Office Properties Income Trust (OPI) 27 Apr 232023 Q1 Earnings call transcript

Good morning, and welcome to the Office Properties Income Trust First Quarter 2023 Earnings Conference Call. [Operator Instructions]. I would now like to turn the call 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 first moment, followed business analysts. our question-and-answer quarter performance the details

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 laws. meaning Private written consent the call that to retransmission company. note Act other of of today's Litigation Securities within prior of conference the XXXX Reform

forward-looking XX, today's that The any company These statements expectations April XXXX, and and revise beliefs undertakes no actual made forward-looking we in project. obligation differ on publicly of are call. those results statements to release results the OPI's from revision Thursday, as of or the today, may conference to based materially

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

will we today's conference planned remarks. Diversified merger with Trust discussing On call, in be the Healthcare prepared our

be We have about joint not a taking SEC, will filed proxy preliminary questions and not the the yet therefore, registration statement and with merger.

during normalized income, this we operating and for including basis basis from CAD; numbers addition, or discussing cash cash call, cash non-GAAP or normalized available or In NOI. distribution, will be operations, funds FFO; net

last results. in our that our investors our to to be figures non-GAAP presentation income and information believe our night, be digest analysts enhanced issued combined for website. this of We which about release earnings on presentation information can helpful these available efficiently are and found we company of reconciliation will A net

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

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

I over will now the to Chris. call turn

for everyone, Kevin. you, Good thank morning, today. you and the call joining Thank

Before for of by and dividend recently to fundamentals, briefly the performance merger I Trust. quarterly review I our our announced OPI's want quarter current to XXXX, Healthcare first with discussing reduce start Diversified decision office our

OPI few uncertain and has global demonstrated operating navigating pandemic an years through the past amid environment. office solid evolving performance a over while and

factors, through continuation our and leasing tenants investment-grade attributed our our strong properties results diversified several performance and markets holdings, tenant roster geographical strong -- our our our initiatives capital our of performance, real are premier recycling portfolio, XXXX including to representing continuing sheet. in of estate balance favorable reflective with Our many growing of with XX% footprint

looking we stand fundamentals. return gradual post-pandemic at providing trends, a markets, spot office As here today, office pace we across to at U.S. continue are improving bright major for a which

sublease space, However, uncertainty. added remain environment challenging cost result macroeconomic elevated a a corporate with in as headwinds of sector cutting, financing office continued and pressure the

putting to and declined volume for has quarter obstacle are the much widening consecutive an gains to the past credit over occupancy be National office sales valuations. for leasing office pressure spreads given additional the several of the through sector's QX, on been and achieved back investment continues absorption. market, third years Financing negative

the of these our years the we declining not We lead and asset dividend this investors, will cash stabilize. recognize may These decision reduction a OPI's quarterly month, which made the earlier to Recognizing challenges challenges, to in values, likely flows dividend. and was lightly. announced to take value

the a on of projects. support excess our preservation our of CAD careful result coverage the Trustees, target leasing outlook challenging and and to the Board the ratio confronting of payout focus tenant factors, and in its redevelopment the XXX% including retention our part capital of X company sector, office risk, several on consideration was based rising activity It on approaching ratio and complete

dividend made With per we these of the factors decision in to mind, sustainable lower a to the annually. share level $X

of was time on this at for our decision While stand-alone plans communicated the merger it and OPI of same merger was a the announcement, as basis. independent outlook reflective our

will positioning increased returns in office a capital headwinds path and as that to future. improve provides we liquidity navigate the competitive to fuel expect It projects to increased OPI's

opportunity scalable office Earlier tremendous sector combines providing us and creation. portfolios we to more embedded institutional Trust, us headwinds larger, and to X this REIT. month, also announced a navigate positions diversified quality providing transaction growth while merge value long-term and and Diversified near- with Healthcare to create better a plans This

access healthcare OPI to a flow outlook, and Immediate access GSE including attractive additional with agency rate science to debt a of with interest increased from sources favorable benefits communities favorable an senior and scale and tailwinds growth to strategy low-cost include portfolio, turnaround life of office diversity portfolio capital sector and established underway. as quality and addition through cash the a institutional complement our more benefiting and stability to living properties currently

