Core Viewpoint - Office Properties Income Trust (OPI) is facing significant challenges due to declining occupancy rates, upcoming lease expirations, and a heavy debt maturity schedule, leading to a high-risk investment environment [1][3][7]. Financial Performance - OPI reported revenue of $139.44 million for the first quarter of fiscal 2024, a 5.3% increase year-over-year, exceeding consensus estimates by $9.67 million [11]. - The REIT's normalized Funds From Operations (FFO) for the first quarter was $38.3 million, equating to $0.79 per share, indicating a low trading multiple due to solvency and refinancing risks [8][11]. Debt and Liquidity - OPI has a total outstanding debt of $2.6 billion, with a weighted average maturity of 4.9 years and an average interest rate of 5.4% [3][5]. - The REIT is facing a liquidity crunch, particularly with $650 million in unsecured fixed-rate debt maturing in February 2025, which poses a significant solvency risk if not refinanced [7][9]. - OPI has initiated debt exchange offers to issue up to $610 million in new 9% senior secured notes, which will be secured by first-priority liens on 19 office properties [9][10]. Occupancy and Leasing - The portfolio consists of 151 properties across 20 million square feet, with a same-property occupancy rate of 88.2%, down from 93.3% in the previous quarter [11][13]. - A total of 333 leases are set to expire, with 13.1% in 2024 and 10.8% in 2025, indicating potential further declines in occupancy [11][13]. Market Position - OPI's market capitalization has decreased by 70% year-to-date, with common shares trading at $2.20, reflecting the market's concerns over the REIT's financial health [3][11]. - The REIT has a high debt-to-equity ratio of 2.063, which has moderated slightly due to $39 million generated from property sales in the first quarter [13][15]. Short Interest - OPI is the fourth most shorted REIT, with 17.6% of its float currently shorted, reflecting investor skepticism regarding its financial stability [15].

FangXiaNuo Last week, Office Properties Income Trust (NASDAQ:OPI) reported first quarter earnings. The commercial office REIT surprised analysts to the positive on the revenue side, but disappointed on FFO. Along with the earnings announcement, Office Properties announced a proposed debt exchange. Due to the debt exchange proposal, shares rallied, and short-term bonds tanked. The latest earnings report, combined with the need for a debt exchange is keeping me out of investing in Office Properties’ stock ...

Office Properties Income Trust (OPI) reported $139.44 million in revenue for the quarter ended March 2024, representing a year-over-year increase of 5.3%. EPS of $0.79 for the same period compares to -$0.01 a year ago.The reported revenue compares to the Zacks Consensus Estimate of $128.28 million, representing a surprise of +8.70%. The company delivered an EPS surprise of -2.47%, with the consensus EPS estimate being $0.81.While investors closely watch year-over-year changes in headline numbers -- revenue ...

| --- | --- | |-----------------------------------------------------------------------------------------------------|-------| | | | | "Despite significant operational headwinds that | | | continue to impact the office sector, during the first | | | quarter OPI completed 488,000 square feet of new | | | and renewal leasing at a 10.2% roll-up in rent and a | | | weighted average lease term of 9.3 years. | | | | | | Additionally, OPI continued to advance its objectives by refinancing its revolving credit facil ...

Office Properties Income Trust (OPI) came out with quarterly funds from operations (FFO) of $0.79 per share, missing the Zacks Consensus Estimate of $0.81 per share. This compares to FFO of $1.09 per share a year ago. These figures are adjusted for non-recurring items.This quarterly report represents an FFO surprise of -2.47%. A quarter ago, it was expected that this company would post FFO of $0.98 per share when it actually produced FFO of $0.95, delivering a surprise of -3.06%.Over the last four quarters, ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2024 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 1-34364 OFFICE PROPERTIES INCOME TRUST (Exact Name of Registrant as Specified in Its Charter) Maryland 26-4273474 (State or Other Jurisdiction of Incorporation ...

