Office Properties Income Trust (OPI) 30 Oct 202020 Q3 Earnings call transcript

Good morning and welcome to the Office Properties Income Trust Third Quarter 2020 Earnings Call. All participants will be in a listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Olivia Snyder, Manager of Investor Relations. Please go ahead ma'am.

morning, good and you, everyone. Thank us Thanks for joining today. Operating OPI's me Financial Executive Chief the and Officer are on call President Chief President Officer, Vice Treasurer, Brown; and Chris Matt Bilotto. With and and Officer, David Blackman; Chief will a of our quarter business details just analysts. by followed a performance In session provide the with our sell-side for about they moment, third XXXX and question-and answer

today, prior is statements written call materially recording XX, may no to First, forward-looking release of actual and statements results that retransmission results those Friday, of from prohibited obligation other laws. and publicly the statements like The any without call. based as Private conference today's contains of meaning XXXX would October Also to the I OPI's are company. securities XXXX, Act company the differ the on These call we consent conference beliefs that the made conference Litigation revision note project. within to and of today's Reform or in Securities and undertakes of today's note that forward-looking the revise forward-looking of the expectations

factors concerning in filings Commission cause reliance any website. SEC's the not place those that differences cautioned to our from Exchange can forward-looking is undue or upon opireit.com Securities contained and be which the or could with SEC, statements. accessed information website Additional our Investors are

operating can call, found during net cash are net these of package, In basis adjusted on normalized our addition, non-GAAP and available which available also A to CAD, be we or or this from including income distribution NOI. EBITDA data operations cash operating in will numbers supplemental our non-GAAP normalized financial for basis discussing income funds website. and or reconciliation figures FFO, be cash

providing be call, basis and FFO cash will including NOI. we this on normalized guidance addition, In

without non-GAAP for reconciliation at estate. unreasonable We reconciliation to is of are of and as real available the required disposition gains or information these related not such guidance, of all, losses because such charges measures certain part providing effort as not impairment our or

to Now over call I will turn the David.

Welcome our we duration which effect Thank, Properties cash The generated you, and Year-over-year, and earnings Income NOI deliver share, normalized on increased per of and This for say remain quarter. strong morning, exceeded good and to that pandemic X.X% guidance third Olivia, the are the quarter continues and OPI same resulting uncertain. estimates property call FFO to we financial of we for operating the office range by growth Trust, morning. to CAD pleased where results. Office reported consensus XX.X%. of usage $X.XX

internet assembly of or OPI’s office, tenants comprised encouraged for for R&D, companies rent on but in company. we new term users. above exposure we XXX,XXX than understand remaining model more leasing by to more However, and and a average still a believe mix for of retention. are and longer with entered our feet and use we work duration needs, by have leases we leases tenant a software remote provide but Chris work hardware focused of goal results, than is and will headlines that remains are remote office occupancy less ability the years. driving XX% general more work detail XX than cost, [indiscernible] activity, in-person overall will permanent plans with average average to a are on pleased these renewal be of companies a a allow square their showroom having have their portfolios most to space to Certain technology suit both at made an primarily permanent returning of technology Consolidated XX% weighted quarter’s for portfolio this lease able options term. proactive offering that to of office execute including an tenants our hybrid communication roll-up remote to

government our addition, building collaboration, is tenants many towards or facing also a as mentoring, plans. company and of a considered security move high focus many career work. In culture, restrict public for remote have The long-term a requirements significant development they that key tenants

granted As properties of detail, Matt second rent quarter. and largely will greater evidenced that XX% unchanged the our high from as from continue rent strong for discuss of nature tenant in to collection are quarter quality our the we base third benefit credit strategic by the and deferrals our

likelihood of X.X yield million approximately occupancy resulted cash and effort a remains capital five next recycling XX years program, ongoing feet to and weighted million. capital properties of sheet years. October, a the repay of XX $XX.X liquidity leases, Virginia remains for a increase to average us we result increasing revolving and sale proceeds improving ability have balance age Leverage that our over time. our on XX%, square $XX.X grow renewing CAD feet In at our used in million all where X.X the economic aggregate to $XXX notes of reducing average the have which In we announced on were is The previously targeted business average end Our and contained the contained remains square Fairfax, facility. strong approximately million, four range under outstanding of to contribution age our a average property senior our this and to average capital $XXX the in increase added to park unsecured approximately positioning amounts eliminated completed an of OPI’s dividend improving properties, lease credit and of Ten an sales million nation's better low our budgeted our challenges. our of and as five-year been and over sold whether capital positioned of needs, aggregate, well of program focused in years offering X.X%. the all recycling XXX,XXX year approximately term at sales to also properties rents improved

to tenant of the As and headquarters evaluate continue critical that to we includes tenants. focus proceeds, buildings properties we on government. re-investment the single This are lease mission to disposition

security We of also include medical components, remote may types technology and buildings. uses less government with favor is life work the science where and buildings office hardware uses tenant companies likely. high These

