Office Properties Income Trust (OPI) 16 Feb 232022 Q4 Earnings call transcript

Good morning and welcome to the Office Properties Income Trust Fourth Quarter 2022 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Kevin Barry, Director of Investor Relations. Please go ahead.

everyone. morning good Gary, Thanks Thanks for us today. joining me Operating Officer, the Treasurer, Brown. are Financial call Chief and Matt President OPI's Chris and With Officer on Bilotto; Chief and

business they of quarter followed by with details In the session XXXX, will question-and-answer analysts. a performance for moment, about just our sell-side and a our fourth provide

that contains First, I conference that, of is securities statements without prohibited note company. call Private meaning written the and of consent call and laws. recording Act Securities would the like today's Also the within Litigation note other the forward-looking of to today's retransmission conference prior the of XXXX Reform

forward-looking XXth, that These expectations February XXXX, and and beliefs actual we project. differ on are those statements results OPI's from Thursday, as of today, may based materially

revise no call. publicly any made undertakes results of forward-looking to to conference in today's company the obligation revision release the statements or The

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

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

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

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

I now the Chris. call to that, over With turn will

momentum, solid everyone our plans. today. quarter execution further that financial call leasing on Good OPI and for results, you capital Kevin. results you, reflect reported fourth morning and strong Thank thank recycling joining the

were Amid pleased enhancing continued economic fundamentals, on advancing performance, OPI's sector strategies at our core with performance. operating uncertainty and challenging office aimed

of NOI expectations. Normalized end and basis activity of years. line high per of with was cash the highest share with our completed range our in in leasing retention change the XXX,XXX square three same-property quarterly tenant our FFO resulting guidance primarily We activity, renewals, in feet in $X.XX exceeded

targets Our fourth caps quarter year that set many in performance OPI. for we operating of which a achieved the we

of and X.X X.X%, the feet the in leasing at During term a million than nine year. the XXXX, projected average in we square years rent roll-up of had spreads we completed line more a of of leasing with weighted for beginning was which

feet XX% aggregate $XXX more leasing occupancy proceeds total of of New portfolio office properties XX.X%, well included and or square million activity. our above trending non-core basis than for the sold approximately increased market average. XXX We XXX,XXX to XXXX national gross points

we feet Turning recycling. containing of million. to beginning square properties Since million X.X XXXX, sold for capital XX the $XXX.X

ability our aggressive the a for during are year very with a these outlook, and tumultuous year we markets started more real close to we Although pleased with office on estate. disposition transactions capital

requirements cater remain of In and leverage. management strategy OPI principal portfolio and recycling enhancement toward XXXX, ongoing opportunities, a capital for capital will reducing

activity. CRE pace the We magnitude to weigh expect and in on continue macroeconomic to uncertainty financing market of

to most approximately and in identifying properties proceeds, back and presently two properties for gross we are stages the the million sale, to in agreement likely $X.X are for half marketing of in various we of transact However, additional under sell year.

such average is years. was feet lease rental of percentages We sector. rated believe from the which office with term of in a with properties X.X ended the income tenants, XX investment-grade highest our containing we square year XXX XX% the Approximately REIT weighted million one annualized of

sheet no our of until we notes debt balance fixed at mid-XXXX. nearly maturing million rates, have Our and XX% $XXX senior with liquidity of has

Turning feet, which to the term a marginal concessions quarter our into the is quarter year. foot weighted increase and lease XX% prior average years, in new leases commitments of from a third square activity fourth XXX,XXX leasing and entered year. capital and square XX.X for per a resulted improvement and renewal results. per over of This lease We leasing $X.XX

renewal strategic expirations the term in Northern our rent win the XX-year quarter defense and due with part spreads real is of tenant for contractor We the XXX,XXX our a declined of estate one foot plan for tenant. longer Virginia. XXXX with view renewal X.X%, term in largest as average Weighted primarily that a campus for to square located an a this recognition

primarily with inclusive to are for tenants renewal aXXX,XXX a in square renewals for mission-critical highlights two Additional foot a term. attributed GSA Mississippi XX-year facility

to lease government terms. we see willingness to facilities portfolio half US contribute within continue retention over agencies portfolio. consider of total our annualized higher to longer our speaking, roughly facilities Mission-critical revenue Generally GSA just along with XX% and of with or our the mission-critical

to lease expirations. OPI's ahead Looking upcoming

leasing pace move while we a to continue has activity at healthy, overall tenants gradual evaluate needs. real been While believe will estate XXXX

to to continue and to value manage compelling on proactive along opportunities. with further creation re-leasing select diversify through our We alternative efforts, capitalize strategies actively use portfolio

and XXX known Annualized X% lease stood is represent discussions. subsequent XX% X% has year-end either year we advanced following; expirations are where net vacates income, rental of annualized or is dispositions, X.X% signed renew, the XXXX end trending XX of to stages decrease of of the planned income, which balance the of represents for to X% of in annualized comprised revenue rental is X% a at point expirations from of the expected approximately between lease for basis nearly basis points XXXX, our to In and QX.