[Quarterly Results](index=3&type=section&id=QUARTERLY%20RESULTS) This section presents the company's first quarter 2024 financial performance, highlighting key operational and financial achievements [First Quarter 2024 Financial Results Announcement](index=4&type=section&id=Office%20Properties%20Income%20Trust%20Announces%20First%20Quarter%202024%20Financial%20Results) Office Properties Income Trust (OPI) announced its Q1 2024 financial results, highlighting significant leasing activity with a positive rent roll-up - Completed **488,000 square feet** of new and renewal leasing at a **10.2% roll-up in rent** with a weighted average lease term of **9.3 years**[7](index=7&type=chunk) - Refinanced its revolving credit facility with **$425 million** in new facilities and issued **$300 million** of senior secured notes to pay off all 2024 debt maturities[8](index=8&type=chunk) - Generated **$39 million** from asset sales during the quarter[8](index=8&type=chunk) - Declared a quarterly dividend of **$0.01 per common share**[10](index=10&type=chunk) [First Quarter 2024 Highlights](index=5&type=section&id=First%20Quarter%202024%20Highlights) This section summarizes OPI's key achievements in Q1 2024 across portfolio management, financial performance, investment, and financing activities - Executed **488,000 sq. ft.** of leasing with rental rates **10.2% higher** than prior rates[14](index=14&type=chunk) - Same property portfolio occupancy stood at **88.2%**[14](index=14&type=chunk) - Weighted average lease term for the portfolio is **6.6 years** by annualized revenue[14](index=14&type=chunk) Financial Performance | Financial Metric | Q1 2024 Value | Per Share | | :--- | :--- | :--- | | Net Loss | $5.2 million | $0.11 | | Normalized FFO | $38.3 million | $0.79 | | Same property cash basis NOI | $67.9 million | N/A | - Sold one property in Chicago, IL for **$38.5 million**[14](index=14&type=chunk) - Refinanced revolving credit facility with a new **$325 million** secured facility and a **$100 million** secured term loan[14](index=14&type=chunk) - Issued **$300 million** of 9.0% senior secured notes due 2029[14](index=14&type=chunk) - Redeemed all **$350 million** of 4.25% senior unsecured notes due 2024[14](index=14&type=chunk) [Financials](index=6&type=section&id=FINANCIALS) This section provides a comprehensive overview of the company's financial statements, debt structure, and capital expenditures [Key Financial Data](index=7&type=section&id=Key%20Financial%20Data) This section presents a five-quarter overview of OPI's key financial data, showing a net loss of $5.2 million and Normalized FFO of $38.3 million in Q1 2024 Selected Income Statement Data | Selected Income Statement Data (in thousands) | 3/31/2024 | 12/31/2023 | 3/31/2023 | | :--- | :--- | :--- | :--- | | Rental income | $139,435 | $133,773 | $132,422 | | Net loss | $(5,184) | $(37,151) | $(446) | | Adjusted EBITDAre | $73,799 | $76,216 | $78,487 | | Normalized FFO | $38,317 | $45,872 | $52,746 | | CAD | $22,340 | $8,560 | $31,178 | Per Common Share Data | Per Common Share Data | 3/31/2024 | 12/31/2023 | 3/31/2023 | | :--- | :--- | :--- | :--- | | Net loss | $(0.11) | $(0.77) | $(0.01) | | Normalized FFO | $0.79 | $0.95 | $1.09 | | CAD | $0.46 | $0.18 | $0.65 | [Condensed Consolidated Statements of Income (Loss)](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income%20%28Loss%29) For Q1 2024, OPI reported a net loss of $5.2 million, an increase from Q1 2023, primarily due to higher interest expense and a loss on real estate sales Income Statement | Income Statement (in thousands) | Three Months Ended 3/31/2024 | Three Months Ended 3/31/2023 | | :--- | :--- | :--- | | Rental income | $139,435 | $132,422 | | Total expenses | $107,405 | $109,485 | | Interest expense | $(35,476) | $(25,231) | | (Loss) gain on sale of real estate | $(2,384) | $2,548 | | **Net loss** | **$(5,184)** | **$(446)** | | **Net loss per share** | **$(0.11)** | **$(0.01)** | [Condensed Consolidated Balance Sheets](index=9&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of March 31, 2024, OPI's balance sheet shows total assets of $3.96 billion and total liabilities of $2.71 billion, with a shift from unsecured to secured