NEWTON, Mass.--(BUSINESS WIRE)--Office Properties Income Trust (Nasdaq: OPI) today announced its financial results for the quarter and year ended December 31, 2018. On December 31, 2018, OPI (formerly Government Properties Income Trust, or GOV) completed its previously announced merger with Select Income REIT, or SIR, whereby SIR merged with and into a wholly owned subsidiary of GOV, or the Merger. Upon the closing of the Merger, GOV changed its name to Office Properties Income Trust and effected a reverse share split of OPI common shares pursuant to which every four common shares of OPI were converted into one common share of OPI, or the Reverse Share Split.

David Blackman, President and Chief Executive Officer of OPI, made the following statement:

"We are pleased to have successfully completed the merger with Select Income REIT to create Office Properties Income Trust, a leading national office REIT with increased scale, enhanced tenant and geographic diversification, a more laddered lease expiration schedule, a broader investment strategy and one of the highest percentages of rent paid by investment-grade rated tenants in the office sector.

We completed our disposition plan with respect to our long term financing of our acquisition of First Potomac Realty Trust, having closed approximately $520.8 million of asset sales since acquiring FPO in 2017. We have also made progress with our disposition program associated with the SIR merger, having hired brokers to market for sale 34 buildings containing approximately 5.3 million square feet, which we expect will generate more than $700 million of total gross proceeds. Our goal is to substantially complete this disposition program by mid-year 2019 and turn our attention to accretively growing OPI. We are energized by the opportunities available to OPI and we look forward to executing on our business plan."

The Merger was effective after the close of trading on December 31, 2018. Accordingly, the assets acquired and liabilities assumed from SIR in the Merger are included in OPI's consolidated balance sheet as of December 31, 2018; however, SIR's results of operations are excluded from OPI's consolidated statements of income (loss) for all periods presented. As required under U.S. generally accepted accounting principles, or GAAP, all impacted amounts and share information included in this press release have been retroactively adjusted for the Reverse Share Split, as if the Reverse Share Split occurred on the first day of the first period presented. Certain adjusted amounts may not agree with previously reported amounts due to rounding of fractional shares.

Results for the Quarter Ended December 31, 2018:

Net loss available for common shareholders for the quarter ended December 31, 2018 was $57.7 million, or $2.31 per diluted share, compared to net loss available for common shareholders of $18.3 million, or $0.74 per diluted share, for the quarter ended December 31, 2017. Net loss available for common shareholders for the quarter ended December 31, 2018 includes: (1) a $48.2 million, or $1.93 per diluted share, unrealized loss on equity securities related to OPI's investment in The RMR Group Inc., or RMR Inc.; (2) an $18.7 million, or $0.75 per diluted share, loss on the sale of SIR shares sold on October 9, 2018; (3) $10.7 million, or $0.43 per diluted share, of transaction costs related to the Merger; and (4) a $17.0 million, or $0.68 per diluted share, reversal of previously accrued estimated business management incentive fee expense. Net loss available for common shareholders for the quarter ended December 31, 2017 includes a $9.3 million, or $0.37 per diluted share, loss on impairment of real estate. The weighted average number of diluted common shares outstanding was 25.0 million for the quarter ended December 31, 2018 and 24.8 million for the quarter ended December 31, 2017.

Normalized funds from operations, or Normalized FFO, available for common shareholders for the quarter ended December 31, 2018 were $39.1 million, or $1.56 per diluted share, compared to Normalized FFO available for common shareholders for the quarter ended December 31, 2017 of $49.2 million, or $1.99 per diluted share. Pro forma as if the Merger had occurred on October 1, 2018, Normalized FFO attributable to the company for the quarter ended December 31, 2018 was $49.6 million, or $1.03 per diluted share, and includes $25.8 million, or $0.54 per diluted share, of SIR's incentive management fee for 2018 which was assumed by OPI and paid in January 2019.

Reconciliations of net income (loss) available for common shareholders determined in accordance with GAAP to funds from operations, or FFO, available for common shareholders and Normalized FFO available for common shareholders for the quarters ended December 31, 2018 and 2017 appear later in this press release. The pro forma consolidated statement of income (loss) as if the Merger had occurred on October 1, 2018 for the quarter ended December 31, 2018 and a reconciliation of pro forma net loss attributable to the company to pro forma FFO attributable to the company and pro forma Normalized FFO attributable to the company for the quarter ended December 31, 2018 also appear later in this press release.