As the under operations. discuss payout Chris XX%. our now remain of distributions our Matt by CAD to evidenced target our quarterly compared will to review over ratio quarters shareholders just leasing four to will Chris? to ratio rolling I turn call secure of and as payout XX%,

Thank you, David, everyone. good and morning,

is the ongoing noting our some impact for and key results broader operating of leasing trends are third the uncertainty OPI. quarter economic recovery worth long-term speed office the real the highlights of by portfolio around We few estate. market, the against on the and the a for backdrop encouraged of across it Despite

and feet, First, million pipeline XXXX leasing to an activity from from doubled XX% continues QX increase square QX nearly pipeline XXXX. of the increase with X.X a active

Second, the for the of the is roll-up completed at balance marks which to quarter third through of fifth continue least positive XXXX. leases, consecutive expected quarter rent

portfolio Third, plan our with activity weighted our lease X.X average on the lease improve is term for business years composition. overall XXXX since to completed pace QX

Turning results. to our

but completed the During renewal of square and XXX,XXX the quarter, feet XX%. we leasing, of in weighted rent third average roll-up new

new in This Virginia, XXX years a of lease occupancy basis and for result but a XX,XXX tenant XX,XXX point Illinois lease building tenant Chesapeake, average a We roll-up in with with the from generated with located of capital last of ended primarily term line a rent square renewal has and X.X the per square XX.X%, lease weighted activity leasing located square renewal XX,XXX the square lease per decrease located average Naperville, weighted roll-up our only XX leasing weighted average Boston quarter is year in foot our foot and the of expected Year-to-date, and term at foot with results. Our our $X.XX. our of primary a XX.X Causeway quarter, in of X% CBD, feet. years. a

than X.X As pipeline square XXX,XXX with activity noted more covering with XXX,XXX could active is negotiation square and the vacant feet roughly square space stages leasing in feet portfolio. current advanced feet our that absorb across million of that earlier, discussions remains

year around X% close As a close with result, roll-up expect rent out occupancy to the of a we and XX%. to in

Turning expirations. to upcoming

XXXX look income have we to annualized As that vacate. to expiration schedule, rental is X% of our expected our we

Washington, have or is Plantation, disclosed communicated and than more previously Fresno, Technicolor in to move-outs represent Huntsville, rental attributable located for largely in which of We Florida. at rental and DC X.X% The in income known Alabama, the Avenue two income XXXX. for annualized at remaining at-risk XX California, risk of buildings Massachusetts tenants half

the have have these strategies for either plans the Highlights of property the following. each for commenced or identified these have properties, to for strategy grow buildings For capital recycling. four marketing of leasing, a include larger the for repositioning we NOI

in GSA Florida. Fresno, located and California, tenants We have two and Plantation, buildings

Our California X.X% expires annualized rental tenant in Fresno, of represents QX and in income. XXXX

expect XXXX. it's While The tenant will we tenant for used in the will timing not and tenant a notice provided probable we for the space exit, on it has the remain an decommission, is believe its building. into

included GSA, with reduced market more net our capital need and the as we rents. favorable We to program. building fundamentals users given recycling private opportunistically this have part their a renew In ability of illustrating space to and the for building the in not sector elected larger Plantation, Florida, strong drive effective

points basis to annualized marketing release such, income, of scheduled the expire and building. As The to rental XXXX. commenced in represents XX we it's GSA QX have

end located XXXX scheduled at However, With the more likely. exit property tenant of recent DC, in a conversations our indicate first the quarter. to is is vacate the QX Washington,

building reposition project Block Upon have Union a the opportunistic leasing Hill cost discussed, provides X% Capitol is and floors. information two we to Station and a to quarters. anticipate property more as the return building of located on in mixed of and confirmation XX%, redevelopment in A plans the one we'll for addition use the of with available upcoming completion, submarket Class stabilized previously this As an is from strategy on

effective Technicolor. Lastly, an XXXX. lease Huntsville, provided tenant August, Alabama A their of building, termination in occupying at notice industrial

optimistic strong in estate today's our government aerospace U.S. and market. the in leasing as industrial given efforts, market, We the on are of presence sub strength and the the generally well real as demand sector

