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Government Properties Income Trust, or the Company, we or us, was organized as a real estate investment trust, or REIT, under Maryland law on February 17, 2009 to concentrate our former parent’s ownership of properties that were majority leased to government tenants and to expand such investments. In June 2009, we completed our initial public offering and we became a separate publicly owned company.
As of December 31, 2014, excluding one property ( one building) classified as discontinued operations, we owned 72 properties ( 92 buildings), or the Properties, located in 31 states and the District of Columbia containing approximately 11.0 million rentable square feet. As of December 31, 2014 we also owned 21,500,000 common shares of beneficial interest, par value $.01 per share, or approximately 35.9%, of the then outstanding common shares of Select Income REIT, or SIR.
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Note 2. Summary of Significant Accounting Policies
Basis of Presentation. These consolidated financial statements include the accounts of us and our subsidiaries, all of which are 100% owned directly or indirectly by us. All intercompany transactions and balances with or among our consolidated subsidiaries have been eliminated.
We account for our investments in Affiliates Insurance Company, or AIC, and SIR using the equity method of accounting. Significant influence is present through common representation on the boards of trustees or directors of us, AIC and SIR. Our Managing Trustees are also the managing trustees of SIR. Our Managing Trustees are also owners of Reit Management & Research LLC, or RMR, which is the manager of us, AIC and SIR, each of our Trustees is a director of AIC and one of our Independent Trustees is also an independent trustee of SIR. See Notes 6 and 11 for a further discussion of our investments in AIC and SIR.
Real Estate Properties. We record our properties at cost and provide depreciation on real estate investments on a straight line basis over estimated useful lives generally ranging from 7 to 40 years. In some circumstances, we engage independent real estate appraisal firms to provide market information and evaluations which are relevant to our purchase price allocations and determinations of useful lives; however, we are ultimately responsible for the purchase price allocations and determinations of useful lives.
We allocate the purchase prices of our properties to land, building and improvements based on determinations of the fair values of these assets assuming the properties are vacant. We determine the fair value of each property using methods similar to those used by independent appraisers. For properties qualifying as acquired businesses under Accounting Standards Codification 805, Business Combinations, we allocate a portion of the purchase price of our properties to above market and below market leases based on the present value (using an interest rate which reflects the risks associated with acquired in place leases at the time each property was acquired by us) of the difference, if any, between (i) the contractual amounts to be paid pursuant to the acquired in place leases and (ii) our estimates of fair market lease rates for the corresponding leases, measured over a period equal to the terms of the respective leases. We allocate a portion of the purchase price to acquired in place leases and tenant relationships based upon market estimates to lease up the property based on the leases in place at the time of purchase. We allocate this aggregate value between acquired in place lease values and tenant relationships based on our evaluation of the specific characteristics of each tenant’s lease. However, we have not separated the value of tenant relationships from the value of acquired in place leases because such value and related amortization expense is immaterial to the accompanying consolidated financial statements. In making these allocations, we consider factors such as estimated carrying costs during the expected lease up periods, including real estate taxes, insurance and other operating income and expenses and costs, such as leasing commissions, legal and other related expenses, to execute similar leases in current market conditions at the time a property was acquired by us. If the value of tenant relationships becomes material in the future, we may separately allocate those amounts and amortize the allocated amount over the estimated life of the relationships.
We amortize capitalized above market lease values (included in acquired in place real estate leases in our consolidated balance sheets) and below market lease values (presented as assumed real estate lease obligations in our consolidated balance sheets) as a reduction or increase, respectively, to rental income over the terms of the associated leases. Such amortization resulted in net decreases to rental income of $868, $1,123, and $2,056 during the years ended December 31, 2014, 2013 and 2012, respectively. We amortize the value of acquired in place leases (included in acquired real estate leases in our consolidated balance sheets), exclusive of the value of above market and below market acquired in place leases, over the terms of the associated leases. Such amortization, which is included in depreciation and amortization expense, amounted to $26,844, $20,482, and $17,390 during the years ended December 31, 2014, 2013 and 2012, respectively. When a lease is terminated prior to its stated expiration, we write off the unamortized amounts relating to that lease.
Capitalized above market lease values were $39,040 and $38,487 as of December 31, 2014 and 2013, respectively, net of accumulated amortization of $18,288 and $14,271, respectively. Capitalized below market lease values were $26,605 and $27,304 as of December 31, 2014 and 2013, respectively, net of accumulated amortization of $10,681 and $8,220, respectively.
The value of acquired in place leases, exclusive of the value of above market and below market acquired in place leases, were $198,157 and $167,256 as of December 31, 2014 and 2013, respectively, net of accumulated amortization of $68,829 and $49,207, respectively. Future amortization of net intangible lease assets and liabilities, to be recognized over the current terms of the associated leases as of December 31, 2014 are estimated to be $28,601 in 2015, $26,001 in 2016, $23,734 in 2017, $19,462 in 2018, $14,413 in 2019 and $21,945 thereafter.
We regularly evaluate whether events or changes in circumstances have occurred that could indicate an impairment in the value of long lived assets. If there is an indication that the carrying value of an asset is not recoverable, we estimate the projected undiscounted cash flows to determine if an impairment loss should be recognized. We determine the amount of any impairment loss by comparing the historical carrying value to estimated fair value. We estimate fair value through an evaluation of recent financial performance and projected discounted cash flows using standard industry valuation techniques. In addition to consideration of impairment upon the events or changes in circumstances described above, we regularly evaluate the remaining lives of our long lived assets. If we change our estimate of the remaining lives, we allocate the carrying value of the affected assets over their revised remaining lives.
Cash and Cash Equivalents. We consider highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents.
Restricted Cash. Restricted cash consists of amounts escrowed for future real estate taxes, insurance, leasing costs, capital expenditures and debt service, as required by certain of our mortgage debts.
Deferred Leasing Costs. Deferred leasing costs include brokerage, legal and other fees associated with our entering leases and we amortize those costs, which are included in depreciation and amortization expense, on a straight line basis over the terms of the respective leases. Deferred leasing costs totaled $15,401 and $13,935 at December 31, 2014 and 2013, respectively, and accumulated amortization of deferred leasing costs totaled $3,951 and $2,317 at December 31 2014 and 2013, respectively. Future amortization of deferred leasing costs to be recognized during the current terms of our existing leases as of December 31, 2014, are estimated to be $2,035 in 2015, $1,915 in 2016, $1,459 in 2017, $1,306 in 2018, $1,205 in 2019 and $3,530 thereafter.
Deferred Financing Fees. Deferred financing fees include issuance or assumption costs related to borrowings and we amortize those costs as interest expense over the terms of the respective loans. Deferred financing fees totaled $14,055 and $9,335 at December 31, 2014 and 2013, respectively, and accumulated amortization of deferred financing fees totaled $1,273 and $5,424 at December 31, 2014 and 2013, respectively. Future amortization of deferred financing fees to be recognized with respect to our loans as of December 31, 2014 are estimated to be $2,917 in 2015, $2,637 in 2016, $2,548 in 2017, $2,548 in 2018, $1,346 in 2019 and $786 thereafter.
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 by $4,501, $2,739 and $3,428 to record revenue on a straight line basis during the years ended December 31, 2014, 2013 and 2012, respectively. Rents receivable include $15,017 and $10,515 of straight line rent receivables at December 31, 2014 and 2013, respectively.
Income Taxes. We have elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, or the IRC, and, accordingly, we generally will not be subject to federal income taxes provided we distribute our taxable income and meet certain other requirements to qualify as a REIT. We are, however, subject to certain state and local taxes.
Cumulative Other Comprehensive Income (Loss). Cumulative other comprehensive income (loss) represents our share of the comprehensive income (loss) of AIC and SIR. See Notes 6 and 11 for further information regarding these investments.
Reclassifications. Certain reclassifications have been made to the prior years’ financial statements to conform to the current year’s presentation.
Use of Estimates. Preparation of these financial statements in conformity with U.S. generally accepted accounting principles, or GAAP, requires us to make estimates and assumptions that may affect the amounts reported in these consolidated financial statements and related notes. The actual results could differ from these estimates.
Per Common Share Amounts. We calculate basic earnings per common share by dividing net income by the weighted average number of our common shares of beneficial ownership, $.01 par value, or common shares, or our common shares, outstanding during the period. We calculate diluted earnings per share using the more dilutive of the two class method or the treasury stock method.
Segment Reporting. We operate in two business segments: ownership of properties that are primarily leased to government tenants and our equity method investment in SIR.
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Note 4. Recent Accounting Pronouncements
In April 2014, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. This update amends the criteria for reporting discontinued operations to, among other things, raise the threshold for disposals to qualify as discontinued operations. This update is effective for interim and annual reporting periods, beginning after December 15, 2014, with early adoption permitted, but only for disposals or classifications as held for sale which have not been reported in financial statements previously issued or available for issuance. We adopted this ASU effective July 1, 2014. As a result, the results of operations and gains or losses on the sale of properties that were not previously classified as a discontinued operation, that are disposed of or classified as held for sale in the ordinary course of business and do not meet the criteria for classification as a discontinued operation described above after July 1, 2014, are included in continuing operations in our consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which provides guidance for revenue recognition. This update is effective for interim and annual reporting periods beginning after December 15, 2016. We are currently in the process of evaluating the impact, if any, the adoption of this ASU will have on our consolidated financial statements.
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements – Going Concern: Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The update requires an entity to evaluate whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the financial statements are available to be issued when applicable) and to provide related footnote disclosures in certain circumstances. The update is effective for the annual reporting periods beginning after December 15, 2015, and for annual and interim periods thereafter with early adoption permitted. The implementation of this update is not expected to result in any significant changes to the disclosures in our consolidated financial statements.
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Note 5. Real Estate Properties
As of December 31, 2014, we owned 72 properties (92 buildings), with an undepreciated carrying value of $1,712,776 excluding one property (one building) classified as discontinued operations and including one property (one building) held for sale and included in continuing 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 stated term of their leases expire. Our leases generally require us to pay all or some property operating expenses and to provide all or most property management services. During the year ended December 31, 2014, we entered into 50 leases for 632,376 rentable square feet for a weighted (by revenue) average lease term of 5.4 years and we made commitments for approximately $12,416 of leasing related costs. We have unspent leasing related obligations of approximately $7,545 as of December 31, 2014.
Our future minimum lease payments related to our properties, excluding one property classified as discontinued operations and estimated real estate tax and other expense reimbursements, scheduled to be received during the current terms of the existing leases as of December 31, 2014 are as follows:
2014 |
$ |
222,845 | ||
2015 |
207,019 | |||
2016 |
180,634 | |||
2017 |
151,512 | |||
2018 |
123,106 | |||
Thereafter |
262,559 | |||
$ |
1,147,675 |
As of December 31, 2014, excluding one property classified as discontinued operations, government tenants who currently represent approximately 5.0% of our total future minimum lease payments have currently exercisable rights to terminate their leases before the stated terms of their leases expire. In 2015, 2016, 2017, 2018, 2019, 2020, 2022 and 2023, early termination rights become exercisable by other government tenants who currently represent an additional approximately 1.8%, 5.9%, 3.1%, 1.6%, 9.4%, 6.7%, 1.5% and 2.2% of our total future minimum lease payments, respectively. In addition as of December 31, 2014, 13 of our government tenants have the currently exercisable right to terminate their leases if their respective legislature or other funding authority does not appropriate the funding necessary for the government tenant to meet its lease obligations. These 13 tenants represent approximately 14.1% of our total future minimum lease payments as of December 31, 2014.
