Sir investor presentation sept 2015 final

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<p>Slide 1</p> <p>Select Income REITInvestor Presentation - September 2015</p> <p>Compass Group (LON: CPG) U.S. HeadquartersSquare Feet: 284,000Charlotte, NC</p> <p>Disclaimer.2THIS PRESENTATION CONTAINS FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND OTHER SECURITIES LAWS. ALSO, WHENEVER WE USE WORDS SUCH AS "BELIEVE," "EXPECT," "ANTICIPATE," "INTEND," "PLAN," "ESTIMATE," OR SIMILAR EXPRESSIONS, WE ARE MAKING FORWARD LOOKING STATEMENTS. THESE FORWARD LOOKING STATEMENTS ARE BASED UPON OUR PRESENT INTENT, BELIEFS OR EXPECTATIONS. FORWARD LOOKING STATEMENTS ARE NOT GUARANTEED TO OCCUR AND MAY NOT OCCUR. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTAINED IN OR IMPLIED BY OUR FORWARD LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS, WHICH INCLUDE THOSE THAT ARE DETAILED IN OUR FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2014 AND SUBSEQUENT FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION. YOU SHOULD NOT PLACE UNDUE RELIANCE UPON ANY FORWARD LOOKING STATEMENT. EXCEPT AS REQUIRED BY APPLICABLE LAW, WE UNDERTAKE NO OBLIGATION TO UPDATE OR REVISE ANY FORWARD LOOKING STATEMENT AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE. </p> <p>We compute ADJUSTED earnings before interest, tax, depreciation and amortization, OR ADJUSTED EBITDA, as net income plus interest expense, taxes and depreciation and amortization. We adjust for acquisition related costs, GAIN OR LOSS ON SALE OF PROPERTIES, GAIN OR LOSS ON EARLY EXTINGUISHMENT OF DEBT, GENERAL AND ADMINISTRATIVE EXPENSES PAID IN COMMON SHARES, and impairment of assets, if any. </p> <p>FUNDS FROM OPERATIONS, OR FFO, 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 differs from NAREITs definition of FFO because we include estimated business management incentive fees, if any, only in the fourth quarter versus the quarter they are recognized as expense in accordance with GAAP and we exclude acquisition related costs, gains and losses on early extinguishment of debt and Normalized FFO from noncontrolling interest, NET OF FFO.Note: Unless otherwise noted, data is presented as of June 30, 2015.</p> <p>Select Income REIT</p> <p>OVERVIEW3</p> <p>Select Income REIT</p> <p>Why invest in SIR? 4Best-in-class single tenant net lease office and industrial assets.High occupancy with a strong tenant base.Long term leases; limited near term expirations.Solid organic cash flow growth.Compelling dividend yield of nearly 11%(1) coupled with a conservative dividend payout ratio.As of close of market on September 11, 2015.</p> <p>Select Income REIT</p> <p>Increasing our cash flow through mainland rent bumps as well as Hawaii rent resets and roll ups.Maintaining our high occupancy.Selectively acquiring single tenant net leased properties that are strategic to tenants and have a high probability of lease renewal.Instituting a capital recycling program.Maintaining our investment grade ratings.SIRs areas of focus.5</p> <p>Select Income REIT</p> <p>Building upon core strengths.6As of 6/30/14Number of properties: 50 116Square feet: 27.0 mill.43.9 mill.Percentage leased: 96.1% 97.7%Average building age(1): 16 years11 yearsGeographic footprint: 21 states35 statesRevenue from top 5 tenants(2): 27.7% 17.6%Total debt/book capitalization: 23.0% 50.3%Floating rate debt/total assets: 21.2% 11.5%Unsecured fixed rate debt: None 3, 5, 7, 10 yr. notesUnencumbered NOI: 98.8% 89.6%Investment grade ratings: None Moodys (Baa2) S&amp;P (BBB-)As of 6/30/15Improved Portfolio Strength &amp; DiversityStrengthened Credit ProfileMatured Balance SheetSimple average based upon weighted average year built or substantially renovated.Based on annualized rental revenue and calculated as the annualized contractual rents, as of June 30, 2015, 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. Amounts are preliminary and subject to change.</p> <p>Select Income REIT</p> <p>SIRs well diversified portfolio. 7Technology &amp; CommunicationsEnergy ServicesRetail &amp; FoodIndustrialReal Estate &amp; FinancialOtherManufacturing &amp; Transportation</p> <p>Tenant Industry Diversity(1)Based on annualized rental revenue and calculated as the annualized contractual rents, as of June 30, 2015, 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. Amounts are preliminary and subject to change.Geographic DiversityOffice propertyIndustrial propertyIndustrial lands</p> <p>Asset Class(1)Mainland OfficeMainland IndustrialHawaii Industrial</p> <p>Select Income REIT</p> <p>% of Sq. Ft.