We expect to pay this distribution on or about May 25, 2015 using cash on hand and borrowings under our revolving credit facility.

 

Share Issuances

 

During the three months ended March 31, 2015 and the period April 1, 2015 to April 29, 2015, we issued 11,210 and 3,830, respectively, of our common shares to RMR as part of the business management fee payable by us under our business management agreement.  See Note 10 for further information regarding this agreement.

 

Related Party Transactions
Related Party Transactions

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.

 

Equity Investment in Select Income REIT
Equity Investment in Select Income REIT

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 

 

 

Segment Information
Segment Information

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

 

 

 

 

 —

 

 

 —

 

 

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 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per Common Share Amounts (Tables)
Per Common Share Amounts

The following table provides a reconciliation of the weighted average number of common shares used in the calculation of basic and diluted earnings per share (in thousands):

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended March 31,

 

 

 

 

2015

 

2014

 

Weighted average common shares for basic earnings per share

 

70,266 

 

 

54,639 

 

Effect of dilutive securities: unvested share awards

 

 -

 

 

86 

 

Weighted average common shares for diluted earnings per share

 

70,266 

 

 

54,725 

 

 

Real Estate Properties (Tables)
Summarized balance sheet and income statement information for properties classified as discontinued operations

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 

 

 

Indebtedness (Tables)
Composition of outstanding indebtedness

 

 

 

 

 

 

 

 

 

 

    

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.

Fair Value of Assets and Liabilities (Tables)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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).

Equity Investment in Select Income REIT (Tables) (SIR)

 

 

 

 

 

 

 

 

    

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 

 

Segment Information (Tables)
Schedule of 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

 

 

 

 

 —

 

 

 —

 

 

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 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per Common Share Amounts (Details)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2015
Mar. 31, 2014
Per Common Share Amounts
 
 
Weighted average common shares outstanding (basic) (in shares)
70,266 
54,639 
Effect of dilutive securities: unvested share awards
 
86 
Weighted average common shares outstanding (diluted) (in shares)
70,266 
54,725 
Real Estate Properties (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 1 Months Ended
Mar. 31, 2015
sqft
property
item
Mar. 31, 2014
Dec. 31, 2014
Mar. 31, 2015
Continuing operations
Mar. 31, 2015
Discontinued operations
property
item
Feb. 28, 2015
Disposal Group, Not Discontinued Operations [Member]
Riverdale, MD
Office
U.S. Government
One building
item
sqft
Mar. 31, 2015
Discontinued Operations [Member]
Dec. 31, 2014
Discontinued Operations [Member]
Mar. 31, 2015
Discontinued Operations [Member]
One building
item
Mar. 31, 2015
Discontinued Operations [Member]
Falls Church, VA
Office
One building
Apr. 30, 2014
Discontinued Operations [Member]
Falls Church, VA
Office
One building
item
sqft
Real estate properties
 
 
 
 
 
 
 
 
 
 
 
Number of properties owned
71 
 
 
 
 
 
 
 
 
 
Number of buildings
91 
 
 
 
 
 
 
Total real estate properties, gross
$ 1,684,518 
 
$ 1,682,480 
$ 1,684,518 
 
 
 
 
 
 
 
Number of leases entered
 
 
 
 
 
 
 
 
 
 
Weighted average lease term
7 years 6 months 
 
 
 
 
 
 
 
 
 
 
Expenditures committed on leases
2,245 
 
 
 
 
 
 
 
 
 
 
Committed but unspent tenant related obligations estimated
7,377 
 
 
 
 
 
 
 
 
 
 
Square Feet
82,978 
 
 
 
 
 
 
 
 
 
 
Rentable square feet of properties
 
 
 
 
 
337,500 
 
 
 
 
164,746 
Option purchase price
 
 
 
 
 
30,600 
 
 
 
 
 
Net book value
1,455,131 
 
1,462,689 
 
 
 
 
 
 
12,282 
 
Increase in carrying value of assets held for sale
 
2,344 
 
 
 
 
 
 
 
 
 
Gain (loss) on sale of properties
 
 
 
