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Maryland | 45-4071747 | |||
(State or Other Jurisdiction of Incorporation or Organization) | (IRS Employer Identification No.) | |||
| Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts | 02458-1634 | |||
(Address of Principal Executive Offices) | (Zip Code) | |||
Large accelerated filer ☒ | Accelerated filer ☐ | |||
Non-accelerated filer ☐ | Smaller reporting company ☐ | |||
(Do not check if a smaller reporting company) | ||||
June
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2
PART IFinancial InformatioInformation
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| June 30, |
| December 31, | ||
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| 2016 |
| 2015 | ||
ASSETS |
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Real estate properties: |
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Land |
| $ | 1,036,425 |
| $ | 1,036,425 |
Buildings and improvements |
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| 3,087,516 |
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| 3,083,243 |
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| 4,123,941 |
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| 4,119,668 |
Accumulated depreciation |
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| (203,608) |
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| (164,779) |
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| 3,920,333 |
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| 3,954,889 |
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Acquired real estate leases, net |
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| 535,235 |
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| 566,195 |
Cash and cash equivalents |
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| 10,815 |
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| 17,876 |
Restricted cash |
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| 44 |
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| 1,171 |
Rents receivable, including straight line rents of $104,835 and $92,264, respectively, net of allowance for doubtful accounts of $536 and $464, respectively |
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| 110,285 |
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| 99,307 |
Deferred leasing costs, net |
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| 9,858 |
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| 7,221 |
Other assets, net |
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| 63,223 |
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| 37,686 |
Total assets |
| $ | 4,649,793 |
| $ | 4,684,345 |
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LIABILITIES AND SHAREHOLDERS' EQUITY |
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Unsecured revolving credit facility |
| $ | 280,000 |
| $ | 303,000 |
Unsecured term loan, net |
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| 348,124 |
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| 347,876 |
Senior unsecured notes, net |
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| 1,428,201 |
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| 1,426,025 |
Mortgage notes payable, net |
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| 286,326 |
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| 286,706 |
Accounts payable and other liabilities |
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| 98,015 |
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| 105,403 |
Assumed real estate lease obligations, net |
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| 82,044 |
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| 86,495 |
Rents collected in advance |
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| 14,319 |
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| 16,295 |
Security deposits |
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| 11,824 |
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| 11,845 |
Due to related persons |
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| 4,304 |
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| 3,740 |
Total liabilities |
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| 2,553,157 |
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| 2,587,385 |
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Commitments and contingencies |
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Shareholders' equity: |
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Common shares of beneficial interest, $.01 par value: 125,000,000 shares authorized; 89,386,529 and 89,374,029 shares issued and outstanding, respectively |
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| 894 |
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| 894 |
Additional paid in capital |
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| 2,178,833 |
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| 2,178,477 |
Cumulative net income |
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| 388,517 |
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| 324,986 |
Cumulative other comprehensive income (loss) |
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| 5,576 |
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| (19,587) |
Cumulative common distributions |
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| (477,184) |
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| (387,810) |
Total shareholders' equity |
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| 2,096,636 |
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| 2,096,960 |
Total liabilities and shareholders' equity |
| $ | 4,649,793 |
| $ | 4,684,345 |
SELECT INCOME REIT Three Months Ended June 30, Six Months Ended June 30, 2016 2015 2016 2015 REVENUES: Rental income $ $ $ $ Tenant reimbursements and other income Total revenues EXPENSES: Real estate taxes Other operating expenses Depreciation and amortization Acquisition related costs - General and administrative Total expenses Operating income Dividend income — — Interest expense (including net amortization of debt premiums and discounts and debt issuance costs of $1,376, $1,210, $2,750 and $2,381, respectively) Loss on early extinguishment of debt — — — Income before income tax expense and equity in earnings of an investee Income tax expense Equity in earnings of an investee Net income Net income allocated to noncontrolling interest — Net income attributed to SIR Other comprehensive income (loss): Unrealized gain on investment in available for sale securities — — Unrealized (loss) gain on interest rate swap Equity in unrealized gain (loss) of an investee Other comprehensive income Comprehensive income Comprehensive income allocated to noncontrolling interest — Comprehensive income attributed to SIR $ $ $ $ Weighted average common shares outstanding - basic Weighted average common shares outstanding - diluted Basic and diluted net income attributed to SIR per common share $ $ $ $ SELECT INCOME REIT Six Months Ended June 30, 2016 2015 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ $ Adjustments to reconcile net income to net cash provided by operating activities: Depreciation Net amortization of debt premiums and discounts and debt issuance costs Amortization of acquired real estate leases and assumed real estate lease obligations Amortization of deferred leasing costs Provision for losses on rents receivable Straight line rental income Loss on early extinguishment of debt — Other non-cash expenses, net Equity in earnings of an investee Change in assets and liabilities: Restricted cash Rents receivable Deferred leasing costs Other assets Accounts payable and other liabilities Rents collected in advance Security deposits Due to related persons Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES: Real estate acquisitions and deposits Real estate improvements Proceeds from sale of properties, net — Investment in The RMR Group Inc. — Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of senior unsecured notes, net — Proceeds from borrowings Payments of borrowings Debt issuance costs — Distributions to common shareholders Purchase of noncontrolling interest — Distributions to noncontrolling interest Net cash (used in) provided by financing activities (Decrease) increase in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period $ $ SELECT INCOME REIT Six Months Ended June 30, 2016 2015 SUPPLEMENTAL DISCLOSURES: Interest paid $ $ Income taxes paid $ $ NON-CASH INVESTING ACTIVITIES: Real estate and investment acquired by issuance of shares $ — $ Real estate acquired by assumption of mortgage notes payable $ — $ Real estate sold by assumption of mortgage notes payable $ — $ Working capital assumed $ — $ NON-CASH FINANCING ACTIVITIES: Assumption of mortgage notes payable $ — $ Mortgage notes payable assumed in real estate sale $ — $ Issuance of SIR common shares $ — $ SELECT INCOME REIT but we expect the implementation of this guidance will affect how changes in the fair value of available for sale equity investments we hold are presented in our condensed consolidated financial statements. acquisition of assets and allocated the purchase price based on the estimated fair value of the acquired assets as follows: insured event, such as, for example, fire or flood, although some of our tenants may maintain such insurance. However, as of Fair Value Notional of Liability Amount as of Interest Effective Maturity as of Balance Sheet Location June 30, 2016 Rate (1) Date Date June 30, 2016 Interest Rate Swap Accounts Payable and Other Liabilities 1/29/2015 8/3/2020 The interest rate consists of the underlying index swapped to a fixed rate and the applicable interest rate spread. The table below presents the effects of our interest rate derivative in our condensed consolidated statements of comprehensive income for the three and Three Months Ended June 30, Six Months Ended June 30, 2016 2015 2016 2015 Amount of gain (loss) recognized in cumulative other comprehensive income (loss) (effective portion) $ $ $ $ Amount of gain (loss) reclassified from cumulative other comprehensive income (loss) into interest expense (effective portion) $ $ $ $ Fair Value at Reporting Date Using Quoted Prices in Significant Active Markets for Significant Other Unobservable Identical Assets Observable Inputs Inputs Description Total (Level 1) (Level 2) (Level 3) Recurring Fair Value Measurements: Assets: Investment in RMR Inc. (1) $ $ $ — $ — Liabilities: Interest rate swap (2) $ $ — $ $ — Our 1,586,836 shares of class A common stock of The RMR Group Inc., or RMR Inc., which are included in other assets in our condensed consolidated balance sheets, are reported at fair value which is based on quoted market prices (Level 1 inputs). Our historical cost basis for these shares is $42,686. The unrealized gain of As discussed in Note 5, we have an interest rate swap agreement on a $41,000 mortgage note. This interest rate swap agreement is carried at fair value and is included in accounts payable and other liabilities in our condensed consolidated balance sheets and is valued using Level 2 inputs. The fair value of this instrument is determined using interest rate pricing models. Considerable judgment is necessary to develop estimated fair values of financial assets and liabilities. Accordingly, the estimate presented in the table above is not necessarily indicative of the amount for which we could be liable upon extinguishment of the liability. At June 30, 2016 At December 31, 2015 Carrying Estimated Carrying Estimated Value (1) Fair Value Value (1) Fair Value Senior unsecured notes, due 2018 at 2.85% $ $ $ $ Senior unsecured notes, due 2020 at 3.60% $ $ $ $ Senior unsecured notes, due 2022 at 4.15% $ $ $ $ Senior unsecured notes, due 2025 at 4.50% $ $ $ $ Mortgage notes payable $ $ $ $ Includes unamortized debt issuance costs, premiums and discounts. venture partner for $3,908. As a result, for periods from and after that date, there is no longer a noncontrolling interest with respect to this office building and we now own 100% of this property. Issuances and Purchases: Three Months Ended June 30, 2016 Unrealized Gain Unrealized Equity in (Loss) on Investment Gain (Loss) Unrealized Gain in Available for on Derivative (Loss) of an Sale Securities Instruments (1) Investee (2) Total Balance at March 31, 2016 $ $ $ $ Other comprehensive income (loss) before reclassifications Amounts reclassified from cumulative other comprehensive income (loss) to net income — Net current period other comprehensive income (loss) Balance at June 30, 2016 $ $ $ $ Amounts reclassified from cumulative other comprehensive income (loss) are included in interest expense in our condensed consolidated statements of comprehensive income. Amounts reclassified from cumulative other comprehensive income (loss) are included in equity in earnings of an investee in our condensed consolidated statements of comprehensive income. Six Months Ended June 30, 2016 Unrealized Gain Unrealized Equity in (Loss) on Investment Gain (Loss) Unrealized Gain in Available for on Derivative (Loss) of an Sale Securities Instruments (1) Investee (2) Total Balance at December 31, 2015 $ $ $ $ Other comprehensive income (loss) before reclassifications Amounts reclassified from cumulative