Government Properties Income Trust CEO Discusses Q2 2012 Results - Earnings Call Transcript

Government Properties Income Trust (GOV)

Q2 2012 Earnings Call

August 2, 2012 10:30 AM ET

Executives

Tim Bonang - VP, IR

David Blackman - President and COO

Mark Kleifges - CFO

Analysts

Mitch Germain - JMP Securities

Michael Carroll

Young Ku - Wells Fargo

Dan Donlan - Janney Capital Markets

Presentation

Operator

Good day and welcome to the Government Properties Income Trust Second Quarter 2012 Financial Results Conference Call. (Operator Instructions). At this time for opening remarks and introductions, I would like to turn the call over to Vice President of Investor Relations, Mr. Tim Bonang. Please go ahead, sir.

Tim Bonang

Thank you and good afternoon. Joining me on today's call are David Blackman, President and Chief Operating Officer, and Mark Kleifges, Treasurer and Chief Financial Officer. The agenda for today's call includes a presentation by management followed by a question-and-answer session. I would note that the recording and retransmission of today's conference call is strictly prohibited without the prior written consent of the Company.

Before I'll begin today's call, I would like to read our Safe Harbor statement. Today's conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. These forward-looking statements are based on GOV's present beliefs and expectations as of today August 2, 2012. The Company undertakes no obligation to revise or publicly release the results of any revision to the forward-looking statements made in today's conference call other than through filings with the Securities and Exchange Commission or SEC regarding this reporting period.

In addition, this call may contain non-GAAP numbers including normalized funds from operations or normalized FFO. A reconciliation of normalized FFO to net income and the components to calculate AFFO, CAD or FAD are available in our supplemental operating and financial data package found on our website at www.govreit.com. Actual results may differ materially from those projected in any forward-looking statements. Additional information concerning factors that could cause those differences is contained in our filings with the SEC. Investors are cautioned not to place undue reliance upon any forward-looking statements.

Now I would like to turn the call over to, David Blackman.

David Blackman

Thank you Tim. Before discussing our second quarter results I wanted to acknowledge that yesterday GOV's common shares traded down 4% on trading volume that was almost 30 times more than our 90 day moving average. We have been told by the New York Stock Exchange our specialist and several large institutional trading desk that GOV was one of approximately a 150 companies affected by electronic trading technical issues at Knight Capital Group, a large designated market maker. While the NYSE elected to cancel transactions in six securities due to these technical issues GOV was not one of these securities.

At this time we do not have any information on this situation other than what is made available to the public. So let’s review our second quarter results. For the second quarter of 2012, Government Properties Income Trust is reporting normalized funds from operations of $24.4 million or $0.52 per share compared to $21 million or $0.52 per share for the second quarter of 2011.

For the six months ended June 30, 2012 we are reporting normalized FFO of $49.5 million or $1.05 per share compared to $40.5 million or $1 per share for the same period of 2011. Our 16% and 22% increases in normalized FFO for the quarter in six months ended June 30, 2012 is driven substantially by our accretive acquisition activity. Since April 1, 2012 we have acquired seven properties for an aggregate purchase price of a $125.2 million. We also declared a $0.42 per share distribution in July. As of June 30, 2012, GOV owned 74 properties containing 9.1 million square feet, our properties were 92.2% leased for a weighted average remaining lease term of 4.8 years.

The U.S. government remains our largest tenant and combined with 10 state government tenants and the U.S. account for almost 93% of our aggregate annual rental income. In addition to our strong property statistics, our balance sheet remains conservatively leveraged at approximately 35% debt to total book capitalization and EBITDA covered interest expense seven times.

At quarter end, our $550 million unsecured revolving credit facility had $27 million outstanding making 95% of the credit facility available to support the company’s acquisition activities and other working capital news.

During the quarter GOV entered 14 leases for 206,000 square feet with a weighted average lease term of 4.7 years.

This was approximately 20,000 square feet more than expiring leases during the quarter. Our leasing capital was $2.7 million or $2.74 per square foot for lease year. Approximately a 160,000 square feet of our quarterly leasing activity was with four U.S. government agencies and one state government agency. Our weighted average roll-up in rent with our government tenants was 10.9% for our weighted average lease term of approximately 4 years and leasing capital for our government tenants of $3.07 per square foot. The remaining 46,000 square feet of our second quarter leasing activity was the non-government tenants.

Perspective leasing activity for our vacant space across the portfolio remains active; in addition, we are having active renewal conversations with tenants for leases expiring during the remainder of this year and for our modest 2013 lease expirations. As a result we remain optimistic that current dynamics with our tenants will result in higher renewal rates at our properties.

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