 
 
 
 
 
 
 
Balance Sheet:
 
 
 
 
 
 
 
 
 
 
 
Real estate properties
 
 
 
 
 
 
12,260 
12,260 
 
 
 
Rents receivable, net
 
 
 
 
 
 
10 
782 
 
 
 
Other assets, net
 
 
 
 
 
 
151 
123 
 
 
 
Assets of Disposal Group, Including Discontinued Operation, Total
12,421 
 
13,165 
 
 
 
12,421 
13,165 
 
 
 
Other liabilities
 
 
 
 
 
 
211 
150 
 
 
 
Liabilities of Disposal Group, Including Discontinued Operation, Total
$ 211 
 
$ 150 
 
 
 
$ 211 
$ 150 
 
 
 
Real Estate Properties (Details 2) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2015
item
Mar. 31, 2014
Dec. 31, 2014
Real estate properties
 
 
 
Number of Buildings
91 
 
 
Balance Sheets:
 
 
 
Assets of Disposal Group, Including Discontinued Operation, Total
$ 12,421 
 
$ 13,165 
Liabilities of Disposal Group, Including Discontinued Operation, Total
211 
 
150 
Statement of Operations:
 
 
 
Net book value
1,455,131 
 
1,462,689 
Income (loss) from discontinued operations
(206)
2,548 
 
Assets of Disposal Group, Including Discontinued Operation, Total
12,421 
 
13,165 
Liabilities of Disposal Group, Including Discontinued Operation, Total
211 
 
150 
Discontinued Operations [Member]
 
 
 
Balance Sheets:
 
 
 
Real estate properties
12,260 
 
12,260 
Rents receivable, net
10 
 
782 
Other assets, net
151 
 
123 
Assets of Disposal Group, Including Discontinued Operation, Total
12,421 
 
13,165 
Other liabilities
211 
 
150 
Liabilities of Disposal Group, Including Discontinued Operation, Total
211 
 
150 
Statement of Operations:
 
 
 
Real estate properties
12,260 
 
12,260 
Rents receivable, net
10 
 
782 
Other assets, net
151 
 
123 
Assets of Disposal Group, Including Discontinued Operation, Total
12,421 
 
13,165 
Other liabilities
211 
 
150 
Liabilities of Disposal Group, Including Discontinued Operation, Total
211 
 
150 
Discontinued operations
 
 
 
Statement of Operations:
 
 
 
Rental income
 
740 
 
Real estate taxes
 
(149)
 
Utility expenses
 
(102)
 
Other operating expenses
 
(226)
 
General and administrative
 
(59)
 
Increase in carrying value of asset held for sale
 
2,344 
 
Income (loss) from discontinued operations
 
2,548 
 
Discontinued operations |
Discontinued Operations [Member]
 
 
 
Statement of Operations:
 
 
 
Rental income
31 
 
 
Real estate taxes
(70)
 
 
Utility expenses
(67)
 
 
Other operating expenses
(71)
 
 
General and administrative
(29)
 
 
Income (loss) from discontinued operations
$ (206)
 
 
One building |
Discontinued Operations [Member]
 
 
 
Real estate properties
 
 
 
Number of properties sold
 
 
Number of Buildings
 
 
Two buildings |
Discontinued operations
 
 
 
Real estate properties
 
 
 
Number of properties sold
 
 
Number of Buildings
 
 
Revenue Recognition (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2015
Mar. 31, 2014
Dec. 31, 2014
Revenue Recognition
 
 
 
Increase in rental income to record revenue on straight line basis
$ 663 
$ 1,142 
 
Straight line rent receivables (liabilities)
$ 15,680 
 
$ 15,017 
Concentration (Details)
3 Months Ended
Mar. 31, 2015
Mar. 31, 2014
Concentration
 
 
Number of properties owned
71 
 
Number of buildings
91 
 
Number of states in which acquired properties located
31 
 
Number of state governments
12 
 
Annualized rental income, excluding properties classified as discontinued operations |
Maryland
 
