Office Properties Income Trust (OPI) 31 Oct 232023 Q3 Earnings call transcript

Good morning everyone, and welcome to the Office Properties Income Trust Third Quarter 2023 Earning Conference Call. [Operator Instructions]

Please note, this event is being recorded. I would now like to turn the call over to Kevin Barry, Senior Director of Investor Relations. Please go ahead, sir.

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

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

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

be NOI. can website. And operating cash operations net presentation night, normalized cash basis income available FFO, normalized this In addition, or reconciliation or we normalized OPI's and of release will we be that NOI. issued finally, discussing A providing be cash available non-GAAP basis or call, non-GAAP on including on which and funds in including for found numbers during cash this from net to these guidance call, FFO CAD, our are we basis distribution, income will figures last earnings

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

we good company like Donley, for initiatives joining and proposed third results would years provide Chief and the will real by Thank office Thank third a and estate us to following trends of stand-alone call welcoming sector our DHC before we portfolio, you, I quarter more everyone. cover within Treasurer today and joined brings in today, commercial termination as our a OPI's the of the industry. On summary start Financial OPI's earnings XX provide XXXX financial OPI call. questions. to as accounting than quarter on Brian Kevin, of and operating X for and who Officer October of finance experience overview our our and the with you the call various open an merger morning,

sales in $XX.X quarter million, basis of year. for sold estate, the XX.X% Normalized in primarily beating tenants real financial and located total at the services downsize came was our We share, and high to and primary XX executed known square compared We new quarter range. highlights. million largely to at with XXXst to end at due for property of renewal Turning FFO decrease end, tenants and guidance $XX.X one occupancy the our to a prior a Street of tenant leasing, industries. Portfolio government XXX,XXX D.C. state feet energy $X.XX point bringing approximately the in per asset MSA.

square average feet XX%, other million maturing vacancies leasing an rent Supporting renewals. elevated facility close of active is an XXX,XXX the along end pipeline X.X with credit associated ranging the X and early approximately XXXX include of have potential look and and we debt broadly, leasing stages of remain we XXXX, ahead As of weighted or upcoming of the lease expirations square to year roll-up. to and focused negotiation. Collectively, this, OPI's pipeline our maturities. approach on terms More we with remains square feet, absorption across deals sector and in XX challenged vacancy sublease close which overall years XXX,XXX to levels. lease And feet with from to existing

office completed $XXX outlook financing supporting detail. encouraged with of However, we And plans with with property million to an level similar improving continue on to opportunities, estimated expand will remain we OPI, which at Brian industries. utilization more efforts in see financing more to return than mandates continue we close mortgage to evaluating across XX%. Year-to-date,

we $XX.X of believe has million. to under while are agreement assets may sales recycling of and office a evaluating specifically, has that are high buildings, to following interest our investment execution up XXX,XXX reflecting fundamentals we on tight, have feet been rates with in increase square steep Lastly, properties the probability more market credit we program. Currently, proceeds especially on year ramp the capital been this X slow and sell

where coming have additional a plans prospective properties properties months. and bring of We couple have market buyers are to with conversations in active to we in the

average on now We years quarter and of lease rent leasing term results. Turning roll-down detail feet square our completed and leasing new for XXX,XXX of renewal third with a of more XX X.X%. to deals an X.X

preceding came X during the quarter in above the for volume average rate total Our quarters. our

activity year. of and Overall, leasing with of term term of and remains average over year to XXX,XXX represented lease to feet weighted annualized rated tenants and than per portfolio years representing by $X.XX feet. Concessions a square total geography a per and increasing average lease and more approximately X.X year investment-grade declined X.X years and the roll-up foot XX% of X.X% a weighted for commitments XXX,XXX year-over-year square our income. industry average slightly well diversified square the and capital our lease below New rental past quarterly

lease Maryland, close California to for quarter with average Rockville, renewals for a of X.X leasing State to company for term across XX,XXX of combined upsized MSA, feet In Sacramento weighted we of X we X private XXX,XXX by lease Turning energy lease the the occupied renewed square executed square properties and years. In the third years. separate transactions. a a X a combined with sector feet a term lease

We downsize and XX short-term This a known in decreased tenant's points. extension D.C. as with basis from completed communicated vacate. tenant annualized our downsize a to the Washington, previously also contribution X.X% revenue

the in in are XXX,XXX Tyson out feet actively of received lease which We proposals XXX option space stages Foods all July, XX,XXX exercised major date we and a from Street fee early of within LEED Illinois. of The effective fitness South of is marketing square facility notice have termination its certified. several abundance complete hubs. January at offers tenants tenant square an property will training XXXX a conference of XXXX the and and from all rooftop to terrace, a The are in pay it to discussion. In $X.X amenities, approximately that including ranging blocks Chicago, feet, It transportation is is redevelopment Jefferson centers, and million. termination underwent and

a evaluating options or of including range currently for leasing property, the a are We potential sale.

