Eliminates Cross Ownership and Co-Dependence on
Financial Results Among Companies
Government Properties Income Trust to Sell its
27.8% Ownership in Select Income REIT
Select Income REIT to Distribute its 69.2%
Ownership in Industrial Logistics Properties Trust to Select Income
REIT Shareholders
Combined Company Will Have Increased Scale,
Enhanced Diversification and a Broader Investment Strategy
Joint Conference Call Scheduled for 10:00 a.m.
Eastern Time on September 17, 2018
Government Properties Income Trust (Nasdaq:GOV) and Select
Income REIT (Nasdaq:SIR) today announced that they have entered a
definitive agreement to merge which will create a real estate
investment trust, or REIT, focused on owning, operating and leasing
office buildings primarily leased to single tenants and high credit
quality tenants like government entities.
This press release features multimedia. View
the full release here:
https://www.businesswire.com/news/home/20180917005210/en/
The surviving company in the merger will be GOV and it will
change its name to Office Properties Income Trust, or OPI, upon
closing the merger. OPI will continue to be managed by the
operating subsidiary of The RMR Group Inc. (Nasdaq:RMR). OPI will
be listed on the Nasdaq and the ticker symbol “OPI” has been
reserved for the company’s common shares. On an adjusted(1) basis,
OPI will own a portfolio of high quality office buildings with the
following characteristics:
(1) As of June 30, 2018, excluding
Industrial Logistics Properties Trust, or ILPT, and adjusted for
the sale of SIR common shares owned by GOV and for 51 buildings
containing 3.8 million square feet that were sold subsequent to the
end of the second quarter or are expected to be sold prior to
year-end 2018 for total gross proceeds of approximately $450.3
million.
- 213 properties containing 30.2 million
square feet with undepreciated gross assets of $6.1 billion;
- 66% of OPI’s annualized rent paid by
tenants that are investment grade rated(2);
- Weighted average remaining lease term,
by revenue, of 6.1 years;
- Occupancy of 92%; and
- Properties diversified across 38 states
and the District of Columbia.
Mark Kleifges, GOV’s Managing Trustee and Chief Financial
Officer, made the following statement about today’s
announcement:
“This transaction addresses a number of the
challenges that GOV has been facing, including a high dividend
payout ratio, a concentration of near term lease expirations and a
high tenant concentration. We believe GOV shareholders will benefit
from this transaction by having a well covered dividend set to a
long term sustainable level, extending and better laddering the
lease expiration schedule, increasing scale and enhancing
diversification. OPI also plans to sell assets post closing to
further strengthen its credit metrics.”
David Blackman, SIR’s Managing Trustee, President and Chief
Executive Officer made the following statement about today’s
announcement:
“GOV, SIR and ILPT have complicated ownership
structures, with GOV as SIR’s largest shareholder and SIR as the
controlling shareholder of ILPT. This transaction will eliminate
the cross ownership and increase ILPT’s public common share float,
which may benefit SIR shareholders who receive a distribution of
ILPT shares. Further, OPI will have increased scale, greater
diversification and a broader investment strategy, which we believe
will create a leading national office REIT focused on buildings
leased to single tenants and high credit quality tenants like
government entities.”
(2)
As of June 30, 2018. Includes: a) investment grade rated tenants;
b) tenants with an investment grade rated parent entity that
guarantees lease obligations; and/or c) tenants with an investment
grade rated parent entity that does not guaranty lease obligations.
The merger will be a stock for stock exchange whereby SIR
shareholders will receive 1.04 shares of GOV for each common share
of SIR based upon a fixed exchange ratio. Following the merger, GOV
and SIR shareholders will own approximately 52% and 48% of OPI,
respectively.
