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 Select Income REIT Announces Fourth Quarter and Year End 2016 Results
   Thursday, February 16, 2017 7:00:02 AM ET

--Fourth Quarter Normalized FFO of $0.71 Per Share

--353,000 Square Feet Leased at 32.0% Rental Rate Increases

Select Income REIT (SIR ) today announced financial results for the quarter and year ended December 31, 2016.

David Blackman, President and Chief Operating Officer of SIR, made the following statement:

"During the fourth quarter of 2016, Select Income REIT continued with steady execution of its operating strategy, generating normalized funds from operations of $0.71 per diluted share, a two cents per share increase over the previous quarter ended September 30, 2016. We saw continued momentum in leasing activity during the quarter, with leases executed for approximately 353,000 square feet, which resulted in rents that were 32.0% higher than previous rents for the same space, 17.4 years of weighted average lease term, and leasing capital commitments of only $0.01 per square foot per lease year."

Results for the Quarter Ended December 31, 2016:

Net income attributed to SIR was $24.2 million, or $0.27 per diluted share, for the quarter ended December 31, 2016, compared to $10.9 million, or $0.12 per diluted share, for the same quarter last year. Net income attributed to SIR per diluted share for the quarter ended December 31, 2016 includes a loss on asset impairment of $5.5 million, or $0.06 per diluted share. Net income attributed to SIR per diluted share for the quarter ended December 31, 2015 included a non-cash loss on the distribution of The RMR Group Inc. (RMR ) common stock to SIR’s shareholders of $23.7 million, or $0.27 per diluted share.

Normalized funds from operations, or Normalized FFO, attributed to SIR for the quarter ended December 31, 2016 were $63.5 million, or $0.71 per diluted share, compared to Normalized FFO attributed to SIR for the quarter ended December 31, 2015 of $67.5 million, or $0.76 per diluted share.

Reconciliations of net income attributed to SIR determined in accordance with U.S. generally accepted accounting principles, or GAAP, to funds from operations, or FFO, attributed to SIR and to Normalized FFO attributed to SIR for the quarters ended December 31, 2016 and 2015 appear later in this press release.

Results for the Year Ended December 31, 2016:

Net income attributed to SIR was $116.3 million, or $1.30 per diluted share, for the year ended December 31, 2016, compared to $74.7 million, or $0.86 per diluted share, for the prior year. Net income attributed to SIR per diluted share for the year ended December 31, 2016 includes a loss on asset impairment of $5.5 million, or $0.06 per diluted share. Net income attributed to SIR per diluted share for the year ended December 31, 2015 included acquisition costs primarily related to SIR’s acquisition of Cole Corporate Income Trust, Inc., a loss on early extinguishment of debt and a non-cash loss on the distribution of RMR common stock to SIR’s shareholders aggregating $52.5 million, or $0.61 per diluted share.

Normalized FFO attributed to SIR for the year ended December 31, 2016 were $255.8 million, or $2.86 per diluted share, compared to Normalized FFO attributed to SIR for the year ended December 31, 2015 of $249.9 million, or $2.88 per diluted share.

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 years ended December 31, 2016 and 2015 appear later in this press release.

Leasing, Occupancy and Same Property Results:

SIR entered into lease renewals for approximately 253,000 square feet and new leases for approximately 100,000 square feet during the quarter ended December 31, 2016, which resulted in combined weighted average (by square feet) rental rates that were approximately 32.0% higher than prior rents for the same space. The weighted average (by square feet) lease terms for these leases was 17.4 years. Commitments for tenant improvements, leasing costs and concessions for these leases totaled $87,000, or approximately $0.01 per square foot per weighted average lease year.

As of December 31, 2016 and September 30, 2016, 96.8% of SIR’s total rentable square feet was leased, compared to 97.8% as of December 31, 2015. Occupancy for properties owned continuously since October 1, 2015 decreased to 96.7% at December 31, 2016 from 97.8% at December 31, 2015. Same property cash basis net operating income, or Cash Basis NOI, decreased 1.6% for the quarter ended December 31, 2016 compared to the quarter ended December 31, 2015, primarily as a result of the decline in occupancy during 2016, partially offset by contractual rent increases for certain properties since October 1, 2015.

Reconciliations of net operating income, or NOI, and Cash Basis NOI to net income determined in accordance with GAAP for the quarters and years ended December 31, 2016 and 2015 appear later in this press release.

Recent Investment Activities:

As previously disclosed, on October 12, 2016, SIR acquired a single tenant, net leased office property located in Richmond, VA with approximately 50,000 rentable square feet for a purchase price of $7.8 million, excluding acquisition related costs. This property had a remaining lease term as of the acquisition date of approximately 11.3 years.