(1)% of Rent(2)IG Rated1.9%4.0%No7.1%3.8%Yes1.3%3.3%Yes1.4%3.3%No1.2%3.2%Yes0.7%3.0%No0.7%2.6%Yes0.8%2.4%No3.2%2.2%No0.6%2.1%YesTotal18.9%29.9%50%</p> <p>Strong tenant credit quality.8Pursuant to existing leases as of June 30, 2015 and includes (i) space being fitted out for occupancy, if any, and (ii) space which is leased but is not occupied or is being offered for sublease by tenants, if any.Based upon annualized rental revenue , which is calculated as the annualized contractual rents, as of June 30, 2015, 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, </p> <p> plus estimated recurring expense reimbursements from tenants pursuant to existing leases. Parent company, Tyson Foods, is investment grade rated..Includes certain Hawaii lands which are leased by investment grade rated tenants.Excludes certain Hawaii lands which are leased by investment grade rated tenants and included in the investment grade rated tenant credit category. Overall Tenant Credit Quality(2)</p> <p>Investment grade rated(4)Leased Hawaii lands(5)Non-investment grade/unrated</p> <p>Top 10 Tenants</p> <p>(3)</p> <p>Select Income REIT</p> <p>Minimal annual lease expirations until 2022.9Average Lease Term: 10.4 Years(1)Less than 15% of leases expire prior to 2022.Expiring revenue(1)$5.4$8.9$7.1$14.6$8.8$7.1$7.4$47.0$41.8$68.6$206.6Based on annualized rental revenue and calculated as the annualized contractual rents, as of June 30, 2015, 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. 1.3%2.1%1.7%3.4%2.1%1.7%1.7%11.1%9.9%16.2%48.8%</p> <p>Select Income REIT</p> <p>PORTFOLIO10</p> <p>Select Income REIT</p> <p>SIRs high-quality U.S. mainland portfolio.11</p> <p>Amazon.com Distribution Centers in SC, TN &amp; VAApprox. Square Feet: 3,048,000</p> <p>Hillshire Brands Corporate Headquarters Approx. Square Feet: 248,000Chicago, IL</p> <p>Orbital ATK Corporate HeadquartersApprox. Square Feet: 337,000Sterling, VASimple average as of June 30, 2015Percentage of investment grade tenants based on annualized rental revenue and calculated as the annualized contractual rents, as of June 30, 2015, 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. Amounts are preliminary and subject to change.</p> <p>MeadWestvaco Corporate HeadquartersApprox. Square Feet: 311,000Richmond, VAMainland Portfolio MetricsProperty count105Square feet26.1 millionLocations34 U.S. StatesOccupancy100%Average building age(1)11% Investment grade tenants(2)47.9%% of SIRs 2Q15 NOI80.1%</p> <p>Select Income REIT</p> <p>Targeting:Single tenant office and industrial properties that are strategic to tenants, such as:Corporate headquarters,Build-to-suit facilities,Strategic distribution hubs, andOther buildings in which tenants have invested a significant amount of their own capital.Net lease structures in which tenants are financially responsible for all or virtually all operating expenses.Fully occupied properties with avg. remaining lease terms in excess of 10 yrs. for industrial and 7 yrs. for office.Track Record:Excluding CCIT, SIR has acquired 31 buildings covering 6.4 million sq. ft. at a weighted average cap rate of 8.8% and with a weighted average remaining lease term of more than 12 years since its IPO. </p> <p>SIRs mainland strategy: Drive growth by acquiring strategic net leased office and industrial properties.Net-A-Porter U.S. Headquarters &amp; Distribution Ctr.Square Feet: 167,000Mahwah, NJMerkle Inc. HeadquartersSquare Feet: 120,000Columbia, MD12</p> <p>Select Income REIT</p> <p>With 17.8 million sq. ft. of lands in Oahu, SIR is Hawaiis largest industrial land owner.17.2 million sq. ft. of SIRs land has been subdivided into smaller lots and leased to more than 160 tenants.13 buildings containing 0.6 million sq. ft. of space are leased to more than 60 tenants.More than 80% of SIRs Hawaii revenue and NOI is generated from the former Damon Estate, which is ideally situated between the seaport, the airport and Honolulus CBD.SIRs lands are primarily long term leased to tenants who have built and maintain the improvements on the land. Many tenants have subordinated leasehold mortgages on their buildings, meaning SIR could recover the value of improvements upon default.SIRs unique and diversified