Office Properties Income Trust (OPI) 29 Jul 222022 Q2 Earnings call transcript

Good morning, and welcome to the Office Properties Income Trust Second Quarter 2022 Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over to Kevin Barry, Director of Investor Relations. Please go ahead.

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

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

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

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

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

With non-GAAP as the is charges call reconciliation available our turn now without estate. or efforts not that, of losses of the part reconciliation information such certain unreasonable Chris. or gains disposition measures are over related of We at not to required I for and such will to impairment a as providing real because all, guidance these

quarter to Trust. Last Normalized Welcome night, Thank our and on Properties our prior you, morning, momentum second Kevin, guidance call strong year end and plans. that Office same-property reflect for high capital cash growth, results our everyone. continued progress the recycling second of and earnings FFO basis NOI we range. quarter reported solid financial in leasing good results Income the exceeded

pleased are strong our performance. with We quarterly

their elevated continues However, anticipate and broader assess hybrid in a several transition of at the continue utilization office next will the of period work remain fundamentals quarters. and modest longer-term office transition. a pace. needs over remains in vacancy remain National Tenants balance fundamentals a We space to environment. market

market-specific of and of investment proactive of As best-in-class capital options deployed our manager, result uncertainty. experiences operations, Through ongoing a years, engineers highest our we consideration with each our part despite focused the our the new leasing tenant a to believe of on This the properties activity our our selectively with several level tenants, care. real better over noted sustainability. tours properties professionals we estate properties have building and pipeline to years are of corresponding be many have tenant has certified managing maintenance we market into this on local offering and first our focused past activity market the to over positioned and commitment have specifically in

leasing to increased same-property assets. of our square XX leasing XXX,XXX quarter, to XX.X% our feet, disposition activity the for occupancy activity attributable points to new over second sequentially program advancement and prior quarter increased noncore the basis During and

the properties and reducing Since second operating efforts with footprint beginning to our the approach and the goal a or fundamentals. continue capital expenditures take feet where to geographic our We of we for disciplined sold properties an improving of recycling over years. of thoughtful at or million proceeds portfolio's value XX quarter, contained and $XXX.X average we sell has that X.X capital been aggregate square million maximized believe agreed age of to noncore

continue of we and spinning the and have we along estate some light market with certain macroeconomic volatility market, pool, to assets buyer in of in real seen pricing For changes conditions. expectations

recycling we manage our million. portfolio the result, and and levels a range XXXX anticipate As to and leverage $XXX $XXX of utilizing as strengthen expectations to are move anticipate for proceeds We property into pace XXXX. committed the to XXXX in we of aggregate now million dispositions proceeds moderating capital to our dispositions continue our remain sales

more renewal contributed a lease ended Since activity leasing investment-grade term. leasing buildings close in X.X in rated quarter for weighted representing of average the the approximately of square quarter second tenants, leasing good represents a industries. average X.X% deals XX% with to of XXX,XXX quarter XX initiatives which medical the believe and approximately tenants commit XX% of the how appetite in XXXX, X.X-year rent square science indication tenants life to a the feet rental with XX% million contractor, now and and is over first government to we feet, XX% with of manage accounted highlighted Government detail. We annualized completed by we and Turning our total new increased in Quarter-over-quarter XXXX. revenue. to space. the QX and We new excess our leasing volume by weighted agencies for volume followed roll-up of

mission-critical to rent for highlights a lease we rent feet. signed the an in a defense at XX% XXX,XXX term. renewed Naperville, manufacturer We in a in XX,XXX strategic an Kentucky, square square care XX-year transactions. Chantilly, square Illinois, feet now and roll-down a win GSA occupied quarter XXX,XXX at rent a term. in location in second executed represents renewal roll-up health a a in in X-year Florence, a a OPI Virginia, by with term. lease X-year And feet at Turning new roll-up from for modest equipment This an we with key which In a for renewal contractor a XX% leasing secured

OPI's lease approximately to expirations, revenue X% half during annualized our scheduled of ahead expire is to upcoming Looking of the back total XXXX.

discussed of vibrant Denver, points number and square of resulting through of annualized vacates impact tenant XXX,XXX basis managing revenue. actively feet Colorado, of previously a net our known including limited XX and in submarket growing a in are a located We

build to a interest prospects lease continue variety of buildings. We from the looking to of portions