other comprehensive income (loss) to net income — Net current period other comprehensive income (loss) Balance at June 30, 2016 $ $ $ $ Amounts reclassified from cumulative other comprehensive income (loss) are included in interest expense in our condensed consolidated statements of comprehensive income. Amounts reclassified from cumulative other comprehensive income (loss) are included in equity in earnings of an investee in our condensed consolidated statements of comprehensive income. Three Months Ended June 30, Six Months Ended June 30, 2016 2015 2016 2015 Weighted average common shares for basic earnings per share Effect of dilutive securities: unvested share awards Weighted average common shares for diluted earnings per share 2015, respectively. shares. This liability is included in accounts payable and other liabilities in our condensed consolidated balance sheets. A part of this liability is being amortized on a straight line basis through December 31, 2035 as an allocated reduction to our business management and property management fee expense. We amortized $42,957. On January 29, 2015, we completed our acquisition of Cole Corporate Income Trust, Inc., or CCIT, by means of a merger, or the CCIT Merger. As a result of the CCIT Merger and related transactions, we acquired CCIT’s full property portfolio which included 64 office and industrial net leased properties (73 buildings), or the 64 CCIT Properties, as well as 23 healthcare properties which we sold concurrently to Senior Housing Properties Trust, or SNH. The properties we acquired and retained in the CCIT Merger significantly increased the size of our property portfolio and significantly increased the proportion of our total revenue that we earn from our Mainland Properties. All Properties Comparable Properties (1) As of June 30, As of June 30, 2016 2015 2016 2015 Total properties Total rentable square feet (2) Percent leased (3) % % % % Consists of 51 properties (281 buildings, leasable land parcels and easements) that we owned continuously since January 1, 2015. Subject to modest adjustments when space is re-measured or re-configured for new tenants and when land leases are converted to building leases. Percent leased includes (i) space being fitted out for occupancy pursuant to existing leases as of Three Months Ended Six Months Ended June 30, June 30, 2016 2015 2016 2015 Average annualized effective rental rate per square foot leased: (1) All Properties $ 10.56 $ 10.00 $ 10.65 $ 10.00 Comparable Properties (2) $ 10.23 $ 10.07 $ 8.91 $ 8.74 Average annualized effective rental rate per square foot leased represents annualized total revenue during the period specified divided by the average rentable square feet leased during the period specified. Comparable Properties for the three months ended Hawaii Properties has Cumulative Cumulative Percent of Percent of Percent of Percent of Total Total Total Total Annualized Annualized Annualized Rented Rented Rented Rental Rental Rental Number of Square Feet Square Feet Square Feet Revenue Revenue Revenue Year Leases Expiring (1) Expiring (1) Expiring (1) Expiring (2) Expiring (2) Expiring (2) 7/1/2016 - 12/31/2016 % % $ % % 2017 % % % % 2018 % % % % 2019 % % % % 2020 % % % % 2021 % % % % 2022 % % % % 2023 % % % % 2024 % % % % 2025 % % % % Thereafter % % % % % $ % Weighted average remaining lease term (in years): Rented square feet is pursuant to existing leases as of Annualized Rental Revenue(1) as of June 30, 2016 Scheduled to Reset 7/1/2016 - 12/31/2016 $ — 2017 2018 2019 and thereafter Total $ With respect to our Hawaii land leases, we intend to negotiate with our tenants as rents under their leases % of % of Total Annualized Rental Tenant Property Type Sq. Ft. (1) Sq. Ft. (1) Revenue (2) 1. Shook, Hardy & Bacon L.L.P. Mainland Properties % % 2. Tellabs, Inc. Mainland Properties % % 3. Amazon.com, Inc. Mainland Properties % % 4. Bank of America, National Association Mainland Properties % % 5. Noble Energy, Inc. Mainland Properties % % 6. Tesoro Corporation Mainland Properties % % 7. Cinram Group, Inc. Mainland Properties % % 8. F5 Networks, Inc. Mainland Properties % % 9. WestRock Company Mainland Properties % % 10. Orbital ATK, Inc. Mainland Properties % % 11. Tyson Foods, Inc. Mainland Properties % % 12. Novell, Inc. Mainland Properties % % 13. FedEx Corporation Mainland Properties % % 14. PNC Bank, National Association Mainland Properties % % 15. Allstate Insurance Company Mainland Properties % % 16. ServiceNow, Inc. Mainland Properties % % 17. Church & Dwight Co., Inc. Mainland Properties % % 18. Restoration Hardware, Inc. Mainland Properties % % 19. Tailored Brands, Inc. Mainland Properties % % 20. Primerica Life Insurance Company Mainland Properties % % 21. American Tire Distributors, Inc. Mainland Properties % % 22. The Southern Company Mainland Properties % % 23. Compass Group USA, Inc. Mainland Properties % % 24. United Launch Alliance, LLC Mainland Properties % % 25. Red Hat, Inc. Mainland Properties % % Total % % Square feet is pursuant to existing leases as of Investment Activities RESULTS OF OPERATIONS Comparable Properties Results (1) Acquired Properties Results (2) Consolidated Results Three Months Ended June 30, Three Months Ended June 30, Three Months Ended June 30, $ % $ $ % 2016 2015 Change Change 2016 2015 Change 2016 2015 Change Change Revenues: Rental income $ $ $ % $ $ $ $ $ $ % Tenant reimbursements and other income % % Total revenues % % Operating expenses: Real estate taxes % % Other operating expenses % % Total operating expenses % % Net operating income (3) $ $ $ % $ $ $ % Other expenses: Depreciation and amortization % Acquisition related costs - % General and administrative % Total other expenses % Operating income % Dividend income - % Interest expense % Income before income tax expense and equity in earnings of an investee % Income tax expense % Equity in earnings of an investee % Net income % Net income allocated to noncontrolling interest - % Net income attributed to SIR $ $ $ % Weighted average common shares outstanding - basic % Weighted average common shares outstanding - diluted % Net income attributed to SIR per common share - basic and diluted $ $ $ % Calculation of Funds From Operations Attributed to SIR and Normalized Funds From Operations Attributed to SIR (4) Net income attributed to SIR $ $ Plus: depreciation and amortization Plus: net income allocated to noncontrolling interest - Less: FFO allocated to noncontrolling interest - FFO attributed to SIR Plus: acquisition related costs - Less: normalized FFO from noncontrolling interest, net of FFO - Normalized FFO attributed to SIR $ $ FFO attributed to SIR per common share - basic and diluted $ $ Normalized FFO attributed to SIR per common share - basic and diluted $ $ Consists of Consists of four properties (six buildings) that we acquired during the period from The calculation of net operating income, or NOI, excludes certain components of net income in order to provide results that are more closely related to our property level results of operations. We calculate NOI as shown above. We define NOI as income from our rental of real estate less our property operating expenses. NOI excludes amortization of capitalized tenant improvement costs and leasing commissions because we record those amounts as depreciation and amortization. We consider NOI to be an appropriate supplemental measure to net income because it may help both investors and management to understand the operations of our properties. We use NOI to evaluate individual and company wide property level performance, and we We calculate funds from operations, or FFO, attributed to SIR, and normalized funds from operations, or 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 and the difference between net income and FFO allocated to noncontrolling interest, as well as certain other adjustments currently not applicable to us. Our calculation of Normalized FFO attributed to SIR differs from NAREIT’s definition of FFO because we include 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 our 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 we exclude acquisition related costs, loss on early extinguishment of debt and Normalized FFO from noncontrolling interest, net of Comparable Properties Results (1) Acquired Properties Results (2) Consolidated Results Six Months Ended June 30, Six Months Ended June 30, Six Months Ended June 30, $ % $ $ % 2016 2015 Change Change 2016 2015 Change 2016 2015 Change Change Revenues: Rental income $ $ $ % $ $ $ $ $ $ % Tenant reimbursements and other income % % Total revenues % % Operating expenses: Real estate taxes % % Other operating expenses % % Total operating expenses % % NOI (3) $ $ $ % $ $ $ % Other expenses: Depreciation and amortization % Acquisition related costs % General and administrative % Total other expenses % Operating income % Dividend income - % Interest expense % Loss on early extinguishment of debt - % Income before income tax expense and equity in earnings of an investee % Income tax expense % Equity in earnings of an investee % Net income % Net income allocated to noncontrolling interest % Net income attributed to SIR $ $ $ % Weighted average common shares outstanding - basic % Weighted average common shares outstanding - diluted % Net income attributed to SIR per common share - basic and diluted $ $ % Calculation of FFO Attributed to SIR and Normalized FFO Attributed to SIR (4) Net income attributed to SIR $ $ Plus: depreciation and amortization Plus: net income allocated to noncontrolling interest Less: FFO allocated to noncontrolling interest FFO attributed to SIR Plus: acquisition related costs Plus: loss on early extinguishment of debt - Less: normalized FFO from noncontrolling interest, net of FFO - Normalized FFO attributed to SIR $ $ FFO attributed to SIR per common share - basic and diluted $ $ Normalized FFO attributed to SIR per common share - basic and diluted $ $ Depreciation and amortization. The increase in depreciation and amortization primarily reflects our acquisition activity, partially offset by certain of our depreciable assets at our comparable properties becoming fully depreciated since January 1, 2015. Weighted average common shares outstanding. The increase in weighted average common shares outstanding primarily reflects (i) shares issued in connection with the CCIT Merger in January 2015, (ii) shares granted to our Trustees in May 2016 and May 2015, (iii) shares granted to our officers and certain other employees of RMR LLC in September 2016 and September 2015, (iv) shares issued to RMR LLC through May 2015 pursuant to our business management agreement, and (v) shares issued in connection with our acquisition of shares of RMR Inc. in June 2015. maintain or improve the occupancy of, and the rental rates at, our properties; control our operating expenses; and purchase additional properties which produce cash flows in excess of our costs of acquisition capital and property operating expenses. During the three and Three Months Ended Six Months Ended June 30, June 30, 2016 2015 2016 2015 Tenant improvements (1) $ $ $ $ Leasing costs (2) Building improvements (3) Development, redevelopment and other activities (4) $ $ $ $ Tenant improvements include capital expenditures used to improve tenants’ space or amounts paid directly to tenants to improve their space. Leasing costs include leasing related costs, such as brokerage commissions, legal costs and tenant inducements. Building improvements generally include (i) expenditures to replace obsolete building components and (ii) expenditures that extend the useful life of existing assets. Development, redevelopment and other activities generally include (i) capital expenditures that are identified at the time of a property acquisition and incurred within a short time period after acquiring the property and (ii) capital expenditure projects that reposition a property or result in new sources of revenues. New Leases Renewals Totals Square feet leased during the period Total leasing costs and concession commitments (1) $ $ $ Total leasing costs and concession commitments per square foot (1) $ $ $ Weighted average lease term by square feet (years) Total leasing costs and concession commitments per square foot per year (1) $ $ $ Includes commitments made for leasing expenditures and concessions, such as tenant improvements, leasing commissions, tenant reimbursements and free rent. acceleration of payment of all amounts outstanding upon the occurrence and continuation of certain events of default, such as, in the case of our credit agreement, a change of control of us, which includes RMR LLC ceasing to act as our business manager and property manager. Our senior unsecured notes indenture and its supplement and our credit agreement for our revolving credit facility and term loan contain a number of covenants which restrict our ability to incur debts, including debts secured by mortgages on our properties, in excess of calculated amounts, restrict our ability to make distributions under certain circumstances and generally require us to maintain certain financial ratios. As of Annual Annual Interest Principal Interest Interest Payments Debt Balance (1) Rate (1) Expense (1) Maturity Due Senior unsecured notes $ % $ 2018 Semi-Annually