As a condition of the merger, GOV will sell all 24.9 million of
the common shares it owns in SIR. Also as a condition of the
merger, after receiving shareholder approval for the merger and
prior to its closing, SIR will distribute as a special dividend all
45 million of the common shares it owns in ILPT to SIR
shareholders. ILPT is a REIT that is focused on owning warehouse
distribution and e-commerce fulfillment facilities throughout the
United States. These actions will eliminate the cross ownership
among GOV, SIR and ILPT.
SIR shareholders will receive approximately 0.502 shares of ILPT
for every one share owned of SIR. Based upon closing prices on
September 14, 2018, SIR shareholders will receive $11.69(3) per
share from the ILPT share distribution and $17.57(4) per share in
GOV for a total of $29.26 per share.
OPI expects to pay an annual dividend between $0.50 and $0.60
per share, which is based upon a target dividend payout ratio of
75% of projected cash available for distribution. There is no plan
to change the current dividend at GOV or SIR prior to closing.
OPI expects to sell properties valued at up to $750 million to
reduce leverage to a target debt to Adjusted EBITDA ratio of 6.0x
to 6.5x within six months of the closing of the merger.
The transaction is expected to close in late 2018 or early 2019,
subject to customary closing conditions, including GOV and SIR
shareholder approval.
(3)
The ILPT share price of $23.26 as of September 14, 2018 multiplied
by 0.502457. The actual per share amount of the SIR distribution
will depend upon the trading price of ILPT at the time of
distribution.
(4)
The GOV share price of $16.89 as of September 14, 2018 multiplied
by 1.04. The per share amount of the GOV shares received by SIR
shareholders in the merger will depend upon the trading price of
GOV at the closing of the merger.
Citigroup Global Markets Inc. is acting as exclusive financial
advisor to a special committee of GOV’s Board of Trustees comprised
of the disinterested Independent Trustees and Sullivan &
Worcester LLP is acting as legal advisor to GOV in this
transaction. UBS Investment Bank is acting as exclusive financial
advisor to a special committee of SIR’s Board of Trustees comprised
of the disinterested Independent Trustees and Skadden, Arps, Slate,
Meagher & Flom LLP is acting as legal advisor to SIR in this
transaction.
Conference Call:
At 10:00 a.m. Eastern Time this morning, GOV and SIR President
and Chief Executive Officer, David Blackman, GOV Chief Financial
Officer and Treasurer, Mark Kleifges, and SIR Chief Financial
Officer and Treasurer, John Popeo, will host a joint conference
call to discuss the transaction. Following management’s remarks,
there will be a question and answer period. GOV and SIR will also
provide a presentation regarding the transaction that will be
available at their respective websites at www.govreit.com and
www.sirreit.com, and as an exhibit to a Current Report on a Form
8-K furnished with the Securities and Exchange Commission, or the
SEC. GOV’s and SIR’s websites are not incorporated as part of this
news release.
The conference call telephone number is (877) 270-2148.
Participants calling from outside the United States and Canada
should dial (412) 902-6510. 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 Monday,
September 24, 2018. To access the replay, dial (412) 317-0088. The
replay pass code is 10124099.
A live audio webcast of the conference call will also be
available in a listen only mode on GOV and SIR’s websites.
Participants wanting to access the webcast should visit GOV or
SIR’s website about five minutes before the call. The archived
webcast will be available for replay on both websites following the
call for about one week. The transcription, recording and
retransmission in any way of GOV and SIR’s conference call are
strictly prohibited without the prior written consent of GOV and
SIR.
Government Properties Income Trust is a real estate investment
trust, or REIT, which primarily owns properties located throughout
the United States that are majority leased to government tenants
and office properties in the metropolitan Washington, D.C. market
area that are leased to government and private sector tenants. GOV
is managed by the operating subsidiary of The RMR Group Inc.
(Nasdaq: RMR), an alternative asset management company that is
headquartered in Newton, MA.
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. (Nasdaq: RMR), an alternative asset management company
that is headquartered in Newton, MA.
