$268.5 Million of Asset Sales since January 1, 2019
First Quarter Net Income Available for Common Shareholders of
$34.0 Million
First Quarter Normalized FFO Available for Common Shareholders of
$73.3 Million, or $1.53 Per Share
Completed 825,475 Square Feet of Leasing in the First Quarter for
a 12.8% Roll-up in Rents
NEWTON, Mass.–(BUSINESS WIRE)–Office Properties Income Trust (Nasdaq: OPI) today announced its
financial results for the quarter ended March 31, 2019.
David Blackman, President and Chief Executive Officer of OPI, made the
following statement:
“Our priorities for 2019 are reducing leverage through asset sales,
achieving the best results for our properties through leasing and active
property management and returning to growth during the second half of
the year through an active capital recycling program.
Our first quarter operating activities generated strong leasing results.
During the quarter, we entered new and renewal leases for more than
825,000 square feet at a weighted average lease term of 7.5 years and at
weighted average rents that were 12.8% above prior rents for the same
space.
We also advanced our disposition program during the quarter. In addition
to closing on $268.5 million of property sales, our active marketing
campaign of 33 properties began to show results. We entered agreements
for three properties for $28.4 million and have a number of offers we
are evaluating on the balance of the sale portfolio. With the successful
completion of this disposition program, we expect to achieve our
long-term leverage target and return to accretive growth in the second
half of 2019.”
Results for the Quarter Ended March 31, 2019:
Net income available for common shareholders for the quarter ended
March 31, 2019 was $34.0 million, or $0.71 per diluted share, compared
to net income available for common shareholders of $6.3 million, or
$0.25 per diluted share, for the quarter ended March 31, 2018. Net
income available for common shareholders for the quarter ended March 31,
2019 includes a $22.1 million, or $0.46 per diluted share, unrealized
gain on equity securities related to OPI’s investment in The RMR Group
Inc., or RMR Inc., and a $22.1 million, or $0.46 per diluted share, gain
on sale of real estate, partially offset by a $3.2 million, or $0.07 per
diluted share, loss on impairment of real estate. Net income available
for common shareholders for the quarter ended March 31, 2018 includes a
$12.9 million, or $0.52 per diluted share, unrealized gain on equity
securities, partially offset by a $6.1 million, or $0.25 per diluted
share, loss on impairment of real estate. The weighted average number of
diluted common shares outstanding was 48.0 million for the quarter ended
March 31, 2019 and 24.8 million for the quarter ended March 31, 2018.
Normalized FFO available for common shareholders for the quarter ended
March 31, 2019 were $73.3 million, or $1.53 per diluted share, compared
to Normalized FFO available for common shareholders for the quarter
ended March 31, 2018 of $54.1 million, or $2.18 per diluted share.
Reconciliations of net income available for common shareholders
determined in accordance with U.S. generally accepted accounting
principles, or GAAP, to FFO available for common shareholders and
Normalized FFO available for common shareholders for the quarters ended
March 31, 2019 and 2018 appear later in this press release.
Leasing, Occupancy and Pro Forma Same Property Results:
During the quarter ended March 31, 2019, OPI entered new and renewal
leases for an aggregate of 825,000 rentable square feet at weighted (by
rentable square feet) average rents that were 12.8% above prior rents
for the same space. The weighted (by rentable square feet) average lease
term for these leases was 7.5 years and leasing concessions and capital
commitments for these leases were $28.8 million, or $4.67 per square
foot, per lease year.
As of March 31, 2019, 89.6% of OPI’s total rentable square feet was
leased, compared to 91.0% as of December 31, 2018 and 94.4% as of
March 31, 2018.
Pro forma results combine the results of OPI and Select Income REIT, or
SIR, for the three months ended March 31, 2019 and 2018 as if the merger
of SIR with OPI that closed on December 31, 2018, or the Merger, had
occurred on January 1, 2018. Pro forma same property occupancy was 89.6%
as of March 31, 2019, compared to 92.7% as of March 31, 2018. Pro forma
Same Property Cash Basis NOI was $107.0 million for the quarter ended
March 31, 2019 which was a 2.8% decrease compared to the same period in
2018.