during to for leverage to long-term CAD and XXXX, As FFO, be second result of combination, and value of expect a OPI's this accretive shareholders. we the half maximizing transaction our ultimately the normalized

consistent expirations activity, with increase of several next given increased activity their the leasing needs, year. results. our and our leasing market over trends line will fundamentals back quarter Turning in as our deceleration with that volume tenants on during We expectation quarters half reengage leasing and the the a to began office mostly now occurred with the with year renewal operating broad new in first plan uneven along

commitments our points Portfolio feet occupancy we where leasing XXX,XXX in pipeline, completed have square and close is negotiation. reflected square foot weighted a of in and lease of activity advanced square years XXX XXX,XXX in a leasing to balanced year. resulted term This capital activity to and stages per XX.X%, basis new lease leasing. year-over-year increased average with X.X feet renewal of of $X.XX we of and per concessions mix of This leasing

elevated quarter downsizing leases at the leases was one which concessions in XX.X%, influenced Washington, square several by Weighted spreads and space. Greater D.C., with totaling declined strategic key a X another to with average tenant XXX,XXX for signed a property the feet, associated we where rent backfill available

leasing as We year. progresses activity will expect our spreads normalize throughout the

Looking expirations. ahead OPI's lease upcoming to

XXXX. into expirations the expirations our points XXXX, We elevated continue efforts annualized to represent In XXXX compared a during rental lease of of re-leasing basis the to approximately XXXX. address XX% actively manage decrease half income, to through proactive XX second and of lease of end

comprised and the year known Net the for to to rental of following: trending points X% close XX is Annualized of annualized balance the vacates Approximately balance of X.X% represents revenue is income. the dispositions expected for renew. XXXX planned basis are expiration of

Our than leasing of more pipeline square leasing X.X projected new an approximately to absorption. of activity, includes roll-up includes and to potential XX a of feet our with to square square term average X% X% rent feet activity X.X years. and for The attributable million of potential million feet leasing X XXX,XXX outlook lease

developments. Turning to our

in is Ave in in the mixed-use months. scheduled deliver to D.C. Mass XX redevelopment coming Washington, Our

prospective and completion, are encouraged in the With tenants. multiple we by discussing activity the with near proposals tour interest we are project growing

to to Royal welcoming summer. anchor is the which location tenant, XX% this to an The pre-leased flagship Hotel, the Sonesta property guests intends begin

year. Seattle in on remains track to life later our deliver science Additionally, redevelopment this

and performance. XX,XXX signed late needs to lab the with this spec we space addition building a companies near-term providing property the for In and feet deliver with of small needed will ready NOI to square outlook timeline one medium therefore, lease-up year, at acceleration last move-in full suites, for reducing

projects, related of as pipeline gradual operating began rent to June Across both projects as our active tenants tax during Beginning to includes more both improvement reimburse development XXXX, than XXX,XXX as square periods. leasing proposals. and expenses NOI early their will see free we feet

want to turn goals. Group's the the comprehensive Before publication which the ESG overview manager's Sustainability acknowledge long-term our of Matt, Annual commitment call RMR to to a recent over provides I Report, of I

that term. committed over advance sustainability position We corporate the enhancing continue company practices OPI's are to and thrive to long the deeply to initiatives will

as ENERGY underscores to year on that and tenants the communities. properties our recently STAR of consecutive we for sustained dedication a garnered recognition for row. operating the recognition year example, For excellence partner benefit sixth in an year has our and This the fourth

can report find tearsheet specific links OPI's opireit.com. at and website the a to our You to highlights on