Acquisition Activities
During the year ended December 31, 2014, we acquired four office properties (five buildings) for an aggregate purchase price of $167,525, including the assumption of $97,524 of mortgage debt and excluding acquisition costs. We allocated the purchase prices of these acquisitions based on the estimated fair values of the acquired assets and assumed liabilities as follows:
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Number |
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Premium |
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of |
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Buildings |
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Acquired |
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Other |
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on |
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Acquisition |
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Properties/ |
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Square |
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Purchase |
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and |
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Acquired |
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Lease |
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Assumed |
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Assumed |
||||||
Date |
|
Location |
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Type |
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Buildings |
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Feet |
|
Price(1) |
|
Land |
|
Improvements |
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Leases |
|
Obligations |
|
Liabilities |
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Debt |
|||||||
March 2014 |
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Fairfax, VA |
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Office |
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1 / 1 |
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83,130 |
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$ |
19,775 |
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$ |
2,964 |
|
$ |
12,840 |
|
$ |
3,971 |
|
$ |
— |
|
$ |
(233) |
|
$ |
— |
May 2014 |
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Richmond, VA |
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Office |
|
1 / 1 |
|
173,932 |
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|
22,500 |
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|
2,614 |
|
|
15,930 |
|
|
4,003 |
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|
(47) |
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|
— |
|
|
— |
May 2014 |
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Reston, VA |
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Office |
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1 / 2 |
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406,388 |
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|
112,250 |
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|
9,066 |
|
|
78,658 |
|
|
28,071 |
|
|
(398) |
|
|
(93) |
|
|
(3,147) |
September 2014 |
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Phoenix, AZ |
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Office |
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1 / 1 |
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66,743 |
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|
13,000 |
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|
1,917 |
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|
7,416 |
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|
3,667 |
|
|
— |
|
|
— |
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|
— |
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|
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|
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4 / 5 |
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730,193 |
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$ |
167,525 |
|
$ |
16,561 |
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$ |
114,844 |
|
$ |
39,712 |
|
$ |
(445) |
|
$ |
(326) |
|
$ |
(3,147) |
(1) |
Purchase price excludes acquisition related costs. |
In March 2014, we acquired an office property (one building) located in Fairfax, VA with 83,130 rentable square feet. This property is 100% leased to the U.S. Government. The purchase price was $19,775, including the assumption of $14,524 of mortgage debt and excluding acquisition costs.
In May 2014, we acquired an office property (one building) located in Richmond, VA with 173,932 rentable square feet. This property is 94.6% leased to the Commonwealth of Virginia and occupied by six agencies. The purchase price was $22,500, excluding acquisition costs.
Also in May 2014, we acquired an office property (two buildings) located in Reston, VA with a total of 406,388 rentable square feet. This property is 100% leased to the U.S. Government. The purchase price was $112,250, including the assumption of $83,000 of mortgage debt and excluding acquisition costs.
In September 2014, we acquired an office property (one building) located in Phoenix, AZ with 66,743 rentable square feet. This property is 100% leased to the State of Arizona and occupied by Northern Arizona University. The purchase price was $13,000, excluding acquisition costs.
Disposition Activities – Continuing Operations
In August 2014, a U.S. Government tenant notified us that it intended to exercise its option to acquire the office property (one building) it leased from us located in Riverdale, MD with 337,500 rentable square feet and a net book value of $30,448 as of December 31, 2014, after recording a $2,016 loss on asset impairment during the year ended December 31, 2014. The sale of this property was completed in February 2015 and the sale price was $30,600, excluding closing costs. As of December 31, 2014, we have classified this property as held for sale but have not classified the results of operations for this property as discontinued operations in our consolidated financial statements pursuant to our early adoption of ASU No. 2014-08 as described in Note 2. See Note 9 regarding the fair value of our assets and liabilities. Summarized balance sheet information for the property classified as held for sale is as follows:
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December 31, |
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2014 |
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Real estate properties, net |
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$ |
29,896 |
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Rents receivable |
|
|
605 |
|
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Other assets |
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|
2,296 |
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Assets of property held for sale |
|
$ |
32,797 |
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|
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|
|
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Other liabilities |
|
$ |
343 |
|
|
Liabilities of property held for sale |
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$ |
343 |
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Disposition Activities – Discontinued Operations
During the year ended December 31, 2013, we began marketing for sale an office property (one building) located in Phoenix, AZ with 97,145 rentable square feet and recognized a loss on asset impairment of $8,344 to reduce the carrying value of this asset to its then estimated fair value of $2,300. During the three months ended March 31, 2014, we increased the carrying value of this asset by $2,344 to its then estimated fair value of $4,644. In February 2014, we sold this property for $5,000, excluding closing costs. We recognized no gain or loss on this sale.
In July 2014, we entered into an agreement to sell an office property (one building) located in San Diego, CA with 94,272 rentable square feet. In September 2014, we sold this property for $12,100, excluding closing costs. We recognized a gain on sale of $774 during the year ended December 31, 2014.
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 December 31, 2014. The contract sales price is $16,500, excluding closing costs. The closing of this sale is subject to conditions, including the purchaser obtaining certain zoning entitlements, and is currently expected to occur in 2015. We can provide no assurance that the sale of this property will occur. See Note 9 regarding the fair value of our assets and liabilities.
Results of operations for the two properties (two buildings) we sold in February 2013 and March 2013, the two properties (two buildings) we sold in February 2014 and September 2014 and one of the properties (one building) held for sale at December 31, 2014, which was held for sale prior to our early adoption of ASU No. 2014-08, are classified as discontinued operations in our consolidated financial statements. Summarized balance sheet and income statement information for the properties classified as discontinued operations is as follows:
Balance Sheets:
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December 31, |
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December 31, |
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||
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2014 |
|
2013 |
|
||
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Real estate properties, net |
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$ |
12,260 |
|
$ |
25,574 |
|
|
Rents receivable |
|
|
782 |
|
|
381 |
|
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Other assets |
|
|
123 |
|
|
42 |
|
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Assets of discontinued operations |
|
$ |
13,165 |
|
$ |
25,997 |
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|
|
|
|
|
|
|
|
|
|
Other liabilities |
|
$ |
150 |
|
$ |
276 |
|
|
Liabilities of discontinued operations |
|
$ |
150 |
|
$ |
276 |
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Statements of Operations:
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|
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Year Ended December 31, |
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|||||||
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|
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2014 |
|
2013 |
|
2012 |
|
|||
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Rental income |
|
$ |
1,673 |
|
$ |
4,580 |
|
$ |
7,376 |
|
|
Real estate taxes |
|
|
(427) |
|
|
(678) |
|
|
(928) |
|
|
Utility expenses |
|
|
(226) |
|
|
(539) |
|
|
(1,043) |
|
|
Other operating expenses |
|
|
(459) |
|
|
(966) |
|
|
(1,484) |
|
|
Depreciation and amortization |
|
|
— |
|
|
(1,025) |
|
|
(2,096) |
|
|
General and administrative |
|
|
(181) |
|
|
(287) |
|
|
(431) |
|
|
Loss on asset impairment |
|
|
— |
|
|
(10,142) |
|
|
(494) |
|
|
Increase in carrying value of asset held for sale |
|
|
2,344 |
|
|
— |
|
|
— |
|
|
Net gain on sale of properties |
|
|
774 |
|
|
8,168 |
|
|
— |
|
|
Income (loss) from discontinued operations |
|
$ |
3,498 |
|
$ |
(889) |
|
$ |
900 |
|
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Note 6. Related Person Transactions
We have adopted written Governance Guidelines that describe the consideration and approval of any related person transactions. Under these Governance Guidelines, we may not enter into any transaction in which any Trustee or executive officer, any member of the immediate family of any Trustee or executive officer or any other related person, has or will have a direct or indirect material interest unless that transaction has been disclosed or made known to our Board of Trustees and our Board of Trustees reviews and approves or ratifies the transaction by the affirmative vote of a majority of the disinterested Trustees, even if the disinterested Trustees constitute less than a quorum. If there are no disinterested Trustees, the transaction must be reviewed, authorized and approved or ratified by both (i) the affirmative vote of a majority of our Board of Trustees and (ii) the affirmative vote of a majority of our Independent Trustees. In determining whether to approve or ratify a transaction, our Board of Trustees, or disinterested Trustees or Independent Trustees, as the case may be, also act in accordance with any applicable provisions of our declaration of trust and bylaws, consider all of the relevant facts and circumstances and approve only those transactions that they determine are fair and reasonable to us and our shareholders. All related person transactions described below were reviewed and approved or ratified by a majority of the disinterested Trustees or otherwise in accordance with our policies, declaration of trust and bylaws, each as described above. In the case of transactions with us by RMR employees (other than our Trustees and executive officers) subject to our Code of Business Conduct and Ethics, the employee must seek approval from an executive officer who has no interest in the matter for which approval is being requested. Copies of our Governance Guidelines and Code of Business Conduct and Ethics are available on our website, www.govreit.com.
RMR: We have no employees. The personnel and various services we require to operate our business are provided to us by RMR. We have two agreements with RMR to provide management and administrative services to us: (i) a business management agreement, which relates to our business generally, and (ii) a property management agreement, which relates to our property level operations.
One of our Managing Trustees, Mr. Barry Portnoy, is Chairman, majority owner and an employee of RMR. Our other Managing Trustee, Mr. Adam Portnoy, is the son of Mr. Barry Portnoy, and an owner, President, Chief Executive Officer and a director of RMR. Each of our executive officers is also an officer of RMR. Our Independent Trustees also serve as independent directors or independent trustees of other companies to which RMR or its affiliates provide management services. Mr. Barry Portnoy serves as a managing director or managing trustee of all of those companies and Mr. Adam Portnoy serves as a managing trustee of a majority of those companies. In addition, officers of RMR serve as our officers and officers of other companies to which RMR or its affiliates provide management services.
Our Board of Trustees has given our Compensation Committee, which is comprised exclusively of our Independent Trustees, authority to act on our behalf with respect to our management agreements with RMR. Our Governance Guidelines and the charter of our Compensation Committee together require the committee to annually review the terms of these agreements, evaluate RMR's performance under the agreements and determine whether to renew, amend or terminate the management agreements.
In 2013, our Compensation Committee retained FTI Consulting, Inc., a nationally recognized compensation consultant experienced in REIT compensation programs, to assist the committee in developing the terms of the incentive fee payable to RMR under our business management agreement with RMR beginning in 2014. In connection with retaining this consultant, our Compensation Committee determined that the consultant did not have any conflicts of interest which would prevent the consultant from advising the committee.
On December 23, 2013, we and RMR amended and restated our business management agreement, effective with respect to services performed on or after January 1, 2014. Under our business management agreement as so amended and restated:
· |
The annual amount of the base management fee to be paid to RMR by us for each applicable period is equal to the lesser of: |
o |
the sum of (a) 0.5% of the average aggregate historical cost of our real estate assets acquired from a REIT to which RMR provided business management or property management services, or the Transferred Assets, immediately prior to the contribution, sale or other transfer of such property to us, plus (b) 0.7% of the average aggregate historical cost of our real estate investments excluding the Transferred Assets up to $250,000, plus (c) 0.5% of the average historical cost of our real estate investments excluding the Transferred Assets exceeding $250,000; and |
o |
the sum of (a) 0.7% of the average closing price per share of our common shares on the New York Stock Exchange, or the NYSE, during such period, multiplied by the average number of our common shares outstanding during such period, plus the daily weighted average of the aggregate liquidation preference of each class of our preferred shares outstanding during such period, plus the daily weighted average of the aggregate principal amount of our consolidated indebtedness during such period, or, together, our Average Market Capitalization, up to $250,000, plus (b) 0.5% of our Average Market Capitalization exceeding $250,000. |
The average aggregate historical cost of our real estate investments includes our consolidated assets invested, directly or indirectly, in equity interests in or loans secured by real estate and personal property owned in connection with such real estate (including acquisition related costs and costs which may be allocated to intangibles or are unallocated), all before reserves for depreciation, amortization, impairment charges or bad debts or other similar noncash reserves.
