Since January 1, 2019, Have Sold or
Currently Have Under Agreement to Sell 54 Properties for $683.8
Million
Second Quarter Net Loss Available for Common
Shareholders of $64.8 Million, or $1.35 Per Share
Second Quarter Normalized FFO Available for
Common Shareholders of $79.3 Million, or $1.65 Per
Share
Occupancy Increased 200 Basis Points in the
Second Quarter to 91.6%
Completed 571,000 Square Feet of Leasing in
the Second Quarter
Office Properties Income Trust (Nasdaq: OPI) today announced its
financial results for the quarter and six months ended June 30,
2019.
David Blackman, President and Chief Executive Officer of OPI,
made the following statement:
"We continue to make progress on our disposition program. Since
the beginning of the year, we have sold 40 properties for $336.5
million and currently have an additional 14 properties under
agreement to sell for $347.3 million. We also continue to market 16
additional properties with an estimated value of approximately
$235.0 million. In addition, on July 1, 2019, we sold our shares in
The RMR Group for net proceeds of approximately $105.0 million,
while achieving a 261.0% net return on this investment. On the
operations front, we continued our leasing momentum having entered
new and renewal leases for an aggregate of approximately 571,000
square feet and consolidated occupancy increased to 91.6% from
89.6% last quarter."
Results for the Quarter Ended June 30, 2019:
Net loss available for common shareholders for the quarter ended
June 30, 2019 was $64.8 million, or $1.35 per diluted share,
compared to net income available for common shareholders of $29.6
million, or $1.20 per diluted share, for the quarter ended June 30,
2018. Net loss available for common shareholders for the quarter
ended June 30, 2019 includes a $66.1 million, or $1.38 per diluted
share, unrealized loss on equity securities related to OPI's
investment in The RMR Group Inc., or RMR Inc., and a $2.4 million,
or $0.05 per diluted share, loss on impairment of real estate,
partially offset by certain net revenue events recorded during the
quarter ended June 30, 2019 totaling $8.2 million, or $0.17 per
diluted share, including a $7.4 million early termination fee
related to a single tenant property located in San Jose, CA. Net
income available for common shareholders for the quarter ended June
30, 2018 includes a $17.3 million, or $0.70 per diluted share, gain
on sale of real estate, a $10.3 million, or $0.42 per diluted
share, unrealized gain on equity securities and the reversal of
$2.2 million, or $0.09 per diluted share, of previously accrued
business management incentive fee expense. The weighted average
number of diluted common shares outstanding was 48.0 million for
the quarter ended June 30, 2019 and 24.8 million for the quarter
ended June 30, 2018.
Normalized funds from operations, or Normalized FFO, available
for common shareholders for the quarter ended June 30, 2019 were
$79.3 million, or $1.65 per diluted share, compared to Normalized
FFO available for common shareholders for the quarter ended June
30, 2018 of $51.3 million, or $2.07 per diluted share.
Reconciliations of net income (loss) 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 June 30, 2019 and 2018 appear later in this
press release.
Results for the Six Months Ended June 30, 2019:
Net loss available for common shareholders for the six months
ended June 30, 2019 was $30.8 million, or $0.64 per diluted share,
compared to net income available for common shareholders of $35.9
million, or $1.45 per diluted share, for the six months ended June
30, 2018. Net loss available for common shareholders for the six
months ended June 30, 2019 includes a $44.0 million, or $0.92 per
diluted share, unrealized loss on equity securities and a $5.6
million, or $0.12 per diluted share, loss on impairment of real
estate, partially offset by a $22.1 million, or $0.46 per diluted
share, net gain on sale of real estate and certain net revenue
events totaling $8.2 million, or $0.17 per diluted share, including
a $7.4 million early termination fee related to a single tenant
property located in San Jose, CA. Net income available for common
shareholders for the six months ended June 30, 2018 includes a
$23.3 million, or $0.94 per diluted share, unrealized gain on
equity securities and a $17.3 million, or $0.70 per diluted share,
net gain on sale of real estate, partially offset by a $5.8
million, or $0.23 per diluted share, loss on impairment of real
estate. The weighted average number of diluted common shares
outstanding was 48.0 million for the six months ended June 30, 2019
and 24.8 million for the six months ended June 30, 2018.
Normalized FFO available for common shareholders for the six
months ended June 30, 2019 were $152.5 million, or $3.17 per
diluted share, compared to Normalized FFO available for common
shareholders for the six months ended June 30, 2018 of $105.4
million, or $4.26 per diluted share.
