Office Properties Income Trust (OPI) 1 Aug 242024 Q2 Earnings call transcript

Good morning, and welcome to the Office Properties Income Trust second quarter 2024 earnings conference call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Kevin Berry, Senior Director of Investor Relations.

Thank you, and good morning everyone. Thanks for joining us today. call and President Treasurer, Chief the Officer, Chief Brian on Duffy; Yael Financial me are & OPI's Operating Donley. With Officer & our for a and question-and-answer XXXX, session just moment, side will a details In analysts. sell they followed by our second the about performance with quarter of provide business note company. recording prohibited like and prior the I without today's consent of to written would the retransmission that the of is conference call Private within note Litigation that laws. call conference of meeting and Reform Securities Also the XXXX contains forward-looking Act the of statements today's other securities expectations are of and These on materially project. forward-looking statements based may results Thursday, OPI's from XXXX, beliefs X, and that we as August those differ today, actual the no or today's results The in release company conference call. revise to obligation undertakes statements forward-looking made revisions publicly of the of any

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

normalized be income In including this or call, net normalized from basis cash operations numbers or cash NLI. during we'll discussing FFO operating non-GAAP and addition, funds basis

figures including earnings normalized non-GAAP found FFO and issued call these income of basis in website. And net finally OPI's our on reconciliation Our night, which available guidance providing release this on are we that be presentation to last can we'll NOI. be cash

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

our I quarter results on Thank and our providing dispositions. review good upcoming portfolio overview morning. second of an and lease update leasing before property will start expiration you an with Kevin,

$X.X OPI of million billion Most later recently this first million reduced discuss total like a nearly I in maturities highlight which Before OPI's will in the finalized from million, year, that June, while upcoming begin, that financing. to the Brian by exchange $XXX XXXX in call. we to completed debt on half I would our debt debt $XXX secured reducing private $XXX

to turning properties square average feet XX the quarter, X.X of consists Now over remaining totaling years. XXX a OPI's term portfolio with of million lease weighted

XX revenues subsidiaries, Through property tenants $XXX million grade generates portfolio annualized With our totaling million diversified our and account XX.X%. geography. portfolio is and weighted properties, the Our lease our by million financing occupancy XX% a revenue we of leased consolidated annualized basis assets revenue $XXX square X coming of secured nearly our term initiatives, feet a years. same with are On investment agreements. or of average of are encumbered over XX% quarter XX within and industry ended from of have under encumbered remaining debt for

Our weighted XX and totaling of years. term million average unencumbered revenue square annualized lease assets lease of million portfolio of XX% or feet, provides $XXX have properties XX approximately X.X a consists

and weighted in a of XX% XXXX. of square with renewal short-term an almost single quarter, leasing which the our drove scheduled impact vacates rent X-year new that X feet XXX,XXX GSA foot heavily close, encumbered X% leasing, lease for XXXX known we resulted an term quarter including insurance a XXXX in a expire XXX,XXX square tenant executed user a of square extension up at provider portfolio in square feet Arizona we have concentrated the in with Washington roll our we in As of Renewals XX,XXX Phoenix, with renewal at a and within in and in lease In for to second years. our average activity, will in previously, results this portfolio feet assets quarters. X% coming shared are the to DC our Subsequent rent. in up grade a was within investment roll renewed XX,XXX negatively

had we be will long-term has the been pleased it happen, renewal are While XXXX. we finalized and forecasted would that this leased previously that property into

Looking vacancy blocks concentration experiencing space. asking ahead to additional pressure our sector government negative work long-term the minimal political the heightened to upcoming tenants we of lease market in competition. with expirations, absorb as home DC impacts headwinds planning face the to surrounding are space associated upcoming office uncertainty. has a Most of Throughout with creates in markets OPI's work tenants over discussions, efforts net market given releasing rate XX%. rents and of country, The return the the as in vacant well to and large from hesitant as are continues face engage mandates. has largest absorption, Washington election uncertainty OPI its to in declines where macroeconomic volatility

been not office Our these we to which especially leasing health of challenges. The recent in required limited XX has seen immune evaluating mass in months, capital the and value. has portion maximize are development, interest, steps to submarket next sits