· |
Although the fee calculation is stated in annual percentages, the base management fee is paid monthly to RMR, 90% in cash and 10% in our common shares, which are fully-vested when issued. The number of our common shares to be issued in payment of the base management fee for each month equals the value of 10% of the total base management fee for that month divided by the average daily closing price of our common shares during that month. |
· |
The incentive management fee which may be earned by RMR for an annual period is an amount, subject to a cap based on the value of our outstanding common shares, equal to 12% of the product of (a) our equity market capitalization on the last trading day on the year immediately prior to the relevant measurement period and (b) the amount (expressed as a percentage) by which the total returns per share realized by the holders of our common shares (i.e., share price appreciation plus dividends) exceeds the total shareholder return of the SNL US REIT Equity Index (in each case subject to certain adjustments) for the relevant measurement period. The measurement periods are generally three-year periods ending with the year for which the incentive management fee is being calculated, with shorter periods applicable in the case of the calculation of the incentive management fee for 2014 ( one year) and 2015 ( two years). |
· |
The incentive management fee is payable in our common shares, with one-third of our common shares issued in payment of an incentive management fee vested on the date of issuance, and the remaining two-thirds vesting thereafter in two equal annual installments. If the issuance of common shares in payment of a portion of the base management fee or incentive management fee would be limited by applicable law and regulations, such portion of the applicable fee is instead paid in cash. All common shares issued in payment of the incentive management fee shall be fully vested upon termination of the business management agreement, subject to certain exceptions. In addition, RMR may, in certain circumstances, be required to return to us or forfeit some or all of the common shares paid or payable to it in payment of the incentive management fee. |
· |
RMR and certain eligible transferees of our common shares issued in payment of the base management fee or incentive management fee are entitled to demand registration rights, exercisable not more frequently than twice per year, and to "piggy-back" registration rights, with certain expenses to be paid by us. We and applicable selling shareholders also have agreed to indemnify each other (and their officers, trustees, directors and controlling persons) against certain liabilities, including liabilities under the Securities Act of 1933, as amended, or the Securities Act, in connection with any such registration. |
The amended and restated terms of our business management agreement described above were approved by our Compensation Committee, which is comprised solely of our Independent Trustees, and the terms of the incentive fee were developed by our Compensation Committee in consultation with FTI Consulting, Inc., an independent compensation consultant.
For 2013 and 2012, our business management agreement provided for the base business management fee to be paid to RMR at an annual rate equal to the sum of (a) 0.5% of the historical cost of the Transferred Assets, plus (b) with respect to other properties we acquired excluding the Transferred Assets, 0.7% of our aggregate cost of those properties up to and including $250,000, and 0.5% thereafter. In addition, for 2013 and 2012, our business management agreement provided for RMR to be paid an incentive fee equal to 15% of the product of (i) the weighted average of our common shares outstanding on a fully diluted basis during a fiscal year and (ii) the excess, if any, of the FFO Per Share, as defined in the business management agreement, for such fiscal year over the FFO Per Share for the preceding fiscal year. This incentive fee was payable in common shares and it was subject to a cap on the value of the incentive fee being no greater than $0.02 per share of our total shares outstanding.
Pursuant to our business management agreement with RMR, we recognized business management fees of $10,226, $9,341 and $9,077 for 2014, 2013 and 2012, respectively. These amounts are included in general and administrative expenses in our consolidated financial statements. In accordance with the terms of our business management agreement, we issued, in aggregate, 42,442 of our common shares to RMR as payment for a portion of the base business management fee we recognized for 2014. In March 2013 and 2012, we issued 20,230 and 39,141 of our common shares to RMR for the incentive fees for 2012 and 2011, respectively, pursuant to our business management agreement. No incentive fee was payable to RMR under our business management agreement for 2014 or 2013.
Our property management agreement with RMR provides for management fees equal to 3.0% of gross collected rents and construction supervision fees equal to 5.0% of construction costs. The aggregate property management and construction supervision fees we recognized were $8,203, $7,877 and $7,018 for 2014, 2013 and 2012, respectively. These amounts are included in operating expenses or have been capitalized, as appropriate, in our consolidated financial statements.
RMR also provides internal audit services to us in return for our share of the total internal audit costs incurred by RMR for us and other publicly owned companies managed by RMR and its affiliates, which amounts are subject to approval by our Compensation Committee. Our Audit Committee appoints our Director of Internal Audit. Our share of RMR's costs of providing this internal audit function was approximately $286, $203 and $193 for 2014, 2013 and 2012, respectively, which amounts are included in general and administrative expenses in our consolidated financial statements. These allocated costs are in addition to the business and property management fees we paid to RMR.
We are generally responsible for all of our operating expenses, including certain expenses incurred by RMR on our behalf. We are generally not responsible for payment of RMR's employment, office or administration expenses incurred to provide management services to us, except for the employment and related expenses of RMR employees assigned to work exclusively or partly at our owned properties, our share of the wages, benefits and other related costs of centralized accounting personnel and our share of the staff employed by RMR who perform our internal audit function. Pursuant to our business management agreement, RMR may from time to time negotiate on our behalf with certain third party vendors and suppliers for the procurement of goods and services to us. As part of this arrangement, we may enter into agreements with RMR and other companies to which RMR provides management services for the purpose of obtaining more favorable terms from such vendors and suppliers.
The current terms of both our business management agreement with RMR and our property management agreement with RMR end on December 31, 2015 and automatically renew for successive one year terms unless we or RMR gives notice of non-renewal before the end of an applicable term. On May 9, 2014, we and RMR entered into amendments to our business management agreement and property management agreement, which were approved by our Compensation Committee, comprised solely of our Independent Trustees. As amended, RMR may terminate the agreements upon 120 days’ written notice. Prior to these amendments, RMR could terminate the agreements upon 60 days’ written notice and could also terminate the property management agreement upon five business days’ notice if we underwent a change of control. Both prior to and after giving effect to these amendments, we have the right to terminate the agreements upon 60 days’ written notice, subject to approval by a majority vote of our Independent Trustees. As amended, if we terminate or elect not to renew the business management agreement other than for cause, as defined, we are obligated to pay RMR a termination fee equal to 2.75 times the sum of the annual base management fee and the annual internal audit services expense, which amounts are based on averages during the 24 consecutive calendar months prior to the date of notice of nonrenewal or termination. In addition, if we terminate or elect not to renew the property management agreement other than for cause, as defined, within 12 months prior to or following our giving notice of termination or non-renewal of the business management agreement other than for cause, we are obligated to pay RMR a termination fee equal to 12 times the average monthly property management fee for the six months prior to the effective date of the nonrenewal or termination. The amendments provide for certain proportional adjustments to the termination fees if we merge with another REIT to which RMR is providing management services or if we spin-off a subsidiary of ours to which we contributed properties and to which RMR is providing management services both at the time of the spin-off and on the date of the expiration or termination of the agreement. Also, as amended, RMR agrees to provide certain transition services to us for 120 days following an applicable termination by us or notice of termination by RMR. Both the business management agreement with RMR and the property management agreement with RMR include arbitration provisions for the resolution of disputes.
Under our business management agreement with RMR, we acknowledge that RMR may engage in other activities or businesses and act as the manager to any other person or entity (including other REITs) even though such person or entity has investment policies and objectives similar to ours and we are not entitled to preferential treatment in receiving information, recommendations and other services from RMR. Previously our business management agreement had provided that, with certain exceptions, if we determined to offer for sale or other disposition any real property that, at such time, is of a type within the investment focus of another REIT to which RMR provides management services, we would first offer that property for purchase or disposition to that REIT and negotiate in good faith for such purchase or disposition. This right of first offer provision was eliminated when the business management agreement was amended and restated on December 23, 2013.
RMR leases from us approximately 2,433 square feet of office space for two of its regional offices. We earned approximately $61, $31 and $32 in rental income from RMR for leased office space for 2014, 2013 and 2012, respectively, not all of which was leased to RMR for the entire three year period. Our office space leases with RMR are terminable by RMR if our management agreements with RMR are terminated. We may enter additional leases with RMR for its regional offices in the future.
Under our equity compensation plan adopted in 2009, or the 2009 Plan, we grant restricted shares to certain employees of RMR, some of whom are our officers. We granted a total of 51,150 restricted shares with an aggregate value of $1,191, 48,350 restricted shares with an aggregate value of $1,142, and 43,917 restricted shares with an aggregate value of $1,043 to such persons in 2014, 2013 and 2012, respectively, based upon the closing price of our common shares on the NYSE on the dates of grants. One fifth of those restricted shares vested on the grant dates and one fifth vests on each of the next four anniversaries of the grant dates. These share grants to RMR employees are in addition to the fees we pay to RMR. On occasion, we have entered into arrangements with former employees of RMR in connection with the termination of their employment with RMR, providing for the acceleration of vesting of restricted shares previously granted to them under the 2009 Plan. Additionally, each of our President and Chief Operating Officer and Treasurer and Chief Financial Officer received grants of restricted shares of other companies to which RMR provides management services in their capacities as officers of RMR.
On July 8, 2014, we and RMR entered into an agreement with Equity Commonwealth (formerly known as CommonWealth REIT), or EQC, pursuant to which we and RMR purchased shares of SIR from EQC on July 9, 2014. For more information regarding this transaction, see below under “— EQC” and “— SIR”.
EQC: We were formed as a 100% owned subsidiary of EQC. In 2009, we completed our IPO, pursuant to which we ceased to be a majority owned subsidiary of EQC. One of our Managing Trustees, Mr. Barry Portnoy, was a managing trustee of EQC until March 25, 2014. Our other Managing Trustee, Mr. Adam Portnoy, was the president of EQC until May 23, 2014 and a managing trustee of EQC until March 25, 2014. RMR provided business and property management services to EQC until EQC terminated its business and property management agreements with RMR on September 30, 2014. After that termination, RMR’s services to EQC have been limited to management services in respect of EQC’s Australian assets and certain transition services.
On March 15, 2013, EQC sold all 9,950,000 of our common shares it owned in a public offering. In connection with this public offering, on March 11, 2013, we entered into a registration agreement with EQC under which EQC agreed to pay all expenses incurred by us relating to the registration and sale of our common shares owned by EQC in the offering, pursuant to which EQC paid us $310. In addition, under the registration agreement, EQC agreed to indemnify us and our officers, Trustees and controlling persons, and we agreed to indemnify EQC and its officers, trustees and controlling persons, against certain liabilities related to the public offering, including liabilities under the Securities Act.
On July 8, 2014, we and RMR entered into a stock purchase agreement, or the purchase agreement, with EQC, pursuant to which, on July 9, 2014, we acquired from EQC 21,500,000 common shares of SIR, and RMR acquired from EQC 500,000 SIR common shares. Our cash purchase price was equal to approximately $677,500, or $31.51 per share, plus approximately $11,300, or $0.53 per share, of accrued dividends as defined in the purchase agreement, for a total of approximately $688,800, before acquisition related costs. RMR purchased its 500,000 SIR common shares on the same terms, including for the same per share amounts that we paid. Under the purchase agreement, in the event that we or RMR consummates any sale of SIR common shares prior to July 9, 2015 and the price per share paid by the purchaser is greater than $31.51, we or RMR, as applicable, are required to pay to EQC an amount equal to 50% of the product of (i) the number of SIR common shares sold in the transaction times (ii) the excess of (x) the price per share paid by the purchaser and (y) $31.51. The foregoing requirement applies to any SIR common shares we or RMR own. In addition, we and RMR agreed, among other things, to indemnify EQC for certain claims related to the acquisition. In connection with the indemnity, we and RMR entered into an allocation agreement with regard to our respective liabilities in the event of a claim for indemnification. As a result of this purchase, we are SIR's largest shareholder owning approximately 35.9% and 24.3% of SIR’s outstanding common shares as of December 31, 2014 and February 17, 2015, respectively. Additionally, in connection with this purchase, and in light of the fact that we would own greater than 10% of SIR’s outstanding common shares, SIR exempted us and our affiliates (as defined in the Maryland General Corporation Law), including, without limitation, RMR, from being “interested stockholders” under the Maryland Business Combination Act.
On July 23, 2014, we and EQC agreed to terminate the provisions of a transaction agreement that we entered in 2009 with EQC in connection with our IPO. The agreement had placed restrictions on both our and EQC’s investments in real property and provided certain rights of first refusal with respect to properties which we or EQC determined to divest.
We do not consider EQC to be an affiliate of us.
