Select Income REIT (NYSE:SIR) Q3 2018 Earnings Conference Call Transcript

Oct 29, 2018 • 10:00 am ET

Previous

Select Income REIT (NYSE:SIR) Q3 2018 Earnings Conference Call Transcript

Share
Close

Loading Event

Loading Transcript

Presentation
Operator
Operator

Good morning, and welcome to the Select Income REIT Third Quarter 2018 Financial Results Conference Call. All participants will be in listen only mode. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Olivia Snyder, Manager of IR. Please go ahead, ma'am.

Executive
Olivia Snyder

Thank you, and good morning, everyone. Thanks for joining us today. With me on the call are President and CEO; David Blackman; and CFO and Treasurer, John Popeo. In addition, we are joined by Jeff Leer, who has been appointed as CFO and Treasurer effective December 1, 2018.

In just a moment, they will provide details about our business and our performance for the third quarter of 2018. We will then open the call for your questions. First, I would like to note that the recording and retransmission of today's conference call is prohibited without the prior written consent of the company.

(Forward-looking Cautionary Statements)

And now I will turn the call over to David.

Executive
David Blackman

Thank you, Olivia. Good morning. On today's call I will provide an overview of Select Income REIT's operating activity for the quarter, review SIR's lease expirations for the next 12 months that are at risk and provide an update on SIR's plans to merge into Government Properties Income Trust, before turning the call over to John Popeo to review our financial results and balance sheet.

SIR did not have any expiring leases during the third quarter of 2018 but completed an early renewal with a tenant that occupied 72,000 square feet in San Jose, California. The lease renewal extended the lease expiration date to 7.6 years and resulted in a 40% roll-up in rent and a leasing capital commitment of only $0.35 per square foot per lease year. For the next four quarters, SIR has two tenants occupying 446,000 square feet in four buildings that will vacate. These tenants contribute 1.7% of annualized rent and are expected to vacate during the fourth quarter of 2018. This is unchanged from our expectations for the past three quarters.

Turning to the vacant space across the SIR portfolio of properties. During the third quarter of 2018, we sold a 418,000 square foot land parcel in Hawaii for $10.3 million. This land parcel had been vacant since before SIR was created. We are also negotiating agreements to sell a vacant 502,000 square foot building in Pennsylvania and a 417,000 square foot vacant land parcel in Hawaii for $19.6 million in the aggregate. Should we be successful in completing these sales, SIR's vacant space at the end of the third quarter would have declined by 54%, and occupancy would have increased by 520 basis points. In addition, we have strong prospects to lease 554,000 square feet of space that is vacant or expected to become vacant during the fourth quarter of 2018. This would further reduce SIR's vacant space to approximately 5% of the aggregate portfolio and demonstrate strong operating momentum at our properties.

Turning to the merger plan.