Senior unsecured notes % 2020 Semi-Annually Senior unsecured notes % 2022 Semi-Annually Senior unsecured notes % 2025 Semi-Annually Mortgage note (one property (two buildings in Carlsbad, CA)) % 2017 Monthly Mortgage note (one property (one building in Harvey, IL)) % 2019 Monthly Mortgage note (one property (one building in Columbus, OH)) % 2019 Monthly Mortgage note (one property (one building in Ankeny, IA)) % 2020 Monthly Mortgage note (one property (one building in Philadelphia, PA)) (2) % 2020 Monthly Mortgage note (one property (one building in Chester, VA)) % 2020 Monthly Mortgage note (one property (three buildings in Seattle, WA)) % 2023 Monthly Mortgage note (one property (one building in Chicago, IL)) % 2023 Monthly $ $ The principal balance, annual interest rate and annual interest expense are the amounts stated in the applicable contracts. In accordance with GAAP, our carrying value and recorded interest expense may differ from these amounts because of market conditions at the time we issued or assumed these debts. Interest on this mortgage note is payable at a rate equal to a premium over LIBOR but has been fixed by a cash flow hedge which sets the rate at approximately 4.16% until August 3, 2020, which is the maturity date of the mortgage note. $1,920. fixed rate debt, while decreases in market interest rates increase the fair value of our fixed rate debt. Based on the balances outstanding at $70,349. Impact of an Increase in Interest Rates Total Interest Annual Interest Rate Outstanding Expense Earnings Per Per Year (1) Debt (2) Per Year Share Impact (3) At June 30, 2016 % $ $ $ 100 basis point increase % $ $ $ Weighted based on the respective interest rates and outstanding borrowings under our floating rate debt as of Excludes our $41,000 mortgage note hedged by our interest rate swap agreement. Based on the diluted weighted average shares outstanding for the Impact of an Increase in Interest Rates Total Interest Annual Interest Rate Outstanding Expense Earnings Per Per Year (1) Debt (2) Per Year Share Impact (3) At June 30, 2016 % $ $ $ 100 basis point increase % $ $ $ Weighted based on the respective interest rates of our floating rate debt as of Excludes our $41,000 mortgage note hedged by our interest rate swap agreement. Based on the diluted weighted average shares outstanding for the Although we have no present plans to do so, we may in the future enter into additional hedge arrangements from time to time to mitigate our exposure to changes in interest rates. OUR ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTAINED IN OR IMPLIED BY OUR FORWARD LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS. FACTORS THAT COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR FORWARD LOOKING STATEMENTS AND UPON OUR BUSINESS, RESULTS OF OPERATIONS, FINANCIAL CONDITION, FFO ATTRIBUTED TO SIR, NORMALIZED FFO ATTRIBUTED TO SIR, NOI, CASH FLOWS, LIQUIDITY AND PROSPECTS INCLUDE, BUT ARE NOT LIMITED TO: 3.2 Amended and Restated Bylaws of the Company adopted 4.1 Form of Common Share Certificate. (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012.) 4.2 Indenture, dated February 3, 2015, between the Company and U.S. Bank National Association. (Incorporated by reference to the Company’s Current Report on Form 8-K dated January 29, 2015.) 4.3 First Supplemental Indenture, dated February 3, 2015, between the Company and U.S. Bank National Association, including the forms of 2.85% Senior Note due 2018, 3.60% Senior Note due 2020, 4.15% Senior Note due 2022 and 4.50% Senior Note due 2025. (Incorporated by reference to the Company’s Current Report on Form 8-K dated January 29, 2015.) 4.4 Registration Rights and Lock-Up Agreement, dated June 5, 2015, among the Company, ABP Trust, Barry M. Portnoy and Adam D. Portnoy. (Incorporated by reference to the Company’s Current Report on Form 8-K dated June 5, 2015.) 10.1 12.1 Computation of Ratio of Earnings to Fixed Charges. (Filed herewith.) 31.1 Rule 13a-14(a) Certification. (Filed herewith.) 31.2 Rule 13a-14(a) Certification. (Filed herewith.) 31.3 Rule 13a-14(a) Certification. (Filed herewith.) 31.4 Rule 13a-14(a) Certification. (Filed herewith.) 32.1 Section 1350 Certification. (Furnished herewith.) 101.1 The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. By: /s/ David M. Blackman David M. Blackman President and Chief Operating Officer Dated: By: /s/ John C. Popeo John C. Popeo Chief Financial Officer and Treasurer (principal financial and accounting officer) Dated: September 30, December 31, 2016 2015 ASSETS Real estate properties: Land $ 1,037,445 $ 1,036,425 Buildings and improvements 3,099,126 3,083,243 4,136,571 4,119,668 Accumulated depreciation (222,982 ) (164,779 ) 3,913,589 3,954,889 Acquired real estate leases, net 519,952 566,195 Cash and cash equivalents 16,697 17,876 Restricted cash 1,203 1,171 Rents receivable, including straight line rents of $111,318 and $92,264, respectively, net of allowance for doubtful accounts of $808 and $464, respectively 117,163 99,307 Deferred leasing costs, net 9,762 7,221 Other assets, net 78,890 37,686 Total assets $ 4,657,256 $ 4,684,345 LIABILITIES AND SHAREHOLDERS' EQUITY Unsecured revolving credit facility $ 297,000 $ 303,000 Unsecured term loan, net 348,249 347,876 Senior unsecured notes, net 1,429,247 1,426,025 Mortgage notes payable, net 286,102 286,706 Accounts payable and other liabilities 89,393 105,403 Assumed real estate lease obligations, net 79,833 86,495 Rents collected in advance 18,957 16,295 Security deposits 11,785 11,845 Due to related persons 4,756 3,740 Total liabilities 2,565,322 2,587,385 Commitments and contingencies Shareholders' equity: Common shares of beneficial interest, $.01 par value: 125,000,000 shares authorized; 89,428,912 and 89,374,029 shares issued and outstanding, respectively 894 894 Additional paid in capital 2,179,697 2,178,477 Cumulative net income 417,085 324,986 Cumulative other comprehensive income (loss) 17,029 (19,587 ) Cumulative common distributions (522,771 ) (387,810 ) Total shareholders' equity 2,091,934 2,096,960 Total liabilities and shareholders' equity $ 4,657,256 $ 4,684,345 396,615 92,166 194,475 172,644 18,289 15,048 37,661 28,985 114,904 107,214 232,136 201,629 10,522 9,019 20,810 17,376 12,635 9,801 25,593 18,808 33,405 32,390 66,874 57,109 779 58 21,318 7,374 6,368 14,350 13,160 63,936 58,357 127,685 127,771 50,968 48,857 104,451 73,858 475 475 (20,584) (19,497) (41,193) (33,676) (6,845) 30,859 29,360 63,733 33,337 (124) (195) (263) (226) 17 23 94 95 30,752 29,188 63,564 33,206 (48) (33) (89) 30,752 29,140 63,531 33,117 9,457 26,278 (308) 432 (1,210) 650 43 (64) 95 (19) 9,192 368 25,163 631 39,944 29,556 88,727 33,837 (48) (33) (89) 39,944 29,508 88,694 33,748 89,292 88,617 89,289 84,078 89,315 88,631 89,306 84,090 0.34 0.33 0.71 0.39 Three Months Ended
September 30, Nine Months Ended
September 30, 2016 2015 2016 2015 REVENUES: Rental income $ 96,037 $ 94,745 $ 290,512 $ 267,389 Tenant reimbursements and other income 18,999 17,197 56,660 46,182 Total revenues 115,036 111,942 347,172 313,571 EXPENSES: Real estate taxes 10,755 9,871 31,565 27,247 Other operating expenses 14,394 11,313 39,987 30,121 Depreciation and amortization 33,366 33,070 100,240 90,179 Acquisition related costs 13 402 71 21,720 General and administrative 7,553 6,328 21,903 19,488 Total expenses 66,081 60,984 193,766 188,755 Operating income 48,955 50,958 153,406 124,816 Dividend income 397 — 872 — Interest expense (including net amortization of debt premiums and discounts and debt issuance costs of $1,374, $1,357, $4,124 and $3,738, respectively) (20,690 ) (20,034 ) (61,883 ) (53,710 ) Loss on early extinguishment of debt — — — (6,845 ) Income before income tax expense and equity in earnings (loss) of an investee 28,662 30,924 92,395 64,261 Income tax expense (107 ) (98 ) (370 ) (324 ) Equity in earnings (loss) of an investee 13 (25 ) 107 70 Net income 28,568 30,801 92,132 64,007 Net income allocated to noncontrolling interest — (46 ) (33 ) (135 ) Net income attributed to SIR 28,568 30,755 92,099 63,872 Other comprehensive income (loss): Unrealized gain on investment in available for sale securities 11,061 — 37,339 — Unrealized gain (loss) on interest rate swap 312 (831 ) (898 ) (181 ) Equity in unrealized gain (loss) of an investee 80 (72 ) 175 (91 ) Other comprehensive income (loss) 11,453 (903 ) 36,616 (272 ) Comprehensive income 40,021 29,898 128,748 63,735 Comprehensive income allocated to noncontrolling interest — (46 ) (33 ) (135 ) Comprehensive income attributed to SIR $ 40,021 $ 29,852 $ 128,715 $ 63,600 Weighted average common shares outstanding - basic 89,308 89,267 89,295 85,827 Weighted average common shares outstanding - diluted 89,334 89,274 89,318 85,837 Basic and diluted net income attributed to SIR per common share $ 0.32 $ 0.34 $ 1.03 $ 0.74 463,564 33,206 38,931 33,828 2,750 2,381 26,510 20,532 676 699 150 (288) (12,571) (12,473) 6,845 (236) 1,188 (94) (95) 1,127 916 1,443 3,457 (3,408) (262) 1,233 (302) (3,973) 18,871 (1,976) (5,360) (21) 181 564 2,624 114,669 105,948 (1,000) (1,992,577) (4,255) (2,131) 509,045 (18,461) (5,255) (1,504,124) 1,433,694 65,000 1,572,000 (88,127) (1,506,122) (23,761) (89,374) (68,245) (3,908) (66) (185) (116,475) 1,407,381 (7,061) 9,205 17,876 13,504 10,815 22,709 Nine Months Ended September 30, 2016 2015 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 92,132 $ 64,007 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 58,482 53,090 Net amortization of debt premiums and discounts and debt issuance costs 4,124 3,738 Amortization of acquired real estate leases and assumed real estate lease obligations 39,582 33,098 Amortization of deferred leasing costs 1,037 1,176 Provision for losses on rents receivable 431 (453 ) Straight line rental income (19,054 ) (20,395 ) Loss on early extinguishment of debt — 6,845 Other non-cash expenses, net (215 ) 886 Equity in earnings of an investee (107 ) (70 ) Change in assets and liabilities: Restricted cash (32 ) 24 Rents receivable 767 2,048 Deferred leasing costs (3,794 ) (1,342 ) Other assets (4,627 ) (6,345 ) Accounts payable and other liabilities (11,137 ) 11,790 Rents collected in advance 2,662 (2,750 ) Security deposits (60 ) 310 Due to related persons 1,016 1,357 Net cash provided by operating activities 161,207 147,014 CASH FLOWS FROM INVESTING ACTIVITIES: Real estate acquisitions and deposits (10,200 ) (2,147,626 ) Real estate improvements (6,739 ) (2,657 ) Proceeds from sale of properties, net — 509,045 Investment in The RMR Group Inc. — (18,461 ) Net cash used in investing activities (16,939 ) (1,659,699 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of senior unsecured notes, net — 1,433,694 Proceeds from borrowings 135,000 1,774,000 Payments of borrowings (141,207 ) (1,546,182 ) Debt issuance costs — (23,761 ) Distributions to common shareholders (134,961 ) (112,910 ) Repurchase of common shares (305 ) (130 ) Purchase of noncontrolling interest (3,908 ) — Distributions to noncontrolling interest (66 ) (283 ) Net cash (used in) provided by financing activities (145,447 ) 1,524,428 (Decrease) increase in cash and cash equivalents (1,179 ) 11,743 Cash and cash equivalents at beginning of period 17,876 13,504 Cash and cash equivalents at end of period $ 16,697 $ 25,247 538,408 8,149 391 293 (737,267) (297,698) 29,955 (20,720) 297,698 (29,955) 737,267 Nine Months Ended September 30, 2016 2015 SUPPLEMENTAL DISCLOSURES: Interest paid $ 71,374 $ 40,051 Income taxes paid $ 409 $ 294 NON-CASH INVESTING ACTIVITIES: Real estate and investment acquired by issuance of shares $ — $ (736,740 ) Real estate acquired by assumption of mortgage notes payable $ — $ (297,698 ) Real estate sold by assumption of mortgage notes payable $ — $ 29,955 Working capital assumed $ — $ (20,720 ) NON-CASH FINANCING ACTIVITIES: Assumption of mortgage notes payable $ — $ 297,698 Mortgage notes payable assumed in real estate sale $ — $ (29,955 ) Issuance of SIR common shares $ — $ 736,740 67will becomeis effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. We are currently assessing the potential impact that adoption of ASU No. 2016-13 will have in our condensed consolidated financial statements.JuneSeptember 30, 2016, we owned 119120 properties (360(361 buildings, leasable land parcels and easements) with approximately 44,706,00044,763,000 rentable square feet.On July 22,a single tenant net leased officeone property located in Huntsville, AL(one building) with approximately 57,00057,420 rentable square feet for a purchase price of $10,200, excluding acquisition related costs. This property was acquired and simultaneously leased back to the seller for an initial lease term of 15 years and will beseller. We accounted for this acquisition as an asset acquisition. Properties/ Square Purchase Building and Date Location Buildings Feet Land Improvements July 2016 1 / 1 57,420 $ 10,200 $ 1,020 $ 9,180 Purchase price excludes acquisition related costs. We capitalized acquisition related costs of $90 related to this transaction. The allocation of purchase price is based on preliminary estimates and may change upon the completion of third party valuations and our analysis of land and building valuations. 