SIR: We are SIR's largest shareholder. Concurrently with the execution and delivery of the merger agreement, or the Merger Agreement, for the acquisition by SIR of Cole Corporate Income Trust, Inc., a Maryland corporation, or CCIT, we entered into a voting and standstill agreement with CCIT and American Realty Capital Properties, Inc., a Maryland corporation and parent of the advisor of CCIT, or ARCP, or the Voting Agreement. SIR’s acquisition of CCIT pursuant to the Merger Agreement was completed on January 29, 2015. Pursuant to the Voting Agreement, we agreed to vote all of the SIR common shares beneficially owned by us in favor of the issuance of SIR common shares to the stockholders of CCIT as contemplated by the Merger Agreement, upon and subject to the terms and conditions of the Voting Agreement and the Merger Agreement. The Voting Agreement also contains standstill provisions pursuant to which ARCP has agreed, among other things, not to make unsolicited proposals to acquire us or SIR for a period of 36 months. Concurrently with our entering into the Voting Agreement, RMR, which also provides management services to SIR, and Messrs. Barry Portnoy and Adam Portnoy, RMR’s principals, our Managing Trustees and managing trustees of SIR, also entered into a voting and standstill agreement on terms and conditions substantially similar to the Voting Agreement that also includes a standstill in respect of Senior Housing Properties Trust, a Maryland REIT, or SNH. One of our Independent Trustees also serves as an independent trustee of SIR, two of our Independent Trustees also serve as independent trustees of SNH and our President and Chief Operating Officer also serves as the president and chief operating officer of SIR.
AIC: We, RMR, SIR and four other companies to which RMR provides management services currently own AIC, an Indiana insurance company, and are parties to an amended and restated shareholders agreement regarding AIC. On May 9, 2014, as a result of a change in control of EQC, as defined in the amended and restated shareholders agreement, we and the other AIC shareholders purchased pro rata the AIC shares EQC owned in accordance with the terms of that agreement. Pursuant to that purchase, we purchased 2,857 AIC shares from EQC for $825. Following these purchases, we and the other remaining six AIC shareholders each own approximately 14.3% of AIC. As of December 31, 2014, we have invested $6,019 in AIC since we became an equity owner of AIC in 2009.
All of our Trustees and most of the trustees and directors of the other AIC shareholders currently serve on the board of directors of AIC. RMR provides management and administrative services to AIC pursuant to a management and administrative services agreement with AIC. Our Governance Guidelines provide that any material transaction between us and AIC shall be reviewed, authorized and approved or ratified by the affirmative votes of both a majority of our Board of Trustees and a majority of our Independent Trustees. The shareholders agreement among us, the other shareholders of AIC and AIC includes arbitration provisions for the resolution of disputes.
In 2012 and 2013, we and the other shareholders of AIC purchased a one-year property insurance policy providing $500,000 of coverage pursuant to an insurance program arranged by AIC and with respect to which AIC is a reinsurer of certain coverage amounts. Our annual premium for this property insurance was $1,161 and $410 in 2013 and 2012, respectively, before adjustments made for acquisitions or dispositions we made during those periods. In June 2014, we and the other shareholders of AIC renewed our participation in this program. In connection with that renewal, we purchased a one-year property insurance policy providing $500,000 of coverage, with respect to which AIC is a reinsurer of certain coverage amounts. We paid AIC a premium, including taxes and fees, of approximately $526 in connection with that policy, which amount may be adjusted from time to time as we acquire or dispose of properties that are included in the policy. Although we own less than 20% of AIC, we use the equity method to account for this investment because we believe that we have significant influence over AIC as all of our Trustees are also directors of AIC. Our investment in AIC had a carrying value of $6,946, $6,031 and $5,747 as of December 31, 2014, 2013 and 2012, respectively, which amounts are included in other assets on our consolidated balance sheets. We recognized income of $87, $334 and $316 related to our investment in AIC for 2014, 2013 and 2012, respectively.
We periodically consider the possibilities for expanding our insurance relationships with AIC to include other types of insurance and may in the future participate in additional insurance offerings AIC may provide or arrange. We may invest additional amounts in AIC in the future if the expansion of this insurance business requires additional capital, but we are not obligated to do so. By participating in this insurance business with RMR and the other companies to which RMR provides management services, we expect that we may benefit financially by possibly reducing our insurance expenses or by realizing our pro rata share of any profits of this insurance business.
Directors' and Officers' Liability Insurance: In July 2013, we, RMR and five companies to which RMR then provided management services purchased a combined directors' and officers' liability insurance policy providing $10,000 in aggregate primary non-indemnifiable coverage and $5,000 in aggregate excess coverage and we also purchased from an unrelated third party insurer a separate directors' and officers' liability insurance policy providing $5,000 in coverage. We paid aggregate premiums of approximately $333 for these policies. In June 2014, we, RMR and four other companies to which RMR provides management services extended our and their combined directors’ and officers’ liability insurance policy, and we extended our separate directors’ and officers’ liability insurance policy, in each case for an interim period. We paid aggregate premiums of approximately $50 for these extensions. In September 2014, we purchased a two year combined directors' and officers' insurance policy with RMR and five other companies to which RMR provides management services that provides $10,000 in aggregate primary coverage, including certain errors and omission coverage. At that time, we also purchased separate additional one year directors' and officers' liability insurance policies that provide $20,000 of aggregate excess coverage plus $5,000 of excess non-indemnifiable coverage. The total premium payable by us for these policies purchased in September 2014 was approximately $479.
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Note 7. 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 93.0%, 92.6% and 93.8% of our annualized rental income, excluding properties classified as discontinued operations, as of December 31, 2014, 2013 and 2012, respectively. The U.S. Government is our largest tenant by annualized rental income and was responsible for approximately 69.0%, 69.0% and 71.0% of our annualized rental income, excluding properties classified as discontinued operations, as of December 31, 2014, 2013 and 2012, respectively.
Geographic Concentration
At December 31, 2014, our 72 properties (92 buildings), excluding one property classified as discontinued operations, were located in 31 states and the District of Columbia. Properties located in Maryland, California, the District of Columbia, Virginia, Georgia, New York and Massachusetts were responsible for approximately 11.2%, 11.0%, 9.9%, 9.8%, 8.9%, 8.2% and 5.5% of our annualized rental income as of December 31, 2014, respectively.
|
Note 8. Indebtedness
At December 31, 2014 and 2013, our outstanding indebtedness consisted of the following:
|
|
|
|
|
|
|
|
|
December 31, |
|
December 31, |
||
|
|
2014 |
|
2013 |
||
|
|
|
|
|
|
|
Unsecured revolving credit facility |
|
$ |
— |
|
$ |
157,000 |
Unsecured term loan, due in 2017 |
|
|
— |
|
|
350,000 |
Unsecured term loan, due in 2020 |
|
|
300,000 |
|
|
— |
Unsecured term loan, due in 2022 |
|
|
250,000 |
|
|
— |
Senior unsecured notes, 3.75% interest rate, including unamortized discount of $2,577, due in 2019 |
|
|
347,423 |
|
|
— |
Mortgage note payable, 5.55% interest rate, including unamortized premium of $2,167, due in 2016(1) |
|
|
85,167 |
|
|
— |
Mortgage note payable, 5.73% interest rate, including unamortized premium of $177, due in 2015(1) |
|
|
47,418 |
|
|
48,377 |
Mortgage note payable, 6.21% interest rate, due in 2016(1) |
|
|
23,833 |
|
|
24,147 |
Mortgage note payable, 5.88% interest rate, due in 2021(1) |
|
|
14,374 |
|
|
— |
Mortgage note payable, 7.00% interest rate, including unamortized premium of $605, due in 2019(1) |
|
|
9,563 |
|
|
9,919 |
Mortgage note payable, 8.15% interest rate, including unamortized premium of $398, due in 2021(1) |
|
|
7,339 |
|
|
8,284 |
|
|
$ |
1,085,117 |
|
$ |
597,727 |
(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. |
In March 2014, we assumed a mortgage with a balance of $14,524 in connection with a property acquisition. This mortgage note is secured by the acquired property, bears interest at 5.88% per annum and is amortized on a 30 year schedule (which commenced upon the original issuance of the note by its former obligor) until maturity in August 2021. We did not record a premium or discount on this assumed debt because we believed the interest rate payable under this mortgage was equal to the rate we would have had to pay for debt with the same maturity at the time we assumed this obligation.
In May 2014, we assumed a mortgage with a balance of $83,000 in connection with a property acquisition. This mortgage note is secured by the acquired property, bears interest at 5.55% per annum and monthly payments of interest only are due until maturity in April 2016. We recorded a $3,147 premium on this assumed debt, which reduced its effective interest rate to 3.50%, because we believed the interest rate payable under this mortgage was above the rate we would have had to pay for debt with the same maturity at the time we assumed this obligation.
On November 21, 2014, we replaced our then existing $550,000 unsecured revolving credit facility and $350,000 unsecured term loan with $1,300,000 of new credit facilities, consisting of our $750,000 unsecured revolving credit facility, a $250,000 unsecured term loan and a $300,000 unsecured term loan. We recognized a loss on early extinguishment of debt of $766 during the year ended December 31, 2014 due to the write off of unamortized deferred financing fees related to the repayment and termination of our $550,000 unsecured revolving credit facility and our $350,000 unsecured term loan.
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 as of December 31, 2014. We also pay a facility fee of 25 basis points per annum on the total amount of lending commitments under our revolving credit facility. Both the interest rate premium and the facility fee are subject to adjustment based upon changes to our credit ratings. As of December 31, 2014, the interest rate payable on borrowings under our revolving credit facility was 1.4%. We had no borrowings outstanding under our new credit facility for the period from November 21, 2014, the date we entered into the credit agreement, to December 31, 2014, and we have $750,000 available under our new credit facility as of December 31, 2014.
The weighted average annual interest rate for borrowings under our then existing $550,000 unsecured revolving credit facility was 1.7%, 1.7% and 1.8%, respectively, for the period January 1, 2014 to November 20, 2014 and the years ended December 31, 2013 and 2012, 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 as of December 31, 2014. The interest rate premium is subject to adjustment based upon changes to our credit ratings. As of December 31, 2014, 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 1.9% for the period from November 21, 2014, the date we entered into the credit agreement, to December 31, 2014.
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 as of December 31, 2014. The interest rate premium is subject to adjustment based upon changes to our credit ratings. As of December 31, 2014, 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 2.3% for the period from November 21, 2014, the date we entered into the credit agreement, to December 31, 2014.
In addition, our credit agreement includes a feature under which the maximum borrowing availability under the new facilities may be increased to up to $2,500,000 on a combined basis in certain circumstances.
We had a $350,000 unsecured term loan that was scheduled to mature on January 11, 2017, and was prepayable without penalty at any time. Our $350,000 unsecured term loan bore interest at a rate of LIBOR plus a premium, which was 175 basis points as of November 20, 2014. The interest rate premium was subject to adjustment based upon changes to our credit ratings. This $350,000 unsecured term loan was fully repaid on November 21, 2014 with proceeds from our $250,000 term loan and our $300,000 term loan. The weighted average interest rate for the amount outstanding under our then existing $350,000 term loan was 1.9% for both the period from January 1, 2014 to November 20, 2014 and 1.9% for the year ended December 31, 2013 and 2.0% for the period January 12, 2012, the date we entered into the loan agreement, to December 31, 2012.
On July 9, 2014, we entered into a $500,000 unsecured term loan. This term loan was scheduled to mature on July 8, 2015, and was prepayable without penalty at any time. Our $500,000 unsecured term loan bore interest at a rate of LIBOR plus a premium, which was 175 basis points as of July 9, 2014. The interest rate premium was subject to adjustment based upon changes to our credit ratings. We used the net proceeds of our new term loan to fund a portion of the purchase price of the SIR common shares we acquired on July 9, 2014. On July 29, 2014, we sold 15,525,000 of our common shares of beneficial interest, $.01 par value per share, or our common shares, in a public offering at a price of $23.50 per share for net proceeds of approximately $349,787, after deducting the underwriting discount and other offering expenses. On August 18, 2014, we issued $350,000 of 3.75% unsecured senior notes due August 15, 2019 in a public offering for net proceeds of approximately $344,293, after deducting the underwriting discount and other offering expenses. The net proceeds from these offerings were used to fully repay amounts outstanding under our $500,000 term loan and to reduce amounts outstanding under our then existing revolving credit facility. We recorded a loss on early extinguishment of debt of $541 during the year ended December 31, 2014 which represented the unamortized deferred financing fees related to the $500,000 term loan. See Notes 6 and 11 for further information regarding our SIR investment.