 
Concentration
 
 
Annualized Rental income percent
0.115 
 
Annualized rental income, excluding properties classified as discontinued operations |
California
 
 
Concentration
 
 
Annualized Rental income percent
0.103 
 
Annualized rental income, excluding properties classified as discontinued operations |
Virginia
 
 
Concentration
 
 
Annualized Rental income percent
0.102 
 
Annualized rental income, excluding properties classified as discontinued operations |
District of Columbia
 
 
Concentration
 
 
Annualized Rental income percent
0.090 
 
Annualized rental income, excluding properties classified as discontinued operations |
Georgia
 
 
Concentration
 
 
Annualized Rental income percent
0.085 
 
Annualized rental income, excluding properties classified as discontinued operations |
New York
 
 
Concentration
 
 
Annualized Rental income percent
0.078 
 
Annualized rental income, excluding properties classified as discontinued operations |
Massachusetts
 
 
Concentration
 
 
Annualized Rental income percent
0.056 
 
Annualized rental income, excluding properties classified as discontinued operations |
Tenant concentration |
U.S. Government, state governments and the United Nations
 
 
Concentration
 
 
Concentration risk, percentage
92.70% 
92.60% 
Annualized rental income, excluding properties classified as discontinued operations |
Tenant concentration |
U.S. Government
 
 
Concentration
 
 
Concentration risk, percentage
67.70% 
69.40% 
Discontinued operations
 
 
Concentration
 
 
Number of properties owned
 
Number of buildings
 
Indebtedness (Details) (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 3 Months Ended 3 Months Ended 3 Months Ended
Mar. 31, 2015
loan
property
item
Dec. 31, 2014
Mar. 31, 2015
Unsecured revolving credit facility
Mar. 31, 2014
Unsecured revolving credit facility
Jan. 31, 2015
Unsecured revolving credit facility
Apr. 29, 2015
Subsequent event
Unsecured revolving credit facility
Mar. 31, 2015
Unsecured term loan, due in 2020
Dec. 31, 2014
Unsecured term loan, due in 2020
Mar. 31, 2015
Unsecured term loan, due in 2022
Dec. 31, 2014
Unsecured term loan, due in 2022
Mar. 31, 2015
Senior Unsecured Note 3.75 Percent Due In 2019
Dec. 31, 2014
Senior Unsecured Note 3.75 Percent Due In 2019
Mar. 31, 2015
Mortgage note payable, 5.55% interest rate, due in 2016
Dec. 31, 2014
Mortgage note payable, 5.55% interest rate, due in 2016
Mar. 31, 2015
5.73% Mortgage notes due in 2015
Dec. 31, 2014
5.73% Mortgage notes due in 2015
Mar. 31, 2015
6.21% Mortgage notes due in 2016
Dec. 31, 2014
6.21% Mortgage notes due in 2016
Mar. 31, 2015
Mortgage note payable, 5.88% interest rate, due in 2021
Dec. 31, 2014
Mortgage note payable, 5.88% interest rate, due in 2021
Mar. 31, 2015
7% Mortgage notes due in 2019
Dec. 31, 2014
7% Mortgage notes due in 2019
Mar. 31, 2015
8.15% Mortgage notes due in 2021
Dec. 31, 2014
8.15% Mortgage notes due in 2021
Indebtedness
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unsecured revolving credit facility
$ 55,000 
 
$ 55,000 
 
$ 55,000 
$ 45,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Face amount
 
 
 
 
 
 
300,000 
 
250,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unsecured term loans
550,000 
550,000 
 
 
 
 
300,000 
300,000 
250,000 
250,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Senior Notes
347,563 
347,423 
 
 
 
 
 
 
 
 
347,563 
347,423 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage notes payable, including premiums
186,541 
187,694 
 
 
 
 
 
 
 
 
 
 
84,741 
85,167 
47,165 
47,418 
23,747 
23,833 
14,319 
14,374 
9,473 
9,563 
7,096 
7,339 
Total
1,139,104 
1,085,117 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate (as a percent)
 
 
1.40% 
 
 
 