Reconciliations of net income (loss) available for common
shareholders determined in accordance with GAAP to FFO available
for common shareholders and Normalized FFO available for common
shareholders for the six months ended June 30, 2019 and 2018 appear
later in this press release.
Leasing and Occupancy Results:
During the quarter ended June 30, 2019, OPI entered new and
renewal leases for an aggregate of 571,000 rentable square feet at
weighted (by rentable square feet) average rents that were 5.3%
below prior rents for the same space. The weighted (by rentable
square feet) average lease term for these leases was 6.7 years and
leasing concessions and capital commitments for these leases were
$15.4 million, or $4.01 per square foot, per lease year.
As of June 30, 2019, 91.6% of OPI’s total rentable square feet
was leased, compared to 89.6% as of March 31, 2019 and 94.0% as of
June 30, 2018.
Pro Forma Same Property Results:
Pro forma results combine the results of OPI and Select Income
REIT, or SIR, for the three months ended June 30, 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 91.6% as of June 30, 2019, compared to 94.0%
as of June 30, 2018. Pro Forma Same Property Cash Basis NOI was
$107.3 million for the quarter ended June 30, 2019, which was a
2.9% decrease compared to the same period in 2018.
Reconciliations of net income (loss) available for common
shareholders determined in accordance with GAAP to Property NOI and
Property Cash Basis NOI for the quarters ended June 30, 2019 and
2018 and a calculation of Pro Forma Same Property NOI and Same
Property Cash Basis NOI for the quarter ended June 30, 2019 appear
later in this press release.
Recent Property Disposition Activities:
In May 2019, OPI sold one property located in Buffalo, NY
containing 121,711 rentable square feet for $16.9 million,
excluding closing costs, and one vacant property located in
Maynard, MA containing 287,037 rentable square feet for $5.0
million, excluding closing costs.
In June 2019, OPI sold a vacant land parcel located in Kapolei,
HI containing 416,956 rentable square feet for $7.1 million,
excluding closing costs.
In July 2019, OPI sold one property located in San Jose, CA
containing 71,750 rentable square feet for $14.0 million, excluding
closing costs, and one property located in Nashua, NH containing
321,800 rentable square feet for $25.0 million, excluding closing
costs.
As of August 1, 2019, OPI has entered into agreements to sell
the following 14 properties containing a combined 2.4 million
rentable square feet for an aggregate sales price of $347.3
million, excluding closing costs:
Agreement Date
Location
Number of Properties
Square Feet
Gross Sales Price
April 2019
Hanover, PA
1
502,300
$
6,000,000
May 2019
Arlington, TX
1
182,630
14,900,000
June 2019
Kansas City, KS
1
170,817
12,900,000
June 2019
Topeka, KS
1
143,934
15,600,000
June 2019
Rochester, NY
1
94,800
4,765,000
July 2019
Fremont, CA
1
100,728
25,500,000
July 2019
Columbia, SC
3
180,703
10,750,000
July 2019
San Diego, CA
1
148,488
26,300,000
July 2019
San Diego, CA
1
43,918
8,950,000
July 2019
Phoenix, AZ
1
122,646
16,600,000
July 2019
San Antonio, TX
1
618,017
198,000,000
July 2019
Windsor, CT
1
97,256
7,000,000
14
2,406,237
$
347,265,000
Recent Investment Activities:
As previously announced, on July 1, 2019, OPI completed its sale
of 2,801,060 shares of class A common stock of RMR Inc., or RMR
Inc. common stock, in an underwritten public offering at a price to
the public of $40.00 per common share. OPI received $105.0 million
in net proceeds, after underwriting fees and before other offering
expenses, that it used to repay debt.
In July 2019, OPI entered into an agreement to acquire a land
parcel near one of its properties located in Boston, MA for $2.9
million, excluding acquisition related costs.
Recent Financing Activities:
In June 2019, OPI repaid $65.0 million under its $300.0 million
unsecured term loan due 2020 with cash on hand and proceeds from
its disposition program. In July 2019, OPI repaid an additional
$105.0 million under its term loan using proceeds from its sale of
RMR Inc. common stock.
On July 15, 2019, OPI redeemed, at par plus accrued interest,
all $350.0 million of its 3.75% senior notes due 2019 using cash on
hand and borrowings under its revolving credit facility.
Conference Call:
At 10:00 a.m. Eastern Time this morning, President and Chief
Executive Officer, David Blackman, Chief Financial Officer and
Treasurer, Matthew Brown, and Vice President, Christopher Bilotto,
will host a conference call to discuss OPI’s second 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,
August 9, 2019. To access the replay, dial (412) 317-0088. The
replay pass code is 10132500.