debt Balance Sheet | Balance Sheet (in thousands) | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total real estate properties, net | $3,400,973 | $3,415,500 | | **Total assets** | **$3,957,930** | **$3,989,669** | | Unsecured debt, net | $1,847,664 | $2,400,478 | | Secured debt, net | $731,563 | $172,131 | | **Total liabilities** | **$2,707,566** | **$2,733,990** | | **Total shareholders' equity** | **$1,250,364** | **$1,255,679** | [Debt Summary](index=10&type=section&id=Debt%20Summary) As of March 31, 2024, OPI's total debt was $2.63 billion, with a weighted average interest rate of 5.426% and a weighted average maturity of 4.9 years Debt Composition | Debt Category | Principal Balance (in thousands) | Weighted Avg. Interest Rate | Weighted Avg. Years to Maturity | | :--- | :--- | :--- | :--- | | Secured Floating Rate Debt | $290,000 | 8.910% | 2.8 | | Secured Fixed Rate Debt | $477,320 | 9.550% | 5.3 | | Unsecured Fixed Rate Debt | $1,862,000 | 3.827% | 5.1 | | **Total** | **$2,629,320** | **5.426%** | **4.9** | [Debt Maturity Schedule](index=11&type=section&id=Debt%20Maturity%20Schedule) The debt maturity schedule indicates significant upcoming obligations, with $650 million of unsecured debt maturing in 2025 - OPI has the following significant near-term debt maturities (in thousands): - **2025:** **$650,000** (Unsecured) - **2026:** **$300,000** (Unsecured) - **2027:** **$290,000** (Secured Floating) + **$350,000** (Unsecured) = **$640,000** total[24](index=24&type=chunk) [Leverage Ratios, Coverage Ratios and Public Debt Covenants](index=12&type=section&id=Leverage%20Ratios%2C%20Coverage%20Ratios%20and%20Public%20Debt%20Covenants) Leverage and coverage ratios show increased financial risk compared to the prior year, though the company remains in compliance with public debt covenants Financial Ratios | Ratio | 3/31/2024 | 3/31/2023 | | :--- | :--- | :--- | | **Leverage Ratios:** | | | | Net debt / total gross assets | 56.2% | 54.1% | | Secured debt / total assets | 19.4% | 1.2% | | **Coverage Ratios:** | | | | Adj. EBITDAre / interest expense | 2.6x | 3.2x | | Net debt / Adj. EBITDAre | 8.4x | 7.7x | - The company is in compliance with its public debt covenants, including Total unencumbered assets / unsecured debt at **178.1%** (minimum 150.0%) and Total debt / adjusted total assets at **49.6%** (maximum 60.0%)[27](index=27&type=chunk) [Capital Expenditures Summary and Significant Redevelopment Information](index=13&type=section&id=Capital%20Expenditures%20Summary%20and%20Significant%20Redevelopment%20Information) Total capital expenditures for Q1 2024 were $28.2 million, allocated to lease-related costs, building improvements, and redevelopment activities Capital Expenditures | Capital Expenditures (in thousands) | Q1 2024 | Q4 2023 | Q1 2023 | | :--- | :--- | :--- | :--- | | Lease related costs | $16,768 | $18,497 | $13,041 | | Building improvements | $4,474 | $10,877 | $4,582 | | Development, redevelopment | $6,911 | $19,371 | $49,471 | | **Total capital expenditures** | **$28,153** | **$48,745** | **$67,094** | - The significant redevelopment project at Elliott Ave West in Seattle, WA, is reported as substantially complete as of March 31, 2024[30](index=30&type=chunk)[31](index=31&type=chunk) [Property Dispositions](index=14&type=section&id=Property%20Dispositions) During the first quarter of 2024, OPI completed the disposition of one property located in Chicago, IL Property Sold | Date Sold | Location | Sq. Ft. (thousands) | Gross Sales Price (thousands) | Price Per Sq. Ft. | | :--- | :--- | :--- | :--- | :--- | | 3/21/2024 | Chicago, IL | 248 | $38,500 | $155.24 | [Investments in Unconsolidated Joint Ventures](index=15&type=section&id=Investments%20in%20Unconsolidated%20Joint%20Ventures) As of March 31, 2024, OPI holds investments in two unconsolidated joint ventures totaling $17.9 million, owning three properties with 59.3% weighted average occupancy Joint Venture Investments | Joint Venture | OPI Ownership | OPI Investment (thousands) | Location | Occupancy | Remaining Lease Term | | :--- | :--- | :--- | :--- | :--- | :--- | | Prosperity Metro Plaza | 51% | $17,898 | Fairfax, VA | 68.0% | 3.5 years | | 1750 H Street, NW | 50% | - | Washington, D.C. | 35.0% | 9.2 years | | **Total / Weighted Avg.