of absorption. disposition our projecting X.X square we occupancy XXX,XXX activity attributable of combined in X.Xmillion light more million with pipeline, and approximately to tracking currently In feet are of of the feet are than feet year-end our XX% new plans, square our in XX%. We activity leasing to property with square pipeline, potential

and our Turning positioning in OPI competitive currently projects the developments. value underway will our expect and that two provide opportunities. market enhance creation to significant growth redevelopment has we

Mass redevelopment to track quarter anchor Washington, date opening during take at XX D.C. is pre-leased Hotel, in property of to place Our end currently deliver is second XX% anticipate XXXX. second the the Royal of the an at tenant, Ave an we on quarter. The and Sonesta to the

continue Washington, construction. Seattle, we In to advance

out However, delivery completion XXXX moved to supply given certain for chain has equipment. our of timing QX impacts for been

defers our the timing mostly of lease start suites. to delay spec The a of potential

continue tenant of as QX planned. to anticipate our we XX% leasing originally in anchor However, lab commence project the will

start and projects of outlook our good lease-up a to pre-leasing months with for XX off XX both at delivery. We're to following maintain stabilization to

square active feet proposals leasing pipeline across projects. development than two includes the Our XXX,XXX of more

or cost $XXX $XXX We Total million million estimated XXXX. lease-up. are Washington, incurred to$XXX will to XX% year-end in anticipate future which for stabilized to stabilization Seattle XX%. for to balance be of are and $XXX million yields X% with D.C. million of through the stabilization, spent XXXX Upon between spent XX% XX% or been up year XX% has with are

gradual we across Industry expecting are these reentry national remain utilization on achievements, In our for very pace XX% markets office a transition. across and portfolio. and most trending at plans a conclusion, of currently in continues period view with tenants to what near improve needs broader despite consistent

our as no office to economic with discount results leasing continue decisions vacates, gradual experience we along improvements supporting concerns tenant portfolio, highlighted recession, our to within reductions, cost-containment measures fundamentals. on of While continue or an with weigh

managing over initiatives we past Heading choice undertaken when in the comfort take a many to years into the XXXX, transitionary as through periods. position OPI landlord of several

enhancements property teams. our program Representative management on and experience engineering our capital include examples redevelopments portfolio our overall focused to with are and through exceptional an providing recycling major

and OPI many sheet. a taken continue navigate we other strengthen gold including as the and headwinds company's sector. initiatives, the Our green believe leader lease We factors will benefit facing to office level balance sustainability as to the our recognition steps these

to now will the call to results. our I financial Matt review turn over

quarter everyone. driven high our the primarily end interest expense. to This per the good The $X.XX of above by and range. FFO was sequential of G&A per Chris $X.XX guidance the quarter third normalized quarter. lower Thanks $XX.X $X.XX for or million million Normalized and share or share, morning increase $XX.X fourth FFO was compares for

quarter I'd assessment property a highlight statement expense fourth estate real June million and Chicago approximately decrease income that in the acquired located in rental a for in like tax and a to OPI's quarter includes tax respectively, $X.X income that real included related in to received during estate XXXX. million, expense of OPI reimbursements $X.X favorable

fourth in accrued the for million the was million and QX reversal $X.X quarter $X.X the quarter previously G&A to for as fees compared incentive $X.X million XXXX. adjusted for third of expense

illustrating price RMR rents and share as was This alignment our fee the by management between structure share reduction quarter QX declined, fee shareholders. OPI our business decline driven a in has and

to decreased higher of higher compared past with line driven was quarter NOI expenses. year mainly The free our by of decrease range. basis related over X.X% the and the rent XXXX, leasing cash levels Same-property fourth activity to operating guidance in

and normalized Turning XXXX. the to expectations FFO same-property cash our outlook NOI in first for of basis quarter

per share. of guidance $X.XX includes normalized expense. G&A $X.X expect FFO This range a be million to and of We to between million $X.XX $X.X

is million for approximately Adjusted quarter approximately run in on rental reimbursement and first noted estate rate fourth related impact income real our $XX million. for estate is estimated tax the the real previously, tax $XXX.X expense and tenant quarter income