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 second quarter
conference call are strictly prohibited without the prior written
consent of OPI.
Supplemental Data:
A copy of OPI’s Second 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,
Property NOI, Property Cash Basis NOI, Same Property NOI, Same
Property Cash Basis NOI, 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 (loss) and net income (loss)
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 (loss) and net income (loss)
available for common shareholders as presented in OPI's condensed
consolidated statements of income (loss). 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
(loss) and net income (loss) 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 Property NOI, Property Cash
Basis NOI, Same Property NOI, Same Property Cash Basis NOI, Pro
Forma Same Property NOI and Pro Forma 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,
Property NOI, 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
properties primarily leased to single tenants and those with high
credit quality characteristics such as government entities. OPI is
managed by the operating subsidiary of RMR Inc. (Nasdaq: RMR), an
alternative asset management company that is headquartered in
Newton, Massachusetts.
Office Properties Income
Trust
Condensed Consolidated
Statements of Income (Loss)
(amounts in thousands, except
per share data)
(unaudited)
Three Months Ended June
30,
Six Months Ended June
30,
2019
2018
2019
2018
Rental income
$
176,032
$
108,085
$
350,809
$
216,802
Expenses:
Real estate taxes
18,147
12,365
36,539
25,330
Utility expenses
7,470
6,018
16,851
12,707
Other operating expenses
29,692
21,599
59,828
44,436
Depreciation and
amortization
73,913
42,671
151,434
86,875
Loss on impairment of real
estate (1)
2,380
(316
)
5,584
5,800
Acquisition and transaction
related costs (2)
98
—
682
—
General and administrative
(3)
8,744
4,449
17,467
14,055
Total expenses
140,444
86,786
288,385
189,203
Gain (loss) on sale of real
estate (4)
(17
)
17,329
22,075
17,329
Dividend income
980
304
1,960
608
Unrealized gain (loss) on
equity securities (5)
(66,135
)
10,321
(44,007
)
23,252
Interest income
241
149
489
265
Interest expense (including
amortization of debt premiums, discounts
and issuance costs of $2,863,
$892, $5,704 and $1,856, respectively)
(35,348
)
(23,304
)
(72,481
)
(46,070
)
Loss on early extinguishment of
debt
(71
)
—
(485
)
—
Income (loss) from continuing operations
before income tax benefit
(expense) and equity in net
losses of investees
(64,762
)
26,098
(30,025
)
22,983
Income tax benefit
(expense)
130
(83
)
(353
)
(115
)
Equity in net losses of
investees
(142
)
(629
)
(377
)
(1,206
)
Income (loss) from continuing
operations
(64,774
)
25,386
(30,755
)
21,662
Income from discontinued
operations (6)
—
4,309
—
14,598
Net income (loss)
(64,774
)
29,695
(30,755
)
36,260
Preferred units of limited
partnership distributions
—
(93
)
—
(371
)
Net income (loss) available for common
shareholders
$
(64,774
)
$
29,602
$
(30,755
)
$
35,889
Weighted average common shares outstanding
(basic)
48,049
24,763
48,040
24,762
Weighted average common shares outstanding
(diluted)
48,049
24,766
48,040
24,763
Per common share amounts (basic and
diluted):
Income (loss) from continuing
operations
$
(1.35
)
$
1.02
$
(0.64
)
$
0.86
Income from discontinued
operations
$
—
$
0.17
$
—
$
0.59
Net income (loss) available for
common shareholders
$
(1.35
)
$
1.20
$
(0.64
)
$
1.45
See Notes Below
Office Properties Income
Trust
Funds from Operations and
Normalized Funds from Operations
(amounts in thousands, except
per share data)
(unaudited)
Three Months Ended June
30,
Six Months Ended June
30,
2019
2018
2019
2018
Calculation of FFO and Normalized FFO
available for common shareholders (7):
Net income (loss) available for common
shareholders
$
(64,774
)
$
29,602
$
(30,755
)
$
35,889
Add (less): Depreciation and
amortization:
Consolidated properties
73,913
42,671
151,434
86,875
Unconsolidated joint venture
properties
1,410
2,185
3,161
4,370
FFO attributable to SIR
investment
—
12,414
—
30,902
Loss on impairment of real
estate (1)
2,380
(316
)
5,584
5,800
Equity in earnings of SIR
included in discontinued operations
—
(4,301
)
—
(14,590
)
(Gain) loss on sale of real