1.60% 
 
2.00% 
 
3.75% 
3.75% 
5.55% 
5.55% 
5.73% 
5.73% 
6.21% 
6.21% 
5.88% 
5.88% 
7.00% 
7.00% 
8.15% 
8.15% 
Unamortized fair value discount included in mortgage notes
 
 
 
 
 
 
 
 
 
 
2,437 
2,577 
 
 
 
 
 
 
 
 
 
 
 
 
Unamortized fair value premium included in mortgage notes
 
 
 
 
 
 
 
 
 
 
 
 
1,741 
2,167 
121 
177 
 
 
 
 
572 
605 
371 
398 
Maximum borrowing capacity on revolving credit facility
 
 
750,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revolving credit facility, interest rate basis
 
 
LIBOR 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Maximum borrowing capacity on debt instruments may be increased under certain conditions
2,500,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Option to extend the maturity date subject to certain conditions and the payment of a fee
 
 
1 year 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Term loan, interest rate basis
 
 
 
 
 
 
LIBOR 
 
LIBOR 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate premium (as a percent)
 
 
1.25% 
 
 
 
1.40% 
 
1.80% 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Facility fee (as a percent)
 
 
0.25% 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The weighted average annual interest rate (as a percent)
 
 
2.00% 
1.70% 
 
 
1.60% 
 
2.00% 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loan prepayment premium prior to November 22, 2015 (as a percent)
 
 
 
 
 
 
 
 
2.00% 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loan prepayment premium prior to November 21, 2016 (as a percent)
 
 
 
 
 
 
 
 
1.00% 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock, Par or Stated Value Per Share
$ 0.01 
$ 0.01 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of assumed secured mortgage loans
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Aggregate net book value of secured properties
$ 256,629 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of properties secured by mortgage notes
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of buildings secured by mortgage notes
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fair Value of Assets and Liabilities (Details) (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2015
Dec. 31, 2014
Fair Value of Financial Instruments
 
 
Mortgage notes payable, including premiums
$ 186,541 
$ 187,694 
Senior Notes
347,563 
347,423 
Senior Unsecured Note 3.75 Percent Due In 2019
 
 
Fair Value of Financial Instruments
 
 
Senior Notes
347,563 
347,423 
Interest rate (as a percent)
3.75% 
3.75% 
Mortgage note payable, 5.55% interest rate, due in 2016
 
 
Fair Value of Financial Instruments
 
 
Mortgage notes payable, including premiums
84,741 
85,167 
Interest rate (as a percent)
5.55% 
5.55% 
5.73% Mortgage notes due in 2015
 
 
Fair Value of Financial Instruments
 
 
Mortgage notes payable, including premiums
47,165 
47,418 
Interest rate (as a percent)
5.73% 
5.73% 
6.21% Mortgage notes due in 2016
 
 
Fair Value of Financial Instruments
 
 
Mortgage notes payable, including premiums
23,747 
23,833 
Interest rate (as a percent)
6.21% 
6.21% 
Mortgage note payable, 5.88% interest rate, due in 2021
 
 
Fair Value of Financial Instruments
 
 
Mortgage notes payable, including premiums
14,319 
14,374 
Interest rate (as a percent)
5.88% 
5.88% 
7% Mortgage notes due in 2019
 
 
Fair Value of Financial Instruments
 
 
Mortgage notes payable, including premiums
9,473 
9,563 
Interest rate (as a percent)
7.00% 
7.00% 
8.15% Mortgage notes due in 2021
 
 
Fair Value of Financial Instruments
 
 
Mortgage notes payable, including premiums
7,096 
7,339 
Interest rate (as a percent)
8.15% 
8.15% 
Carrying Amount
 
 
Fair Value of Financial Instruments
 
 
Mortgage notes payable, including premiums
534,104 
535,117 
Carrying Amount |
Senior Unsecured Note 3.75 Percent Due In 2019
 
 
Fair Value of Financial Instruments
 
 
Senior Notes
347,563 
347,423 
Carrying Amount |
Mortgage note payable, 5.55% interest rate, due in 2016
 