On January 13, 2017, SIR acquired a land parcel adjacent to one of its properties located in McAlester, OK for a purchase price of $225,500, excluding acquisition related costs. The land parcel will be used to expand the building for an existing tenant.

On December 29, 2016, SIR entered an agreement to acquire a single tenant, net leased office property located in Tampa, FL with approximately 133,000 rentable square feet for a purchase price of $14.3 million, excluding acquisition related costs. This property has a remaining lease term of approximately 9.5 years.

Conference Call:

At 10:00 a.m. Eastern Time this morning, President and Chief Operating Officer, David Blackman, and Chief Financial Officer and Treasurer, John Popeo, will host a conference call to discuss SIR’s fourth quarter and full year 2016 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 Thursday, February 23, 2017. To access the replay, dial (412) 317-0088. The replay pass code is 10099857.

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

Supplemental Data:

A copy of SIR’s Fourth Quarter 2016 Supplemental Operating and Financial Data 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, which owns properties that are primarily net leased to single tenants. SIR is managed by the operating subsidiary of The RMR Group Inc. (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, FFO attributed to SIR and Normalized FFO attributed to SIR.

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:

-- MR. BLACKMAN’S STATEMENT IN THIS PRESS RELEASE THAT SIR EXPERIENCED CONTINUED MOMENTUM IN LEASING ACTIVITY DURING THE FOURTH QUARTER OF 2016 MAY IMPLY THAT SIR WILL CONTINUE TO EXPERIENCE IMPROVING PROPERTY LEASING CONDITIONS. HOWEVER, SIR’S ABILITY TO LEASE ITS PROPERTIES DEPENDS IN LARGE MEASURE ON MARKET CONDITIONS IN THE AREAS WHERE SIR’S PROPERTIES ARE LOCATED WHEN SUCH PROPERTIES BECOME AVAILABLE FOR LEASE. LEASING MARKET CONDITIONS ARE GENERALLY BEYOND SIR’S CONTROL. IN THE FUTURE, SIR MAY EXPERIENCE INCREASING VACANCIES OR LOWER RENTS AT SIR’S OWNED PROPERTIES; AND

-- THIS PRESS RELEASE STATES THAT SIR HAS ENTERED AN AGREEMENT TO ACQUIRE A PROPERTY FOR $14.3 MILLION, EXCLUDING ACQUISITION RELATED COSTS. THIS TRANSACTION IS SUBJECT TO CLOSING CONDITIONS. THESE CONDITIONS MAY NOT BE SATISFIED AND THIS TRANSACTION MAY NOT OCCUR, MAY BE DELAYED OR THE PRICE AND TERMS MAY CHANGE.

THE INFORMATION CONTAINED IN SIR’S FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION, OR 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 ITS 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.

 
                                                                                                                                                                                                                                 Select Income REIT
                                                                                                                                                                                                                          Consolidated Statements of Income
                                                                                                                                                                                                                    (amounts in thousands, except per share data)
                                                                                                                                                                                                                                     (unaudited)
 
                                                                                          Three Months Ended December 31,                                                                                                                    Year Ended December 31,
                                                                                                                                    -----------------------------------------------------------------------------------------------------------------------------------------                                                               -----------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                    2016                                       2015                                                                                                2016                                       2015
                                                                                                                                    -------------------------------------                                                               -------------------------------------                                                               -------------------------------------                                                               -------------------------------------
Revenues:
                       Rental income                                                                                                      $  96,503                                                                                           $  96,750                                                                                           $ 387,015                                                                                           $ 364,139
                       Tenant reimbursements and other income                                                                                18,332                                                                           18,044                                                                           74,992                                                                           64,226  
                                                                                                                                    ------------------------------------                                                                ------------------------------------                                                                ------------------------------------                                                                ------------------------------------
                                              Total revenues                                                                                114,835                                                                          114,794                                                                          462,007                                                                          428,365  
                                                                                                                                    ------------------------------------                                                                ------------------------------------                                                                ------------------------------------                                                                ------------------------------------
                                                                                                                                                                                                                                                                                                                                                                                                                                                 