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 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 financial ratios and a minimum net worth. 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 December 31, 2014.
At December 31, 2014, six of our properties (eight buildings) with an aggregate net book value of $258,869 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.
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Note 9. Fair Value of Assets and Liabilities
Our assets and liabilities at December 31, 2014 include cash and cash equivalents, restricted cash, rents receivable, mortgage notes payable, accounts payable, senior unsecured notes, term loans, amounts due to related persons, other accrued expenses and security deposits. At December 31, 2014, the fair values of our financial instruments approximated their carrying values in our consolidated financial statements due to their short term nature or variable interest rates, except as follows:
|
|
|
|
|
|
|
|
|
Carrying Amount |
|
Fair Value |
||
Senior unsecured notes, 3.75% interest rate, including unamortized discount of $2,577, due in 2019 |
|
$ |
347,423 |
|
$ |
356,129 |
Mortgage note payable, 5.55% interest rate, including unamortized premium of $2,167, due in 2016(1) |
|
|
85,167 |
|
|
85,171 |
Mortgage note payable, 5.73% interest rate, including unamortized premium of $177, due in 2015(1) |
|
|
47,418 |
|
|
48,233 |
Mortgage note payable, 6.21% interest rate, due in 2016(1) |
|
|
23,833 |
|
|
25,394 |
Mortgage note payable, 5.88% interest rate, due in 2021(1) |
|
|
14,374 |
|
|
15,249 |
Mortgage note payable, 7.00% interest rate, including unamortized premium of $605, due in 2019(1) |
|
|
9,563 |
|
|
10,275 |
Mortgage note payable, 8.15% interest rate, including unamortized premium of $398, due in 2021(1) |
|
|
7,339 |
|
|
7,956 |
|
|
$ |
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 unsecured senior notes using an average of the bid and ask price of the notes (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 two of our assets measured on a non-recurring basis at fair value at December 31, 2014, categorized by the level of inputs used in the valuation of these assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
Property held for sale and classified as held for sale in continuing operations(2) |
|
|
29,896 |
|
|
— |
|
|
— |
|
|
29,896 |
|
|
$ |
42,156 |
|
$ |
— |
|
$ |
— |
|
$ |
42,156 |
(1) |
The estimated fair value at December 31, 2014 of this property, for which a loss on asset impairment was recognized during the year ended December 31, 2013, is based upon broker estimates of value less estimated sales costs (Level 3 inputs as defined in the fair value hierarchy under GAAP). |
(2) |
The estimated fair value at December 31, 2014 of this property, for which a loss on asset impairment was recognized during the year ended December 31, 2014, is based upon sales price less estimated sales costs (Level 3 inputs as defined in the fair value hierarchy under GAAP). |
During the three months ended March 31, 2014, we increased the carrying value of a property held for sale due to an increase in its estimated fair value. We sold this property in February 2014. See Note 5 for additional information regarding this property.
|
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:
Year ended December 31, 2014 |
||||||||||||
Investment |
Investment |
|||||||||||
in Real Estate |
in SIR |
Corporate |
Consolidated |
|||||||||
Rental income |
$ |
251,031 |
$ |
— |
$ |
— |
$ |
251,031 | ||||
Expenses: |
||||||||||||
Real estate taxes |
28,389 |
— |
— |
28,389 | ||||||||
Utility expenses |
19,369 |
— |
— |
19,369 | ||||||||
Other operating expenses |
45,982 |
— |
— |
45,982 | ||||||||
Depreciation and amortization |
66,593 |
— |
— |
66,593 | ||||||||
Loss on asset impairment |
2,016 |
— |
— |
2,016 | ||||||||
Acquisition related costs |
1,344 |
— |
— |
1,344 | ||||||||
General and administrative |
— |
— |
15,809 | 15,809 | ||||||||
Total expenses |
163,693 |
— |
15,809 | 179,502 | ||||||||
Operating income (loss) |
87,338 |
— |
(15,809) | 71,529 | ||||||||
Interest and other income |
— |
— |
69 | 69 | ||||||||
Interest expense |
(7,820) |
— |
(20,228) | (28,048) | ||||||||
Loss on early extinguishment of debt |
— |
— |
(1,307) | (1,307) | ||||||||
Income (loss) from continuing operations before income taxes and |
||||||||||||
equity in earnings of investees |
79,518 |
— |
(37,275) | 42,243 | ||||||||
Income tax expense |
— |
— |
(117) | (117) | ||||||||
Loss on issuance of shares by an equity investee |
— |
(53) |
— |
(53) | ||||||||
Equity in earnings of investees |
— |
10,876 | 87 | 10,963 | ||||||||
Income from continuing operations |
79,518 | 10,823 | (37,305) | 53,036 | ||||||||
Income from discontinued operations |
3,498 |
— |
— |
3,498 | ||||||||
Net income (loss) |
$ |
83,016 |
$ |
10,823 |
$ |
(37,305) |
$ |
56,534 | ||||
Total Assets |
$ |
1,714,130 |
$ |
680,137 |
$ |
33,348 |
$ |
2,427,615 |
|
Note 13. Selected Quarterly Financial Data (Unaudited)
The following is a summary of our unaudited quarterly results of operations for 2014 and 2013.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014 |
||||||||||
|
|
First |
|
Second |
|
Third |
|
Fourth |
||||
|
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
||||
Rental income |
$ |
59,820 |
|
$ |
62,428 |
|
$ |
64,158 |
|
$ |
64,625 | |
Net income |
|
15,190 |
|
|
14,608 |
|
|
12,622 |
|
|
14,114 | |
Net income per common share (basic and diluted) |
|
0.28 |
|
|
0.27 |
|
|
0.19 |
|
|
0.20 | |
Common distributions paid |
|
0.43 |
|
|
0.43 |
|
|
0.43 |
|
|
0.43 | |
|
|
2013 |
||||||||||
|
|
First |
|
Second |
|
Third |
|
Fourth |
||||
|
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
||||
Rental income |
$ |
56,304 |
|
$ |
55,934 |
|
$ |
56,401 |
|
$ |
58,271 | |
Net income |
|
24,726 |
|
|
15,204 |
|
|
1,966 |
|
|
12,724 | |
Net income per common share (basic and diluted) |
|
0.45 |
|
|
0.28 |
|
|
0.04 |
|
|
0.23 | |
Common distributions paid |
|
0.43 |
|
|
0.43 |
|
|
0.43 |
|
|
0.43 |
|
Note 14. Pro Forma Information (unaudited)
During the years ended December 31, 2014, we purchased four properties (five buildings) for an aggregate purchase price of $167,525, including the assumption of $97,524 of mortgage debt and excluding acquisition costs. The following table presents our pro forma results of operations as if these acquisitions and financing activities were completed on January 1, 2013. This pro forma data is not necessarily indicative of what our actual results of operations would have been for the periods presented, nor does it represent the results of operations for any future period. Differences could result from various factors, including but not limited to, additional property acquisitions, property sales, changes in interest rates and changes in our debt or equity capital and such differences could be significant.
Years ended December 31, |
||||||||
2014 |
2013 |
|||||||
Total Revenues |
$ |
258,604 |
$ |
246,006 | ||||
Net income |
57,214 | 51,500 | ||||||
Per share data (basic and diluted): |
||||||||
Net income |
$ |
0.93 |
$ |
0.94 |
During the year ended December 31, 2014, we recognized revenues of $11,240 and operating income of $1,438 arising from the above referenced acquisitions.
|
[
GOVERNMENT PROPERTIES INCOME TRUST |
|||||||||||||||||||||||
SCHEDULE III |
|||||||||||||||||||||||
REAL ESTATE AND ACCUMULATED DEPRECIATION |
|||||||||||||||||||||||
December 31, 2014 |
|||||||||||||||||||||||
(dollars in thousands) |
|||||||||||||||||||||||
Costs |
|||||||||||||||||||||||
Initial Cost to Company |
Capitalized |
Cost amount carried at Close of Period |
Original |
||||||||||||||||||||
Buildings and |
Subsequent to |
Buildings and |
Accumulated |
Date(s) |
Construction |
||||||||||||||||||
Property |
Location |
Encumbrances(1) |
Land |
Equipment |
Acquisition |
Land |
Equipment |
Total (2) |
Depreciation(3) |
Acquired |
Date(s) |
||||||||||||
1 |
131 Clayton Street |
Montgomery, AL |
$ - |
$ 920 |
$ 9,084 |
$ 16 |
$ 920 |
$ 9,100 |
$ 10,020 |
$ (796) |
6/22/2011 |
2007 |
|||||||||||
2 |
4344 Carmichael Road |
Montgomery, AL |
- |
1,374 | 11,658 |
- |
1,374 | 11,658 | 13,032 | (291) |
12/17/2013 |
2009 |
|||||||||||
3 |
15451 North 28th Avenue |
Phoenix, AZ |
- |
1,917 | 7,416 |
- |
1,917 | 7,416 | 9,333 | (62) |
9/10/2014 |
1996 |
|||||||||||
4 |
711 14th Avenue |
Safford, AZ |
- |
460 | 11,708 | 106 | 460 | 11,814 | 12,274 | (1,322) |
6/16/2010 |
1992 |
|||||||||||
5 |
10949 N. Mather Boulevard |
Rancho Cordova, CA |
- |
562 | 16,923 |
- |
562 | 16,923 | 17,485 | (494) |
10/30/2013 |
2012 |
|||||||||||
6 |
4181 Ruffin Road |
San Diego, CA |
- |
5,250 | 10,549 | 3,698 | 5,250 | 14,247 | 19,497 | (1,624) |
7/16/2010 |
1981 |
|||||||||||
7 |
4560 Viewridge Road |
San Diego, CA |
- |
4,269 | 18,316 | 906 | 4,347 | 19,144 | 23,491 | (8,635) |
3/31/1997 |
1996 |
|||||||||||
8 |
5045 East Butler Street |
Fresno, CA |
- |
7,276 | 61,118 | 8 | 7,277 | 61,125 | 68,402 | (18,910) |
8/29/2012 |
1971 |
|||||||||||
9 |
9800 Goethe Road |
Sacramento, CA |
- |
1,550 | 12,263 | 1,491 | 1,550 | 13,754 | 15,304 | (1,798) |
12/23/2009 |
1988 |
|||||||||||
10 |
9815 Goethe Road |
Sacramento, CA |
- |
1,450 | 9,465 | 1,523 | 1,450 | 10,988 | 12,438 | (869) |
9/14/2011 |
1992 |
|||||||||||
11 |
Capital Place |
Sacramento, CA |
- |
2,290 | 35,891 | 3,804 | 2,290 | 39,695 | 41,985 | (4,898) |
12/17/2009 |
1988 |
|||||||||||
12 |
Sky Park Centre |
San Diego, CA |
- |
685 | 5,530 | 4 | 685 | 5,534 | 6,219 | (1,734) |
6/24/2002 |
1986 |
|||||||||||
13 |
Turning Basin Business Park |
Stockton, CA |
- |
563 | 5,470 |
- |
563 | 5,470 | 6,033 | (330) |
7/20/2012 |
2012 |
|||||||||||
14 |
12795 West Alameda Parkway |
Lakewood, CO |
7,339 | 2,640 | 23,777 | 1,045 | 2,640 | 24,822 | 27,462 | (3,047) |
1/15/2010 |
1997 |
|||||||||||
15 |
16194 West 45th Street |
Golden, CO |
- |
494 | 152 | 6,457 | 495 | 6,608 | 7,103 | (2,732) |
3/31/1997 |
1997 |