percentage of revenue. followed of expire to is of total at will in next million properties of million the we feet square have property U.S. in XXXX nearly additional over total government and account predominantly to In for square trade an vacate and represents under of sector vacates for expiring annualized will would these scheduled vacates known second income months highest million X million, an financial that on the telegraphed. feet for the or X.X the of leased The we square a sector of of with $XXX expect value a tenants revenue sale. In additional not the investment $XX XX.X% single the $XXX XXXX, X.X half comprised XX feet expiring in million long XXXX, by XX% at are based rental OPI's we technology annualized XX% date square pursue if the and known million to renew XXXX. X.X accounting feet an despite However, million XX%. currently to X.X million believe of also broker we annualized opinions

facilities the to needs for being government are decline reliance on vacated or Over of specialized we continue critical building properties Within consolidate while time, expect as revenues the our GSA the of office space mission sector, seeks will government its portion reducing government agencies. government-owned to serve non-specialized the none properties. lease into buildings

the in total associated occupancy net could Our X.X disposition. pipeline current carry to to positive and leasing costs impact XX% through square which We approximately of million feet absorption. mitigate plan property result

to could we which At and in dispositions vacant, reduces buyers. While our we valuations been of pool have further since negatively properties impacted on converted many multi-tenant, be downtime OPI put where liquidity. Office of the challenging to cost that economic have is environment which and the properties burden the potential become be not vacant significant, face vacant readily this are the given single available marketing would tenant obstacles property additional financing further buyers. are soon for be sale pandemic to OPI, or would are

we we potential our operating must evaluate impact disposition the sales, debt any Additionally, consider metrics will covenants. the as and have on

disposition a to price these less million lease of We close has properties to have end. report for we aggregate than agreement X of hope of currently sales on year million. feet transactions $XX.X we these X.X total group square that Given term with are occupancy XX% by assets sell This years. to under totaling a XX an unencumbered hurdles, pleased remaining

have have in $XXX additional remains disposition we our described. the the While a quarter disposition, I identified properties XXXX for proceeds we referenced market at projection challenges last for in the to million due

property ahead, look remain to that, I'll we to on evaluate review our tenant financial attracting we strategies our As to new to call retention, Brian our focused and now results. the OPI's to debt navigate dispositions tenants continuing properties, hand upcoming executing on over maturities. With

properties guidance Starting on quarter of per of decline share Yael, and per to expenses. general financial a was second decreased also classified cash everyone. FFO as compares in range and of for June first second mainly driven quarter, lower-than-expected certain guidance FFO driven property which to sequential $XX.X for high for came or we the end for range by by interest higher operating our This Same exceeded and $X.XX NOI operating largely being which XXXX, NOI. the to or the held basis results XX. compared $XX.X of our of with share, sale XX% as quarter normalized administrative XXXX. of Thank quarter, the than million good of per and the lower share by vacancies. morning of costs the normalized million better $X.XX reported XX% decrease The due to decrease basis $X.XX X.X% due quarter to was tenant lower-than-expected year-over-year expense our The

for QX expectations primarily normalized Turning related and share. and to be increased outlook FFO $X.XX of normalized the quarter we $X.XX expense to higher expenses for is cash by NOI expect transaction. XXXX, income, FFO to debt decrease The property third same our sequentially seasonal interest rental from and exchange operating lower between basis per driven our

cash non-cash run million consisting is of million costs. and approximately expense quarterly rate Our estimated million interest $XX $XX expense interest current of financing of amortization $X of

and NOI potential X% the does portfolio. We we expenses. to as specifically in expect guidance compared related free tenant vacancies, renewal referenced third to basis be down same any X% to Yael driven changes store executed July of to elevated to the our include by NOI cash operating This same lease quarter property rent not XXXX that increased

Turning million second $XX.X capital to our capital on investing during and recurring on $X.X quarter. we redevelopment spent million the activities,

for end. agreement the their of of of impairment fair million to value. building expected have We guidance XX properties charge are value $XX.X at Our to with for value sale XXXX to end. expect quarter million unchanged CapEx spend by down transact $XXX total currently of year we caring full held during $XXX these classified XX year $XX million comprised with properties a the million for capital $XX a quarter of as write XX of these carrying capital approximately leasing be We that capital. estimated for under and million, properties remains sale of XX million took $XXX

portfolio continuously may are and market. liquidity of properties disposition for stages in to opportunities bring additional metrics, to our various the are improve the that and financial we evaluating We process