8JuneSeptember 30, 2016 and December 31, 2015, accrued environmental remediation costs totaling $8,160 were included in accounts payable and other liabilities in our condensed consolidated balance sheets. These accrued environmental remediation costs relate to maintenance of our properties for current uses and, because of the indeterminable timing of the remediation, these amounts have not been discounted to present value. We do not believe that there are environmental conditions at any of our properties that will have a material adverse effect on us. However, no assurances can be given that such conditions are not present in our properties or that other costs we incur to remediate contamination will not have a material adverse effect on our business or financial condition. Charges for environmental remediation costs are included in other operating expenses in our condensed consolidated statements of comprehensive income.JuneSeptember 30, 2016, we have not recorded a loss related to this matter.June 30, 2016 and 2015, approximately 19.6% and 20.3%, respectively, and for the six months ended JuneSeptember 30, 2016 and 2015, approximately 19.7% and 22.3%19.8%, respectively, and for the nine months ended September 30, 2016 and 2015, approximately 19.7% and 21.4%, respectively, of our total revenues were from 11 properties (229(229 buildings, leasable land parcels and easements) with a combined approximately 17,778,000 rentable square feet that we own on Oahu, HI.4.16% Fair Value Notional of Liability Amount as of Interest Effective Maturity as of Balance Sheet Location September 30, 2016 Date Date September 30, 2016 Interest Rate Swap Accounts Payable and Other Liabilities $ 41,000 4.16 % 1/29/2015 8/3/2020 $ 1,920 9sixnine months ended JuneSeptember 30, 2016 and 2015:(405) 324 (1,401) 680 97 108 191 (30) Three Months Ended September 30, Nine Months Ended September 30, 2016 2015 2016 2015 Amount of gain (loss) recognized in cumulative other comprehensive income (loss) (effective portion) $ 219 $ (953 ) $ (1,182 ) $ (273 ) Amount of gain (loss) reclassified from cumulative other comprehensive income (loss) into interest expense (effective portion) $ 93 $ 122 $ 284 $ 92 additional interest rate risk associated with our other floating rate borrowings.JuneSeptember 30, 2016 were: (1) our $280,000$297,000 of outstanding borrowings under our $750,000 unsecured revolving credit facility; (2) our $350,000 unsecured term loan; (3) an aggregate outstanding principal amount of $1,450,000 of public issuances of senior unsecured notes; and (4) an aggregate outstanding principal amount of $285,370$285,290 of mortgage notes.JuneSeptember 30, 2016 and December 31, 2015, the annual interest rate payable on borrowings under our revolving credit facility was 1.49%1.50% and 1.44%, respectively.respectively. The weighted average annual interest rate for borrowings under our revolving credit facility was 1.45%1.49% and 1.23%1.26% for the three months ended JuneSeptember 30, 2016 and 2015, respectively, and 1.45%1.46% and 1.26% for the sixnine months ended JuneSeptember 30, 2016 and 2015, respectively. We can borrow, repay and reborrow funds available under our revolving credit facility until maturity, and no principal repayment is due until maturity. As of JuneSeptember 30, 2016 and July 25,October 24, 2016, we had $280,000$297,000 and $270,000,$282,000, respectively, outstanding under our revolving credit facility.JuneSeptember 30, 2016 and December 31, 2015, the annual interest rate payable for the amount outstanding under our term loan was 1.61%1.67% and 1.39%, respectively. The weighted average annual interest rate for the amount outstanding under our term loan was 1.59%1.64% and 1.33%1.34% for the three months ended JuneSeptember 30, 2016 and 2015, respectively, and 1.58%1.61% and 1.34% for the sixnine months ended JuneSeptember 30, 2016 and 2015, respectively.JuneSeptember 30, 2016.JuneSeptember 30, 2016, nine of our properties (12 buildings) with a net book value of $452,955 had secured mortgage notes$450,555 were encumbered by mortgages we assumed in connection with our acquisition of those properties. The aggregate principal amount outstanding under these mortgage notes as of JuneSeptember 30, 2016 was $285,370.$285,290. These mortgage notes are non-recourse, subject to certain limited exceptions, and do not contain any material financial covenants.10JuneSeptember 30, 2016, categorized by the level of inputs, as defined in the fair value hierarchy under GAAP, used in the valuation of each asset and liability:49,144 49,144 (2,322) (2,322) Fair Value at Reporting Date Using Quoted Prices in Significant Active Markets for Significant Other Unobservable Identical Assets Observable Inputs Inputs Description Total (Level 1) (Level 2) (Level 3) Recurring Fair Value Measurements: Assets: $ 60,205 $ 60,205 $ — $ — Liabilities: $ (1,920 ) $ — $ (1,920 ) $ — $6,458$17,519 for these shares as of JuneSeptember 30, 2016 is included in cumulative other comprehensive income (loss) in our condensed consolidated balance sheets.JuneSeptember 30, 2016 and December 31, 2015, the fair value of our financial instruments approximated their carrying values in our condensed consolidated financial statements, due to their short term nature or variable interest rates, except as follows:348,068 352,758 347,448 353,063 395,344 406,724 394,712 402,984 294,894 301,323 294,471 293,373 389,895 396,256 389,394 386,000 246,093 252,434 246,473 242,435 At September 30, 2016 At December 31, 2015 Carrying Estimated Carrying Estimated Fair Value Fair Value Senior unsecured notes, due 2018 at 2.85% $ 348,367 $ 352,037 $ 347,448 $ 353,063 Senior unsecured notes, due 2020 at 3.60% $ 395,648 $ 406,140 $ 394,712 $ 402,984 Senior unsecured notes, due 2022 at 4.15% $ 295,097 $ 302,055 $ 294,471 $ 293,373 Senior unsecured notes, due 2025 at 4.50% $ 390,135 $ 405,038 $ 389,394 $ 386,000 Mortgage notes payable $ 245,869 $ 251,792 $ 246,473 $ 242,435 GA pursuant to a joint venture arrangement.GA. On February 29, 2016, we acquired the 11% ownership interest of our joint 11Issuances:12,22, 2016.July 22,October 21, 2016. We expect to pay this distribution on or about August 18,November 17, 2016.sixnine months ended JuneSeptember 30, 2016:(2,999) (626) 9 (3,616) 9,457 (405) 39 9,091 97 4 101 9,457 (308) 43 9,192 6,458 (934) 52 5,576 Three Months Ended September 30, 2016 Unrealized Gain Unrealized Equity in on Investment Gain (Loss) Unrealized in Available for on Derivative Gain of an Sale Securities Total Balance at June 30, 2016 $ 6,458 $ (934 ) $ 52 $ 5,576 Other comprehensive income before reclassifications 11,061 219 71 11,351 Amounts reclassified from cumulative other comprehensive income (loss) to net income — 93 9 102 Net current period other comprehensive income 11,061 312 80 11,453 Balance at September 30, 2016 $ 17,519 $ (622 ) $ 132 $ 17,029 (19,820) 276 (43) (19,587) 26,278 (1,401) 92 24,969 191 3 194 26,278 (1,210) 95 25,163 6,458 (934) 52 5,576 Nine Months Ended September 30, 2016 Unrealized Gain Unrealized Equity in (Loss) on Investment Gain (Loss) Unrealized Gain in Available for on Derivative (Loss) of an Sale Securities Total Balance at December 31, 2015 $ (19,820 ) $ 276 $ (43 ) $ (19,587 ) Other comprehensive income (loss) before reclassifications 37,339 (1,182 ) 163 36,320 Amounts reclassified from cumulative other comprehensive income (loss) to net income — 284 12 296 Net current period other comprehensive income (loss) 37,339 (898 ) 175 36,616 Balance at September 30, 2016 $ 17,519 $ (622 ) $ 132 $ 17,029 89,292 88,617 89,289 84,078 23 14 17 12 89,315 88,631 89,306 84,090 Three Months Ended September 30, Nine Months Ended September 30, 2016 2015 2016 2015 Weighted average common shares for basic earnings per share 89,308 89,267 89,295 85,827 Effect of dilutive securities: unvested share awards 26 7 23 10 Weighted average common shares for diluted earnings per share 89,334 89,274 89,318 85,837 $5,441$5,739 and $5,369$4,943 for the three months ended JuneSeptember 30, 2016 and 2015, respectively, and $10,448$16,187 and $10,015$14,958 for the sixnine months ended JuneSeptember 30, 2016 and 2015, respectively. No incentive fees were estimated to be payable to RMR LLC for the three or six months ended June 30, 2016 and 2015. The net business management fees we recognized for the 2016 and 2015 periods are included in general and administrative expenses in our condensed consolidated statements of comprehensive income.$3,184$3,224 and $2,955$2,887 for the three months ended JuneSeptember 30, 2016 and 2015, respectively, and $6,298$9,522 and $5,580$8,467 for the sixnine months ended JuneSeptember 30, 2016 and 2015, respectively. These amounts are included in other operating expenses or have been capitalized, as appropriate, in our condensed consolidated financial statements.$1,699$2,177 and $990$1,270 for property managementJuneSeptember 30, 2016 and 2015, respectively, and $3,320$5,587 and $1,870$3,140 for the sixnine months ended JuneSeptember 30, 2016 and 2015, respectively. These amounts are included in other operating expenses in our condensed consolidated statements of comprehensive income.$371$612 and $126$315 for the three months ended JuneSeptember 30, 2016 and 2015, respectively, and $710$1,322 and $361$676 for the sixnine months ended JuneSeptember 30, 2016 and 2015, respectively. These amounts are included in general and administrative expenses in our condensed consolidated statements of comprehensive income.$7$16 and $15 for both the three months ended JuneSeptember 30, 2016 and 2015, respectively, and $12$24 and $27 for both the sixnine months ended JuneSeptember 30, 2016 and 2015.13$557$558 and $1,115 of this liability, respectively, for the three and six months ended June 30, 2016, and $142$567 of this liability, for both the three and six months ended JuneSeptember 30, 2015.2016 and 2015, respectively, and $1,673 and $709 of this liability for the nine months ended September 30, 2016 and 2015, respectively. These amounts are included in the net business management and property management fee amounts for such periods. As of JuneSeptember 30, 2016, the remaining unamortized amount of this liability was $43,515.JuneSeptember 30, 2016, we owned 1,586,836 shares of class A common stock of RMR Inc. We receive dividends on our RMR Inc. class A common shares as declared and paid by RMR Inc. to all holders of its class A common shares. We received a dividend of $475 on our RMR Inc. class A common shares during the three months ended June 30, 2016, which was for the period from December 14, 2015 through March 31, 2016. Since then, we have not yetWe received any other dividendsa dividend of $397 on our RMR Inc. class A common shares.shares during the three months ended September 30, 2016, which was for the period from April 1, 2016 through June 30, 2016. On July 12,October 11, 2016, RMR Inc. declared a regular quarterly dividend of $0.25 per class A common share payable to shareholders of record on July 22,October 21, 2016. RMR Inc. has stated that it expects to pay this dividend on or about August 18,November 17, 2016. which is included in other assets in our condensed consolidated balance sheets and is recorded at fair value with the related unrealized gain (loss) included in cumulative other comprehensive income (loss) in our condensed consolidated balance sheets. We recognize the increase or decrease in the fair value of our RMR Inc. class A common shares each reporting period as unrealized gain or loss on investment in available for sale securities which is a component of other comprehensive income (loss) in our condensed consolidated statements of comprehensive income. For further information, see Notes 7 and 10.JuneSeptember 30, 2016, GOV owned 24,918,421 of our common shares or approximately 27.9% of our outstanding common shares.currently expect to paypaid aggregate annual premiums, including taxes and fees, of approximately $2,162 in connection with this insurance program for the policy year ending June 30, 2017, which amount may be adjusted from time to time as we acquire and dispose of properties that are included in this insurance program.JuneSeptember 30, 2016 and December 31, 2015, our investment in AIC had a carrying value of $7,016$7,109 and $6,827, respectively. These amounts are included in other assets in our condensed consolidated balance sheets. We recognized income (loss) of $17$13 and $23($25) related to our investment in AIC for the three months ended JuneSeptember 30, 2016 and 2015, respectively, and $94$107 and $95$70 for the sixnine months ended JuneSeptember 30, 2016 and 2015, respectively. Our other comprehensive income includes our proportionate part of unrealized gains (losses) on securities which are owned by AIC of $43$80 and ($64)72) for the threeJuneSeptember 30, 2016 and 2015, respectively, and $95$175 and ($19)91) for the sixnine months ended JuneSeptember 30, 2016 and 2015, respectively.DiscussionDiscussion and Analysis of Financial Condition and Results of OperationsJuneSeptember 30, 2016, we owned 119120 properties (360(361 buildings, leasable land parcels and easements), located in 35 states, that contain approximately 44.744.8 million rentable square feet and were approximately 96.8% leased (based on rentable square feet). For the sixnine months ended JuneSeptember 30, 2016, approximately 80.3% of our total revenue was from 