at despite are of trends portfolio needs. And included pipeline base, you our closing, close to projections occupancy XX% and not work to the We building look focus tenant to tenants pipeline quarters. long-term. diverse are of call along not retention quality provide drive their proactive in now modify to on large to our users In RMR portfolio, to we actively the do to with expected of the speculation on remain renewal support their XXXX. flexible and through aim a composition, dedicated with from position, and I pandemic the is home, we turn to in our details our with to marketing upcoming Matt? pandemic clear our tenants any the manage preparing financial geographically over through of around through as real over oncoming progress space estate currently results. the potential discussions maintain believe least understand Matt Consolidated high conversations on the Brown our platform communication forward provide professionals the updating continues property benefit will us on needs financial throughout We credit environment.

for by And Normalized expenses million in good the resulted forecasted place operating CAD XX.X%. on cost beat initiatives million our in put per of $XX.X third ratio consensus in or third and quarter quarter to morning, by per end the $X.XX a $X.XX the less than due mainly Chris. was share, high estimate $X.XX coming share, CAD Thanks, was for which the FFO based by everyone. $XX.X payout RMR. continued or which savings $X.XX

outstanding in and from since sequential XX% for RMR of levels XXXX. to million was XXXX. price. $XX.X third mainly And quarter fee of on covered and as share debt between lower result notes expect a July the due believe of The $X.X target management on disposition $XXX interest million a rate and in quarter to ratio RMR Interest down payout interest or cap. decline XXXX OPI's fee shareholders. paid we CAD of the calculation lower period. credit quarter million XXXX, average senior remainder from XX% lower increased the fees we million, We well debt this the G&A XXXX. June, X, revolving basis, expense lower XX% $X.X demonstrates remains expense a the property dividend interest facility primarily million million, from quarterly $X.X XXXX, continues issuance third third expense our decline due based for is third of down the strong a saw market of the average the the was OPI and $XX.X stay unsecured On for balances quarter since our the below Our for from of to to business million quarter alignment paid of $X be to

to NOI, level response Turning which uncertain. in to by in results implemented in million of NOI including the or the cleaning. guidance as the can basis savings driven RMR volatility within quarter. due of increase COVID to Based expense, also QX and the our current continued quarter challenging stock market estimates the $X.X third initiatives utilities be of XXXX XX has for makes The increased on X.X%, Same pandemic the areas pandemic expense the of forecast, which G&A property mainly cost property compared cash our was savings to range.

to and between to X% fourth X% per the share, quarter same property FFO to basis XXXX. $X.XX $X.XX between be as and and fourth expect quarter NOI of cash normalized growth We compared be

relates granted. of obligations COVID-XX October deferrals, of income granted filed and collections rent tailored restructuring third September To-date, effect has which rent collected. well XX% a includes accounts after XXX closing unprofitable of for amount been that X% The to it quarter As giving rental the have annualized represents rent its bankruptcy XX% in collected deficient of as paid deferrals. rent of to October, to part brands, $XXX,XXX for obligations with XX post the of due August, tenant and its of up In Chapter be continued as as before rent rent our pandemic, XX% stores. to strong which corporate

Our X% are watch reorganization reserves monthly Bad levels our the the and from reported accounting headquarters this and largely plan and assumption our QX. debt immaterial lease. with of properties of only half Company's at their includes tenants the approximately remains for in of lists rents unchanged one

XX of April outstanding September. for which of three through represents $X.X $X.X October points in revenue full, have To that with XX, of As our were tenants which we totaling million contractual cash balance repaid deferrals early. is basis deferrals the granted to date, is XX months the we've which current million, these collected including rent over only of have $X.X And deferrals, repaid tenants of million. deferrals,

repay quarter, $XXX million, quarter, currently new were XXXX adjusted in all $XXX outstanding our we coming expenditures August, of September, a significant raising $XX.X $X.X We due At have advance maturity to the Turning our net we of issued XX.X% credit the $XXX leasing And prepared we recurring million and income feel at our facility, to we our $XX.X In September to balance mortgage business the capital positioned concludes our X.X availability $XX.X million by on and XX, million was the debt approximately debt remarks. $XXX the premium million. no pandemic-related $XX of which at that challenges, expect maturities notes grade virtually net million million our sheet plans. was strong capital withstand proceeds on senior forecast, paid of With a XXXX. amounts repaid end of be on strategic annualize Operator rated investment tenants debt economic not EBITDAre we improvements annualized to credit revolving third have used upcoming facility. our our to and notes. over notes our expenditures times resulting building only forecast during ongoing revolving million million in initial $XXX well current no full low range. a capital on million rental but target million, financially at unsecured to and and until including our on for million due reopened is liquidity. of XXXX from Based re-offer The and down capital. of which $XXX X.XXX%, $XXX issued on recurring in yield of spent