OPI's few in requirements actively advance periods seeing convert leases to conversations. increasingly to are upcoming and expirations, renew remains to of lease fill our engage space with years Lease tenants to with in tenants our well to protracted to gestation in engaging ahead Looking a prospects compared large expirations we although come vacancy. pipeline ago, the are we lease table

revenue QX for a vacates of include basis annualized revenue. the of the known the which points XXXX represents those ] income, vacates, Atlanta XX X reflecting Larger our in sale, representing rental of the communicated [ vacating with XXXX, lease X.X% within During state which are the most known expirations year buildings considered annualized statistics. Boston of are MSA, retention lease X.X% for and GSA MSA, excluding annualized remainder for basis points XXX in previously of of tenants

are approximately conversations In income. lease over the actively active stages in marketing We we and activity. with expiring of have in XX% rental just annualized of several expirations levels other properties tenants. XXXX, Currently, renewal varying of of represent X% advanced are lease each with for

needs. However, as evaluate pressure we space continued retention anticipate their on tenants

Turning to projects. our development

is for XXXX, the spend. evaluate $XX move-in Sonoma ]. of years. NAIOP Seattle, we we a will projects, the in been of have Sonesta, ready final will million timing have million Brian to QX plan proposal by levels hotel chapter as and our Best next to to this We we for to plan Collectively, awarded of Redevelopment will XX% estimate QX our and as we to stabilization leases activity. Earlier quarter, now for and in to were During end phases move-in work few results. is $XX by and project at remaining with This suites, to tour serving review the deliver Ave construction Renovation our $XX [ Maryland financial continue capital differentiator project be balance project for the ], be portion the Mass advance leased, turn we varying this the million pleased spec spent continue Biotherapeutics, X the Science executed [ in tenants over preleased I project. to Class options and and as completion to for over Life the XX Washington, month, XXXX. The through are in delivery call XX% D.C. roughly anticipated mixed-use two A At spent lab completed the we of development through delivered and

$X.XX and distribution on Earlier the share, CAD a everyone. downsizes, share line end free was dividend per We FFO share. high our FFO for down compares regular guidance trailing normalized $X.XX which month, morning, good to was the and X-quarter annual cash of X-quarter normalized per of a a by to of rolling our due in on lower levels or quarter utility share CAD $X share represents $XX.X to Chris, XXXX. basis. leases in $X.XX This expirations the based increase third the higher per quarter, per ratio by X% and NOI reported generated declared share and third rent costs. We X.X% primarily million The decreased on or quarter XX%. this our of driven tenant per payout of basis of of the and our primarily interest second million mainly for of $X.XX we decrease range by guidance quarterly higher share. $XX.X was operating $X.XX per during $X.XX new on and basis exceeding Thanks, expense. Same-property sequential quarter a compared per seasonal XXXX driven elevated quarter XX% of The expense to NOI with of rate decrease

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

be projected notably decrease operating expenses. in increased to from interest between FFO increases QX $X.XX per items, and to made several is up normalized $X.XX expect of share. We most The expense

mainly XXXX, driven NOI expect as in elevated XX% downsizes. cash to certain property compared vacancies and free to We to rent by period same of year XX% tenant down fourth the current basis be the and quarter

Turning to the balance sheet.

total average debt and a quarter X.X% weighted rate X.X had average at maturity of end weighted years. Our outstanding interest of a

include upcoming January our XXXX. May Our senior at $XXX million notes maturities XXXX of facility, revolving of in debt million and $XXX end which credit due unsecured the matures

we the to revolving entering million in into Regarding active are with regarding group facility, we and facility prior outstanding, quarter banking a currently credit with ended year-end. the our $XXX discussions credit new

However, to it on comment too specific any early terms. is

from options repay the closed principal Properties. Office had financing revolving used OPI's loans net two $XX.X to aggregate were under proceeds available balance mortgage with facility. We challenging quarter, third loans and outstanding these million. During capital mortgage market we an limited conditions for credit on The amounts of

We reflect our capitalization X.X% million XX%. of in average average X% rate we've X.X ability term an CMBS interest-only a appraised than aggregate have at $XXX more on loan-to-value closed a value financings a weighted approximately date, mortgages financing. efficiently interest of of at mortgage and weighted implied demonstrated years. These to execute rate based To below

May exploring As the options, CMBS, Over to look to our assets debt possible to mentioned, are by of $XXX our of can property unencumbered financing secured additional opportunities strategies XX% book sale and cash. for in million maturities. notes look level we our raise due asset Chris we gross as address manage value, including that senior $X portfolio billion additional to we 'XX,

investing to activities. our Turning

capital sold we quarter, million the recurring for third during on have and $XX.X quarter. $XX.X We capital proceeds and $XX.X of $XX.X the During million redevelopment raised one property million on year-to-date. disposition spent million

to million million million Operator, $XX we That concludes to of the redevelopment For ready call of our open capital and $XX questions. expect million. prepared approximately quarter, the fourth capital $XX to up $XX remarks. we're recurring for