108109 properties (131(132 buildings) located throughout the U.S. mainland, or our Mainland Properties. The remainder of our total revenue for the sixnine months ended JuneSeptember 30, 2016, or 19.7%, was from 11 properties (229 buildings, leasable land parcels and easements) with approximately 17.8 million rentable square feet we own on the island of Oahu, HI, or our Hawaii Properties. As of JuneSeptember 30, 2016, our properties were leased to 311310 different tenants, with a weighted average remaining lease term (based onupon annualized rental revenue) of approximately 10.1 years. The term annualized rental revenue as used in this section is defined in footnote (2)as the annualized contractual rents, as of September 30, 2016, from tenants pursuant to the first table on page 16 below) of approximately 10.3 years.existing leases, including straight line rent adjustments and excluding lease value amortization, and further adjusted for tenant concessions, including free rent and amounts reimbursed to tenants, plus estimated recurring expense reimbursements from tenants pursuant to existing leases.14JuneSeptember 30, 2016, 96.8% of our rentable square feet was leased, compared to 97.7% of our rentable square feet as of JuneSeptember 30, 2015. Occupancy data for our properties as of JuneSeptember 30, 2016 and 2015 is as follows (square feet in thousands):119 116 51 51 44,706 43,921 27,671 27,671 96.8 97.7 94.8 96.4 All Properties 2016 2015 2016 2015 Total properties 120 118 51 51 44,763 44,606 27,671 27,671 96.8 % 97.7 % 94.8 % 96.3 % JuneSeptember 30, 2016, if any, and (ii) space which is leased but is not occupied or is being offered for sublease by tenants, if any.sixnine months ended JuneSeptember 30, 2016 and 2015 are as follows: Three Months Ended Nine Months Ended September 30, September 30, 2016 2015 2016 2015 All Properties $ 10.62 $ 10.32 $ 10.64 $ 10.11 $ 10.30 $ 10.24 $ 8.89 $ 8.74 JuneSeptember 30, 2016 and 2015 consist of 115116 properties (354(355 buildings, leasable land parcels and easements) that we owned continuously since AprilJuly 1, 2015. Comparable Properties for the sixnine months ended JuneSeptember 30, 2016 and 2015 consist of 51 properties (281 buildings, leasable land parcels and easements) that we owned continuously since January 1, 2015.JuneSeptember 30, 2016, we entered lease renewals and new leases for approximately 148,000997,000 square feet at weighted average rental rates (by square feet) that were approximately 15.5%4.9% higher than prior rates for the same space. The weighted average lease term by square footage for new and renewal leases entered into during the three months ended JuneSeptember 30, 2016 was 12.39.1 years. Commitments for tenant improvements, leasing costs and concessions for leases entered into during the three months ended JuneSeptember 30, 2016 totaled $91,$848,000, or $0.05$0.09 per square foot per year of the weighted average lease term.sixnine months ended JuneSeptember 30, 2016, have generally increased under our ownership as rents under the leases for those properties have reset to or renewed at the then current fair market value and wevalue. We expect suchto realize increases may continue, but we expect thatin the future from similar rent resets or renewals, although the impact of such future increases at our Hawaii Properties over the next few years will declineis expected to be modest because fewer leases are subject to rent resets during that period. Moreover,In addition, the percentage of our total revenues derived from our 15trended lowerdecreased compared with past periods because of our acquisition of Mainland Properties, including in the CCIT Merger.0.3%1.4% of our total rented square feet and approximately 0.2%1.2% of our total annualized rental revenue as of JuneSeptember 30, 2016, are included in leases scheduled to expire by December 31, 2016.2017. As of JuneSeptember 30, 2016, our lease expirations by year are as follows (square feet and dollars in thousands):11 143 0.3 0.3 679 0.2 0.2 15 482 1.1 1.4 5,149 1.1 1.3 26 1,455 3.4 4.8 15,710 3.5 4.8 19 1,910 4.4 9.2 8,742 1.9 6.7 15 961 2.2 11.4 9,085 2.0 8.7 17 1,124 2.6 14.0 11,349 2.5 11.2 69 3,914 9.0 23.0 48,775 10.8 22.0 25 3,580 8.3 31.3 39,934 8.9 30.9 23 7,001 16.2 47.5 69,390 15.4 46.3 16 1,769 4.1 51.6 26,199 5.8 52.1 106 20,940 48.4 100.0 215,116 47.9 100.0 342 43,279 100.0 450,128 100.0 10.8 10.3 Cumulative Percent of Percent of Percent of Total Cumulative Total Total Annualized Annualized Percent of Total Rented Rented Rented Rental Rental Annualized Number of Square Feet Square Feet Square Feet Revenue Revenue Rental Revenue Year Tenants Expiring Expiring Expiring 10/1/2016 - 12/31/2016 9 134 0.3 % 0.3 % $ 625 0.1 % 0.1 % 2017 13 476 1.1 % 1.4 % 5,074 1.1 % 1.2 % 2018 25 1,138 2.6 % 4.0 % 14,360 3.2 % 4.4 % 2019 18 1,887 4.4 % 8.4 % 8,724 1.9 % 6.3 % 2020 15 961 2.2 % 10.6 % 9,115 2.0 % 8.3 % 2021 19 1,441 3.3 % 13.9 % 12,871 2.9 % 11.2 % 2022 70 3,917 9.0 % 22.9 % 49,185 10.9 % 22.1 % 2023 24 2,942 6.8 % 29.7 % 38,339 8.5 % 30.6 % 2024 23 7,001 16.2 % 45.9 % 68,719 15.2 % 45.8 % 2025 16 1,770 4.1 % 50.0 % 26,208 5.8 % 51.6 % Thereafter 109 21,666 50.0 % 100.0 % 218,389 48.4 % 100.0 % 341 43,333 100.0 % $ 451,609 100.0 % Weighted average remaining lease term (in years): 10.6 10.1 JuneSeptember 30, 2016, and includes (i) space being fitted out for occupancy pursuant to existing leases, if any, and (ii) space which is leased but is not occupied or is being offered for sublease by tenants, if any.(2)Annualized rental revenue is calculated as the annualized contractual rents, as of June 30, 2016, from tenants pursuant to existing leases, including straight line rent adjustments and excluding lease value amortization, and further adjusted for tenant concessions, including free rent and amounts reimbursed to tenants, plus estimated recurring expense reimbursements from tenants pursuant to existing leases.JuneSeptember 30, 2016 scheduled to reset at our Hawaii lands.2,349 2,492 29,136 33,977 (1)See footnote (2) to the table appearing above on this page 16 for a definition of annualized rental revenue.16 Annualized Rental Revenue as of September 30, 2016 Scheduled to Reset 10/1/2016 - 12/31/2016 $ — 2017 1,883 2018 2,525 2019 and thereafter 30,101 Total $ 34,509 areapproach their scheduled to reset date in order to achieve new rents based on the then current fair market values. If we are unable to reach an agreement with a tenant on a rent reset, our Hawaii land leases typically provide that rent is reset based on an appraisal process. Despite our prior experience with rent resets in Hawaii, our ability to increase rents when rent resets occur depends upon market conditions which are beyond our control. Accordingly, we can provide no assurance that the increases in rents which we have achieved in the past will be repeated in the future, and it is possible that rents could reset to a lower level if fair market values decrease.JuneSeptember 30, 2016, tenants representing 1% or more of our total annualized rental revenue were as follows (square feet in thousands):596 1.4 4.0 820 1.9 3.7 3,048 7.0 3.6 554 1.3 3.1 497 1.1 3.1 618 1.4 3.1 1,873 4.3 2.9 299 0.7 2.9 311 0.7 2.4 337 0.8 2.3 248 0.6 2.2 406 0.9 1.8 795 1.8 1.7 441 1.0 1.4 458 1.1 1.3 149 0.3 1.3 250 0.6 1.3 1,195 2.8 1.3 206 0.5 1.2 344 0.8 1.2 722 1.7 1.1 448 1.0 1.1 227 0.5 1.1 168 0.4 1.1 175 0.4 1.0 15,185 35.0 51.2 % of % of Total Annualized Rental Tenant Property Type Revenue 1. Shook, Hardy & Bacon L.L.P. Mainland Properties 596 1.4 % 4.0 % 2. Tellabs, Inc. Mainland Properties 820 1.9 % 3.7 % 3. Amazon.com, Inc. Mainland Properties 3,048 7.0 % 3.6 % 4. Bank of America, National Association Mainland Properties 554 1.3 % 3.2 % 5. Noble Energy, Inc. Mainland Properties 497 1.1 % 3.1 % 6. Tesoro Corporation Mainland Properties 618 1.4 % 3.1 % 7. Cinram Group, Inc. Mainland Properties 1,873 4.3 % 2.9 % 8. F5 Networks, Inc. Mainland Properties 299 0.7 % 2.9 % 9. WestRock Company Mainland Properties 311 0.7 % 2.4 % 10. Orbital ATK, Inc. Mainland Properties 337 0.8 % 2.3 % 11. Tyson Foods, Inc. Mainland Properties 248 0.6 % 2.1 % 12. Novell, Inc. Mainland Properties 406 0.9 % 1.8 % 13. FedEx Corporation Mainland Properties 795 1.8 % 1.7 % 14. PNC Bank, National Association Mainland Properties 441 1.0 % 1.4 % 15. Allstate Insurance Company Mainland Properties 458 1.1 % 1.3 % 16. ServiceNow, Inc. Mainland Properties 149 0.3 % 1.3 % 17. Church & Dwight Co., Inc. Mainland Properties 250 0.6 % 1.3 % 18. Restoration Hardware, Inc. Mainland Properties 1,195 2.8 % 1.3 % 19. Tailored Brands, Inc. Mainland Properties 206 0.5 % 1.2 % 20. Primerica Life Insurance Company Mainland Properties 344 0.8 % 1.2 % 21. American Tire Distributors, Inc. Mainland Properties 722 1.7 % 1.1 % 22. United Launch Alliance, LLC Mainland Properties 168 0.4 % 1.1 % 23. The Southern Company Mainland Properties 448 1.0 % 1.1 % 24. Compass Group USA, Inc. Mainland Properties 227 0.5 % 1.1 % 25. Red Hat, Inc. Mainland Properties 175 0.4 % 1.0 % Total 15,185 35.0 % 51.2 % JuneSeptember 30, 2016, and includes (i) space being fitted out for occupancy pursuant to existing leases, if any, and (ii) space which is leased but is not occupied or is being offered for sublease by tenants, if any.(2)See footnote (2) to the first table appearing on page 16 above for a definition of annualized rental revenue.17 (dollars(dollars in thousands)One the office properties we acquired in the CCIT Merger, was owned pursuant towe acquired an 89% interest in a joint venture arrangement. In December 2015, the joint venture partner exercisedthat owned an option that required us to purchase its 11% ownership interest at fair market value.office property in Duluth, GA. On February 29, 2016, we purchased the 11% ownership interest in that interestjoint venture that we did not own for $3,908.On July 22,18JuneSeptember 30, 2016, Compared to Three Months Ended JuneSeptember 30, 2015 (dollars and share amounts in thousands, except per share data)92,431 91,846 585 0.6 4,184 320 3,864 96,615 92,166 4,449 4.8 16,591 14,972 1,619 10.8 1,698 76 1,622 18,289 15,048 3,241 21.5 109,022 106,818 2,204 2.1 5,882 396 5,486 114,904 107,214 7,690 7.2 10,040 8,970 1,070 11.9 482 49 433 10,522 9,019 1,503 16.7 11,003 9,775 1,228 12.6 1,632 26 1,606 12,635 9,801 2,834 28.9 21,043 18,745 2,298 12.3 2,114 75 2,039 23,157 18,820 4,337 23.0 87,979 88,073 (94) (0.1) 3,768 321 3,447 91,747 88,394 3,353 3.8 33,405 32,390 1,015 3.1 779 (779) (100.0) 7,374 6,368 1,006 15.8 40,779 39,537 1,242 3.1 50,968 48,857 2,111 4.3 475 475 100.0 (20,584) (19,497) (1,087) 5.6 30,859 29,360 1,499 5.1 (124) (195) 71 (36.4) 17 23 (6) (26.1) 30,752 29,188 1,564 5.4 (48) 48 (100.0) 30,752 29,140 1,612 5.5 89,292 88,617 675 0.8 89,315 88,631 684 0.8 0.34 0.33 0.01 3.0 30,752 29,140 33,405 32,390 48 (114) 64,157 61,464 779 (3) 64,157 62,240 0.72 0.69 0.72 0.70 Consolidated Results Three Months Ended September 30, Three Months Ended September 30, Three Months Ended September 30, $ % $ $ % 2016 2015 Change Change 2016 2015 Change 2016 2015 Change Change Revenues: Rental income $ 92,022 $ 92,611 $ (589 ) (0.6 ) % $ 4,015 $ 2,134 $ 1,881 $ 96,037 $ 94,745 $ 1,292 1.4 % Tenant reimbursements and other income 17,354 16,298 1,056 6.5 % 1,645 899 746 18,999 17,197 1,802 10.5 % Total revenues 109,376 108,909 467 0.4 % 5,660 3,033 2,627 115,036 111,942 3,094 2.8 % Operating expenses: Real estate taxes 10,353 9,672 681 7.0 % 402 199 203 10,755 9,871 884 9.0 % Other operating expenses 12,654 10,420 2,234 21.4 % 1,740 893 847 14,394 11,313 3,081 27.2 % Total operating expenses 23,007 20,092 2,915 14.5 % 2,142 1,092 1,050 25,149 21,184 3,965 18.7 % $ 86,369 $ 88,817 $ (2,448 ) (2.8 ) % $ 3,518 $ 1,941 $ 1,577 89,887 90,758 (871 ) (1.0 ) % Other expenses: Depreciation and amortization 33,366 33,070 296 0.9 % Acquisition related costs 13 402 (389 ) (96.8 ) % General and administrative 7,553 6,328 1,225 19.4 % Total other expenses 40,932 39,800 1,132 2.8 % Operating income 48,955 50,958 (2,003 ) (3.9 ) % Dividend income 397 — 397 100.0 % Interest expense (20,690 ) (20,034 ) (656 ) 3.3 % Income before income tax expense and equity in earnings (loss) of an investee 28,662 30,924 (2,262 ) (7.3 ) % Income tax expense (107 ) (98 ) (9 ) 9.2 % Equity in earnings (loss) of an investee 13 (25 ) 38 (152.0 ) % Net income 28,568 30,801 (2,233 ) (7.2 ) % Net income allocated to noncontrolling interest — (46 ) 46 (100.0 ) % Net income attributed to SIR $ 28,568 $ 30,755 $ (2,187 ) (7.1 ) % Weighted average common shares outstanding - basic 89,308 89,267 41 — % Weighted average common shares outstanding - diluted 89,334 89,274 60 0.1 % Net income attributed to SIR per common share - basic and diluted $ 0.32 $ 0.34 $ (0.02 ) (5.9 ) % Net income attributed to SIR $ 28,568 $ 30,755 Plus: depreciation and amortization 33,366 33,070 Plus: net income allocated to noncontrolling interest — 46 Less: FFO allocated to noncontrolling interest — (121 ) FFO attributed to SIR 61,934 63,750 Plus: acquisition related costs 13 402 Normalized FFO attributed to SIR $ 61,947 $ 64,152 FFO attributed to SIR per common share - basic and diluted $ 0.69 $ 0.71 Normalized FFO attributed to SIR per common share - basic and diluted $ 0.69 $ 0.72 115116 properties (354(355 buildings, leasable land parcels and