We’re for ready call questions. to up the open

Thank you.

session. Maher from with Riley first now ahead. We Instructions] will FBR. [Operator question the comes Please Our question-and-answer Bryan begin go B.

helpful. you and of seeing about that you are Good when with in potentially all existing the what year activity for when and much think is releasing Pretty vacate for maybe think next Chris, amount thank that question discussions versus tenants, to information. David, vacate and morning I know, XXXX, about new and your this of think or don't for but better year-end do you sold how you gets space, released? either you

really needs, or types, to mentioned difficult stabilized, Fresno mean, some consists of with going I capital it's to high our Bryan, recycling near expirations Yes, upcoming with vacancy. I capital be some some, various I program, think, properties term including are with the understand as themselves

it's to So how in difficult actually determine, going the that to market. received be is

think as similar quarter now so our really is program next in And and of the I market year we kind how is out around provide this quarter's get onto guidance properties that recycling coming in that end these we're be goal in projections to earnings to capital and position together. a get

into I Bryan that a to about, the known that. we probability pretty high let potentially me asset add program. one vacates selling talked think space lot that or we've capital of put that that the of recycling we have leasing, do the a

chance good a in pretty building the Fresno. industrial I of building they we’ll do in selling is think And So, market. a decent the are IRS buildings, decent have

a So during of I'm lot progress made will optimistic XXXX. be that

there? the saw it the some buyers what's COVID? pool given what there, And on out I but has know same, is buyer are appetite there been with buyer just you that mean, going assets, I out is that decrease, increased,

assets. core capital lot in I think for Well, general, a there's of available

certainly with susceptible or be tempered others less more may take value some on buyers some with there's XXXX adds, it's exchanges that risk. to somewhat, think I the of

others good these property who of within own are some owners, who opportunities have within objectives local so the market. for the strategic buildings markets And

to pool as these range so, buyer think, assets. I we're more find And David for of mentioned, open kind going of a

think market I be reaction it'll to interesting is. so And in get the as see what out we the

specifically huge a residential to improvements the of and a put building, homes. fits neighborhood, acreage And take middle so horizontal Fresno a it's buyer developer, Brian, down build and building will the parcel, Yes. is in residential that the on the in likely so there

the like the thoughts your Great. covered. I'll get back at into institutional your And investors your them XX% mean, what And approaching just and one that me I when are dividends, be of you to discussions there? must is for David, level? a from pause look clearly exceedingly and kind queue. yield, have what a yield with well are dividend elevated such giving some your to the

Brian, Matt. take that. can this I is

As is you our ratio point dividend We're payout covered. XXXX out XX%. well under expecting very and

feel As we very levels. to pre where plan good down share we'll continue executing our improve we to pandemic, was our if on pandemic see we're group, the and on coverage similarly at as to hope where are and strong changes our we share that our price dividend, look with price with compared we it And our peer the all business year-to-date.

we've got get out to dividend story are the because Bryan, Yes, and our right. around tell you

And high of concern XXXX when gets look yield at are that remains for revenue expect well a we cut. it's the this, you dividend with our a dividend that X% vacate, even, even covered. Sometimes to poised the becomes we there

and understand to story will and hopefully resonate bounce sure share the back. that that investors will tell to got we've So that make price

you. thank Yes,

Stanley. with Malhotra Please go Vikram ahead. from Morgan comes question next Our

for taking information. questions the Thanks all and Great. the

flow? more Can dividend maybe kind a understanding of any the so holistic there period. maybe of building flow XXXX, in comment are of of covered cash – sort you sort that around question, CapEx well just a one. that indications, we Just multi-year move have sort over upon being XXXX year, Number levels given this or that churn outs that whether to having? on to known cash any going may Number thoughts may all are change of you next two, impact for

report there's on for no move-outs. mean, regarding Yes, I to XXXX, nothing

in to relates recurring based expect XXXX forecast. As current million levels, than we CapEx on be less capital $XXX it to our

restructuring this office around is a number across tenants sort term, about on to today? and sense Okay, conversations work-from-home of the medium you? just utilization see have you debate with have then and And and great. in what your topic, footprint two, leverthey potentially And second longer any given their of have do specifically portfolio engaged as

Yes, is so this Chris.