** | | **$17,898** | | **59.3%** | **4.7 years** | [Portfolio Information](index=16&type=section&id=PORTFOLIO%20INFORMATION) This section details the company's property portfolio, including occupancy, leasing activity, and tenant characteristics [Summary Same Property Results](index=17&type=section&id=Summary%20Same%20Property%20Results) OPI's same-property portfolio experienced a decline in performance in Q1 2024 compared to Q1 2023, with occupancy dropping to 88.2% Same Property Performance | Same Property Results | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Percent leased | 88.2% | 94.2% | N/A | | Same Property NOI (in thousands) | $73,319 | $81,658 | (10.2%) | | Same Property Cash Basis NOI (in thousands) | $67,852 | $77,102 | (12.0%) | | Same Property NOI % margin | 60.8% | 64.0% | N/A | [Occupancy and Leasing Summary](index=18&type=section&id=Occupancy%20and%20Leasing%20Summary) In Q1 2024, OPI executed 488,000 square feet of total leasing, resulting in a 10.2% increase in GAAP rent for the same space, despite an overall portfolio occupancy decline Leasing Activity | Leasing Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Total Leasing Activity (sq. ft.) | 488,000 | 203,000 | | % Change in GAAP Rent (Total) | 10.2% | (18.5%) | | Weighted Avg. Lease Term (Total) | 9.3 years | 6.8 years | | Percentage Leased (end of period) | 85.6% | 90.5% | [Tenant Diversity and Credit Characteristics](index=19&type=section&id=Tenant%20Diversity%20and%20Credit%20Characteristics) OPI's portfolio relies heavily on government tenants, comprising 27.6% of total annualized rental income, with diversification across other industries - Government tenants are the largest source of rental income: - U.S. Government: **20.2%** - Other Government: **7.4%**[45](index=45&type=chunk) - The portfolio is diversified across several other industries, including Financials (**16.2%**), Technology & Communications (**15.5%**), and Legal & Other Professional Services (**13.7%**)[45](index=45&type=chunk) [Tenants Representing 1% or More of Total Annualized Rental Income](index=20&type=section&id=Tenants%20Representing%201%25%20or%20More%20of%20Total%20Annualized%20Rental%20Income) The U.S. Government is the largest tenant, occupying 20.3% of leased square footage, with the top 20 tenants collectively occupying 55.1% of total leased space Top Tenants by Leased Square Footage | Rank | Tenant | Credit Rating | % of Leased Sq. Ft. | | :--- | :--- | :--- | :--- | | 1 | U.S. Government | Investment Grade | 20.3% | | 2 | Alphabet Inc. (Google) | Investment Grade | 2.2% | | 3 | Shook, Hardy & Bacon L.L.P. | Not Rated | 3.4% | | 4 | IG Investments Holdings LLC | Not Rated | 2.0% | | 5 | Bank of America Corporation | Investment Grade | 3.3% | [Lease Expiration Schedule](index=21&type=section&id=Lease%20Expiration%20Schedule) The lease expiration schedule indicates near-term rollover risk, with 13.1% of leased square feet expiring in the remainder of 2024 and 10.8% in 2025 Lease Expirations | Year of Expiration | % of Total Leased Square Feet | % of Total Annualized Rental Income | | :--- | :--- | :--- | | 2024 | 13.1% | 13.0% | | 2025 | 10.8% | 8.6% | | 2026 | 8.3% | 8.1% | | 2027 | 11.9% | 10.7% | | 2028 | 3.8% | 6.2% | - The weighted average remaining lease term for the portfolio is **6.6 years** based on annualized rental income[48](index=48&type=chunk)[51](index=51&type=chunk) [Appendix](index=22&type=section&id=APPENDIX) This section includes company background, governance details, and reconciliations of non-GAAP financial measures [Company Profile and Research Coverage](index=23&type=section&id=Company%20Profile%20and%20Research%20Coverage) This section provides a brief company profile, noting OPI is managed by The RMR Group, and lists its equity research and credit rating coverage - OPI is managed by The RMR Group (Nasdaq: RMR), which had over **$41 billion** of real estate assets under management as of March 31, 2024[54](index=54&type=chunk) - The company's credit is rated by Moody's (**Caa2/Caa1**) and S&P (**B/B-**)[56](index=56&type=chunk) [Governance Information](index=24&type=section&id=Governance%20Information) This