 
Fair Value of Financial Instruments
 
 
Mortgage notes payable, including premiums
84,741 
85,167 
Carrying Amount |
5.73% Mortgage notes due in 2015
 
 
Fair Value of Financial Instruments
 
 
Mortgage notes payable, including premiums
47,165 
47,418 
Carrying Amount |
6.21% Mortgage notes due in 2016
 
 
Fair Value of Financial Instruments
 
 
Mortgage notes payable, including premiums
23,747 
23,833 
Carrying Amount |
Mortgage note payable, 5.88% interest rate, due in 2021
 
 
Fair Value of Financial Instruments
 
 
Mortgage notes payable, including premiums
14,319 
14,374 
Carrying Amount |
7% Mortgage notes due in 2019
 
 
Fair Value of Financial Instruments
 
 
Mortgage notes payable, including premiums
9,473 
9,563 
Carrying Amount |
8.15% Mortgage notes due in 2021
 
 
Fair Value of Financial Instruments
 
 
Mortgage notes payable, including premiums
7,096 
7,339 
Fair Value
 
 
Fair Value of Financial Instruments
 
 
Mortgage notes payable, including premiums
552,998 
548,407 
Fair Value |
Senior Unsecured Note 3.75 Percent Due In 2019
 
 
Fair Value of Financial Instruments
 
 
Senior Notes
362,103 
356,129 
Fair Value |
Mortgage note payable, 5.55% interest rate, due in 2016
 
 
Fair Value of Financial Instruments
 
 
Mortgage notes payable, including premiums
84,769 
85,171 
Fair Value |
5.73% Mortgage notes due in 2015
 
 
Fair Value of Financial Instruments
 
 
Mortgage notes payable, including premiums
47,757 
48,233 
Fair Value |
6.21% Mortgage notes due in 2016
 
 
Fair Value of Financial Instruments
 
 
Mortgage notes payable, including premiums
25,108 
25,394 
Fair Value |
Mortgage note payable, 5.88% interest rate, due in 2021
 
 
Fair Value of Financial Instruments
 
 
Mortgage notes payable, including premiums
15,312 
15,249 
Fair Value |
7% Mortgage notes due in 2019
 
 
Fair Value of Financial Instruments
 
 
Mortgage notes payable, including premiums
10,243 
10,275 
Fair Value |
8.15% Mortgage notes due in 2021
 
 
Fair Value of Financial Instruments
 
 
Mortgage notes payable, including premiums
$ 7,706 
$ 7,956 
Fair Value of Assets and Liabilities (Details 2) (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2015
Dec. 31, 2014
Fair Value of Assets and Liabilities
 
 
Property held for sale
$ 1,455,131 
$ 1,462,689 
Nonrecurring |
Fair Value
 
 
Fair Value of Assets and Liabilities
 
 
Property held for sale
12,260 
 
Nonrecurring |
Level 3 inputs
 
 
Fair Value of Assets and Liabilities
 
 
Property held for sale
12,260 
 
Discontinued operations |
Nonrecurring |
Fair Value
 
 
Fair Value of Assets and Liabilities
 
 
Property held for sale
12,260 
 
Discontinued operations |
Nonrecurring |
Level 3 inputs
 
 
Fair Value of Assets and Liabilities
 
 
Property held for sale
$ 12,260 
 
Shareholders' Equity (Details) (USD $)
In Thousands, except Share data, unless otherwise specified
0 Months Ended 1 Months Ended 3 Months Ended
Apr. 13, 2015
Feb. 26, 2015
Apr. 29, 2015
Mar. 31, 2015
Apr. 13, 2015
Distributions
 
 
 
 
 
Cash distribution to common shareholders (in dollars per share)
 
$ 0.43 
 
 
 
Distribution payable to common shareholders
 
$ 30,252 
 
 
 
Distribution payable to common shareholders (in dollars per share)
 
 
 
 
$ 0.43 
Dividends
$ 30,256 
 
 
 