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

of X% million rent a notably quarter expense. the G&A first by million as in XXXX. to first and for with levels quarter The mainly quarter utility in good elevated decrease guidance NOI FFO free activity quarter was previously or downsizes. for of result the of everyone. expense was and sequential a cash of driven by the low compares $XX.X $X.X decrease was paid $X.X tenants, Thanks, range. Same-property the and Chris, was by first or to share basis and operating costs, previous decreased $X.XX end $X.XX OPI expense morning, This XXXX being normalized most of guidance below related Normalized range. now by for million share, quarter FFO the to expenses utility to our interest increases, expenses as XXXX, leasing to The inflationary pressures $XX.X driven fourth per $X.XX per on quarter. higher line due tenant paid compared our million compared primarily the basis

share, basis, resulting X-quarter rolling a by approximately CAD sequentially per in a payout ratio to XX.X%. $X.XX XX% On of decreased

ratio CapEx historical pressure XXXX, the payout of the lower we and fourth well elevated since began unsustainable. levels And requirements tenant was XXXX, of worsening been becoming with seeing retention in our year office rate the of in fundamentals, While had another dividend XXXX. covered beginning quarter

per this share new liquidity our Chris $XX share The and result, a financial to $X.XX capital previously as or enhancing $X OPI's reduced approximately flexibility. and equates million earlier annually, quarterly of we dividend retained to month, annually. level discussed, per As

between and basis $X.X includes outlook FFO the our same-property for XXXX, annual expect $X.XX to This of guidance we NOI to a which of normalized FFO share. second be compensation. in of million $X.XX $X.X normalized expectations includes trustee million quarter Turning per G&A expected to range and cash expense,

same-property the cash down the inflationary X% We since driven period basis on of mainly prior-year full to building vacates to to beginning increased XXXX, be quarter X% by expenses. the and as expect of second operating compared pressure NOI X

rate total interest X% a average end, average the $XXX Over credit rate. million Turning our of ended to under maturity with X.X weighted the quarter balance had million We debt a availability facility. $XXX At of is and our our including XX% of of debt quarter liquidity, outstanding fixed weighted years. sheet. of

of recast merger forward. diversification discussions existing the improved believe to revolver. and the will proposed company $XXX move with OPI's the the We scale million DHC, to commenced process we credit have revolving result facility combined in with plan successful connection and recast In initial our this of

Since vacant Turning to sold properties, activities. XX,XXX sell year, and one are square containing under to property, million. feet, for X we XXX,XXX of our million investing the the containing vacant square $X.X agreement feet, currently $X.X beginning for

Our capital We improve. to spent has million impacted recycling to in the until million muted first and the and date transaction current we conditions environment, capital redevelopment quarter. be expect $XX.X during recurring somewhat our market activity $XX.X on by capital been

of XXXX is $XXX million of million to capital. million and recurring capital approximately redevelopment CapEx guidance million $XXX currently $XXX to $XXX

Before the OPI will to we related stand-alone over be taking basis. a a Q&A, questions on we as reminder, turn call to

proxy and not questions preliminary about We a will merger. be and yet filed the joint therefore, not registration statement taking have

prepared our concludes remarks. That

are We to questions. the ready for open up call

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

I guess out ahead. maybe my throw I questions half can

through outlook XX.X% I'll same-store. So the for -- we're The this starting So it us occupancy, you slowly can at year? walk total XX.X% tighten off up. occupancy

from standpoint? vacates and Seattle with series those of do How a online. backfill that then also have of And XX some We we leasing occupancy you year that try Ave progresses the and you have think Obviously, you'll known Mass activity. coming discussed. an

Bryan. Thanks,

were market, sell I we of those to have the of provided we XX%, bring the and that in think on XX% that our market. to projecting that range are ability is the predicated some to assets historically, to currently we

looking of on being based what end that think low at And seeing, sit target today. the guidance we're of as so we're the we today, kind I kind of here

scheduled add What in for the that most at or we is I'll are XXXX, of expirations occur vacates, year-end. known where November to have

back with then And the so towards of performance following. the the weighted is impact year, on occupancy heavily half

that's where today. at So we're

about piece of again, our assets. to important we've And I ability talked ones an that vacant. certain think, sell The mostly is that are