We quarter cash increased XXXX, to of down utilization to expect X% by of a as inflationary same-property continued and mainly first result basis be to compared X% expenses levels NOI pressure. driven the as operating higher

had years. rate remain the debt and rates, capital quarter-end, today's fixed our in environment. Turning XX% average to cost at of our outstanding a weighted a At debt five interest over maturity the from sheet. well-insulated weighted rising balance we average debt With of ofX%

is until senior Chris only no has rate Our notes facility. debt credit due mentioned, And our revolving variable OPI as mid-XXXX.

exercised we our XXXX. six months have we until to of extend credit November, January maturity remaining extend the our and by to end the XXXX, one date option option facility to July In first

$XX remaining June at million leave off $XXX interstate. ended liquidity sheet. availability This has a We debt under We credit mortgage quarter will plan including facility. maturity X.X% to principal at of its unencumbered with of balance total our balance XXXX which a OPI date, $XXX pay only fully million a with our million the

five feet. sold fourth million, for properties currently a an we XXX,XXX under Since square sales properties the property Turning agreement to sell of for including investing with our the of two price to are beginning aggregate vacant and $XX.Xmillion quarter, $X.X activities.

We $XXX spent in our spend fourth capital XXXX $XX.X million, the to on recurring capital million line full during guidance. year recurring quarter, our with bringing

quarter $XX.X for full the during capital redevelopment $XXX and million fourth Our totaled the million year.

remains our guidance at million. ahead $XXX CapEx unchanged Looking XXXX, recurring to

is Our redevelopment million. CapEx guidance expected approximate $XXX to

normalized FFO and a our ratio In in declared CAD of four-quarter ratio regular of rolling January, share, we payout XX% payout XX%. of $X.XX dividend per quarterly resulting a

We're our that Operator, call concludes prepared up remarks. open the for ready questions. to

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

-- counter the you. if the also for mean recycling the we're hearing plan? to year a but questions refinancing are capital talk bit you've what's what Thank outlook Matt. A XXXXto of and the you quarter, for owners couple morning quick what, to have Good debt? be know under could Chris more maybe a And LOI me. there little anything, opportunities first have you buy the looking as Can in are that, where about sold and I we problems what sell? in

guess Thank Chris. a I you this question. Yes, couple is of things. for Bryan, the

to I think of continuing leasing focus with to up manage of levels currently, of a today, which other initiatives. stand capital and bigger vacancy, kind on business redevelopments leverage more the plan, capital these is just focused wrapping then our through we're assets recycling and on fund kind selling we where

sit think And so where I that's today. we

to in With and muted kind the XXXX. going of focus, to regard it's recycling disposition capital somewhat be

think there's markets just weigh our uncertainty kind ability of lot to of is around and a to capital on which going financing, I transact.

of showing selling a I kind transact would a If think successful think, that you and million, back of XXXX challenging and markets. some of I market we also, opportunity at view $XXX to capital north look what was kind in year of for kind as

what I they're have selling assets deal we're think smaller or been, in size.

of kind which more users And the why think other we where and reason part I ended the of groups, year we that's up so owner did. opened for window is perhaps

always to of to a million several mean I that longer-term But to over was $XXX is in of to part a our the strategy. number kind kind plan million difficult. of kind last put of on XXXX activity years focus as $XXX

get there. little a see to would that say be I think that, we'd but like bit I to we'll cautious

I bring in think anything through addition might the is of kind that to market. million We're we that I of more and million business plans to other ripe market. identifying mean, opportunities the have towards in another the to to half talked we've year. now working going about, about think front $X.X the the be on we happen But back $XX

Okay. was And it comments, hard I think keeping in your prepared up.

more Are be the Maybe you on I XX that. fence sold, think, known bps the re-leased? maybe likely at to any there. to for in those maybe balance vacates? looking and I you if But bit mentioned, wrong, X% can was vacates have case, the are be of those that really prospect You they to color the X% are properties little clarify wise be to of Or that of numbers known a what are sold? XXXX,

Yes.

you X%, the when little think to of ourselves quarter. wind probably clock it's think put think last best known the X% about bit vacates a kind I of that's out back to I kind and So,

we've square tenant, Now, with a XXX,XXX the larger that's that feet of denominator. out the renewed of come kind

kind renewals. have annualized less And revenue larger so expiring to of known secure spread vacates you're been just we've that on able given successfully seeing we because a

any we near, to continue is are barring leasing the number or disposition to as expirations with which of expect in year of those that vacates, those that, known some well. so the And other mostly half as back going increase would

levels of some There is vacates. of various on those known activity

building annualized we've over about D.C., of talked think revenue. representing just our I some of the X% examples about Washington,

it but was of there kind renew, whether was -- like they it going fence to on stay, about or the not looks tenant they're The downsize.