WARNING REGARDING FORWARD LOOKING
STATEMENTS
THIS NEWS RELEASE CONTAINS FORWARD LOOKING STATEMENTS WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND
OTHER SECURITIES LAWS. ALSO, WHENEVER GOVERNMENT PROPERTIES INCOME
TRUST (NASDAQ: GOV), OR GOV, AND SELECT INCOME REIT (NASDAQ: SIR),
OR SIR, USE WORDS SUCH AS “BELIEVE,” “EXPECT,” “ANTICIPATE,”
“INTEND,” “PLAN,” “ESTIMATE,” “WILL,” “MAY” AND NEGATIVES OR
DERIVATIVES OF THESE OR SIMILAR EXPRESSIONS, THEY ARE MAKING
FORWARD LOOKING STATEMENTS. THESE FORWARD LOOKING STATEMENTS ARE
BASED UPON GOV’S AND SIR’S PRESENT INTENT, BELIEFS OR EXPECTATIONS.
FORWARD LOOKING STATEMENTS ARE NOT GUARANTEED TO OCCUR AND MAY NOT
OCCUR. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTAINED IN
OR IMPLIED BY GOV’S AND SIR’S FORWARD LOOKING STATEMENTS AS A
RESULT OF VARIOUS FACTORS. FOR EXAMPLE:
- GOV AND SIR HAVE ENTERED INTO A
DEFINITIVE AGREEMENT TO MERGE. THE MERGER IS EXPECTED TO CLOSE IN
LATE 2018 OR EARLY 2019, SUBJECT TO THE SATISFACTION OR WAIVER OF
CLOSING CONDITIONS, INCLUDING GOV AND SIR SHAREHOLDER APPROVALS,
GOV’S SALE OF ITS SIR COMMON SHARES AND SIR’S DISTRIBUTION OF ITS
ILPT COMMON SHARES. GOV AND SIR CANNOT BE SURE THAT ANY OR ALL OF
THESE CONDITIONS WILL BE SATISFIED OR WAIVED. ACCORDINGLY, THE
MERGER MAY NOT CLOSE BY LATE 2018 OR EARLY 2019 OR AT ALL, OR THE
TERMS OF THE MERGER AND THE OTHER TRANSACTIONS CONTEMPLATED BY THE
MERGER AGREEMENT MAY CHANGE.
- THE COMBINED COMPANY FOLLOWING THE
MERGER, OFFICE PROPERTIES INCOME TRUST, OR OPI, IS EXPECTED TO PAY
AN ANNUAL DIVIDEND OF BETWEEN $0.50 AND $0.60 PER SHARE, BASED UPON
A 75% DIVIDEND PAYOUT RATIO OF PROJECTED CASH AVAILABLE FOR
DISTRIBUTION, OR CAD. A POSSIBLE IMPLICATION OF THIS STATEMENT IS
THAT OPI WILL CONTINUALLY PAY ANNUAL DIVIDENDS BASED UPON 75% OF
ITS CAD IN THE FUTURE. OPI’S DIVIDEND WILL BE SET AND RESET FROM
TIME TO TIME BY OPI’S BOARD OF TRUSTEES. THE OPI BOARD WILL
CONSIDER MANY FACTORS WHEN SETTING THE DIVIDEND, INCLUDING OPI’S
HISTORICAL AND PROJECTED NET INCOME, NORMALIZED FUNDS FROM
OPERATIONS, THE THEN CURRENT AND EXPECTED NEEDS AND AVAILABILITY OF
CASH TO PAY OPI’S OBLIGATIONS, DISTRIBUTIONS WHICH OPI MAY BE
REQUIRED TO BE PAID TO MAINTAIN ITS TAX STATUS AS A REIT AND OTHER
FACTORS DEEMED RELEVANT BY OPI’S BOARD OF TRUSTEES IN ITS
DISCRETION. ACCORDINGLY, FUTURE OPI DIVIDENDS MAY BE INCREASED OR
DECREASED AND NEITHER GOV NOR SIR CAN BE SURE AS TO THE RATE AT
WHICH FUTURE DIVIDENDS WILL BE PAID.