page lists the members of OPI's Board of Trustees and its executive officers, including key leadership figures - Key leadership includes Adam D. Portnoy (Chair of the Board & Managing Trustee), Yael Duffy (President and Chief Operating Officer), and Brian E. Donley (Chief Financial Officer and Treasurer)[58](index=58&type=chunk) [Calculation and Reconciliation of NOI and Cash Basis NOI](index=25&type=section&id=Calculation%20and%20Reconciliation%20of%20NOI%20and%20Cash%20Basis%20NOI) This section provides a detailed reconciliation of Net Loss to Net Operating Income (NOI) and Cash Basis NOI for the last five quarters NOI and Cash Basis NOI Reconciliation | Reconciliation (in thousands) | Q1 2024 | Q4 2023 | Q1 2023 | | :--- | :--- | :--- | :--- | | Net loss | $(5,184) | $(37,151) | $(446) | | ... adjustments ... | | | | | **NOI** | **$88,248** | **$80,871** | **$83,772** | | ... non-cash adjustments ... | | | | | **Cash Basis NOI** | **$68,270** | **$70,066** | **$79,300** | [Reconciliation and Calculation of Same Property NOI and Same Property Cash Basis NOI](index=26&type=section&id=Reconciliation%20and%20Calculation%20of%20Same%20Property%20NOI%20and%20Same%20Property%20Cash%20Basis%20NOI) This table reconciles the total portfolio NOI to the Same Property NOI and Same Property Cash Basis NOI for Q1 2024 and Q1 2023 Same Property NOI Reconciliation | Reconciliation (in thousands) | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | NOI | $88,248 | $83,772 | | Less: NOI of properties not in same property | $(14,929) | $(2,114) | | **Same Property NOI** | **$73,319** | **$81,658** | | ... non-cash adjustments ... | | | | | **Same Property Cash Basis NOI** | **$67,852** | **$77,102** | [Operating Metrics by Collateral Pool](index=27&type=section&id=Operating%20Metrics%20by%20Collateral%20Pool) This section breaks down key operating metrics by the type of collateral securing the company's debt, showing high occupancy for secured properties Operating Metrics by Collateral Pool | Collateral Pool | Number of Properties | Sq. Ft. (thousands) | Occupancy | Weighted Avg. Lease Term | | :--- | :--- | :--- | :--- | :--- | | Subtotal Secured | 43 | 7,063 | 98.8% | 8.9 years | | Unsecured Properties | 108 | 13,230 | 78.6% | 4.7 years | | **Total / Weighted Avg.** | **151** | **20,293** | **85.6%** | **6.6 years** | [Calculation of EBITDA, EBITDAre and Adjusted EBITDAre](index=28&type=section&id=Calculation%20of%20EBITDA%2C%20EBITDAre%20and%20Adjusted%20EBITDAre) This table details the calculation of EBITDA, EBITDAre, and Adjusted EBITDAre, starting from Net Loss for the past five quarters EBITDA, EBITDAre and Adjusted EBITDAre Calculation | Calculation (in thousands) | Q1 2024 | Q4 2023 | Q1 2023 | | :--- | :--- | :--- | :--- | | Net loss | $(5,184) | $(37,151) | $(446) | | ... adjustments ... | | | | | **EBITDA** | **$80,689** | **$46,615** | **$76,507** | | ... adjustments ... | | | | | **EBITDAre** | **$83,303** | **$74,545** | **$74,793** | | ... adjustments ... | | | | | **Adjusted EBITDAre** | **$73,799** | **$76,216** | **$78,487** | [Calculation of FFO, Normalized FFO and CAD](index=29&type=section&id=Calculation%20of%20FFO%2C%20Normalized%20FFO%20and%20CAD) This section provides a detailed reconciliation from Net Loss to key REIT performance metrics: FFO, Normalized FFO, and CAD FFO, Normalized FFO and CAD Calculation | Calculation (in thousands) | Q1 2024 | Q4 2023 | Q1 2023 | | :--- | :--- | :--- | :--- | | Net loss | $(5,184) | $(37,151) | $(446) | | ... adjustments ... | | | | | **FFO** | **$48,183** | **$44,590** | **$49,528** | | ... adjustments ... | | | | | **Normalized FFO** | **$38,317** | **$45,872** | **$52,746** | | ... adjustments ... | | | | | **CAD** | **$22,340** | **$8,560** | **$31,178** | Per Share Amounts | Per Share Amounts | Q1 2024 | Q4 2023 | Q1 2023 | | :--- | :--- | :--- | :--- | | FFO | $0.99 | $0.92 | $1.02 | | Normalized FFO | $0.79 | $0.95 | $1.09 | | CAD | $0.46 | $0.18 | $0.65 | [Non-GAAP Financial Measures and Certain Definitions](index=30&type=section&id=Non-GAAP%20Financial%20Measures%20and%20Certain%20Definitions) This section defines the non-GAAP financial measures used throughout the report, explaining their calculation and utility for investors - Provides definitions for non-GAAP measures including NOI, Cash Basis NOI, EBITDA, EBITDAre, Adjusted EBITDAre, FFO, Normalized FFO, and CAD, explaining why management considers them appropriate supplemental measures of operating performance for a REIT[71](index=71&type=chunk)[72](index=72&type=chunk)[73](index=73&type=chunk) - Defines other key operational and financial terms used in the report, such as 'Same properties', 'Investment grade tenants', 'Annualized rental income', and 'Lease related costs'[78](index=78&type=chunk)[79](index=79&type=chunk)[81](index=81&type=chunk)

