Office Properties Income Trust (OPI) 16 Feb 242023 Q4 Earnings call transcript

Good day, and welcome to the Office Properties Income Trust's Fourth Quarter 2023 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Kevin Barry, Senior 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 Brian the Yael Duffy; call Officer, Officer OPI's and Donley. and on Chief Treasurer, Financial and provide In XXXX, of a sell-side about they a with by for will session just our fourth 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 February 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

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

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

Thank Kevin, and good morning. you,

I begin, cash dividend. discussing start by announcement regarding we Before to last would OPI's month like quarterly the

review and As a heading to results. providing review remain financial us reduce This performance will challenging, value term dividend was increase will sector years. I our turn capital dividend I call, XXX properties to our square it We million flexibility. of leasing prudent operating goals the maturities. investors the this market and there, was feet and upcoming costs, the lightly. On address our to the into with will recognize XXXX. leasing the XX call conditions From totaling we not of portfolio liquidity OPI's weighted expenditures consists future our in office made felt to our before of today's debt remaining update decision help over X.X OPI's approximately financial on average lease an to Brian and

is Our our by of coming and XX% with from geography portfolio diversified investment tenants. grade-rated industry well revenues

We see hope in X.X average years XX,XXX feet at and Virginia. occupancy declined term renewal and XXXX. same-property X-year company Chantilly, executed with our to renewal an commitments an an and we new million X an lease these the ended trends with continue head rent lower as quarter, this of points. years. year. X.X We roll-up total, average lease signed feet a square than a for renewal XX Texas, quarter including aerospace XXX,XXX capital we were In for XX.X%. X-year most leasing a Renewals drove activity of square insurance San of in Antonio, and we leases of XXXX quarter-over-quarter quarter, leasing fourth nearly into and in term weighted government square square contractor our for feet basis with the During in average XX XXX,XXX of Concessions of feet with the for XX% XX%

activity. of for feet XX% or New square leasing XXX,XXX accounted the

upcoming ahead OPI's XXXX Looking to lease and expirations.

While office including sector uncertainty declines demand associated levels mandates, see subdued office across faces the to Most we and into evidence and markets rents from in-person of and we the headwinds return workers of to large driven by the XXXX. XXXX, urging trend asking corporate this home. work with in companies America continue macroeconomic in impact experienced to occupancy expect

feet put OPI's to expire. among rental of further income effective annualized landlords is X XXXX, pressure square have on competition Additionally, net or rents. In million set XX.X%

tenants have asset Accordingly, Through brokers feet Our management leasing of their needs. that vacancies. to $XX.X will marketing proactively conversations, leasing representing we and these have X.X launched are estate teams our and renew. have income approximately square million campaigns we annualized discussions learned to these understand not engaged with renewal rental in address engaging million

million to Our attributable tenants. is current totaled leasing feet, new pipeline X.X which XX% square of

Turning to our recent development projects.

Sonesta XXX,XXX-square-foot square Ave we International Hotels, XX,XXX XX date, vacancy. is and XX% have to from mixed-use remaining XX feet. the marketing are ranging Our we toured D.C. over at XXX,XXX development to actively tenants leased To size in Mass in Washington,

in approximately and XX% of project the the have repositioning evaluate has to with square office The The delivered from project maintaining ready activity. of project redevelopment we of will Biotherapeutics, first good suites, marketing in spec feet. vacancy the the X-property pre-leased office XXXX remaining we are as for with is X move-in the a market. as which quarter property X XXX,XXX as use. be includes tenants and believe in slow. In these actively serves science XXXX, located third lab tenants the options life Sonoma we differentiator requirements many to campus expect properties been However, feedback The Seattle, Washington to and deliver beyond, totaling

activities. made mature Turning new X-year significant that credit XX At last was revolving to maturities. scheduled our begin progress credit year, have end recast January To to we our debt million we month, the upcoming addressing with financing on of the $XXX facility agreement. a

including $XXX million maturing notes XXXX. offering unsecured senior in in February $XXX of bond redemption announced secured a at of asset in million financial range a X-year of sales. Moelis have senior our we and adviser. to we additional engaged a coupon of May are & evaluating us maturity, and strategies, this $XXX options completed address a we as million Company OPI potential assist To week, financing last due X% Additionally, financings XXXX, assessing has secured notes our the and

generated property In X XXXX, dispositions. to Turning we which noncore properties, sold gross million proceeds. in $XX

Chicago, properties bringing market. under to property Tyson various in in identified a we we for the Furthermore, XXXX is XXX,XXX-square-foot vacating and January first this Additionally, are in in will have have which of We agreement sale. anticipate XXXX. quarter property Foods additional stages of transact

we impact the operating dispositions potential future have As sales, need covenants. will will metrics we debt consider to evaluate and that our on