Expenses:
                       Real estate taxes                                                                                                     11,314                                                                                              10,213                                                                                              42,879                                                                                              37,460
                       Other operating expenses                                                                                              12,970                                                                                              11,832                                                                                              52,957                                                                                              41,953
                       Depreciation and amortization                                                                                         33,522                                                                                              32,727                                                                                             133,762                                                                                             122,906
                       Acquisition related costs                                                                                                235                                                                                                 267                                                                                                 306                                                                                              21,987
                       General and administrative                                                                                             6,699                                                                                               6,371                                                                                              28,602                                                                                              25,859
                       Loss on asset impairment                                                                                               5,484                                                                   --                                                                            5,484                                                                   --  
                                                                                                                                    ------------------------------------                                                                ------------------------------------                                                                ------------------------------------                                                                ------------------------------------
                                              Total expenses                                                                                 70,224                                                                           61,410                                                                          263,990                                                                          250,165  
                                                                                                                                    ------------------------------------                                                                ------------------------------------                                                                ------------------------------------                                                                ------------------------------------
                                                                                                                                                                                                                                                                                                                                                                                                                                                 
Operating income                                                                                                                             44,611                                                                                              53,384                                                                                             198,017                                                                                             178,200
                                                                                                                                                                                                                                                                                                                                                                                                                                                 
Dividend income                                                                                                                                 396                                                                                               1,666                                                                                               1,268                                                                                               1,666
Interest expense (including net amortization of debt issuance costs,
 premiums and discounts of $1,384, $1,362, $5,508 and $5,100,
 respectively)                                                                                                                              (20,737 )                                                                                           (20,175 )                                                                                           (82,620 )                                                                                           (73,885 )
Loss on early extinguishment of debt                                                                                                 --                                                                                      --                                                                                      --                                                                                              (6,845 )
Loss on distribution to common shareholders of RMR common stock                                                                      --                                                                          (23,717 )                                                                                    --                                                                          (23,717 )
                                                                                                                                    ------------------------------------                                                                ------------------------------------                                                                ------------------------------------                                                                ------------------------------------
Income before income tax expense and equity in earnings (loss) of an
 investee                                                                                                                                    24,270                                                                                              11,158                                                                                             116,665                                                                                              75,419
Income tax expense                                                                                                                              (78 )                                                                                              (191 )                                                                                              (448 )                                                                                              (515 )
Equity in earnings (loss) of an investee                                                                                                         30                                                                              (50 )                                                                                               137                                                                               20  
                                                                                                                                    ------------------------------------                                                                ------------------------------------                                                                ------------------------------------                                                                ------------------------------------
Net income                                                                                                                                   24,222                                                                                              10,917                                                                                             116,354                                                                                              74,924
Net income allocated to noncontrolling interest                                                                                      --                                                                              (41 )                                                                                               (33 )                                                                                              (176 )
                                                                                                                                    ------------------------------------                                                                ------------------------------------                                                                ------------------------------------                                                                ------------------------------------
Net income attributed to SIR                                                                                                              $  24,222                                                                        $  10,876                                                                        $ 116,321                                                                        $  74,748  
                                                                                                                                    ======= ======= ====================                                                                ======= ======= ====================                                                                ======= ======= ====================                                                                ======= ======= ====================
                                                                                                                                                                                                                                                                                                                                                                                                                                                 
Weighted average common shares outstanding - basic                                                                                           89,331                                                                           89,285                                                                           89,304                                                                           86,699  
                                                                                                                                    ====================================                                                                ====================================                                                                ====================================                                                                ====================================
Weighted average common shares outstanding - diluted                                                                                         89,335                                                                           89,291                                                                           89,324                                                                           86,708  
                                                                                                                                    ====================================                                                                ====================================                                                                ====================================                                                                ====================================
                                                                                                                                                                                                                                                                                                                                                                                                                                                 
Net income attributed to SIR per common share - basic and diluted                                                                         $    0.27                                                                        $    0.12                                                                        $    1.30                                                                        $    0.86  
                                                                                                                                    ======= ======= ====================                                                                ======= ======= ====================                                                                ======= ======= ====================                                                                ======= ======= ====================
 
                                                                                                                                                                                                                                     Select Income REIT
                                                                                                                                                                                                                               Funds from Operations Attributed to SIR and Normalized Funds
                                                                                                                                                                                                                                     from Operations Attributed to SIR(1)
                                                                                                                                                                                                                                     (amounts in thousands, except per share data)
                                                                                                                                                                                                                                     (unaudited)
 
