NEWTON, Mass.--(BUSINESS WIRE)--Jul 31, 2018--Select Income REIT (Nasdaq: SIR) today announced financial results for the quarter and six months ended June 30, 2018.

Results for the Quarter Ended June 30, 2018:

Net income attributed to SIR for the quarter ended June 30, 2018 was $11.7 million, or $0.13 per diluted share, compared to $26.7 million, or $0.30 per diluted share, for the same period last year. Net income attributed to SIR for the quarter ended June 30, 2018 includes: (1) an unrealized gain on equity securities of $13.5 million, or $0.15 per diluted share, related to SIR's investment in The RMR Group Inc., or RMR Inc., which is included in earnings in accordance with U.S. generally accepted accounting principles, or GAAP, effective January 1, 2018; (2) a reduction for the non-cash write-off of straight line rents receivable of $10.6 million, or $0.12 per diluted share, related to a lease associated with a tenant default; (3) a reduction for estimated business management incentive fees of $9.5 million, or $0.11 per diluted share; and (4) a reduction for net income allocated to noncontrolling interest representing allocations to public shareholders of Industrial Logistics Properties Trust, or ILPT, SIR's majority owned consolidated subsidiary, of $5.8 million, or $0.06 per diluted share.

Normalized funds from operations, or Normalized FFO, attributed to SIR for the quarter ended June 30, 2018 were $40.6 million, or $0.45 per diluted share, compared to $62.1 million, or $0.70 per diluted share, for the same period last year. Normalized FFO attributed to SIR for the quarter ended June 30, 2018 include a reduction for the non-cash write-off of straight line rents receivable of $10.6 million, or $0.12 per diluted share, related to a lease associated with a tenant default, and a reduction for Normalized FFO allocated to noncontrolling interest representing allocations to public shareholders of ILPT of $7.9 million, or $0.09 per diluted share.

Reconciliations of net income attributed to SIR determined in accordance with GAAP to funds from operations, or FFO, attributed to SIR and to Normalized FFO attributed to SIR for the quarters ended June 30, 2018 and 2017 appear later in this press release.

Results for the Six Months Ended June 30, 2018:

Net income attributed to SIR for the six months ended June 30, 2018 was $44.9 million, or $0.50 per diluted share, compared to $33.4 million, or $0.37 per diluted share, for the same period last year. Net income attributed to SIR for the six months ended June 30, 2018 includes: (1) an unrealized gain on equity securities of $30.4 million, or $0.34 per diluted share, related to SIR's investment in RMR Inc., which is included in earnings in accordance with GAAP effective January 1, 2018; (2) a reduction for the non-cash write-off of straight line rents receivable of $10.6 million, or $0.12 per diluted share, related to a lease associated with a tenant default; (3) a reduction for estimated business management incentive fees of $14.8 million, or $0.17 per diluted share; and (4) a reduction for net income allocated to noncontrolling interest representing allocations to public shareholders of ILPT of $10.2 million, or $0.11 per diluted share. Net income attributed to SIR for the six months ended June 30, 2017 includes a reduction for a write-off of straight line rents receivable of $12.5 million, or $0.14 per diluted share, and a reduction for a loss on asset impairment of $4.0 million, or $0.05 per diluted share, both of which were related to leases associated with a tenant bankruptcy.

Normalized FFO attributed to SIR for the six months ended June 30, 2018 were $96.6 million, or $1.08 per diluted share, compared to $114.5 million, or $1.28 per diluted share, for the same period last year. Normalized FFO attributed to SIR for the six months ended June 30, 2018 include a reduction for the non-cash write-off of straight line rents receivable of $10.6 million, or $0.12 per diluted share, related to a lease associated with a tenant default, and a reduction for Normalized FFO allocated to noncontrolling interest representing allocations to public shareholders of ILPT of $14.1 million, or $0.16 per diluted share. Normalized FFO attributed to SIR for the six months ended June 30, 2017 include a reduction for a write-off of straight line rents receivable of $12.5 million, or $0.14 per diluted share, related to leases associated with a tenant bankruptcy.