- OPI IS EXPECTED TO SELL UP TO $750
MILLION OF PROPERTIES TO REDUCE ITS LEVERAGE TO STATED TARGETS.
HOWEVER, OPI MAY NOT BE ABLE TO SUCCESSFULLY SELL PROPERTIES IN THE
FUTURE. ALSO, OPI MAY SELL PROPERTIES AT PRICES THAT ARE LESS THAN
THEIR CARRYING VALUES AND OPI MAY INCUR FUTURE LOSSES.
- GOV AND SIR EXPECT TO REALIZE A NUMBER
OF BENEFITS FROM THE MERGER, THE SALE BY GOV OF ITS SIR COMMON
SHARES, THE DISTRIBUTION BY SIR OF ITS ILPT COMMON SHARES AND THE
OTHER TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT, INCLUDING
THE ELIMINATION OF THE CROSS OWNERSHIP OF GOV, SIR AND ILPT, BETTER
LADDERED LEASE EXPIRATIONS, INCREASED SCALE, ENHANCED
DIVERSIFICATION AND ILPT’S INCREASED PUBLIC FLOAT. THESE STATEMENTS
ARE CONTINGENT UPON THE CONSUMMATION OF THE MERGER, THE SALE BY GOV
OF ITS SIR COMMON SHARES, THE DISTRIBUTION BY SIR OF ITS ILPT
SHARES AND THE OTHER TRANSACTIONS CONTEMPLATED BY THE MERGER
AGREEMENT, AND MAY NOT OCCUR. FURTHER, EVEN IF THESE TRANSACTIONS
OCCUR, THE EXPECTED BENEFITS MAY NOT MATERIALIZE.
- GOV OWNS A SIGNIFICANT NUMBER OF SIR
COMMON SHARES AND ITS ABILITY TO COMPLETE THE SECONDARY SALE OF ALL
THOSE SHARES AS CONTEMPLATED BY THE MERGER AGREEMENT IS SUBJECT TO
MARKET CONDITIONS AND OTHER FACTORS, SOME OF WHICH ARE BEYOND GOV’S
AND SIR’S CONTROL. AS A RESULT, THE SALE BY GOV OF ITS SIR COMMON
SHARES MAY BE DELAYED OR MAY NOT BE COMPLETED.
- SIR EXPECTS TO DISTRIBUTE ALL OF ITS
ILPT COMMON SHARES TO SIR’S SHAREHOLDERS PRIOR TO THE CONSUMMATION
OF THE MERGER. THIS DISTRIBUTION IS SUBJECT TO, AMONG OTHER THINGS,
OBTAINING THE REQUISITE SHAREHOLDER APPROVALS WITH RESPECT TO THE
MERGER. THERE CAN BE NO ASSURANCE OF WHEN OR IF THE SUCH
SHAREHOLDER APPROVALS WILL BE OBTAINED OR THAT THE DISTRIBUTION BY
SIR OF ITS ILPT COMMON SHARES WILL OCCUR.
- THIS NEWS RELEASE CONTAINS CERTAIN
ADJUSTED FINANCIAL INFORMATION, INCLUDING CERTAIN ASSUMPTIONS
REGARDING THE MERGER AND THE OTHER TRANSACTIONS CONTEMPLATED BY THE
MERGER AGREEMENT. THE ADJUSTED FINANCIAL INFORMATION IS PROVIDED
FOR INFORMATIONAL PURPOSES ONLY AND IS NOT NECESSARILY INDICATIVE
OF THE COMBINED COMPANY’S EXPECTED FINANCIAL POSITION OR RESULTS OF
OPERATIONS FOR ANY FUTURE PERIOD.