estate (4)
17
(17,329
)
(22,075
)
(17,329
)
Unrealized (gain) loss on
equity securities (5)
66,135
(10,321
)
44,007
(23,252
)
FFO available for common shareholders
79,081
54,605
151,356
108,665
Add (less): Acquisition and transaction
related costs (2)
98
—
682
—
Loss on early extinguishment of
debt
71
—
485
—
Normalized FFO attributable to
SIR investment
—
11,292
—
26,898
FFO attributable to SIR
investment
—
(12,414
)
—
(30,902
)
Net gain on issuance of shares
by SIR included in discontinued operations
—
(8
)
—
(8
)
Estimated business management
incentive fees (3)
—
(2,150
)
—
737
Normalized FFO available for common
shareholders
$
79,250
$
51,325
$
152,523
$
105,390
Weighted average common shares outstanding
(basic)
48,049
24,763
48,040
24,762
Weighted average common shares outstanding
(diluted)
48,049
24,766
48,040
24,763
Per common share amounts:
Net income (loss) available for
common shareholders (basic and diluted)
$
(1.35
)
$
1.20
$
(0.64
)
$
1.45
FFO available for common
shareholders (basic)
$
1.65
$
2.21
$
3.15
$
4.39
FFO available for common
shareholders (diluted)
$
1.65
$
2.20
$
3.15
$
4.39
Normalized FFO available for
common shareholders (basic and diluted)
$
1.65
$
2.07
$
3.17
$
4.26
Distributions declared per
share
$
0.55
$
1.72
$
1.10
$
3.44
- OPI recorded an adjustment of $2,380 to reduce the carrying
value of one property to its estimated fair value less costs to
sell during the three months ended June 30, 2019. OPI recorded an
adjustment of $2,757 to reduce the carrying value of one property
to its estimated fair value less costs to sell and a $447 loss on
impairment of real estate related to the disposal of a property
portfolio consisting of 34 properties located in Northern Virginia
and Maryland during the three months ended March 31, 2019. During
the three months ended June 30, 2018, OPI recorded an adjustment of
$322 to increase the carrying value of one property removed from
held for sale status to its estimated fair value and an adjustment
of $6 to reduce the carrying value of one property to its estimated
fair value less costs to sell. OPI recorded a $6,116 loss on
impairment of real estate in the three months ended March 31, 2018
to reduce the carrying value of three properties to their estimated
fair value less costs to sell.
- Acquisition and transaction related costs for the three and six
months ended June 30, 2019 consist of costs incurred in connection
with the Merger.
- Incentive fees under OPI’s business management agreement with
The RMR Group LLC are payable after the end of each calendar year,
are calculated based on common share total return, as defined, and
are included in general and administrative expenses in OPI’s
condensed consolidated statements of income (loss). In calculating
net income (loss) in accordance with GAAP, OPI recognizes estimated
business management incentive fee expense, if any, in the first,
second and third quarters. Although OPI recognizes this expense, if
any, in the first, second and third quarters for purposes of
calculating net income (loss), OPI does not include such expense in
the calculation of Normalized FFO until the fourth quarter, when
the amount of the business management incentive fee expense for the
calendar year, if any, is determined. No estimated business
management incentive fees were included in net income (loss) for
the three and six months ended June 30, 2019. Net income for the
three and six months ended June 30, 2018 includes the reversal of
$2,150 previously accrued business management incentive fee expense
and $737 of estimated business management incentive fee expense,
respectively.
- During the six months ended June 30, 2019, OPI recorded a
$22,075 gain on the sale of one property. During the six months
ended June 30, 2018, OPI recorded a $17,329 gain on the sale of one
property.
- Unrealized gain (loss) on equity securities represents the
adjustment required to adjust the carrying value of OPI's
investment in RMR Inc. common stock to its fair value as of June
30, 2019 and 2018. On July 1, 2019, OPI sold its entire investment
in RMR Inc. common stock.
- Income from discontinued operations includes operating results
related to OPI's former equity method investment in SIR that OPI
sold in October 2018.