And so a has occupancy. to that direct impact

that of we might when merger? think And before needed be update us timing then And to can that a as credit you size the the about Okay. kind to and be what of potential facility? any facility, is new the give completed

question. So Bryan, it's a good

Let of me the revolver absent merger. just the the maturity first address

at matures revolver the of July. now, the end right So

push maturity X-month to option do have 'XX. January out to a of However, extension we that

or amended the is a recast closing A merger. condition to revolver

on discussions have preliminary. we our are started So with that. Wells Fargo They

from We days. term proposed a the coming the are expecting bank in sheet group

XXXX, So it it's in progress we as more revolver. relates to there'll process. the as And be into to I provide think

you Okay. for year And I this kind did rent X% that to correctly to say expected circling back roll-ups of XXXX? hear fundamentals, you X%

is The X% to pipeline. attributable X% our roll-up to leasing

concentrated heavily with deals. so a on QX pipeline to And for think results going think the roll-down, now, to and of talked think how we've be historically, we'll predicated I couple is a I some about roll-up. mean talked lot -- stick we specific X% as was I about the I that to of this XXXX, think for that that matures but X% for And I

we will pipeline. some on rent so process. we a we'll execute overall it's then this expect and of spreads normalize, improvement that lumpy as see But And on

exactly not have quarter-to-quarter it's on given just some So it something takes negotiate leases. the to that these definitive of timing projections we

OPI. vote answer of the that lot you that, able periphery transaction, on both don't if Vanguard ISS be expect guidance cetera? know and not, can and but a, follow will to safe DHC And BlackRock own we they the I to or the Lewis, b, awful Glass of et the and they'd transaction, this it just Okay. of probably an Is on shares of know

today. speculate to We're not going

the think and As in I steps of kind we there'll process that, of on we're the the kind be expectations. the in proxy. as S-X we now filings get And through of of color next mentioned, more

on Okay. And Seattle. last just

and think about Biotherapeutics? for I you've Sonoma XQ having prospective above building leasing activity something already beyond with Is said one that tenants. the over completed lab -- in communicated you by

them that QX. I That's is and occur we're finishing delivering. correct. in, we're leasing Yes. some mean, of to moving suites spec in transact the in expected then to Sonoma, assuming with the form And that

it's a we lighter will XXXX. so transact of get and we And into as that touch, think more

our with [Operator comes question Stanley. Ronald Instructions]. today Morgan And from Kamdem next

just Yes, maybe a on This development Ronald. Tamim is on for just question again.

of move-ins in completed Seattle quarter. the development recognition understand year. quarter you when Mass You on from occur? in expect point expected how I of should this about of talked the the just about and view, Ave, revenue XX rest just Maybe the fourth on of But actually an the second we update that's a year? think timing for the that

question. good No,

Mass XX of representing we for So have the hotel leasing. XX% the Ave,

call to We early that, with commence, side going point, free expect the let's at deliver just to XX end rent. -- have QX of which on of would tenant lease at that it And the so and months is QX. the

benefit And frame expense. reimbursement the during property time so to operating of that the is the

to of that's of see start outlay recovery today. So we'll some the occurring the cost

is trajectory about kind months the of for balance property. what of lease-up then of talked of a we've And a the perspective, XX lease-up from roughly

in advanced on -- we're advanced so stages. And

tours several taken to proposals several the have that tenants. out have property We and across place have also

But we I anything so the have on the of few we'll think those in don't And proposals. at have hopefully stage, quarters, this status next definitive. feedback

Great. And then leasing. on just

prepared year. I think in sequential increase the remarks you mentioned the a expectations throughout guys for

Or to of in? locked current that So locked improve how the for that's already of what pipeline is you most based in? that of is and off just guys expectations things kind of much have versus

for LOI feet. negotiating the we're Advanced us document. provided a those advanced or lease represents on stages, square of Yes, I north XXX,XXX signed just number stages where

that risk, feel is risk I somewhat but so the at like stage. think mitigated look, there's we And

we'd that that portion imagine a of would mature QX. to I for start see good So

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

call the many seeing industry in today. upcoming at for and months. forward joining look NAREIT other of to Thanks conferences We the you

attending thank all today's Thank you call. you, We conference today's This for presentation. sir. concludes

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