Office Properties Income Trust (OPI) 28 Oct 222022 Q3 Earnings call transcript

Good morning, and welcome to the Office Properties Income Trust Third 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. Thanks for joining us today. call and President Treasurer, Chief the Officer, Chief Matt on Bilotto; Chris Financial me are and OPI's Operating Brown. With Officer and our for a and question-and-answer XXXX, session just moment, analysts. will a details In sell-side they followed by our third the about performance with quarter of provide business

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

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

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

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

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

and Kevin, evolving Income property we rapidly Trust. and the Welcome to landscape came to third despite environment. changing in end an quarter in the growth for high you, night, Thank everyone. economic range, reported a cash continue basis earnings good a Office quarter call office morning, strong experience of our solid Properties Last we leasing third NOI near momentum. Same

$XXX XXX,XXX upon and renewal Our a balance XXXX, maturing until for square sheet completed will a positioned senior Matt liquidity new of momentarily. no with We new feet expand XX,XXX lease million remains notes total well including and May of which leasing, to increase and Life Portfolio feet anchor basis our QX outperform and basis occupancy the of points the year. XXX over continues improvement broader development. over quarter Science prior the at square market a XX.X% Seattle to point ended XXX

quarter, at range. Further, guidance have weighted XXX,XXX million close $XX.X properties feet by million XX high approximately we square the $XXX containing square of XXXX with average target Year-to-date, $XXX stages for X.X sold end year-end. and million average for we advanced of properties the X.X% five of at of rate a During weighted X.X%. totaled a rate cap cap dispositions feet million a our close to totaling in

on planx with the pleased recycling have ability of and capital our We continue are today. to XXXX into transactions efforts our note close to

operational property To portfolio projects efficiencies, existing our economic a primary not cautious remains of the of interest given rates and focus sales. completed mixed any date, higher completion with thinning overall on changing due Investor strategies. to remain environment. and acquisitions development have we inflation, interest pool our we buyers However, with leasing,

weighted for XXX,XXX term. average results. momentum roll X.X with a Turning and XX.X% and lease XX up leasing solid a feet, reported to the leases We rent average an update signed year leasing including a on weighted square

a quarter, pre-pandemic a sequentially the macro increased just is secondary Leasing pace U.S. up XX% leasing activity activity level buildings, with gateway to attributed at is XX% overall of over level, total better trending XX% primarily leasing At markets represented leasing the our functionality. for and of New higher and specific our in market demand roll markets. our trailing development. quality with those largely by growth rent, amenities at including Seattle driven

have the past leasing which completed X.X strategies economic Year-to-date, current of the Over XX% average years. portfolio, and weighted of over benefit our improving lease towards the demand buildings term deployment roll rent been and instrumental nine feet million years, capital teams an a estate square asset to from with in our we has several real management drivers. quality of our in up positioned

included our XXX,XXX leasing square or XX% to New activity feet of date.

for year project our Turning to and Washington, from stage company third Seattle, highlights new an in In a foot redevelopment premium, strategic in as leasing well lease the XX,XXX win, and XX the quarter. feet clinical lease a XX.X% at term. rent is square a property lease a new Naperville, XX,XXX R&D market. up a biotech anchor square lease At with for a space XX-year signed This we designed we and for Illinois, roll the ongoing demand and and this term. demonstrate executed a

which feet XX-year activity. to in common square estate areas to Georgia, improve real leasing amenity renewed and expand team tenant Atlanta, XX% XX% by GSA of supported has new in and resulted QX XXX,XXX from of a a our XX,XXX XXXX mission term. year, occupancy critical close QX feet past we base, And in the for square in allocated the an to capital the has Over and strategically increase

leases GSAs at lease the our average XX terms respectively, new the renewal past activity, highlighted years and are on for and portfolio. years few commitment Looking within X properties years GSA back to the