easements) that we owned continuously since AprilJuly 1, 2015.AprilJuly 1, 2015 to JuneSeptember 30, 2016. believe that NOI provides useful information to investors regarding our results of operations because it reflects only those income and expense items that are generated and incurred at the property level and may facilitate comparisons of our operating performance between periods and with other REITs. NOI does 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 our operating performance or as a measure of our liquidity. This measure should be considered in conjunction with net income, net income attributed to SIR, operating income and cash flow from operating activities as presented in our Condensed Consolidated Statements of Comprehensive Income and Condensed Consolidated Statements of Cash Flows. Other real estate companies and REITs may calculate NOI differently than we do.19FFO.FFO, if any. We consider 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 and cash flow from operating activities.income. We believe 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 our operating performance between periods and with other REITs. FFO attributed to SIR and Normalized FFO attributed to SIR are among the factors considered by our Board of Trustees when determining the amount of distributions to our shareholders. Other factors include, but are not limited to, requirements to maintain our qualification for taxation as a REIT, limitations in our credit agreement and public debt covenants, the availability to us of debt and equity capital, our expectation of our future capital requirements and operating performance and our expected needs and availability of cash to pay our 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 our operating performance or as a measure of our liquidity. These measures should be considered in conjunction with net income, net income attributed to SIR and operating income and cash flow from operating activities as presented in our Condensed Consolidated Statements of Comprehensive Income and Condensed Consolidated Statements of Cash Flows.Income. Other real estate companies and REITs may calculate FFO and Normalized FFO differently than we do.JuneSeptember 30, 2016, compared to the three months ended JuneSeptember 30, 2015. Our acquisition activity reflects our acquisition of four properties (six buildings) subsequent to AprilJuly 1, 2015.activity.activity, partially offset by a decline in occupancy at certain of our comparable properties. Rental income includes non-cash straight line rent adjustments totaling approximately $6,269$6,483 for the 2016 period and approximately $6,646$7,922 for the 2015 period, and net amortization of acquired real estate leases and assumed real estate lease obligations totaling approximately $419$443 for the 2016 period and approximately $1,288$786 for the 2015 period. Consolidated Results Nine Months Ended September 30, Nine Months Ended September 30, Nine Months Ended September 30, $ % $ $ % 2016 2015 Change Change 2016 2015 Change 2016 2015 Change Change Revenues: Rental income $ 149,195 $ 149,121 $ 74 — % $ 141,317 $ 118,268 $ 23,049 $ 290,512 $ 267,389 $ 23,123 8.6 % Tenant reimbursements and other income 27,087 25,567 1,520 5.9 % 29,573 20,615 8,958 56,660 46,182 10,478 22.7 % Total revenues 176,282 174,688 1,594 0.9 % 170,890 138,883 32,007 347,172 313,571 33,601 10.7 % Operating expenses: Real estate taxes 18,460 17,279 1,181 6.8 % 13,105 9,968 3,137 31,565 27,247 4,318 15.8 % Other operating expenses 16,010 13,902 2,108 15.2 % 23,977 16,219 7,758 39,987 30,121 9,866 32.8 % Total operating expenses 34,470 31,181 3,289 10.5 % 37,082 26,187 10,895 71,552 57,368 14,184 24.7 % $ 141,812 $ 143,507 $ (1,695 ) (1.2 ) % $ 133,808 $ 112,696 $ 21,112 275,620 256,203 19,417 7.6 % Other expenses: Depreciation and amortization 100,240 90,179 10,061 11.2 % Acquisition related costs 71 21,720 (21,649 ) (99.7 ) % General and administrative 21,903 19,488 2,415 12.4 % Total other expenses 122,214 131,387 (9,173 ) (7.0 ) % Operating income 153,406 124,816 28,590 22.9 % Dividend income 872 — 872 100.0 % Interest expense (61,883 ) (53,710 ) (8,173 ) 15.2 % Loss on early extinguishment of debt — (6,845 ) 6,845 (100.0 ) % Income before income tax expense and equity in earnings of an investee 92,395 64,261 28,134 43.8 % Income tax expense (370 ) (324 ) (46 ) 14.2 % Equity in earnings of an investee 107 70 37 52.9 % Net income 92,132 64,007 28,125 43.9 % Net income allocated to noncontrolling interest (33 ) (135 ) 102 (75.6 ) % Net income attributed to SIR $ 92,099 $ 63,872 $ 28,227 44.2 % Weighted average common shares outstanding - basic 89,295 85,827 3,468 4.0 % Weighted average common shares outstanding - diluted 89,318 85,837 3,481 4.1 % Net income attributed to SIR per common share - basic and diluted $ 1.03 $ 0.74 $ 0.29 39.2 % Net income attributed to SIR $ 92,099 $ 63,872 Plus: depreciation and amortization 100,240 90,179 Plus: net income allocated to noncontrolling interest 33 135 Less: FFO allocated to noncontrolling interest (77 ) (318 ) FFO attributed to SIR 192,295 153,868 Plus: acquisition related costs 71 21,720 Plus: loss on early extinguishment of debt — 6,845 Less: normalized FFO from noncontrolling interest, net of FFO — (62 ) Normalized FFO attributed to SIR $ 192,366 $ 182,371 FFO attributed to SIR per common share - basic and diluted $ 2.15 $ 1.79 Normalized FFO attributed to SIR per common share - basic and diluted $ 2.15 $ 2.12 Consists of 51 properties (281 buildings, leasable land parcels and easements) that we owned continuously since January 1, 2015. Consists of 69 properties (80 buildings) that we acquired during the period from January 1, 2015 to September 30, 2016. See footnote (3) on page 21 for the definition of NOI. See footnote (4) on page 22 for the definitions of FFO attributed to SIR and Normalized FFO attributed to SIR. throughoutat our comparable properties, partially offset by a reduction of property management fees from amortization of the liability we recorded in connection with our acquisition of RMR Inc. shares.Depreciation and amortization. The increase in depreciation and amortization primarily reflects our acquisition activity, partially offset by certain of our depreciable assets at our comparable properties becoming fully depreciated since April 1, 2015.Acquisition related costs. Acquisition related costs for the 2015 period primarily reflect costs related to our acquisition of the 64 CCIT Properties and other property acquisitions and investment activity.General and administrative. General and administrative expenses primarily include fees paid under our business management agreement, net of amortization of the liability we recorded in connection with our acquisition of 20RMR Inc. shares legal fees, audit fees, Trustee cash fees and non-cash equity compensation expense related to awards to our Trustees, our officers and certain other RMR LLC employees. The increase in general and administrative expenses in the 2016 period primarily reflects an increase in net business management fees, professional fees and non-cash equity compensation expense.Dividend income. Dividend income in the 2016 period reflects a cash dividend received from our investment in RMR Inc. shares related to the period from December 14, 2015 through March 31, 2016.Interest expense. The increase in interest expense primarily reflects higher weighted average balances and higher weighted average interest rates on borrowings under our revolving credit facility and term loan during the 2016 period compared to the 2015 period.Income tax expense. Income tax expense represents state income taxes.Equity in earnings of an investee. Equity in earnings of an investee represents our proportionate share of earnings from our investment in AIC.Net income. The increase in net income for the 2016 period compared to the 2015 period reflects the changes noted above.Net income allocated to noncontrolling interest. Net income allocated to noncontrolling interest represents an 11% noncontrolling interest of a third party in one of the properties we acquired in connection with the CCIT Merger. On February 29, 2016, we acquired this 11% noncontrolling interest. As a result, for periods from and after that date, there is no longer a noncontrolling interest with respect to this office building. See Notes 3 and 8 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information regarding our acquisition of the remaining 11% interest.Weighted average common shares outstanding. The increase in weighted average common shares outstanding primarily reflects (i) shares granted to our Trustees in May 2016 and May 2015, (ii) shares granted to our officers and certain other employees of RMR LLC in September 2015, (iii) shares issued to RMR LLC through May 2015 pursuant to our business management agreement, and (iv) shares issued in connection with our acquisition of shares of RMR Inc.beginning in June 2015.Basic and diluted net income attributed to SIR per common share. The increase in net income attributed to SIR per common share primarily reflects the changes to net income noted above, partially offset by an increase in the weighted average common shares outstanding noted above.21Six Months Ended June 30, 2016, Compared to Six Months Ended June 30, 2015 (dollars and share amounts in thousands, except per share data)100,344 99,645 699 0.7 94,131 72,999 21,132 194,475 172,644 21,831 12.6 18,013 16,775 1,238 7.4 19,648 12,210 7,438 37,661 28,985 8,676 29.9 118,357 116,420 1,937 1.7 113,779 85,209 28,570 232,136 201,629 30,507 15.1 12,095 11,405 690 6.0 8,715 5,971 2,744 20,810 17,376 3,434 19.8 10,134 9,311 823 8.8 15,459 9,497 5,962 25,593 18,808 6,785 36.1 22,229 20,716 1,513 7.3 24,174 15,468 8,706 46,403 36,184 10,219 28.2 96,128 95,704 424 0.4 89,605 69,741 19,864 185,733 165,445 20,288 12.3 66,874 57,109 9,765 17.1 58 21,318 (21,260) (99.7) 14,350 13,160 1,190 9.0 81,282 91,587 (10,305) (11.3) 104,451 73,858 30,593 41.4 475 475 100.0 (41,193) (33,676) (7,517) 22.3 (6,845) 6,845 (100.0) 63,733 33,337 30,396 91.2 (263) (226) (37) 16.4 94 95 (1) (1.1) 63,564 33,206 30,358 91.4 (33) (89) 56 (62.9) 63,531 33,117 30,414 91.8 89,289 84,078 5,211 6.2 89,306 84,090 5,216 6.2 0.71 0.39 0.32 82.1 63,531 33,117 66,874 57,109 33 89 (77) (197) 130,361 90,118 58 21,318 6,845 (62) 130,419 118,219 1.46 1.07 1.46 1.41 (1)Consists of 51 properties (281 buildings, leasable land parcels and easements) that we owned continuously since January 1, 2015.(2)Consists of 68 properties (79 buildings) that we acquired during the period from January 1, 2015 to June 30, 2016.(3)See footnote (3) on page 19 for the definition of NOI.(4)See footnote (4) on page 20 for the definitions of FFO attributed to SIR and Normalized FFO attributed to SIR.References to changes in the income and expense categories below relate to the comparison of results for the six months ended June 30, 2016, compared to the six months ended June 30, 2015. Our acquisition activity reflects our acquisition of the 64 CCIT Properties (73 buildings) in January 2015 and four properties (six buildings) in separate transactions during 2015.Rental income. The increase in rental income primarily reflects our acquisition activity, particularly with respect to the 64 CCIT Properties. Rental income includes non-cash straight line rent adjustments totaling approximately $12,571 for the 2016 period and approximately $12,473 for the 2015 period, and net amortization of acquired real estate leases and assumed real estate lease obligations totaling approximately $855 for the 2016 period and approximately $2,096 for the 2015 period.22Tenant reimbursements and other income. The increase in tenant reimbursements and other income primarily reflects our acquisition activity, plus increases in real estate tax and operating expense reimbursements at certain of our comparable properties.Real estate taxes. The increase in real estate taxes primarily reflects our acquisition activity and tax valuation and tax rate increases at certain of our comparable properties.Other operating expenses. Other operating expenses primarily include property maintenance, environmental remediation, utilities, insurance, bad debt, legal and property management fees, net of amortization of the liability we recorded in connection with our acquisition of RMR Inc. shares as discussed in Note 12 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. The increase in other operating expenses primarily reflects our acquisition activity, particularly the 64 CCIT Properties, and increases in general operating expenses throughout our comparable properties, partially offset by a reduction of property management fees from amortization of the liability we recorded in connection with our acquisition of RMR Inc. shares.for the 2015 period primarily reflectreflects costs related to our acquisition of the 64 CCIT Properties and other property acquisitions and investment activity.activity during the 2015 period compared to the lesser such activities in 2016. non-cash equity compensation expense related to awards to our Trustees, our officers and certain other RMR LLC employees. The increase in general and administrative expenses in the 2016 period primarily reflects an increase in net business management fees