- OPI calculates funds from operations, or FFO, available for
common shareholders and Normalized FFO available for common
shareholders as shown above. FFO available for common shareholders
is calculated on the basis defined by The National Association of
Real Estate Investment Trusts, which is net income (loss) available
for common shareholders, calculated in accordance with GAAP, plus
real estate depreciation and amortization of consolidated
properties and its proportionate share of the real estate
depreciation and amortization of unconsolidated joint venture
properties, and the difference between FFO attributable to an
equity investment and equity in earnings of SIR included in
discontinued operations, but excluding impairment charges on and
increases in the carrying value of real estate assets, any gain or
loss on sale of real estate, as well as certain other adjustments
currently not applicable to OPI. In calculating Normalized FFO
available for common shareholders, OPI adjusts for the items shown
above and includes business management incentive fees, if any, only
in the fourth quarter versus the quarter when they are recognized
as an expense in accordance with GAAP due to their quarterly
volatility not necessarily being indicative of OPI’s core operating
performance and the uncertainty as to whether any such business
management incentive fees will be payable when all contingencies
for determining such fees are known at the end of the calendar
year. FFO available for common shareholders and Normalized FFO
available for common shareholders are among the factors considered
by OPI’s Board of Trustees when determining the amount of
distributions to OPI’s shareholders. Other factors include, but are
not limited to, requirements to maintain OPI's qualification for
taxation as a REIT, limitations in OPI’s credit agreement and
public debt covenants, the availability to OPI of debt and equity
capital, OPI’s expectation of its future capital requirements and
operating performance and OPI’s expected needs for and availability
of cash to pay its obligations. Other real estate companies and
REITs may calculate FFO available for common shareholders and
Normalized FFO available for common shareholders differently than
OPI does.
Office Properties Income
Trust Calculation and Reconciliation of Property NOI,
Property Cash Basis NOI, Same Property NOI and Same Property Cash
Basis NOI (1)
(amounts in thousands)
(unaudited)
Three Months Ended June
30,
Six Months Ended June
30,
2019
2018
2019
2018
Calculation of Property NOI and
Property Cash Basis NOI:
Rental income (2)
$
176,032
$
108,085
$
350,809
$
216,802
Property operating expenses
(55,309
)
(39,982
)
(113,218
)
(82,473
)
Property NOI
120,723
68,103
237,591
134,329
Non-cash straight line rent adjustments
included in rental income (2)
(5,667
)
(2,744
)
(12,461
)
(5,835
)
Lease value amortization included in
rental income (2)
1,446
753
2,593
1,588
Lease termination fees included in rental
income (2)
(8,867
)
—
(9,161
)
—
Non-cash amortization included in property
operating expenses (3)
(121
)
(121
)
(242
)
(242
)
Property Cash Basis NOI
$
107,514
$
65,991
$
218,320
$
129,840
Reconciliation of Net Income (Loss)
Available for Common Shareholders to Property NOI and Property Cash
Basis NOI:
Net income (loss) available for common
shareholders
$
(64,774
)
$
29,602
$
(30,755
)
$
35,889
Preferred units of limited partnership
distributions
—
93
—
371
Net income (loss)
(64,774
)
29,695
(30,755
)
36,260
Income from discontinued operations
—
(4,309
)
—
(14,598
)
Income (loss) from continuing
operations
(64,774
)
25,386
(30,755
)
21,662
Equity in net losses of investees
142
629
377
1,206
Income tax (benefit) expense
(130
)
83
353
115
Loss on early extinguishment of debt
71
—
485
—
Interest expense
35,348
23,304
72,481
46,070
Interest income
(241
)
(149
)
(489
)
(265
)
Unrealized (gain) loss on equity
securities
66,135
(10,321
)
44,007
(23,252
)
Dividend income
(980
)
(304
)
(1,960
)
(608
)
(Gain) loss on sale of real estate
17
(17,329
)
(22,075
)
(17,329
)
General and administrative
8,744
4,449
17,467
14,055
Acquisition and transaction related
costs
98
—
682
—
Loss on impairment of real estate
2,380
(316
)
5,584
5,800
Depreciation and amortization
73,913
42,671
151,434
86,875
Property NOI
120,723
68,103
237,591
134,329
Non-cash amortization included in property
operating expenses (3)
(121
)
(121
)
(242
)
(242
)
Lease termination fees included in rental
income (2)
(8,867
)
—
(9,161
)
—
Lease value amortization included in
rental income (2)
1,446
753
2,593
1,588
Non-cash straight line rent adjustments
included in rental income (2)
(5,667
)
(2,744
)
(12,461
)
(5,835
)
Property Cash Basis NOI
$
107,514
$
65,991
$
218,320
$
129,840
Reconciliation of Property NOI to Same
Property NOI (4) (5):
Rental income (2)
$
176,032
$
108,085
$
350,809
$
216,802
Property operating expenses
(55,309
)
(39,982
)
(113,218
)
(82,473
)
Property NOI
120,723
68,103
237,591
134,329
Less: NOI of properties not
included in same property results
SIR assets acquired
(67,415
)
—
