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Government Properties Income Trust, Select Income REIT To Merge

Combined Entity to Own $6.1 Billion in Single-Tenant Office Properties
September 17, 2018
The 163,425-square-foot Capitol Plaza in Sacramento is among Government Properties Trust's notable holdings.



The RMR Group Inc., an alternative asset management company that manages six publicly traded real estate investment trusts, is merging two of them.

Government Properties Income Trust and Select Income REIT entered a definitive agreement to merge that will create a real estate investment trust, or REIT, focused on owning, operating and leasing office buildings primarily leased to single tenants and high credit tenants like government entities.

The surviving company in the merger will be Government Properties Income Trust and it will change its name to Office Properties Income Trust.

Office Properties Income Trust would own 213 properties containing 30.2 million square feet, with gross assets of $6.1 billion and occupancy of 92 percent. The properties are spread out across 38 states and the District of Columbia.

About two-thirds of the surviving REITs' annualized rent paid by tenants would be investment grade with a weighted average remaining lease term of 6.1 years.

"This transaction addresses a number of the challenges that [Government Properties Income Trust] has been facing, including a high dividend payout ratio, a concentration of near-term lease expirations and a high tenant concentration," Mark Kleifges, Government Properties' managing trustee and chief financial officer, said in a statement issued announcing the deal.

As a condition of the merger, Government Properties Income Trust will sell all 24.9 million of the common shares it owns in Select Income REIT.

Also as a condition of the merger, Select Income REIT will distribute as a special dividend all 45 million of the common shares it owns in Industrial Logistics Properties Trust to Select Income REIT shareholders. Industrial Logistics Properties focuses on owning warehouse distribution and e-commerce fulfillment facilities throughout the U.S.

These actions will eliminate the cross ownership among Government Properties Income Trust, Select Income REIT and Industrial Logistics Properties.

The trusts "have complicated ownership structures," said David Blackman, Select Income REIT's managing trustee, president and chief executive. "This transaction will eliminate the cross ownership and increase Industrial Logistics Properties' public common share float, which may benefit Select Income REIT shareholders who receive a distribution of Industrial Logistics Properties shares."

Blackman added that "further, Office Properties Income will have increased scale, greater diversification and a broader investment strategy, which we believe will create a leading national office REIT focused on buildings leased to single tenants and high-credit quality tenants like government entities."

The transaction is expected to close in late 2018 or early 2019, subject to customary closing conditions, including Government Properties Income Trust and Select Income REIT shareholder approval.

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