 
Number of shares issued
 
 
3,830 
11,210 
 
Related Party Transactions (Details) (USD $)
In Thousands, except Share data, unless otherwise specified
1 Months Ended 3 Months Ended 3 Months Ended 0 Months Ended 3 Months Ended
Apr. 29, 2015
Mar. 31, 2015
Mar. 31, 2014
Dec. 31, 2014
Mar. 31, 2015
RMR
Mar. 31, 2014
RMR
Mar. 31, 2015
SIR
Feb. 28, 2015
SIR
Mar. 4, 2015
SIR
Lakewood Capital Partners LP
Mar. 5, 2015
SIR
Barry Portnoy
Lakewood Capital Partners LP
Mar. 4, 2015
SIR
Barry Portnoy
Lakewood Capital Partners LP
Mar. 5, 2015
SIR
Adam Portnoy
Lakewood Capital Partners LP
Mar. 4, 2015
SIR
Adam Portnoy
Lakewood Capital Partners LP
Mar. 31, 2015
AIC
Mar. 31, 2014
AIC
Related Party Transaction
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business management fees
 
 
 
 
$ 2,561 
$ 2,401 
 
 
 
 
 
 
 
 
 
Number of shares issued
3,830 
11,210 
 
 
11,157 
 
 
 
 
 
 
 
 
 
 
Property management and construction supervision fees
 
 
 
 
2,016 
1,954 
 
 
 
 
 
 
 
 
 
Rental income earned
 
 
 
 
15 
19 
 
 
 
 
 
 
 
 
 
Par value of SIR common shares of beneficial interest acquired pursuant to stock purchase agreement (in dollars per share)
 
$ 0.01 
 
$ 0.01 
 
 
 
 
 
 
 
 
 
 
 
Cash purchase price
 
 
 
 
 
 
 
 
95,203 
 
 
 
 
 
 
Cash purchase price (in dollars per share)
 
 
 
 
 
 
 
 
$ 27.85 
 
 
 
 
 
 
Number shares purchased under shareholder agreement
 
 
 
 
 
 
 
 
3,418,421 
2,429 
107,606 
2,429 
87,606 
 
 
Percentage of interest
 
 
 
 
 
 
28.20% 
3.90% 
 
 
 
 
 
 
 
Investment at carrying value
 
721,281 
 
680,137 
 
 
 
 
 
 
 
 
 
7,064 
 
Recognized income (loss) related to investment
 
$ (316)
$ (97)
 
 
 
 
 
 
 
 
 
 
$ 72 
$ (97)
Period of standstill provision pursuant to which the counterparty agreed not to make unsolicited proposals to acquire entities as specified
 
 
 
 
 
 
50 years 
 
 
 
 
 
 
 
 
Equity Investment in Select Income REIT (Details) (USD $)
In Thousands, except Share data, unless otherwise specified
3 Months Ended 0 Months Ended 3 Months Ended
Mar. 31, 2015
Mar. 31, 2014
Dec. 31, 2014
Dec. 31, 2013
Mar. 31, 2015
SIR
Dec. 31, 2014
SIR
Mar. 4, 2015
SIR
Mar. 31, 2015
SIR
Mar. 31, 2014
SIR
Mar. 31, 2015
SIR
Equity Investment in Select Income REIT
 
 
 
 
 
 
 
 
 
 
Number shares purchased under shareholder agreement
 
 
 
 
 
 
3,418,421 
 
 
 
Purchase consideration
 
 
 
 
 
 
$ 95,203 
 
 
 
Equity investments, common shares owned
 
 
 
 
 
 
 
24,918,421 
 
 
Equity Method Investment, Ownership Percentage
 
 
 
 
 
 
 
28.20% 
 
 
Investment at carrying value
721,281 
 
680,137 
 
 
 
 
721,281 
 
 
Costs related to acquisition
509 
 
 
 
 
 
1,792 
238 
20,539 
Equity Investments, market value
 
 
 
 
 
 
 
622,711 
 
 
Amortization of the difference between carrying value and share of underlying equity
 
 
 
 
 
 
 
2,564 
 
 
Income (Loss) from Equity Method Investments
(316)
(97)
 