Beyond the for comprised tenants rent smaller XXXX currently being remaining Colorado our lease, mostly marketed roll of and is sale. properties

expire year. of roughly of a the during revenue with Washington, lease XXXX, annualized scheduled D.C. to and being XX.X% largest of CBD, ahead tenant the revenue located annualized Looking a X% expiration is vacate known representing to OPI's the back half in

expiration Lit we plan ample well prominent have market to a to XXXX, Class the property in for what timing downtown initiatives building and this later lease-ready time is the submarket are of A a Gold support in for currently Given in the D.C.

with tenants expirations OPI's will While line. leasing have high we and environment top been of the the opportunity in for conversations inflationary expiration presents year mitigated and continue momentum our base an rents schedule to may renewal grow to positive, anticipate the expense be sales, agreements many by year. also this asset somewhat strong reset of remainder rightsize

mark-to-market remains and growth renewal strong Our new with and healthy of balance term lease deals, current high-single the digits. potential leasing in the pipeline

nearly square are in XXX,XXX of negotiation active square of XXX,XXX feet Today, attributable X.X stages of over million tenants. We potential have advanced square of which million X.X which square with we includes prospects new is feet to over feet, feet leasing. new

XX%, reaffirming X% of are X%. for We year-end for to to XXXX expectation of occupancy our -- expectations the roll-ups XX% with along rent roll-ups

development. to Turning

longer both Mass cash have locations X% for work Ave growth to XX% these Seattle, remain and redevelopment projects remain we Washington, both in positioned with XX% XXXX. at in rigorous times associated in lead to We industry year success, as takes challenges to cost and execution XX% of on tours the April plan and deliver value on each of costs and project planning Washington, a us shape. preleasing releasing Tenant and return efforts of disciplined Seattle and believe XX long-term D.C. construction interest active towards and Our materials, Despite broad favorable both creation. continue flow to stabilized projects for track. rising

Before highlights report. of annual recent managers' Matt, goals. the data our ESG regarding to the comment Group's publication on report and RMR long-term sustainability to over accomplishments turning to I call insights, commitment The wanted the

was and a For year as fifth an this Leader. Gold Green STAR recognized example, ENERGY year, OPI Partner consecutive Level Lease for the earlier XXXX Year of the

strengthen transparency We proud our to are of the we to OPI's continue make enhance sustainability and and disclosure. progress practices ESG

on a specific over tearsheet to can highlights will OPI's I website to to the results. find call now You at financial our review our turn to opireit.com. report Matt the and links

good and everyone. Thanks, morning, Chris,

as month, our XX%. due compared quarter represents ratio $X.XX maintenance. of a $X.XX guidance or which and expenses last period per and increased second CAD CAD $X.XX ratio XX% for $X.XX managing timing payout results $XX.X current and share, payout X% our quarterly repairs we XX%. by to Same-property Earlier CAD year-over-year, due increased and resulting operating or share end over basis X%. FFO such beat free for million the of quarter NOI in declared cash quarter, by this in to our regular $XX.X high of distribution share and to same during Our increased parking increased expectations X% of income. XXXX was of to XXXX improved the growth the to year. a increase period Normalized down exceeding X% income per the year-over-year year-over-year guidance million increase mainly exceeded the The of range range our per second X-quarter driven quarter occupancy rolling to the our rent certain of expenses rental an the

quarter. and to our NOI the expectations ahead in Looking third cash same-property normalized FFO basis

by and third between during fee compared We account expenses. disposition million million into a is operating to guidance This expected $X.XX million in $XX.X $X.X in with decline expect takes quarter. $XX.X normalized the accounting $X.XX earned to FFO second $X.X activity of million range QX expense The per due be expense includes to $X increases termination quarter $X.XX to the and of of planned mainly the interest and G&A million share. our balance driven for to a

cash same-property flat, as minus expect of basis the quarter to points or third be to plus XXXX. XXX We compared basis NOI

capital balance million capital redevelopment second on Turning and the to $XX.X during capital We million in expenditures spent quarter. and the sheet. recurring $XX.X

and a to on to repaid redevelopment minus million $XXX $XXX borrowings projects. to quarter We More revolver. weighted to with our average of of $XXX than proceeds and We second cash approximately at including continue continue credit to In outstanding and debt of of with our billion spend over down redevelopment balance approximate we our pay plus under below liquidity, expect and Ave revolving of intend with debt availability rate property debt million XX% Seattle to recurring support the facility. $XXX total XX% and XX $X.X QX, under X% is interest of or million million is $XXX XXXX hand ended our Mass approximate capital disposition principal $XX million million our fixed our unsecured.