a debt common million we and leasing of to under notes sheet, million for million including related facility, to X.X obligations. $XXX $XXX of X% private senior unsecured million which operations we In eliminated notes balance total million XX, almost new $XXX of and $XXX June Turning $XXX expect and we of have currently XXXX We to have $XXX as debt use completed future our availability committed shares. due million credit principle exchanging outstanding by exchange mid-June, of the senior secured million activity. leasing of fund of our liquidity

book of value a properties well gross X% $XXX average our new of outstanding are on liens a million $X.X second by secured credit the of of quarter as with X.X X.X% weighted that XX interest the with ended rate debt XX Our a senior notes average and weighted maturity secure with properties billion as years. agreement. We

XXXX. Our of unsecured next maturity notes due of million February $XXX in of senior consists

progress. That potential OPI's and and well questions. with leverage, look focused for the our We are on we our different strategies would third-party work you Moelis evaluating plans further on forward our to on call debt to to each this us as are impact address Company Operator, options with evaluating prepared continue concludes open the up all as on remarks. ready maturity our have providing the & We liquidity. option to advisor, to covenants as available updates

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

through immediately taking is and at? currently proceeds, from meaningful those those anything on half dispositions notes that there discount you you they and that at of starting trade and these close second As to the XXXX buyback receive move proceeds XXXX precludes the

get be in now. looking this amount via a as going exchanges and I as due in mentioned pull talk in different we're large sort we're to everything notes be it immediate those or to February with something all in That's we whether evaluating at we It's options do other We're short can cash our focus. to order. options advisor, that's coming of the or our remarks, here to so able

that like Are And about little think owners still seeing the $XX to next take might available you there's that off be then on for from the a of more just you as balance paper exchange million, exchanges. debt that's possibly in that months? completed, few you any XXXX bit I we couple, traction your I up think sometime

utilize the of we're looking definitely the Yes, which maximum try that on something had is that looking at is table I various $XX those. closely that is around too we groups. capacity, notes with yes, think we're is very million that something having left we and the amount as to to use we But discussions XXX, offered, of are

Apple it as guess you perplexed at I'm of commentary I Mass $XXX,XXX look just a only held away, of the $XXX I transaction the to your months Hospitality I paid buying a ACDC mean, then recent like we believe XX And Ave, key. they that comments few get little on the ago, million. couple relates when would blocks a as a there, per

hotel. can't I think there it key get you if a for hotel, large a It's for it XXX new, a you Avenues. that XXX second, believe was probably have as fresh, and keys Mass $XXX great couldn't rooms, just a sold

component. which space Forget empty, that's like the the would just $XXX you hotel get office for

it's when just coming hard just get to spent on up my this head the million $XXX is -- million are you've around $XXX where that. So pretty with brokers

sell if thrilled. me, that we the would for could the property you valuations today we believe Trust be

factors I account. brokers taking a there's think couple are the that into

the open First, been year, has less it's hotel up still period. its in so ramp a than

if Additionally, think property I or release I as of whole has long the with buyer component, for impairing hotel to a and think property rooms, that office the of up to so it's value then potential the there's was the in time hard the that to whole provides challenges what more the it's buyer XX% lease because think I any underwriting component the a property potential would vacancy market that associated in has to whole property office XX%, vacancy over DC significant site, that office and lease it office given convert cost market, specific into take a on the ramp that. the

the isn't referencing think today. a I was asset you're and stabilized So property this

Are clearly are that XX You that, market to X for the those considering floors there something you're understand been for second months. that a thinking a one considering? is made is given doing hotel the about but for space. options to you open that value hotel, about property? Yes, of you maximizing considering maybe for options a converting of forget I comment mean, that only it's I that that Is that that or X

itself We're then try we're evaluating what trying are, also right ramp the hold it. don't something what it know would given OPI be. where we understand that cost cost be now it that I but up what office would see to the do to and is the and that if would lease on to be to would we were as

the you can XXX,XXX square the with And renewed us feet? share who who tenant was

was it of Bank one tenants. of top actually America. our Yes, They're X

It Brown the We lease me a queue. maybe area. Circle. one new yes, a and jump in law for greater DC get I'll last activity in just leasing the signed and And news from back seems DuPont reports firm, like big Rudnick

in back the And I Democrats I the demand you're who that X? any if Trump sometime heard to demand say he's he's going I've or whatsoever federal get that year Do that movement the next shoots look we came improvement at of when Just election seeing my that the employees backing, this to see forget in Republicans. think to Are market federal you or you office believe will desk the early morning. elected. any across the do in that market? back get employees

are we're today. it's especially we mostly Based the own of XX% not non-specialized seeing employees at on work what even at are properties office, where seeing our back that portion capacity