XXXX basis of under quarter advanced close. an sale, The Of we of for our X% as OPI's lease rental expirations, basis Approximately for by year ends negotiations. of XXXX, renewable. ahead points XX mostly of rental a remaining expected income. in to XXXX either by have planned with points expirations QX approximate represent stages expirations this, XX properties in lease in X% to annualized balance has expiring lease dispositions, Looking points to expiring rental estimated expirations minimal sale XXXX upcoming are is or lease represents attributed to of QX income expected subsequent Colorado. basis Englewood, including end. In driven our Nearly income XX% signed XX annualized of property contract

is our to conversations remaining Seattle in We active our management I rental and XXXX also annualized initiatives, out expirations capitalize predominantly continued active vacates use up noting further re-leasing that creation known D.C. risk tenants select in and portfolio seen X% make vacates are development on between minimizing It during net that of and addition with expire that results. alternative QX XXXX turning projects. known are XXXX in opportunities year and capital and point vacates for are X% the known with QX compelling to the as the worth income. diversify for asset value recycling strategies to efforts being and would evaluated operating our

deals, growth a strong potential. pipeline new leasing healthy renewal and remains of our term mark-to-market lease mix with and forward, Looking

of active attributable absorption. feet currently are square feet square prospects, new of is than of and to million X.X X.X leasing square We million tracking feet which, more XXX,XXX approximately potential

developments. Turning to our

pre-development value our advance to continue project. enhancing We

XX time on of XX% our a project over will we development with needs, active proposals. budget. D.C. Our to the of will includes in completion. inflation, XXX,XXX now Construction on delivery Mass Tour In is weighing and Washington, further Development current in and fundamentals are the ready we progress, to and activity near Seattle to we continue feet to In square aggressive XXXX. monetary pipeline conclusion, decisions on our at our we this D.C. interest projects rate Seattle, spec along which be the market accelerate real as also leasing XXXX. pre-leased and deliver remain move-in Washington at space on around factor continues leasing anticipate project is track estate both policy and believe environment, Avenue QX

buildings of across and portfolio. functionality with footprint our of interest upgrading further our the activity overall recycling capital tenant and the enhancing our efforts is focused refining physical to Our on along level complement and quality a geographical

review initiatives, which sheet. a portfolio tenants, leasing our and with are efficiencies, As pleased portfolio term operational capital and well-positioned results. from to development core now lease call I includes we on XX% Matt balance position, turn of years we X.X investment-grade remain coming financial a focused on average our to our recycling progress the of over income rental and will

or morning, good everyone. $XX.X was for and million $X.XX per Chris, Normalized quarter the third Thanks, share. FFO

and per million, share, was the a month, payout higher the mainly increases increased rent regular came a of Same below XX%. levels CAD agreement payout higher offset in OPI we guidance ratio end year prior basis after were in results driven our by below same-property and the in normalized of in rolling quarter our a third our of of G&A aligned of fee the driven came $X.X and X-quarter expenses was declined in points in below driven declared the XX% previously rates Earlier has year, property XXXX of which quarter and by management excluding These by the of low usage the with price our prior end management results ratio distribution came in compared mainly guidance period. expense is reduction range. in business our from declines in highlights the $X.XX utilization XXXX quarterly dispositions. accrued our our for basis to of higher mainly $X.X in Our support incentive increase RMR reversal this at fees QX range, shareholders. the XX million high the management operating forecast third share cash by timing building The levels. in of FFO resulting partially free $X.XX to and business business our how NOI as structure fee with property

normalized to QX by our in FFO and our expiration in a forward fourth share. basis the be FFO cash normalized decline and QX mainly expect $X.XX Denver. and per lease we to of $X.XX submarket is in dispositions August Looking between NOI quarter, from The same-property expectations driven

a $XX and XXXX, to guidance takes $X.XX the quarter. expense into the our to This disposition $X includes million during million of of and per and to activity $XX.X year interest full FFO million we For $X.X share. G&A expect the $X.XX be of expense range of million normalized planned range fourth account in

to cash be compared X% XXXX. same-property to expect of down basis flat We to as the fourth quarter NOI

Turning to the balance sheet.

solid the Our our average that XXXX balance rate provided us and in we billion environment, fixed $X.X on completed for redevelopment in positioned well a operating of interest the current to sheet rising foundation rate remains refinancings weighted deliver maturity end, average quarter X unsecured of interest of At is had below billion is years. and we XX% priorities. over weighted debt XX% $X.X a and at fixed. rate a our debt X% outstanding

light As and have revolving in the debt the facility company maturity mid-XXXX. variable only debt $XX is not does million near-term our any of due schedule a with mortgage reminder, rate besides credit