                                                                                                                                                  Three Months Ended December 31,                                                                                                                    Year Ended December 31,
                                                                                                                                                                         -----------------------------------------------------------------------------------------------------------------------------------------                                                               -----------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                                                         2016                                       2015                                                                                                2016                                       2015
                                                                                                                                                                         -------------------------------------                                                               -------------------------------------                                                               -------------------------------------                                                               -------------------------------------
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
Net income attributed to SIR                                                                                                                                                   $  24,222                                                                                           $  10,876                                                                                           $ 116,321                                                                                           $  74,748
Plus:                                     depreciation and amortization                                                                                                           33,522                                                                                              32,727                                                                                             133,762                                                                                             122,906
Plus:                                     loss on asset impairment                                                                                                                 5,484                                                                                      --                                                                                               5,484                                                                                      --
Plus:                                     net income allocated to noncontrolling interest                                                                                 --                                                                                                  41                                                                                                  33                                                                                                 176
Less:                                     FFO allocated to noncontrolling interest                                                                                        --                                                                             (118 )                                                                                               (77 )                                                                                              (436 )
                                                                                                                                                                         ------------------------------------                                                                ------------------------------------                                                                ------------------------------------                                                                ------------------------------------
FFO attributed to SIR                                                                                                                                                             63,228                                                                                              43,526                                                                                             255,523                                                                                             197,394
Plus:                                     acquisition related costs                                                                                                                  235                                                                                                 267                                                                                                 306                                                                                              21,987
Plus:                                     loss on early extinguishment of debt                                                                                            --                                                                                      --                                                                                      --                                                                                               6,845
Plus:                                     loss on distribution to common shareholders of RMR common stock                                                                 --                                                                                              23,717                                                                                      --                                                                                              23,717
                                          (2)
Less:                                     normalized FFO from noncontrolling interest, net of FFO                                                                         --                                                                   --                                                                   --                                                                              (62 )
                                                                                                                                                                         ------------------------------------                                                                ------------------------------------                                                                ------------------------------------                                                                ------------------------------------
Normalized FFO attributed to SIR                                                                                                                                               $  63,463                                                                        $  67,510                                                                        $ 255,829                                                                        $ 249,881  
                                                                                                                                                                         ======= ======= ====================                                                                ======= ======= ====================                                                                ======= ======= ====================                                                                ======= ======= ====================
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
Weighted average common shares outstanding - basic                                                                                                                                89,331                                                                           89,285                                                                           89,304                                                                           86,699  
                                                                                                                                                                         ====================================                                                                ====================================                                                                ====================================                                                                ====================================
Weighted average common shares outstanding - diluted                                                                                                                              89,335                                                                           89,291                                                                           89,324                                                                           86,708  
                                                                                                                                                                         ====================================                                                                ====================================                                                                ====================================                                                                ====================================
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
FFO attributed to SIR per share - basic and diluted                                                                                                                            $    0.71                                                                        $    0.49                                                                        $    2.86                                                                        $    2.28  
                                                                                                                                                                         ======= ======= ====================                                                                ======= ======= ====================                                                                ======= ======= ====================                                                                ======= ======= ====================
Normalized FFO attributed to SIR per share - basic and diluted                                                                                                                 $    0.71                                                                        $    0.76                                                                        $    2.86                                                                        $    2.88  
                                                                                                                                                                         ======= ======= ====================                                                                ======= ======= ====================                                                                ======= ======= ====================                                                                ======= ======= ====================
Distributions declared per share                                                                                                                                               $    0.51                                                                        $    0.50                                                                        $    2.02                                                                        $    1.97  
                                                                                                                                                                         ======= ======= ====================                                                                ======= ======= ====================                                                                ======= ======= ====================                                                                ======= ======= ====================
 
(1) SIR calculates FFO attributed to SIR and Normalized FFO
attributed to SIR as shown above. FFO attributed to SIR is
    calculated on the basis defined by The National Association of Real
    Estate Investment Trusts, or NAREIT, which is net
    income, calculated in accordance with GAAP, plus real estate
    depreciation and amortization, loss on asset impairment and the
    difference between net income and FFO allocated to noncontrolling
    interest, as well as certain other adjustments currently
    not applicable to SIR. SIR’s calculation of Normalized FFO
    attributed to SIR differs from NAREIT’s definition of FFO because
    SIR includes business management incentive fees, if any, only in the
    fourth quarter versus the quarter when they are
    recognized as expense in accordance with GAAP due to their quarterly
    volatility not necessarily being indicative of SIR’s
    core operating performance and the uncertainty as to whether any
    such business management incentive fees will ultimately be
    payable when all contingencies for determining any such fees are
    determined at the end of the calendar year, and SIR
    excludes acquisition related costs, loss on early extinguishment of
    debt, loss on distribution to common shareholders of RMR
    common stock and Normalized FFO from noncontrolling interest, net of
    FFO, if any. SIR considers FFO attributed to SIR and
    Normalized FFO attributed to SIR to be appropriate supplemental
    measures of operating performance for a REIT, along with net
    income, net income attributed to a REIT and operating income. SIR
    believes that FFO attributed to SIR and Normalized FFO
    attributed to SIR provide useful information to investors because by
    excluding the effects of certain historical amounts,
    such as depreciation expense, FFO attributed to SIR and Normalized
    FFO attributed to SIR may facilitate a comparison of its
    operating performance between periods and with other REITs. FFO
    attributed to SIR and Normalized FFO attributed to SIR are
    among the factors considered by SIR’s Board of Trustees when
    determining the amount of distributions to SIR’s shareholders.
    Other factors include, but are not limited to, requirements to
    maintain SIR’s qualification for taxation as a REIT,
    limitations in SIR’s credit agreement and public debt covenants, the
    availability to SIR of debt and equity capital, SIR’s
    expectation of its future capital requirements and operating
    performance and SIR’s expected needs and availability of cash
    to pay its obligations. FFO attributed to SIR and Normalized FFO
    attributed to SIR do not represent cash generated by
    operating activities in accordance with GAAP and should not be
    considered as alternatives to net income, net income
    attributed to SIR or operating income as an indicator of SIR’s
    operating performance or as a measure of SIR’s liquidity.
    These measures should be considered in conjunction with net income,
    net income attributed to SIR and operating income as
    presented in SIR’s Consolidated Statements of Income. Other real
    estate companies and REITs may calculate FFO and Normalized
    FFO differently than SIR does.
 