and accounting fees resulting primarily from our property acquisitions and an increase in non-cash equity compensation expense, partially offset by lower legal fees.a cash dividenddividends received from our investment in RMR Inc. shares related to the period from December 14, 2015 through March 31,June 30, 2016.one of the propertiesa joint venture that we acquired an 89% interest in connection withpursuant to the CCIT Merger. The joint venture owned an office building. On February 29, 2016, we acquired thisthe 11% noncontrolling interest. As a result, for periods from and after that date, there is no longer a noncontrolling interest with respect to this office building. See Notes 3 and 8 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item I of this Quarterly Report on Form 10-Q for further information regarding our acquisition of the remaining 11%this joint venture interest.23···$114,669,$161,207, ($5,255)16,939) and ($116,475)145,447) for the sixnine months ended JuneSeptember 30, 2016, respectively, and $105,948,$147,014, ($1,504,124)1,659,699) and $1,407,381$1,524,428 for the sixnine months ended JuneSeptember 30, 2015, respectively. The increase in operating activities cash flowflows for the sixnine months ended JuneSeptember 30, 2016 compared to the corresponding prior year period is primarily due to increased operating cash flowflows from the properties we acquired during 2015. The decrease in cash used in investing activities for the sixnine months ended JuneSeptember 30, 2016 compared to the corresponding prior year period is primarily due to more acquisition activity during the sixnine months ended JuneSeptember 30, 2015 compared to the current year period. The decrease in financing activities cash flowflows for the sixnine months ended JuneSeptember 30, 2016 compared to the corresponding prior year period is primarily due to (i) the issuance of $1,450,000 aggregate principal amount of senior unsecured notes in February 2015 and (ii) net activities on our revolving credit facility resulting primarily from our acquisitions during the 2015 period, partially offset by (iii) increased distributions to our common shareholders during the 2016 period compared to the 2015 period.JuneSeptember 30, 2016, the interest rate premium on our revolving credit facility was 105 basis points and our facility fee was 20 basis points. We can borrow, repay and reborrow funds available under our revolving credit facility until maturity, and no principal repayment is due until maturity. As of JuneSeptember 30, 2016, the annual interest rate payable on borrowings under our revolving credit facility was 1.49%1.50%. As of JuneSeptember 30, 2016 and July 25,October 24, 2016, we had 24$280,000$297,000 and $270,000,$282,000, respectively, outstanding under our revolving credit facility and $470,000$453,000 and $480,000,$468,000, respectively, available to borrow under our revolving credit facility.JuneSeptember 30, 2016, the annual interest rate payable on borrowings under our term loan was 1.61%1.67%.JuneSeptember 30, 2016 were as follows: $40,398$40,318 in 2016, $17,570 in 2017, $350,304 in 2018, $4,926 in 2019, $501,172 in 2020 and $821,000 thereafter.JuneSeptember 30, 2016, we had $10,815$16,697 of cash and cash equivalents. We typically use cash balances, borrowings under our revolving credit facility, net proceeds from offerings of equity or debt securities, term loans and the cash flowflows from our operations to fund debt repayments, property acquisitions, capital expenditures and other general business purposes. We also have in the past assumed mortgage debt in connection with certain of our acquisitions and we may do so in the future. In addition, we may sell properties we own or place mortgages on properties we own.provide assurancebe sure that we will be successful in consummating any particular type of financing, we believe that we will have access to financing, such as debt and equity offerings, to fund our committed and future acquisitions and capital expenditures and to pay our obligations. We currently have an effective shelf registration statement that allows us to issue public securities on an expedited basis, but it does not assure that there will be buyers for such securities.assurebe sure that we will be able to successfully carry out this intention.sixnine months ended JuneSeptember 30, 2016, we paid regular quarterly cash distributions to our common shareholders aggregating $89,374$134,961 using existing cash balances and borrowings under our revolving credit facility. For further information regarding the distributions we paid during 2016, see Note 9 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.July 12,October 11, 2016, we declared a regular quarterly distribution of $0.51 per common share, or approximately $45,600, to shareholders of record on July 22,October 21, 2016. We expect to pay this distribution on or about August 18,November 17, 2016 using existing cash balances and borrowings under our revolving credit facility.25sixnine months ended JuneSeptember 30, 2016 and 2015, amounts capitalized for tenant improvements, leasing costs, building improvements and development and redevelopment activities were as follows (dollars in thousands):902 1,632 916 1,653 121 320 3,260 483 1,021 514 1,125 514 1,187 11 1,935 11 3,231 2,477 7,236 2,661 2016 2015 2016 2015 $ 1,343 $ 12 $ 2,259 $ 1,665 227 1,297 3,487 1,780 561 444 1,686 958 613 69 2,548 80 $ 2,744 $ 1,822 $ 9,980 $ 4,483 $12,521$27,623 as of JuneSeptember 30, 2016.JuneSeptember 30, 2016, commitments made for expenditures, such as tenant improvements and leasing costs in connection with leasing space, were as follows (dollars and square feet in thousands, except per square foot amounts):15 133 148 66 25 91 4.40 0.19 0.61 4.3 13.2 12.3 1.02 0.01 0.05 New Leases Renewals Totals 8 989 997 $ 3 $ 845 $ 848 $ 0.38 $ 0.85 $ 0.85 Weighted average lease term by square feet (years) 7.0 9.1 9.1 $ 0.05 $ 0.09 $ 0.09 JuneSeptember 30, 2016, we had no off balance sheet arrangements that have had or that we expect would be reasonably likely to have a material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. We had no swaps or hedges as of JuneSeptember 30, 2016, other than the cash flow hedge associated with $41,000 of mortgage debt described in Notes 5 and 7 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q and under “Quantitative and Qualitative Disclosures About Market Risk” included in Part I, Item 3 of this Quarterly Report on Form 10-Q.JuneSeptember 30, 2016 were our senior unsecured notes, borrowings outstanding under our revolving credit facility and term loan, and secured mortgage notes assumed in connection with some of our acquisitions. Our mortgage notes are non-recourse, subject to certain limitations, and do not contain any material financial covenants. Our publicly issued senior unsecured notes are governed by an indenture. Our senior unsecured notes indenture and its supplement and the credit agreement for our revolving credit facility and term loan provide for 26JuneSeptember 30, 2016, we believe we were in compliance with all of the terms and covenants under our revolving credit facility and term loan and senior unsecured notes indenture and its supplement.Trustees.Trustees and ABP Trust also owns an equity interest in RMR LLC. Also, GOV is our largest shareholder; and we and six other companies to which RMR LLC provides management services own in equal amounts AIC, an insurance company, and we participate in a combined property insurance program arranged and reinsured in part by AIC. For further information about these and other such relationships and related person transactions, please see Note 12 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, our Annual Report, our definitive Proxy Statement for our 2016 Annual Meeting of Shareholders and our other filings with the Securities and Exchange Commission, or SEC. In addition, please see the section captioned “Risk Factors” of our Annual Report for a description of risks that may arise as a result of these and other related person transactions and relationships. Our filings with the SEC and copies of certain of our agreements with these related parties are publicly available as exhibits to our public filings with the SEC and accessible at the SEC’s website, www.sec.gov. We may engage in additional transactions with related persons, including RMR LLC and companies to which RMR LLC or its affiliates provide management services.27JuneSeptember 30, 2016, our outstanding fixed rate debt consisted of the following senior unsecured notes and secured mortgage notes:350,000 2.85 9,975 400,000 3.60 14,400 300,000 4.15 12,450 400,000 4.50 18,000 17,627 5.95 1,049 2,000 4.50 90 2,400 4.50 108 12,360 3.87 478 41,000 4.16 1,706 48,750 3.99 1,945 71,000 3.55 2,521 50,000 3.70 1,850 1,695,137 64,572 Annual Annual Interest Principal Interest Interest Payments Debt Maturity Due Senior unsecured notes $ 350,000 2.85 % $ 9,975 2018 Semi-Annually Senior unsecured notes 400,000 3.60 % 14,400 2020 Semi-Annually Senior unsecured notes 300,000 4.15 % 12,450 2022 Semi-Annually Senior unsecured notes 400,000 4.50 % 18,000 2025 Semi-Annually Mortgage note (one property (two buildings in Carlsbad, CA)) 17,565 5.95 % 1,045 2017 Monthly Mortgage note (one property (one building in Harvey, IL)) 1,992 4.50 % 90 2019 Monthly Mortgage note (one property (one building in Columbus, OH)) 2,390 4.50 % 108 2019 Monthly Mortgage note (one property (one building in Ankeny, IA)) 12,360 3.87 % 478 2020 Monthly 41,000 4.16 % 1,706 2020 Monthly Mortgage note (one property (one building in Chester, VA)) 48,750 3.99 % 1,945 2020 Monthly Mortgage note (one property (three buildings in Seattle, WA)) 71,000 3.55 % 2,521 2023 Monthly Mortgage note (one property (one building in Chicago, IL)) 50,000 3.70 % 1,850 2023 Monthly $ 1,695,057 $ 64,568 1.8%1.7% ($41,000) of our total outstanding debt had interest payments designated as hedged transactions to interest rate swap agreements at JuneSeptember 30, 2016. As of JuneSeptember 30, 2016, the fair value of our derivative instrument included in accounts payable and other liabilities in our condensed consolidated balance sheet was $2,322.28JuneSeptember 30, 2016 and discounted cash flow analyses through the maturity dates, and assuming no other changes in factors that may affect the fair value of our fixed rate debt obligations, a hypothetical immediate 100 basis point increase in interest rates would change the fair value of these obligations by approximately $76,256.JuneSeptember 30, 2016, our floating rate debt (excluding the $41,000 mortgage note hedged by our interest rate swap agreement) consisted of $280,000$297,000 outstanding under our revolving credit facility, $350,000 outstanding under our term loan, and a $40,233 mortgage note. Our revolving credit facility matures on March 29, 2019 and, subject to our meeting certain conditions, including our payment of an extension fee, we have the option to extend the maturity date by one year to March 29, 2020. Our term loan matures on March 31, 2020. No principal repayments are required under our revolving credit facility orJuneSeptember 30, 2016:1.57 670,233 10,523 0.12 2.57 670,233 17,225 0.19 Impact of an Increase in Interest Rates Total Interest Annual Interest Rate Outstanding Expense Earnings Per Per Year At September 30, 2016 1.62 % $ 687,233 $ 11,133 $ 0.12 100 basis point increase 2.62 % $ 687,233 $ 18,006 $ 0.20 JuneSeptember 30, 2016.sixnine months ended JuneSeptember 30, 2016.JuneSeptember 30, 2016 if we were fully drawn on our revolving credit facility and our term loan and floating rate mortgage note remained outstanding:1.54 1,140,233 17,560 0.20 2.54 1,140,233 28,962 0.32 Impact of an Increase in Interest Rates Total Interest Annual Interest Rate Outstanding Expense Earnings Per Per Year At September 30, 2016 1.57 % $ 1,140,233 $ 17,902 $ 0.20 100 basis point increase 2.57 % $ 1,140,233 $ 29,304 $ 0.33 JuneSeptember 30, 2016, assuming we were fully drawn on our revolving credit facility and our term loan and floating rate mortgage note remained outstanding.sixnine months ended JuneSeptember 30, 2016.29JuneSeptember 30, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.30·THE LIKELIHOOD THAT OUR TENANTS WILL PAY RENT, EXTEND OR RENEW THEIR LEASES, ENTER INTO NEW LEASES OR BE AFFECTED BY CYCLICAL ECONOMIC CONDITIONS,
THE LIKELIHOOD THAT OUR TENANTS WILL PAY RENT OR BE NEGATIVELY AFFECTED BY CYCLICAL ECONOMIC CONDITIONS,·OUR ACQUISITIONS OF PROPERTIES,
THE LIKELIHOOD THAT OUR TENANTS WILL RENEW OR EXTEND THEIR LEASES OR THAT WE WILL BE ABLE TO OBTAIN REPLACEMENT TENANTS,·OUR SALES OF PROPERTIES,
OUR ACQUISITIONS OF PROPERTIES,·OUR ABILITY TO COMPETE FOR ACQUISITIONS AND TENANCIES EFFECTIVELY,
OUR SALES OF PROPERTIES,·THE LIKELIHOOD THAT OUR RENTS MAY INCREASE WHEN RENTS ARE RESET AT OUR LEASED LANDS IN HAWAII,
OUR ABILITY TO COMPETE FOR ACQUISITIONS AND TENANCIES EFFECTIVELY,·OUR ABILITY TO PAY DISTRIBUTIONS TO OUR SHAREHOLDERS AND THE AMOUNT OF SUCH DISTRIBUTIONS,
THE LIKELIHOOD THAT OUR RENTS MAY INCREASE WHEN RENTS ARE RESET AT OUR LEASED LANDS IN HAWAII,·THE FUTURE AVAILABILITY OF BORROWINGS UNDER OUR REVOLVING CREDIT FACILITY,
OUR ABILITY TO PAY DISTRIBUTIONS TO OUR SHAREHOLDERS AND THE AMOUNT OF SUCH DISTRIBUTIONS,·OUR POLICIES AND PLANS REGARDING INVESTMENTS, FINANCINGS AND DISPOSITIONS,