REIT Qualification and Taxation - The company must distribute at least 90% of its annual REIT taxable income to qualify for taxation as a REIT, limiting its ability to retain cash for operations and investments[39] - The company has elected to be taxed as a REIT under Sections 856 through 860 of the IRC, effective from the 2009 taxable year and expects to continue this status[67] - As a REIT, the company generally is not subject to federal income tax on net income distributed as dividends to shareholders[68] - The company must distribute at least 85% of its REIT ordinary income and 95% of its REIT capital gain net income to avoid a 4% nondeductible excise tax on excess distributions[75] - If the company fails to qualify as a REIT in any year, it will be subject to federal income tax as a C corporation, which could significantly reduce cash available for distribution to shareholders[71] - The company has been organized and operated in a manner that qualifies it for taxation as a REIT for the 2009 through 2023 taxable years[70] - The company is subject to various qualification tests under the IRC, and failure to meet these tests could result in significant tax liabilities[71] - The company’s dividends are not generally entitled to preferential tax rates on qualified dividend income, but some may be treated as capital gain dividends[68] - The company’s current or accumulated earnings and profits are allocated first to distributions made on preferred shares, of which there are none outstanding[68] - The company’s counsel believes it will continue to meet the requirements for qualification and taxation as a REIT based on current operations and investments[70] - The company may be subject to tax on undistributed REIT taxable income and certain types of nonqualifying income[72] - The company believes it has met all REIT qualification conditions during the requisite periods and will continue to do so in the future[77] - At least 75% of the company's gross income must be derived from real property investments to maintain REIT status[88] - The company must satisfy two gross income tests annually, with at least 95% of gross income consisting of qualifying income[88] - The company has restrictions in place to ensure compliance with REIT qualification requirements, including limitations on share ownership[77] - The company may invest in subsidiary REITs, which must also meet REIT qualification requirements to avoid adverse tax consequences[82] - The company is permitted to own securities of Taxable REIT Subsidiaries (TRSs), provided that no more than 20% of total asset value is comprised of TRS investments[84] - The company believes that all or substantially all of its rents and related service charges qualify as "rents from real property" under the IRC[89] - The company has made protective TRS elections to avoid cascading REIT failures from subsidiary non-compliance[83] - The company is subject to excise taxes if payments between TRSs and the affiliated REIT exceed arm's length amounts[87] - The company believes it has satisfied the 75% and 95% gross income tests and will continue to do so, ensuring compliance with federal income tax requirements[98] - The company maintains that any gains recognized from asset dispositions will generally qualify as income satisfying the 75% and 95% gross income tests, avoiding dealer gains or the 100% penalty tax[94] - At least 75% of the value of the company's total assets must consist of real estate assets, including interests in real property and cash items[100] - The company is required to make annual distributions equal to at