Camden next The is Morgan with question Ronald [Operator Stanley. Instructions] from

Tamim for Ron. This is

square million feet Can I just the the expect on and there's actually X XX% in on if annualized that collateral expected referenced maybe to on guys unsecured for a page really that you take the an of disclosure properties, occupancy million million to XX assets about assuming about page talk brings guys question Just guys about But And it assets that like by square you vacates? I the looks add about about those helpful. supplemental. NOI your million on vacate, just X feet buildings. metrics blends to square I trend where square remaining found that if basis you for it pool feet the have you to pool operating that you those occupancy feet. X

the million that held occupied. X about properties the Yes, square are for they with XX were XX% sale, feet,

As short of walls those as is why these them. decline for that's continuing burning quarter million end, quarters, we're generating the revenue annualized million which start of QX. will such part a $X in of only some trailing have tenants of off. projecting and they that of We're to generated about $X the disposing losses, And NOI only QX million $XX NOI's for to properties going of be X

So is the where it out take mid-to-high is those the occupancy our equation, today still overall tracking XXs. in of

on pipeline, that the to relates foot properties currently how just Then unencumbered? X.X million square much of

about It's half unencumbered.

that of most is renewal well? leasing as new it is And any or

it the X.X It to the million X.X is million is. total pipeline, about million in related of renewals. Of

from question follow Riley up Next a is FBR. Maher with Brian B.

Given to that proceeds selling encumbered do assuming on? of any all if encumbered any debt at of sell are you're go are address asset debt all? considering maybe the the properties, the the from towards it's properties of And the sales, any asset the you properties I'm commentary to the those XXX, on or have encumbered sale reduce

I'll Brian start can and add.

properties the sell unencumbered. So agreement all or looking of under are to we're are all

of capacity. pool on factors or anything the decide not as sales our such total there availability impact sell properties, could something affect to revolver of debt whether as are the that of credit that's a out if that to were we that far we could part as And agreement pursue yes, of Yes. transaction,

lot that some where assets We debt a are just entered backing these. are these unencumbered of focused. transactions again, in we're So

So it's sell we'll the of encumbered anything unlikely pool. out

just the Are that who And hoping on these that residential for people planning market properties, office Is are you're they to talking turnaround? conversions? to? buyers mean, are they're for a who buyers? looking I it they're distressed doing

mix, it's a Bryan, good it's So question. a

we owner worthwhile add when potential some some pay have are owner have developers. we then also We and and some investors because And have users value actually those users premium. they a

appear mixed buyers. bag a of does it So to be

on Is trend? for our the be income anomalies Maybe pretty one looked Look, any we about? meaningfully continue coming se Or last anything of per there for going there statement the that Brian. fairly would expectations. that me was expense solid. that Expenses one in part thinking below there should

It mixed we was we that we projected process. appeal our at Bryan. as QX, taxes bag, some of tax had appeals handful a continue and to not had of properties country successful across the a evaluate normal part as

were so and projections. to deferred that QX We some million difference a call where $X.X projects to we in QX. we had it we'll successful some couple I So in QX, think increase our that see about were was from

increased impacting to I up, the we're sequentially, QX. costs expecting summer as As also we'll months be and mentioned utilities are see some

bag. it was mixed a really So

its Some of some savings. and one some time of just of deferrals, it's it's

Camden question Ronald a Morgan up Stanley. follow The is with next from

Just a follow up to that previous question.

well? suggesting So guys of that's and development assets be you've if What worth. life those Ave commentary any assets the the had conversations the what encumbered are could think you some on given XX development the those on as conversations are science life worth science broker but Mass

agreements still valuation is I think science true So properties, what into the are holding debt those stabilized. of think once life I put we've that the them given

So little is it's one lab. office much and one given very it and hard a is oranges is to, apples

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

you on Thank joining us call today. for the

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

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