|||||||||||
16 |
Corporate Center |
Lakewood, CO |
- |
2,886 | 27,537 | 3,849 | 2,887 | 31,385 | 34,272 | (8,841) |
10/11/2002 |
1981 |
|||||||||||
17 |
20 Massachusetts Avenue |
Washington, DC |
- |
12,008 | 51,528 | 20,858 | 12,228 | 72,166 | 84,394 | (27,669) |
3/31/1997 |
1996 |
|||||||||||
18 |
625 Indiana Avenue |
Washington, DC |
- |
26,000 | 25,955 | 3,437 | 26,000 | 29,392 | 55,392 | (3,238) |
8/17/2010 |
1989 |
|||||||||||
19 |
7850 Southwest 6th Court |
Plantation, FL |
- |
4,800 | 30,592 | 383 | 4,800 | 30,975 | 35,775 | (2,816) |
5/12/2011 |
1999 |
|||||||||||
20 |
8900 Grand Oak Circle |
Tampa, FL |
9,563 | 1,100 | 11,773 | 133 | 1,100 | 11,906 | 13,006 | (1,261) |
10/15/2010 |
1994 |
|||||||||||
21 |
181 Spring Street NW |
Atlanta, GA |
- |
4,047 | 20,017 | 1 | 4,048 | 20,017 | 24,065 | (1,209) |
7/25/2012 |
2005 |
|||||||||||
22 |
220 E. Bryan Street |
Savannah, GA |
- |
950 | 2,376 | 46 | 950 | 2,422 | 3,372 | (274) |
7/16/2010 |
1990 |
|||||||||||
23 |
4712 Southpark Boulevard |
Ellenwood, GA |
- |
1,390 | 19,635 |
- |
1,390 | 19,635 | 21,025 | (1,186) |
7/25/2012 |
2007 |
|||||||||||
24 |
Corporate Square |
Atlanta, GA |
- |
3,996 | 29,762 | 4,666 | 3,996 | 34,428 | 38,424 | (8,270) |
7/16/2004 |
1967 |
|||||||||||
25 |
Executive Park |
Atlanta, GA |
- |
1,521 | 11,826 | 3,869 | 1,521 | 15,695 | 17,216 | (3,195) |
7/16/2004 |
1972 |
|||||||||||
26 |
One Georgia Center |
Atlanta, GA |
- |
10,250 | 27,933 | 175 | 10,250 | 28,108 | 38,358 | (2,297) |
9/30/2011 |
1968 |
|||||||||||
27 |
GSA Boise Portfolio |
Boise, ID |
- |
3,390 | 29,026 | 330 | 3,391 | 29,355 | 32,746 | (1,701) |
9/11/2012 |
1996; 1997; 2002 |
|||||||||||
28 |
2020 S. Arlington Heights |
Arlington Heights, IL |
- |
1,450 | 13,160 | 846 | 1,450 | 14,006 | 15,456 | (1,770) |
12/29/2009 |
2002 |
|||||||||||
29 |
Intech Park |
Indianapolis, IN |
47,418 | 4,170 | 68,888 | 2,264 | 4,170 | 71,152 | 75,322 | (5,748) |
10/14/2011 |
2000; 2001; 2008 |
|||||||||||
30 |
400 State Street |
Kansas City, KS |
- |
640 | 9,932 | 1,345 | 640 | 11,277 | 11,917 | (1,315) |
6/16/2010 |
1990 |
|||||||||||
31 |
7125 Industrial Road |
Florence, KY |
- |
1,698 | 11,722 | 10 | 1,698 | 11,732 | 13,430 | (586) |
12/31/2012 |
1980 |
|||||||||||
32 |
25 Newport Avenue |
Quincy, MA |
- |
2,700 | 9,199 | 348 | 2,700 | 9,547 | 12,247 | (922) |
2/16/2011 |
1985 |
|||||||||||
33 |
251 Causeway Street |
Boston, MA |
- |
5,100 | 17,293 | 684 | 5,100 | 17,977 | 23,077 | (1,915) |
8/17/2010 |
1988 |
|||||||||||
34 |
75 Pleasant Street |
Malden, MA |
- |
1,050 | 31,086 | 118 | 1,050 | 31,204 | 32,254 | (3,565) |
5/24/2010 |
2008 |
|||||||||||
35 |
One Montvale Avenue |
Stoneham, MA |
- |
1,670 | 11,035 | 930 | 1,670 | 11,965 | 13,635 | (1,277) |
6/16/2010 |
1987 |
|||||||||||
36 |
20400 Century Boulevard |
Germantown, MD |
- |
2,305 | 9,890 | 740 | 2,347 | 10,588 | 12,935 | (4,738) |
3/31/1997 |
1995 |
|||||||||||
37 |
2115 East Jefferson Street |
Rockville, MD |
- |
3,349 | 11,152 |
- |
3,349 | 11,152 | 14,501 | (372) |
8/27/2013 |
2003 |
|||||||||||
38 |
3300 75th Avenue |
Landover, MD |
23,833 | 4,110 | 36,371 | 402 | 4,110 | 36,773 | 40,883 | (4,423) |
2/26/2010 |
2004 |
|||||||||||
39 |
4201 Patterson Avenue |
Baltimore, MD |
- |
900 | 8,097 | 2,240 | 901 | 10,336 | 11,237 | (3,421) |
10/15/1998 |
1989 |
|||||||||||
[
GOVERNMENT PROPERTIES INCOME TRUST |
|||||||||||||||||||||||
SCHEDULE III |
|||||||||||||||||||||||
REAL ESTATE AND ACCUMULATED DEPRECIATION |
|||||||||||||||||||||||
December 31, 2014 |
|||||||||||||||||||||||
(dollars in thousands) |
|||||||||||||||||||||||
Costs |
|||||||||||||||||||||||
Initial Cost to Company |
Capitalized |
Cost amount carried at Close of Period |
Original |
||||||||||||||||||||
Buildings and |
Subsequent to |
Buildings and |
Accumulated |
Date(s) |
Construction |
||||||||||||||||||
Building |
City |
Encumbrances(1) |
Land |
Equipment |
Acquisition |
Land |
Equipment |
Total (2) |
Depreciation(3) |
Acquired |
Date(s) |
||||||||||||
40 |
1401 Rockville Pike |
Rockville, MD |
$ - |
$ 3,251 |
$ 29,258 |
$ 5,460 |
$ 3,248 |
$ 34,721 |
$ 37,969 |
$ (13,286) |
2/2/1998 |
1986 | |||||||||||
41 |
Meadows Business Park |
Woodlawn, MD |
- |
3,735 | 21,509 | 213 | 3,735 | 21,722 | 25,457 | (2,117) |
2/15/2011 |
1973 | |||||||||||
42 |
Rutherford Business Park |
Windsor Mill, MD |
- |
1,598 | 10,219 | 8 | 1,598 | 10,227 | 11,825 | (533) |
11/16/2012 |
1972 | |||||||||||
43 |
11411 E. Jefferson Avenue |
Detroit, MI |
- |
630 | 18,002 |
- |
630 | 18,002 | 18,632 | (2,100) |
4/23/2010 |
2009 | |||||||||||
44 |
330 South Second Avenue |
Minneapolis, MN |
- |
3,990 | 18,186 | 7,640 | 3,990 | 25,826 | 29,816 | (2,407) |
7/16/2010 |
1980 | |||||||||||
45 |
Rosedale Corporate Plaza |
Roseville, MN |
- |
672 | 6,045 | 1,295 | 672 | 7,340 | 8,012 | (2,423) |
12/1/1999 |
1987 | |||||||||||
46 |
1300 Summit Street |
Kansas City, MO |
- |
2,776 | 12,070 | 197 | 2,776 | 12,267 | 15,043 | (684) |
11/16/2012 |
2011 | |||||||||||
47 |
4241-4300 NE 34th Street |
Kansas City, MO |
- |
1,443 | 6,193 | 3,769 | 1,780 | 9,625 | 11,405 | (4,249) |
3/31/1997 |
1995 | |||||||||||
48 |
1220 Echelon Parkway |
Jackson, MS |
- |
440 | 25,458 | 49 | 440 | 25,507 | 25,947 | (1,541) |
7/25/2012 |
2009 | |||||||||||
49 |
10-12 Celina Avenue |
Nashua, NH |
- |
3,000 | 14,052 | 154 | 3,000 | 14,206 | 17,206 | (1,900) |
8/31/2009 |
1997 | |||||||||||
50 |
50 West State Street |
Trenton, NJ |
- |
5,000 | 38,203 | 1,334 | 5,000 | 39,537 | 44,537 | (3,889) |
12/30/2010 |
1989 | |||||||||||
51 |
435 Montano Boulevard |
Albuquerque, NM |
- |
710 | 1,651 | 147 | 710 | 1,798 | 2,508 | (254) |
7/16/2010 |
1984 | |||||||||||
52 |
138 Delaware Avenue |
Buffalo, NY |
- |
4,405 | 18,899 | 5,016 | 4,485 | 23,835 | 28,320 | (8,837) |
3/31/1997 |
1994 | |||||||||||
53 |
305 East 46th Street |
New York, NY |
- |
36,800 | 66,661 | 1,217 | 36,800 | 67,878 | 104,678 | (5,991) |
5/27/2011 |
2008 | |||||||||||
54 |
5000 Corporate Court |
Holtsville, NY |
- |
6,530 | 17,711 | 1,106 | 6,530 | 18,817 | 25,347 | (1,551) |
8/31/2011 |
2000 | |||||||||||
55 |
Airline Corporate Center |
Colonie, NY |
- |
790 | 6,400 |
- |
790 | 6,400 | 7,190 | (400) |
6/22/2012 |
2004 | |||||||||||
56 |
4600 25th Avenue |
Salem, OR |
- |
6,510 | 17,973 | 3,920 | 6,510 | 21,893 | 28,403 | (1,672) |
12/20/2011 |
2007 | |||||||||||
57 |
Synergy Business Park |
Columbia, SC |
- |
1,439 | 11,143 | 2,488 | 1,439 | 13,631 | 15,070 | (2,039) |
5/10/2006; 9/17/2010 |
1982; 1985 |
|||||||||||
58 |
One Memphis Place |
Memphis, TN |
- |
1,630 | 5,645 | 897 | 1,630 | 6,542 | 8,172 | (730) |
9/17/2010 |
1985 | |||||||||||
59 |
701 Clay Road |
Waco, TX |
- |
2,030 | 8,708 | 2,100 | 2,060 | 10,778 | 12,838 | (4,081) |
12/23/1997 |
1997 | |||||||||||
60 |
Aquia Commerce Center |
Stafford, VA |
- |
2,090 | 7,465 | 162 | 2,090 | 7,627 | 9,717 | (665) |
6/22/2011 |
1988; 1999 |
|||||||||||
61 |
Enterchange at Meadowville |
Chester, VA |
- |
1,478 | 9,594 | 235 | 1,478 | 9,829 | 11,307 | (320) |
8/28/2013 |
2011 | |||||||||||
62 |
Pender Business Park |
Fairfax, VA |
- |
2,529 | 21,386 | 87 | 2,529 | 21,473 | 24,002 | (623) |
11/4/2013 |
2000 | |||||||||||
63 |
3920 Pender Drive |
Fairfax, VA |
14,374 | 2,964 | 12,840 | 9 | 2,963 | 12,850 | 15,813 | (241) |
3/21/2014 |
1981 | |||||||||||
64 |
1759 & 1760 Business Park Drive |
Reston, VA |
85,167 | 9,066 | 78,658 | 51 | 9,066 | 78,709 | 87,775 | (1,147) |
5/28/2014 |
1987 | |||||||||||
65 |
9960 Maryland Drive1 |
Richmond, VA |
- |
2,614 | 15,930 | 29 | 2,614 | 15,959 | 18,573 | (232) |
5/20/2014 |
1994 | |||||||||||
66 |
65 Bowdoin Street |
S. Burlington, VT |
- |
700 | 8,416 | 120 | 700 | 8,536 | 9,236 | (1,007) |
4/9/2010 |
2009 | |||||||||||
67 |
840 North Broadway |
Everett, WA |
- |
3,360 | 15,376 | 159 | 3,360 | 15,535 | 18,895 | (965) |
6/28/2012 |
1985 | |||||||||||
68 |
Stevens Center |
Richland, WA |
- |
3,970 | 17,035 | 769 | 4,042 | 17,732 | 21,774 | (7,732) |
3/31/1997 |
1995 | |||||||||||
69 |
11050 West Liberty Drive |
Milwaukee, WI |
- |
945 | 4,539 | 132 | 945 | 4,671 | 5,616 | (424) |
6/9/2011 |
2006 | |||||||||||
70 |
2029 Stonewall Jackson Drive |
Falling Waters, WV |
- |
906 | 3,886 | 263 | 922 | 4,133 | 5,055 | (1,795) |
3/31/1997 |
1993 | |||||||||||
71 |
5353 Yellowstone Road |
Cheyenne, WY |
- |
1,915 | 8,217 | 1,193 | 1,950 | 9,375 | 11,325 | (4,405) |
3/31/1997 |
1995 | |||||||||||
$ 187,694 |
$ 253,096 |
$ 1,322,433 |
$ 106,951 |
$ 254,008 |
$ 1,428,472 |
$ 1,682,480 |
$ (219,791) |
(1) |
Includes the unamortized balance of the fair value adjustments. |
(2) |
Excludes value of real estate intangibles. Aggregate cost for federal income tax purposes is approximately $1,953,910. |
(3) |
Depreciation on building and improvements is provided for periods ranging up to 40 years and on equipment up to 12 years. |
GOVERNMENT PROPERTIES INCOME TRUST
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2014
(dollars in thousands)
Analysis of the carrying amount of real estate properties and accumulated depreciation:
[
Real Estate |
Accumulated |
|||||||
Properties |
Depreciation |
|||||||
Balance at December 31, 2011 |
$ |
1,288,453 |
$ |
139,210 | ||||
Additions |
192,560 | 30,601 | ||||||
Disposals |
(13,150) | (13,150) | ||||||
Balance at December 31, 2012 |
1,467,863 | 156,661 | ||||||
Additions |
103,413 | 33,688 | ||||||
Disposals |
(2,714) | (2,714) | ||||||
Balance at December 31, 2013 |
1,568,562 | 187,635 | ||||||
Additions |
151,316 | 37,671 | ||||||
Loss on asset impairment |
(7,058) | (5,071) | ||||||
Disposals |
(444) | (444) | ||||||
Reclassification of assets held for sale |
(29,896) |
- |
||||||
Balance at December 31, 2014 |
$ |
1,682,480 |
$ |
219,791 |
|
Basis of Presentation. These consolidated financial statements include the accounts of us and our subsidiaries, all of which are 100% owned directly or indirectly by us. All intercompany transactions and balances with or among our consolidated subsidiaries have been eliminated.