least 90% of its real estate investment trust taxable income to maintain its REIT status[103] - If the company fails to meet distribution requirements, it may incur a 4% nondeductible excise tax on undistributed amounts[105] - The company has made an election to be treated as a real property trade or business, which exempts it from certain interest deduction limitations[104] - The company can rectify a failure to pay sufficient dividends by issuing deficiency dividends in later years, which may be treated as additional distributions[108] - The company must distribute all C corporation earnings and profits inherited from acquired corporations to preserve its REIT qualification[109] - The company is subject to a 100% penalty tax on any dealer gains from property sales unless structured through a TRS[93] - The company must satisfy asset percentage tests at the close of each calendar quarter to maintain its REIT status[99] - Following a corporate acquisition, the company must generally distribute all inherited C corporation earnings and profits by the end of the taxable year to maintain REIT qualification[113] Financial Performance and Debt - As of December 31, 2023, the total outstanding fixed rate debt amounted to $2,389,320, with an annual interest expense of $98,420[349] - The company has issued senior unsecured notes totaling $1,962,000, with interest rates ranging from 2.400% to 6.375%[349] - A hypothetical one percentage point increase in interest rates would increase the annual interest cost by approximately $23,893[351] - The company has noncontrolling ownership interests of 51% and 50% in two joint ventures, with total mortgage notes of $82,000 and annual interest expense of $3,226[354] - The company entered into a new credit agreement in January 2024 for a $325,000 secured revolving credit facility and a $100,000 secured term loan[357] - A one percentage point increase in interest rates would raise the annual floating rate interest expense from $18,245 to $20,295, impacting earnings per share from $0.38 to $0.42[358] - As of December 31, 2023, the company's annual total interest expense at an 8.9% interest rate on outstanding debt of $425,000 is $37,825[360] - A one percentage point increase in interest rates would raise the interest rate to 9.9%, resulting in an annual interest expense of $42,075[360] - The per share impact of the current interest rate is $0.78, which would increase to $0.87 with a one percentage point rise in interest rates[360] - The company has exposure to fluctuations in floating interest rates, which may increase or decrease based on the outstanding amounts under its revolving credit facility and term loan[362] - There are no current plans to enter into hedge arrangements to mitigate interest rate exposure, but the company may consider this in the future[362] Sustainability and Energy Efficiency - As of December 31, 2023, the company had 49 properties with LEED designations, totaling 7.2 million rentable square feet, representing 32.2% of total properties[53] - The company achieved approximately $1.7 million in annual savings through its real-time energy monitoring program, which covers 72% of its annual electricity spend[51] - The company was recognized as an Energy Star Partner of the Year for the sixth consecutive year and a Sustained Excellence honoree for the fourth consecutive year as of March 2023[52] - The company aims for a 50% reduction in Scope 1 and 2 emissions by 2030 from a 2019 baseline, with a long-term goal of net zero emissions by 2050[50] Market Competition and Management - The company operates in a highly competitive market, facing competition from both public and private REITs, as well as financial institutions and private companies[56] - The company has no employees and relies on RMR for management and operational services, which employs approximately 1,100 full-time employees[44] Lease Agreements and Government Relations - The company has leases with government entities, including the U.S. government, which may allow tenants to terminate leases early with little or no liability[57] Legislative and Tax Changes - Legislative changes may affect the company's tax treatment and that of its shareholders, impacting REIT qualification[148] - Information reporting and backup withholding may apply to distributions or proceeds paid to shareholders, regardless of tax treaty benefits[145]