Our XXXX, up for leaving we May exposure senior remarks. our questions. interest Operator, to ready revolving rising forward. us priorities well concludes support rates is We're limited have to our notes our open going credit no facility, to that until prepared call and maturing to positioned the

Instructions]. [Operator

first The Riley. Bryan today B. from comes Maher question with

A quick questions. couple of

leases? of tenants to considering the those On think any coming of have X And of for this the listing, prices think much maybe the quarters, active to you you comes plus we've next that inflation higher. I in XXXX? over X sense talked expirations to might fearing seeing million fruition pipeline are do drive and urgency $X XXXX in about up part lock before, on you of the how

Yes. is Thanks, This Chris. Bryan.

kind plans tied lock rate. I think so than from kind would much of say very for just of to office I I kind think, driving that leases, kind pushing overall of space, in it's tenants of more to

ways, kind think of And of they how timing. many kind so that dictating is, about in

X.X% I the about cetera. square provide annualized think to those bit we about guess, about to et to expirations end, look negotiating say, kind to expirations. signed with But may how our to kind those with we I it be XXXX color, as which X% Subsequent kind leases lumpiness kind As at of feet, into articulate of includes we think little quarter document, got signed LOI, an I over the even expiring. could signing of respect more XXXX, of would and process so XXX,XXX our of hard of 'XX, and revenue lease if a a we've be

some for accounts as of lease we're are about XXX,XXX we recycling when signed well selling part accounted so capital have basis our as to kind it about properties that of XX we points; new basis talked we lease vacating; up, sum which points XX some have the of program, for. square feet. and Colorado And part that X% then as We tied activity the

kind of how And QX we're some just least so of addressing shows and out at of think right XXXX. that I the coming cadence

say QX a we're in annualized it's the expiring. For in get as are you've revenue. we be in prepared have year, could lot on advanced depending I 'XX, XX signed, we're revenue circumstances, X% about on year. but think known to the expirations, would I and then front our X% of half And seen, not those and of remarks, able it's about representing for there off QX conversations annualized in mentioned this back I signed leases points with our as basis of the our highlights those just the we're vacate of execution selling And of XX.X% about until the that

what revenue work So year. us And think expiring about with annualized we leases that of example, would those QX, that, in in of that next our does, I note I X% are that on most through. for continue XXXX leaves of really to also

ones given is there's we surprising XXXX not I in those to it's matured much hasn't X% whether in impact expect that our would a will ways today of timing not other that expirations. something that means rents sit a with too knowing or what view that have still fallout, it's so some But out. upside remaining some of that the the to just we of lot they're extent because And think where these

asset million. the it. to And from I kind of discounts expectations know $XXX disposition, Got What $XXX curtailed buyers your given shopping million the to potential And as it were that to million there relates then million you around you of were pulled? looking for that net on have $XXX some gross $XXX around to stuff you debt you've of XX%. value since out that that maybe to

in pullback while? XX%, disposition of comfortable With hanging a for XX%, kind the expectations, at that you XX% level out are

turn So physician over I'll depending it that But varies to I'll it take strategy. the the first Matt. and would say half, on I

and cases, So some walls, out kind that have buildings the shorter we that I been market on some sidelines say, are altogether. in have of do buyers would the have sitting in

that came kind that And as were back a has the of some selling is stabilized example the buyer assets, the some long For lease more term and diligence, in a concluding good Midwest. on XX% X wanted were the of we we discount price.

we that And discount, sell disciplined is property so term, there I just of mean for us, these. in a particular run specific, want this at where we're pretty out in a kind not necessarily an to in we rush given has approach and of given We're -- and how kind are. longer to asset

to we've is full portion gamut. So the seen what indicator say runs the it a But really more that Matt. other And based over on turn I'll XX% would I discount that, specifically. good

low while the in reduced assets gross to running we debt comfortable levels high XXXX XXs, expectation net at XXs, the are dispositions. company on on those Bryan, we Yes, the even into

The next question Kamdem with Morgan Instructions]. Stanley. Ronald [Operator from comes

Tamim in is This for [ph] Kamdem. Ronald

think to to How context the guide. also, ask Just year. I half know the Maybe relative reaffirms a does whatnot? ramp expirations of recurring driving ramp first last lease the the about that it about in how it [indiscernible] talk about relative about And then CapEx this year? quarter. to think should CapEx? the imply you Could recurring and half what's really of to the second of wanted