Reconciliations of net income available for common shareholders
determined in accordance with GAAP to Consolidated Property NOI and
Consolidated Property Cash Basis NOI for the quarters ended March 31,
2019 and 2018 and a calculation of pro forma Same Property NOI and Same
Property Cash Basis NOI for the quarter ended March 31, 2019 appear
later in this press release.
Recent Property Disposition Activities:
As previously announced, in February 2019, OPI sold a property portfolio
consisting of 34 office buildings located in Northern Virginia and
Maryland containing 1.6 million rentable square feet for $198.5 million,
excluding closing costs.
In March 2019, OPI sold one office building located in Washington, D.C.
containing 129,035 rentable square feet for $70.0 million, excluding
closing costs.
In April 2019, OPI entered into an agreement to sell one building
located in Buffalo, NY containing 121,711 rentable square feet for $17.4
million, excluding closing costs.
Also in April 2019, OPI entered into an agreement to sell one building
located in Hanover, PA containing 502,300 rentable square feet for $6.0
million, excluding closing costs.
In May 2019, OPI entered into an agreement to sell one building located
in Maynard, MA containing 287,037 rentable square feet for $5.0 million,
excluding closing costs.
Recent Financing Activities:
In February 2019, OPI repaid the remaining principal balance outstanding
of $88 million under its $250 million unsecured term loan due 2022 and
repaid amounts outstanding under its revolving credit facility with
proceeds from its disposition program.
In March 2019, OPI repaid $65 million under its $300 million unsecured
term loan due 2020 with proceeds from its disposition program.
Conference Call:
At 10:00 a.m. Eastern Time this morning, President and Chief Executive
Officer, David Blackman, and Chief Financial Officer and Treasurer,
Jeffrey Leer, will host a conference call to discuss OPI’s first quarter
2019 financial results.
The conference call telephone number is (877) 328-1172. Participants
calling from outside the United States and Canada should dial (412)
317-5418. No pass code is necessary to access the call from either
number. Participants should dial in about 15 minutes prior to the
scheduled start of the call. A replay of the conference call will be
available through 11:59 p.m. on Friday, May 10, 2019. To access the
replay, dial (412) 317-0088. The replay pass code is 05032019.
A live audio webcast of the conference call will also be available in a
listen only mode on OPI’s website, at www.opireit.com.
Participants wanting to access the webcast should visit OPI’s website
about five minutes before the call. The archived webcast will be
available for replay on OPI’s website following the call for about one
week. The transcription, recording and retransmission in any way of
OPI’s first quarter conference call are strictly prohibited without the
prior written consent of OPI.
Supplemental Data:
A copy of OPI’s First Quarter 2019 Supplemental Operating and Financial
Data is available for download at OPI’s website, www.opireit.com. OPI’s
website is not incorporated as part of this press release.
Non-GAAP Financial Measures:
OPI presents certain “non-GAAP financial measures” within the meaning of
applicable rules of the Securities and Exchange Commission, or SEC,
including FFO available for common shareholders, Normalized FFO
available for common shareholders, Consolidated Property NOI,
Consolidated Property Cash Basis NOI, Same Property NOI and Same
Property Cash Basis NOI and pro forma Same Property NOI and pro forma
Same Property Cash Basis NOI. These measures do not represent cash
generated by operating activities in accordance with GAAP and should not
be considered alternatives to income (loss) from continuing operations,
net income and net income available for common shareholders as
indicators of OPI’s operating performance or as measures of OPI’s
liquidity. These measures should be considered in conjunction with
income (loss) from continuing operations, net income and net income
available for common shareholders as presented in OPI’s condensed
consolidated statements of income. OPI considers these non-GAAP measures
to be appropriate supplemental measures of operating performance for a
real estate investment trust, or REIT, along with income (loss) from
continuing operations, net income and net income available for common
shareholders. OPI believes these measures provide useful information to
investors because by excluding the effects of certain historical
amounts, such as depreciation and amortization expense, they may
facilitate a comparison of OPI’s operating performance between periods
and with other REITs and, in the case of Consolidated Property NOI,
Consolidated Property Cash Basis NOI, Same Property NOI and Same
Property Cash Basis NOI reflecting only those income and expense items
that are generated and incurred at the property level may help both
investors and management to understand the operations at OPI’s
properties.