Our first question Securities. [Operator with Bryan comes B. from Instructions] Maher Riley

difficulties a in of technical here. things, And advance said I if apologize of already you some we these little bit had

than modeling there? lower asset prior it on property to we us and the was the quarter XX%. on On there our our you for somewhere particular give think sales? Is going purposes? Is it noticed I Can was anything taxes, it color related noticeably estimate, that any in

related a Yes, a was Ave. onetime Mass quarter. that is successful there multiyear item tax was There appeal to this in was QX that XX recorded

in won't recur that really QX. So

So this to is really isolated QX.

on many just the Or And brokers the to it dozen is say, Okay. then actively think let's That's you X do prospects X How marketing in asset what you have sales, couple? are helpful. with And sell? a dozen? assets of, does to Is months? market it that? over are next kind the

something prepared evaluating mentioned dialogue Bryan, as we're with. have, in the remarks, a as campaign, we're few as it's actively in in But I far the now. a that market. buildings We do broader

likelihood market are the of out that QX those range. be to additional going with And strong so will in assets. there's think And a the assets I in that profile

we've some transact other are assets think opportunities assets some can selling that then of of we're are test look out nature the I of and to of of vacancies kind some level stabilized see where reside. and market and kind that going candidates vacant see success with I seen the what more those could in to at have being or

more through get consider working of into distinct we'll kind a as we're of so to that, assets And and QX. have and discuss we list

deep online, seems end, yours, were to at And that of low I the similar for to X, end, months months. done basis? know of kind done? now think assets the the the Okay. maturities? I debt million? next past XX just you've it do And like chip those high over to you million? type few $XXX nothing type of the kind when of looked $XXX of nothing then Is properties that What's thought what you kind $XXX million? your financing. the address fairway it down the on do shifting at It how X, away you've just Is quarterly $XXX can of down process million just a to fairway.

including financings. we're great prepared is the different million combination And a remarks in of going our of part to options, asset couple at solve items. of secured and question. $XXX a looking It's for We're sales that additional those

the put market much be financing of of since that pinpoint versus that not really would really So on secured smaller you it's could some on the sales nicer level asset tough raise could we're ones. much some in of to really Secured the property bigger and could swaps how have asset stuff raise financing how financing. depends the larger, we than

different revolving those So and credit the maturities at address all looking a facility we're looking of the main months. things coming to here, we're and obviously, in couple

the Atlanta Would put there. of out tune take I expect? comment, if that perimeter you be down reasonable million to headquarters right could Google's to Global slug a lending that probably to of few in in dollars were And you hundred to suspect decent couple Chicago, or for headquarters Insight the Midwest the a

Yes.

to those think optionality take that. we the deeper and I of candidates profile we and we all of showcase highlights [indiscernible]. that But for assets I kind think some have I is, think And the mean, I the optionality. where are kind of obviously, yes, bench tranches look as portfolio just across different have than to of nicer buildings down

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

Ronald. Tamim is for This on

percentage a leased and Just guys up a there percentage million versus in building $XX Maybe two I getting to terms projects it's have, those million depending actually of and further relates breakdown of relates CapEx on what the the million. TIs that remaining $XX the $XX buildings to building question on development what in of think for about just you out?

Yes.

couple things. a of So

that's $XX we And given for TI fact includes two QX allowance million completed. that still million that number with I would estimating spend $XX say, for of the Sonoma through, the across lion's So the the Seattle, being remaining have 'XX, capital to the Biotherapeutics. projects we're within share

TI $XX allowance. capital combination So to is construction of a million really, and that million $XX

the next get as capital once few spent the stabilize we through And million, kind for that that, be remaining our you years all asset. the from so primarily leasing will of the delta $XX over

Got Yes. it.

related all to out. building the [indiscernible] not So

not but in it's come of... all to of have all Some at -- not Is discretionary, doesn't it's that kind it once.

The $XX leases done. million capital. to is 'XX, then variable on based kind the $XX And million is of getting through committed QX balance

Got it.

Maybe plans just to just as maybe credit for position? And if revolver. appreciate modeling put But on on that you here we guys think about further Okay. unsecured that secured encumbering the you. into for go just that I Brian position. head assets new you're talk then And the debt from into just out, going doesn't as about congrats not become asset does if a with one unencumbered room to where you from a revolver, does 'XX an further covenant become then revolver?

it's great is the Yes, definitely mean the could we revolver I table that forward. something be question. secured on a look as

asset unencumbered And XXX% minimum our under indentures. the today. bond ratios Our XXX% over is

if little the appropriately. on put Obviously, that, So the possible deal cushion we but of to outcome. do collateral revolver will again, facility, we one with size that in put pressure that's of plenty have a bit new against

given So where again, we I can't get really discussions. are specifics into in

So now. I'm for going leave just that to it at

this session. for concludes conference we have question-and-answer back I no remarks. to closing As the any over like Chris turn now Bilotto would questions, the further to

to look NAREIT many for of at upcoming you joining Thank Yes. weeks. you the We today. in seeing the call forward

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

now You disconnect. may all