We account for our investments in Affiliates Insurance Company, or AIC, and SIR using the equity method of accounting. Significant influence is present through common representation on the boards of trustees or directors of us, AIC and SIR. Our Managing Trustees are also the managing trustees of SIR. Our Managing Trustees are also owners of Reit Management & Research LLC, or RMR, which is the manager of us, AIC and SIR, each of our Trustees is a director of AIC and one of our Independent Trustees is also an independent trustee of SIR. See Notes 6 and 11 for a further discussion of our investments in AIC and SIR.
Real Estate Properties. We record our properties at cost and provide depreciation on real estate investments on a straight line basis over estimated useful lives generally ranging from 7 to 40 years. In some circumstances, we engage independent real estate appraisal firms to provide market information and evaluations which are relevant to our purchase price allocations and determinations of useful lives; however, we are ultimately responsible for the purchase price allocations and determinations of useful lives.
We allocate the purchase prices of our properties to land, building and improvements based on determinations of the fair values of these assets assuming the properties are vacant. We determine the fair value of each property using methods similar to those used by independent appraisers. For properties qualifying as acquired businesses under Accounting Standards Codification 805, Business Combinations, we allocate a portion of the purchase price of our properties to above market and below market leases based on the present value (using an interest rate which reflects the risks associated with acquired in place leases at the time each property was acquired by us) of the difference, if any, between (i) the contractual amounts to be paid pursuant to the acquired in place leases and (ii) our estimates of fair market lease rates for the corresponding leases, measured over a period equal to the terms of the respective leases. We allocate a portion of the purchase price to acquired in place leases and tenant relationships based upon market estimates to lease up the property based on the leases in place at the time of purchase. We allocate this aggregate value between acquired in place lease values and tenant relationships based on our evaluation of the specific characteristics of each tenant’s lease. However, we have not separated the value of tenant relationships from the value of acquired in place leases because such value and related amortization expense is immaterial to the accompanying consolidated financial statements. In making these allocations, we consider factors such as estimated carrying costs during the expected lease up periods, including real estate taxes, insurance and other operating income and expenses and costs, such as leasing commissions, legal and other related expenses, to execute similar leases in current market conditions at the time a property was acquired by us. If the value of tenant relationships becomes material in the future, we may separately allocate those amounts and amortize the allocated amount over the estimated life of the relationships.
We amortize capitalized above market lease values (included in acquired in place real estate leases in our consolidated balance sheets) and below market lease values (presented as assumed real estate lease obligations in our consolidated balance sheets) as a reduction or increase, respectively, to rental income over the terms of the associated leases. Such amortization resulted in net decreases to rental income of $868, $1,123, and $2,056 during the years ended December 31, 2014, 2013 and 2012, respectively. We amortize the value of acquired in place leases (included in acquired real estate leases in our consolidated balance sheets), exclusive of the value of above market and below market acquired in place leases, over the terms of the associated leases. Such amortization, which is included in depreciation and amortization expense, amounted to $26,844, $20,482, and $17,390 during the years ended December 31, 2014, 2013 and 2012, respectively. When a lease is terminated prior to its stated expiration, we write off the unamortized amounts relating to that lease.
Capitalized above market lease values were $39,040 and $38,487 as of December 31, 2014 and 2013, respectively, net of accumulated amortization of $18,288 and $14,271, respectively. Capitalized below market lease values were $26,605 and $27,304 as of December 31, 2014 and 2013, respectively, net of accumulated amortization of $10,681 and $8,220, respectively.
The value of acquired in place leases, exclusive of the value of above market and below market acquired in place leases, were $198,157 and $167,256 as of December 31, 2014 and 2013, respectively, net of accumulated amortization of $68,829 and $49,207, respectively. Future amortization of net intangible lease assets and liabilities, to be recognized over the current terms of the associated leases as of December 31, 2014 are estimated to be $28,601 in 2015, $26,001 in 2016, $23,734 in 2017, $19,462 in 2018, $14,413 in 2019 and $21,945 thereafter.
We regularly evaluate whether events or changes in circumstances have occurred that could indicate an impairment in the value of long lived assets. If there is an indication that the carrying value of an asset is not recoverable, we estimate the projected undiscounted cash flows to determine if an impairment loss should be recognized. We determine the amount of any impairment loss by comparing the historical carrying value to estimated fair value. We estimate fair value through an evaluation of recent financial performance and projected discounted cash flows using standard industry valuation techniques. In addition to consideration of impairment upon the events or changes in circumstances described above, we regularly evaluate the remaining lives of our long lived assets. If we change our estimate of the remaining lives, we allocate the carrying value of the affected assets over their revised remaining lives.
Cash and Cash Equivalents. We consider highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents.
Restricted Cash. Restricted cash consists of amounts escrowed for future real estate taxes, insurance, leasing costs, capital expenditures and debt service, as required by certain of our mortgage debts.
Deferred Leasing Costs. Deferred leasing costs include brokerage, legal and other fees associated with our entering leases and we amortize those costs, which are included in depreciation and amortization expense, on a straight line basis over the terms of the respective leases. Deferred leasing costs totaled $15,401 and $13,935 at December 31, 2014 and 2013, respectively, and accumulated amortization of deferred leasing costs totaled $3,951 and $2,317 at December 31 2014 and 2013, respectively. Future amortization of deferred leasing costs to be recognized during the current terms of our existing leases as of December 31, 2014, are estimated to be $2,035 in 2015, $1,915 in 2016, $1,459 in 2017, $1,306 in 2018, $1,205 in 2019 and $3,530 thereafter.
Deferred Financing Fees. Deferred financing fees include issuance or assumption costs related to borrowings and we amortize those costs as interest expense over the terms of the respective loans. Deferred financing fees totaled $14,055 and $9,335 at December 31, 2014 and 2013, respectively, and accumulated amortization of deferred financing fees totaled $1,273 and $5,424 at December 31, 2014 and 2013, respectively. Future amortization of deferred financing fees to be recognized with respect to our loans as of December 31, 2014 are estimated to be $2,917 in 2015, $2,637 in 2016, $2,548 in 2017, $2,548 in 2018, $1,346 in 2019 and $786 thereafter.
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 by $4,501, $2,739 and $3,428 to record revenue on a straight line basis during the years ended December 31, 2014, 2013 and 2012, respectively. Rents receivable include $15,017 and $10,515 of straight line rent receivables at December 31, 2014 and 2013, respectively.
Income Taxes. We have elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, or the IRC, and, accordingly, we generally will not be subject to federal income taxes provided we distribute our taxable income and meet certain other requirements to qualify as a REIT. We are, however, subject to certain state and local taxes.
Cumulative Other Comprehensive Income (Loss). Cumulative other comprehensive income (loss) represents our share of the comprehensive income (loss) of AIC and SIR. See Notes 6 and 11 for further information regarding these investments.
Reclassifications. Certain reclassifications have been made to the prior years’ financial statements to conform to the current year’s presentation.
Use of Estimates. Preparation of these financial statements in conformity with U.S. generally accepted accounting principles, or GAAP, requires us to make estimates and assumptions that may affect the amounts reported in these consolidated financial statements and related notes. The actual results could differ from these estimates.
Per Common Share Amounts. We calculate basic earnings per common share by dividing net income by the weighted average number of our common shares of beneficial ownership, $.01 par value, or common shares, or our common shares, outstanding during the period. We calculate diluted earnings per share using the more dilutive of the two class method or the treasury stock method.
Segment Reporting. We operate in two business segments: ownership of properties that are primarily leased to government tenants and our equity method investment in SIR.