May We have no notes senior until XXXX. maturing

the $XXX the total with of have on amount with million for $XXX a accretive repaid using month. and making discounted next While We to exercise the additional million we we ended of our revolver. million June a liquidity, of availability Subsequent maturity a cash this an XXXX extension under to option of first XXXX, revolver mortgage matures to quarter $XX.X expect our hand, transaction. including at X.X% extend quarter option end, end periods at January X-month facility our X the

We sales and under the price redevelopment million an containing capital are of spent during properties third to currently X feet $XX.X million million. agreement aggregate in capital We $XX.X $XX.X in for square XXX,XXX quarter. recurring sell

$XXX our $XXX projects complete to ongoing for D.C. X recurring that redevelopment We're million and million. capital $XXX approximately questions. the expect open of ready of we to approximately we Washington, Operator, in For spend million of capital $XXX year, expenditures be and the XXXX, approximately redevelopment prepared as flat redevelopment Seattle. remarks. recurring concludes anticipate million to full our capital up expenditures and In year-over-year we call

Riley B. question Instructions] from with FBR. first Today's Bryan [Operator comes Maher

Matt. and Chris

of level were in to surprised asset number by you ability is properties kind I And XQ. is Just your is confidence thinning. for that the give X you the me. a that closing and of outlook XXXX you on And the Can that pool couple sure those? mentioned buyer about? kind on your sales what for us the on We XX what of close for of for talked think

Yes. Thanks, Bryan.

PSA in for the or kind remarks, LOI. the I advanced think closing. kind we for dispositions pretty under of stages of our are confident that really noted I we balance Those prepared about think those feel in

And QX turn to won't maybe they in reason the so to at this stage, and there's in believe of year. able the no that close be

the ago, back a going, on of to where is to can we've we of have talked just again, kind and in some don't we quarters disciplined about dispositions, position For a be couple XXXX, sell. market where see pulled we're

what And what determine so kind through right in XXXX. that put want out we now, list to looks of to we're then working like

specifically, of neighborhood would that So about of re-upping I don't was have I which say we a this it of slowed know assets But fluid. million. we've where we continuing $XXX down the in determined and that kind dispositions on list remains talked year,

of And be very think watch it's I so goes. just we the ebb to flow as kind going and where market

And X-part maybe a question.

as expect some maybe asset cash these that XXXX? companies, to or sales? geographic your balance upon hearing Xx gets generally a how transaction across and currently. act type going covered market those Where from around asset deploying sheet? want do capital might take do receive think see the location? our you strong that, And of might given to to to you so is currently we're all from given tight about you're look the as in like maybe And opportunities If what leverage your think I you

we X.Xx investment-grade potential Xx this the We QX, get been remain Bryan, is to use to Chris it and capital Xx leverage We've rated I'll and trailing base. acquisitions. that question looking leverage XX-month in turn for investment-grade want rated. Matt. a EBITDA start at want at on on to back to Leverage rate. then

our So is our to target. as overall focus it and that leverage relates

over are leverage to and running want We business time. the comfortable today where way, down we that but is do this tick see

mean, We But get that's mean, developments, out opportunity we've we'll be it's for going or opportunities. in with year, We capital I think the to to and completing so strategy. our focus items. in turn a that Southeast. kind think the it's kind and opportunities. the we'll see of activity the on of as as things out, But think like to like. hasn't a we I general, And our position I opportunities themselves, But of a We related more of operational handful other that and Pacific Northwest. generally cap leasing be mean, And And present a to everything on markets other a execute kind safe rates into kind been I them, then of lot there's I in we the and where Yes. -- on recycling like we discussed, are depend as about that look acquisitions, shake is different widening. better just of position say see just really see our there good like. what might see in I again, just and we'll initiatives, with -- good quantify of there

CAT me. yet there's for that either continue trading payout out and FFO. envision sustainable have shares yield you market XX% in are who people world believe sustainable? on on a to low be dividend you obviously and be that the in ratio mean period would or would the last where the don't dividend highlight we for What to on to clearly, just maybe the And dividend, is I that, the there Okay. where

we've a been it's end had, the a highlighted Bryan, XXXX. glad payout Yes, since the I'm which good merger the constant question, really at you low and of ratio has

very So our and with we've level. coverage been satisfied dividend

Office any coverage where it in in outside future recession. we as relates be future upon But remain that, comfortable is with very today, think our factors any our the to we really and risk going with of control are to dividend of potential it the I to dividend.