Please see the pages attached hereto for a more detailed statement of
OPI’s operating results and financial condition and for an explanation
of OPI’s calculation of FFO available for common shareholders,
Normalized FFO available for common shareholders, Consolidated Property
NOI, Consolidated Property Cash Basis NOI, Same Property NOI and Same
Property Cash Basis NOI and a reconciliation of those amounts to amounts
determined in accordance with GAAP. OPI’s pro forma Same Property Cash
Basis NOI as if the Merger had occurred on January 1, 2018 also are
provided in the pages attached hereto. Such pro forma financial
information is not necessarily indicative of OPI’s expected financial
position or results of operations for any future period. Differences
could result from numerous factors, including future changes in OPI’s
portfolio of investments, OPI’s capital structure, OPI’s property level
operating expenses and revenues, including rents expected to be received
on OPI’s existing leases or leases OPI may enter into, changes in
interest rates and other reasons. Actual future results are likely to be
different from amounts presented in the pro forma financial information
and such differences could be significant.
OPI is a REIT focused on owning, operating and leasing buildings
primarily leased to single tenants and those with high credit quality
characteristics such as government entities. OPI is managed by the
operating subsidiary of The RMR Group Inc. (Nasdaq: RMR), an alternative
asset management company that is headquartered in Newton, Massachusetts.
|
Office Properties Income Trust |
|||||||||||
| Three Months Ended March 31, | |||||||||||
| 2019 | 2018 | ||||||||||
| Rental income | $ | 174,777 | $ | 108,717 | |||||||
| Expenses: | |||||||||||
| Real estate taxes | 18,392 | 12,964 | |||||||||
| Utility expenses | 9,381 | 6,690 | |||||||||
| Other operating expenses | 30,136 | 22,837 | |||||||||
| Depreciation and amortization | 77,521 | 44,204 | |||||||||
| Loss on impairment of real estate (1) | 3,204 | 6,116 | |||||||||
| Acquisition and transaction related costs (2) | 584 | — | |||||||||
| General and administrative (3) | 8,723 | 9,606 | |||||||||
| Total expenses | 147,941 | 102,417 | |||||||||
| Gain on sale of real estate (4) | 22,092 | — | |||||||||
| Dividend income | 980 | 304 | |||||||||
| Unrealized gain on equity securities (5) | 22,128 | 12,931 | |||||||||
| Interest income | 248 | 116 | |||||||||
|
Interest expense (including net amortization of debt premiums, discounts |
|||||||||||
| and issuance costs of $2,841 and $965, respectively) | (37,133 | ) | (22,766 | ) | |||||||
| Loss on early extinguishment of debt | (414 | ) | — | ||||||||
|
Income (loss) from continuing operations before income tax expense and |
|||||||||||
| equity in net losses of investees | 34,737 | (3,115 | ) | ||||||||
| Income tax expense | (483 | ) | (32 | ) | |||||||
| Equity in net losses of investees | (235 | ) | (577 | ) | |||||||
| Income (loss) from continuing operations | 34,019 | (3,724 | ) | ||||||||
| Income from discontinued operations (6) | — | 10,289 | |||||||||
| Net income | 34,019 | 6,565 | |||||||||
| Preferred units of limited partnership distributions | — | (278 | ) | ||||||||
| Net income available for common shareholders | $ | 34,019 | $ | 6,287 | |||||||
| Weighted average common shares outstanding (basic) | 48,031 | 24,760 | |||||||||