(127,937
)
—
Historical OPI assets
(395
)
(11,800
)
(4,388
)
(24,036
)
Same Property NOI
$
52,913
$
56,303
$
105,266
$
110,293
Calculation of Same Property Cash Basis
NOI (4) (5):
Same property NOI
$
52,913
$
56,303
$
105,266
$
110,293
Add: Lease value amortization
included in rental income (2)
289
500
607
1,047
Less: Non-cash straight line
rent adjustments included in rental income (2)
(844
)
(2,330
)
(2,512
)
(4,868
)
Lease termination fees included
in rental income (2)
(1,519
)
—
(1,519
)
—
Non-cash amortization included
in property operating expenses (3)
(121
)
(118
)
(240
)
(233
)
Same Property Cash Basis
NOI
$
50,718
$
54,355
$
101,602
$
106,239
See Notes Below
- The calculations of Property net operating income, or NOI, and
Property Cash Basis NOI exclude certain components of net income
(loss) available for common shareholders in order to provide
results that are more closely related to OPI’s property level
results of operations. OPI calculates Property NOI and Property
Cash Basis NOI as shown above. OPI defines Property NOI as income
from its rental of real estate less its property operating
expenses. Property NOI excludes amortization of capitalized tenant
improvement costs and leasing commissions that OPI records as
depreciation and amortization expense. OPI defines Property Cash
Basis NOI as Property NOI excluding non-cash straight line rent
adjustments, lease value amortization, lease termination fees, if
any, and non-cash amortization included in other operating
expenses. OPI calculates Same Property NOI and Same Property Cash
Basis NOI in the same manner that it calculates the corresponding
Property Cash Basis NOI amounts, except that it only includes same
properties in calculating Same Property NOI and Same Property Cash
Basis NOI. OPI uses Property NOI, Property Cash Basis NOI, Same
Property NOI and Same Property Cash Basis NOI to evaluate
individual and company-wide property level performance. Other real
estate companies and REITs may calculate Property NOI, Property
Cash Basis NOI, Same Property NOI and Same Property Cash Basis NOI
differently than OPI does.
- OPI reports rental income on a straight line basis over the
terms of the respective leases; as a result, rental income includes
non-cash straight line rent adjustments. Rental income also
includes expense reimbursements, tax escalations, parking revenues,
service income and other fixed and variable charges paid to OPI by
its tenants, as well as the net effect of non-cash amortization of
intangible lease assets and liabilities and lease termination fees,
if any.
- OPI recorded a liability for the amount by which the estimated
fair value for accounting purposes exceeded the price OPI paid for
its investment in RMR Inc. common stock in June 2015. A portion of
this liability is being amortized on a straight line basis through
December 31, 2035 as a reduction to property management fee
expense, which is included in property operating expenses.
- For the three months ended June 30, 2019 and 2018, Same
Property NOI and Same Property Cash Basis NOI are based on
properties OPI owned continuously since April 1, 2018.
- For the six months ended June 30, 2019 and 2018, Same Property
NOI and Same Property Cash Basis NOI are based on properties OPI
owned continuously since January 1, 2018.
Office Properties Income
Trust
Pro Forma Summary Same
Property Results (1)
(dollars and square feet in
thousands)
(unaudited)
For the Three Months Ended
OPI (Excluding SIR Properties):
6/30/2019
6/30/2018
Leasable properties
112
112
Total sq. ft. (2)
13,474
13,474
Percent leased (3)
92.9
%
94.3
%
Same Property Cash Basis NOI (4)
$
50,718
$
54,355
Same Property Cash Basis NOI % change
(6.7
%)
For the Three Months Ended
SIR Properties:
6/30/2019
6/30/2018
As reported
Less:
SIR (excluding ILPT)
Dispositions (5)
Pro Forma SIR
Leasable properties (6)
97
100
(3
)
97
Total sq. ft. (2)
15,835
16,956
(1,121
)
15,835
Percent leased (3)
90.6
%
87.5
%
—
%
88.7
%
Same Property Cash Basis NOI (4)
$
56,554
$
55,519
$
630
$
56,149
Same Property Cash Basis NOI % change
0.7
%
For the Three Months Ended
Pro Forma Combined:
6/30/2019
6/30/2018
Leasable properties (6)
209
209
Total sq. ft. (2)
29,309
29,309
Percent leased (3)
91.6
%
94.0
%
Same Property Cash Basis NOI (4)
$
107,272
$
110,504
Same Property Cash Basis NOI % change
(2.9
%)
- OPI (excluding SIR properties) same property results for the
three months ended June 30, 2019 and 2018, are based on properties
owned continuously since April 1, 2018. SIR properties same
property results for the three months ended June 30, 2019 and 2018,
are based on properties SIR owned immediately prior to the Merger
and which it had owned continuously since April 1, 2018 and which
OPI owned continuously since that time. Pro forma combined same
property results combine the same property results of OPI and SIR
for the three months ended June 30, 2019 and 2018, as if the Merger
had occurred on January 1, 2018. See calculation of Pro Forma Same
Property Cash Basis NOI for the three months ended June 30, 2019 on
page 12.