THE FUTURE AVAILABILITY OF BORROWINGS UNDER OUR REVOLVING CREDIT FACILITY,·OUR ABILITY TO RAISE EQUITY OR DEBT CAPITAL,
OUR POLICIES AND PLANS REGARDING INVESTMENTS, FINANCINGS AND DISPOSITIONS,·OUR ABILITY TO PAY INTEREST ON AND PRINCIPAL OF OUR DEBT,·OUR ABILITY TO APPROPRIATELY BALANCE OUR USE OF EQUITY ANDOUR ABILITY TO RAISE EQUITY OR DEBT CAPITAL,
OUR ABILITY TO PAY INTEREST ON AND PRINCIPAL OF OUR DEBT,·OUR CREDIT RATINGS,
OUR ABILITY TO APPROPRIATELY BALANCE OUR USE OF EQUITY AND DEBT CAPITAL,·OUR EXPECTATION THAT WE BENEFIT FROM OUR OWNERSHIP OF RMR INC.,
OUR CREDIT RATINGS,·OUR EXPECTATION THAT WE BENEFIT FROM OUR OWNERSHIP OF AIC AND FROM OUR PARTICIPATION IN INSURANCE PROGRAMS ARRANGED BY AIC,
OUR EXPECTATION THAT WE BENEFIT FROM OUR OWNERSHIP OF RMR INC.,·OUR QUALIFICATION FOR TAXATION AS A REIT,
OUR EXPECTATION THAT WE BENEFIT FROM OUR OWNERSHIP OF AIC AND FROM OUR PARTICIPATION IN INSURANCE PROGRAMS ARRANGED BY AIC,·THE CREDIT QUALITIES OF OUR TENANTS, AND·OTHER MATTERS.31
OTHER MATTERS.·THE IMPACT OF CHANGES IN THE ECONOMY AND THE CAPITAL MARKETS ON US AND OUR TENANTS,
THE IMPACT OF CHANGES IN THE ECONOMY AND THE CAPITAL MARKETS ON US AND OUR TENANTS,·COMPETITION WITHIN THE REAL ESTATE INDUSTRY, PARTICULARLY IN THOSE MARKETS IN WHICH OUR PROPERTIES ARE LOCATED,
COMPETITION WITHIN THE REAL ESTATE INDUSTRY, PARTICULARLY IN THOSE MARKETS IN WHICH OUR PROPERTIES ARE LOCATED,·COMPLIANCE WITH, AND CHANGES TO, FEDERAL, STATE AND LOCAL LAWS AND REGULATIONS, ACCOUNTING RULES, TAX LAWS AND SIMILAR MATTERS,·LIMITATIONS IMPOSED ON OUR BUSINESS AND OUR ABILITY TO SATISFY COMPLEX RULES IN ORDER FOR US TO QUALIFY FOR TAXATION AS A REIT FOR U.S. FEDERAL INCOME TAX PURPOSES,
COMPLIANCE WITH, AND CHANGES TO, FEDERAL, STATE AND LOCAL LAWS AND REGULATIONS, ACCOUNTING RULES, TAX LAWS AND SIMILAR MATTERS,·ACTUAL AND POTENTIAL CONFLICTS OF INTEREST WITH OUR RELATED PARTIES, INCLUDING OUR MANAGING TRUSTEES, RMR LLC, RMR INC., GOV, SNH, AIC AND OTHERS AFFILIATED WITH THEM, AND
LIMITATIONS IMPOSED ON OUR BUSINESS AND OUR ABILITY TO SATISFY COMPLEX RULES IN ORDER FOR US TO QUALIFY FOR TAXATION AS A REIT FOR U.S. FEDERAL INCOME TAX PURPOSES,·ACTS OF TERRORISM, OUTBREAKS OF SO CALLED PANDEMICS OR OTHER MANMADE OR NATURAL DISASTERS BEYOND OUR CONTROL.·OUR ABILITY TO MAKE PAYMENTS OF PRINCIPAL AND INTEREST ON OUR INDEBTEDNESS AND TO MAKE FUTURE DISTRIBUTIONS TO OUR SHAREHOLDERS DEPENDS UPON A NUMBER OF FACTORS, INCLUDING OUR FUTURE EARNINGS AND THE CAPITAL COSTS WE INCUR TO LEASE OUR PROPERTIES. WE MAY BE UNABLE TO PAY OUR DEBT OBLIGATIONS OR TO MAINTAIN OUR CURRENT RATE OF DISTRIBUTIONS ON OUR COMMON SHARES AND FUTURE DISTRIBUTIONS MAY BE REDUCED OR ELIMINATED,
OUR ABILITY TO MAKE PAYMENTS OF PRINCIPAL AND INTEREST ON OUR INDEBTEDNESS AND TO MAKE FUTURE DISTRIBUTIONS TO OUR SHAREHOLDERS DEPENDS UPON A NUMBER OF FACTORS, INCLUDING OUR FUTURE EARNINGS AND THE CAPITAL COSTS WE INCUR TO LEASE OUR PROPERTIES. WE MAY BE UNABLE TO PAY OUR DEBT OBLIGATIONS OR TO MAINTAIN OUR CURRENT RATE OF DISTRIBUTIONS ON OUR COMMON SHARES AND FUTURE DISTRIBUTIONS MAY BE REDUCED OR ELIMINATED,·OUR ABILITY TO GROW OUR BUSINESS AND INCREASE OUR DISTRIBUTIONS DEPENDS IN LARGE PART UPON OUR ABILITY TO BUY PROPERTIES AND LEASE THEM FOR RENTS, LESS PROPERTY OPERATING COSTS, THAT EXCEED OUR CAPITAL COSTS. WE MAY BE UNABLE TO IDENTIFY PROPERTIES THAT WE WANT TO ACQUIRE OR TO NEGOTIATE ACCEPTABLE PURCHASE PRICES, ACQUISITION FINANCING OR LEASE TERMS FOR NEW PROPERTIES,
OUR ABILITY TO GROW OUR BUSINESS AND INCREASE OUR DISTRIBUTIONS DEPENDS IN LARGE PART UPON OUR ABILITY TO BUY PROPERTIES AND LEASE THEM FOR RENTS, LESS PROPERTY OPERATING COSTS, THAT EXCEED OUR CAPITAL COSTS. WE MAY BE UNABLE TO IDENTIFY PROPERTIES THAT WE WANT TO ACQUIRE OR TO NEGOTIATE ACCEPTABLE PURCHASE PRICES, ACQUISITION FINANCING OR LEASE TERMS FOR NEW PROPERTIES,·CONTINGENCIES IN OUR ACQUISITION AND SALE AGREEMENTS MAY NOT BE SATISFIED AND OUR PENDING ACQUISITIONS AND SALES MAY NOT OCCUR, MAY BE DELAYED OR THE TERMS OF SUCH TRANSACTIONS MAY CHANGE,·RENTS THAT WE CAN CHARGE AT OUR PROPERTIES MAY DECLINE BECAUSE OF CHANGING MARKET CONDITIONS OR OTHERWISE,32
A SIGNIFICANT NUMBER OF OUR HAWAII PROPERTIES ARE LANDS LEASED FOR RENTS THAT ARE PERIODICALLY RESET BASED ON THEN CURRENT FAIR MARKET VALUES. REVENUES FROM OUR PROPERTIES IN HAWAII HAVE GENERALLY INCREASED DURING OUR OWNERSHIP AS THE LEASES FOR THOSE PROPERTIES HAVE BEEN RESET OR RENEWED. THERE CAN BE NO ASSURANCE THAT REVENUES FROM OUR HAWAII PROPERTIES WILL INCREASE AS A RESULT OF FUTURE RENT RESETS OR LEASE RENEWALS, AND FUTURE RENTS FROM THESE PROPERTIES COULD DECREASE OR NOT INCREASE TO THE EXTENT THEY HAVE IN THE PAST,
OUR POSSIBLE REDEVELOPMENT OF CERTAIN OF OUR HAWAII PROPERTIES MAY NOT BE REALIZED OR BE SUCCESSFUL,·A SIGNIFICANT NUMBER OF OUR HAWAII PROPERTIES ARE LANDS LEASED FOR RENTS THAT ARE PERIODICALLY RESET BASED ON THEN CURRENT FAIR MARKET VALUES. REVENUES FROM OUR PROPERTIES IN HAWAII HAVE GENERALLY INCREASED DURING OUR OWNERSHIP AS THE LEASES FOR THOSE PROPERTIES HAVE BEEN RESET OR RENEWED. THERE CAN BE NO ASSURANCE THAT REVENUES FROM OUR HAWAII PROPERTIES WILL INCREASE AS A RESULT OF FUTURE RENT RESETS OR LEASE RENEWALS, AND FUTURE RENTS FROM THESE PROPERTIES COULD DECREASE OR NOT INCREASE TO THE EXTENT THEY HAVE IN THE PAST,
THE UNEMPLOYMENT RATE OR ECONOMIC CONDITIONS IN THE UNITED STATES MAY BECOME WORSE IN THE FUTURE. SUCH CIRCUMSTANCES OR OTHER CONDITIONS MAY REDUCE DEMAND FOR LEASING OFFICE AND INDUSTRIAL SPACE. IF THE DEMAND FOR LEASING OFFICE AND INDUSTRIAL SPACE IS REDUCED, WE MAY BE UNABLE TO RENEW LEASES WITH OUR TENANTS AS LEASES EXPIRE OR ENTER INTO NEW LEASES AT RENTAL RATES AS HIGH AS EXPIRING RATES AND OUR FINANCIAL RESULTS MAY DECLINE,·WE MAY NOT SUCCEED IN FURTHER DIVERSIFYING OUR TENANTS, AND ANY DIVERSIFICATION WE MAY ACHIEVE MAY NOT MITIGATE OUR PORTFOLIO RISKS OR IMPROVE THE SECURITY OF OUR REVENUES OR OUR OPERATING PERFORMANCE,·OUR POSSIBLE REDEVELOPMENT OF CERTAIN OF OUR HAWAIIOUR BELIEF THAT THERE IS A LIKELIHOOD THAT TENANTS MAY RENEW OR EXTEND OUR LEASES WHEN THEY EXPIRE WHENEVER THEY HAVE MADE SIGNIFICANT INVESTMENTS IN THE LEASED PROPERTIES, OR BECAUSE THOSE PROPERTIES MAY BE OF STRATEGIC IMPORTANCE TO THEM, MAY NOT BE REALIZED, OR BE SUCCESSFUL,
SOME OF OUR TENANTS MAY NOT RENEW EXPIRING LEASES, AND WE MAY BE UNABLE TO OBTAIN NEW TENANTS TO MAINTAIN OR INCREASE THE HISTORICAL OCCUPANCY RATES OF, OR RENTS FROM, OUR PROPERTIES,·THE UNEMPLOYMENT RATE OR ECONOMIC CONDITIONS IN THE UNITED STATES MAY BECOME WORSE IN THE FUTURE. SUCH CIRCUMSTANCES OR OTHER CONDITIONS MAY REDUCE DEMAND FOR LEASING OFFICE AND INDUSTRIAL SPACE. IF THE DEMAND FOR LEASING OFFICE AND INDUSTRIAL SPACE IS REDUCED, WE MAY BE UNABLE TO RENEW LEASES WITH OUR TENANTS AS LEASES EXPIRE OR ENTER INTO NEW LEASES AT RENTAL RATES AS HIGH AS EXPIRING RATES AND OUR FINANCIAL RESULTS MAY DECLINE,·OUR BELIEF THAT THERE IS A LIKELIHOOD THAT TENANTS MAY RENEW OR EXTEND OUR LEASES WHEN THEY EXPIRE WHENEVER THEY HAVE MADE SIGNIFICANT INVESTMENTS IN THE LEASED PROPERTIES, OR BECAUSE THOSE PROPERTIES MAY BE OF STRATEGIC IMPORTANCE TO THEM, MAY NOT BE REALIZED,·SOME OF OUR TENANTS MAY NOT RENEW EXPIRING LEASES, AND WE MAY BE UNABLE TO OBTAIN NEW TENANTS TO MAINTAIN OR INCREASE THE HISTORICAL OCCUPANCY RATES OF, OR RENTS FROM, OURWE MAY INCUR SIGNIFICANT COSTS TO PREPARE A PROPERTY FOR A TENANT, PARTICULARLY FOR SINGLE TENANT PROPERTIES,
CONTINUED AVAILABILITY OF BORROWINGS UNDER OUR REVOLVING CREDIT FACILITY IS SUBJECT TO OUR SATISFYING CERTAIN FINANCIAL COVENANTS AND OTHER CUSTOMARY CREDIT FACILITY CONDITIONS THAT WE MAY BE UNABLE TO SATISFY,·WE MAY INCUR SIGNIFICANT COSTS TO PREPARE A PROPERTY FOR A TENANT, PARTICULARLY FOR SINGLE TENANT PROPERTIES,
ACTUAL COSTS UNDER OUR REVOLVING CREDIT FACILITY OR OTHER FLOATING RATE CREDIT FACILITIES WILL BE HIGHER THAN LIBOR PLUS A PREMIUM BECAUSE OF OTHER FEES AND EXPENSES ASSOCIATED WITH SUCH FACILITIES,·CONTINUED AVAILABILITY OF BORROWINGS UNDER OUR REVOLVING CREDIT FACILITY IS SUBJECT TO OUR SATISFYING CERTAIN FINANCIAL COVENANTS AND OTHER CUSTOMARY CREDIT FACILITY CONDITIONS THAT WE MAY BE UNABLE TO SATISFY,
WE MAY BE UNABLE TO REPAY OUR DEBT OBLIGATIONS WHEN THEY BECOME DUE,·ACTUAL COSTS UNDER OUR REVOLVING CREDIT FACILITY OR OTHER FLOATING RATE CREDIT FACILITIES WILL BE HIGHER THAN LIBOR PLUS A PREMIUM BECAUSE OF OTHER FEES AND EXPENSES ASSOCIATED WITH SUCH FACILITIES,
THE MAXIMUM BORROWING AVAILABILITY UNDER OUR REVOLVING CREDIT FACILITY AND TERM LOAN MAY BE INCREASED TO UP TO $2.2 BILLION ON A COMBINED BASIS IN CERTAIN CIRCUMSTANCES; HOWEVER, INCREASING THE MAXIMUM BORROWING AVAILABILITY UNDER OUR REVOLVING CREDIT FACILITY AND TERM LOAN IS SUBJECT TO OUR OBTAINING ADDITIONAL COMMITMENTS FROM LENDERS, WHICH MAY NOT OCCUR,·WE MAY BE UNABLE TO REPAY OUR DEBT OBLIGATIONS WHEN THEY BECOME DUE,
WE HAVE THE OPTION TO EXTEND THE MATURITY DATE OF OUR REVOLVING CREDIT FACILITY UPON PAYMENT OF A FEE AND MEETING OTHER CONDITIONS. HOWEVER, THE APPLICABLE CONDITIONS MAY NOT BE MET,·THE MAXIMUM BORROWING AVAILABILITY UNDER OUR REVOLVING CREDIT FACILITY AND TERM LOAN MAY BE INCREASED TO UP TO $2.2 BILLION ON A COMBINED BASIS IN CERTAIN CIRCUMSTANCES; HOWEVER, INCREASING THE MAXIMUM BORROWING AVAILABILITY UNDER OUR REVOLVING CREDIT FACILITY AND TERM LOAN IS SUBJECT TO OUR OBTAINING ADDITIONAL COMMITMENTS FROM LENDERS, WHICH MAY NOT OCCUR,·WE HAVE THE OPTION TO EXTEND THE MATURITY DATE OF OUR REVOLVING CREDIT FACILITY UPON PAYMENT OF A FEE AND MEETING OTHER CONDITIONS. HOWEVER, THE APPLICABLE CONDITIONS MAY NOT BE MET,33
WE BELIEVE THAT OUR RELATIONSHIPS WITH OUR RELATED PARTIES, INCLUDING RMR LLC, RMR INC., GOV, SNH, AIC, AND OTHERS AFFILIATED WITH THEM MAY BENEFIT US AND PROVIDE US WITH COMPETITIVE ADVANTAGES IN OPERATING AND GROWING OUR BUSINESS. HOWEVER, THE ADVANTAGES WE BELIEVE WE MAY REALIZE FROM THESE RELATIONSHIPS MAY NOT MATERIALIZE, AND·WE RECEIVED AN ASSESSMENT FROM THE STATE OF WASHINGTON FOR REAL ESTATE EXCISE TAX, INTEREST AND PENALTIES OF $2.8 MILLION ON CERTAIN PROPERTIES WE ACQUIRED IN CONNECTION WITH OUR ACQUISITION OF CCIT IN JANUARY 2015. ALTHOUGH WE BELIEVE WE ARE EXEMPT FROM THIS TAX AND ARE DISPUTING THIS ASSESSMENT, WE MAY NOT SUCCEED IN HAVING ALL OR ANY PART OF THIS ASSESSMENT NULLIFIED,·THE BUSINESS MANAGEMENT AND PROPERTY MANAGEMENT AGREEMENTS BETWEEN US AND RMR LLC HAVE CONTINUING 20 YEAR TERMS. HOWEVER, THOSE AGREEMENTS INCLUDE TERMS WHICH PERMIT EARLY TERMINATION IN CERTAIN CIRCUMSTANCES. ACCORDINGLY, THERE CAN BE NO ASSURANCE THAT THESE AGREEMENTS WILL REMAIN IN EFFECT FOR CONTINUING 20 YEAR TERMS OR FOR SHORTER TERMS,·WE BELIEVE THAT OUR RELATIONSHIPS WITH OUR RELATED PARTIES, INCLUDING RMR LLC, RMR INC., GOV, SNH, AIC, AND OTHERS AFFILIATED WITH THEM MAY BENEFIT US AND PROVIDE US WITH COMPETITIVE ADVANTAGES IN OPERATING AND GROWING OUR BUSINESS. IN FACT, THE ADVANTAGES WE BELIEVE WE MAY REALIZE FROM THESE RELATIONSHIPS MAY NOT MATERIALIZE, AND·THE PREMIUMS USED TO DETERMINE THE INTEREST RATE PAYABLE ON OUR REVOLVING CREDIT FACILITY AND TERM LOAN AND THE FACILITY FEE PAYABLE ON OUR REVOLVING CREDIT FACILITY ARE BASED ON OUR CREDIT RATINGS. FUTURE CHANGES IN OUR CREDIT RATINGS MAY CAUSE THE INTEREST AND FEES WE PAY TO INCREASE.THESECURRENTLY UNEXPECTED RESULTS COULD OCCUR DUE TO MANY DIFFERENT CIRCUMSTANCES, SOME OF WHICH ARE BEYOND OUR CONTROL, SUCH AS ACTS OF TERRORISM, NATURAL DISASTERS, CHANGES IN OUR TENANTS’ FINANCIAL CONDITIONS, THE MARKET DEMAND FOR LEASED SPACE OR CHANGES IN CAPITAL MARKETS OR THE ECONOMY GENERALLY.34Issuer purchases of equity securities. The following table provides information about our purchases of our equity securities during the quarter ended September 30, 2016: Maximum Total Number of Approximate Dollar Shares Purchased Value of Shares that Number of Average as Part of Publicly May Yet Be Purchased Shares Price Paid Announced Plans Under the Plans or Calendar Month per Share or Programs Programs September 2016 11,017 $ 27.64 $ — $ — Total 11,017 $ 27.64 $ — $ — During September 2016, all common share purchases were made to satisfy one of our officer's and other RMR LLC employees’ tax withholding and payment obligations in connection with the vesting of awards of our common shares. We repurchased these shares at their fair market value based upon the trading price of our common shares on the repurchase date. Exhibit NumberDescriptionDescription 3.13.1 Amended and Restated Declaration of Trust, dated March 9, 2012, as amended to date. (Incorporated by reference to the Company’s Registration Statement on Form S-4, File No. 333-199445.) July 30, 2015.September 7, 2016. (Incorporated by reference to the Company’s QuarterlyCurrent Report on Form 10-Q for the quarter ended June 30, 2015.8-K dated September 7, 2016.)SummaryForm of Trustee Compensation. (Incorporated by reference to the Company’s Current Report on Form 8-K dated May 24, 2016.Share Award Agreement. (Filed herewith.)JuneSeptember 30, 2016 formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Statements of Cash Flows and (iv) related notes to these financial statements, tagged as blocks of text and detail. (Filed herewith.)35
SIGNATURESSELECT INCOME REIT July 26,October 25, 2016July 26,October 25, 201636