OPI, X acknowledge to accomplished Before I over to turn office sector, I new the and square despite leasing, XXXX would new the substantially completed facing financings Washington, development the of and successfully in challenges year. start feet Brian, it million both noncore X.X in nearly bond of to its markets. D.C. CMBS executed objectives many sold We like major Seattle, that and and projects in executed assets,

The of Our its the manager, professionals and banking real estate relationships. RMR reach of efforts experienced with progress greatly by bench was Group, and supported deep our

to to execute financial operational continue will the to our on build turn XXXX. I and in and to review priorities on our hope financial call now we ahead, results. this Brian Looking momentum further over

the We quarter sequential per for line concessions, below rent cost $X.XX reported FFO quarter, in free came guidance XX.X% CAD expenses. good normalized a basis. with on which morning, quarter NOI of XXXX and and compared of normalized a $XX.X increases. Same-property elevated the share of QX of This XXXX. or NOI everyone. vacancies a the during as generated to XX% guidance and was to on million costs. by share for FFO to quarter tenant basis a driven and interest We X-quarter or mainly $X.XX higher our the of quarter fourth higher in and Yael, basis range lower share fourth by vacates result The third which $X.XX operating XX%. per higher million our compares to decline per The of expense rolling of Thanks, range, $XX.X decrease due per was operating driven operating decreased cash share $X.XX is was decrease $X.XX and

mentioned, to combined with we share. million market OPI's annual of reduced based per dividend to conditions, our approximately capital the near-term last liquidity priorities, $X.XX month, our in leasing quarterly support As cash Yael and deterioration $XX initiatives. This on equates to refinancing

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

sequentially and per increased $X.XX to expect decrease of The up QX related share. most activity normalized income. and notably several We lower is financing from to rental our items, interest made between expense be $X.XX FFO

elevated by XX% to the NOI vacancies. XXXX, be to We expect free tenant driven of XX% same-property basis first to rent cash as quarter compared and down

Turning activities. to investing our

capital $XX.X million million of X close quarter, redevelopment million the and million XXXX, capital million $XX recurring we under for of building capital. million and during comprised had expect X of to spend quarter. and the $XX.X $XXX be fourth approximately In sold property capital we fourth on our of During $XX first quarter. $XX expect on in million, agreement capital that leasing $XX.X We the spent we recurring will for properties sale

We which year, the improvement related tenant Seattle project also includes expect redevelopment our to costs this and deliver capital redevelopment $XX dollars. million of remaining

secured revolving rate credit new credit agreement, of activities. million financing a recast $XXX and to million has term and term X-year Turning consisting million agreement points. basis plus revolving credit The a credit of of facility SOFR we spread our loan. a XXX In $XXX a secured January, facility $XXX with interest

million have properties $XXX XX We $XXX gross agreement credit is with a option for The of by value book X-year the facility. million. a extension secured office

We lending are our facility million office this secured the notes, senior are Proceeds mature $XXX currently new $XXX XX $XXX this book value to facility. Last and of banks XX scheduled on our pay our to providing week, unsecured credit X% new properties that we under All in a agreement. previous by senior are notes of credit borrowings which gross used capacity revolver million off issued our million. under will supported have commitments be month million undrawn of of next backed offering $XXX May. with of

the facing For pleased the assets we're outcome million our we the financings, of were to May be per or million is our rate the support redemption issuance our $X.XX with challenges and projected impact quarterly expense our of they $XX.X of RMR that new of financing agreement, value helped or well share. We as notes facilitate recent forma the activity. for demonstrate 'XX given projecting estimated as on full our the $XX.X Pro share run and interest very transactions. expense from the quality the sector, platform the the office of these interest notes, of per XXXX, recent QX $X.XX credit secured the based believe

work finished balance not our the on sheet challenges However, is remain. and

next XXXX. maturity $XXX X.X% debt notes of is in maturing senior million Our February

We book have over potentially $X debt on we asset or raise capital billion to to value of that based for cash. dispositions raise assets unencumbered future utilize can

We have updating to debt you & our to also Moelis Operator, in We remarks. beyond. up our open as engaged various evaluating we forward strategies concludes we're the maturities navigate prepared to That and call our look for upcoming on progress. assist ready Company questions.

today first from [Operator Riley Bryan Maher question line comes Instructions] Securities. of B. with And the our

fact XXXX, I of just the you lot with going said sit for a like here to to we when about the known for sure. million be But being it, year But commentary that we think activity. a and million seems vacates X.X starting when I of that less XXXX, number feet. X.X significantly we it is X.X a million that did Maybe actual able square on think off up reoccupy renewal big you you when space think the you'll about from in mean, that, end could new What now? say and leasing vacates

a it's question. Bryan, good

these of these the some is in single-tenant with it that a think have this a or single tenant generally so are I properties, vacancies environment. to challenges and find is hard block we large

hope. is that our think I So

evaluating disposition best highest potential these properties vacates other use and for but -- evaluating I and for known marketing dispositions. there's also also mentioned, Several purpose, other if are are on we best we're these list properties. actively our lease As

these set So us expectations don't to obviously, cases to think want lease goal I is take -- our to in it will some but I lease long that time a properties. I just

you any that there denominator to the can of particular cetera? is And as type et vacates share common business, known among