Results for the Year Ended December 31, 2018:

Net loss available for common shareholders was $22.3 million, or $0.90 per diluted share, for the year ended December 31, 2018, compared to net income available for common shareholders of $11.8 million, or $0.56 per diluted share, for the year ended December 31, 2017. Net loss available for common shareholders for the year ended December 31, 2018 includes: (1) an $18.7 million, or $0.75 per diluted share, loss on the sale of SIR shares sold on October 9, 2018; (2) $14.5 million, or $0.58 per diluted share, of transaction costs related to the Merger; (3) an $8.6 million, or $0.35 per diluted share, loss on impairment of real estate; (4) a $7.6 million, or $0.30 per diluted share, unrealized loss on equity securities related to OPI's investment in RMR Inc.; and (5) a $20.7 million, or $0.83 per diluted share, gain on sale of real estate. Net income available for common shareholders for the year ended December 31, 2017 includes a $9.5 million, or $0.45 per diluted share, loss on impairment of real estate. The weighted average number of diluted common shares outstanding was 24.8 million for the year ended December 31, 2018 and 21.2 million for the year ended December 31, 2017.

Normalized FFO available for common shareholders for the year ended December 31, 2018 were $197.5 million, or $7.95 per diluted share, compared to Normalized FFO available for common shareholders for the year ended December 31, 2017 of $171.1 million, or $8.09 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 years ended December 31, 2018 and 2017 appear later in this press release.

Pro Forma Leasing, Occupancy and Same Property Results:

Pro forma results combine the results of OPI and SIR for the three months ended December 31, 2018 and 2017 as if the Merger had occurred on October 1, 2017.

Pro forma for the quarter ended December 31, 2018, OPI entered new and renewal leases for an aggregate of 548,025 rentable square feet at weighted (by rentable square feet) average rents that were 7.8% below 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 $16.4 million, or $3.97 per square foot, per lease year.

As of December 31, 2018, 91.0% of OPI’s total rentable square feet (including SIR properties) was leased. Pro forma same property occupancy was 91.2% as of December 31, 2018, compared to 93.3% as of December 31, 2017. Pro forma same property Cash Basis NOI was $97.1 million for the quarter ended December 31, 2018 which was a 0.5% increase compared to the same period in 2017.

Reconciliations of pro forma net loss attributable to the company to pro forma Consolidated Property NOI and pro forma Consolidated Property Cash Basis NOI for the three months ended December 31, 2018 as if the Merger had occurred on October 1, 2018 appear later in this press release.

Merger with Select Income REIT:

On December 31, 2018, OPI completed the previously announced Merger and acquired SIR's property portfolio of 99 buildings with approximately 16.5 million rentable square feet. The aggregate transaction value, based on the closing price of OPI's common shares on December 31, 2018 of $27.48, was approximately $2.4 billion, excluding closing costs and including the repayment or assumption of approximately $1.7 billion of SIR debt. As consideration, SIR’s shareholders received 1.04 newly issued common shares of OPI for each common share of SIR they held, with cash paid in lieu of fractional shares.

Recent Property Disposition Activities:

In November 2018, OPI sold an office building located in Golden, CO with 43,231 rentable square feet for $4.0 million, excluding closing costs.

In November 2018, prior to the Merger, SIR entered into an agreement to sell a land parcel located in Hawaii containing 416,956 rentable square feet for $7.1 million, excluding closing costs.

In December 2018, OPI sold a property portfolio of 15 office buildings located in southern Virginia containing 1,640,252 rentable square feet for $167.0 million, excluding closing costs.

In February 2019, OPI sold a property portfolio of 34 office buildings located in northern Virginia and Maryland containing 1,635,868 rentable square feet for $198.5 million, excluding closing costs.

Recent Financing Activities:

As previously announced, on October 9, 2018, OPI sold all of the 24.9 million common shares of SIR it owned in an underwritten public offering at a price of $18.25 per share, raising net proceeds of $435.1 million after deducting underwriters' discounts and offering expenses. OPI used the net proceeds from the offering to repay amounts outstanding under its unsecured revolving credit facility. OPI recorded a loss on the sale of the SIR shares of $18.7 million for the quarter and year ended December 31, 2018.

In December 2018, OPI amended and restated the credit agreement governing its $750.0 million unsecured revolving credit facility and $300.0 million and $250.0 million unsecured term loans. As a result of the amendments, the stated maturity date of OPI's revolving credit facility was extended from January 31, 2019 to January 31, 2023. Subject to the payment of an extension fee and meeting certain other conditions, OPI also has an option to further extend the stated maturity date of its revolving credit facility by two additional six month periods. Also, as a result of the amendments, the interest rate payable on borrowings under OPI's revolving credit facility was reduced from a rate of LIBOR plus a premium of 125 basis points per annum to a rate of LIBOR plus a premium of 110 basis points per annum. The facility fee remained unchanged at 25 basis points per annum on the total amount of lending commitments under the facility. Both the interest rate premium and facility fee are subject to change based upon changes to OPI's credit ratings.

Also in December 2018, OPI repaid $162.0 million of the principal balance outstanding under its $250.0 million unsecured term loan due 2022 with proceeds from its disposition program.

In February 2019, OPI repaid the remaining principal balance outstanding of $88.0 million under its $250.0 million unsecured term loan due 2022 and repaid amounts outstanding under its revolving credit facility with proceeds from its disposition program.

OPI is a real estate investment trust, or 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.