(2) Amounts represent a non-cash loss recorded as a result of the
closing price of RMR common stock being lower than SIR’s
    carrying amount per share on the day RMR common stock was
    distributed to SIR’s shareholders.
 
                                                                                                                                                                                                                                  Select Income REIT
                                                                                                                                                                                                            Calculation and Reconciliation of Property Net Operating Income
                                                                                                                                                                                                                        and Cash Basis Net Operating Income(1)
                                                                                                                                                                                                                                (amounts in thousands)
                                                                                                                                                                                                                                     (unaudited)
 
                                                                                                              Three Months Ended December 31,                                                                                                                    Year Ended December 31,
                                                                                                                                     -----------------------------------------------------------------------------------------------------------------------------------------                                                               -----------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                     2016                                       2015                                                                                                2016                                       2015
                                                                                                                                     -------------------------------------                                                               -------------------------------------                                                               -------------------------------------                                                               -------------------------------------
Calculation of NOI and Cash Basis NOI:
Rental income                                                                                                                              $  96,503                                                                                           $  96,750                                                                                           $ 387,015                                                                                           $ 364,139
Tenant reimbursements and other income                                                                                                        18,332                                                                                              18,044                                                                                              74,992                                                                                              64,226
Real estate taxes                                                                                                                            (11,314 )                                                                                           (10,213 )                                                                                           (42,879 )                                                                                           (37,460 )
Other operating expenses                                                                                                                     (12,970 )                                                                                           (11,832 )                                                                                           (52,957 )                                                                                           (41,953 )
                                                                                                                                     ------------------------------------                                                                ------------------------------------                                                                ------------------------------------                                                                ------------------------------------
                                   NOI                                                                                                        90,551                                                                                              92,749                                                                                             366,171                                                                                             348,952
Non-cash straight line rent adjustments included in rental income (2)                                                                         (5,690 )                                                                                            (6,975 )                                                                                           (24,744 )                                                                                           (27,370 )
Lease value amortization included in rental income (2)                                                                                          (434 )                                                                                              (548 )                                                                                            (1,732 )                                                                                            (3,430 )
Lease termination fees included in rental income (2)                                                                                  --                                                                                                 (75 )                                                                                    --                                                                                                (123 )
Non-cash amortization included in other operating expenses (3)                                                                                  (213 )                                                                                              (215 )                                                                                              (852 )                                                                                              (430 )
                                                                                                                                     ------------------------------------                                                                ------------------------------------                                                                ------------------------------------                                                                ------------------------------------
                                   Cash Basis NOI                                                                                          $  84,214                                                                        $  84,936                                                                        $ 338,843                                                                        $ 317,599  
                                                                                                                                     ======= ======= ====================                                                                ======= ======= ====================                                                                ======= ======= ====================                                                                ======= ======= ====================
                                                                                                                                                                                                                                                                                                                                                                                                                                                  