 
 
 
 
2,176 
(97)
72 
The amount of investment in exceed the underlying equity of the investee
 
 
 
 
 
 
 
166,272 
 
 
Number of common shares sold in public offering
 
 
 
 
 
 
 
28,453,447 
 
 
Gain (Loss) on Disposition of Stock in Subsidiary or Equity Method Investee
(40,771)
 
 
 
 
 
 
40,771 
 
 
Proceeds from Equity Method Investment, Dividends or Distributions
2,176 
 
 
 
 
 
 
13,530 
 
 
Number of shares issued to holders of CCIT common shares on acquisition
 
 
 
 
 
 
 
28,439,111 
 
 
Equity Method Investment Summarized Balance Sheet Information Abstract
 
 
 
 
 
 
 
 
 
 
Real estate properties, net
1,455,131 
 
1,462,689 
 
3,885,484 
1,772,510 
 
 
 
 
Acquired real estate leases, net
141,920 
 
150,080 
 
514,161 
120,700 
 
 
 
 
Cash and cash equivalents
9,537 
2,979 
13,791 
7,663 
33,915 
13,504 
 
 
 
 
Rents receivable, net
37,629 
 
36,239 
 
79,441 
68,385 
 
 
 
 
Other assets, net
10,350 
 
12,205 
 
44,926 
18,132 
 
 
 
 
Total assets
2,414,927 
2,427,615 
2,427,615 
 
4,557,927 
1,993,231 
 
 
 
 
Revolving credit facility
55,000 
 
 
 
141,000 
77,000 
 
 
 
 
Term loan
550,000 
 
550,000 
 
350,000 
350,000 
 
 
 
 
Senior notes
347,563 
 
347,423 
 
1,434,034 
 
 
 
 
 
Mortgage notes payable, including premiums
186,541 
 
187,694 
 
287,326 
18,816 
 
 
 
 
Assumed real estate lease obligations, net
15,104 
 
15,924 
 
92,105 
26,475 
 
 
 
 
Other Liabilities
23,944 
 
26,471 
 
86,078 
40,493 
 
 
 
 
Noncontrolling interest
 
 
 
 
3,388 
 
 
 
 
 
Shareholders' equity
1,234,202 
 
1,297,449 
 
2,163,996 
1,480,447 
 
 
 
 
Total liabilities and shareholders' equity
2,414,927 
 
2,427,615 
 
4,557,927 
1,993,231 
 
 
 
 
Income Statements:
 
 
 
 
 
 
 
 
 
 
Rental income
 
 
 
 
 
 
 
 
45,063 
80,478 
Tenant Reimbursements And Other Real Estate Revenue
 
 
 
 
 
 
 
 
7,965 
13,937 
Total revenues
62,659 
59,820 
 
 
 
 
 
 
53,028 
94,415 
Operating expenses
 
 
 
 
 
 
 
 
9,979 
17,364 
Depreciation and amortization
17,215 
15,427 
 
 
 
 
 
 
9,294 
24,719 
Acquisition related costs
509 
 
 
 
 
 
1,792 
238 
20,539 
General and administrative
4,004 
3,097 
 
 
 
 
 
 
5,176 
6,792 
Total expenses
45,416 
42,582 
 
 
 
 
 
 
24,687 
69,414 
Operating income
17,243 
17,238 
 
 
 
 
 
 
28,341 
25,001 
Interest Expense
9,302 
4,527 
 
 
 
 
 
 
(3,358)
(14,179)
Gain (Loss) on early extinguishment of Debt
 
 
 
 
 
 
 
 
243 
(6,845)
(Loss) income from continuing operations before income tax expense and equity in earnings of investees
7,953 
12,761 
 
 
 
 
 
 
25,226 
3,977 
Income tax expense
30 
22 
 
 
 
 
 
 
(71)
(31)
Equity in earnings (losses) of investees
(316)
(97)
 
 
 
 
 
2,176 
(97)
72 
Net income
 
 
 
 
 
 
 