| Weighted average common shares outstanding (diluted) | 48,046 | 24,760 | |||||||||
| Per common share amounts (basic and diluted): | |||||||||||
| Income (loss) from continuing operations | $ | 0.71 | $ | (0.16 | ) | ||||||
| Income from discontinued operations | $ | — | $ | 0.42 | |||||||
| Net income available for common shareholders | $ | 0.71 | $ | 0.25 | |||||||
|
See Notes on pages 6 and 7. |
|||||||||||
|
Office Properties Income Trust |
|||||||||||||
| Three Months Ended March 31, | |||||||||||||
| 2019 | 2018 | ||||||||||||
|
Calculation of FFO and Normalized FFO available for common |
|||||||||||||
|
Net income available for common shareholders |
$ | 34,019 | $ | 6,287 | |||||||||
|
Add (less): |
Depreciation and amortization: |
||||||||||||
| Consolidated properties | 77,521 | 44,204 | |||||||||||
| Unconsolidated joint venture properties | 1,751 | 2,185 | |||||||||||
| FFO attributable to SIR investment | — | 18,488 | |||||||||||
| Loss on impairment of real estate (1) | 3,204 | 6,116 | |||||||||||
| Equity in earnings of SIR included in discontinued operations | — | (10,289 | ) | ||||||||||
| Gain on sale of real estate (4) | (22,092 | ) | — | ||||||||||
| Unrealized gain on equity securities (5) | (22,128 | ) | (12,931 | ) | |||||||||
| FFO available for common shareholders | 72,275 | 54,060 | |||||||||||
|
Add (less): |
Acquisition and transaction related costs (2) |
584 | — | ||||||||||
| Loss on early extinguishment of debt | 414 | — | |||||||||||
| Normalized FFO attributable to SIR investment | — | 15,606 | |||||||||||
| FFO attributable to SIR investment | — | (18,488 | ) | ||||||||||
| Estimated business management incentive fees (3) | — | 2,887 | |||||||||||
| Normalized FFO available for common shareholders | $ | 73,273 | $ | 54,065 | |||||||||
| Weighted average common shares outstanding (basic) | 48,031 | 24,760 | |||||||||||
| Weighted average common shares outstanding (diluted) | 48,046 | 24,760 | |||||||||||
| Per common share amounts (basic and diluted): | |||||||||||||
| Net income available for common shareholders | $ | 0.71 | $ | 0.25 | |||||||||
| FFO available for common shareholders | $ | 1.50 | $ | 2.18 | |||||||||
| Normalized FFO available for common shareholders | $ | 1.53 | $ | 2.18 | |||||||||
| Distributions declared per share | $ | 0.55 | $ | 1.72 | |||||||||
|
(1) |
OPI recorded an adjustment of $2,757 to reduce the carrying |
|
|
(2) |
Acquisition and transaction related costs for the three months |
|
|
(3) |
Incentive fees under OPI’s business management agreement with |
|
|
(4) |
During the quarter ended March 31, 2019, OPI recorded a $22,092 |
|
|
(5) |
Unrealized gain on equity securities represents the adjustment |
|
|
(6) |
Income from discontinued operations includes operating results |
|
|
(7) |
OPI calculates funds from operations, or FFO, available for |
|
|
Office Properties Income Trust |
||||||||||
| Three Months Ended March 31, | ||||||||||
| 2019 | 2018 | |||||||||
|
Calculation of Consolidated Property NOI and Consolidated |
||||||||||
| Rental income (2) | $ | 174,777 | $ | 108,717 | ||||||
| Property operating expenses | (57,909 | ) | (42,491 | ) | ||||||
| Consolidated Property NOI | 116,868 | 66,226 | ||||||||
| Non-cash straight line rent adjustments included in rental income (2) | (6,794 | ) | (3,091 | ) | ||||||
| Lease value amortization included in rental income (2) | 1,147 | 835 | ||||||||