Sure.

we million about is recurring 'XX date. to prepared for for guidance $XX in million, year full We've as capital. noted $XXX our spent remarks, So

our activity, a $XX higher well. we've QX The we're XXXX forecast QX. about ahead for of million get to spread pretty XXXX, leasing have is, and of as that's evenly it's done and lot reason we in remaining, So trying leasing and

So recurring that call provide year. $XXX say increase 'XX, the of that, that's XXXX. for the first million a the really for estimate, fine-tuning we'll then continue over the updates our we half of would good reason as budget And remains on and the I now, QX capital beyond

follow-up AFFO How kind there's you payout about upward you you kind for and expect pressure some that depending do year, ask just feel And if How there. safe dividend the next do could the do of $XXX on it ratio, I feel on is -- if I see million say, AFFO? the CapEx a what of about is? how

about Yes. XXXX, We've ratio payout -- of since set XX%. a the ever in merger back we

that. we've well I think merger, every below the been quarter since

So our on we've comfortable dividend. with sit recurring expect we're where we with been little and capital the lease a 'XX. dividend that comfortable today, to in we very expirations But with our see pressure

question Carroll Markets. Capital RBC next with The from comes Michael

missed remarks, that I driven? you your us $X.XX that you if related color talked some Can is prepared this. termination is Where But to? Matt, Sorry provide what fee. a in and about remind

Sure.

about guidance for knew QX. gave with we So that when we QX earnings

$X.XX was in factored $X.XX likely contraction tenant for in the is but our that back of XX% exchange was So fee. to did Columbia, of The into renewal, that X-year sign range Maryland. had it about tenant provided. $X.X a space give a But we to termination million an they

Or discussion? Did under that an renewal? X-year they is sign still

It subsequent signed, has quarter. think, I the to been

needing are then that discussions to tenants your about or that of you specific there downsize some portfolio termination options have any space? tenants you're saying Okay. And having approached their other that within they're

Not specifically.

horizon the I more QX, FX to quarters of the that than ones either Seattle think larger nothing timing that, other we in of But much that was a downsize from the over kind perspective. respect which we've today. redevelopment some that last speak couple the material to that hit were with saw can experienced of on you strategic there's

talked of occur the what the how gone? the discussions those to expirations? I you of And towards move-outs going to mean, -- known I XXXX Or renew? to of going know we're about the going do 'XX. in move-outs about have the tenants rest that beginning feel end lease that confident XXXX. they're more are are But have you some

about Just yet? don't know them

ultimately to will it's I mean, happen. look, what hard say

think I to we'd like think.

good kind have of alluded least on term, a indication on pretty we've to We of which what's going near somewhat. kind at the in

on the the the about I half majority we've have the really noted of right unaccounted we provided basis in I that the that's the at and now, I to for, and market the tenant that our tenants, with we're QX also function than year, mean with of as part in it's capital X% of a have the is with of just X% that vacate a the in kind based think later year, -- of that, got of just expected earlier, XX end go being year. conversations where of that's kind I of back points recycling. breakdown But outside other of the -- really smaller next it kind -- property them. we it's

X% just I we've So recapping, we we're where think again, think the have still indication of I on. a balance, working going what's of kind got on good that about

Riley. from B. question Maher comes next Bryan The with

than from Just at early have can indications you, less on maybe on Seattle going online? what's while activity we since an coming we're Ave properties you leasing a and year give with out us those Mass XX on update

Bryan. question, Good

to far say, So the road I with the we pretty X building XXX,XXX we're X. of for X Washington, square large close kind of minus user plus down the for have would full about properties. a activity or feet Seattle, between

the we so of a in about think that couple kind And of position talk hopefully, we'll be I -- months. in next can

ranges discussions. would we're be across early about, smaller in that XX of of other a And more in building, Mass some that users XX% property of various kind that And pre-leased of range that X across as of also -- are are have portfolio stages. excuse that we're buildings we life we've then for the tenant that got Ave, of a activity talked those we've and user kind me, converting. within and science larger And so kind

building. with think project and in topping just property I the completed the close we that the of specific, off

the we're so starting table on of kind And together. that timing come see building of and known more a come to to having given kind there's now the tenants indication

So term we look property that forward the near well. on as to providing updates in more

back would concludes closing question-and-answer Chief and I Chris This like turn President session. any Operating remarks. our the to to Bilotto, over for Officer, conference

Thank you the for joining call.

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

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