Yes.

couple then -- a at moving are they've I have GSA, -- to And is been properties. of we common leased think So a that them the the few to federally-owned properties theme least we've the that were that been previously in as vacating so are and seeing corporate where where not the at all have doing an has are checks changed, they were checks and using property, others we anymore. -- headquarters times we much what those at processing instance facilities the we're were they really know have

So has I think don't sign need this they changed a lease found space. they become to and just today, additional when it's from they that technology

been credit million known Maybe Okay. collateral Kind $XXX you a facility I've side of those if that new will getting regarding of the and moving from do notes. be questions on, the when the know of for assets backing the buy Brian, and made investors? lot to assets

that have it, sticky, and great of the We out just will financings. I as list that's properties just every utilization tenants each you a are Bryan. under revolver properties. portfolio part typically long-term instance Yes, of the will, don't question, it's if describe high-quality asset walls, our with the in

finance office list this there. haven't really to asset in we have imagine, the to address. can se of be environment, disclosed the you an all metrics But As every credit per

something Just quarterly a XXXX year's with back plays X slow me year kind between to back where think you to maybe you then potential thinking how are when to it think of we kind financings, half more I'll of of this that this et drip cetera, sales next about And is about you, more hop as XXXX asset about get until the million? out that you in CMBS for and both start queue. maturity? contemplating, $XXX you're maybe deal to you relates and Okay. think, just for how When holistic the the of

we we've we're the behind be looking mean, main on now million what for was the laser-focused will the secured option revolver an Yes. balance Obviously, but the us, us as at impact look I at been first as to dealing step which the sheet. also with $XXX beyond our are today. and debt continue maturities

what potentially our tenants We through sort about hired have position, be liquidity mindful leases, us to metrics, all what Yael we as operating help about, our to be properties our an talked this. of debt could various and as covenants, happening, with vacating. We've adviser know Moelis

have utilize But figure We're check. $XXX metrics large it maturities the have deal With at done. to behind unencumbered portfolio get the $XXX million, look time to with we that we of out and going to the the to million assets. holistically, in to beyond a our also something how same keep

might think I think find you'll in I So the in further evaluating be over along we'll plans more summer, our have. different options we

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

Just -- expecting know you a expect of expirations do putting where on sort guess. where say, do XXXX? the occupancy bit you bottoming? together, how you should little expirations. sort more it guys about I to mentioned I one move-outs, that couple sort think And throughout cadence how the you do of Number of next do that of I see sort sort just no the But for of, known occupancy is if you or year. trend all you a talk you're of the of ones, sort quick could

square that is know So mean, of I is the good I equal the million think to across pretty each news, it feet quarter. vacate, we going X.X

So -- I take, each around don't give it's XXX,XXX, or quarter.

we of anticipate, disposition. of But decline about, do quarter considering don't are new a we're about assuming known somewhere list also that's in are leasing, the the -- mentioned, any properties which don't around X% are I we be again, would properties vacate that I it several for on as So other occupancy.

will exercise if better. occupancy on be dispositions, obviously then to we're those So able our

kind the a they on of to what of maturity then what's this there there was would of at opportunity value -- that was obviously of of scenario have an you And where ever hire, Moelis 'XX just the refinance in been sort the and if thinking you ever Moelis care sort not, and curious as strategies same sort Got everything could 'XX? take schedule, time. contemplating guys and 'XX of just it. the And sort Just 'XX explore? in if

did first part We yes, market. could senior evaluating a the been 'XXs. It's question, a much that take secured question. out 'XXs we were the the of deal have bigger and to similar execution in note answer to And great the contemplate whether

biggest our CMBS on which market, bigger had a the to of front flexibility. us. not are mortgage revolver, a we we sort getting table revolver, as deal. of the the financing, versus doing So bond in ended on gives far look liquidity potentially options We're the individual leading cooling looking at X up and more that's where the revolver as doing us also And doing at properties. things asset, Those

looking actually bringing different along of the early as lot of the been engaged bringing a us as helped sifting capital way new our all fourth part them to the through quarter, we we've at that the Moelis, table. different So far options. And options, and ideas, alternatives in

that So helpful this some they've us future. and they'll of stuff continue helping guiding and in been the to very do us navigate

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

for Thank joining us the call on a weekend. today. you Have nice

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

now may You disconnect.