Reconciliation of Cash Basis NOI and NOI to Net Income:
Cash Basis NOI                                                                                                                             $  84,214                                                                                           $  84,936                                                                                           $ 338,843                                                                                           $ 317,599
Non-cash straight line rent adjustments included in rental income (2)                                                                          5,690                                                                                               6,975                                                                                              24,744                                                                                              27,370
Lease value amortization included in rental income (2)                                                                                           434                                                                                                 548                                                                                               1,732                                                                                               3,430
Lease termination fees included in rental income (2)                                                                                  --                                                                                                  75                                                                                      --                                                                                                 123
Non-cash amortization included in other operating expenses (3)                                                                                   213                                                                              215                                                                              852                                                                              430  
                                                                                                                                     ------------------------------------                                                                ------------------------------------                                                                ------------------------------------                                                                ------------------------------------
                                   NOI                                                                                                        90,551                                                                                              92,749                                                                                             366,171                                                                                             348,952
Depreciation and amortization                                                                                                                (33,522 )                                                                                           (32,727 )                                                                                          (133,762 )                                                                                          (122,906 )
Acquisition related costs                                                                                                                       (235 )                                                                                              (267 )                                                                                              (306 )                                                                                           (21,987 )
General and administrative                                                                                                                    (6,699 )                                                                                            (6,371 )                                                                                           (28,602 )                                                                                           (25,859 )
Loss on asset impairment                                                                                                                      (5,484 )                                                                                    --                                                                           (5,484 )                                                                                    --  
                                                                                                                                     ------------------------------------                                                                ------------------------------------                                                                ------------------------------------                                                                ------------------------------------
                                   Operating income                                                                                           44,611                                                                                              53,384                                                                                             198,017                                                                                             178,200
                                                                                                                                                                                                                                                                                                                                                                                                                                                  
Dividend income                                                                                                                                  396                                                                                               1,666                                                                                               1,268                                                                                               1,666
Interest expense                                                                                                                             (20,737 )                                                                                           (20,175 )                                                                                           (82,620 )                                                                                           (73,885 )
Loss on early extinguishment of debt                                                                                                  --                                                                                      --                                                                                      --                                                                                              (6,845 )
Loss on distribution to common shareholders of RMR common stock                                                                       --                                                                          (23,717 )                                                                                    --                                                                          (23,717 )
                                                                                                                                     ------------------------------------                                                                ------------------------------------                                                                ------------------------------------                                                                ------------------------------------
Income before income tax expense and equity in earnings (loss) of an                                                                          24,270                                                                                              11,158                                                                                             116,665                                                                                              75,419
investee
Income tax expense                                                                                                                               (78 )                                                                                              (191 )                                                                                              (448 )                                                                                              (515 )
Equity in earnings (loss) of an investee                                                                                                          30                                                                              (50 )                                                                                               137                                                                               20  
                                                                                                                                     ------------------------------------                                                                ------------------------------------                                                                ------------------------------------                                                                ------------------------------------
                                   Net income                                                                                              $  24,222                                                                        $  10,917                                                                        $ 116,354                                                                        $  74,924  
                                                                                                                                     ======= ======= ====================                                                                ======= ======= ====================                                                                ======= ======= ====================                                                                ======= ======= ====================
 
(1) The calculations of NOI and Cash Basis NOI exclude certain
components of net income in order to provide results that are more
closely
    related to SIR’s property level results of operations. SIR
    calculates NOI and Cash Basis NOI as shown above. SIR defines NOI as
    income from
    its rental of real estate less its property operating expenses. NOI
    excludes amortization of capitalized tenant improvement costs and
    leasing
    commissions because SIR records those amounts as depreciation and
    amortization. SIR defines Cash Basis NOI as 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. SIR considers NOI and Cash Basis NOI to be appropriate
    supplemental measures to net income because they may help both
    investors and
    management to understand the operations of SIR’s properties. SIR
    uses NOI and Cash Basis NOI to evaluate individual and company wide
    property
    level performance, and SIR believes that NOI and Cash Basis NOI
    provide useful information to investors regarding its results of
    operations
    because they reflect only those income and expense items that are
    generated and incurred at the property level and may facilitate
    comparisons
    of SIR’s operating performance between periods and with other REITs.
    NOI and Cash Basis NOI do not represent cash generated by operating
    activities in accordance with GAAP and should not be considered as
    an alternative to net income, net income attributed to SIR or
    operating
    income as an indicator of SIR’s operating performance or as a
    measure of SIR’s liquidity. These measures should be considered in
    conjunction
    with net income, net income attributed to SIR and operating income
    as presented in SIR’s Consolidated Statements of Income. Other real
    estate
    companies and REITs may calculate NOI and Cash Basis NOI differently
    than SIR does.
 
(2) SIR reports rental income on a straight line basis over the
terms of the respective leases; accordingly, rental income includes
non-cash
    straight line rent adjustments. Rental income also includes non-cash
    amortization of intangible lease assets and liabilities and lease
    termination fees, if any.
 
(3) SIR recorded a liability for the amount by which the estimated
fair value for accounting purposes exceeded the price SIR paid for
its
    investment in RMR 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, which are included in
    other operating expenses.
 