Reconciliations of net income attributed to SIR determined in accordance with GAAP to FFO attributed to SIR and to Normalized FFO attributed to SIR for the six months ended June 30, 2018 and 2017 appear later in this press release.

Consolidated Leasing, Occupancy and Same Property Results:

During the quarter ended June 30, 2018, on a consolidated basis, SIR entered lease renewals and new leases for approximately 220,000 square feet, resulting in weighted average (by square feet) rental rates that were approximately 33.9% more than prior rental rates for the same space and a weighted average (by square feet) lease term of 11 years. Commitments for leasing capital and concessions for these leases totaled approximately $541,000, or approximately $0.22 per square foot per lease year.

As of June 30, 2018, 94.8% of SIR’s consolidated total rentable square feet was leased, compared to 95.8% as of March 31, 2018 and 95.9% as of June 30, 2017. Consolidated occupancy for properties owned continuously since April 1, 2017, or on a same property basis, decreased to 94.7% at June 30, 2018 from 95.9% at June 30, 2017. Consolidated same property cash basis net operating income, or Cash Basis NOI, decreased 0.7% for the quarter ended June 30, 2018 compared to the quarter ended June 30, 2017, primarily as a result of a tenant default in May 2018, partially offset by contractual rent increases for certain properties since April 1, 2017.

In May 2018, one of SIR's tenants defaulted on its lease for a property located in Naperville, IL with approximately 820,000 rentable square feet and an original lease expiration date of March 31, 2029. As of June 30, 2018, the annual rent due from the tenant under this lease was $15.2 million. Approximately 468,000 square feet of this property is occupied by subtenants of the tenant that defaulted, and these subtenants have received notices to pay rents under the applicable subleases directly to SIR as a result of this tenant default. Payments directly to SIR under the applicable subleases aggregated $10.0 million as of June 30, 2018 (or $5.2 million less than the rent due from the tenant that defaulted). In addition, SIR is currently responsible for certain property level expenses that were previously paid, or reimbursed to SIR, by the tenant that defaulted. SIR is evaluating its options to recover and mitigate its damages. During the three months ended June 30, 2018, SIR recorded a non-cash charge of $10.6 million to write off straight line rents receivable related to this lease with the tenant that defaulted.

Reconciliations of net income determined in accordance with GAAP to net operating income, or NOI, Cash Basis NOI, same property NOI and same property Cash Basis NOI for the quarters and six months ended June 30, 2018 and 2017 on a total and same property basis appear later in this press release.

Recent Investment Activities:

In June 2018, ILPT acquired a single tenant, net leased property located in Doral, FL with 240,283 rentable square feet for a purchase price of $43.1 million, excluding acquisition related costs. This property is 100% leased and has a lease term of approximately 10 years.

In July 2018, ILPT entered an agreement to acquire a single tenant, net leased property located in Upper Marlboro, MD with approximately 221,000 rentable square feet for a purchase price of $29.3 million, excluding acquisition related costs. This property is 100% leased and has a remaining lease term of approximately 12 years. This acquisition is expected to occur before the end of the third quarter of 2018.

Recent Disposition Activities:

In May 2018, SIR entered an agreement to sell one of its 100% owned land parcels in Kapolei, HI with 417,610 rentable square feet for $10.3 million, excluding closing costs. This sale is expected to occur before the end of the third quarter of 2018.

Presentation:

The amounts reported above are on a consolidated basis, and as such, include the results of SIR’s consolidated subsidiary, ILPT, unless indicated otherwise. ILPT is itself a public company having common shares registered under the Securities and Exchange Act of 1934, as amended. For further information about ILPT, see ILPT’s periodic reports and other filings with the Securities and Exchange Commission, or SEC, which are available at the SEC’s website, www.sec.gov. References in this press release to ILPT’s filings with the SEC are included as textual references only, and the information in ILPT’s filings with the SEC is not incorporated by reference into this press release.

Conference Call:

At 10:00 a.m. Eastern Time this morning, President and Chief Executive Officer, David Blackman, and Chief Financial Officer and Treasurer, John Popeo, will host a conference call to discuss SIR’s second quarter 2018 financial results.