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

the the to X Yes, from of on just year. complete Tamim kind you developments the expect on through walk wanted expect cash for on you Ronald. completion? you of to those guys some and us up NOI I next Could GAAP follow development

now, mean -- reminder, I right just Ave. I as XX with Yes. for Mass think start a we'll

between return and of stabilized of XX%. X% kind projection have a We cash-on-cash,

you Seattle, respect yields. what XX% can of And as good for kind And with barometer I with that think that respect asset. currently targeting we're to cash of so -- kind to XX% for we’re use then a

that roll-up to where with I lease we good that's in we would out. barometer I life that when what it's mean deliverable location I kind look albeit referenced depending by of things And the a a terms mean a XX-year doing And those -- also our just so would think was we're GAAP vary we like script, at and lot good on look signed But with was increase a yields. as cash is spec the the terms GAAP science. suites, there on expect example doing And project you perspective, shake respect to at what a to what depend from that is in as Seattle conversion that going the we're that circumstances. XXX% just term. the that lease

And aspect. on the impact overall so an have GAAP that would

it's bit a moving a target. of So

And year? mean just either on contribution a from follow-up that. those expect you cash of properties any next do I

will Cash the coming more the of carrying contribution with mitigating costs loss the the the be that's some assets, mean form of in expense from I side. on

but we that perspective, to And scheduled so at they're there's goes occupancy of free that. the period with a the project, Mass XX -- that's from QX XX% Ave, lease have a timing rent take signed and representing in

of proration that pay operating going part As of expenses. to free rent, their they're

there's Seattle, tenant into cash then Seattle, and timing part excited drag get while a to the we're that. with with lease same signing prep mitigate And any we'll improvements the space. of So about as for

that they'll -- point the full year. until think but full given drag at pay don't the QX they'll the building pay a majority XXXX. the mitigate free of rent they of rent the same some that time, OpEx the we or there's occupy turn in physically story on so upfront, And at building the the space And cash will until

that? maturities the That about down How you it you then some sense. plan years. makes a on to may of refinance dispositions with of pay up the And just debt come? that Any chance debt that? it. are that over is some thinking Got of couple now Or coming most the just next right are

now We're Yes. right good a position in very sheet. our with balance

have use and the We'll are And maturing credit We May off. of hand line mortgages pay next likely cash that of our million in isn't XXXX. on then of mid-XXXX. until $XX to those maturity

So accelerate plenty see to of we're time good of to of in-place is and going settle market. we we meantime. watching the now, paying But XX have plenty the in liquidity not and have be the we'll those, off market try kind to right a rate

And ladies with RBC. question and from gentlemen, our comes [indiscernible] next today

can but at Sorry missed just activity in beginning, if right quick us this Mass XX give update I you on the Ave leasing the a now?

couple I projects, The to square XX prepared in it's when the feet feet Mass square XXX,XXX a have thousand leasing attributable the activity, as about X of in more hundred remarks, is we talk of activity, shy stage. proposal of just form a mentioned between the we lease Ave. And

are property. the addition in benefit that that so the tours number, to And the there's coming through of

starting of positive, increase far along to completion more timing, enough now tours we're and so proposals. trade to that think And of kind in to of but we're on with the kind an kind I respect to nothing seeing are speak definitive nearing

everything trending So the right direction. is in

any question-and-answer remarks. Bilotto And over closing like this conference the our turn I'd concludes ladies to back for to and Chris gentlemen, session.

we OPI, again Thank us forward you with interest for to you soon. your in speaking for joining and look

call. and concludes attending this for We today's conference all you presentation. Thank you. thank Ladies gentlemen, today's

lines, have your and wonderful day. disconnect now may a You