now of Regarding XX%. the of so occupancy our excess XX% utilization, right has portfolio in

properties lot suburban is a couple of mostly that increase continued the so has that over last of to attributable to And months. and

don't footprint have when we portion X.X a reduced work-from-home, are of million large Most them any tenants, of renewables. are expect we Now, tenants that to our pipeline to work-from-home. square through considering these feet,

with footprint on that, based existing would with they available so opportunities and then just And deals they're their renew new vacancy. contemplating

and mentality, goes and it And kind about of kind evolves of the I kind we've see fact it a talked our time. pipeline think I back lot what changes specific and utilization, a are there really wait known so where given to that to see but just have downsizes that if is before, of no or of to wait over we'll think,

just then so of, a mentioned Thanks on I industrial you quick, much. Technicolor, remembered last robust question just just it's market. And kind Great. obviously really

Just based leased? or up of preliminary assuming roll this interests either on a you you in get once roll are down terms what

our talk kind have roll and going where why early. a expiring pipeline would is didn't real with like based to the include about But it because the up new to general, Yes, I And lease. you. of really in a is, expect deal into in mean, share reason on sure we I think we we we it's make rent

great. much. Okay, so Thanks

question comes Mizuho. Please ahead. next Our with Kommineni from go Venkat

And on the terminate? any morning. and wondering on can by you renegotiated their the XQ subsequently they Tailored lease disclosed was color additional Brands good Technicolor when that in provide speed I Technicolor? Brands and then Hi, just was affirmed Tailored court? was if intense

on start Tailored can I Brands.

for plan next supplemental court week, the November our included The lease. this to is scheduled courts assumption the a of X. submitted Brands Friday, which earlier Tailored hearing brand for So that

that rent we in year. paid had of rent and the and granted their deferral I the September XX% are said, we earlier my in in remarks, October pleased they have them prepared As

remain So we story. on positive that

we discussion. that conversations then did them rent And their a And termination, they right it and to property. on in been respect that based And to forgone COVID their of with lease consolidate them which we're term the pre-pandemic to plan longer Technicolor, downsides included part of a in some with on kind had that with for modification working of terminate maintain have, right. it's opinion, puts They they locations. were to the ultimately our as elected and part as and progressed it other strain,

Okay. previously Thank your given I you the you. in David, party single terms actually And then would think, that employment. had election, increased government of mentioned portfolio, and that control benefit legislation

So for for do as sweep a you a portfolio? view positive blue your potential

say. I to mean, it's difficult

in increased being we where with I we feedback within any of defense don't see to years. fiscal general, think there material prior largely see critical of can think to But but on material negative proposed know budgets, uses. generally on government. mean, which opportunity over it's I those historically, prior and kind been I change kind an kind type that in being that is with just by line itself change of we I with the with election. don't mission administrations, cybersecurity a means give envision any based expect expect of We leasing

Great. Thank you.

RBC with Capital comes question from Carroll Michael Please go ahead. Our Markets. next

want I about the bit talk thanks. leasing to were steps a provided. little Yes, that

of in versus know inclusive that quite square wasn't that space, down is feet I or could XXX,XXX those discussions there's of XXX,XXX was not. that feet inactive much renewals that about one I guess vacant new another but square active two that leases? are you said sure discussion think if take have I numbers were you it if I today. how leases was that highlighted

think I our a mean, look is the I pipeline. leasing to way and renewables two thirds about is Yes. new at third across

And XXX,XXX look those. so and the ability absorption. be at net based is lease to on And we would square feet that vacant spaces the way the new

consistent But take of then currently the vacant be down renewals. today, active to the roughly feet, and that's third basically that square XXX,XXX, of would would guess rest space discussion would XXX,XXX one in just – I be

be that could those And are to expirations. then to were where expiring also we renewables. leases in if sign It attributable advance to leases

And mentioned sure, terminated? if so then Can if in but call, of you I'm not about bit from add your know I anything prepared Okay. I acquisition that talk don't got there's missed this. early the remarks, mean, I the think you the I’m was you a I can little part sure that? I

Yes.

that take was at would So there have Denver we When building that diligence, we a capital in that outcome looking into we got was the that required found were think, additional MSA. I on. we the to

it our the wasn't so And wanted really at we to it diluted we decided something yields that for acquisition and pursue.

great. Okay, Thanks.

over now any session. question-and-answer to back Blackman our turn David concludes This conference the like I to would for closing remarks.

to you. Virtual Estate operator. month Thank you, Real of many Conference JMP We Nareit hope with tend next to meet the Securities and participate in and

our That for today. thank So call. you joining us concludes

you The attending conference Thank today's has concluded. for presentation. now

may You now disconnect.