The conference call telephone number is (877) 328-4494. Participants calling from outside the United States and Canada should dial (412) 317-5433. 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 Tuesday, August 7, 2018. To access the replay, dial (412) 317-0088. The replay pass code is 10121850.

A live audio webcast of the conference call will also be available in a listen-only mode on SIR's website, which is located at www.sirreit.com. Participants wanting to access the webcast should visit SIR's website about five minutes before the call. The archived webcast will be available for replay on SIR's website following the call for about one week. The transcription, recording and retransmission in any way of SIR’s second quarter conference call are strictly prohibited without the prior written consent of SIR.

Supplemental Data:

A copy of SIR’s Second Quarter 2018 Supplemental Operating and Financial Data, which includes both consolidated information and information for SIR excluding ILPT, is available for download at SIR’s website, www.sirreit.com. SIR’s website is not incorporated as part of this press release.

Select Income REIT is a real estate investment trust, or REIT, that owns properties that are primarily net leased to single tenants. SIR is managed by the operating subsidiary of The RMR Group Inc. (Nasdaq: RMR), an alternative asset management company that is headquartered in Newton, MA.

Please see the pages attached hereto for a more detailed statement of SIR’s operating results and financial condition and for an explanation of SIR’s calculation of NOI, Cash Basis NOI, same property NOI, same property Cash Basis NOI, FFO attributed to SIR and Normalized FFO attributed to SIR and a reconciliation of those amounts to amounts determined according to GAAP.

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 SIR USES WORDS SUCH AS “BELIEVE”, “EXPECT”, “ANTICIPATE”, “INTEND”, “PLAN”, “ESTIMATE”, “WILL”, “MAY” AND NEGATIVES OR DERIVATIVES OF THESE OR SIMILAR EXPRESSIONS, SIR IS MAKING FORWARD LOOKING STATEMENTS. THESE FORWARD LOOKING STATEMENTS ARE BASED UPON SIR’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 SIR’S FORWARD LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS. FOR EXAMPLE:

THIS PRESS RELEASE STATES THAT ILPT HAS ENTERED AN AGREEMENT TO ACQUIRE A PROPERTY FOR $29.3 MILLION, EXCLUDING ACQUISITION RELATED COSTS. THIS ACQUISITION IS SUBJECT TO CONDITIONS. THESE CONDITIONS MAY NOT BE MET AND THIS ACQUISITION MAY NOT OCCUR, MAY BE DELAYED OR THE TERMS MAY CHANGE, THIS PRESS RELEASE STATES THAT SIR HAS ENTERED AN AGREEMENT TO SELL ONE LAND PARCEL IN KAPOLEI, HI FOR $10.3 MILLION, EXCLUDING CLOSING COSTS. THIS SALE IS SUBJECT TO CONDITIONS. THESE CONDITIONS MAY NOT BE MET AND THIS SALE MAY NOT OCCUR, MAY BE DELAYED OR THE TERMS MAY CHANGE, AND THIS PRESS RELEASE STATES THAT A TENANT OF ONE OF SIR'S PROPERTIES HAS DEFAULTED ON ITS LEASE. ALTHOUGH THE SUBTENANTS AT THIS PROPERTY HAVE RECEIVED NOTICES TO PAY RENTS UNDER THE APPLICABLE SUBLEASES DIRECTLY TO SIR, SIR CANNOT BE SURE THAT IT WILL BE SUCCESSFUL IN RECEIVING SUCH RENTS, OR THAT IT WILL BE ABLE TO RECOVER OR MITIGATE ITS DAMAGES.

THE INFORMATION CONTAINED IN SIR’S FILINGS WITH THE SEC, INCLUDING UNDER “RISK FACTORS” IN SIR’S PERIODIC REPORTS, OR INCORPORATED THEREIN, IDENTIFIES OTHER IMPORTANT FACTORS THAT COULD CAUSE SIR’S ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE STATED IN OR IMPLIED BY SIR’S FORWARD LOOKING STATEMENTS. SIR’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, SIR DOES NOT INTEND TO UPDATE OR CHANGE ANY FORWARD LOOKING STATEMENTS AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.

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