- Subject to changes when space is remeasured or reconfigured for
tenants.
- Percent leased includes (i) space being fitted out for
occupancy pursuant to OPI's lease agreements, if any, and (ii)
space which is leased, but is not occupied or is being offered for
sublease by tenants, if any, as of the measurement date.
- See page 10 for the definition of Property Cash Basis NOI, a
description of why OPI believes it is an appropriate supplemental
measure and a description of how OPI uses this measure.
- Includes a vacant land parcel SIR sold in August 2018, a
property OPI sold in May 2019 and a vacant land parcel OPI sold in
June 2019.
- Includes one leasable land parcel as of June 30, 2019.
Office Properties Income
Trust
Calculation of Pro Forma Same
Property NOI and Same Property Cash Basis NOI (1)
(amounts in thousands)
(unaudited)
For the Three Months Ended June
30, 2019
OPI (Excludes
SIR
Pro Forma
SIR Properties)
Properties
Combined
Reconciliation of Property NOI to Same
Property NOI: (2)
Rental income (3)
$
88,663
$
87,369
$
176,032
Property operating expenses
(35,355
)
(19,954
)
(55,309
)
Property NOI
53,308
67,415
120,723
Less: NOI of properties not included in
same property results
(395
)
—
(395
)
Same Property NOI
$
52,913
$
67,415
$
120,328
Calculation of Same Property Cash Basis
NOI: (2)
Same property NOI
$
52,913
$
67,415
$
120,328
Add: Lease value amortization
included in rental income (3)
289
1,156
1,445
Less: Non-cash straight line
rent adjustments included in rental income (3)
(844
)
(4,669
)
(5,513
)
Lease termination fees included
in rental income (3)
(1,519
)
(7,348
)
(8,867
)
Non-cash amortization included
in property operating expenses (4)
(121
)
—
(121
)
Same Property Cash Basis NOI
$
50,718
$
56,554
$
107,272
- See page 10 for the definitions of Property NOI and Property
Cash Basis NOI, a description of why OPI believes they are
appropriate supplemental measures and a description of how OPI uses
these measures.
- OPI (excluding SIR properties) same property results for the
three months ended June 30, 2019 are based on properties owned
continuously since April 1, 2018. SIR properties same property
results for the three months ended June 30, 2019 are based on
properties SIR owned immediately prior to the Merger and which it
had owned continuously since April 1, 2018 and which OPI owned
continuously since that time. Pro forma combined same property
results combine the same property results of OPI and SIR for the
three months ended June 30, 2019, as if the Merger had occurred on
January 1, 2018.
- OPI reports rental income on a straight line basis over the
terms of the respective leases; as a result, rental income includes
non-cash straight line rent adjustments. Rental income also
includes expense reimbursements, tax escalations, parking revenues,
service income and other fixed and variable charges paid to OPI by
its tenants, as well as the net effect of non-cash amortization of
intangible lease assets and liabilities and lease termination fees,
if any.
- OPI recorded a liability for the amount by which the estimated
fair value for accounting purposes exceeded the price OPI paid for
its investment in RMR Inc. common stock in June 2015. A portion of
this liability is being amortized on a straight line basis through
December 31, 2035 as a reduction to property management fees
expense, which is included in property operating expenses.