And that some will once open that will reduce additional up so -- that transact, kind of vacancy. or

nothing say a we to is activity have expected And would leave enough Boston, is some tenant there, that And in where along I midyear. or there then to. to far but project going is leave the speak to

So, it really depends.

We have XX% vacancy across the portfolio.

or vacancy. to leasing kind not or flow towards and ebb known whether on about going So, over the be that vacates augmenting there's the of we see of some

general, in to we fronts. think on expect I both would see leasing

think I new quarter. have, discussions in XXX,XXX feet this of as we piece, I may close some kind another of advanced to leasing, square just of think, which anecdotal hit

And activity so known countering think will with towards around some of of that of these vacancy I kind addressing a again, or vacates. path some some be kind and

for you there? that. together, really Okay. Thanks city If cobbled an for Downtown block in just there me. redevelopment. entire me, for I And last quick memory Boston have Is serves think, possible update any

it's On there's not. great I think a something it's site. side, the that -- redevelopment I mean,

optimistic I work process it's in think just potential think general, development. long-term, But I Boston, in there. very to a we're through lengthy about options

far today, we on, where speak we're focused but think I so sit And to as to still it's really nothing progress. as something

real the I and And that significant any we so -- a near-term scenario that, capital it's project. in to see of would support think complement in not spend where

you. Thank Okay.

Bryan with from ahead. Please go is Instructions] follow-up B. Maher a [Operator the question FBR. next And Riley

it more. need up properties they might color I no you they a we have going to can that costs a to those tenants, to that color argument progress? there's macro their your the little little with Can questions, for you one that are environment relates are in with that, we a your that guess how through. work-from-home leverage scenario inflationary comes think when fact how it and us whole the versus give hey, coming on existing the little when renewal, When on have dialogue throw I'll those Well, give pass

think it's of things. couple a Yes, I

their the find building. that I important to think of who it's space control for tenants

single just let's occupied by use single building single tenants tenants. -- So,

it's we market if in I something a negotiate space, give hard think back because, case, because to really cases, don't to know tenant of most just particular they other a function than that in the control example, the wants For it's all want space. to downside

scenario that can I in where this don't to we of clearly, position there's function tenant. want know be retain leverage. where mean, just a a we I a really, But is overall I space needs. think, there 'smore a

time, our market the the downsize with that value vacancy. versus And at so there a amount going of in same alternative what and deals a or is retention significant on focus to we're recognize either

And the or we're rates, comes We types of of so concessions of can free seeing maintain some that in support other potentially pace concessions. form inflated kind of rent but needs. to those

And I trended has in some the our the that's to quarters. leasing related last capital reflected of several of spend that think kind impact with over

shorter the being make is more it about more -- true a think less I and so just to And about win-win answer just creative about situation. leverage

and it lastly, each fill a comes have you D.C. tenants those other those can in redevelopment, color more But tenants discussions Seattle out maybe And us of when for anchor two are you know the the projects. on other to the little Okay. what I to give space?

noted, there's we have been on expected for buildings, that walk of say, for is the -- a is of see Ave, project I'd XX% is kind kind activity activity, tenant's the of perspective. balance And completion. for good and XX influx is it's feet and easier nearing opportunity that the it's a across So, Seattle. XX from which of as through Mass the to we those about Ave about of square two XXX,XXX positive, tour given just Mass

tenants, in in consistent will type enough along to I speak tech catered as to far is activity is, that which There's transact. when law far agencies, we But see or and more generally nothing nonprofits with what firms, D.C. similar as I think if general, those towards think,

For twofold. Seattle, it's

have lab the towards building. the is of that down the at upside The space them side potential activity for tenant, project. anchor office think there's project geared with we the that that in additional today I mostly take to

the three reminder, office. two is the a and third buildings lab Just are of as

that's really, near-term lab to just full themselves tenants. function kind later, on of need. And the office, floor movement And a smaller these kind given closer -- partial tenants, of that are suites, typically tenants spec ready going the have more floor, a of come conversations be second to for delivery, those

And did so of we see flurry activity. a

I activity of on on it's delivery side to there'll would opportunity but lab suite upcoming -- think catered building. kind we spec our right somewhat office towards now, that But date, more talk that expect out about specific on that more we quarters. pushed is be given the in muted the

Great. Thanks Chris.

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

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

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

now may disconnect. You