Hawaiian portfolio.13</p> <p>Portion of the Former Damon EstateApproximate Square Feet: 9,600,000Honolulu, HI</p> <p>OAHU</p> <p>Former Campbell Estate Properties</p> <p>Former Damon Estate PropertiesHonolulu Intl. AirportHonolulu CBD</p> <p>Select Income REIT</p> <p>14SIR has generated an average rent increase of more than 40% from rent resets in Hawaii since the companys IPO in 2012.SIR has generated an average rent increase of more than 20% from new and renewal leases in Hawaii since the companys IPO in 2012.Approximately 5% of SIRs Hawaiian lands were vacant as of 6/30/15, providing further growth potential.Hawaii strategy: Drive organic growth through rent resets, lease renewals and lease ups.</p> <p>2833 Pa'a Street Honolulu, HIOpen from prior periods and future figures based on annualized rental revenue, which is the annualized contractual rents, as of June 30, 2015, from tenants pursuant to existing leases, including straight line rent adjustments and estimated recurring expense reimbursements, and further adjusted for tenant concessions, including free rent and amounts reimbursed to tenants, excluding lease value amortization. </p> <p>We believe our tenant diversity and the scarcity and rapid appreciation of Oahus industrial zoned lands will continue to create secure and growing rental income for SIR.Historical Rent Resets($ in 000's)Annualized Rental Revenue Before Reset(1) Annualized Rental Revenue After Reset Average % Change2012 2,538 3,907 53.9%2013 5,376 7,925 47.4%2014 7,421 10,435 40.6%2015 (through 6/30/15) 4,403 5,510 25.1%Total $ 19,738 $ 27,77740.7%Open from prior periods $ 236 Rest of 2015 --2016 --2017 2,843 2018 and thereafter 29,639 Total $ 32,718 </p> <p>Select Income REIT</p> <p>FINANCIALS15</p> <p>Select Income REIT</p> <p>Key financial data.16($ and shares in 000s, except per share data)(1) In the second quarter of 2015, we issued 880 of our common shares in connection with our acquisition of Reit Management &amp; Research Inc., or RMR Inc., shares and in the first quarter of 2015, we issued 28,439 of our common shares in connection with our acquisition of CCIT.(2) Represents weighted average common shares outstanding adjusted to include unvested common shares issued under our equity compensation plan and contingently issuable common shares issued under our business management agreement with RMR LLC, if any, if the effect is dilutive. The amounts stated reflect normal dividend rates per share, excluding prorated dividends related to the CCIT merger affecting the three month periods ended March 31, 2015 and June 30, 2015. See Exhibit C in SIRs 2Q15 Supplemental for the calculation of FFO and Normalized FFO and a reconciliation of net income attributed to SIR determined in accordance with GAAP to those amounts.(5) See Exhibit A in SIRs 2Q15 Supplemental for the calculation of NOI and a reconciliation of that amount to net income determined in accordance with GAAP.(6) Gross book value of real estate assets is real estate properties at cost, plus certain acquisition costs, if any, before depreciation and purchase price allocations, less impairment writedowns, if any.</p> <p>Select Income REIT</p> <p>Key financial data, continued.17($ in 000s, except per share data)See Exhibit A in SIRs 2Q15 Supplemental for the calculation of NOI and a reconciliation of that amount to net income determined in accordance with GAAP. NOI margin is defined as NOI as a percentage of total revenues. See Exhibit A in SIRs 2Q15 Supplemental for the calculation of NOI and a reconciliation of that amount to net income determined in accordance with GAAP.(3) See Exhibit B in SIRs 2Q15 Supplemental for the calculation of Adjusted EBITDA and a reconciliation of net income determined in accordance with GAAP to that amount. Annualized Adjusted EBITDA for the period ended March 31, 2015 includes Adjusted EBITDA from CCIT properties acquired on January 29, 2015 as if those properties were acquired on January 1, 2015.Excludes an 11% noncontrolling interest in one property acquired from CCIT.See Exhibit C in SIRs 2Q15 Supplemental for the calculation of FFO and Normalized FFO and a reconciliation of net income attributed to SIR determined in accordance with GAAP to those amounts. The amounts stated reflect the amounts paid during the period. Amounts paid for the period January 1, 2015 through January 28, 2015, the day befor...</p>