|
2014 |
$ |
222,845 | ||
2015 |
207,019 | |||
2016 |
180,634 | |||
2017 |
151,512 | |||
2018 |
123,106 | |||
Thereafter |
262,559 | |||
$ |
1,147,675 |
|
|
|
|
|
|
Number |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premium |
|
|
|
|
|
|
|
of |
|
|
|
|
|
|
|
|
|
Buildings |
|
|
|
|
Acquired |
|
Other |
|
on |
||||
Acquisition |
|
|
|
|
|
Properties/ |
|
Square |
|
Purchase |
|
|
|
|
and |
|
Acquired |
|
Lease |
|
Assumed |
|
Assumed |
||||||
Date |
|
Location |
|
Type |
|
Buildings |
|
Feet |
|
Price(1) |
|
Land |
|
Improvements |
|
Leases |
|
Obligations |
|
Liabilities |
|
Debt |
|||||||
March 2014 |
|
Fairfax, VA |
|
Office |
|
1 / 1 |
|
83,130 |
|
$ |
19,775 |
|
$ |
2,964 |
|
$ |
12,840 |
|
$ |
3,971 |
|
$ |
— |
|
$ |
(233) |
|
$ |
— |
May 2014 |
|
Richmond, VA |
|
Office |
|
1 / 1 |
|
173,932 |
|
|
22,500 |
|
|
2,614 |
|
|
15,930 |
|
|
4,003 |
|
|
(47) |
|
|
— |
|
|
— |
May 2014 |
|
Reston, VA |
|
Office |
|
1 / 2 |
|
406,388 |
|
|
112,250 |
|
|
9,066 |
|
|
78,658 |
|
|
28,071 |
|
|
(398) |
|
|
(93) |
|
|
(3,147) |
September 2014 |
|
Phoenix, AZ |
|
Office |
|
1 / 1 |
|
66,743 |
|
|
13,000 |
|
|
1,917 |
|
|
7,416 |
|
|
3,667 |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
|
|
4 / 5 |
|
730,193 |
|
$ |
167,525 |
|
$ |
16,561 |
|
$ |
114,844 |
|
$ |
39,712 |
|
$ |
(445) |
|
$ |
(326) |
|
$ |
(3,147) |
(1) |
Purchase price excludes acquisition related costs. |
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
|
|
2014 |
|
|
|
Real estate properties, net |
|
$ |
29,896 |
|
|
Rents receivable |
|
|
605 |
|
|
Other assets |
|
|
2,296 |
|
|
Assets of property held for sale |
|
$ |
32,797 |
|
|
|
|
|
|
|
|
Other liabilities |
|
$ |
343 |
|
|
Liabilities of property held for sale |
|
$ |
343 |
|
Balance Sheets:
|
|
|
December 31, |
|
December 31, |
|
||
|
|
|
2014 |
|
2013 |
|
||
|
Real estate properties, net |
|
$ |
12,260 |
|
$ |
25,574 |
|
|
Rents receivable |
|
|
782 |
|
|
381 |
|
|
Other assets |
|
|
123 |
|
|
42 |
|
|
Assets of discontinued operations |
|
$ |
13,165 |
|
$ |
25,997 |
|
|
|
|
|
|
|
|
|
|
|
Other liabilities |
|
$ |
150 |
|
$ |
276 |
|
|
Liabilities of discontinued operations |
|
$ |
150 |
|
$ |
276 |
|
Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|||||||
|
|
|
2014 |
|
2013 |
|
2012 |
|
|||
|
Rental income |
|
$ |
1,673 |
|
$ |
4,580 |
|
$ |
7,376 |
|
|
Real estate taxes |
|
|
(427) |
|
|
(678) |
|
|
(928) |
|
|
Utility expenses |
|
|
(226) |
|
|
(539) |
|
|
(1,043) |
|
|
Other operating expenses |
|
|
(459) |
|
|
(966) |
|
|
(1,484) |
|
|
Depreciation and amortization |
|
|
— |
|
|
(1,025) |
|
|
(2,096) |
|
|
General and administrative |
|
|
(181) |
|
|
(287) |
|
|
(431) |
|
|
Loss on asset impairment |
|
|
— |
|
|
(10,142) |
|
|
(494) |
|
|
Increase in carrying value of asset held for sale |
|
|
2,344 |
|
|
— |
|
|
— |
|
|
Net gain on sale of properties |
|
|
774 |
|
|
8,168 |
|
|
— |
|
|
Income (loss) from discontinued operations |
|
$ |
3,498 |
|
$ |
(889) |
|
$ |
900 |
|
|
|
|
December 31, |
|
December 31, |
||
|
|
2014 |
|
2013 |
||
|
|
|
|
|
|
|
Unsecured revolving credit facility |
|
$ |
— |
|
$ |
157,000 |
Unsecured term loan, due in 2017 |
|
|
— |
|
|
350,000 |
Unsecured term loan, due in 2020 |
|
|
300,000 |
|
|
— |
Unsecured term loan, due in 2022 |
|
|
250,000 |
|
|
— |
Senior unsecured notes, 3.75% interest rate, including unamortized discount of $2,577, due in 2019 |
|
|
347,423 |
|
|
— |
Mortgage note payable, 5.55% interest rate, including unamortized premium of $2,167, due in 2016(1) |
|
|
85,167 |
|
|
— |
Mortgage note payable, 5.73% interest rate, including unamortized premium of $177, due in 2015(1) |
|
|
47,418 |
|
|
48,377 |
Mortgage note payable, 6.21% interest rate, due in 2016(1) |
|
|
23,833 |
|
|
24,147 |
Mortgage note payable, 5.88% interest rate, due in 2021(1) |
|
|
14,374 |
|
|
— |
Mortgage note payable, 7.00% interest rate, including unamortized premium of $605, due in 2019(1) |
|
|
9,563 |
|
|
9,919 |
Mortgage note payable, 8.15% interest rate, including unamortized premium of $398, due in 2021(1) |
|
|
7,339 |
|
|
8,284 |
|
|
$ |
1,085,117 |
|
$ |
597,727 |
(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. |
|
Senior unsecured notes, 3.75% interest rate, including unamortized discount of $2,577, due in 2019 |
|
$ |
347,423 |
|
$ |
356,129 |
Mortgage note payable, 5.55% interest rate, including unamortized premium of $2,167, due in 2016(1) |
|
|
85,167 |
|
|
85,171 |
Mortgage note payable, 5.73% interest rate, including unamortized premium of $177, due in 2015(1) |
|
|
47,418 |
|
|
48,233 |
Mortgage note payable, 6.21% interest rate, due in 2016(1) |
|
|
23,833 |
|
|
25,394 |
Mortgage note payable, 5.88% interest rate, due in 2021(1) |
|
|
14,374 |
|
|
15,249 |
Mortgage note payable, 7.00% interest rate, including unamortized premium of $605, due in 2019(1) |
|
|
9,563 |
|
|
10,275 |
Mortgage note payable, 8.15% interest rate, including unamortized premium of $398, due in 2021(1) |
|
|
7,339 |
|
|
7,956 |
|
|
$ |
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 |
Property held for sale and classified as held for sale in continuing operations(2) |
|
|
29,896 |
|
|
— |
|
|
— |
|
|
29,896 |
|
|
$ |
42,156 |
|
$ |
— |
|
$ |
— |
|
$ |
42,156 |
(1) |
The estimated fair value at December 31, 2014 of this property, for which a loss on asset impairment was recognized during the year ended December 31, 2013, is based upon broker estimates of value less estimated sales costs (Level 3 inputs as defined in the fair value hierarchy under GAAP). |
(2) |
The estimated fair value at December 31, 2014 of this property, for which a loss on asset impairment was recognized during the year ended December 31, 2014, is based upon sales price less estimated sales costs (Level 3 inputs as defined in the fair value hierarchy under GAAP). |
|
Consolidated Balance Sheets:
|
|
December 31, |
|
December 31, |
||
|
|
2014 |
|
2013 |
||
Real estate properties, net |
|
$ |
1,772,510 |
|
$ |
1,579,234 |
Acquired real estate leases, net |
|
|
120,700 |
|
|
129,426 |
Cash and cash equivalents |
|
|
13,504 |
|
|
20,025 |
Rents receivable, net |
|
|
68,385 |
|
|
55,335 |
Other assets, net |
|
|
18,132 |
|
|
17,839 |
Total assets |
|
$ |
1,993,231 |
|
$ |
1,801,859 |
Revolving credit facility |
|
$ |
77,000 |
|
$ |
159,000 |
Term loan |
|
|
350,000 |
|
|
350,000 |
Mortgage notes payable |
|
|
18,816 |
|
|
27,147 |
Assumed real estate lease obligations, net |
|
|
26,475 |
|
|
26,966 |
Other liabilities |
|
|
40,493 |
|
|
40,055 |
Shareholders' equity |
|
|
1,480,447 |
|
|
1,198,691 |
Total liabilities and shareholders' equity |
|
$ |
1,993,231 |
|
$ |
1,801,859 |
Consolidated Statements of Income:
|
|
Years Ended December 31, |
|||||||
|
|
2014 |
|
2013 |
|
2012 |
|||
Rental income |
|
$ |
189,743 |
|
$ |
159,011 |
|
$ |
105,559 |
Tenant reimbursements and other income |
|
|
32,937 |
|
|
29,312 |
|
|
17,231 |
Total revenues |
|
|
222,680 |
|
|
188,323 |
|
|
122,790 |
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
40,799 |
|
|
36,382 |
|
|
23,796 |
Depreciation and amortization |
|
|
41,054 |
|
|
31,091 |
|
|
14,860 |
Acquisition related costs |
|
|
7,348 |
|
|
2,002 |
|
|
2,470 |
General and administrative |
|
|
14,881 |
|
|
12,423 |
|
|
8,203 |
Total expenses |
|
|
104,082 |
|
|
81,898 |
|
|
49,329 |
Operating income |
|
|
118,598 |
|
|
106,425 |
|
|
73,461 |
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(12,974) |
|
|
(13,763) |
|
|
(7,565) |
Gain on early extinguishment of debt |
|
|
243 |
|
|
— |
|
|
— |
Income before income tax expense and equity in earnings of an investee |
|
|
105,867 |
|
|
92,662 |
|
|
65,896 |
Income tax expense (benefit) |
|
|
(175) |
|
|
96 |
|
|
(290) |
Equity in earnings of an investee |
|
|
87 |
|
|
334 |
|
|
269 |
Income before gain on sale of property |
|
|
105,779 |
|
|
93,092 |
|
|
65,875 |
Gain on sale of property |
|
|
116 |
|
|
— |
|
|
— |
Net income |
|
$ |
105,895 |
|
$ |
93,092 |
|
$ |
65,875 |
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding (basic) |
|
|
55,964 |
|
|
44,539 |
|
|
27,117 |
Weighted average common shares outstanding (diluted) |
|
|
56,035 |
|
|
44,592 |
|
|
27,122 |
Net income per common share (basic and diluted) |
|
$ |
1.89 |
|
$ |
2.09 |
|
$ |
2.43 |
|
Year ended December 31, 2014 |
||||||||||||
Investment |
Investment |
|||||||||||
in Real Estate |
in SIR |
Corporate |
Consolidated |
|||||||||
Rental income |
$ |
251,031 |
$ |
— |
$ |
— |
$ |
251,031 | ||||
Expenses: |
||||||||||||
Real estate taxes |
28,389 |
— |
— |
28,389 | ||||||||
Utility expenses |
19,369 |
— |
— |
19,369 | ||||||||
Other operating expenses |
45,982 |
— |
— |
45,982 | ||||||||
Depreciation and amortization |
66,593 |
— |
— |
66,593 | ||||||||
Loss on asset impairment |
2,016 |
— |
— |
2,016 | ||||||||
Acquisition related costs |
1,344 |
— |
— |
1,344 | ||||||||
General and administrative |
— |
— |
15,809 | 15,809 | ||||||||
Total expenses |
163,693 |
— |
15,809 | 179,502 | ||||||||
Operating income (loss) |
87,338 |
— |
(15,809) | 71,529 | ||||||||
Interest and other income |
— |
— |
69 | 69 | ||||||||
Interest expense |
(7,820) |
— |
(20,228) | (28,048) | ||||||||
Loss on early extinguishment of debt |
— |
— |
(1,307) | (1,307) | ||||||||
Income (loss) from continuing operations before income taxes and |
||||||||||||
equity in earnings of investees |
79,518 |
— |
(37,275) | 42,243 | ||||||||
Income tax expense |
— |
— |
(117) | (117) | ||||||||
Loss on issuance of shares by an equity investee |
— |
(53) |
— |
(53) | ||||||||
Equity in earnings of investees |
— |
10,876 | 87 | 10,963 | ||||||||
Income from continuing operations |
79,518 | 10,823 | (37,305) | 53,036 | ||||||||
Income from discontinued operations |
3,498 |
— |
— |
3,498 | ||||||||
Net income (loss) |
$ |
83,016 |
$ |
10,823 |
$ |
(37,305) |
$ |
56,534 | ||||
Total Assets |
$ |
1,714,130 |
$ |
680,137 |
$ |
33,348 |
$ |
2,427,615 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014 |
||||||||||
|
|
First |
|
Second |
|
Third |
|
Fourth |
||||
|
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
||||
Rental income |
$ |
59,820 |
|
$ |
62,428 |
|
$ |
64,158 |
|
$ |
64,625 | |
Net income |
|
15,190 |
|
|
14,608 |
|
|
12,622 |
|
|
14,114 | |
Net income per common share (basic and diluted) |
|
0.28 |
|
|
0.27 |
|
|
0.19 |
|
|
0.20 | |
Common distributions paid |
|
0.43 |
|
|
0.43 |
|
|
0.43 |
|
|
0.43 | |
|
|
2013 |
||||||||||
|
|
First |
|
Second |
|
Third |
|
Fourth |
||||
|
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
||||
Rental income |
$ |
56,304 |
|
$ |
55,934 |
|
$ |
56,401 |
|
$ |
58,271 | |
Net income |
|
24,726 |
|
|
15,204 |
|
|
1,966 |
|
|
12,724 | |
Net income per common share (basic and diluted) |
|
0.45 |
|
|
0.28 |
|
|
0.04 |
|
|
0.23 | |
Common distributions paid |
|
0.43 |
|
|
0.43 |
|
|
0.43 |
|
|
0.43 |
|
Years ended December 31, |
||||||||
2014 |
2013 |
|||||||
Total Revenues |
$ |
258,604 |
$ |
246,006 | ||||
Net income |
57,214 | 51,500 | ||||||
Per share data (basic and diluted): |
||||||||
Net income |
$ |
0.93 |
$ |
0.94 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|