 
25,058 
4,018 
Net loss allocated to noncontrolling interest
 
 
 
 
 
 
 
 
 
(41)
Net Income (Loss) Attributable to Parent
 
 
 
 
 
 
 
 
$ 25,058 
$ 3,977 
Weighted average common shares outstanding (basic) (in shares)
70,266,000 
54,639,000 
 
 
 
 
 
 
49,822,000 
79,489,000 
Weighted average common shares outstanding (diluted) (in shares)
70,266,000 
54,725,000 
 
 
 
 
 
 
49,930,000 
79,498,000 
Basic and diluted net income attributed to SIR per common share
$ (0.47)
$ 0.28 
 
 
 
 
 
 
$ 0.50 
$ 0.05 
Segment Information (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2015
item
Mar. 31, 2014
Dec. 31, 2014
Segment Information.
 
 
 
Rental income
$ 62,659 
$ 59,820 
 
Number of segments
 
 
Expenses:
 
 
 
Real Estate Tax Expense
7,410 
6,812 
 
Utility expenses
4,571 
5,696 
 
Other operating expenses
12,210 
11,041 
 
Depreciation and amortization
17,215 
15,427 
 
Acquisition related costs
509 
 
General and administrative
4,004 
3,097 
 
Total expenses
45,416 
42,582 
 
Operating income
17,243 
17,238 
 
Interest and other income
12 
50 
 
Interest expense
(9,302)
(4,527)
 
Income from continuing operations before income tax expense and equity in earnings (losses) of investees
7,953 
12,761 
 
Income tax expense
(30)
(22)
 
Loss on issuance of shares by an equity investee
(40,771)
 
 
Equity in earnings (losses) of investees
(316)
(97)
 
Income(loss) from continuing operations
(33,164)
12,642 
 
Income (loss) from discontinued operations
(206)
2,548 
 
Net income (loss)
(33,370)
15,190 
 
Total assets
2,414,927 
2,427,615 
2,427,615 
Investment in Real Estate
 
 
 
Expenses:
 
 
 
Income (loss) from discontinued operations
(206)
 
 
Investment in SIR
 
 
 
Expenses:
 
 
 
Loss on issuance of shares by an equity investee
(40,771)
 
 
Operating Segments |
Investment in Real Estate
 
 
 
Segment Information.
 
 
 
Rental income
62,659 
59,820 
 
Expenses:
 
 
 
Real Estate Tax Expense
7,410 
6,812 
 
Utility expenses
4,571 
5,696 
 
Other operating expenses
12,210 
11,041 
 
Depreciation and amortization
17,215 
15,427 
 
Acquisition related costs
509 
 
Total expenses
41,412 
39,485 
 
Operating income
21,247 
20,335 
 
Interest expense
(2,267)
(1,326)
 
Income from continuing operations before income tax expense and equity in earnings (losses) of investees
18,980 
19,009 
 
Income(loss) from continuing operations
18,980 
19,009 
 
Income (loss) from discontinued operations
 
2,548 
 
Net income (loss)
18,774 
21,557 
 
Total assets
1,665,251 
1,714,130 
 
Operating Segments |
Investment in SIR
 
 
 
Expenses:
 
 
 
Equity in earnings (losses) of investees
(388)
 
 
Income(loss) from continuing operations
(41,159)
 
 
Net income (loss)
(41,159)
 
 
Total assets
721,281 
680,137 
 
Corporate, Non-Segment
 
 
 
Expenses:
 
 
 
General and administrative
4,004 
3,097 
 
Total expenses
4,004 
3,097 
 
Operating income
(4,004)
(3,097)
 
Interest and other income
12 
50 
 
Interest expense
(7,035)
(3,201)
 
Income from continuing operations before income tax expense and equity in earnings (losses) of investees
(11,027)
(6,248)
 
Income tax expense
(30)
(22)
 
Equity in earnings (losses) of investees
72 
(97)
 
Income(loss) from continuing operations
(10,985)
(6,367)
 
Net income (loss)
(10,985)
(6,367)
 
Total assets
$ 28,395 
$ 33,348