Office Properties Income
Trust
Condensed Consolidated Balance
Sheets
(dollars in thousands, except
per share data)
(unaudited)
June 30,
December 31,
2019
2018
ASSETS
Real estate properties:
Land
$
875,019
$
924,164
Buildings and improvements
2,941,375
3,020,472
Total real estate properties,
gross
3,816,394
3,944,636
Accumulated depreciation
(394,060
)
(375,147
)
Total real estate properties,
net
3,422,334
3,569,489
Assets of properties held for sale
126,014
253,501
Investments in unconsolidated joint
ventures
41,634
43,665
Acquired real estate leases, net
924,594
1,056,558
Cash and cash equivalents
21,102
35,349
Restricted cash
3,583
3,594
Rents receivable, net
70,639
72,051
Deferred leasing costs, net
34,697
25,672
Other assets, net
159,725
178,704
Total assets
$
4,804,322
$
5,238,583
LIABILITIES AND SHAREHOLDERS’ EQUITY
Unsecured revolving credit facility
$
65,000
$
175,000
Unsecured term loans, net
169,827
387,152
Senior unsecured notes, net
2,362,629
2,357,497
Mortgage notes payable, net
325,293
335,241
Liabilities of properties held for
sale
1,953
4,271
Accounts payable and other liabilities
159,055
145,536
Due to related persons
6,593
34,887
Assumed real estate lease obligations,
net
17,486
20,031
Total liabilities
3,107,836
3,459,615
Commitments and contingencies
Shareholders’ equity:
Common shares of beneficial
interest, $.01 par value: 200,000,000 shares authorized,48,113,444
and 48,082,903 shares issued and outstanding, respectively
481
481
Additional paid in capital
2,611,570
2,609,801
Cumulative net income
116,127
146,882
Cumulative other comprehensive
income (loss)
(495
)
106
Cumulative common
distributions
(1,031,197
)
(978,302
)
Total shareholders’ equity
1,696,486
1,778,968
Total liabilities and
shareholders’ equity
$
4,804,322
$
5,238,583
Warning Concerning
Forward-Looking Statements
This press release contains statements that constitute
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 and other securities laws.
Also, whenever OPI uses words such as “believe”, “expect”,
“anticipate”, “intend”, “plan”, “estimate”, “will”, “may” and
negatives or derivatives of these or similar expressions, OPI is
making forward-looking statements. These forward-looking statements
are based upon OPI’s present intent, beliefs or expectations, but
forward-looking statements are not guaranteed to occur and may not
occur. Actual results may differ materially from those contained in
or implied by OPI’s forward-looking statements as a result of
various factors. Forward-looking statements involve known and
unknown risks, uncertainties and other factors, some of which are
beyond OPI's control. For example:
- Mr. Blackman's statements that OPI made progress on its
disposition program during the second quarter and that it is
continuing to market properties may imply that OPI will continue to
sell properties and that it will realize proceeds from those sales
equal to or greater than the amount it expects. However, OPI may
not complete its pending sales of properties and it may not
successfully sell additional properties. In addition, OPI may not
realize the proceeds it may target for its property sales and it
may determine to set a different target proceeds amount from its
property sales. Further, any property sales it may complete may be
at amounts that are less than OPI's carrying values and OPI may
incur losses with respect to properties it may sell or seek to
sell,
- Mr. Blackman's statements regarding OPI's leasing activity may
imply that similar or better results will be achieved in the
future. However, OPI cannot be sure that it will realize similar or
better leasing results in the future,
- Mr. Blackman's statements regarding OPI's higher property
occupancy may imply that the occupancy at OPI's properties will
continue to improve or that OPI will be able to maintain any
increased occupancy it may realize at its properties. OPI's ability
to increase or maintain the occupancy at its properties depends on
various factors, including market conditions, tenants' demand for
OPI's properties, the timing of lease expirations and OPI's ability
to successfully compete for tenants, among other factors. As a
result, OPI's property occupancy may or may not increase and could
decline,
- OPI has entered agreements to sell 14 properties for an
aggregate sales price of approximately $347.3 million, excluding
closing costs. These sales are subject to conditions. Those
conditions may not be satisfied and these sales may not occur, may
be delayed or their terms may change, and
- OPI has entered an agreement to acquire a land parcel near one
of its properties located in Boston, MA for $2.9 million, excluding
acquisition related costs. This acquisition is subject to
conditions. Those conditions may not be satisfied and this
acquisition may not occur, may be delayed or the terms may
change.
The information contained in OPI’s filings with the SEC,
including under “Risk Factors” in OPI’s periodic reports, or
incorporated therein, identifies other important factors that could
cause OPI’s actual results to differ materially from those stated
in or implied by OPI’s forward-looking statements. OPI’s filings
with the SEC are available on the SEC's website at www.sec.gov.
You should not place undue reliance upon forward-looking
statements.
Except as required by law, OPI does not intend to update or
change any forward-looking statements as a result of new
information, future events or otherwise.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190802005088/en/
Contact: Olivia Snyder, Manager, Investor Relations (617)
219-1410
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