Financial Data and Key Metrics Changes - Normalized FFO for Q3 2023 was $1.02 per share, exceeding the high end of guidance by $0.01, compared to $1.11 per share in Q2 2023, reflecting a decrease primarily due to higher interest expenses and lower NOI [5][21] - Same-property cash basis NOI decreased by 9.2% year-over-year, aligning with guidance of a decline between 8% to 10% [49] - The company expects normalized FFO for Q4 2023 to be between $0.96 and $0.98 per share, driven by increased interest expenses and operating costs [22] Business Line Data and Key Metrics Changes - The company executed 586,000 square feet of new and renewal leasing, with an average lease term of 7.4 years and a rent roll-down of 2.7% [5][7] - New leasing accounted for 104,000 square feet with a roll-up of 1.9%, increasing total activity for the year to over 390,000 square feet [14] - Concessions and capital commitments declined year-over-year to $5.89 per square foot, per lease year [14] Market Data and Key Metrics Changes - Portfolio occupancy was approximately 89.9% at quarter end, a decrease of 70 basis points from the previous quarter, largely due to a known downsizing of a primary tenant [5] - The leasing environment remains challenging with elevated vacancy and sublease levels, although there are encouraging signs of a return to office mandates across industries [6] Company Strategy and Development Direction - The company is focused on upcoming lease expirations and existing vacancies, as well as managing maturing credit facilities and debt maturities [40] - An active leasing pipeline of close to 2.8 million square feet is in place, with 25% associated with 2024 renewals [12] - The company is evaluating properties for potential sales and is considering a range of financing options to manage debt maturities [53] Management's Comments on Operating Environment and Future Outlook - Management noted that the investment sales market has been slow due to rising interest rates, but they are optimistic about properties with strong fundamentals [13] - The company anticipates continued pressure on tenant retention as they evaluate their space needs, with 12% of annualized rental income represented by lease expirations in 2024 [18] - Management expressed confidence in the ongoing construction of the Life Science Tree Development in Seattle, which is 28% pre-leased [19] Other Important Information - The company sold one property for $10.5 million in Q3, bringing total asset sales to $23.6 million for the year [5][26] - The company declared a regular quarterly distribution of $0.25 per share, representing a trailing four-quarter CAD payout ratio of 65% [49] Q&A Session Summary Question: Is there anything particular going on with asset sales? - Management confirmed a one-time item in Q3 related to a successful multiyear tax appeal, which will not recur in Q4 [28] Question: Are you actively marketing assets for sale? - Management indicated they are evaluating the market and expect to be more active in Q4 with additional assets [29][57] Question: What is the strategy for addressing upcoming debt maturities? - Management is exploring various options, including asset sales and secured financing, to manage the $350 million of senior notes due in May 2024 [31][53] Question: Can you provide details on the remaining capital spend for development projects? - Management stated that $25 million to $30 million will be spent by the end of Q1 2024, primarily for construction capital and tenant improvement allowances [74]

(1) Includes capitalized interest and other operating costs of $13,207 since July 1, 2022. (2) Estimated project costs include future, estimated lease related costs associated with achieving stabilized occupancy that will be incurred subsequent to the estimated completion date. (3) Estimated completion date can depend on various factors, including when lease agreements are signed with tenants. Therefore, the actual completion dates may vary. (4) Physical improvements made at this project were substantially ...