                                                                                                                                                                                                                                     Select Income REIT
                                                                                                                                                                                                                        Reconciliation of Net Operating Income to Same Property Net
                                                                                                                                                                                                                                 Operating Income and Calculation of Same
                                                                                                                                                                                                                                Property Cash Basis Net Operating Income(1)
                                                                                                                                                                                                                                     (amounts in thousands)
                                                                                                                                                                                                                                     (unaudited)
 
                                                                                                                                      Three Months Ended December 31,                                                                                                                 Year Ended December 31,
                                                                                                                                                               ------------------------------------------------------------------------------------------------------------------------------------                                                               -----------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                                               2016                                     2015                                                                                             2016                                       2015
                                                                                                                                                               -------------------------------------                                                               --------------------------------                                                               -------------------------------------                                                               -------------------------------------
Reconciliation of NOI to Same Property NOI (2)(3):
Rental income                                                                                                                                                        $  96,503                                                                                       $ 96,750                                                                                           $ 387,015                                                                                          $  364,139
Tenant reimbursements and other income                                                                                                                                  18,332                                                                                         18,044                                                                                              74,992                                                                                              64,226
Real estate taxes                                                                                                                                                      (11,314 )                                                                                      (10,213 )                                                                                           (42,879 )                                                                                           (37,460 )
Other operating expenses                                                                                                                                               (12,970 )                                                                                      (11,832 )                                                                                           (52,957 )                                                                                           (41,953 )
                                                                                                                                                               ------------------------------------                                                                -------------------------------                                                                ------------------------------------                                                                ------------------------------------
                          NOI                                                                                                                                           90,551                                                                                         92,749                                                                                             366,171                                                                                             348,952
Less:
                          NOI of properties not included in same property results                                                                                       (1,017 )                                                                                         (338 )                                                                                          (178,027 )                                                                                        $ (156,746 )
                                                                                                                                                               ------------------------------------                                                                -------------------------------                                                                ------------------------------------                                                                ------ -------- --------------------
                          Same property NOI                                                                                                                          $  89,534                                                                    $ 92,411                                                                        $ 188,144                                                                          192,206  
                                                                                                                                                               ======= ======= ====================                                                                === ====== ====================                                                                ======= ======= ====================                                                                ====================================
                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
Calculation of Same Property Cash Basis NOI (2)(3):
Same property NOI                                                                                                                                                    $  89,534                                                                                       $ 92,411                                                                                           $ 188,144                                                                                          $  192,206
Less:
                          Non-cash straight line rent adjustments included in rental income (4)                                                                         (5,585 )                                                                                       (6,944 )                                                                                           (11,194 )                                                                                           (14,035 )
                          Lease value amortization included in rental income (4)                                                                                          (553 )                                                                                         (621 )                                                                                              (268 )                                                                                              (425 )
                          Lease termination fees included in rental income (4)                                                                                  --                                                                                            (75 )                                                                                    --                                                                                                (123 )
                          Non-cash amortization included in other operating expenses (5)                                                                                  (213 )                                                                                         (215 )                                                                                              (536 )                                                                                              (268 )
                                                                                                                                                               ------------------------------------                                                                -------------------------------                                                                ------------------------------------                                                                ------------------------------------
                          Same property Cash Basis NOI                                                                                                               $  83,183                                                                    $ 84,556                                                                        $ 176,146                                                                       $  177,355  
                                                                                                                                                               ======= ======= ====================                                                                === ====== ====================                                                                ======= ======= ====================                                                                ====== ======== ====================
 
(1) See footnote (1) on page 7 of this press release for the
definitions of NOI and Cash Basis NOI and why SIR believes they are
    appropriate supplemental measures and how SIR uses these measures.
 
(2) For the three months ended December 31, 2016, same property NOI
and same property Cash Basis NOI are based on properties SIR
    owned as of December 31, 2016, and which it owned continuously since
    October 1, 2015.
 
(3) For the year ended December 31, 2016, same property NOI and same
property Cash Basis NOI are based on properties SIR owned as
    of December 31, 2016, and which it owned continuously since January
    1, 2015.
 
(4) SIR reports rental income on a straight line basis over the
terms of the respective leases; accordingly, rental income includes
    non-cash straight line rent adjustments. Rental income also includes
    non-cash amortization of intangible lease assets and
    liabilities and lease termination fees, if any.
 
(5) SIR recorded a liability for the amount by which the estimated
fair value for accounting purposes exceeded the price SIR paid
    for its investment in RMR 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, which are included in other operating expenses.
 