THE INFORMATION CONTAINED IN GOV’S AND SIR’S FILINGS WITH THE
SECURITIES AND EXCHANGE COMMISSION, OR SEC, INCLUDING UNDER “RISK
FACTORS” IN GOV’S AND SIR’S PERIODIC REPORTS, OR INCORPORATED
THEREIN, IDENTIFIES OTHER IMPORTANT FACTORS THAT COULD CAUSE GOV’S
AND SIR’S ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE STATED IN
OR IMPLIED BY GOV’S AND SIR’S FORWARD LOOKING STATEMENTS. GOV’S AND
SIR’S FILINGS WITH THE SEC ARE AVAILABLE ON THE SEC’S WEBSITE AT
WWW.SEC.GOV.
YOU SHOULD NOT PLACE UNDUE RELIANCE UPON FORWARD LOOKING
STATEMENTS.
EXCEPT AS REQUIRED BY LAW, GOV AND SIR DO NOT INTEND TO UPDATE
OR CHANGE ANY FORWARD LOOKING STATEMENTS AS A RESULT OF NEW
INFORMATION, FUTURE EVENTS OR OTHERWISE.
ADDITIONAL INFORMATION ABOUT THE PROPOSED TRANSACTION AND
WHERE TO FIND IT
In connection with the merger and other transactions discussed
in this news release, GOV expects to file with the SEC a
registration statement on Form S-4 containing a joint proxy
statement/prospectus and other documents with respect to the merger
and other transactions with respect to both GOV and SIR. This
communication does not constitute an offer to sell or the
solicitation of an offer to buy any securities or a solicitation of
any vote or approval. INVESTORS ARE URGED TO READ THE JOINT PROXY
STATEMENT/PROSPECTUS (INCLUDING ALL AMENDMENTS AND SUPPLEMENTS
THERETO) IF AND WHEN THEY BECOME AVAILABLE AND ANY OTHER DOCUMENTS
TO BE FILED WITH THE SEC IN CONNECTION WITH THE MERGER OR
INCORPORATED BY REFERENCE IN THE JOINT PROXY STATEMENT/PROSPECTUS
BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE MERGER
AND OTHER TRANSACTIONS.
After the registration statement for the merger has been
declared effective by the SEC, a definitive joint proxy
statement/prospectus will be mailed to the GOV and SIR
shareholders. Investors will be able to obtain a free copy of
documents filed with the SEC at the SEC’s website at www.sec.gov.
In addition, investors may obtain free copies of GOV’s filings with
the SEC from GOV’s website at www.govreit.com and free copies of
SIR’s filings with the SEC from SIR’s website at
www.sirreit.com.
PARTICIPANTS IN THE SOLICITATION RELATING TO
THE MERGER AND OTHER TRANSACTIONS
GOV, its trustees and certain of its executive officers, SIR,
its trustees and certain of its executive officers, and The RMR
Group LLC, GOV and SIR’s manager, and its parent and certain of
their directors, officers and employees may be deemed participants
in the solicitation of proxies from GOV’s shareholders in respect
of the approval of the issuance of GOV common shares in the merger
and from SIR’s shareholders in respect of the approval of the
merger and the other transactions contemplated by the merger
agreement. Information regarding the persons who may, under the
rules of the SEC, be considered participants in the solicitation of
GOV and SIR shareholders in connection with the merger and the
other transactions contemplated by the merger agreement will be set
forth in the joint proxy statement/prospectus for the merger and
the other relevant documents to be filed with the SEC. You can find
information about GOV’s trustees and executive officers in its
definitive proxy statement for its 2018 Annual Meeting of
Shareholders. You can find information about SIR’s trustees and
executive officers in its definitive proxy statement for its 2018
Annual Meeting of Shareholders. These documents are available free
of charge on the SEC’s website and from GOV or SIR, as applicable,
using the sources indicated above.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20180917005210/en/
For Government Properties Income Trust and Select Income
REIT:Brad Shepherd, 617-219-1410Director, Investor Relations
Government Properties Income (NASDAQ:GOV)
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