| Lease termination fees included in rental income (2) | (294 | ) | — | |||||||
| Non-cash amortization included in property operating expenses (3) | (121 | ) | (121 | ) | ||||||
| Consolidated Property Cash Basis NOI | $ | 110,806 | $ | 63,849 | ||||||
|
Reconciliation of Net Income Available for Common Shareholders |
||||||||||
| Net income available for common shareholders | $ | 34,019 | $ | 6,287 | ||||||
| Preferred units of limited partnership distributions | — | 278 | ||||||||
| Net income | 34,019 | 6,565 | ||||||||
| Income from discontinued operations | — | (10,289 | ) | |||||||
| Income (loss) from continuing operations | 34,019 | (3,724 | ) | |||||||
| Equity in net losses of investees | 235 | 577 | ||||||||
| Income tax expense | 483 | 32 | ||||||||
| Loss on early extinguishment of debt | 414 | — | ||||||||
| Interest expense | 37,133 | 22,766 | ||||||||
| Interest income | (248 | ) | (116 | ) | ||||||
| Unrealized gain on equity securities | (22,128 | ) | (12,931 | ) | ||||||
| Dividend income | (980 | ) | (304 | ) | ||||||
| Gain on sale of real estate | (22,092 | ) | — | |||||||
| General and administrative | 8,723 | 9,606 | ||||||||
| Acquisition and transaction related costs | 584 | — | ||||||||
| Loss on impairment of real estate | 3,204 | 6,116 | ||||||||
| Depreciation and amortization | 77,521 | 44,204 | ||||||||
| Consolidated Property NOI | 116,868 | 66,226 | ||||||||
| Non-cash amortization included in property operating expenses (3) | (121 | ) | (121 | ) | ||||||
| Lease termination fees included in rental income (2) | (294 | ) | — | |||||||
| Lease value amortization included in rental income (2) | 1,147 | 835 | ||||||||
| Non-cash straight line rent adjustments included in rental income (2) | (6,794 | ) | (3,091 | ) | ||||||
| Consolidated Property Cash Basis NOI | $ | 110,806 | $ | 63,849 | ||||||
| Reconciliation of Consolidated Property NOI to Same Property NOI (4): | ||||||||||
| Rental income (2) | $ | 174,777 | $ | 108,717 | ||||||
| Property operating expenses | (57,909 | ) | (42,491 | ) | ||||||
| Consolidated Property NOI | 116,868 | 66,226 | ||||||||
| Less: NOI of properties not included in same property results | ||||||||||
| SIR assets acquired | (60,522 | ) | — | |||||||
| Historical OPI assets | (3,904 | ) | (12,113 | ) | ||||||
| Same Property NOI | $ | 52,442 | $ | 54,113 | ||||||
| Calculation of Same Property Cash Basis NOI (4): | ||||||||||
| Same property NOI | $ | 52,442 | $ | 54,113 | ||||||
| Add: Lease value amortization included in rental income (2) | 318 | 547 | ||||||||
|
Less: Non-cash straight line rent adjustments included in rental income (2) |
(1,665 | ) | (2,536 | ) | ||||||
| Non-cash amortization included in property operating expenses (3) | (121 | ) | (116 | ) | ||||||
| Same Property Cash Basis NOI | $ | 50,974 | $ | 52,008 | ||||||
|
|
||||||||||
|
See Notes on page 9. |
||||||||||
|
(1) |
The calculations of Consolidated Property net operating income, |
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(2) |
OPI reports rental income on a straight line basis over the |
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(3) |
OPI recorded a liability for the amount by which the estimated |
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(4) |
For the three months ended March 31, 2019 and 2018, Same |
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Contacts
Olivia Snyder, Manager, Investor Relations
(617) 219-1410