                                                                                                                                                    Select Income REIT
                                                                                                                                                Consolidated Balance Sheets
                                                                                                                                         (amounts in thousands, except share data)
                                                                                                                                                        (unaudited)
 
                                                                                                                              December 31,
                                                                                                                                                                                                  2016                                       2015
                                                                                                                                                                                  ------------------------------------                                                               --------------------------------------
ASSETS
---------------------------------------------------------------------------------------------------------------
                     Real estate properties:
                                            Land                                                                                                                                     $ 1,038,686                                                                                          $ 1,036,425
                                            Buildings and improvements                                                                                                                 3,103,734                                                                         3,083,243  
                                                                                                                                                                                  -----------------------------------                                                                -------------------------------------
                                                                                                                                                                                       4,142,420                                                                                            4,119,668
                                            Accumulated depreciation                                                                                                                    (242,628 )                                                                                           (164,779 )
                                                                                                                                                                                  -----------------------------------                                                                -------------------------------------
                                                                                                                                                                                       3,899,792                                                                                            3,954,889
                                                                                                                                                                                                                                                                                      
                     Acquired real estate leases, net                                                                                                                                    506,298                                                                                              566,195
                     Cash and cash equivalents                                                                                                                                            22,127                                                                                               17,876
                     Restricted cash                                                                                                                                                          44                                                                                                1,171
                     Rents receivable, including straight line rents of $117,008 and
                     $92,264, respectively, net
                      of allowance for doubtful accounts of $873 and $464, respectively                                                                                                  124,089                                                                                               99,307
                     Deferred leasing costs, net                                                                                                                                          10,051                                                                                                7,221
                     Other assets, net                                                                                                                                                    77,281                                                                            37,686  
                                                                                                                                                                                  -----------------------------------                                                                -------------------------------------
                     Total assets                                                                                                                                                    $ 4,639,682                                                                       $ 4,684,345  
                                                                                                                                                                                  ==== ========= ====================                                                                ====== ========= ====================
                                                                                                                                                                                                                                                                                      
LIABILITIES AND SHAREHOLDERS’ EQUITY
---------------------------------------------------------------------------------------------------------------
                     Unsecured revolving credit facility                                                                                                                             $   327,000                                                                                          $   303,000
                     Unsecured term loan, net                                                                                                                                            348,373                                                                                              347,876
                     Senior unsecured notes, net                                                                                                                                       1,430,300                                                                                            1,426,025
                     Mortgage notes payable, net                                                                                                                                         245,643                                                                                              286,706
                     Accounts payable and other liabilities                                                                                                                              101,605                                                                                              105,403
                     Assumed real estate lease obligations, net                                                                                                                           77,622                                                                                               86,495
                     Rents collected in advance                                                                                                                                           18,815                                                                                               16,295
                     Security deposits                                                                                                                                                    11,887                                                                                               11,845
                     Due to related persons                                                                                                                                                4,475                                                                             3,740  
                                                                                                                                                                                  -----------------------------------                                                                -------------------------------------
                     Total liabilities                                                                                                                                                 2,565,720                                                                         2,587,385  
                                                                                                                                                                                  -----------------------------------                                                                -------------------------------------
                                                                                                                                                                                                                                                                                      
                     Commitments and contingencies
                                                                                                                                                                                                                                                                                      
                     Shareholders’ equity:
                                            Common shares of beneficial interest, $.01 par value: 125,000,000
                                            shares authorized;
                                             89,427,869 and 89,374,029 shares issued and outstanding, respectively                                                                           894                                                                                                  894
                                            Additional paid in capital                                                                                                                 2,179,669                                                                                            2,178,477
                                            Cumulative net income                                                                                                                        441,307                                                                                              324,986
                                            Cumulative other comprehensive income (loss)                                                                                                  20,472                                                                                              (19,587 )
                                            Cumulative common distributions                                                                                                             (568,380 )                                                                                           (387,810 )
                                                                                                                                                                                  -----------------------------------                                                                -------------------------------------
                     Total shareholders’ equity                                                                                                                                        2,073,962                                                                         2,096,960  
                                                                                                                                                                                  -----------------------------------                                                                -------------------------------------
                     Total liabilities and shareholders’ equity                                                                                                                      $ 4,639,682                                                                       $ 4,684,345  
                                                                                                                                                                                  ==== ========= ====================                                                                ====== ========= ====================

A Maryland Real Estate Investment Trust with transferable shares of beneficial interest listed on the Nasdaq.

No shareholder, Trustee or officer is personally liable for any act or obligation of the Trust.

http://cts.businesswire.com/ct/CT?id=bwnews&sty=20170216005366r1&sid=cmtx6&distro=nx&lang=en

View source version on businesswire.com: http://www.businesswire.com/news/home/20170216005366/en/

SOURCE: Select Income REIT

Select Income REIT 
Christopher Ranjitkar, 617-796-8320 
Director, Investor Relations


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